UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------- to ----------
Commission file number 0-10786
INSITUFORM TECHNOLOGIES, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3032158
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1770 Kirby Parkway, Suite 300
Memphis, Tennessee 38138
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 901-759-7473
------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
------------------------------------
(Title of class)
Indicate by a 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 as 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 [ ]
<PAGE>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
state-ments incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held
by non-affiliates of the registrant. The aggregate market value
shall be computed by reference to the price at which the stock was
sold, as of a specified date within 60 days prior to the date of
filing.
Aggregate market value as of March 15, 1996.....$202,915,060
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of the latest practicable
date.
Class A Common Stock, $.01 par value,
as of March 15, 1996................. 27,152,171 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are
incorporated by reference herein, and the part of the Form 10-K
into which the document is incorporated: Proxy Statement to be
filed with respect to the 1996 Annual Meeting of Stockholders-Part
III.
<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Insituform Technologies, Inc. (the "Company") is a worldwide
provider of proprietary trenchless technologies for the
rehabilitation and improvement of sewer, water, gas and industrial
pipes. The Company's primary technology is the Insituform(R)
Process (the "Insituform Process"), a "cured-in-place,"
non-disruptive pipeline rehabilitation process that, during the
Company's most recent fiscal year, contributed approximately 71% of
the Company's revenues. The Insituform Process is based on a custom
manufactured polyester-fiber tubing, known as the Insitutube(R)
(the "Insitutube"), which forms a seamless, jointless and leakproof
"pipe within a pipe." The Company believes the repaired pipe, the
Insitupipe(R) (the "Insitupipe"), is stronger and has equal or
greater flow capacity than the original pipe.
The Insituform Process has been used successfully for
approximately 24 years in the repair of sewers, tunnels and
pipelines throughout the world. The Company believes that the
Insituform Process offers many advantages over traditional "dig and
replace" methods of pipeline replacement. Such advantages include
installation without excavation, design and application
versatility, extension of the pipeline's useful life and speed of
installation. The Company believes that, under normal conditions,
sewer pipe repaired with the Insituform Process will generally have
a useful life in excess of 50 years.
In addition to the Insituform Process, the Company offers
certain other products in trenchless applications. The Company's
NuPipe(R) Process (the "NuPipe Process"), which utilizes a "fold
and formed" technology, is used primarily to repair smaller or less
damaged pipe and in situations where polyvinylchloride pipe is
preferred. The Company also exercises the exclusive rights in
substantially all of North America to the Paltem(R)-HL system and
certain other products (the "Ashimori Products"), which are in
various stages of development, under a license (the "Ashimori
License") from Ashimori Industry Co., Ltd. ("Ashimori"). The
Company's Tite Liner(R) Process (the "Tite Liner Process") and
other abrasion and corrosion protection technologies employ
diameter-reduction techniques tailored to meet the pressure pipe
rehabilitation needs of oil field, mining and industrial process
pipelines. Through its Affholder, Inc. subsidiary, the Company is
engaged in trenchless tunnelling used in the installation of new
underground services.
The Company's products are marketed to governmental and
industrial customers primarily in North America and Western Europe,
and have also been introduced in South America, Eastern Europe, the
Middle East, Australia and the Pacific Rim. In the industrial
market, the Company focuses its marketing efforts on companies in
<PAGE>
the pulp and paper, chemical, petrochemical, food and drug, and
nuclear and utility industries.
Historically, the Company's primary business was to license
other companies to market and provide Insituform installation
services using the Company's proprietary technology in return for
royalties and product sales revenue from materials manufactured by
the Company. As a result of its acquisitions, the Company has
further integrated its business to perform the entire process of
manufacture and installation using its trenchless processes. The
Company intends to continue pursuing this integration strategy in
its principal markets. In other areas, the Company will continue to
emphasize marketing its products through license or joint venture
arrangements. The Company provides design assistance, marketing,
research and technical support to all its licensees in an effort to
stimulate demand for its products and to ensure a high standard of
quality control throughout the process.
The Company was incorporated in Delaware in 1980 under the
name Insituform of North America, Inc., in order to act as the
exclusive licensee of the Insituform Process in most of the United
States of Insituform Group Limited ("IGL"), the then owner of the
worldwide rights to the Insituform Process. Contemporaneously with
the consummation in 1992 of the Company's acquisition of IGL (the
"IGL Acquisition"), the name of the Company was changed to
Insituform Technologies, Inc.
As described below under "IMA Merger," in October 1995
Insituform Mid-America, Inc. ("IMA") was merged with a subsidiary
of the Company as a result of which IMA became a wholly-owned
subsidiary of the Company (the "IMA Merger"). The IMA Merger and
the IGL Acquisition have each been accounted for as a pooling-of-
interests and, accordingly, the consolidated financial statements
included in response to "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K" for the periods prior to the
transactions, respectively, and (unless the context otherwise
requires) all other financial information included herein for such
periods include the combined historical results of the Company and,
respectively, IMA and IGL. The following acquisitions by the
Company, together with those of IMA, during the past five years
have been accounted for under the purchase method of accounting, so
that the results of the acquired companies are included in the
Company's historical results of operations from the consummation of
such transactions, respectively:
<TABLE>
<CAPTION>
Date Company Acquired Principal Business
<S> <C> <C>
November 1995 FormaPipe Division, cured-in-place pipe-
Waterflow Services Limited line rehabilitation,
United Kingdom
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
April 1995 Enviroq Corporation<F1> Insituform and NuPipe
(pipeline rehabilitation licensee, southeast
business, including U.S. territories
Insituform Southeast, Inc.)
February 1995 Insituform France S.A.<F2> Insituform licensee,
France
October 1994 Gelco Services, Inc. and Insituform and NuPipe
affiliated entities licensee, Pacific
Northwest territories
July 1993 Insituform Midwest, Inc. Insituform and NuPipe
licensee, midwestern
territories
July 1993 Naylor Industries, Inc. Insituform and NuPipe
(parent of Insituform licensee, Gulf coast
Gulf South, Inc.) territories
December 1992 H.T. Schneider, Inc. Insituform and NuPipe
(parent of Insituform of licensee, New England
New England, Inc.)
December 1992 Insituform Canada Limited<F3>Insituform and NuPipe
licensee, Canada<F4>
November 1992 Pipeline Rehabilitation Paltem licensee
Systems, Inc.
October 1991 United Pipeline Systems, Tite Liner installer,
Inc. (including stock Canada
of United Corrosion Cor-
poration, its parent)
April 1991 Insituform Southwest<F5> Insituform and NuPipe
licensee, south-
western U.S.
territories
March 1991 United Pipeline Systems Tite Liner installer,
USA, Inc. U.S.
___________________
<FN>
<F1> renamed IMA Merger Sub, Inc. ("Enviroq")
<F2> two-thirds of stock acquired
<F3> remaining 49% minority interest acquired
<F4> effective October 1995, Insituform Canada Limited divested its
open-
cut sewer and water pipeline construction and rehabilitation
operations
<F5> remaining two-thirds interest acquired
</TABLE>
As used in this Annual Report on Form 10-K, the term the
"Company" refers to the Company and, unless the context otherwise
requires, its direct and indirect subsidiaries. For certain
information concerning each of the Company's industry segments and
domestic and foreign operations, see Note 16 of the Notes to the
Company's Consolidated Financial Statements included in response to
<PAGE>
"Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K," which information is incorporated herein by reference.
IMA MERGER
On October 25, 1995 (the "Effective Time"), pursuant to the
provisions of an Agreement and Plan of Merger dated as of May 23,
1995 (the "IMA Merger Agreement") among the Company, ITI
Acquisition Corp., a wholly-owned subsidiary of the Company ("ITI
Sub"), and IMA, ITI Sub merged into and with IMA as a result of
which IMA became a wholly-owned subsidiary of the Company. IMA's
operations historically have entailed the application of various
trenchless and other technologies to solve problems requiring
rehabilitation, new construction and improvement of pipeline
systems, including sewers, industrial waste lines, slurry lines and
oil field and industrial process pipelines. IMA, together with its
subsidiaries, is licensed by the Company to provide the Insituform
technology in all or a portion of 22 states, Puerto Rico and the
U.S. Virgin Islands, and holds the Ashimori License and the
worldwide rights to the Tite Liner Process. Rehabilitation process
revenues, primarily derived by IMA from the Insituform Process as
a licensee of the Company, accounted for approximately 68% of IMA's
contract revenues during its last full fiscal year reported prior
to the Effective Time.
In accordance with the terms of the IMA Merger, holders of the
class A common stock, $.01 par value (the "IMA Class A Common
Stock"), of IMA became entitled to receive 1.15 shares of the class
A common stock, $.01 par value (the "ITI Common Stock"), of the
Company for each share of IMA Class A Common Stock held. Prior to
the consummation of the IMA Merger, each share of the class B
common stock, $.01 par value (the "IMA Class B Common Stock"), of
IMA was converted into one share of IMA Class A Common Stock in
accordance with its terms. At the Effective Time, in effectuation
of the foregoing terms, the Company became obligated to issue an
aggregate of approximately 12,450,896 shares of ITI Common Stock to
stockholders of IMA.
TECHNOLOGIES
Pipeline System Rehabilitation
The Insituform Process. The Insituform Process for the
rehabilitation of sewers, pipelines and other conduits utilizes a
tubing made of a polyester-fiber felt, the Insitutube, which is
constructed with a strong, smooth, watertight polyolefin coating on
the outside. The Insitutube is custom manufactured to the diameter,
length and other characteristics of the pipe, sewer or conduit to
be repaired.
A pipe to be repaired is first cleaned by removing tree roots
and other debris and a remote-controlled video camera is inserted
into the pipe to inspect it and in order to make a recording of the
location of the lateral connections for use in subsequent
<PAGE>
re-opening of the connections. If necessary, the section of pipe to
be rehabilitated is bypassed from the balance of the pipeline
system. Services to users in the affected section are usually not
disconnected but usage may be curtailed to prevent excess back-up
in the lateral connections.
In the case of a typical sewer pipe to be repaired by the
Insituform Process, access is gained through an existing manhole.
Prior to the installation, the Insitutube is saturated throughout
its length with a thermosetting liquid resin. In most cases, the
Insitutube is installed using pressure from a column of water
maintained inside an inversion tube, and the Insitutube is turned
inside out and advanced through the pipe to be repaired with the
resin-saturated surface held against the surface of the existing
pipe. The smooth-coated side of the Insitutube forms the new
interior surface of the pipe. After the Insitutube is fully
extended through the pipe to be repaired, the water inside the
Insitutube is heated to a prescribed temperature in order to cause
the thermosetting liquid resin to harden, or cure. Essentially, the
Insituform Process creates a "pipe within a pipe," the Insitupipe.
Each end of the Insitupipe is cut off at the manhole walls and the
flow is re-established.
During the installation of the Insitutube, smaller lateral
lines feeding into the existing pipe are temporarily blocked.
Lateral lines are side connecting pipes, typically between four and
six inches in diameter, which discharge flow from homes and
businesses into the main pipe undergoing repair. To complete the
installation, the Insitupipe must be cut, or routed out, at the
lateral junctions to re-establish the flow from these laterals. A
remote-controlled cutter, the Insitucutter(R), and a video camera
are inserted into the pipe and used to open the lateral lines into
the pipe. The Company's lateral rehabilitation service includes the
cleaning, inspection, evaluation and rehabilitation of laterals,
utilizing the Insituform Process.
The NuPipe Process. The NuPipe Process entails the manufacture
for the Company of a folded replacement pipe from a thermoplastic
material which is stored on a reel in a reduced shape. The pipe is
heated at the installation site in order to make it flexible enough
to be inserted into an existing conduit, pulled into place and then
sequentially expanded to match the existing conduit by internal
heat and pressure creating a tight fit against the conduit being
repaired. In this position, the now expanded NuPipe is subjected to
internal pressure, and cooled to create a new pipe for permanent
installation, with lateral connections then cut from within.
The NuPipe Process requires little or no excavation for
installation. In addition, the NuPipe Process does not materially
reduce the diameter of the existing pipe, eliminates most of the
annular space between the new rounded pipe and the original pipe,
and reduces the need for grouting the main pipe. Because the pipe
is tight-fitting and jointless, flow capacity in most cases is at
least equal to that of the existing pipe, or is improved. The
<PAGE>
NuPipe Process involves manufacture of pipe in continuous lengths
of standard pipe diameters, rather than custom manufacture for
specific applications, as is the case with the Insituform Process,
making it suited for small-diameter pipes.
Ashimori Products. The Paltem-HL system, which the Company has
the exclusive license from Ashimori to offer in substantially all
of North America, is a process for rehabilitating pressure pipes.
The system utilizes a woven polyester hose with an elastomer
coating called a PAL-Liner(TM), which is custom-manufactured to the
dimensions of the pipe to be rehabilitated. Prior to installation,
the PAL-Liner hose is coated with a pre-determined amount of epoxy
resin. Compressed air or other suitable means is then used to
invert and propel the PAL-Liner through the pipe from an access
pit. After the PAL-Liner reaches a receiving pit, the resin hardens
and the PAL-Liner forms a smooth, pressure resistant lining on the
inside surface of the pipe.
In addition to the Paltem-HL system, the Ashimori License
provides for the rights to utilize, manufacture and sell the
following Ashimori Products, which are in various stages of
development: (i) the Paltem-Apollo(TM) system, a process for point
repair by pulling a specially designed robot together with Apollo-
Liner into the pipe, inflating and light-curing the liner to form
a new rigid pipe at the spot to be repaired, including a system for
forming a new pipe at the point of connection of the lateral to the
main pipe and reconnecting the lateral; (ii) the Paltem-Frepp(TM)
system, a process for restoration of pipes by pulling a partially
folded Frepp-pipe into the pipe and reforming it to form a new pipe
within the pipe; (iii) Paltem-March(TM) products, which are non-
woven fiber tubes with a seamless coating used in pipeline
rehabilitation; and (iv) the Paltem-SZ(TM) system, a process for
restoration of sewer pipes by pulling SZ-Liner into the pipe,
inflating, and forming a new rigid pipe within a pipe utilizing
heat-curing resin applied to the liner.
Corrosion and Abrasion Protection
The Company's Tite Liner Process is a method of lining
pipelines with a corrosion and abrasion resistant pipe in order to
extend system life. Oil field, natural gas distribution lines and
certain industrial process systems typically utilize steel pipe,
which is subjected to highly corrosive fluids and gases, while
slurry lines used in mining operations are subjected to highly
abrasive flows. The Tite Liner Process utilizes a polyethylene
liner which is diameter-reduced in a roller box and then pulled
through a steel pipe. When the pulling tension is released, the
liner expands to create a tight fit against the host pipe's inner
wall. After installation, the ends of the polyethylene pipe are
finished by formation of a flange.
<PAGE>
<PAGE>
In view of the start-up nature of operations conducted by the
Company under the UltraPipe(R) name, and as a result of the IMA
Merger, the Company has consolidated such operations with IMA's
larger corrosion and abrasion protection activities. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations" for information concerning the Company's
determination to divest operations utilizing the UltraPipe
technologies for certain offsite applications.
Tunnelling
Tunnelling is a trenchless, subterranean construction process
that generally is utilized for the construction of pipeline
systems. In the Company's tunnelling operations, the crew first
digs a work shaft and then constructs the tunnel, installs pipe in
the new tunnel and backfills the newly-constructed pipeline with
grout. The Company utilizes seven tunnelling machines to construct
two to fourteen-foot diameter tunnels into which pipes are
inserted. Four of the Company's large diameter tunnelling machines
are state-of-the-art, earth-pressure-balanced tunnelling machines,
designed to reduce costs and risks of subsidence, and improve
competitiveness, by virtue of the ability to tunnel without de-
watering the surrounding soils, and two other machines operated by
the Company are capable of mining in hard rock.
DIRECT INSTALLATION AND OTHER CONSTRUCTION ACTIVITIES
The Company's direct installation operations utilizing the
Insituform Process and its other construction activities accounted
for approximately 91% of the Company's consolidated revenues in
1995. Such operations are conducted in North America principally
through subsidiaries which hold the Insituform Process and NuPipe
Process licenses for 41 of the 50 states (and a portion of another
state), in addition to Puerto Rico and the U.S. Virgin Islands, and
all of Canada, and the rights in substantially all of North America
to the Paltem system and certain other products under a license
from Ashimori. Outside of North America, the Company conducts
Insituform Process or NuPipe Process direct installation operations
through its subsidiaries in the United Kingdom and France.
The worldwide rights to the Tite Liner Process are applied by
United Pipeline Systems USA, Inc. and, through its United Pipeline
division, Insituform Canada Limited ("Insituform Canada"), both
subsidiaries of the Company. During 1994, Tite Liner operations
commenced in Chile through a newly-organized subsidiary, United
Sistema de Tuberias Ltda. ("United Chile"). Following consummation
of the IMA Merger, and in view of the start-up nature of operations
conducted by the Company under the UltraPipe name, the Company has
consolidated such operations with IMA's larger corrosion and
abrasion protection activities.
<PAGE>
<PAGE>
Direct trenchless installation operations are organized into
field installation and construction crews. Each Insituform and
NuPipe field unit is typically composed of crews responsible for
cleaning and preparation, installation, and video/cutter
operations, respectively, and is equipped with a high-pressure-
water cleaning truck, a boiler truck, a refrigeration truck, a
television van with cutting apparatus, other support trucks and
vans, and pumping and safety equipment. Each Paltem crew is
typically equipped with a turning truck, resin mixers, pulling
machine and other supporting trucks and equipment. Installation
crews engaged in the Company's corrosion and abrasion protection
work are typically equipped with a wire line unit, roller boxes,
fusion machines, a spool trailer, pickup trucks and other
supporting trucks and equipment.
The Company's Affholder, Inc. subsidiary offers a broad range
of traditional pipe rehabilitation and construction services,
including tunnelling, point repairs, shaft work and pipe cleaning.
Effective October 31, 1995, Insituform Canada sold the assets
utilized in its multi-service, open-cut sewer and water pipeline
construction and rehabilitation operations to certain members of
its management, after transferring its micro-tunnelling equipment
to Affholder, Inc. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" below.
The direct installation business of the Company is
project-oriented, and contracts may be obtained through competitive
bidding, usually requiring performance at a fixed price. The
profitability of these operations to the Company depends upon the
ability to estimate costs accurately, and such estimates may prove
to be inaccurate as a result of unforeseen conditions or events. A
substantial proportion of the work on any given project may be
subcontracted out to third parties by the Company.
Proper trenchless installation requires certain expertise that
is acquired on the job and through training, and, if an
installation is improperly performed, the Company may be required
to repair the defect, which may involve excavation. The Company,
accordingly, has incurred significant costs in establishing new
field installation crews, in training new operations personnel and
in equipping its direct installation staff. The Company generally
invoices installation revenues on a percentage-of-completion basis.
Typically, collection from governmental agencies is made within 60
to 90 days of billing.
The Company is required to carry insurance and bonding in
connection with certain direct installation projects, and,
accordingly, maintains comprehensive insurance policies, including
workers' compensation, general and automobile liability, and
property coverage. The Company believes that it presently maintains
adequate insurance coverage for all direct installation activities.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" for information concerning
contingencies related to insurance maintained in connection with
<PAGE>
operations of Naylor Industries, Inc. ("Naylor") that were divested
before the acquisition of Naylor by the Company. The Company has
also arranged bonding capacity for bid, performance and payment
bonds. Typically, the cost of a performance bond is approximately
1% of the contract value. The Company is required to indemnify
surety companies for any payments the sureties are required to make
under the bonds.
The Company's principal direct installation and other
construction activities are conducted by direct or indirect wholly-
owned subsidiaries, except for the following subsidiaries that are
less than wholly-owned:
<TABLE>
<CAPTION>
Subsidiary Processes Territory Interest
---------- --------- --------- --------
<S> <C> <C> <C>
United Sistema de Tite Liner Chile<F1> 60% of
Tuberias Ltda. stock<F2>
Insituform France Insituform France 66-2/3% of
S.A. stock<F3>
Midsouth Partners Insituform Tennessee, 57-1/2%
NuPipe portions of general
Kentucky and partnership
Mississippi interest<F4>
_______________________
<FN>
<F1> Jurisdiction of incorporation.
<F2> The remaining interest is held by Inversiones Bellavista S.A.
("IBS"). The
Company's arrangements provide for IBS' option to purchase an
additional
10% of the equity of United Chile upon terms to be defined.
<F3> The remaining interest is held by a subsidiary of Lyonnaise
des Eaux S.A.
<F4> The Company holds a 15% partnership interest through
Insituform
California, Inc. ("ICI"), a wholly-owned subsidiary, and, as
a result of
the IMA Merger, an additional 42.5% interest through a
wholly-owned
subsidiary of Enviroq. The remaining interest is held by a
subsidiary of
Insituform East, Incorporated ("Insituform East"), an
independent
licensee.
</TABLE>
The management and conduct of the business of Midsouth
Partners is vested in a management committee comprised of one
representative of ICI, three representatives of the Insituform East
subsidiary, and three representatives of the Enviroq subsidiary.
Partnership interests in Midsouth Partners may not be transferred
by the subsidiaries holding such interests, nor may there be a
change in control of any partner, without the approval of all
partners. See "Item 3. Legal Proceedings" for a description of
arbitration proceedings initiated by Insituform East, claiming that
an event of default occurred under the Midsouth Partners
partnership agreement as a result of both IMA's acquisition of the
pipeline rehabilitation business of Enviroq (the "Enviroq
<PAGE>
Acquisition") and the IMA Merger. Insituform East has also
purported to exercise its alleged rights as a non-defaulting
partner to name a majority of the members of the management
committee, an action to which the Company has objected.
MANUFACTURING AND PRODUCT SALES
The Company's manufacturing and product sales operations
accounted for approximately 7% of the Company's consolidated
revenues in 1995. Product sales to licensees acquired by the
Company are, under the purchase method of accounting, eliminated
from the Company's consolidated revenues subsequent to the
respective acquisitions of such licensees by the Company. In
addition, as a result of accounting for the IMA Merger as a
pooling-of-interests, product sales to IMA are eliminated for all
periods including those prior to such transaction.
Although the Company's Insituform license agreements typically
contain no requirement that licensees purchase equipment or
materials from the Company, the Company sells Insitutubes and
related products utilized in the Insituform Process pursuant to
supply contracts with its domestic Insituform licensees. Under the
current term of the Company's domestic supply arrangements, the
licensee purchases from the Company a specified percentage (60% or
90%) of its Insitutube requirements, unless excused in certain
circumstances, subject to minimum annual purchases by the buyer and
maximum required sales by the Company. Prices under such contracts
are fixed, subject to limited annual increases by the Company. Such
contracts are renewable on an annual basis.
In Europe, Insituform Linings Plc ("Linings"), a joint venture
between the Company and five licensees, manufactures and sells
Insitutube linings. The Company owns 51% of the equity of Linings,
but does not control a majority of its board. In 1992, the Company
inaugurated its Insitutube manufacturing facility in Matsubuse,
Japan.
The Insitutube is manufactured by the Company in varying
lengths, diameters and thicknesses to accommodate the requirements
of each specific installation. The average lead time necessary to
produce the custom manufactured Insitutube varies from one to two
weeks depending principally on the length, thickness and diameter
required. The Company maintains an inventory of the plain and
coated materials used in the manufacture of Insitutubes and a small
inventory of the most common diameters and thicknesses of
Insitutubes.
While raw materials used in the Company's Insituform products
are typically available from multiple sources, the Company's
historical practice has been to purchase the Insitutube materials
from a limited number of suppliers. The Company maintains its own
felt manufacturing facility contiguous to its Insitutube
manufacturing facility in Batesville, Mississippi. The Company
believes that resins are readily available from a number of major
<PAGE>
corporations and, as described under "Investments" below, has
terminated its joint venture arrangements with respect to resins.
The Company believes that the sources of supply in connection with
its Insituform operations are adequate for its needs and that it is
not substantially dependent upon any one supplier.
In connection with the introduction of the NuPipe Process,
each domestic licensee has entered into supply agreements pursuant
to which the licensee is required to purchase from the Company all
of its requirements for the thermoplastic pipe utilized in the
application of the NuPipe Process. Prices under each supply
agreement are subject to limited increases by the Company. Each
supply agreement is automatically renewed for successive periods of
two years each, unless the licensee exercises a non-renewal option,
which is available if the Company's quality and prices are not
competitive with commercially practicable alternative sources. The
Company has not received notice of exercise of any such non-renewal
option.
The Company's supply agreement with an unaffiliated party,
under which the Company was entitled to purchase pipe to satisfy
its licensees' NuPipe requirements, expired in June 1995, and the
Company has been engaged in discussions with such supplier with
respect to the extension of the arrangement through the end of
1998, subject to automatic renewal unless one party terminates upon
at least twelve months' prior notice and to minimum purchases by
the Company. The Company believes that alternative sources of
supply for its pipe requirements in connection with the NuPipe
Process are available. If the Company were unable to obtain its
NuPipe requirements under its existing third party arrangements,
the Company might be adversely affected until arrangements with
alternative sources are formulated.
The Company currently purchases the PAL-Liner it uses from
Ashimori. The Company expects that it will perform the coating
function necessary in manufacturing PAL-Liner for substantially all
of its requirements at some future time. Longer term, the Company
expects to weave the lining material to further vertically
integrate its PAL-Liner operations. See "Item 2. Properties" for
information concerning the Company's consideration of additional
manufacturing capacity in connection with the expansion of its
activities with respect to commercialization of the Ashimori
Products.
The Company manufactures certain equipment used in its
corrosion and abrasion protection operations, and, in connection
with any licenses to unaffiliated parties, will sell such equipment
to its licensees. In December 1993, the Company determined to
discontinue certain off-site rehabilitation operations from its
plant in Dallas, Texas. The Company subsequently determined to
abandon its efforts to find a purchaser for such division and to
shut down the Dallas facility. See Note 15 of the Notes to the
Company's Consolidated Financial Statements included in response to
<PAGE>
"Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K."
LICENSING OPERATIONS
The Company grants licenses for the Insituform Process,
covering exclusive and non-exclusive territories, to licensees who
provide sewer and pipeline repair and rehabilitation services to
governmental, industrial and commercial users throughout their
respective licensed territories. The licenses generally grant to
the licensee the right to utilize the know-how and practice the
invention of the patent rights (where they exist) relating to the
Insituform Process, to use the Company's copyrights and to use the
trademark "Insituform."
During 1995, the Company entered into a new Insituform license
agreement covering New Zealand. At present, the Insituform Process
is commercialized under license by an aggregate of 33 unaffiliated
licensees and sublicensees. From time to time, in those territories
which do not justify the granting of a license, the Company also
appoints agents which promote the Insituform Process and secure
contracts to be performed by the Company or its licensees. During
the year ended December 31, 1995, license fees and royalty income
from the Company's Insituform licensees represented approximately
$6.4 million, or approximately 2% of consolidated revenues.
Royalties from licensees acquired by the Company are eliminated
from the Company's consolidated revenues subsequent to the
respective acquisitions of such licensees by the Company. In
addition, as a result of accounting for the IMA Merger as a
pooling-of-interests, royalties from IMA are eliminated for all
periods including those prior to such transaction.
Effective in December 1990, NuPipe, Inc., a wholly-owned
subsidiary of the Company, entered into licenses granting the
exclusive right to commercialize the NuPipe Process in assigned
territories covering the United States, Puerto Rico and the United
States Virgin Islands. NuPipe International, Inc., a wholly-owned
subsidiary of NuPipe, Inc., has entered into a number of licensing
arrangements outside of the United States, and has identified, and
is engaged in discussions with, additional prospective licensees.
During the year ended December 31, 1995, the Company recognized
royalty income from its NuPipe licensees in the amount of
approximately $.2 million, or approximately .1% of consolidated
revenues.
Pursuant to the Ashimori License, the Company is obligated to
enter into a license granting to Ashimori the exclusive right to
use the Tite Liner Process in Japan, in exchange for royalties of
7% on installations. As a result of the Company's acquisition
during 1994 of certain territories initially reserved by the seller
of the UltraPipe technologies, the Company assumed the seller's
obligations under the grant of an exclusive license of such
technologies for much of the Middle East, in exchange for royalty
payments based upon gross profits. The Company is engaged in
<PAGE>
discussions with such licensee to modify such arrangements, and to
extend to such licensee a license covering application of the Tite
Liner Process in such territory. During 1995, the Company's
arrangements with respect to the licensing of UltraPipe in Africa
south of the equator were suspended.
Insituform License Agreements
Each licensee has entered into an agreement with the Company
setting forth the rights and obligations of the parties with
respect to the exploitation of the Insituform Process. Each of the
Company's domestic Insituform licensees (including its unaffiliated
licensees, which hold the rights to use the Insituform Process in
eight states and a portion of another state) pays a minimum annual
royalty, which varies according to the population of the licensed
territory, against a royalty of 8% of the gross contract price of
all sales and contracts utilizing the Insituform Process, including
any preparatory and finishing work performed and subject to
specified allowances. Domestic licensees are also obligated to pay
a royalty surcharge of 8% to 12% of their sales and contracts
utilizing the Insituform Process outside of their licensed
territories. The amount of such surcharges are then paid by the
Company to the domestic licensee in whose territory the
installation was performed.
In the event any domestic Insituform licensee has, for any
year, produced to the Company an acceptable plan for marketing and
sales penetration, minimum royalties otherwise established for such
year will not apply, subject to achievement of performance
objectives established with respect to utilization of the Company's
trenchless rehabilitation processes. In addition, the Company is
obligated to pay to Insituform East one-half of one percent of the
gross contract value of certain contracts using the Insituform
Process entered into by licensees introduced to the Company by
Insituform East's predecessor-in-interest, SAW Associates, and also
one-half of one percent of the reported turnover of Insituform
East.
Insituform licensees outside of the United States are
obligated to pay royalties, calculated by reference to the gross
contract price of all contracts utilizing the Insituform Process,
ranging from 5% to 8%. Foreign licenses may also provide for
minimum annual royalties as well as initial license fees and
trademark fees.
The Company requires its licensees to be well-trained and
fully qualified in the installation and service of the Insituform
Process. The Company typically establishes certain financial,
professional and operating requirements which must be met by each
licensee. In addition to possessing adequate capital and competent
technical personnel each licensee must demonstrate an ability to
market the Insituform Process aggressively to potential users
within its territory.
<PAGE>
Any improvements or modifications a licensee may make in the
Insituform Process during the term of the license agreement becomes
the property of the Company or are licensed to the Company. The
Company is generally required to disseminate all information with
regard to the Insituform Process developed by it or any licensee to
all licensees, without any additional royalty.
Should a licensee fail to meet its royalty obligations or
other material obligations, the Company may terminate the license.
Many licensees (including all domestic licensees), upon prior
notice to the Company, may also terminate the license for any
reason. The Company may vary the agreement used with new licensees
according to prevailing conditions.
NuPipe Process License Agreements
In consideration for its NuPipe license, each domestic NuPipe
licensee (including its unaffiliated licensees, which hold the
rights to use the NuPipe Process in eight states and a portion of
another state) has paid an initial license fee of $60,000 and has
agreed thereafter to pay a royalty of 6.75% of the gross contract
price (including sales) of all contracts to the extent covering
installations performed utilizing the NuPipe Process. "Gross
contract price" is defined to include preparatory and finishing
work and does not exclude certain allowances as does the comparable
calculation utilized by the Company for domestic Insituform
royalties. If the licensee commercializes the NuPipe Process
outside of its assigned territory, it will be obligated to pay to
the Company, for repayment in turn to the licensee assigned such
territory, 10.125% of the gross contract price of such
installations. In connection with its introduction in 1995 of a
second fold and formed product, the Company has offered domestic
licensees the right to elect to modify royalty calculations so as
to be based upon linear feet of pipe delivered, but has not
completed such arrangements with its unaffiliated licensees.
Each domestic NuPipe licensee has committed to use its best
efforts to create a demand for the NuPipe Process within the
territory covered by its license and to use its best efforts to
fill such demand. In furtherance of its commitments under the
license, each domestic licensee has agreed that in order to
maintain the license it will, during each year of the term of the
license, complete contracts covering the repair, rehabilitation or
reconstruction in its territory of the minimum quantities of length
of pipeline as established under the license, by utilizing certain
of the Company's trenchless rehabilitation processes.
Each domestic licensee has, pursuant to its license, entered
into a supply agreement with the Company relating to its
requirements of the thermoplastic pipe utilized in the application
of the NuPipe Process, as described under "Manufacturing and
Product Sales" above. Domestic NuPipe licensees are subject to
terms similar to those in the Company's Insituform licenses with
<PAGE>
respect to maintenance of quality standards, rights in improvements
to the process and termination of the license.
The Company has entered into licensing arrangements covering
Sweden and Switzerland, and also, through affiliates, introduced
the NuPipe Process in the United Kingdom and Canada. In
consideration for its NuPipe license, each unaffiliated foreign
NuPipe licensee has paid an initial license fee, and each foreign
licensee remains obligated to pay a royalty of 8% of its net
invoices in connection with the operation of the NuPipe Process in
its exclusive territory, subject to minimum royalty payments,
throughout the life of the 20-year agreements. Under the
agreements, the licensees have committed to use their best efforts
to promote the operation of the NuPipe Process in their respective
territories, but may, upon six months prior notice, terminate the
license. The licensor may also terminate the license in the event
the licensee fails to make payments when due or fails to meet its
other material obligations. Foreign licensees have granted to the
licensor a non-exclusive, royalty free license, without limit of
time, covering all improvements to the NuPipe Process that the
licensees may develop or acquire.
NuPipe Acquisition Arrangements
Under the terms of the agreement pursuant to which the Company
acquired the NuPipe Process, the Company was obligated to make
ongoing payments to the former stockholders of the predecessor of
NuPipe, Inc. until the later to occur of 15 years after the closing
of the transaction or the expiration of all patents or copyrights
granted with respect to the NuPipe Process. Payments amounted to
35% of the royalty income collected by the Company in connection
with the NuPipe Process from unaffiliated and affiliated licensees.
Until such arrangements were modified in October 1994, one-half of
such payments were made in cash and one-half in shares of the
Series C Cumulative Non-Voting Preferred Stock, $.10 par value
("Series C Preferred Stock"), of the Company; in October 1994, all
such shares were repurchased, and the parties agreed that payments
would thereafter be made solely in cash. In March 1995, the Company
exercised an option, granted in October 1994, to acquire all rights
to such contingent payments in exchange for the Company's notes
aggregating $1,000,000, payable over three years, and accruing
interest at 5.4% per annum (reflecting the rate of return on the
Series C Preferred Stock).
INVESTMENTS IN LICENSEES
The Company makes investments in its licensees, and enters
into joint ventures, from time to time so as to encourage
additional royalties and sales of its products and further enable
the Company to influence and participate in the exploitation of its
trenchless rehabilitation processes. During the three years ended
December 31, 1995, the Company did not record earnings from any
such investment that were material to the Company's results of
operations. See Note 6 of the Notes to the Company's Consolidated
<PAGE>
Financial Statements included in response to "Item 14. Exhibits,
Financial Statement Schedules, and Reports on Form 8-K." The
Company has divested minority positions in licensees as appropriate
opportunities arose, in order to focus on supporting licensee
operations through more active marketing, research and development
and technical support efforts.
The Company, through its subsidiary, Insituform Technologies
Limited ("ITL"), holds one-third of the equity interest in
Insituform Brochier Rohrsanierungstechnik GmbH ("Insituform
Brochier"), the Company's licensee of the Insituform Process in
Germany. Pursuant to Insituform Brochier's joint venture agreement,
ITL granted an exclusive Insituform license to Insituform Brochier
covering central and southern Germany (the remaining territory of
which is covered by licenses assigned by another joint venturer or
subsequently extended by IGL). Under the joint venture
arrangements, the managing director of Insituform Brochier is
appointed by the unanimous agreement of the parties, and the joint
venture partners have rights-of-first-refusal in the event any
party determines to divest its interest.
The Company holds additional investments in licensees as
follows:
<TABLE>
<CAPTION>
Licensee Processes Territory Interest
- -------- --------- --------- --------
<S> <C> <C> <C>
N.V. K-Insituform S.A. Insituform Belgium, 50% joint
venture
Luxembourg
interest<F1>
Ka-Te Insituform A.G. Insituform Switzerland, 50% joint
venture
Liechtenstein and
interest<F2>
Voralberg, Austria
_____________________
<FN>
<F1> The remaining interest is held by N.V. Kumpen.
<F2> The remaining interest is held by Ka-Te Holding A.G.
</TABLE>
The interests in the Company's Belgian joint venture, formed
in April 1993, and its Swiss joint venture, formed in September
1993, are subject to its partners' right-of-first-refusal.The
Company's joint venture in Belgium is managed by four directors,
two named by the Company, who are responsible for technical and
financial matters, and two named by N.V. Kumpen, who are
responsible for marketing, sales and general management. The
Company's Swiss joint venture is managed by three directors, with
unanimity required of the directors, or of the shareholders, to
take certain actions. Of the directors of the Swiss joint venture,
one is named by Ka-Te Holding A.G., who is responsible for
marketing, sales and general management, one is named by the
Company, who is responsible for technical and financial matters,
and a third is named by the Company with the approval of its
partner, which may not unreasonably be withheld.
<PAGE>
Until March 1995, the Company was also a party to a joint
venture, called Enhansco, which develops, blends and sells resins
used in connection with the Insituform Process. At such date, the
Company's joint venture partner purchased the Company's one-half
interest in the joint venture for the sum of $400,000, one-half of
which was paid within 30 days of closing and the remainder of which
is due on December 31, 1997. The Company has agreed that it will
not compete with the continuing resin business of the joint venture
for a period of three years after such buy-out.
In April 1995, the Company disposed of its investment in
approximately 7% of the share capital of Enviroq as a result of
IMA's Enviroq Acquisition. Pursuant to such transaction, the
Company holds a comparable percentage of the share capital of New
Enviroq Corporation (renamed Enviroq Corporation; "New Enviroq"),
which was distributed by Enviroq to its stockholders immediately
prior to the Enviroq Acquisition. New Enviroq holds the assets and
liabilities related to Enviroq's prior interest in Synox
Corporation (engaged in developing and testing a process for the
treatment of municipal wastewater "sludge") and in Sprayroq
Corporation (which offers a spray-applied resinous product used in
rehabilitation of manholes, among other applications).
See "Direct Installation and Other Construction Activities"
above for a description of the Company's interest in Midsouth
Partners which, following the IMA Merger, has been consolidated in
the Company's results of operations. A partner of Midsouth Partners
has purported to exercise its alleged rights as a non-defaulting
partner to name a majority of the members of the management
committee of Midsouth Partners, an action to which the Company has
objected.
MARKETING
The Company markets its technologies primarily to the municipal
wastewater and industrial markets worldwide and natural gas
distribution market in North America. The Company's product
managers and engineers develop strategies and design products
intended to meet the needs of customers in each of these markets.
In addition, the Company produces sales literature and
presentations, participates in trade shows, conducts national
advertising and executes other marketing programs for the Company's
own sales force and those of unaffiliated licensees. The Company's
unaffiliated licensees are responsible for marketing and selling
the Company's trenchless rehabilitation processes in their
respective territories, and each has a staff for that purpose.
The municipal wastewater market has historically represented
the single largest segment for the Company's trenchless
rehabilitation services. The Company expects this segment to remain
the largest part of its business for the foreseeable future. In
response to competition from other providers of trenchless
technologies, the Company's strategy is to differentiate its
products based on design and performance benefits. The Company
<PAGE>
attempts to build long-term relationships with its customers for
the utilization of the Company's complete line of rehabilitation
products and services. The Company utilizes its own sales force (or
that of unaffiliated licensees) with a view toward having its
technologies permitted or required in bid specifications.
The Company believes that the industrial market represents
significant opportunities for the use of the Company's trenchless
rehabilitation products and services. The Company's processes are
used to stop leakage in difficult-to-access pressurized pipes,
achieve containment of industrial effluents and restore structural
integrity to underground wastewater and storm sewers. The Company
has designated industrial managers in various locations who develop
industrial business and then serve as project managers for the
duration of the projects. In areas not directly served by the
Company, the Company's unaffiliated licensees are responsible for
marketing and selling the Company's products to the industrial
market.
The Company believes that its tunnelling operations strengthen
its relationships with its customers by positioning the Company as
a problem solver for pipeline systems and enhance its capacities to
perform large-diameter installations of the Insituform Process.
The Company markets the Paltem-HL hoselining system in
substantially all of North America to natural gas distribution
companies, in order to renew both mains and services connections
which are suffering from the effects of corrosion or similar
deterioration. The Company believes that the greatest need for
trenchless renewal of gas pipelines is in cities located in the
Northeast and on the West Coast which have older pipe systems in
need of repair or rehabilitation. The Company utilizes its own
sales representatives in these areas who work with gas companies to
educate them about the advantage of using the Company's trenchless
technologies.
The Company offers the Tite Liner system worldwide for use in
oil and gas field systems, which typically utilize steel pipe that
is subjected to highly corrosive fluids and gases, and in mining
slurry lines, which typically are subjected to highly abrasive
flows. The Company believes that customers in the oil and gas and
mining markets will continue to look for ways to improve and extend
the useful life of their facilities rather than to replace their
existing pipelines.
The Company expects to continue licensing the Insituform
Process and the NuPipe Process pursuant to existing arrangements
and in those additional areas of the world in which the Company's
management believes it would not be profitable for the Company to
exploit such processes directly. The Company intends to continue to
investigate the formation of subsidiaries and other affiliates,
including joint ventures, which will directly provide installation
services utilizing the Company's processes.
<PAGE>
No customer accounted for more than ten percent of the
Company's consolidated revenues during the years ended December 31,
1995, 1994 and 1993, respectively.
BACKLOG
Orders for Insitutubes are generally shipped within one to two
weeks after receipt, and, accordingly, no substantial backlog of
orders for this product normally exists.
At December 31, 1995 and 1994, respectively, the Company
recorded backlog from construction operations (including projects
where the Company has been advised that it is the low bidder) in
the amounts of approximately $134.1 million and $101.4 million,
respectively. Of such amounts, approximately $25.6 million and
$11.7 million, respectively, represent projects where the Company
was the low bidder. Backlog at December 31, 1995 included
approximately $3.2 million attributable to Insituform France S.A.
("Insituform France"), which was acquired in February 1995,
approximately $7.4 million attributable to Insituform Southeast
Inc. ("Insituform Southeast"), which was acquired in April 1995,
and approximately $2.4 million attributable to the pipeline
rehabilitation business acquired from Waterflow Services Limited
("Waterflow") in November 1995. Backlog at December 31, 1995 and
December 31, 1994 also included approximately $11.1 million and
$5.4 million, respectively, attributable to the Company's corrosion
and abrasion protection operations (primarily involving the
application of the Tite Liner Process) and approximately $16.2
million and $5.8 million, respectively, attributable to tunnelling
operations. The Company anticipates that substantially all
construction backlog recorded at December 31, 1995 will be
completed in 1996.
SEASONALITY
Although severe cold weather affects the Company's operations
in Canada in the months of December, January, February and March
(where, over the past three years, the volume of work performed in
the first calendar quarter has averaged 6% of the total year's
work), the volume of work reported on a consolidated basis by the
Company's licensees (including affiliated licensees) in the first
calendar quarter of the year has averaged, for the past five years,
approximately 24% of the work they reported over the full year.
COMPETITION
The pipeline reconstruction, rehabilitation and repair business
is highly competitive, and the Company competes against many
companies, some of which have far greater financial resources and
experience than the Company. Accordingly, there can be no assurance
as to the success of the Company's processes in competition with
such companies and alternative technologies for pipeline
rehabilitation.
<PAGE>
In each of its rehabilitation markets, the Company currently
faces competition from more conventional methods, including: (i)
total replacement, which is the excavation and replacement of an
entire section of pipe; (ii) point repair, which is the replacement
of cracked or structurally failed sections of pipes by actual
excavation and replacement; (iii) sliplining, which is the
insertion of a smaller pipe within an existing deteriorated pipe;
and (iv) the placement of gelatinous material, hydraulic cement, or
other acceptable material in defective pipes to repair leaks and
prevent infiltration in gravity sewers.
In addition, the Company faces competition from other
trenchless processes throughout the world. In the United States,
the Company faces competition from several cured-in-place processes
and, outside of the United States, from additional cured-in-place
processes currently in regional use. The Company also faces
competition from several fold and formed thermoplastic processes.
Several companies offer in-place polyethylene lining systems which
compete with the Company's abrasion and corrosion protection
technologies. The Company's trenchless processes may also encounter
competition from alternative trenchless approaches such as pipe
bursting and other methods.
The Company's tunnelling operation competes with utility
contracting firms throughout North America.
PATENTS AND LICENSES
The Insituform Process was developed in the United Kingdom in
1971. The Company's commercialization of the Insituform Process has
been protected by patents which cover certain aspects of the
Insituform Process including the Insitutube construction, the resin
saturation process and the process of reconstructing the pipeline.
Pursuant to provisions recently adopted under the General Agreement
on Tariffs and Trade, patents in force on June 8, 1995 will be
entitled to a patent term of the longer of 17 years from issuance
or 20 years from the earliest filing date of the patent. The
Company currently holds 55 patents in the United States relating to
the Insituform Process, the last to expire of which will remain in
effect until 2013, and has obtained patent protection in its
principal overseas markets covering aspects of the Insituform
Process.
One of the significant patents relating to the Insituform
Process, covering the curing of a resin-impregnated tube, has
expired in many countries, in particular the United States, Canada,
Japan, the United Kingdom and Germany. Another important method
patent relating to the Insituform Process, which covers material
aspects of the inversion process has also expired in the United
States, Canada, Japan, the United Kingdom and Germany. The
following patents of the Company relate to the Insituform Process,
collectively constituting an integrated product and service:
<PAGE>
<TABLE>
<CAPTION>
Expiry Expiry Expiry
Expiry
Patent U.S. Date Canada Date Japan Date U.K.
Date
------ ---- ------- ------ ------ ----- ------ ----
-------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
(a) 4366012 02/05/01 -- -- -- --
1423819 01/21/92
(b) 4434115 02/11/02 -- -- -- --
2096265 02/18/01
(c) 4446181 05/01/01 1134290 10/26/99 1202781 07/18/98
2031107 09/20/99
(d) 4581247 01/05/04 1254852 05/30/06 -- -- --
--
(e) 4776370 10/11/05 -- -- -- -- --
--
(f) 5044405 08/21/09 -- -- -- -- --
--
(g) 5108533 10/10/09 -- -- -- -- --
--
(h) 5154936 10/05/10 * * * *
0504343 09/19/11
(i) 5167901 10/05/10 -- -- -- -- --
--
(j) 5384086 01/24/12 * * * *
0511260 01/16/11
(k) 5407630 04/18/12 * * * *
0464121 03/19/10
_____________
(a) method of serial vacuum impregnation of a resin into an
Insitutube.
(b) method for remote lining of side connections.
(c) manufacture of tubular laminates.
(d) method for lining pipes incorporating the curing of a
resin-impregnated
liner using a light source.
(e) apparatus for securing cable to a tubular pipe liner.
(f) method of installing a lateral lining from the main line by
use of a
carrier tube.
(g) method of installing a lateral lining from the lateral
clean-out to the main.
(h) apparatus for everting an Insitutube.
(i) method of everting an Insitutube.
(j) method of lining pipelines by inverting a tube against a
moveable backstop.
(k) method of lining pipelines using a sealed inversion process.
* application pending
</TABLE>
In addition, in Germany applications for patents (h), (i) and (j)
are pending, and an application for patent (d) has been abandoned.
In the United Kingdom, in respect of certain classes of patents,
any person has the right to compel the patent holder to license
such person during the last four years of the patent's life, on
such terms as are agreed with the patent holder (including the
level and/or amount of royalty) failing which such terms are
judicially determined.
The specifications and/or rights granted in relation to each
patent will vary from jurisdiction to jurisdiction. In addition, as
a result of differences in the nature of the work performed and in
the climate of the countries in which the work is carried out, not
every licensee uses each patent, and the Company does not
necessarily seek patent protection for all of its inventions in
every jurisdiction in which it does business.
Although the Company believes these patents are important to
the business of the Company, there can be no assurance that the
validity of the patents will not be successfully challenged or that
they are sufficient to afford protection against another company
utilizing a process similar to the Insituform Process. The
Company's business could be adversely affected by increased
<PAGE>
competition in the event that one or more of the patents were
adjudicated to be invalid or inadequate in scope to protect the
Company's operations or upon expiration of the patents. The Company
believes, however, that while the Company has relied on the
strength and validity of its patents, the Company's long experience
with the Insituform Process, its continued commitment to support
and develop the Insituform Process, the strength of its trademarks,
and its degree of market penetration, should enable the Company to
continue to compete effectively in the pipeline rehabilitation
market.
In September 1989, the United States Patent and Trademark
Office issued the Company's initial patent covering the NuPipe
Process, which was followed by eight additional patent grants.
Patents covering the NuPipe Process or the materials used in
connection with the NuPipe Process have also been issued in 20
other countries. The Company intends aggressively to pursue the
remaining U.S. and foreign patent applications related to the
NuPipe Process, but there can be no assurance that any of the
remaining patents will issue as a result of such applications, or
that any patent granted will be sufficient to afford protection
against another company utilizing a process similar to the NuPipe
Process.
The Company believes that the success of its corrosion and
abrasion protection operations will depend primarily upon its
proprietary know-how and its marketing and sales skills. Under the
Company's acquisition arrangements relating to the UltraPipe
Process, in addition to a royalty-free license to the seller
extending to agricultural irrigation applications worldwide, the
Company is obligated, subject to an initial grace period, to make
contingent payments calculated on the basis of the length of the
pipe lined and other criteria.
Pursuant to the Ashimori License, the Company holds the
exclusive rights to use the patents, trademarks and know-how
related to the Ashimori Products, including the rights to
manufacture and sell Ashimori Products, for substantially all of
North America. Such license currently covers seven United States
patents relating to Paltem-HL and the related PAL-Liner. In
addition, there are currently five patent applications filed in the
United States relating to the Ashimori Products.
In connection with the Ashimori License, Ashimori was paid an
initial license fee of $100,000 and is entitled to receive ongoing
royalties of 6% on Paltem-HL and Paltem-March installations and 7%
on installations of other licensed Ashimori Products, with a
royalty of 5% on sales of liners to which the installation royalty
does not apply, in each case due within 60 days of each semi-annual
royalty period. Under the Ashimori License, any non-patentable
improvements by the Company made to the licensed technology are
licensed on a non-exclusive basis to Ashimori, while Ashimori's
right to use patentable improvements made by the Company is subject
to payment to the Company of mutually agreeable royalties.
<PAGE>
The Ashimori License extends for an initial term of 15 years
through 2009 and automatically is renewed for successive one-year
terms unless the Company gives notice of non-renewal at least 90
days prior to the end of a term. Commencing with the year ending in
September 1998, in the event annual minimum royalties are not met,
Ashimori has the right to render the agreement non-exclusive and,
in the event minimum royalties are not met for two consecutive
years, to terminate the agreement. In addition, the Ashimori
License is subject to termination in the event of specified
defaults.
PRODUCT DEVELOPMENT
The Company, by utilizing its own laboratories and test
facilities and outside consulting organizations and academic
institutions, continues to develop improvements to its proprietary
processes, including the materials used and the methods of
manufacturing and installing pipe. During the years ended December
31, 1995, 1994 and 1993, the Company spent approximately $7.6
million, $6.2 million and $6.9 million, respectively, on all
strategic marketing and product development activities.
EMPLOYEES
As of December 31, 1995, the Company employed 1,342
individuals, including seven officers, 147 technical specialists
and managers, 100 manufacturing staff, 762 direct installation
staff, 220 administrative personnel and 106 marketing personnel.
Certain of the Company's contracting operations are parties to
collective bargaining agreements covering an aggregate of 163
employees. None of the Company's other employees is represented by
a labor union, although the Company's United Kingdom operation
belongs to a trade association that prescribes minimum terms of
employment for members. The Company generally considers its
relations with its employees to be good.
GOVERNMENT REGULATION
The Company and its licensees are required to comply with all
national, state and local statutes, regulations and ordinances,
including those disclosure and filing requirements relating to the
grant of licenses. In addition, the Company's licensees (including
the Company's direct installation operations) may have to comply
with building code specifications, permit requirements, and
extensive bonding and insurance requirements with regard to
installation activities as well as with fire regulations relating
to the storage, handling and transporting of flammable materials.
The Company's manufacturing facilities, as well as its direct
installation operations and those of its licensees, are subject to
state and national environmental protection regulations, none of
which presently has any material effect on the Company's capital
expenditures, earnings or competitive position in connection with
the Company's present business. However, while the Company's direct
installation operations have established monitoring programs
<PAGE>
relating to the use of solvents in the installation process,
further restrictions could be imposed on the use of solvents or the
thermosetting resins used in the Insituform Process. The Company
believes that it is in material compliance with environmental laws
and regulations applicable to it.
The use of both thermoplastics and thermosetting resin
materials in contact with drinking water is strictly regulated in
most countries. In the United States, a consortium led by NSF
International ("NSF"), under arrangements with the United States
Environmental Protection Agency (the "EPA"), establishes minimum
requirements for the control of potential human health effects from
substances added indirectly to water via contact with treatment,
storage, transmission and distribution system components, by
defining the maximum permissible concentration of materials which
may be leached from such components into drinking water, and
methods for testing them. In February 1996, the Paltem-HL and Frepp
processes were certified by the NSF for use in drinking water
systems. The NSF assumes no liability for use of any products, and
the NSF's arrangements with the EPA do not constitute the EPA's
endorsement of the NSF, the NSF's policies or its standards. The
Company does not currently have an NSF certified Insituform
product, but intends to submit an improved product for NSF
certification.
EXECUTIVE OFFICERS
The executive officers of the Company, and their respective
ages and positions with the Company, are as follows:
<TABLE>
<CAPTION>
Age at Position with
Name March 15, 1996 the Company
---- -------------- --------------
<S> <C> <C>
James D. Krugman 47 Chairman of the Board
Jerome Kalishman 68 Vice Chairman of the
Board
Jean-Paul Richard 53 President and Chief
Executive Officer
Robert W. Affholder 59 Senior Vice President-
Chief Operating Officer
of North American
Contracting Operations
William A. Martin 54 Senior Vice
President-Chief
Financial Officer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Anthony W. Hooper 48 Senior Vice President-
Marketing and Technology
Raymond P. Toth 47 Vice President-
Human Resources
Joseph F. Olson 51 Vice President-Controller
of North American Con-
tracting Operations
F. Thomas Driver 58 Vice President-Technical
Sales
</TABLE>
James D. Krugman has been Chairman of the Board of the Company
since 1988, having served as a director of the Company since 1987,
and acted as the Company's Chief Executive Officer in 1989 and
1990. Mr. Krugman has been a partner in the law firm of Krugman,
Chapnick & Grimshaw since prior to 1991. Mr. Krugman is also a
director and Chairman of the Executive Committee of Hayward
Industries, Inc.
Jerome Kalishman has been Vice Chairman of the Company since
October 1995. Prior to the IMA Merger and since prior to 1991, Mr.
Kalishman was Chairman of the Board and Chief Executive Officer of
IMA.
Jean-Paul Richard has been President and Chief Executive
Officer of the Company since November 1993. Prior to joining the
Company, from 1991, Mr. Richard was a member of the executive team
of Varity Corporation, a manufacturer of industrial and farm
machinery and equipment, and more recently served as Chief
Executive of its Massey-Ferguson Group. From 1990 to 1991, Mr.
Richard was Executive Vice President of Asea Brown Boveri, Inc.,
the North American subsidiary of Asea Brown Boveri. Mr. Richard is
also a director of AGCO Corporation.
Robert W. Affholder has been Senior Vice President-Chief
Operating Officer of North American Contracting Operations of the
Company since October 1995. Mr. Affholder was President of IMA from
1994 to October 1995 and from prior to 1991 to 1993, and was Vice
Chairman of IMA from 1993 to 1995.
William A. Martin has been Chief Financial Officer of the
Company since 1988, a Vice President from 1989 to January 1993 and
a Senior Vice President since January 1993.
Anthony W. Hooper has been Senior Vice President-Marketing and
Technology since August 1994, having served as Senior Vice
President-Marketing of the Company from November 1993 to that date.
Mr. Hooper was previously, since 1992, President of Huyck
Formex/Weavexx Corporation, a North Carolina industrial textile and
process equipment manufacturer and subsidiary of BTR, Inc. From
<PAGE>
prior to 1990 to 1991, Mr. Hooper was employed by Sprout Bauer,
Inc., an industrial machinery and systems manufacturer owned by
Combustion Engineering, Inc., where he was Vice President-Marketing
before becoming President of the Pulp and Paper Division.
Raymond P. Toth has been the Company's Vice President-Human
Resources since February 1994. Since prior to 1991 and until
joining the Company, Mr. Toth was employed as Director of Human
Resources for Sprout Bauer, Inc.
Joseph F. Olson has been Vice President-Controller of North
American Contracting Operations of the company since October 1995.
Mr. Olson was Vice President-Finance and Administration of IMA from
prior to 1991 to October 1995.
F. Thomas Driver has been Vice President-Technical Sales of the
Company since October 1995. Mr. Driver was Vice President-Product
Development and Manufacturing of IMA from January 1994 to October
1995. Mr. Driver was Senior Vice President-Manufacturing and
Research and Development of the Company from January 1993 to
January 1994 and its Vice President-Technical Director from prior
to 1991 to January 1993.
ITEM 2. PROPERTIES
The Company's executive offices are located in Memphis,
Tennessee, at 1770 Kirby Parkway. The Company's lease of such
premises with an unaffiliated party covers 17,885 square feet of
office space, at an annual rental of $254,868, plus taxes and
operating expenses in excess of a base amount, and expires in 2000.
The Company's North American contracting operations are based
in Chesterfield, Missouri, where the Company owns 38,000 square
feet of space on 2.5 acres, 17,000 square feet of which is utilized
as office space and the remaining 21,000 square feet of which is
used for operations.
The Company's manufacturing facilities in Memphis, Tennessee
are sub-leased from an unaffiliated entity for an initial term of
forty years expiring on December 31, 2020. The annual rental cost
to the Company during the initial term of the lease is currently
$28,956, plus real estate taxes, and increases by varying
percentages every five years to $44,952, plus real estate taxes, in
2016 and thereafter. The premises consist of 56,000 square feet of
manufacturing space, with an adjoining 6,000 square foot
administrative office complex, the cost of a portion of which,
together with certain machinery and equipment, was financed from
the sale of a $1.5 million industrial development bond and secured
by a mortgage on the premises and equipment. See Note 8 of the
Notes to the Company's Consolidated Financial Statements included
in response to "Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K," which information is incorporated herein
by reference. An additional 2,700 square feet of space added to the
facility is used for research and development.
<PAGE>
The Company maintains 87,000 square feet of space on 20 acres
of land in Batesville, Mississippi, 27,000 square feet of which is
utilized as an Insitutube fabrication facility, 27,000 square feet
as a contiguous felt manufacturing facility, 27,000 square feet as
warehousing space, and 6,000 square feet as office space. The costs
relating to the acquisition, construction and equipping of the
Batesville facilities, in the aggregate amount of $5.5 million,
were financed from the proceeds of the sale of an industrial
development bond and secured by the issuer's title to the property,
which is leased to the Company for a term that expires concurrently
with maturity of the bond in January 2004. See Note 8 of the Notes
to the Company's Consolidated Financial Statements included in
response to "Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K," which information is incorporated herein by
reference.
In January 1995 the Company sold to Linings (a 51%-owned
subsidiary), for a sale price of 750,000 pounds sterling, the land
and building previously leased to Linings and comprising its
Insitutube manufacturing facility located on 1.3 acres and
comprising 25,100 square feet of space in Wellingborough, England.
The Company leases additional Insitutube manufacturing space in
Matsubuse, Japan, and Gurabo, Puerto Rico.
In support of its direct installation operations, the Company
owns facilities in Ossett, England (36,250 square feet), Lemont,
Illinois (24,378 square feet), Owosso, Michigan (21,500 square
feet), Littleton, Colorado (8,000 square feet), Durango, Colorado
(10,000 square feet), Wichita, Kansas (14,125 square feet), Grand
Prairie, Texas (9,000 square feet) and Jacksonville, Florida
(25,000 square feet). The Ossett and Jacksonville properties are
subject to mortgages. The Company manages installation operations
from leased sites in the United States in Houston, Indianapolis,
Santa Fe Springs, Sacramento and Charlton, Massachusetts, Kent,
Washington, Kailua, Hawaii, Hammond, Louisiana and Salem, Oregon;
and in Canada in Edmonton, Alberta, Surrey, British Columbia,
Pickering, Ontario and Vaudreuil, Quebec. The Company's contracting
subsidiaries maintain additional sales and administrative offices
in the event required by operations.
The Company remains party to a lease with an unaffiliated
entity entered into by IGL and expiring in April 2015 for a
two-story office building comprising 12,226 square feet located in
Langley, Berkshire, England. The initial rent under the lease is
245,960 pounds sterling per annum, subject to adjustment every five
years based upon the open market rent applicable at that time.
The foregoing facilities are regarded by management as adequate
for the current and anticipated future requirements of the
Company's business. In connection with the expansion of its
activities with respect to commercialization of the Ashimori
Products, the Company will consider establishment of an additional
manufacturing facility adjacent to its Batesville plant, and
whether to dispose of approximately 5.4 acres in Chesterfield on
<PAGE>
which, prior to execution of the IMA Merger Agreement, IMA had
commenced construction of a manufacturing facility. In order to
rationalize the Company's operations combined as a result of the
IMA Merger, the Company plans to relocate certain other operations.
The Company intends to continue to seek to negotiate terminations
of its lease in Langley and of leases on certain additional
properties in the United Kingdom.
ITEM 3. LEGAL PROCEEDINGS
On December 15, 1995, the United States District Court for the
Western District of Tennessee issued its final judgment and order
approving the stipulation of settlement executed by the Company on
September 11, 1995 to settle an action initially filed by a
shareholder of the Company against the Company and one former and
one current officer, alleging various misstatements and omissions
relating to, among other things, acquisition and restructuring
costs arising from the IGL Acquisition in December 1992, in public
disclosures by the Company during the period from October 28, 1992
to May 12, 1993 in violation of, among other things, Rule 10b-5
under the Securities Exchange Act of 1934 (Neil Weinberg, on behalf
of himself and all others similarly situated, Plaintiffs v.
Insituform Technologies, Inc., William C. Willis, Jr., and William
A. Martin, Defendants (United States District Court for the Western
District of Tennessee, Western Division)). On September 30, 1994,
the court had ruled on the Company's motion to dismiss the first
amended complaint, granting in part and denying in part the
Company's motion. The court further granted plaintiffs leave to
amend their complaint insofar as defective from a pleading
perspective. The Company further filed an answer to the complaint
as so amended, denying its material allegations. On April 7, 1995,
the court issued its order certifying the action as a class action
on behalf of all purchasers of ITI Common Stock during the relevant
time period.
Notwithstanding the Company's belief that it had defenses to
the plaintiff's claim that were well grounded in fact and law, on
May 23, 1995 the Company entered into a memorandum of understanding
to settle such litigation, which was evidenced by the stipulation
of settlement approved by the court. Under the settlement, the
Company has made a cash payment to class members in the amount of
$3.2 million and issued to class members 30,000 shares of ITI
Common Stock.
The Company has initiated proceedings which are pending in the
United States District Court for the District of New Jersey (the
"New Jersey Proceedings") against Spiniello Limited, Inc. and
Spiniello Construction Co. (Civil Action No. 89-4174 (MTB)),
alleging infringement of certain of the Insituform patents in
connection with conduit relining work to be performed in Pittsburgh
by licensees of Kanal-Mueller-Grappe-Frehruhngs-Gesselschaft
("KM"), and in the United States District Court for the Southern
District of Texas, Houston Division (the "Texas Proceedings")
against Cat Contracting, Inc. et al. (Civil Action No. H-90-1690),
<PAGE>
alleging infringement of certain of the Insituform patents in
connection with conduit relining work performed in Houston by
licensees of KM. In both proceedings, defendants asserted
counterclaims alleging that suit was brought in bad faith, and
certain antitrust violations, and, in the Texas proceedings,
defendants alleged that the Company engaged in unfair competition.
The New Jersey Proceedings have been stayed pending a final
judgment in the Texas Proceedings.
In June 1991, the jury in the Texas Proceedings rendered its
verdict finding that the competitors named as defendants had
infringed the Insituform patents at issue, and that such patents
were not invalid. The court had also previously severed defendants'
antitrust counterclaims, for hearing at a later date. In the
continuing proceedings, the court, in August 1991, declined to
declare such patents invalid, as was requested by defendants, and
did not disturb the jury's verdict finding that the plaintiffs were
not liable on the defendant's counterclaims alleging that the suit
had been brought in bad faith and that plaintiffs had engaged in
unfair competition. The court, however, granted the defendants a
new trial on the matter of whether they had infringed certain
Insituform patents, under the doctrine of equivalents, setting
aside that portion of the jury's verdict, and granting defendants
judgment notwithstanding the jury verdict on the issue of literal
infringement of that patent.
In October 1995, the court in the Texas Proceedings ruled that
the defendants' serial impregnation processes infringed the
Company's patent and issued a permanent injunction against
defendants' use of the processes covered by such patent and ordered
the parties to proceed to mediation on the issue of damages, the
amount of which remains to be determined. Defendants have filed a
notice of appeal to the United States Court of Appeals for the
Federal Circuit, and the Company has filed a notice of cross-appeal
from the 1991 judgment. Furthermore, in February 1996 defendants
filed a motion with the Texas district court for a partial new
trial alleging that the Company gave knowingly false testimony at
the 1991 trial and seeking dismissal of the action and monetary
sanctions, which the Company has opposed.
In August 1995, the Company commenced an action against
Spiniello Limited, Inc., Spiniello Construction Co. and certain
former employees of the Company's licensees (Insituform
(Netherlands) B.V., Insituform North America Corp., Insituform
East, Inc,. and Insituform Southeast, Plaintiffs v. Spiniello
Limited, Inc., Spiniello Construction Co., Inc., John Ott, Greg
McIlwain and Donald Morrow, Defendants (United States District
Court, Central District of California, Civil Action No. 95-5484
(GHK)) seeking damages and injunctive relief with respect to, among
other things, the alleged infringement of two of the Company's
Insituform patents, misappropriation of the Company's trade secrets
and unfair competition in connection with rehabilitation work being
performed in California. The defendants have denied the material
allegations of the complaint and seek, among other things, a
<PAGE>
declaratory judgment that the subject patents are invalid. In
November 1995, defendants were preliminarily enjoined from
infringing the Company's serial impregnation patent no. 4,306,012
and from misappropriating various of the Company's trade secrets.
In November 1995, following completion of the IMA Merger, the
action commenced by the Company in Tennessee Chancery Court
(subsequently removed by defendants to the United States District
Court for the Western District of Tennessee, Western Division) and
captioned Insituform North America Corp. and NuPipe, Inc. v.
Insituform Southeast, Inc., NuPipe Southeast, Inc., Enviroq
Corporation and Insituform Mid-America, Inc., whereby the Company
sought a declaratory judgment confirming its action in declining to
grant its consent as requested by Enviroq, under the various
Insituform and NuPipe license agreements with Enviroq's
subsidiaries, in connection with the Enviroq Acquisition, was
dismissed at the Company's direction.
E-Midsouth, Inc., an indirect, wholly-owned subsidiary of the
Company as a result of the IMA Merger, is a party to certain
arbitration proceedings commenced by Insitu, Inc., a wholly-owned
subsidiary of Insituform East, in connection with their respective
partnership interests in Midsouth Partners. In December 1994,
Insituform East notified Enviroq of its claim that, as a result of
Enviroq's execution of its agreement with IMA, an event of default
had occurred under the Midsouth Partners partnership agreement, and
subsequently sought a declaration to such effect in arbitration,
together with unspecified remedies under the partnership agreement.
The partnership agreement grants non-defaulting partners the right
to require compliance with the agreement, enjoin any breach, seek
dissolution of the partnership, and approve representatives to the
management committee of the partnership in place of those appointed
by the defaulting partner, among other alternatives. In November
1995, Insitu, Inc. amended its claim to allege that as a result of
consummation of the IMA Merger, the Company and its subsidiary,
ICI, had acted in concert with E-Midsouth, Inc. and IMA, and that,
accordingly, ICI was also in default under its obligations as a
partner of Midsouth Partners. ICI has denied that it is in default.
The American Arbitration Association held hearings on this matter
in March 1996. Post-hearing briefs are due in April and May 1996.
The Company is involved in certain additional litigation
incidental to the conduct of its business and affairs. Management
does not believe that the outcome of any such litigation will have
a material adverse effect on the financial condition or operations
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On October 12, 1995, the Company convened its Annual
Meeting of Stockholders (the "Annual Meeting").
<PAGE>
(b) Not applicable because (i) proxies for the Annual Meeting
were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934 together with the Company's Joint Proxy
Statement/Prospectus dated September 15, 1995; (ii) there was no
solicitation in opposition to management's nominees as listed in
such Joint Proxy Statement/Prospectus; and (iii) all of such
nominees were elected.
(c) At the Annual Meeting, the Company's stockholders voted
in favor of a proposal to approve the IMA Merger Agreement. The
holders of 9,386,533 shares voted in favor of, the holders of
56,391 shares voted against, and the holders of 56,204 shares
abstained with respect to approval of such proposal.
At the Annual Meeting, the stockholders voted in favor of a
proposal to approve an amendment of the Certificate of
Incorporation of the Company, effective contemporaneously with the
consummation of the IMA Merger, to increase the number of
authorized shares of ITI Common Stock from 25,000,000 shares to
40,000,000 shares. The holders of 9,329,571 voted in favor of, the
holders of 137,423 shares voted against, and the holders of 55,817
shares abstained with respect to approval of such proposal.
At the Annual Meeting, the stockholders voted in favor of a
proposal to approve an amendment of the Certificate of
Incorporation of the Company, effective contemporaneously with the
consummation of the IMA Merger, to provide for the filling of
vacancies on the Company's Board of Directors as contemplated by
the IMA Merger Agreement. The holders of 9,338,637 shares voted in
favor of, the holders of 90,099 shares voted against, and the
holders of 70,312 shares abstained with respect to approval of such
proposal.
At the Annual Meeting, the stockholders voted in favor of
management's nominees for election as Class III directors of the
Company. The holders of 10,948,155 shares voted in favor of, and
holders of 98,030 shares withheld their vote for, the election of
Brian Chandler; the holders of 10,959,110 shares voted in favor of,
and the holders of 87,075 shares withheld their vote for, the
election of James D. Krugman; the holders of 10,959,110 shares
voted in favor of, and the holders of 87,075 shares withheld their
vote for, the election of Jean-Paul Richard; and the holders of
10,958,910 shares voted in favor of, and the holders of 87,275
shares withheld their vote for, the election of Russell B. Wight,
Jr.
At the Annual Meeting, the stockholders voted in favor of
authorizing the Board of Directors of the Company to adjourn the
meeting to permit further solicitation of proxies, if necessary.
The holders of 10,668,155 shares voted in favor of, the holders of
298,083 shares voted against, and the holders of 79,947 shares
abstained with respect to the approval of such proposal.
(d) Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The ITI Common Stock is traded in the over-the-counter
market under the symbol "INSUA". The following table sets forth the
range of quarterly high and low sales prices commencing after
December 31, 1993, as reported on The Nasdaq Stock Market.
Quotations represent prices between dealers and do not include
retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C> <C>
1995
First Quarter $13.00 $11.13
Second Quarter 14.13 12.00
Third Quarter 16.63 12.88
Fourth Quarter 14.88 11.13
Period High Low
------ ---- ---
1994
First Quarter $15.25 $10.50
Second Quarter 14.75 12.50
Third Quarter 13.75 12.50
Fourth Quarter 13.75 10.88
</TABLE>
As of March 15, 1996, the number of record holders of the
Company's Common Stock was 2,152.
Holders of ITI Common Stock are entitled to receive
dividends as and when they may be declared by the Company's Board
of Directors. The Company has never paid a cash dividend on the ITI
Common Stock. The Company's present policy is to retain earnings to
provide for the operation and expansion of its business. However,
the Company's Board of Directors will review the Company's dividend
policy from time to time and will consider the Company's earnings,
financial condition, cash flows, financing agreements and other
relevant factors in making determinations regarding future
dividends, if any. Under the terms of certain credit arrangements
to which the Company is a party, the Company is subject to certain
limitations in paying dividends. See Note 8 of the Notes to the
Company's Consolidated Financial Statements included in response to
"Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity," which
information is incorporated herein by reference.
<PAGE>
<PAGE>
Prior to the IMA Merger and for each year covered by the
Company's Consolidated Financial Statements included in response to
"Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K," IMA had a policy of paying regular cash dividends, semi-
annually in January and July, at an annual rate of $.14 per share
of IMA Class A Common Stock and $.1272 per share of IMA Class B
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below have been
derived from the Company's consolidated financial statements
referred to under "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K" of this Annual Report on Form
10-K, and previously published historical financial statements not
included in this Annual Report on Form 10-K. In October 1995 and
December 1992, the Company consummated, respectively, the IMA
Merger and the IGL Acquisition, each of which the Company has
accounted for as a pooling-of-interests and, accordingly, the
historical financial statements of the combining companies have
been retroactively combined (after adjustments to eliminate
intercompany balances and transactions, and to conform reporting
periods and accounting methods) as if the companies had operated as
a single entity for the periods presented. Certain historical
financial data of IMA have been reclassified to conform to the
Company's accounting policies. The selected financial data set
forth below should be read in connection with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements,
including the notes thereto, referred to herein.
<TABLE>
<CAPTION>
Year Ended December
31,
- -----------------------------------------------------
1995(1)(2) 1994(3) 1993(4)
1992(5) 1991(6)
------- ------- -------
- ------- ----
(in thousands, except per share
amounts)
<S> <C> <C> <C>
<C> <C>
INCOME STATEMENT DATA:
Revenues.................. $ 272,203 $ 223,171 $ 151,622
$ 156,219 $ 120,157
Operating costs and
expenses:
Cost of revenues......... 186,473 146,248 95,729
98,169 74,042
Selling, administrative
and general............. 51,803 41,511 34,889
29,873 24,036
Strategic marketing and
product development..... 7,636 6,180 6,878
6,303 7,064
Merger and restructur-
ing costs............ 14,541(7) -- (981)
14,572(8) 733
Total operating
income............ 11,750 29,232 15,107
7,302 14,282
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
<C> <C>
Other income (expense):
Gain on sale of invest-
ment in Insituform
Mid-America, Inc........ -- -- --
-- 17,280(9)
Other..................... (8,120)(10) (2,398) (468)
2,859 2,350
Taxes on income........... 3,987 10,457 5,159
8,907 13,688
Equity in earnings of
affiliated companies..... 666 570 638
1,282 289
Income (loss) from
continuing operations.... (966)(10) 15,667 9,734
2,288 20,491
Net income (loss)......... (966) 14,503 7,487
1,748 21,872
Earnings (loss) per share:
Income (loss) from
continuing operations... (.04) .57 .36
.09 .90
Discontinued operations... -- (.04)(11) (.09)(11)
(.02) .01
Extraordinary item........ -- -- --
-- .05
Cumulative effect of
accounting change........ -- -- .01
-- --
Net income (loss)........ (.04) .53 .28
.07 .96
Weighted average common
and common equivalent
shares outstanding....... 26,902 27,162 27,206
24,317 22,738
BALANCE SHEET DATA:
Working capital........... 69,538 46,403 40,724
31,990 50,904
Current assets............ 120,711 106,926 81,102
67,074 89,696
Property and equipment.... 59,773 51,471 40,407
32,184 28,681
Intangibles............... 73,158 65,268 52,707
29,489 19,599
Total assets.............. 260,300 227,627 177,010
133,682 140,773
Long-term debt............ 82,813 47,347 36,297
7,675 8,411
Total liabilities......... 137,845 110,310 77,108
43,652 48,161
Redeemable preferred
stock.................... -- -- 157
84 5
Total common stock and
other stockholders'
equity.................. 116,810 114,880 100,106
90,267 92,435
___________________
(1) In 1995 the Company consummated the acquisition of two-thirds
of Insituform France and
the Enviroq Acquisition, which have been accounted for under
the purchase method of
accounting.
(2) At December 31, 1995 and through the year then ended, a 15%
general partnership interest
in Midsouth Partners was held by ICI (a subsidiary of the
Company) and a 42.5% interest
therein were held by a subsidiary of Enviroq; and, as a
consequence of the Enviroq
Acquisition, Midsouth Partners has been consolidated in the
Company's financial
statements since April 18, 1995. See "Item 3. Legal
Proceedings" for a description of
arbitration proceedings brought by the remaining partner of
Midsouth Partners alleging
an event of default by Enviroq under the partnership agreement
of Midsouth Partners, and
the purported exercise by such partner of its alleged rights as
a non-defaulting partner
to name a majority of the members of the management committee
of Midsouth Partners, an
action to which the Company has objected.
(3) In 1994 the Company consummated the acquisition of Gelco
Services, Inc. and affiliates,
which has been accounted for under the purchase method of
accounting.
(4) In 1993 the Company consummated the acquisitions of Naylor and
Insituform Midwest, Inc.,
which have been accounted for under the purchase method of
accounting.
<PAGE>
(5) In 1992 the Company consummated the acquisitions of all of the
assets of Pipeline
Rehabilitation Systems, Inc., the minority interest in
Insituform Canada and of H.T.
Schneider, Inc., which have been accounted for under the
purchase method of accounting.
(6) In 1991 the Company consummated the acquisitions of United
Pipeline Systems USA, Inc.,
of the controlling interest in Insituform Southwest and of
United Pipeline Systems, Inc.
(and its parent), which have been accounted for under the
purchase method of accounting.
(7) Reflects $6.5 million in costs associated with the IMA Merger,
which have been charged
to operations primarily in the fourth quarter of 1995, and a
pre-tax charge in the
amount of $8.1 million for restructuring costs, primarily for
consolidation of corrosion
and abrasion protection operations, rationalization of Canadian
operations to one
facility, elimination of duplicative management positions,
relocation of certain
domestic employees and functions, and termination of
construction of proposed
manufacturing capacity.
(8) Reflects $9.667 million in costs associated with the IGL
Acquisition, which have been
charged to operations primarily in the fourth quarter of 1992,
and a pre-tax charge in
the amount of $4.905 million for restructuring costs, primarily
for asset-related write-
offs, lease termination provisions and personnel related costs.
(9) In May 1991 the Company completed the sale of an equity
interest in IMA as a result of
which the Company received payments aggregating $22.058
million, which, after accounting
for the aggregate carrying amount of the investment, expense
associated with the
transaction and taxes (subsequent to utilization of the
Company's capital loss carryover
reported as an extraordinary item), resulted in a contribution
of approximately $10.574
million to net income (approximately $9.451 million to income
before extraordinary
item).
(10)In 1995 the Company settled certain outstanding litigation for
a cash payment of $3.2
million and issuance of 30,000 shares of ITI Common Stock,
resulting in an after-tax
charge against earnings of approximately $2.2 million.
(11)In December 1993 the Company determined to discontinue the
operations of its division
engaged in the offsite rehabilitation of downhole tubulars for
the oil and gas industry.
As a result, the Company recorded a fourth quarter 1993 charge
to write down the
division's assets to their estimated net realizable values and
to accrue for operating
losses during the anticipated phase-out period. The statement
of operations and balance
sheets have been restated to reflect continuing operations. The
Company also recorded
a fourth quarter 1994 charge resulting from the abandonment of
efforts to find a
purchaser for, and shut down of, such division.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's revenues include construction revenues from
direct installation and other contracting activities, product sales
of materials and equipment to licensees and royalty income and
initial license fees received from licensees for the use of the
Company's trenchless rehabilitation processes. Product sales
consist primarily of sales of Insitutubes and NuPipe to licensees.
Construction contract revenue is generated by the Company's
subsidiaries operating in the United States, Canada, France, the
United Kingdom and Chile. Royalties and license fees are paid by
the Company's 33 unaffiliated Insituform licensees and sub
<PAGE>
licensees and its ten unaffiliated NuPipe licensees. During the
three years ended December 31, 1995, 1994 and 1993, approximately
71.2%, 67.8% and 71.3%, respectively, of the Company's consolidated
revenues were derived from sales, construction and royalty revenues
related to the Insituform Process.
Product sales and royalties are primarily a function of the
contracts performed by the Company's licensees. However, changes in
product sales may vary from changes in royalties because of several
factors, including differences between the timing of Insitutube
sales and contract performance by licensees and the accrual by the
Company of minimum royalties in excess of royalties otherwise due
on work performed. The Company's consolidated subsidiaries obtain
supplies of Insitutubes and related materials from the Company.
The Company was incorporated in Delaware in 1980 in order to
act as the exclusive licensee of the Insituform Process in most of
the United States. In October 1995, the Company consummated the IMA
Merger, which has been accounted for as a pooling-of-interests.
Under the pooling-of-interests method of accounting, the historical
financial statements of the combining companies are retroactively
combined (after adjustments to eliminate intercompany balances and
transactions, and to conform accounting methods) as if the
companies had operated as a single entity.
The Company's results of operations for each of the three
years in the period ended December 31, 1995, after accounting for
the IMA Merger on a pooling-of-interests basis, confirm the
Company's increasing concentration of revenues derived from direct
installation activities (90.7%, 86.8% and 81.4%, respectively, of
total revenues for the combined companies as compared to 77.5%,
74.0% and 62.6%, respectively, for the Company's operations
exclusive of those of IMA combined as a result of the IMA Merger),
resulting from the acquisition of licensees. As a result of the
change in revenue mix, the Company's gross profit as a percentage
of total revenues for each of the three years in the period ended
December 31, 1995, after accounting for the IMA Merger on a
pooling-of-interests basis, was 31.5%, 34.5% and 36.9%,
respectively, compared to 34.1%, 36.2% and 40.2%, respectively, for
the Company's operations exclusive of those of IMA combined as a
result of the IMA Merger.
The Company's acquisitions in July 1993 of Naylor, the parent
of Insituform Gulf South, Inc. ("Gulf South"), and Insituform
Midwest, Inc. ("Midwest"), its acquisition in October 1994 of Gelco
Services, Inc. ("Gelco") and affiliates, its February 1995
acquisition of two-thirds of the interest in Insituform France, the
April 1995 Enviroq Acquisition and its November 1995 acquisition of
Waterflow's FormaPipe division have been accounted for under the
purchase method of accounting, so that the results of the acquired
companies are included in the Company's historical results of
operations from the consummation of such transactions,
respectively. In addition, product sales and purchases and royalty
revenues and expenses related to intercompany transactions
<PAGE>
occurring subsequent to the acquisition dates of Gulf South,
Midwest, Gelco, Insituform France and Insituform Southeast have
been eliminated.
Fluctuations in the exchange rates between the United States
dollar and the currencies of other countries in which the Company
operates or has licensees may have an impact on the Company's
consolidated results during the relevant reporting period. The
Company intends to manage any such foreign currency exposure in the
context of discrete commercial transactions and, when appropriate,
to offset such exposure in whole or in part by entering into
foreign currency forward contracts, in order to reduce the impact
of such fluctuations on results of operations. The Company does not
anticipate that the circumstances in which such hedging activity
would be appropriate will have a material effect on the Company's
liquidity.
RESULTS OF OPERATIONS
Year Ended December 31, 1995 Compared to Year Ended December
31, 1994
Revenues. Revenues increased 22.0% to $272.2 million in 1995
from $223.2 million in the prior year, primarily as a result of an
increase in construction revenues. As discussed above, during 1995
and 1994 the Company consolidated the construction revenues of
newly-acquired former licensees, both in the United States and in
Europe (and obtained a majority interest in another domestic
licensee) resulting in the elimination of the related product sales
and royalty revenues.
Construction contract revenues increased 27.4% to $246.9
million from $193.7 million in 1994, primarily as a result of the
acquisitions of Insituform Southeast (in April 1995), Insituform
France (in February 1995) and Gelco and affiliates (in October
1994), which, together with the consolidation of Midsouth Partners,
contributed $47.7 million to 1995 construction revenues, compared
to $4.6 million from Gelco subsequent to its acquisition in the
prior year. See "Item 1. Business", for information describing the
Company's majority interest in Midsouth Partners resulting from the
Enviroq Acquisition, and claims made in arbitration relating to
control of the management committee of Midsouth Partners.
Construction revenues also reflect increases in revenues in 1995 in
the United States from the Company's midwestern operations of $3.8
million, its Gulf coast operations of $4.3 million, and IMA's
central region of $3.8 million. In addition, the Company's
tunnelling business generated an additional $6.8 million of
revenues.
These increases were offset by decreases in revenues of the
Company's New England operations of $4.4 million (due primarily to
the completion of certain contracts with the Massachusetts Water
Resources Authority), and of Insituform Canada's water and sewer
open cut construction business of $3.8 million (due primarily to
<PAGE>
the continued sluggish housing market in Canada). During the fourth
quarter of 1995, Insituform Canada completed the sale to certain
members of its management of the assets utilized in its open cut
business, which in 1995, through the date of sale, represented
$10.2 million in revenues, compared to $14.0 million for the entire
prior year. Fluctuations in currency exchange rates had an
immaterial effect on construction revenues during 1995.
Product sales decreased 15.0% to $18.6 million in 1995 from
$21.9 million in 1994. The decrease is primarily due to additional
eliminations of intercompany sales subsequent to recent
acquisitions. Post-acquisition intercompany sales to Insituform
France, Insituform Southeast, and Midsouth Partners of $3.1 million
were excluded from 1995 consolidated product sales. In addition,
1994 sales included $1.1 million of pre-acquisition sales to Gelco.
Royalty and license fee revenue decreased 11.2% in 1995 to
$6.7 million compared to $7.5 million in 1994. The decrease is
primarily attributable to the elimination of $1.7 million in
post-acquisition intercompany royalties from Insituform France,
Insituform Southeast and Midsouth Partners in 1995. Royalties in
1994 included $0.6 million of pre-acquisition royalties from Gelco.
In 1995, the Company added a license for New Zealand, recognizing
$48,000 in license fee revenue, while in 1994, the Company signed
licenses in South Korea and, on a non-exclusive basis, for Japan
and Poland, recognizing $0.3 million in license fee revenue.
Operating Costs and Expenses. In 1995, cost of construction
contracts (which include trenchless installations, abrasion and
corrosion and pipeline construction, tunnelling and open cut
excavation) increased 32.3% to $174.1 million from $131.5 million
in 1994. The increase was primarily attributable to newly-acquired
licensees, which added collectively $35.9 million to 1995
construction costs, compared to $3.0 million from Gelco subsequent
to its acquisition in 1994. During 1995, construction costs as a
percentage of construction revenues increased to 70.5% from 67.9%
in 1994, due primarily to poorer performance of the Company's New
England, Gulf coast and United Kingdom operations, in addition to
the historically lower margins associated with general contracting
in the Company's Chilean and tunnelling operations. These negative
factors were somewhat offset by improvements resulting from the
Gelco and Insituform France operations, which achieved
comparatively higher margins.
Cost of product sales as a percentage of product sales
decreased to 64.3% in 1995 compared to 66.0% in 1994, while gross
margins decreased to $6.7 million in 1995 from $7.5 million in
1994. This improvement in cost of product sales as a percentage of
product sales primarily reflects a favorable year for production
quality and customer satisfaction in the United States, offset by
increases in product sales in Japan and the United Kingdom, where
margins are historically lower. In 1994, the Company had recorded
a provision of $0.6 million for certain obsolete inventories of
NuPipe.
<PAGE>
As a percentage of revenues, selling, administrative and
general expenses were 19.0% compared to 18.6% in 1994. The increase
in 1995 as a percent of revenues is primarily attributable to
higher costs of operations at Gelco, increased focus on company-
wide quality of $0.4 million, additional legal costs associated
with litigation and intellectual property maintenance of $0.8
million, and increased costs in the Company's New England
operations due to management transition and additional crew
management to handle increased volume during the first half of
1995. Selling, administrative and general costs increased 24.7% to
$51.8 million compared to $41.5 million in 1994 due, in part, to
the incremental costs of operations for recently acquired entities
of $6.9 million (of which $1.1 million related to incremental
goodwill and non-compete amortization).
Strategic marketing and product development costs increased
23.6% to $7.6 million compared to $6.2 million in 1994, primarily
due to the enhanced efforts in connection with Paltem and NuPipe of
$0.7 million. Management also expanded its strategic marketing
efforts in the industrial market in 1995, resulting in incremental
salaries and benefits of $0.4 million for additional personnel,
travel and associated costs.
In 1995, the Company recognized merger and restructuring costs
of approximately $14.5 million in connection with the IMA Merger.
These included transaction costs related to the merger of
approximately $6.5 million, which were primarily attributable to
investment banking fees, legal and accounting fees, filing fees,
and management travel costs. These also included a charge of
approximately $8.1 million relating to restructuring costs,
consisting primarily of: (i) the consolidation of the combined
companies' corrosion and abrasion protection operations and the
abandonment of certain assets related to the UltraPipe process
(approximately $2.6 million), (ii) the rationalization of certain
Canadian operations to one facility in Edmonton (approximately $0.5
million), (iii) the elimination of certain duplicative management
positions (approximately $0.8 million), (iv) the relocation of
certain domestic employees and functions (approximately $1.7
million), and (v) the termination of construction on IMA's proposed
manufacturing facility in Chesterfield, Missouri (approximately
$1.8 million).
Other Income (Expense). Other expense increased to $8.1
million from $2.4 million in 1994, a significant portion of which
is attributable to additional interest incurred on debt issued to
fund the Company's recent acquisitions (an increase of $3.0 million
compared to 1994). In addition, notwithstanding its belief that it
had defenses to plaintiff's claims that were well-grounded in law
and fact, in May 1995 the Company entered into a memorandum of
understanding to settle a pending shareholder class action lawsuit.
Under the settlement, which has been evidenced by a stipulation of
settlement formally approved by court order in December 1995, the
Company made a cash payment to class members in the amount of $3.2
million and (in January 1996) issued 30,000 shares of ITI Common
<PAGE>
Stock (valued at $0.4 million). The Company recorded a pre-tax
charge to earnings for $3.6 million (after-tax effect of $2.2
million) during 1995 with respect to the settlement.
Taxes on Income. Taxes on income applicable to continuing
operations decreased to $4.0 million from $10.5 million in 1994 as
a result of a $23.2 million decrease in income before taxes on
income, offset by an increase in the effective tax rate to 109.8%,
as compared to 39.0% in 1994. As indicated in Note 14 of the Notes
to Consolidated Financial Statement included in response to "Item
14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K," the 1995 and 1994 effective tax rates were higher than the
United States federal statutory rate, which in 1995 was primarily
due to the non-deductibility of a substantial portion of the $6.5
million in merger-related costs in connection with the IMA Merger.
The additional amortization of goodwill associated with the recent
acquisitions, which is generally not deductible for tax purposes,
contributed to the increase in the rate for both years, as did the
need to provide a valuation allowance due to uncertainties
regarding the Company's ability to utilize certain current and
prior year losses in certain tax jurisdictions to offset current
and prior year profits in other jurisdictions.
In its financial statements, the Company has reported net
deferred income tax assets of $2.7 million as of December 31, 1995.
The Company has net operating loss and foreign tax credit
carryforwards which, if fully realized, would produce future tax
benefits of $7.0 million. The realization of these benefits is
dependent on the generation of future taxable income in the
applicable jurisdictions, and the Company has recorded a valuation
allowance of $3.8 million to reduce the related net deferred tax
assets to $2.7 million. Such amounts represent the level of future
income tax benefits the realization of which, in management's
opinion, meets the "more likely than not" threshold required under
Statement of Financing Accounting Standards No. 109, "Accounting
for Income Taxes". The net operating loss carryforwards ("NOLs") of
the Company's subsidiaries are summarized in Note 14 of the Notes
to Consolidated Financial Statements including in response to "Item
14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K".
Approximately $1.2 million of the United States NOLs, expiring
in 2007, are further subject to limitations imposed by Internal
Revenue Code Section 382 and may only be utilized to the extent of
approximately $.4 million per year as a result of the ownership
change which occurred upon the Company's acquisition of its New
England operations in 1992. However, this limitation is such that
the full amount of NOLs may be utilized before the expiration of
the carryforward period.
Management has prepared projections of the respective
subsidiaries' taxable income for future years that indicate that
the NOLs that are subject to a Section 382 limitation would be
absorbed within four to seven years, that the remaining United
<PAGE>
States and Canadian NOLs would be absorbed within three years and
a substantial portion of the United Kingdom NOLs would be absorbed
within seven years. However, the Company does not believe that the
future realization of all of these future tax benefits indicated by
its projections is sufficiently assured to allow their full
recognition in the consolidated financial statements. In
particular, projections of operating results over an extended
period, such as seven years, are inherently imprecise. Accordingly,
a valuation allowance of $3.8 million has been recorded.
The realization of the net deferred tax asset of $2.7 million
would require that certain of the Company's subsidiaries, including
ICI, Insituform Southwest, Insituform of New England, Inc.,
Insituform Canada, Insituform Permaline Ltd., and Insituform
Technical Services Ltd., generate various levels of annual taxable
income over the respective carryforward periods. Management
believes that it is more likely than not that the applicable levels
of taxable income can be generated. In reaching this conclusion,
management noted a number of factors, including the following
related to its domestic operations: (i) the operations of
Insituform New England were historically profitable, the NOL
carryforward was generated by a non-recurring charge immediately
prior to its acquisition by the Company and the Company believes
managerial problems experienced during 1994 and early 1995 have
been corrected; and (ii) historically profitable partnership
investments held by ICI are expected to continue to result in
annual taxable income. With regard to its foreign operations,
management noted a number of factors including that, with the
exception of NuPipe Limited, the Company's United Kingdom
operations have had a history of profitability until the United
Kingdom recession, the Company has eliminated duplicative
administrative and research and development facilities in the
United Kingdom and has also reduced managerial and other staffing
levels in the United Kingdom and the acquisition of the business
and personnel of Waterflow's FormaPipe division in late 1995 have
helped to restore volume to needed levels.
Net Income. Total revenues increased by $49.0 million, or
22.0%, in 1995 over 1994, which was coupled with an increase in
gross profit of $8.8 million, or 11.4%, offset by increased
operating costs (including merger and restructuring costs of $14.5
million) of $26.2 million, or 55.1%. These factors contributed to
a decrease in operating income of $17.5 million, or 59.8%.
Excluding merger and restructuring costs in 1995, operating income
would have decreased $2.9 million, or 10.0%. An increase in other
expense of $5.7 million, offset by a decrease in taxes on income of
$6.5 million, resulted in a decrease in income from continuing
operations of $16.6 million, or 106.2%. In 1994, the Company
recognized a $1.2 million loss from discontinued operations. As a
result of the foregoing, net loss for 1995 was $1.0 million, a
decrease of $15.5 million, or 106.7%, from net income in 1994.
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December
31, 1993
Revenues. Revenues increased 47.2% to $223.2 million in 1994
from $151.6 million in the prior year, primarily as a result of an
increase in construction revenues and to a lesser extent, product
sales. During 1994 and 1993, the Company consolidated the
construction revenues of newly-acquired former licensees, resulting
in the elimination of the related product sales and royalty
revenues.
Construction contract revenues increased 56.9% to $193.7
million from $123.4 million in 1993, reflecting the acquisitions of
Gelco (in October 1994) and Midwest and Gulf South (both in July
1993), which collectively contributed $51.3 million to 1994
construction revenues, compared to $20.7 million from Midwest and
Gulf South subsequent to their acquisition in the prior year.
Construction revenues also reflect an increase in 1994 of $12.6
million by the Company's New England operations, due primarily to
project work on its contracts with the Massachusetts Water Resource
Authority. In addition, the Company's revenues were impacted by the
normalization of IMA's rehabilitation operation which had been
impacted by floods and rains in the prior year, and the start-up of
abrasion and corrosion and pipeline operations in Chile, which
added $11.2 million to 1994 revenues. Fluctuations in currency
exchange rates of Canadian dollars to United States dollars
negatively impacted 1994 construction revenues by approximately
$1.6 million.
Product sales increased 6.8% to $21.9 million in 1995 from
$20.5 million in 1993. The increase in 1994 is primarily due to
increased licensee activity in the United States, activity in Japan
relating to the Narita airport project, and recovering economic
conditions in Europe. These increases were offset by eliminations
of intercompany sales to the Company's recently acquired
subsidiaries. Post-acquisition intercompany sales to Gelco of $0.7
million were excluded from 1994 consolidated product sales. In
addition, 1993 sales included $2.9 million of pre-acquisition sales
to Midwest and Gulf South.
Royalty and license fee revenue decreased 1.8% in 1994 to $7.5
million compared to $7.6 million in 1993. The decrease is primarily
attributable to the elimination of $0.2 million in post-acquisition
intercompany royalties from Gelco in 1994. Royalties in 1993
included $0.6 million of pre-acquisition royalties from Midwest and
Gulf South. In 1994, the Company added licenses for South Korea,
and on a nonexclusive basis, for Japan and Poland, recognizing
license fee revenue of $0.3 million, while in 1993, the Company
signed licenses in Australia, Belgium, Hawaii, Switzerland and, on
a non-exclusive basis, various territories in the former Soviet
Union, recognizing $0.6 million in license fee revenue.
<PAGE>
<PAGE>
Operating Costs and Expenses. In 1994, cost of construction
contracts increased 57.8% to $131.5 million from $83.3 million in
1993. The increase was primarily attributable to newly-acquired
licensees, which added collectively $40.0 million to 1994
construction costs, compared to $14.0 million attributable to
Midwest and Gulf South in 1993. In addition, IMA's start-up
operations in Chile, normalization of IMA's rehabilitation
activities in 1994 after flooding and rains in the prior year, and
increased costs in tunnelling activities contributed to the growth
in construction costs. During 1994, construction costs, as a
percentage of construction revenues increased to 67.9% from 67.5%
in 1993, due primarily to poorer performance in the Company's New
England operations, and the pipeline constructions activities
undertaken in Chile, which carried the historically lower margins
associated with general contacting. These negative factors were
somewhat offset by improvements resulting from the Gelco and
Midwest operations which achieved comparatively higher margins.
Cost of product sales as a percentage of product sales
increased to 66.0% in 1994 compared to 58.9% in 1993 with gross
margin decreasing to $7.5 million in 1994 from $8.4 million in
1993. Those results primarily reflect an increase in product sales
in 1994 of $2.9 million in Japan and the United Kingdom, where
margins are lower. In addition, the Company recorded a provision of
$0.6 million for certain obsolete inventory of NuPipe in 1994.
Also, in 1993, the Company recorded reductions in certain European
warranty reserves no longer required in the amount of $0.5 million,
which favorably impacted cost of product sales, whereas, in 1994,
no such reductions were recorded.
As a percentage of revenues, selling administrative and
general expenses were 18.6% compared to 23.0% in 1993. The
decreases in 1994 as a percent of revenues is attributable
primarily to economies of scale realized by the allocation of fixed
costs over a larger revenue base. Further, the Company incurred
approximately $0.7 million in costs late in 1993 in connection with
reorganizing management. Selling, administrative and general costs
increased 19.0% to $41.5 million compared to $34.9 million in 1993
due, in part, to the incremental costs of operations for recently
acquired entities of $2.3 million (of which $0.7 million related to
incremental goodwill and non-compete amortization), and the
start-up of Latin American operations of $0.5 million. Also
contributing to the increase was the additional ongoing costs of
expanded administrative efforts in 1994, including salaries and
benefits of $3.0 million for the additional personnel, travel and
other costs.
Strategic marketing and product development costs decreased
10.1% to $6.2 million compared to $6.9 million in 1993, primarily
due to the elimination of duplicative United Kingdom research and
development costs, including personnel and facilities, as a result
of the acquisition of IGL in December 1992, and the concentration
of such efforts in the United States. This was offset somewhat by
expanded strategic marketing efforts in 1994, including salaries
<PAGE>
and benefits of $0.5 million for the additional personnel, travel
and other costs.
In 1993, the Company recognized merger and restructuring
credits of approximately $1.0 million, which primarily reflected
the effect of an early termination of a sublease under the
Company's Langley, United Kingdom, lease (which resulted in the
receipt of $0.8 million). The Company continues to seek to
negotiate a termination of the underlying lease in Langley.
Other Income (Expense). Other expense increased to $2.4
million from $0.5 million in 1993, primarily attributable to
additional interest incurred on debt issued to fund the Company's
corporate acquisitions (an increase in $1.8 million compared to
1993).
Taxes on Income. Taxes on income applicable to continuing
operations increased to $10.5 million from $5.2 million in 1993 as
a result of an increase in the effective tax rate to 39.0%, as
compared to 35.2% in 1993, combined with a $12.2 million increase
in income before taxes on income. As indicated in Note 14 of the
Notes to Consolidated Financial Statements included in response to
"Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K," the 1993 effective tax rate was fairly low, primarily
due to the favorable foreign tax treatments of certain foreign
earnings generated in the period. The additional amortization of
goodwill associated with the Gulf South and Midwest acquisitions of
$1.0 million, which is not deductible for tax purposes, contributed
to the increase in the 1994 rate over the statutory rate, as did
the need to provide a valuation allowance due to uncertainties
regarding the Company's ability to utilize current year losses in
certain tax jurisdictions to offset current year profits in other
jurisdictions.
Discontinued Operations. In December 1993, the Company adopted
a formal plan to discontinue the operations of its division engaged
in the off-site rehabilitation of downhole tubulars for the oil and
gas industry. The Company offered the business and the related
assets, including a facility located in Dallas, Texas, for sale
during 1994, but was unable to obtain a commitment from prospective
buyers, and management determined to shut down the division. The
Company recorded a charge of $2.0 million ($1.3 million net of
applicable income tax benefit) in the fourth quarter of 1993 to
write down the division's assets to their estimated net realizable
value and to accrue for estimated operating losses during the
phase-out period. Upon the determination to liquidate the
division's assets, the Company recorded, in the fourth quarter of
1994, a charge of $1.8 million ($1.2 net of applicable income tax
benefit) to write down the division's assets to their estimated
liquidation values and to accrue for estimated costs to shut down
the operation.
<PAGE>
<PAGE>
The downhole tubular division's revenues for the years ended
December 31, 1994 and 1993 were $1.1 million and $1.9 million,
respectively. The results of operations of the downhole tubular
division have been reclassified to separately identify them as
discontinued operations.
Net Income. Total revenues increased by $71.5 million, or
47.2%, in 1994 over 1993, which was coupled with an increase in
gross profit of $21.0 million, or 37.6%, partially offset by
increased operating costs of $6.9 million, or 16.9%. These factors
contributed to an increase in operating income of $14.1 million, or
93.5%. Excluding merger and restructuring credits in 1993,
operating income would have increased $13.1 million, or 87.0%. An
increase in other expenses of $1.9 million, coupled with an
increase in taxes on income of $5.3 million, resulted in an
increase in income from continuing operations of $5.9 million, or
61.0%. Losses in 1994 from discontinued operations were $1.2
million (net of applicable income tax benefits of $0.6 million). As
a result of the foregoing, net income for 1994 was $14.5 million,
an increase of $7.0 million, or 93.7% from 1993.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had $11.4 million in cash,
U.S. treasury bills, and short-term investments, compared to $18.7
million at December 31, 1994. The decrease of $7.3 million in cash
and cash equivalents during the year reflected cash used for
capital expenditures of $16.5 million and repayments of long-term
debt of $9.4 million, partially offset by cash provided by
operations of $1.1 million and $3.6 million in proceeds received
upon exercise of outstanding stock options. During the year ended
December 31, 1995, the Company also received proceeds of $40.8
million from long-term debt, which was used to fund business
acquisitions and refinance IMA's term loan and short-term debt. The
Company's working capital ratio was 2.4-to-1.0 at December 31,
1995, representing an increase from 1.8-to-1.0 at December 31,
1994.
Continuing operations provided cash of $1.6 million during the
year ended December 31, 1995, compared to $21.2 million in 1994.
The decrease is due primarily to the 1995 loss from continuing
operations of $1.0 million, reflecting merger and restructuring
costs of $14.5 million (of which $4.1 million had not been paid as
of December 31, 1995)and cash litigation settlement costs of $3.2
million, compared to 1994 income from continuing operations of
$15.7 million. During the year ended December 31, 1995, cash was
also used to fund increases in inventory of $4.1 million, prepaid
expenses and miscellaneous of $4.1 million, and reductions in
income taxes payable of $5.3 million and in accounts payable and
accruals of $3.8 million. These were further offset by additional
depreciation and amortization of $4.9 million (primarily associated
with the 1994 acquisition of the Gelco companies and the 1995
acquisitions of Insituform France and Insituform Southeast).
<PAGE>
Discontinued operations used cash of $.5 million in 1995, compared
to $.1 million in 1994.
Receivables used $1.0 million of cash during 1995, compared to
$17.5 million in 1994. Primarily due to the acquisition of
Insituform Southeast, and increased activity in the United Kingdom
due to the acquisition of Waterflow's Formapipe division,
receivables, including costs and estimated earnings in excess of
billings, increased 12.5% to $76.5 million from $68.0 million in
1994, reflecting a $3.9 million increase in retainage receivables
and a decrease of $5.3 million in costs and estimated earnings in
excess of billings on construction contracts from 1994. The
collection cycle for construction receivables is generally longer
than for the Company's other operations due to provisions for
retainage, often 5% to 10% of the contract amount, as well as the
slow internal review processes often employed by the construction
subsidiaries' municipal customers. Retainage receivables are
generally received within 60 to 90 days after the completion of a
contract.
The $3.8 million in cash provided by reductions in accounts
payable and accruals during 1995, compared to $7.9 million in cash
provided in 1994, reflected normal timing factors relating to trade
payables. Additional federal and state income tax payments were
made by the Company during the year as a result of greater levels
of currently taxable income in 1995 compared to 1994. A substantial
portion of the merger costs incurred in connection with the IMA
Merger are not deductible for income tax purposes.
See "Item 1. Business; IMA Merger" for a description of the
IMA Merger, pursuant to which IMA became a wholly-owned subsidiary
of the Company and holders of IMA Class A Common Stock became
entitled to receive an aggregate of 12,450,896 shares of ITI Common
Stock, subsequent to the conversion into IMA Class A Common Stock,
in accordance with its terms, of the outstanding IMA Class B Common
Stock.
In April 1995, IMA completed the Enviroq Acquisition for a
purchase price of $18.3 million (including $3.0 million in a
five-year covenant not to compete), paid $15.3 million in cash
funded by a term loan from IMA's banks and $3.0 million in a five-
year subordinated promissory note issued to New Enviroq. As a
result of demands for payment of such note and ensuing litigation,
in March 1996 the Company discharged its obligation under such
note, and under arrangements to pay $1 million in consulting fees
to New Enviroq over five years, and settled such litigation, for
the aggregate amount of $3.4 million and the release of other
claims.
In February 1995, the Company acquired two-thirds of the stock
of Insituform France for the sum of approximately $1.4 million,
and, in November 1995, completed the acquisition of Waterflow's
United Kingdom based Formapipe division for $4.3 million in cash,
which were both funded by the Company's credit facility with
<PAGE>
SunTrust Bank, Nashville, National Association ("SunTrust"),
formerly Third National Bank in Nashville. The Company also remains
obligated on certain notes issued in connection with the
acquisition, in October 1994, of all of the outstanding stock of
Gelco and affiliates, originally representing the one-half of the
purchase price of $18 million not paid in cash at closing, such
notes due on the first and second anniversaries of closing. In
addition, the Company issued promissory notes, aggregating $2.85
million, to the former Gelco shareholders and their affiliates,
representing net current liabilities of the acquired companies to
related parties and a portion of working capital at closing. The
notes issued in the Gelco closing are secured by the assets
acquired, subject to the rights of SunTrust, as agent, under its
loan arrangements with the Company.
Capital expenditures decreased in 1995 to $16.5 million from
$18.5 million in 1994. Capital expenditures generally reflect
replacement equipment required by the Company's contracting
subsidiaries. During 1995, the Company received $2.5 million in
proceeds upon disposal of older equipment, compared to $1.4 million
in 1994. See "Item 2. Properties" for information concerning the
Company's consideration of additional manufacturing capacity in
connection with its commercialization of the Ashimori Products.
Financing activities provided $26.1 million in cash during
1995 compared to $6.9 million in 1994. During 1995, the $40.8
million in proceeds received by the Company as a result of
incurring long-term debt was primarily used to fund the
acquisitions of Insituform France and Waterflow's FormaPipe
division along with retiring IMA's term loan used to finance the
Enviroq Acquisition and IMA's credit facility. Principal payments
increased to $9.4 million in 1995 from $5.8 million in 1994,
primarily as a result of payments due on the first anniversary of
the Gelco notes, and scheduled payments under the Company's credit
facility with SunTrust.
In October 1995, the Company entered into a credit agreement
dated such date (the "Credit Agreement") with SunTrust, as agent,
and a group of participating lenders (the "Lenders"), which
provides for advances by the Lenders through October 1997 on a
revolving basis aggregating up to $105 million (including a $5
million standby letter of credit facility). Of such amount,
approximately $35.9 million was applied to refinance the prior
existing debt of the Company to SunTrust and approximately $14.5
million to IMA's prior existing term loan and approximately $16.0
million to short-term debt of IMA under credit lines replaced with
the new facility. Additional advances may be used for the expansion
of the Company's business and for general corporate purposes.
Indebtedness pursuant to the Credit Agreement matures five
years after closing, with installments based on a five-year
amortization schedule commencing December 31, 1997. Interest on
indebtedness under the Credit Agreement is payable at a rate per
annum selected by the Company as either SunTrust's prime rate, plus
<PAGE>
a margin up to 0.25%, in the event certain financial ratios are not
maintained, or an adjusted LIBOR rate, plus a margin ranging from
1.00% to 1.75%, depending on the maintenance of certain financial
ratios. Up to $5 million under the Credit Agreement may be borrowed
from SunTrust pursuant to a swing-line facility, and would accrue
interest at a rate per annum equal to 0.5% below SunTrust's prime
rate. The Credit Agreement obligates the Company to comply with
certain financial ratios and restrictive covenants that, among
other things, limit the ability of the Company and its subsidiaries
to incur further indebtedness, pay dividends, make loans and
encumber any properties, and requires guarantees of certain
domestic subsidiaries.
The Company's prior existing facility with SunTrust, arranged
in July 1993, provided for advances of up to $30 million, which was
increased by up to an additional $12 million in August 1994 and
restated in June 1995 to aggregate up to $50 million. Borrowings
under the prior facility initially bore interest at the lesser of
the bank's prime rate or 2.75% above the 30-day adjusted LIBOR
rate. Pursuant to the June 1995 restatement, interest accrued at a
rate selected by the Company as either the bank's prime rate, plus
a margin ranging up to 0.25%, or the 30-day adjusted LIBOR rate,
plus a margin ranging from 1.75% to 2.25%. Initially, quarterly
principal payments of $1.1 million were required, and an additional
$.3 million to have commenced in September 1995, with the original
maturity date of December 1997 subsequently extended to June 2000.
IMA's term loan, which funded in April 1995 and was re-
financed from the SunTrust facility, originally aggregated $15.25
principal amount, payable $1.5 million per year with the balance
due in April 2002. This loan was secured by first mortgages on real
estate and a pledge of the shares of certain U.S. and Canadian
subsidiaries.
The Company's senior subordinated note in the principal amount
of $5 million acquired by Hanseatic Corporation in July 1993 for
discretionary customer accounts requires quarterly payments of
interest at 8.5% per annum and installments of principal in the
amount of $1 million on each of the fifth through eighth
anniversary dates of closing, with the entire remaining principal
due nine years after closing. The note is subordinated to bank and
other institutional financing (including the Credit Agreement), and
purchase money debt incurred in connection with acquisitions of
businesses. The note is pre-payable at the option of the Company,
at premiums until the fifth anniversary of closing ranging from 3%
to 1% of the amount prepaid. Warrants with respect to 350,877
shares of ITI Common Stock issued in connection with such note are
exercisable, at the election of the holder, through July 25, 1998,
at a price per share of ITI Common Stock of $14.25, and such shares
are entitled to demand and incidental registration rights.
<PAGE>
<PAGE>
In May 1995, the Company agreed to extend by one year, through
July 1996, the maturity of the note held by the Company issued by
Ringwood Limited in the principal amount of $3.624 million (see
Note 11 of the Notes to the Consolidated Financial Statements
included in response to "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K").
In October 1992, prior to its acquisition by the Company,
Naylor sold all of the common stock of its industrial services
subsidiary, and as part of the sale remains obligated to indemnify
the purchaser, with certain exceptions and subject to specified
limitations, against certain claims, including certain pending or
threatened litigation known to Naylor as of the date of purchase.
There can be no assurance that any claims, if successful, are or
will be wholly or partially insured, or covered by financial
reserves, or that such claims will not result in retroactive
adjustments in Naylor's insurance premiums based on the terms of
its retrospective rated policies. The Company's financial
statements reflect management's estimate of the likely amounts of
such remaining premiums. The Company has also provided in its
financial statements for the estimated amounts of liabilities that
are likely to be incurred from pending litigation and claims
involving Naylor.
Management believes its working capital and its existing
credit availability will be adequate to meet its capital
requirements for the foreseeable future. In connection with any
plans for the expansion of the Company's business and for general
corporate purposes, the Company may consider an offering of shares
of ITI Common Stock or convertible or other debt. The Company has
not reached any determination with respect to the size or nature of
any such offering or whether any such offering will be undertaken,
and there can be no assurance that any such offering will be made.
RECENTLY ISSUED ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for the
Long-Lived Assets to be Disposed Of ("FAS 121"). FAS No. 121
requires that long-lived assets and certain identifiable
intangibles and goodwill to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable.
FAS No. 121 is effective for the Company beginning with the
year ending December 31, 1996. Management does not expect adoption
of this accounting standard to have a material effect on the
Company's operating results, financial condition and liquidity.
The FASB has also recently issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("FAS 123"). FAS 123 and its disclosure requirements
<PAGE>
are effective for transactions and financial statements for fiscal
years beginning after December 15, 1995. The new standard
encourages entities to adopt a fair value method of accounting for
employee stock-based compensation plans and requires such
accounting for transactions in which an entity acquires goods or
services from non-employees through issuance of equity instruments.
As allowed under the provisions of FAS 123, the Company will
continue to measure compensation cost for employee stock-based
compensation plans using the intrinsic value based method of
accounting prescribed by the Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. As such, the
Company will make pro forma disclosures of net income and earnings
per share as if the fair value based method of accounting had been
applied. Accordingly, adoption will have no material effect on its
financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For information concerning this item, see "Item 14.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K",
which information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1.
Business-Executive Officers" and the Proxy Statement to be filed
with respect to the 1996 Annual Meeting of Stockholders (the "Proxy
Statement"), which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning this item, see the Proxy
Statement, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
For information concerning this item, see the Proxy
Statement, which information is incorporated herein by reference.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item, see the Proxy
Statement, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The consolidated financial statements filed in this
Annual Report on Form 10-K are listed in the attached Index to
Consolidated Financial Statements and Schedules.
2. Financial Statement Schedules:
No Financial Statement Schedules are included herein
because they are not required or are not applicable or the required
information is contained in the consolidated financial statements
or notes thereto.
3. Exhibits:
The exhibits required to be filed as part of this Annual
Report on Form 10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K:
During the quarter ended December 31, 1995, the Company
filed a Current Report on Form 8-K dated October 25, 1995 which,
under "Item 2. Acquisition or Disposition of Assets" thereunder,
reported the IMA Merger. The following financial statements of IMA
(including the financial statements of Enviroq), and pro forma
financial information, were incorporated by reference to such
report:
Financial Statements of IMA:
Independent Auditors' Report
Consolidated Balance Sheets as of September 30, 1994 and 1993
Consolidated Statements of Income for the years ended September 30,
1994, 1993 and 1992
Consolidated Statements of Changes in Stockholders' Equity for the
years ended September 30, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended September
30, 1994, 1993 and 1992
<PAGE>
Notes to Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1995
(unaudited) and September 30, 1994
Condensed Consolidated Statements of Income (unaudited) for the
nine months ended June 30, 1995 and 1994
Condensed Consolidated Statements of Cash Flows (unaudited) for the
nine months ended June 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements (unaudited)
Financial Statements of Enviroq:
Independent Auditors' Report
Consolidated Balance Sheets as of March 25, 1995 and March 26, 1994
Consolidated Statements of Operations for the years ended March 25,
1995 and March 26, 1994
Consolidated Statements of Stockholders' Equity for the years ended
March 25, 1995 and March 26, 1994
Consolidated Statements of Cash Flows for the years ended March 25,
1995 and March 26, 1994
Notes to Consolidated Financial Statements
Unaudited Pro Forma Combined Condensed Financial Information:
Introductory material following the caption "Unaudited Pro Forma
Combined Condensed Financial Information"
Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30,
1995
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
Unaudited Pro Forma Combined Statements of Operations for the six
months ended June 30, 1995
Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1994
Unaudited Pro Forma Combined Condensed Statements of Operations for
the six months ended June 30, 1994
Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1993
<PAGE>
Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1992
Notes to Unaudited Pro Forma Combined Condensed Statements of
Operations
<PAGE>
<PAGE>
POWER OF ATTORNEY
The registrant and each person whose signature appears
below hereby appoint James D. Krugman, Jerome Kalishman, Jean-Paul
Richard and William A. Martin as attorneys-in-fact with full power
of substitution, severally, to execute in the name and on behalf of
the registrant and each such person, individually and in each
capacity stated below, one or more amendments to the annual report
which amendments may make such changes in the report as the
attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 29, 1996 INSITUFORM TECHNOLOGIES, INC.
By s/JEAN-PAUL RICHARD
--------------------------------
Jean-Paul Richard
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
s/JEAN-PAUL RICHARD
- -----------------------
Jean-Paul Richard Principal Executive March 29, 1996
Officer and Director
s/WILLIAM A. MARTIN
- -----------------------
William A. Martin Principal Financial March 29, 1996
and Accounting Officer
<PAGE>
<PAGE>
s/ROBERT W. AFFHOLDER
- -----------------------
Robert W. Affholder Director March 29, 1996
s/PAUL A. BIDDELMAN
- -----------------------
Paul A. Biddelman Director March 29, 1996
s/BRIAN CHANDLER
- -----------------------
Brian Chandler Director March 29, 1996
s/DOUGLAS K. CHICK
- -----------------------
Douglas K. Chick Director March 29, 1996
s/WILLIAM GORHAM
- -----------------------
William Gorham Director March 29, 1996
s/JEROME KALISHMAN
- -----------------------
Jerome Kalishman Director March 29, 1996
s/JAMES D. KRUGMAN
- -----------------------
James D. Krugman Director March 29, 1996
s/STEVEN ROTH
- -----------------------
Steven Roth Director March 29, 1996
s/ALVIN J. SITEMAN
- -----------------------
Alvin J. Siteman Director March 29, 1996
s/SILAS SPENGLER
- -----------------------
Silas Spengler Director March 29, 1996
<PAGE>
s/SHELDON WEINIG
- -----------------------
Sheldon Weinig Director March 29, 1996
s/RUSSELL B. WIGHT, JR.
- -----------------------
Russell B. Wight, Jr. Director March 29, 1996
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Certified Public
Accountants........................................ F-2
Consolidated Balance Sheets, December 31,
1995 and 1994...................................... F-3
Consolidated Statements of Operations for
each of the three years in the period
ended December 31, 1995............................ F-5
Consolidated Statements of Stockholders'
Equity for each of the three years in
the period ended December 31, 1995................. F-7
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 31, 1995..................... F-9
Summary of Accounting Policies....................... F-10
Notes to Consolidated Financial Statements........... F-15
No Financial Statement Schedules are included herein because
they are not required or not applicable or the required information
is contained in the consolidated financial statements or notes
thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Insituform Technologies, Inc.
We have audited the accompanying consolidated balance sheets of
Insituform Technologies, Inc. and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts
and disclosures in the financial statements. An audit also
includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Insituform Technologies, Inc. and subsidiaries at
December 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Memphis, Tennessee
March 8, 1996
F-2<PAGE>
<PAGE>
</TABLE>
<TABLE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note 1)
<CAPTION>
December 31, 1995 1994
- ------------ ---- ----
(In
thousands)
<S> <C> <C>
Assets
Current
Cash and cash equivalents,
restricted $842 and
$3,836 (Note 17) $ 11,416 $ 18,670
Receivables (Note 2) 64,717 49,087
Costs and estimated earnings
in excess of billings (Note 3) 14,008 19,311
Inventories (Note 4) 16,572 11,022
Deferred income taxes (Note 14) 4,287 2,807
Prepaid expenses and miscellaneous 9,711 6,029
-------- --------
Total current assets 120,711 106,926
-------- --------
Property and equipment, less accumulated
depreciation and amortization
(Notes 5, 7 and 8) 59,773 51,471
-------- --------
Other assets
Costs in excess of net assets
of businesses acquired, less
accumulated amortization of
$7,124 and $4,427 (Note 1) 58,431 52,102
Patents and patent applications,
less accumulated amortization of
$3,868 and $1,988 8,963 9,020
Investments in licensees and
affiliated companies (Note 6) 1,555 2,131
Deferred income taxes (Note 14) 1,862 1,417
Non-compete agreements, less
accumulated amortization of
$2,323 and $1,176 (Note 1) 3,554 1,369
Miscellaneous 5,451 3,191
-------- --------
Total other assets 79,816 69,230
-------- --------
$260,300 $227,627
======== ========
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated
financial statements.
F-3<PAGE>
<PAGE>
<TABLE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Note 1)
<CAPTION>
December 31, 1995 1994
- ------------ ---- ----
(In thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Notes payable to banks (Note 7) $ 1,053 $ 8,092
Accounts payable and accruals (Note 9) 35,644 35,454
Income taxes payable (Note 14) 1,768 4,888
Deferred income taxes (Note 14) 627 517
Current maturities of long-term debt (Note 8) 12,081 11,572
-------- --------
Total current liabilities 51,173 60,523
Long-term debt, less current maturities
(Note 8) 82,813 47,347
Deferred income taxes (Note 14) 2,850 2,155
Other liabilities 1,009 285
-------- --------
Total liabilities 137,845 110,310
-------- --------
Minority interests 5,645 2,437
-------- --------
Commitments and contingencies
(Notes 1, 10, 12, and 17)
Stockholders' equity (Note 10):
Preferred stock, undesignated,
$.10 par - shares authorized
2,000,000; none outstanding - -
Common stock, $.01 par - shares
authorized 40,000,000;
shares outstanding 27,104,940
and 26,711,031 271 267
Additional paid-in capital 67,427 63,270
Retained earnings (Note 8) 54,557 56,262
-------- --------
122,255 119,799
Cumulative foreign currency
translation adjustments (1,821) (1,733)
Unrealized holding gains on
investments available-for-sale - 438
Notes receivable from affiliates
(Note 11) (3,624) (3,624)
-------- --------
Total Stockholders' equity 116,810 114,880
-------- --------
$260,300 $227,627
======== ========
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4<PAGE>
<PAGE>
<TABLE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Note 1)
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues (Notes 12 and 16)
Net sales $ 18,649 $ 21,949 $ 20,545
Royalties and license fees 6,650 7,490 7,629
Construction contracts 246,904 193,732 123,448
-------- -------- --------
Total revenues 272,203 223,171 151,622
-------- -------- --------
Operating costs and expenses
Cost of sales 11,987 14,492 12,101
Royalty expense (Note 12) 435 223 281
Cost of construction
contracts 174,051 131,533 83,347
Selling, administrative
and general 51,803 41,511 34,889
Strategic marketing and
product development 7,636 6,180 6,878
Merger and restructuring
costs (Note 1) 14,541 - (981)
-------- -------- --------
Operating costs and expenses 260,453 193,939 136,515
-------- -------- --------
Operating income 11,750 29,232 15,107
-------- -------- --------
Other income (expense)
Interest expense (6,393) (3,410) (1,566)
Other (Note 13) (1,727) 1,012 1,098
-------- -------- --------
Other income (expense) (8,120) (2,398) (468)
-------- -------- --------
Income from continuing
operations before taxes
on income 3,630 26,834 14,639
Taxes on income (Note 14) 3,987 10,457 5,159
(continued)
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Note 1)
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C>
Minority interests $ (1,275) $ (1,280) $ (384)
Equity in earnings of
affiliated companies (Note 6) 666 570 638
-------- -------- --------
Income (loss) from continuing
operations (966) 15,667 9,734
Loss from discontinued
operations (Note 15) - (1,164) (2,465)
-------- -------- --------
Income (loss) before cumulative
effect of accounting change (966) 14,503 7,269
Cumulative effect of
accounting change (Note 14) - - 218
-------- -------- --------
Net income (loss) $ (966) $ 14,503 $ 7,487
======== ======== ========
Earnings (loss) per share
of common stock and common
stock equivalents
Income (loss) from
continuing operations $ (.04) $ .57 $ .36
Discontinued operations - (.04) (.09)
Cumulative effect of
accounting change - - .01
-------- -------- --------
Net income (loss) $ (.04) $ .53 $ .28
======== ======== ========
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Note 1)
<CAPTION>
Additional
Common Stock Paid-In
Retained
No. Shares AmountCapital
Earnings
---------- --------------- -------
(In thousands, except share
amounts)
<S> <C> <C> <C> <C>
Balance, December 31, 1992 26,264,529 $263$57,974 $37,232
Net income for the year - - - 7,487
Issuance of common stock upon
exercise of options 303,984 3 2,260
- -
Stock issued in conjunction
with acquisition (Note 1) 40,096 - 500
- -
Warrants issued with subordinated
debt (Note 10) - - 413
- -
Dividends declared (Note 10) - - -
(1,473)
Tax benefit related to
exercise of stock options - - 844
- -
Other - - -
(8)
---------- ----------- -------
Balance, December 31, 1993 26,608,609 266 61,991 43,238
Net income for the year - - - 14,503
Issuance of common stock
upon exercise of options 31,450 - 195
- -
Stock issued in conjunction
with acquisition (Note 1) 70,972 1 999
- -
Dividends declared (Note 10) - - -
(1,474)
Tax benefit related to
exercise of stock options - - 85
1
Other - - -
(5)
---------- ----------- -------
Balance, December 31, 1994 26,711,031 267 63,270 56,262
Net loss for the year - - -
(966)
Issuance of common stock
upon exercise of options 393,909 4 3,627
- -
Dividends declared (Note 10) - - -
(739)
Tax benefit related to
exercise of stock options - - 530
- -
Other - - -
- -
---------- ------------ -------
Balance, December 31, 1995 27,104,940 $271$67,427 $54,557
========== ============ =======
See accompanying summary of accounting policies and notes to
consolidated financial
statements.
/TABLE
<PAGE>
<PAGE>
<TABLE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Cumulative UnrealizedNotes
Foreign Holding Receiv- Total
Currency Gains on able
Stock-
Translation Invest- From
holders'
Adjustments ment Affiliates
Equity
----------- --------- ----------
- -------
(In thousands, except share
amounts)
<S> <C> <C> <C>
Balance, December 31, 1992$(1,578) $ - $(3,624)
$90,267
Net income for the year - - -
7,487
Issuance of common stock upon
exercise of options - - -
2,263
Stock issued in conjunction
with acquisition (Note 1) - - -
500
Warrants issued with subordinated
debt (Note 10) - - -
413
Dividends declared (Note 10) - - -
(1,473)
Tax benefit related to
exercise of stock options - - -
844
Other (187) - -
(195)
------- ----- -------
- -------
Balance, December 31, 1993 (1,765) - (3,624)
100,106
Net income for the year 14,503 - -
-
Issuance of common stock
upon exercise of options - - -
195
Stock issued in conjunction
with acquisition (Note 1) - - -
1,000
Dividends declared (Note 10) - - -
(1,474)
Tax benefit related to
exercise of stock options - - -
85
Other 32 438 -
465
------- ----- ------
- -------
Balance, December 31, 1994 (1,733) 438 (3,624)
114,880
Net loss for the year - -
(966)
Issuance of common stock
upon exercise of options - - -
3,631
Dividends declared (Note 10) - - -
(739)
Tax benefit related to
exercise of stock options - - 530
Other (88) (438) -
(526)
------- ----- -------
- -------
Balance, December 31, 1995$(1,821) $ - $(3,624)
$116,810
======= ===== =======
========
See accompanying summary of accounting policies and notes to
consolidated financial
statements.
</TABLE>
F-7<PAGE>
<PAGE>
<TABLE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION> (Note 1)
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating
activities
Income (loss) from
continuing operations $ (966) $ 15,667 $
9,734
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Minority interest in
net income 1,275 1,280
384
Provision for re-
structuring costs 4,123 -
(981)
Depreciation 12,348 8,832
7,560
Amortization 4,451 3,050
2,090
Miscellaneous 466 757
707
Deferred income taxes (1,246) (271)
(1,576)
Loss (gain) on sale of
fixed assets (42) 290
73
Equity in earnings of
affiliated companies (666) (570)
(638)
Changes in operating
assets and liabilities,
net of effect of businesses
purchased (Note 1):
Receivables (972) (17,472)
2,613
Inventories (4,106) (2,211)
(814)
Prepaid expenses
and miscellaneous (4,084) (1,227)
1,315
Miscellaneous
other assets 123 (104)
911
Accounts payable
and accruals (3,795) 7,929
(7,856)
Income taxes (5,268) 5,225
(1,544)
-------- --------
- --------
Net cash provided by continuing
operations 1,641 21,175
11,978
------- ---------
- --------
Net cash used by discontinued
operations (500) (99)
(940)
------- ---------
- --------
Net cash provided by operations 1,141 21,076
11,038
------- ---------
- --------
Cash flows from investing activities
Capital expenditures (16,497) (18,472)
(10,812)
Proceeds from (investments in)
licensees and affiliated
companies 445 407
(460)
Purchase of patents and
applications (1,445) (811)
(343)
Purchases of businesses,
net of cash acquired (Note 1)(18,885) (9,379)
(32,588)
Proceeds on disposal of
property and equipment 2,506 1,383
1,092
Other (790) -
- -
Net cash used by investing ------- ---------
- --------
activities (34,666) (26,872)
(43,111)
------- ---------
- --------
(continued)
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-8
<PAGE>
<TABLE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION> (Note 1)
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from financing
activities
Proceeds from issuance of
common stock $ 3,631 $ 195 $ 2,263
Proceeds from long-term debt 40,812 9,828 35,430
Principal payments on
long-term debt (9,439) (5,846)
(2,994)
Redemption of redeemable
preferred stock - (228)
- -
Minority interests (155) 239
(67)
Increase (decrease) in
short-term borrowings (7,293) 4,203 1,367
Dividends paid (Note 10) (1,476) (1,474)
(1,473)
------- ------- -------
Net cash provided by
financing activities 26,080 6,917 34,526
------- ------- -------
Effect of exchange rate
changes on cash 191 60
(280)
------- ------- -------
Net increase (decrease)
in cash and cash equivalents
for the year (7,254) 1,181 2,173
Cash and cash equivalents,
beginning of year 18,670 17,489 15,316
------- ------- -------
Cash and cash equivalents,
end of year $11,416 $18,670 $17,489
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Cash paid during the year
for:
Interest (net of
amount capitalized) $ 6,165 $ 3,587 $ 1,815
Income taxes 8,265 4,467 4,979
Non-cash investing and
financing activities
Deferred consideration
for intangible assets
acquired (Note 12) 1,000 -
- -
Additional paid-in
capital increased by
reduction in income
taxes payable for tax
benefit arising from
exercise of stock options 530 85 844
Deferred consideration for
businesses acquired (Note 1) 3,000 11,850 1,000
Common stock issued in
connection with purchase
of business (Note 1) - 1,000 500
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-9<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Industry Information
Insituform Technologies, Inc. (the "Company" or "ITI") is a
worldwide provider of proprietary trenchless technologies for the
rehabilitation and improvement of sewer, water, gas and industrial
pipes. In addition to the Company's primary technology, the
Insituform(R) Process, a "cured-in-place" pipeline rehabilitation
process, the Company also offers the NuPipe(R) Process, a "fold and
formed" technology, through licensees or its subsidiaries. The
Company sells the materials used in these processes to many of its
licensees. The Company is the licensee in substantially all of
North America for the Paltem(R)-HL system of rehabilitating
pressure pipes, and the Company's Tite Liner(R) process is a method
of lining oil field, natural gas distribution and slurry lines with
a corrosion and abrasion resistant pipe. Through its Affholder,
Inc. subsidiary, the Company is engaged in trenchless tunnelling
used in the installation of new underground services.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries, including a 51% owned
United Kingdom subsidiary, Insituform Linings, Plc., a 60% owned
Chilean subsidiary, United Sistema de Tuberias, Ltda., a 66% owned
French subsidiary, Insituform France, S.A. and a 57.5% owned
domestic partnership, Midsouth Partners (see Note 1). All material
intercompany balances, transactions and stockholdings are
eliminated.
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Business Acquisitions
The accounts and operations of businesses acquired in exchange for
common stock, and which were accounted for as poolings of
interests, are included in the financial statements as if they had
always been subsidiaries.
The net assets of businesses acquired and accounted for using the
purchase method of accounting are recorded at their fair values at
the acquisition dates, and the financial statements include their
operations only from those dates. Any excess of acquisition costs
over the fair value of net assets acquired is included in the
balance sheet as "Costs in excess of net assets of businesses
acquired."
F-10
<PAGE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Taxes on Income
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes ("SFAS 109"). Under SFAS 109, the Company provides for
estimated income taxes payable or refundable on current year income
tax returns as well as the estimated future tax effects
attributable to temporary differences and carryforwards, based upon
enacted tax laws and tax rates.
U.S. and foreign income taxes are not provided on undistributed
earnings of foreign subsidiaries where it is the Company's
intention to indefinitely reinvest such earnings in the
subsidiary's operations and not to transfer them in a taxable
transaction.
Foreign Currency Translation
Results of operations for foreign entities are translated using the
average exchange rates during the period. Assets and liabilities
are translated to U.S. dollars using the exchange rates in effect
at the balance sheet date, and the related translation adjustments
are reported as a separate component of stockholders' equity.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company
classifies cash on hand and in savings, money market, certificates
of deposit, and checking accounts, as well as other highly liquid
debt securities with original maturities of 90 days or less, as
cash equivalents.
Investments
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities ("SFAS 115").
Under SFAS 115, the Company has classified investments in equity
securities that have readily determinable fair values and all
investments in debt securities as available-for-sale. Such
investments are reported at fair value, with unrealized gains and
losses excluded from earnings and reported in a separate component
of stockholders' equity.
Corporate investments are carried on the equity method if the
Company's ownership interest is 20% and greater, but not exceeding
50%. Investments in partnerships for which the Company's ownership
interest is no greater than 50% are accounted for on the equity
method. For those investments accounted for on the equity method,
intercompany profits and losses are eliminated.
F-11<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Inventories
Inventories are valued at the lower of cost (first-in, first-out)
or market. Maintenance and office supplies are not inventoried.
Property, Equipment, Depreciation and Amortization
Property and equipment are stated at cost. Depreciation and
amortization on property and equipment are computed using the
straight-line method for financial reporting purposes over the
following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Land improvements 15-20
Buildings and improvements 5-40
Machinery and equipment 4-10
Furniture and fixtures 3-10
Autos and trucks 3-10
</TABLE>
For income tax purposes, depreciation and amortization are computed
using accelerated methods over the estimated useful lives.
Intangibles
The Company amortizes any excess of cost of businesses acquired
over the fair value of the net assets at dates of acquisition over
periods not in excess of 25 years on the straight-line basis.
Noncompete agreements are amortized on a straight-line basis over
the term of the applicable agreements.
Patent costs are amortized on a straight-line basis over the
statutory life, normally not exceeding 20 years. Existing patents
acquired are amortized in a similar manner. Certain of the
Company's patents related to the Insituform process have expired in
many countries, including the United States.
The Company's management continually evaluates the market coverage
and earnings capacity of its acquirees and its patented processes
to determine if the unamortized balances can be recovered from
their undiscounted future cash flows.
F-12<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Royalty Revenues and License Fees
Royalty revenues are accrued as earned in accordance with the
provisions of the license agreements and are recorded based upon
reports submitted by the licensees. License fees are recognized as
revenues when all material services have been substantially
performed.
Construction and Installation Revenues
Construction and installation revenues are recognized using the
percentage-of-completion method. Contract costs include all direct
material and labor costs and those indirect costs related to
contract performance, such as indirect labor, supplies, tools and
equipment costs. Changes in estimated total contract costs are
recognized in the period they are determined. Where a contract loss
is forecast, the full amount of the anticipated loss is recognized
in the period the loss is determined.
Stock Options
Stock options are typically granted to certain officers, directors,
and employees at the prevailing market price on the date of the
grant. The Company generally makes no charge to earnings with
respect to these options. Proceeds from the sale of common stock
issued under these options are credited to common stock and
additional paid-in capital at the time the options are exercised.
With respect to non-qualified stock options, the Company recognizes
a tax benefit upon exercise in an amount equal to the difference
between the exercise price and the fair market value of the common
stock. With respect to incentive stock options, tax benefits
arising from disqualifying dispositions are generally recognized at
the time of disposition. Tax benefits related to stock options are
credited to additional paid-in capital.
Retirement Plans
The Company and certain subsidiaries provide non-contributory
profit sharing/voluntary contributory 401(k) plans which cover
substantially all domestic employees. The Company's policy is to
annually fund the retirement plan costs accrued for that year.
Earnings Per Share
Earnings per share are computed on the basis of the weighted
average number of common equivalent shares outstanding during each
year and include the common and common equivalent shares issued in
acquisitions of businesses accounted for as a pooling-of-interests
as if such shares had been outstanding in all periods.
F-13<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Earnings per share has been computed using 26,902,321, 27,162,020
and 27,206,133 shares in 1995, 1994 and 1993, respectively, which
represents the weighted average number of common and common
equivalent shares required to be recognized during the respective
periods. Common stock equivalents were not considered in the 1995
calculation as the effect would be anti-dilutive.
New Accounting Standards
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of ("SFAS No. 121"), issued by the Financial Accounting
Standards Board ("FASB") is effective for financial statements for
fiscal years beginning after December 15, 1995. The new standard
establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain
identifiable intangible assets and goodwill, should be recognized
and how impairment losses should be measured. The Company does not
expect adoption to have a material effect on its financial position
or results of operations.
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), issued by the FASB is
effective for transactions entered into in fiscal years that begin
after December 15, 1995. The disclosure requirements of SFAS No.
123 are also effective for financial statements for fiscal years
beginning after December 15, 1995. The new standard encourages
entities to adopt a fair value method of accounting for employee
stock-based compensation plans and requires such accounting for
transactions in which an entity acquires goods or services from
non-employees through issuance of equity instruments. As allowed
under the provisions of SFAS No. 123, the Company will continue to
measure compensation cost for employee stock-based compensation
plans using the intrinsic value based method of accounting
prescribed by the Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. As such, the Company will
make pro forma disclosures of net income and earnings per share as
if the fair value based method of accounting had been applied.
Thus, adoption will have no effect on the Company's financial
position or results of operations.
F-14<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Acquisitions
Insituform Mid-America, Inc.
On October 25, 1995, the Company completed the acquisition (the
"IMA Merger") of Insituform Mid-America, Inc. ("IMA") through the
merger into IMA of the Company's wholly-owned subsidiary, ITI
Acquisition Corp., as a result of which IMA became a wholly-owned
subsidiary of the Company. The Company issued an aggregate of
12,450,896 shares of common stock to all prior holders of IMA's
Class A common stock, subsequent to the conversion, in accordance
with its terms, of all shares of IMA Class B common stock into IMA
Class A common stock.
IMA, through its subsidiaries, utilizes various trenchless and
other technologies for rehabilitation, new construction and
improvement of pipeline systems, including sewers, gas lines,
industrial waste lines and oil field, mining, and industrial
process pipelines, and as the Company's licensee in all or a
portion of 22 states, Puerto Rico and the U.S. Virgin Islands. The
work typically is performed under fixed-price contracts.
The IMA Merger has been accounted for using the pooling-of-
interests method of accounting, and accordingly, the accompanying
consolidated financial statements give retroactive effect to the
acquisition, as if the companies had always operated as a single
entity.
Costs related to the IMA Merger of approximately $6.48 million were
charged to expense, primarily during the fourth quarter of 1995.
(See Note 14 for information regarding the related impact on taxes
on income.) The Company also recorded a pre-tax charge of
approximately $8.06 million in the fourth quarter of 1995 for
restructuring costs, including the consolidation of corrosion and
abrasion protection operations under the Tite Liner process and the
abandonment of certain assets related to the Ultra Pipe Process
(approximately $2.6 million), the rationalization of certain
Canadian operations to one facility in Edmonton (approximately $.5
million), the elimination of certain duplicative management
positions (approximately $.8 million), the relocation of certain
domestic employees and functions ($1.7 million) and the termination
of construction on IMA's new manufacturing facility in Chester-
field, Missouri ($1.8 million).
F-15<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Combined and separate results of Insituform Technologies, Inc. and
Insituform Mid-America, Inc. are as follows (in thousands):
<TABLE>
<CAPTION>
ITI IMA EliminationsCombined
--- --- --------------------
<S> <C> <C> <C> <C>
January 1, 1995 to October 25,
1995:
Revenues $141,381$94,341 $(10,617)$225,105
Net income 6,312 4,142 - 10,454
Year ended December 31, 1994:
Revenues $148,247$84,022 $ (9,098)$223,171
Net income 8,630 5,873 - 14,503
Year ended December 31, 1993:
Revenues $100,508$60,495 $ (9,381)$151,622
Net income 5,013 2,474 - 7,487
</TABLE>
During the three-year period ended December 31, 1995, the Company
also
completed acquisitions of four of its domestic licensees, each of
which
has been accounted for using the purchase method of accounting, as
follows:
Enviroq
On April 18, 1995, the Company acquired the pipeline rehabilitation
business of Enviroq Corporation ("Enviroq"), including Enviroq's
Insituform process business conducted by its Insituform Southeast,
Inc.
subsidiary in Alabama, Florida, Georgia, North Carolina and South
Carolina, through the merger into Enviroq of a wholly-owned
subsidiary
of the Company.
The base purchase price of $18,250,000 (including $3,000,000 in
payment
of a five-year covenant not to compete) was paid $15,250,000 in
cash
(see Note 8) and $3,000,000 in a five-year subordinated promissory
note. The Company has classified such note as a current liability
as
a result of demands for payment therefor.
Prior to April 18, 1995, a 15% general partnership interest in
Midsouth
Partners, an Insituform licensee in Tennessee, Kentucky and
northern
Mississippi, was held by a subsidiary of the Company, and a 42.5%
interest therein was held by a subsidiary of Enviroq. As a result
of
the Enviroq acquisition, the Company holds a majority ownership
(57.5%)
in Midsouth Partners and has accordingly consolidated the
F-16<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accounts of Midsouth Partners since April 18, 1995. The remaining
partner has initiated arbitration proceedings alleging a default by
the
Enviroq subsidiary and claiming the right to name a majority of the
members of the partnership's management committee, an action to
which
the Company objects.
Gelco Companies
On October 21, 1994, the Company acquired all of the outstanding
common
stock of Gelco Services, Inc., Gelco NuPipe, Inc., GelTech
Constructors, Inc. and Mar-Tech Insituform Ltd. (the "Gelco
companies"), the Company's licensees of the Insituform and NuPipe
processes in Oregon, Washington, Idaho, Alaska, Hawaii, Guam,
northern
California and northern Nevada, portions of Montana and British
Columbia. In addition, the Company acquired related assets of an
affiliated company. The purchase price of $18,000,000 was paid
$9,000,000 in cash, together with promissory notes aggregating
$9,000,000 due on the first and second anniversaries of the closing
date. In addition, the Company issued promissory notes aggregating
$2,850,000, representing net current liabilities (as defined) of
the
acquired Gelco companies to related parties and a portion of
working
capital at closing.
Insituform Midwest, Inc.
On July 26, 1993, the Company acquired the common stock and related
assets of Insituform Midwest, Inc. ("Midwest"), its licensee in
Indiana
and portions of Illinois, Iowa and Wisconsin. The base purchase
price
of $14.5 million (including $750,000 in payment of a five-year non-
competition agreement from the sellers), was paid $14,000,000 in
cash
together with 40,096 unregistered shares of the Company's Class A
common stock, $.01 par value ("Common Stock"). Further, during 1994
the
sellers received contingent consideration in the amount of 70,972
additional shares of Common Stock, based on the obtainment of 1993
gross contracts, as defined. The contingent consideration (valued
at
$1,000,000) was accounted for in 1993 as costs in excess of assets
acquired.
Naylor Industries, Inc.
On July 14, 1993, the Company completed the acquisition of Naylor
Industries, Inc. ("Naylor") for a cash purchase price of
$23,550,000,
including transaction costs. Naylor is the parent of Insituform
Gulf
South, Inc. ("IGS"), the Company's licensee in Louisiana and
portions
of Texas and Mississippi.
Except as otherwise described, these acquisitions have been funded
primarily from the proceeds of the Company's credit facility with
SunTrust Bank, Nashville, National Association ("SunTrust")
(formerly
Third National Bank in Nashville), or loans refinanced by such
facility, and from working capital and the issuance of subordinated
and
purchase-money debt.
F-17<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The excess of the purchase price over the estimated fair value of
the
net assets acquired is being amortized over 25 years on the
straight-
line basis. Allocation of the purchase prices of these acquisitions
is
summarized as follows:
<TABLE>
<CAPTION>
(In thousands) Allocated to
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost in
Total Property excess
of
purchaseWorking and Other net
assets
price capital equipmentassets
acquired
--------------- ---------------
- ----------
Year ended December 31, 1995:
Enviroq $18,899 $3,934 $5,489 $4,938 $4,538
Year ended December 31, 1994:
Gelco Companies 21,613 2,209 3,003 1,349 15,052
Year ended December 31, 1993:
Naylor 23,550 5,664 3,058 (247) 15,075
Midwest 15,790 2,533 3,096 84 10,077
</TABLE>
The following table presents summarized consolidated unaudited pro
forma results of operations for 1995, 1994 and 1993 as if the
Enviroq
acquisition had occurred at the beginning of 1994 and the Gelco,
Naylor
and Midwest acquisitions had occurred at the beginning of 1993.
These
pro forma results are provided for comparative purposes only and do
not
purport to be indicative of the results which would have been
obtained
if these acquisitions had been effected on the dates indicated or
which
may be obtained in the future.
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
(In thousands, except per share
amounts)
<S> <C> <C> <C>
Total revenues $282,742 $269,257
$180,512
Income (loss) from continuing operations$ (1,709) $ 16,959 $
10,667
Income (loss) from continuing operations
per common and common equivalent share$ (.06) $ .62 $
.39
</TABLE>
F-18<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other
During 1995, the Company also completed two smaller acquisitions.
On February 16, 1995, the Company acquired 66% of the common stock
of Insituform France, S.A., a newly formed subsidiary of its former
French licensee, for FF7,400,000 (US$1,463,000). Additionally, on
November 30, 1995, the Company completed the acquisition of the UK-
based Formapipe Division of Water Flow Services Limited, for
$4,308,000.
2. Receivables
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 1994
- ------------ ---- ----
<S> <C> <C>
Trade, less allowance for possible
losses of $974 and $637 $51,049 $41,109
Retainage under construction
contracts (Note 3) 11,395 7,533
Refundable income taxes 2,273 445
------- -------
Receivables $64,717 $49,087
======= =======
Activity in the allowance for possible losses is summarized as
follows (in thousands):
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
Balance, at beginning of period $637 $495 $456
Charged to expense 657 575 106
Increase resulting from
business acquisitions - - 212
Uncollected balances written off,
net of recoveries (320) (433) (279)
---- ---- ----
Balance, at end of period $974 $637 $495
==== ==== ====
</TABLE>
F-19
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts consist of
the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 1994
- ------------ ---- ----
<S> <C> <C>
Costs incurred on uncompleted contracts $ 98,421 $75,993
Estimated earnings 20,535 20,132
-------- -------
118,956 96,125
Less billings to date (105,488) (77,968)
-------- -------
$ 13,468 $18,157
======== =======
Included in the accompanying balance sheets under the following
captions:
Costs and estimated earnings in
excess of billings $14,008 $19,311
Billings in excess of costs and
estimated earnings on uncompleted
contracts (see Note 9) (540) (1,154)
------- -------
$13,468 $18,157
======= =======
4. Inventories
Inventories are summarized as follows (in thousands):
December 31, 1995 1994
- ------------ ---- ----
Finished products $ 822 $ 1,118
Work-in-process 1,053 584
Construction materials 9,608 6,040
Raw materials 5,089 3,280
------- -------
Inventories $16,572 $11,022
======= =======
</TABLE>
F-20<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Property and Equipment
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 1994
- ------------ ---- ----
<S> <C> <C>
Land and land improvements $ 3,474 $ 1,925
Buildings and improvements 15,264 12,764
Machinery and equipment 64,980 52,864
Furniture and fixtures 7,967 6,567
Autos and trucks 3,685 3,026
Construction in progress 5,168 4,134
------- -------
100,538 81,280
Less accumulated depreciation (40,765) (29,809)
------- -------
Net property and equipment $59,773 $51,471
======= =======
6. Investments in Licensees and Affiliated Companies
Investments in licensees and affiliated companies, all of which are
accounted for on the equity method, consist of the following (in
thousands):
December 31, 1995 1994
- ------------ ---- ----
Corporations:
Insituform Brochier
Rohrsanierungstechnik GmbH (33%) $982 $823
KA-TE Insituform AG (50%) 398 244
N.V. K - Insituform S.A. (50%) 116 117
Partnership interests:
M&M Soltar, a Joint Venture (50%) 59 98
Midsouth Partners (15%) (Note 1) - 466
Enhansco Joint Venture (50%) - 383
---- ----
Investments in licensees and
affiliated companies $1,555 $2,131
====== ======
</TABLE>
In March 1995, the Company sold its interest in the Enhansco Joint
Venture to its partner for $400,000, one-half of which is due three
years after closing.
F-21<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Lines of Credit
See Note 8 for a description of the Company's revolving facility
with SunTrust.
Insituform Canada Limited had obtained a line of credit facility in
the amount of C$3,900,000 (US$2,858,000) with Alberta Treasury
Branches ("ATB") which bore interest at ATB's prime rate plus 1/2%
and was collateralized by an interest in the assets of Insituform
Canada. The outstanding balance under the lines was C$389,000
(US$277,000) at December 31, 1994. The line was terminated in
December 1995.
Insituform Permaline Ltd. ("Permaline") has a line of credit and
overdraft facility of pounds sterling 700,000 (US$1,087,000) with
National Westminster Bank Plc ("NatWest") which bears interest at
NatWest's base rate (6.5% at December 31, 1995) plus 2.0% for
borrowings up to 450,000 pounds sterling and 3.0% for those above
450,000 pounds sterling. The facility is available through March
1996, and is secured by Permaline's real property and the Company's
guarantee. At December 31, 1995 and 1994, respectively, 398,000
pounds sterling (US$618,000) and 0 pounds sterling were outstanding
under this facility.
Insituform Japan KK ("Japan") also has a line of credit facility of
100,000,000 yen (US$967,000) with Fuji Bank which bears interest at
Fuji Bank's base rate (2.125% at December 31, 1995) and is
available through December 1996. At December 31, 1995 and 1994,
45,000,000 yen (US$435,000) and 0 yen were outstanding under this
facility, respectively.
Prior to October 1995, IMA had a line of credit facility with
Boatmen's National Bank ("Boatmen's") and Mark Twain Bank ("Mark
Twain") which provided advances up to $23 million for working
capital purposes (the credit limit was successively increased to
such amount from $10 million, $13 million and $20 million,
respectively). Interest on related borrowings was payable monthly,
at the lesser of the bank's prime lending rate or a rate tied to
the London Interbank Offered Rate ("LIBOR"). As of October 25,
1995, the facility was terminated, and all outstanding principal
(together with IMA's term loan) was refinanced with SunTrust (see
Note 8). Weighted average borrowings for 1995 through October were
approximately $7.6 million, with maximum borrowings during the year
of approximately $17.5 million. At December 31, 1994, the
outstanding principal was $7.8 million. For the year ended December
31, 1994, the weighted average borrowings were approximately $4.8
million, and maximum borrowings were approximately $7.8 million.
F-22<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Long-term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 1994
- ------------ ---- ----
<S> <C> <C>
Long-term debt:
SunTrust facilities $73,052 $35,211
8.5% senior subordinated note, payable in
$1,000 installments annually each July 1998
through 2001, with the entire remaining
balance due in July 2002 with interest
quarterly (net of unamortized discount of
$270 and $329) 4,730 4,671
Industrial revenue bond, payments ranging
from $85 to $170 through January 2004, with
interest at 90% of prime (prime was 8.5% at
December 31, 1995) 3,701 3,941
Industrial development bond, quarterly
principal payments ranging from $23 to $51
through January 2003, with interest at
approximately 79% of prime (prime was
8.5% at December 31, 1995) 1,020 1,107
Deferred purchase consideration:
Promissory notes to selling shareholders
with balance due October 1996, interest
payable quarterly at lesser of prime
(currently 8.5%) or LIBOR + 2.75%, secured
by pledge of assets of the acquired
companies 4,000 9,000
Promissory notes payable to affiliates of
former shareholders of Gelco companies,
payable in two equal installments in October
1996 and 1997, with interest payable
quarterly at lesser of prime or
LIBOR + 2.75% 2,850 2,850
Subordinated promissory note, 6% interest
payable semiannually, to be retired in
March 1996 (see Note 1) 3,000 -
Other notes 2,541 2,139
------- -------
94,894 58,919
Less current maturities (12,081) (11,572)
------- -------
Long-term debt $82,813 $47,347
======= =======
</TABLE> F-23
<PAGE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 1993, the Company obtained from SunTrust (formerly Third
National Bank in Nashville) a credit facility initially providing
for
advances of up to $30 million, which was increased by up to an
additional $12 million in August 1994 and restated in June 1995 to
aggregate up to $50 million. Borrowings under this facility
initially
bore interest at the lesser of the bank's prime rate or 2.75% above
the 30-day adjusted LIBOR rate. Pursuant to the June 1995
restatement, interest accrued at a rate selected by the Company as
either the bank's prime rate, plus a margin ranging up to .25%, or
30-day adjusted LIBOR, plus a margin ranging from 1.75% to 2.25%.
Initially, quarterly principal payments of $1,072,000 were
required,
with an additional $339,000 to commence in September 1995 with
maturity in June 2000. This facility was utilized to fund the
acquisitions of Naylor, Midwest and the Gelco companies (see Note
1).
In October 1995, the Company obtained a credit facility from
SunTrust, as agent, and a group of participating lenders which
provides for advances through October 1997 on a revolving basis
aggregating up to $105 million (including a $5.0 million standby
letter of credit facility). Of such amount, approximately $66.4
million was applied to refinance existing debt under the Company's
prior arrangements with SunTrust (approximately $35.9 million),
IMA's
term loans with Boatmen's and Mark Twain ($14.5 million), and
short-
term debt under IMA's line of credit facility ($16.0 million) (see
Note 7). Additional advances are available for the expansion of the
Company's business and for general corporate purposes.
The current SunTrust facility matures in October 2000, with
installments based on a five-year amortization schedule, commencing
December 31, 1997. Interest on indebtedness under the facility is
payable at either (i) SunTrust's prime rate (8.5% at December 31,
1995), plus a margin of up to .25% in the event certain financial
ratios are not maintained, or (ii) an adjusted LIBOR rate (5.9% at
December 31, 1995), plus a margin ranging from 1.00% to 1.75%,
depending on the maintenance of certain financial ratios. Up to $5
million under the credit facility may be borrowed from SunTrust
pursuant to a "swing line facility," which accrues interest at a
rate
per annum equal to 0.5% below SunTrust's prime rate. The SunTrust
facility obligates the Company to comply with certain financial
ratios and restrictive covenants that, among other things, limit
the
ability of the Company and its subsidiaries to incur further
indebtedness, pay dividends, make loans and encumber any
properties,
and requires guarantees of certain domestic subsidiaries.
Essentially
all of the Company's retained earnings at December 31, 1995 are
restricted under such covenants.
In April 1995, in connection with the Enviroq acquisition, the
Company obtained from Boatmen's and Mark Twain a $15.25 million
term
loan payable $1.5 million per year with the balance due in April
2002. This term loan was secured by first mortgages on real estate
and a pledge of the shares of certain U.S. and Canadian
subsidiaries,
and was retired as discussed above.
The 8.5% senior subordinated note is subordinated in right to the
Company's bank and other institutional financing and to deferred
consideration incurred in connection with business acquisitions. As
F-24
<PAGE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
discussed in Note 10, warrants to purchase 350,877 unregistered
shares of Common Stock were also issued to the lender. The note is
prepayable at the Company's option, at premiums until July 1998
ranging from 3% to 1% of the amount prepaid, and is subject to
defeasance in certain circumstances. The subordinated note also
restricts the Company's ability to pay dividends and repurchase
outstanding common stock.
The industrial revenue bond may be called by the holder, an
institutional purchaser, in 1999 or each year thereafter until
maturity. Property and equipment with a net book value of
approximately $3,500,000 is pledged to collateralize these bonds.
These bonds also restrict the Company's ability to pay dividends.
Principal payments required to be made for each of the next five
years and thereafter are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ ------
<S> <C>
1996 $12,081
1997 6,349
1998 16,079
1999 15,998
2000 40,674
After 2000 3,713
-------
Total $94,894
</TABLE>
=======
9. Accounts Payable and Accruals
Accounts payable and accruals consist of (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 1994
- ------------ ---- ----
<S> <C> <C>
Accounts payable - trade $15,130 $17,702
Compensation and profit sharing 4,185 3,619
Merger and restructuring (Note 1) 4,123 685
Accrual for pending litigation and
claims (Note 17) 1,793 1,941
Bank overdrafts 545 1,647
Billings in excess of costs and
earnings (Note 3) 540 1,154
Dividends payable - 737
Miscellaneous 9,328 7,969
------- -------
Accounts payable and accruals $35,644 $35,454
======= =======
</TABLE>
F-25<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Common Stock and Stockholders' Equity
In accordance with accounting for a pooling-of-interests, all prior
period stockholders' equity accounts have been restated to give
effect to the IMA Merger described in Note 1.
The Company has granted stock options to certain officers,
directors,
employees and other stockholders. The exercise price is typically
the
fair market value on the date the option is granted. Options
generally expire up to five years from the date of grant. Options
to
purchase 300,000 shares, issued in 1993 to the Company's chief
executive officer, were exercisable 50,000 at the date of grant
with
the remainder commencing three years from the grant date; as a
result
of the IMA Merger, all such options became exercisable.
Prior to the IMA Merger, IMA had granted options to certain
officers,
directors and employees to acquire IMA Class A common shares. In
connection with the IMA Merger, all outstanding IMA options as of
the
date of the acquisition, became options to purchase that number of
shares of ITI Common Stock that would have been received had the
options been exercised prior to the IMA Merger. Dividends reflected
in the statement of stockholders' equity reflect those which had
been
declared on the IMA common shares prior to the IMA Merger.
Changes in options outstanding are summarized as follows:
<TABLE>
<CAPTION>
Option price
Shares per share
------ ------------
<S> <C> <C>
$
Balance, December 31, 1992 1,280,362 2.61-19.125
Granted 877,933 9.68-25.00
Exercised (303,984) 3.625-19.125
Cancelled (95,220) 3.625-25.00
--------- ------------
Balance, December 31, 1993 1,759,091 2.61-25.00
Granted 193,551 13.31-14.125
Exercised (31,450) 3.625-8.125
Cancelled (233,892) 2.875-25.00
--------- -----------
Balance, December 31, 1994 1,687,300 2.61-25.00
Granted 398,210 11.375-12.29
Exercised (393,909) 3.625-14.125
Cancelled (292,666) 3.625-25.00
--------- ------------
Balance, December 31, 1995 1,398,935 2.61-25.00
========= ============
</TABLE>
F-26<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1995, 2,638,841 shares of Common Stock were
reserved
pursuant to stock option plans and warrants. Options for 956,940
shares were currently exercisable.
In July 1993, the Company issued to Hanseatic Corporation warrants
to
purchase 350,877 unregistered shares of Common Stock in connection
with the issuance of subordinated debt (see Note 8). The warrants
are
exercisable at $14.25 per share and expire on July 26, 1998. Paul
Biddelman, a director of the Company, is Treasurer of Hanseatic.
The Board of Directors had previously designated 200,000 shares of
the Company's preferred stock as Series C cumulative, non-voting
preferred stock. Each share carried a semi-annual dividend rate of
$5.40 and was redeemable five years after issuance for $200 per
share, plus any accrued but unpaid dividends. In October 1994, all
outstanding shares were redeemed and retired.
11. Notes Receivable From Affiliates
On July 3, 1992, ITI, Ringwood Limited ("Ringwood"), Parkwood
Limited
("Parkwood") and Douglas K. Chick and Brian Chandler entered into
an
agreement whereby Messrs. Chick and Chandler and Ringwood executed
a
secured non-recourse promissory note in the amount of $3,624,000
which bears interest at Citibank's prime rate plus 2-1/2% (11.0% at
December 31, 1995) and was originally due July 3, 1995. On May 21,
1995, the Company extended the maturity date of the note to July 3,
1996. As security for the note, Ringwood and Messrs. Chick and
Chandler have pledged to ITI 255,801 shares of ITI's stock
beneficially owned by them. Messrs. Chandler and Chick are
directors
of ITI.
12. Licensees
The Company markets the Insituform Process and the NuPipe Process
in
selected territories by utilization of licensees. The bulk of the
trenchless repair and rehabilitation services of the licensees has
historically been performed for municipalities, and the Company
expects this to remain the largest part of the licensees' business
for the foreseeable future.
The Insituform Process license agreements require royalty payments
based upon 5% to 8% (generally 8% in the U.S.) of the gross
contract
price, as defined, often with varying minimum annual royalties.
In addition to an initial license fee, the NuPipe Process license
agreements require continuing royalty payments based upon 6.75% to
8%
of the gross contract price, as defined.
The former stockholders of NuPipe, Inc. were entitled to receive
35%
of the royalty income collected by the Company in connection with
the
NuPipe technology acquired by the Company in 1988. In March
F-27<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1995, the Company exercised an option, granted in October 1994, to
acquire such parties' interest in such payments in exchange for
issuance of the Company's promissory notes aggregating $1,000,000.
The notes are payable in quarterly installments over three years
and
bear interest at 5.4% per annum.
13. Other Income (Expense)
Other income (expense) is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Investment income $ 1,177 $ 959 $ 891
Litigation settlement (Note 17) (3,547) - -
Casualty gain 722 - -
Discounts earned 322 247 131
Miscellaneous (401) (194) 76
------- ------ ------
$(1,727) $1,012 $1,098
======= ====== ======
</TABLE>
14. Taxes on Income
Effective January 1, 1993, the Company adopted SFAS 109. As
permitted
by SFAS 109, the Company has elected to not restate prior periods'
consolidated financial statements. Except for the cumulative effect
of the accounting change of $218,000, or $.01 per share, the
application of this statement had no material effect on the 1993
results of operations.
Deferred federal income taxes are not provided on the unremitted
earnings of foreign subsidiaries since it has been the practice and
is the intention of the Company to continue to reinvest these
earnings in the business outside the United States. The cumulative
amount of unremitted foreign earnings at December 31, 1995 was
approximately $9,038,000. It is not practicable to estimate the
amount of the unrecognized deferred tax liability on such earnings.
F-28<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net deferred tax assets consist of the following (in thousands) at
December 31:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $5,391 $4,924
Foreign tax credit carryforwards 1,650 1,505
Accrued compensation 943 626
Inventory valuation 706 353
Accrual for pending litigation and claims 660 738
Estimated loss on disposal of
discontinued operation - 880
Warranty accrual 347 433
Restructuring provision 1,675 -
Other 187 296
------ ------
Gross deferred income tax assets 11,559 9,755
Valuation allowance (3,767) (3,404)
------ ------
Total deferred income tax assets 7,792 6,351
------ ------
Deferred income tax liabilities:
Depreciation (4,211) (3,861)
Deferred revenue - (431)
Unrealized holding gains
on investments - (268)
Construction contracts (610) -
Other (299)
(239)
------ ------
Total deferred income tax liabilities (5,120)
(4,799)
------ ------
Net deferred income tax assets $2,672 $1,552
====== ======
</TABLE>
The Company has recorded a deferred tax asset of $2,672, reflecting
the benefit of $5,391 in loss carryforwards and $1,650 in foreign
tax
credit carryforwards. Realization is dependent upon generating
sufficient taxable income in the applicable jurisdictions and, in
some instances, prior to the expiration of the carryforwards.
Although realization is not assured, management believes it is more
likely than not that all of the deferred tax asset will be
realized.
The amount of the deferred tax asset considered realizable,
however,
could be reduced in the near term if estimates of future taxable
income during the carryforward periods, as applicable are reduced.
F-29<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income (loss) from continuing operations before taxes on income is
as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Domestic $1,897 $22,375 $15,260
Foreign 1,733 4,459
(621)
------ ------- -------
Totals $3,630 $26,834
$14,639
====== ======= =======
</TABLE>
Provisions for taxes on income from continuing operations consist
of
the following components (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Current:
Federal $1,225 $ 7,474
$3,282
Foreign 2,154 1,715
1,450
State 827 1,270
508
------ ------- ------
4,206 10,459
5,240
------ ------- ------
Current tax benefit related to
exercise of stock options 530 85
844
------ ------- ------
Deferred:
Federal (622) (124)
(373)
Foreign (54) 66
(154)
State (73) (29)
25
Adjustments to beginning of year
valuation allowance - -
(423)
------ ------- ------
(749) (87) (925)
------ ------- ------
Total taxes on income $3,987 $10,457 $5,159
====== ======= ======
</TABLE>
F-30<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effective tax rate was different than the U.S.federal statutory
tax
rate. The following summary reconciles taxes at the maximum U.S.
federal statutory tax rate with the actual taxes (in thousands) and
effective rates:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Income taxes at U.S. federal
statutory tax rate 34.0% 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State income taxes,
net of federal income tax benefit 13.7 3.1 2.4
Tax amortization of intangibles (21.5) (2.9)
(5.0)
Tax benefit not currently
recognizable on losses of
subsidiaries 10.0 0.5 2.2
Merger costs capitalized for tax purposes59.1 - -
Goodwill amortization 18.3 2.0 2.0
Other items (3.8) 2.3 (0.4)
----- ---- ----
Total taxes on income 109.8%39.0% 35.2%
===== ==== ====
</TABLE>
Certain of the Company's subsidiaries have available tax operating
loss carryforwards utilizable to the extent of such subsidiaries'
future taxable income as follows:
<TABLE>
<CAPTION>
Amount Expira-
Jurisdic- (in tion
Subsidiary tion thousands) date
---------- --------- ---------- -------
<S> <C> <C> <C>
Insituform California, Inc. US $1,547 1996 to
1999
H.T. Schneider, Inc. US $1,206 2007
NuPipe, Ltd. UK $4,559 Indefinite
Insituform Permaline LimitedUK $4,165 Indefinite
Insituform Technologies Ltd.UK $ 702 Indefinite
Insituform Technical
Services, Ltd. UK $ 909 Indefinite
Insituform Overseas Limited UK $ 857 Indefinite
Insituform Canada Limited Canada $1,123 1997 to
2002
</TABLE>
F-31
<PAGE>
<PAGE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Discontinued Operations
On December 30, 1993, the Company adopted a plan to discontinue the
operation of its division engaged in the off-site rehabilitation of
downhole tubulars for the oil and gas industry, yet was unable to
sell
the business during 1994. As a result, the Company decided to
liquidate
the division's assets, and during the fourth quarter of 1994 a
provision was made to write down the assets to their estimated
liquidation values and accrue the estimated costs of closing the
operation.
The loss from discontinued operations includes the following
amounts,
in thousands:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Loss from operations
(net of applicable income tax
benefits of $592) $ - $ -
$(1,145)
Estimated loss on disposal,
including a provision of $0,
$1,427 and $585, respectively,
for losses during the phase-out
period (net of applicable
income tax benefits of $627 and $680) - (1,164)
(1,320)
----- -------
- -------
$ - $(1,164)
$(2,465)
===== =======
=======
</TABLE>
The division's revenues for the years ended December 31, 1994 and
1993
were $1,137,000 and $1,889,000, respectively. The net assets and
liabilities of the discontinued operations were reclassified on the
balance sheet to other assets and accrued expenses and principally
consist of property and equipment, patents, inventory and accrued
losses during the phase-out period.
F-32
<PAGE>
<PAGE> INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Segment and Geographic Information
The Company's continuing operations include the following
reportable
segments:
"Pipeline Technology" - includes licensing, selling and servicing
trenchless, on-site pipeline reconstruction technology and
products.
"Construction" - includes the installation of trenchless pipeline
reconstruction materials as well as nontrenchless pipeline
construc-
tion.
Operating profit (loss) by business segment and by geographic area
are
defined as revenues less operating costs and expenses. Income and
expense not allocated to business segments or geographic areas
include
investment income and corporate expenses.
Identifiable assets are those assets used exclusively in the
operations
of each business segment or geographic area, or which are
allocated,
when used jointly. Corporate assets are principally comprised of
cash
equivalents and investments.
Financial information by industry segment is as follows (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Pipeline Technology
Revenues:
Unaffiliated companies $ 25,299 $ 29,439 $
28,174
Intersegment 45,582 36,993
26,605
-------- --------
- --------
Total revenues 70,881 66,432
54,779
-------- --------
- --------
Operating income 16,642 25,582
17,066
Identifiable assets 29,699 24,036
25,974
Capital expenditures 750 950
709
Depreciation and amortization 1,569 1,465
1,387
======== ========
========
Construction
Revenues $246,904 $193,732
$123,448
Operating income 5,479 11,972
2,071
Identifiable assets 211,543 183,168
133,719
Capital expenditures 15,557 17,434
9,551
Depreciation and amortization 14,961 10,130
7,641
======== ========
========
</TABLE>
F-33<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Eliminations and Corporate Items
Revenues $(45,582) $(36,993) $(26,605)
Operating loss (10,371) (8,322) (4,030)
Identifiable assets 19,058 20,423 17,317
Capital expenditures 190 88 552
Depreciation and amortization 269 287 622
======== ======== ========
Consolidated
Revenues $272,203 $223,171 $151,622
Operating income 11,750 29,232 15,107
Identifiable assets 260,300 227,627 177,010
Capital expenditures 16,497 18,472 10,812
Depreciation and amortization 16,799 11,882 9,650
======== ======== ========
Financial information by geographic area is as follows (in
thousands):
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
United States
Revenues:
Unaffiliated companies $202,555 $160,378 $106,580
Between geographic areas 40,243 32,740 21,211
-------- -------- --------
Total revenues 242,798 193,118 127,791
-------- -------- --------
Operating income 11,055 24,373 15,598
Identifiable assets 202,165 182,380 138,113
======== ======== ========
</TABLE>
F-34<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Canada
Revenues:
Unaffiliated companies $28,620 $27,304 $24,726
Between geographic areas 1,617 1,190 967
------- ------- -------
Total revenues 30,237 28,494 25,693
------- ------- -------
Operating income 1,674 1,849 1,418
Identifiable assets 21,233 21,851 19,973
------- ------- -------
European Community
Revenues:
Unaffiliated companies $21,566 $18,014 $15,360
Between geographic areas 2,325 2,636 4,427
------- ------- -------
Total revenues 23,891 20,650 19,787
------- ------- -------
Operating income 8,253 9,408 2,374
Identifiable assets 20,959 10,971 11,377
======= ======= =======
Asia
Revenues:
Unaffiliated companies $ 8,048 $ 6,309 $ 4,865
Between geographic areas 1,256 300 -
------- ------- -------
Total revenues 9,304 6,609 4,865
------- ------- -------
Operating income (loss) 440 476 (279)
Identifiable assets 4,162 2,477 2,156
======= ======= =======
South America
Revenues:
Unaffiliated companies $ 9,740 $11,252 $ 43
Operating income 786 1,739 26
Identifiable assets 4,806 5,071 -
======= ======= ========
</TABLE>
F-35<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Other
Revenues:
Unaffiliated companies $1,674 $ 41 $ 48
Between geographic areas 141 - -
------ ------ ------
Total revenues 1,815 41 48
------ ------ ------
Operating loss (796) - -
Identifiable assets - - -
====== ====== ======
Eliminations and Corporate Items
Revenues:
Between geographic areas $(45,582) $(36,993) $(26,605)
Operating loss (9,662) (8,613) (4,030)
Identifiable assets 6,975 4,877 5,391
======== ======== ========
Consolidated
Revenues $272,203 $223,171 $151,622
Operating income 11,750 29,232 15,107
Identifiable assets 260,300 227,627 177,010
======== ======== ========
</TABLE>
F-36<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Commitments and Contingencies
A. Leases
The Company leases a number of its administrative operations
facilities
under noncancellable operating leases expiring at various dates
through
2020. In addition, the Company also leases certain construction and
automotive equipment on a multi-year, monthly, or daily basis. Rent
expense under all operating leases for 1995, 1994 and 1993 was
$4,221,000, $3,326,000 and $1,599,000, respectively.
At December 31, 1995, the future minimum lease payments required
under
the noncancellable operating leases were as follows (in thousands):
<TABLE>
<CAPTION>
Year ending Minimum lease
December 31, payments
- ------------ -------------
<S> <C>
1996 $ 3,265
1997 2,522
1998 1,908
1999 1,564
2000 1,270
After 2000 6,265
-------
Total $16,794
=======
</TABLE>
B. Employment Agreements
The Company and certain of its subsidiaries have employment
contracts
with various officers with remaining terms ranging from six months
to
three years at amounts approximating their current levels of
compensa-
tion. The companies' minimum aggregate commitment at December 31,
1995
under such contracts is approximately $4,173,000.
C. Litigation
On May 23, 1995, the Company, notwithstanding its belief that it
had
defenses to plaintiff's claim that were well grounded in fact and
law,
entered into a memorandum of understanding to settle the previously
disclosed stockholder class action against the Company in the
United
States District Court for the Western District of Tennessee
alleging
various misstatements and omissions, relating to, among other
things,
acquisition and restructuring costs arising from the acquisition of
Insituform Group Limited in
F-37<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 1992, in public disclosures by the Company during the
period
from October 28, 1992 to May 12, 1993 in violation of, among other
things, Rule 10b-5 under the Securities Exchange Act of 1934. Under
the
settlement, the Company has made a cash payment to class members in
the
amount of $3.2 million and (in January 1996) issued to class
members
30,000 shares of the Company's class A common stock.
The Company is involved in certain additional litigation incidental
to
the conduct of its business. In the Company's opinion, none of
these
proceedings will have a material adverse effect on the Company's
financial position, results of operations and liquidity. The
financial
statements include the estimated amounts of liabilities that are
likely
to be incurred from these and various other pending litigation and
claims.
D. Retirement Plans
The Company and certain domestic subsidiaries maintain profit
sharing/401(k) plans which cover substantially all eligible
domestic
employees. Company profit sharing contributions are discretionary.
Under the terms of its 401(k) features, the Plan also provides for
the
Company to contribute 50% of the participating employee's
contribution,
subject to a limitation of generally $400 per participant. Certain
recently acquired domestic subsidiaries have continued to maintain
their pre-existing profit sharing plans until such time as their
employees can be added to the Company's Plan. Total contributions
to
the domestic plans were $1,401,000, $815,000 and $735,000 for the
years
ended December 31, 1995, 1994 and 1993, respectively.
In addition, certain foreign subsidiaries maintain various other
defined contribution retirement plans. Company contributions to
such
plans for the years ended December 31, 1995, 1994 and 1993 were
$136,000, $125,000 and $197,000, respectively.
E. Paltem License
Pursuant to a license agreement with Ashimori Industry Co. Ltd.,
the
Company holds the exclusive rights to use the patents, trademarks
and
know-how related to certain Ashimori products, including Paltem-HL,
for
substantially all of North America. In connection with the license,
the
Company paid Ashimori an initial licensee fee of $100,000 and is
required to remit ongoing royalties ranging from 5% to 7% on Paltem
process installations.
F. Other
At December 31, 1995, $2,518,000 in stand-by letters of credit were
outstanding under the Company's SunTrust facility.
F-38<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Guarantees have been issued by the Company in support of its
subsidiaries as described in the following paragraphs.
Naylor has outstanding letter of credit commitments totaling
$450,000
from Texas Commerce Bank to its insurance carriers. Cash
equivalents
totaling $454,000 are pledged to secure these commitments at
December
31, 1995.
At December 31, 1995, Insituform Permaline has outstanding
performance
bonds aggregating 308,000 pounds sterling (US$478,000).
18. Estimated Fair Value of Financial Instruments
For financial instruments bearing a variable interest rate, it is
presumed that recorded book values are reasonable estimates of fair
value. For all other financial instruments, the following methods
and
assumptions are used to estimate fair values:
Cash and cash equivalents, receivables, accounts payable and
accrued
expenses - Recorded book values are a reasonable estimate of fair
value.
Investments in securities - Quoted market prices for the specific
instruments owned, or for similar securities, are used to determine
estimated fair value.
Long-term debt - Current market values for debt instruments with
fixed
interest rates are estimated based on borrowing rates currently
available to the Company for loans with similar terms. At December
31,
1995, the estimated fair value of debt instruments with fixed
interest
rates was approximately $7.7 million as compared with carrying
value of
such instruments of $8.5 million.
The remaining assets and liabilities of the Company are not
considered
financial instruments and have not been valued differently than is
customary under historical cost accounting.
F-39<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
$ $ $ $
Year ended December 31, 1995:(C)
Revenues 62,266 69,62169,893 70,423
Gross profit 20,498 23,64122,624 18,967
Net income (loss) 3,420
2,143(A)4,223(10,752)(B)
Earnings per share of common stock and common stock
equivalents:
Net income (loss) .13 .08 .15 (.40)
Year ended December 31, 1994:(C)
Revenues 47,754 47,14559,495 68,777
Gross profit 17,221 16,19520,765 22,742
Income from continuing operations 3,217 3,059 4,925 4,466
Loss from discontinued operations (Note 15)- - - (1,164)
Net income 3,217 3,059 4,925 3,302
Earnings per share of common stock and common stock
equivalents:
Income from continuing operations .12 .11 .18 .16
Loss from discontinued operations - - - (.04)
Net income .12 .11 .18 .12
(A) See Notes 13 and 17 for information relative to the charge
recorded against second quarter 1995 income in connection with the
settlement of
certain litigation.
(B) See Note 1 for information relative to merger and restructuring
charges recorded primarily in the fourth quarter of 1995.
(C) In accordance with the pooling-of-interests method of
accounting, the Company's consolidated financial statements have
been retroactively
restated to give effect to the IMA Merger, which was completed
in October 1995, as if the companies had always operated as a
single entity.
(See Note 1.)
(In thousands, except per share data)
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
$ $ $ $
As previously reported by ITI:
Year ended December 31, 1995:
Revenues 39,832 43,61442,654 N/A
Gross profit 14,348 15,85514,568 N/A
Net income 1.919 1.076 2,891 N/A
Earnings per share of common stock and common stock
equivalents:
Net income .13 .08 .20 N/A
Year ended December 31, 1994:
Revenues 30,481 31,80240,947 45,017
Gross profit 11,249 11,63815,068 15,663
Income from continuing operations 1,471 2,172 3,619 2,532
Loss from discontinued operations - - - (1,164)
Net income 1,471 2,172 3,619 1,368
Earnings per share of common stock and common stock
equivalents:
Income from continuing operations .10 .15 .25 .18
Loss from discontinued operations - - - (.08)
Net income .10 .15 .25 .10
F-40<PAGE>
<PAGE>
INDEX TO EXHIBITS<F1><F2>
3.1 - Certificate of Incorporation of the
Company (Incorporated by reference to
Exhibit 4(iii) to the Registration
Statement Form S-8 No. 33-63953).
3.2 - By-Laws of the Company.
10.1 - Agreement and Plan of Merger dated as of
May 23, 1995 among the Company, ITI
Acquisition Corp. and Insituform Mid-
America, Inc. (Incorporated by reference
to Exhibit 5(a) to Current Report on
Form 8-K dated May 23, 1995).
10.2 - Merger Agreement dated as of November 2,
1994 by and among Insituform Mid-America,
Inc., IMA Merger Sub, Inc., Enviroq
Corporation and New Enviroq Corporation
(Incorporated by reference to Exhibit 10(a)
to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995).
10.3 - Agreement of Purchase and Sale dated
as of October 21, 1994 among Gelco
Services, Inc., Gelco NuPipe, Inc.,
GelTech Constructors, Inc., Gelco
Corporation, Mar-Tech Insituform Ltd.
and the stockholders thereof, the
Company and GCO Acquisition Corp.
(Incorporated by reference to Exhibit
2(a) to the Current Report on Form 8-K
dated October 21, 1994), together with
Supplemental Agreement dated March 21,
1995 among the Company, GCO Acquisition
Corp., James D. Monaghan, Richard D. Beck,
as Trustee of The Richard D. Back Revocable
Trust, D. Robert Innis, J.R. Investments Co.,
and Pipe Recon Products Ltd. (Incorporated
by reference to Exhibit 10.11 to the
Annual Report on Form 10-K for the year
ended December 31, 1994).
<FN>
<FN1> The Company's current, quarterly and annual reports are filed
with the
Securities and Exchange Commission under file no. 0-10786.
<FN2> Pursuant to Reg. Section 229.601, does not include certain
instruments with
respect to long-term debt of the Company and its consolidated
subsidiaries not
exceeding 10% of the total assets of the Company and its
subsidiaries on a
consolidated basis. The Company undertakes to furnish to the
Securities and
Exchange Commission, upon request, a copy of all long-term
debt instruments
not filed herewith.
E-1
<PAGE>
INDEX TO EXHIBITS<F1><F2> (Continued)
10.4 - Agreement dated as of October 21, 1994,
among the Company, NuPipe, Inc., James
D. Monaghan, Richard D. Beck and Campbell
H. Steketee, Jr. (Incorporated by reference
to Exhibit 2(o) to the Current Report on
Form 8-K dated October 21, 1994).
10.5 - Amended and Restated License Agreement
dated as of September 9, 1994 among
Insituform Mid-America, Inc., Ashimori
Industry Co., Ltd. and Ashimori Inter-
national Limited.
10.6 - Credit Agreement dated October 25, 1995
among the Company, the lenders listed
therein and SunTrust Bank, Nashville,
National Association, as agent (In-
corporated by reference to Exhibit 5(a)
to the Current Report on Form 8-K dated
October 25, 1995), together with Re-
volving Credit Notes each dated October
25, 1995 executed by the Company to,
respectively, SunTrust Bank, Nashville,
National Association, The Boatmen's
National Bank of St. Louis, United
States Bank of Oregon, Harris Trust
and Savings Bank, Daiwa Bank, Limited
and Union Planters National Bank (In-
corporated by reference to Exhibit 5(b)
to the Current Report on Form 8-K dated
October 25, 1995), Swing Line Promissory
Note dated October 25, 1995 executed by
the Company to SunTrust Bank, Nashville,
National Association (Incorporated by
reference to Exhibit 5(c) to the Current
Report on Form 8-K dated October 25, 1995)
and Master Letter of Credit Demand Note
dated October 25, 1995 executed by the
Company to SunTrust Bank, Nashville,
National Association (Incorporated by
reference to Exhibit 5(d) to the Current
Report on Form 8-K dated October 25, 1995).
<FN>
<FN1> The Company's current, quarterly and annual reports are filed
with the
Securities and Exchange Commission under file no. 0-10786.
<FN2> Pursuant to Reg. Section 229.601, does not include certain
instruments with
respect to long-term debt of the Company and its consolidated
subsidiaries not
exceeding 10% of the total assets of the Company and its
subsidiaries on a
consolidated basis. The Company undertakes to furnish to the
Securities and
Exchange Commission, upon request, a copy of all long-term
debt instruments
not filed herewith.
E-2
<PAGE>
INDEX TO EXHIBITS<F1><F2> (Continued)
10.7 -Employment Agreement dated as of July
3, 1992, between the Company and James
D. Krugman (Incorporated by reference
to Exhibit 10.53 of Registration
Statement on Form S-4 No. 33-53772).<F3>
10.8 -Agreement dated October 25, 1995 between
the Company and Jerome Kalishman
(Incorporated by reference to Exhibit
2(b) to the Current Report on Form 8-K
dated October 25, 1995).
10.9 -Consulting Agreement dated October 25,
1995 between the Company and Jerome
Kalishman (Incorporated by reference to
Exhibit 2(c) to the Current Report on
Form 8-K dated October 25, 1995).
10.10 - Letter Agreement dated September 27, 1993
between the Company and Jean-Paul
Richard (Incorporated by reference to
Exhibit 10.35 to the Annual Report on
Form 10-K for the year ended December
31, 1993).
10.11 - Employment Agreement dated October 25,
1995 between the Company and Robert
W. Affholder (Incorporated by reference
to Exhibit 2(d) to the Current Report
on Form 8-K dated October 25, 1995).
10.12 - Letter Agreement dated July 31, 1993
between the Company and R. William
Pittman (Incorporated by reference to
Exhibit 10.34 to the Annual Report on
Form 10-K for the year ended December
31, 1993).<F3>
<FN>
<FN1> The Company's current, quarterly and annual reports are filed
with the
Securities and Exchange Commission under file no. 0-10786.
<FN2> Pursuant to Reg. Section 229.601, does not include certain
instruments with
respect to long-term debt of the Company and its consolidated
subsidiaries not
exceeding 10% of the total assets of the Company and its
subsidiaries on a
consolidated basis. The Company undertakes to furnish to the
Securities and
Exchange Commission, upon request, a copy of all long-term
debt instruments
not filed herewith.
<FN3> Management contract or compensatory plan or arrangement.
E-3
<PAGE>
INDEX TO EXHIBITS<F1><F2> (Continued)
10.13 - Letter Agreement dated October 29, 1993
between the Company and Anthony W.
Hooper (Incorporated by reference to
Exhibit 10.36 to the Annual Report on
Form 10-K for the year ended December
31, 1993).<F3>
10.14 - Employment Agreement dated December 17,
1993 between Insituform Mid-America, Inc.
and Franklin T. Driver.<F3>
10.15 - Registration Rights Agreement dated as
of October 19, 1992, among the Company,
Interstate Properties, and the Ringwood
Group consisting of Parkwood Limited,
as trustee of the Anthony Basmadjian
"P" Settlement, Barford, as trustee of
the Anthony Basmadjian Settlement,
Ringwood Limited, Brian Chandler and
Douglas K. Chick. (Incorporated by
reference to Exhibit 10.54 of Registra-
tion Statement on Form S-4 No. 33-53772).
10.16 - Registration Rights Agreement dated as of
September 1, 1995 among the Company,
Xanadu Investments L.P. and Robert W.
Affholder (Incorporated by reference to
Exhibit 10.29 of Registration Statement
on Form S-4 No. 33-62677).
10.17 - Purchase Agreement dated as of July 26,
1993 between the Company and Hanseatic
Corporation (Incorporated by reference
to Exhibit 2(j) to the Current Report
on Form 8-K dated July 26, 1993),
together with 8.5% Senior Subordinated
Note dated July 26, 1993 executed by
<FN>
<FN1> The Company's current, quarterly and annual reports are filed
with the
Securities and Exchange Commission under file no. 0-10786.
<FN2> Pursuant to Reg. Section 229.601, does not include certain
instruments with
respect to long-term debt of the Company and its consolidated
subsidiaries not
exceeding 10% of the total assets of the Company and its
subsidiaries on a
consolidated basis. The Company undertakes to furnish to the
Securities and
Exchange Commission, upon request, a copy of all long-term
debt instruments
not filed herewith.
<FN3> Management contract or compensatory plan or arrangement.
E-4
<PAGE>
INDEX TO EXHIBITS<F1><F2> (Continued)
the Company to Deltec Asset Management
Corporation, as custodian for Hanseatic
Corporation (Incorporated by reference
to Exhibit 2(k) to the Current Report
on Form 8-K dated July 26, 1993),
Warrant Certificate dated July 26, 1993
executed by the Company to Deltec Asset
Management Corporation, as custodian for
Hanseatic Corporation (Incorporated by
reference to Exhibit 2(l) to the Current
Report on Form 8-K dated July 26, 1993)
and Registration Rights Agreement dated
July 26, 1993 between the Company and
Hanseatic Corporation (Incorporated by
reference to Exhibit 2(n) to the Current
Report on Form 8-K dated July 26, 1993).
10.18 - Letter Agreement dated July 3, 1992,
among the Company, Parkwood Limited,
as Trustee of the Anthony Basmadjian
"P" Settlement, Ringwood Limited,
Brian Chandler and Douglas K. Chick
(Incorporated by reference to Exhibit
5(iii) to the Current Report on Form
8-K dated July 3, 1992), as amended
by Letter Agreement dated as of August
6, 1992 (Incorporated by reference to
Exhibit 5(b) to the Quarterly Report
on Form 10-Q for the period ended June
30, 1992) and Agreement dated as of May
21, 1995 among the Company, Ringwood
Limited, BrianChandler and Douglas K.
Chick, together with Substitute Secured,
Non-Recourse Promissory Note dated as
of July 3, 1992 executed by Ringwood
Limited to the Company (Incorporated
by reference to Exhibit 5(c) to Current
Report on Form 8-K dated May 23, 1995),
and Stock Pledge Agreement dated July
3, 1992 among the Company, Ringwood
<FN>
<FN1> The Company's current, quarterly and annual reports are filed
with the
Securities and Exchange Commission under file no. 0-10786.
<FN2> Pursuant to Reg. Section 229.601, does not include certain
instruments with
respect to long-term debt of the Company and its consolidated
subsidiaries not
exceeding 10% of the total assets of the Company and its
subsidiaries on a
consolidated basis. The Company undertakes to furnish to the
Securities and
Exchange Commission, upon request, a copy of all long-term
debt instruments
not filed herewith.
E-5
<PAGE>
INDEX TO EXHIBITS<F1><F2> (Continued)
Limited, Brian Chandler and Douglas
K. Chick(Incorporated by reference
to Exhibit 5(i) to the Current Report
on Form 8-K dated July 3, 1992).
10.19 - Option Agreement dated as of December
15, 1995 between the Company and Sound
Pipe Limited.
10.20 - Equipment Lease dated as of October 10,
1989 between A-Y-K-E Partnership and
Affholder, Inc.
10.21 - 1983 Stock Option Plan of the Company
(Incorporated by reference to Exhibit
10.48 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1991).<F3>
10.22 - 1992 Employee Stock Option Plan of the
Company (Incorporated by reference to
Exhibit 10(a) to Quarterly Report on
Form 10-Q for the quarter ended June
30, 1994).<F3>
10.23 - 1992 Director Stock Option Plan of the
Company (Incorporated by reference to
Exhibit 10.57 to Registration Statement
on Form S-4 No. 33-53772).<F3>
10.24 - INA Acquisition Corp. Stock Option Plan
(Incorporated by reference to Exhibit
10.58 to Registration Statement on Form
S-4 No. 33-53772).<F3>
10.25 - Insituform Mid-America, Inc. Stock Option
Plan, as amended (Incorporated by reference
to Exhibit 4(i) to the Registration
Statement on Form S-8 No. 33-63953).<F3>
<FN>
<FN1> The Company's current, quarterly and annual reports are filed
with the
Securities and Exchange Commission under file no. 0-10786.
<FN2> Pursuant to Reg. Section 229.601, does not include certain
instruments with
respect to long-term debt of the Company and its consolidated
subsidiaries not
exceeding 10% of the total assets of the Company and its
subsidiaries on a
consolidated basis. The Company undertakes to furnish to the
Securities and
Exchange Commission, upon request, a copy of all long-term
debt instruments
not filed herewith.
<FN3> Management contract or compensatory plan or arrangement.
E-6
<PAGE>
INDEX TO EXHIBITS<F1><F2> (Continued)
10.26 - Form of Directors' Indemnification
Agreement (Incorporated by reference
to Exhibit 10.47 to the Annual Report
on Form 10-K for the fiscal year
ended December 31, 1988).<F3>
21 - Subsidiaries of the Company.
23 - Consent of BDO Seidman, LLP.
24 - Power of Attorney (See "Power of
Attorney" in the Annual Report on
Form 10-K)
27 - Financial Data Schedule, which is
submitted electronically to the
Securities and Exchange Commission
for information only and not filed.
<FN>
<FN1> The Company's current, quarterly and annual reports are filed
with the
Securities and Exchange Commission under file no. 0-10786.
<FN2> Pursuant to Reg. Section 229.601, does not include certain
instruments with
respect to long-term debt of the Company and its consolidated
subsidiaries not
exceeding 10% of the total assets of the Company and its
subsidiaries on a
consolidated basis. The Company undertakes to furnish to the
Securities and
Exchange Commission, upon request, a copy of all long-term
debt instruments
not filed herewith.
<FN3> Management contract or compensatory plan or arrangement.
E-7
</TABLE>
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
INSITUFORM TECHNOLOGIES, INC.
ARTICLE I - OFFICES
The principal offices of the corporation in the State of
Delaware shall be located in the City of Dover, County of Kent. The
Corporation may have such other offices, either within or without
the State of incorporation as the board of directors may designate
or as the business of the corporation may from time to time
require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held at
such time and upon such date during the month of June in each year
as the Board of Directors may determine, for the purpose of
electing directors and for the transaction of such other business
as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday such meeting shall be held on the
next succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute, may be called by
either the chairman of the board, the president or by the
directors, and shall be called by the president at the request of
the holders of not less than fifty per cent of all the outstanding
shares of the Corporation entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or
without the State unless otherwise prescribed by statute, as the
place of meeting for any annual meeting or for any special meeting
called by the directors. A waiver of notice signed by all
stockholders entitled to vote at a meeting may designate any place,
either within or without the state unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation
is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal office of the corporation.
<PAGE>
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour
of the meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered not
less than ten nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of
either the chairman of the board, the president, the secretary, or
the officer or persons calling the meeting, to each stockholder of
record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States
mail, addressed to the stockholder at his address as it appears on
the stock transfer books of the corporation, with postage thereon
pre-paid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any
adjournment thereof, or stockholders entitled to receive payment of
any dividend, or in order to make a determination of stockholders
for any other proper purpose, the directors may fix in advance a
date as the record date for any such determination of stockholders,
such date in any case to be not more than sixty days and, in case
of a meeting of stockholders, not less than ten days prior to the
date on which the particular action requiring such determination of
stockholders is to be taken. If the stock transfer books are not
closed and no record date is fixed for the determination of
stockholders entitled to notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the directors declaring such
dividend is adopted, as the case may be, shall be the record date
for such determination of stockholders. When a determination of
stockholders entitled to vote at any meeting of stockholders has
been made as provided in this section, such determination shall
apply to any adjournment thereof.
6. VOTING LISTS.
The officer or agent having charge of the stock transfer
books for shares of the corporation shall make, at least ten days
before each meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order, with the address of and
the number of shares held by each, which list, for a period of ten
days prior to such meeting, shall be kept on file at the principal
office of the corporation and shall be subject to inspection by any
stockholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder
during the whole time of the meeting. The original stock transfer
book shall be prima facie evidence as to who are the stockholders
<PAGE>
entitled to examine such list or transfer books or to vote at the
meeting of stockholders.
7. QUORUM.
At any meeting of stockholders a majority of the
outstanding shares of the corporation entitled to vote, represented
in person or by proxy, shall constitute a quorum at a meeting of
stockholders. If less than said number of the outstanding shares
are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
The stockholders present at a duly organized meeting may continue
to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote
by proxy executed in writing by the stockholder or by his duly
authorized attorney-in-fact. Such proxy shall be filed with the
secretary of the corporation before or at the time of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the
terms and provisions of the certificate of incorporation and these
by-laws shall be entitled to one vote, in person or by proxy, for
each share of stock entitled to vote held by such stockholders.
Upon the demand of any stockholder, the vote for directors and upon
any question before the meeting shall be by ballot. All elections
for directors shall be decided by plurality vote; all other
questions shall be decided by majority vote except as otherwise
provided by the Certificate of Incorporation or the laws of this
State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the
stockholders, shall be as follows:
1. Roll call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officer.
5. Reports of Committees.
<PAGE>
6. Election of Directors.
7. Unfinished Business.
8. New Business.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be
managed by its board of directors. The directors shall in all cases
act as a board, and they may adopt such rules and regulations for
the conduct of their meetings and the management of the
corporation, as they may deem proper, not inconsistent with these
by-laws and the laws of this State.
2. NUMBER OF DIRECTORS, TENURE AND QUALIFICATIONS.
The Board of Directors shall consist of thirteen (13)
directors. Such directors (except as hereinafter provided for the
filling of vacancies) shall be elected in accordance with the
Corporation's Certificate of Incorporation by the stockholders by
a plurality vote of the number of shares voting at the meeting at
which such election shall take place.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held without
other notice than this by-law immediately after, and at the same
place as, the annual meeting of stockholders. The directors may
provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than such
resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at
the request of the president, the Chairman of the Board, or any two
directors. The person or persons authorized to call special
meetings of the directors may fix the place either within or
without the state or country, for holding any special meeting of
the directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least 24
hours previously thereto by written notice delivered personally, or
by telegram or telecopy or mailed to each director at his residence
or business address. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such
<PAGE>
notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting
is not lawfully called or convened.
6. QUORUM.
At any meeting of the directors a majority shall
constitute a quorum for the transaction of business, but if less
than said number is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without
further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the
directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Any vacancy on the Board of Directors and any newly
created directorship resulting from an increase in the number of
directors may be filled by the directors in accordance with the
Corporation's Certificate of Incorporation.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed only for cause
by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written
notice to the board, the president or the secretary of the
corporation. Unless otherwise specified in the notice, the
resignation shall take effect upon receipt thereof by the board or
such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for
their services, but by resolution of the board a fixed sum and
expenses for actual attendance at each regular or special meeting
of the board may be authorized. Nothing herein contained shall be
construed to preclude any director from serving the corporation in
any other capacity and receiving compensation therefor.
<PAGE>
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting
of the directors at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless his
dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its
members an executive committee and other committees, each
consisting of one or more directors. Each such committee shall
serve at the pleasure of the board.
ARTICLE IV - OFFICERS
1. NUMBER.
The officers of the corporation shall be a chairman of
the board, a vice chairman of the board,a president, one or more
senior vice presidents, one or more vice presidents, a secretary
and a treasurer, each of whom shall be elected by the directors.
Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the directors. In
addition, the President may from time to time appoint such officers
of operating divisions of the corporation as he may deem proper who
shall have such authority, subject to the control of the directors,
as the President may from time to time prescribe.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the
directors shall be elected annually at the first meeting of the
directors held after each annual meeting of the stockholders. Each
officer elected by the directors shall hold office until his
successor shall have been duly elected and shall have qualified or,
if earlier, until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. Each officer of
an operating division of the corporation appointed by the President
shall hold office for such period as the President may from time to
time prescribe or, if earlier, until his death or until he shall
resign or shall have been removed in the manner hereinafter
provided.
<PAGE>
3. REMOVAL.
Any officer elected or appointed by the directors, or any
officer of an operating division appointed by the President, may be
removed by the directors whenever in their judgment the best
interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract, if any, of the
person so removed. Any officer of an operating division appointed
by the President may be removed by the President whenever in his
judgment the best interests of the corporation would be served
thereby, but such removal shall be without prejudice to the
contract, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation,
removal, disqualification or otherwise of an officer elected or
appointed by the directors may be filled by the directors for the
unexpired portion of the term. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise of any
officer of an operating division appointed by the President may be
filled by the President for the unexpired portion of the term.
4A. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside, when present, at
all meetings of the Board of Directors and at all meetings of the
stockholders and will perform such other duties as may be
prescribed from time to time by the Board or these By-laws.
4B. VICE CHAIRMAN OF THE BOARD.
In the absence of the Chairman of the Board or in the
event of his death, inability or refusal to act, the Vice Chairman
of the Board shall perform the duties of the Chairman of the Board
and, when so acting, shall have all the powers of and be subject to
all the restrictions on the Chairman of the Board. The Vice
Chairman of the Board shall perform such other duties as may be
prescribed from time to time by the Board or these by-laws.
5. PRESIDENT.
The President shall be the chief executive officer of the
corporation and, subject to the control of the Board of Directors,
shall have general and active management of the business of the
corporation, and shall see that all orders and resolutions of the
Board and stockholders are carried into effect. He shall have the
general authority to execute bonds, deeds and contracts, in the
name of the corporation and affix the corporate seal thereto; to
sign stock certificates; to cause the employment or appointment of
such employees and agents of the corporation as the proper conduct
of operations may require, and to fix their compensation, subject
to the provisions of these By-laws; to remove or suspend any
<PAGE>
employee or agent who shall have been employed or appointed under
his authority or under authority of an officer subordinate to him;
and, in general, to exercise all the powers and authority usually
appertaining to the chief executive officer of a corporation.
6. VICE-PRESIDENT.
In the absence of the president or in the event of his
death, inability or refusal to act, one of the vice-presidents
designated by the directors shall perform the duties of the
president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. The
vice-president shall perform such other duties as from time to time
may be assigned to him by the president or by the directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders'
and of the directors' meetings in one or more books provided for
that purpose, see that all notices are duly given in accordance
with the provisions of these by-laws or, as required, be custodian
of the corporate records and of the seal of the corporation and
keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have
general charge of the stock transfer books of the corporation and
in general perform all duties incident to the office of secretary
and such other duties as from time to time may be assigned to him
by the president or by the directors.
8. TREASURER.
If required by the directors, the treasurer shall give a
bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the directors shall determine. He shall
have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for monies
due and payable to the corporation from any source, whatsoever, and
deposit all such monies in the name of corporation in such banks,
trust companies or other depositories as shall be selected in
accordance with these by-laws and in general perform all of the
duties incident to the office of treasurer and such other duties as
from time to time may be assigned to him by the president or by the
directors.
9. SALARIES.
The salaries of those officers elected or appointed by
the directors shall be fixed from time to time by the directors and
no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
<PAGE>
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorized any officer or officers,
agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation
and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the directors. Such authority may be
general or confined to specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name
of the corporation, shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from
time to time be determined by resolution of the directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in
such banks, trust companies or other depositaries as the directors
may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall
be in such form as shall be determined by the directors. Such
certificates shall be signed by any of the chairman of the board,
or the president, as authorized by the directors and the secretary,
or such other officers authorized by law and by the directors. All
certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the stockholders, the
number of shares and date of issue, shall be entered on the stock
transfer books of the corporation. All certificates surrendered to
the corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate a new
one may be issued therefor upon such terms and indemnity to the
corporation as the directors may prescribe.
<PAGE>
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person entitled thereto, and cancel
the old certificate; every such transfer shall be entered on the
transfer book of the corporation which shall be kept at its
principal office.
(b) The corporation shall be entitled to treat the holder
of record of any share as the holder in fact thereof, and,
accordingly, shall not be bound to recognized any equitable or
other claim to or interest in such share on the part of any other
person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the first
day of January in each year.
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the
corporation, the state of incorporation, year of incorporation and
the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is
required to be given to any stockholder or director of the
corporation under the provisions of these by-laws or under the
provisions of the articles of incorporation, a waiver thereof in
writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
Except as otherwise provided by law, the Board of Directors
may adopt, alter, amend or repeal the by-laws of the Corporation,
provided, however, that the stockholders, representing a majority
of all the shares issued and outstanding at any annual stock-
holders' meeting or at any special stockholders' meeting, may
<PAGE>
repeal, alter or amend by-laws adopted by the Board or Directors
and may adopt new by-laws; provided, further, however, that the
size of the Board of Directors, as set forth in Section 2 of
Article III, may only be amended by a vote of at least 80% of the
members of the Board of Directors or by a vote of the stockholders,
representing a majority of all of the shares issued and
outstanding, at any annual stockholders' meeting or at any special
stockholders' meeting.
EXHIBIT 10.5
Dated: As of September 9, 1994
AMENDED AND RESTATED
LICENSE AGREEMENT
between
ASHIMORI INDUSTRY CO., LTD.
and
ASHIMORI INTERNATIONAL LIMITED
and
INSITUFORM MID-AMERICA, INC.
<PAGE>
<PAGE>
<TABLE>
CONTENTS
<CAPTION>
Clause Heading Page
- ------ ------- ----
<S> <C> <C>
1. Interpretation. . . . . . . . . . . . . . . . . . . . 2
2. Grant of License. . . . . . . . . . . . . . . . . . . 6
3. Royalty . . . . . . . . . . . . . . . . . . . . . . . 8
4. Duration. . . . . . . . . . . . . . . . . . . . . . . 10
5. Technical Information, Instruction and Training and
Supervision . . . . . . . . . . . . . . . . . . . . . 10
6. Purchases from ASHIMORI . . . . . . . . . . . . . . . 11
7. Governmental Regulation Authorization . . . . . . . . 11
8. Promotion . . . . . . . . . . . . . . . . . . . . . . 12
9. Improvement . . . . . . . . . . . . . . . . . . . . . 12
10. Infringement of Patents, Misappropriation of Know-
How . . . . . . . . . . . . . . . . . . . . . . . . . 13
11. PALTEM Systems Trademarks . . . . . . . . . . . . . . 14
12. Confidentiality . . . . . . . . . . . . . . . . . . . 14
13. Representations and Warranties. . . . . . . . . . . . 15
14. Force Majeure . . . . . . . . . . . . . . . . . . . . 16
15. Successor Company . . . . . . . . . . . . . . . . . . 16
16. Termination, Expiry and Breach. . . . . . . . . . . . 17
17. Notice. . . . . . . . . . . . . . . . . . . . . . . . 18
18. Applicable Law and Arbitration. . . . . . . . . . . . 18
19. Entire Agreement. . . . . . . . . . . . . . . . . . . 18
20. Indemnification . . . . . . . . . . . . . . . . . . . 18
21. Amended and Restated Agreement. . . . . . . . . . . . 19
Schedule 1. . . . . . . . . . . . . . . . . . . . . . .20
Schedule 2A . . . . . . . . . . . . . . . . . . . . . .21
Schedule 2B . . . . . . . . . . . . . . . . . . . . . .23
</TABLE>
<PAGE>
LICENSE AGREEMENT
This Agreement is made as of September 9, 1994, by and between
Ashimori Industry Co., Ltd. (AICL), incorporated under applicable
law of Japan having its principal office at 10-18, 3-Chome,
Kitahorie, Nishi-ku, Osaka City, 550 Japan and Ashimori
International Limited, (AIN), incorporated under applicable law of
England and having its principal office at 41 Vine Street, London
EC3N 2AA, England (AICL and AIN are collectively referred to as
"Ashimori") and INSITUFORM MID-AMERICA, INC. (IMA), incorporated
under applicable law of Delaware, U.S.A. and having its principal
office at 17988 Edison Ave., Chesterfield, MO 63005-3700, U.S.A.
WHEREAS,
1) AICL has jointly developed with Tokyo Gas Co., Ltd. (TG)
PALTEM HOSE LINING System (commonly called PALTEM-HL System) for
gas pipes of main and small main, and independently developed
PALTEM-HL System for other applications such as potable water,
sewers, power cable, oil, telecommunication cable and plants. TG
independently has developed PALTEM-HL System for service of pipes
of gas. AICL has the right to license to a third party patents and
know-how of PALTEM-HL System solely owned by AICL and TG, or
jointly owned by AICL and TG for all possible pipes;
2) AICL has jointly developed PALTEM-SZ System including
PALTEM-SZ LAC System with Ashimori Engineering Co., Ltd. (AE) and
has the right to license to a third party patents and know-how of
the PALTEM-SZ System jointly owned by AICL and AE;
3) AICL has jointly developed PALTEM-APOLLO System including
PALTEM-APOLLO-LAC System with AE and has the right to license to a
third party patents and know-how of PALTEM-APOLLO System jointly
owned by AICL and AE;
4) IMA owns the rights to Tite Liner System and has the right
to license to a third party its patents and know-how;
5) AICL and IMA entered into License Agreement dated October
27, 1992 (the Original License Agreement), pursuant to which IMA
acquired the exclusive license of PALTEM-HL and PALTEM-SZ Systems
and certain related rights, and AICL and IMA agreed to cross-
licensing PALTEM-APOLLO System and Tite Liner System;
6) AICL has jointly developed PALTEM-LACSTOP System with AE
and has the right to license to a third party patents and know-how
solely owned by AICL and AE;
7) AICL is jointly developing PALTEM-MARCH System with AE and
has the right to license to a third party patents and know-how
solely owned by AICL or jointly owned by AICL and AE;
8) AICL is jointly developing PALTEM-FREPP System with AE.
AICL is also developing PALTEM-FREPP System with AE and TG for low
pressure gas pipes and has the right to license to a third party
patents and know-how solely owned by AICL or TG and jointly owned
by AICL and AE and/or TG;
<PAGE>
9) AICL has the right to license to a third party patents and
know-how solely owned by AICL, or jointly owned by AICL and AE
and/or TG with respect to the lining materials and manufacture of
the lining material for use with PALTEM-HL, PALTEM-SZ, PALTEM-
APOLLO, PALTEM-LACSTOP, PALTEM-MARCH and PALTEM-FREPP Systems;
10) AIN is granted by AICL the right to license to install
PALTEM-HL, PALTEM-SZ, PALTEM-APOLLO, PALTEM-MARCH and PALTEM-FREPP
Systems, and to manufacture and sell the lining material for use
with these systems in Europe, the Middle East, Africa and North,
Central and South America (license agreement shall be concluded in
the names of AICL and AIN). AIN has acquired know-how, expertise,
experience, technical knowledge of industrial significance and
related information of marketing and installation through many
years of operation outside Japan. Based on the above AIN has
continuously served IMA technically and commercially since 1993;
11) ASHIMORI and IMA, in consideration of changes in the
situation, have agreed to revise the Original License Agreement to
include the exclusive license for installing PALTEM-LACSTOP,
PALTEM-MARCH and PALTEM-FREPP Systems in addition to PALTEM-HL,
PALTEM-SZ and PALTEM-APOLLO Systems, and for manufacturing and
selling PAL-Liner, MARCH-Liner and FREPP-Liner.
It is agreed as follows:
1. Interpretation
In this Agreement, the following terms shall have the
following meanings:
"AE" means Ashimori Engineering Co., Ltd., incorporated under
applicable law of Japan and having its principal office at Ogura
Building, 11-14, 1-Chome, Hongo, Bunkyo-Ku, Tokyo, 113, Japan.
"Ancillary Materials" means the disposable or semi-disposable
materials, required for the PALTEM Systems.
"Application" means the pipes set out in item 3 of Schedule 1.
"Apollo-Liner" means a liner with freely-overlapping edges
formed from a light curable pre-impregnated composite material
sheet used as a point lining material developed by AICL for use
with the PALTEM-APOLLO System.
"Contract Price" means the Installation Price, plus any other
cost, such as that of bypassing, CCTV Inspection, cleaning,
excavation of feeding and receiving pits, initial pipe cutting,
pipe reconnecting and filling of excavation, charged by IMA to its
customer as necessary for the provision of the PALTEM Systems.
"Duration" means the period determined pursuant to Clause 4.
"Equipment" means the equipment, including necessary metal
attachments and ancillary equipment required for the PALTEM
Systems.
<PAGE>
"FREPP-Liner" means a liner made by externally and internally
extrusion-coating cylindrically-woven material with thermoplastic
resin used as a pipe lining material developed by AICL for use with
the PALTEM-FREPP System.
"Installation Intellectual Property Rights" means any patents,
utility model design, copyright and trademark existing, applied
for, registered in or otherwise effective in or affecting the
Territory from time to time, and owned and controlled by the AICL
or TG alone, or AICL and AE, or AICL and TG relating to the
installation of the PALTEM Systems, including the patents and
patent applications set out in Schedule 2A, together with
improvements thereto as described in Clause 9.
"Installation Know-How" means the expertise, practice,
experience and technical knowledge of industrial significance built
up by AICL, AE or AIN which is necessary for the installation of
the PALTEM Systems.
"Installation Price" means all prices charged by IMA to its
customer: for installation of the PALTEM-HL and the PALTEM-MARCH
Systems from resin impregnation (or adhesive application), end
treatment, to remote reconnection of service connection; for
installation of the PALTEM-SZ System from pull-in of the SZ-Liner,
end treatment, to remote reconnection of service connection; for
installation of the PALTEM-APOLLO System from pull-in of APOLLO
Robot and CCTV camera, and pull-out of the APOLLO Robot; for
installation of the PALTEM FREPP System from pull-in of the FREPP-
Liner, end treatment, to reconnection of service connection, for
installation of the PALTEM LACSTOP System from pull-in of CCTV
camera into the pipe, insertion of the SZ-Liner into lateral to
pull-out inflation tube, and from pull-in of the APOLLO Robot and
CCTV camera into the pipe, pull-out of the APOLLO Robot, to remote
reconnection of service connection; and for the provision of
Materials, Ancillary Materials, the Equipment, other materials,
equipment and personnel but excluding costs of bypassing, CCTV
inspection, cleaning, excavation of feeding and receiving pits,
initial pipe cutting, pipe reconnecting and filling of excavation,
and where such prices are not determinable based upon IMA's records
of specific job costs, the Installation Price shall be deemed to
be-
1) [confidential treatment applied for] of the Contract Price
where it is necessary to excavate feeding and receiving pits; and
2) [confidential treatment applied for] of the Contract Price
where no such excavations are necessary.
"Installation Technology" means the Installation Intellectual
Property Rights and the Installation Know-How.
"Intellectual Property Rights" means the Installation
Intellectual Property Rights and the Manufacturing Intellectual
Property Rights.
<PAGE>
"Know-How" means the Installation Know-How and the
Manufacturing Know-How.
"License" means the license granted under Clause 2.1, 2.2 and
2.3.
"Liners" means, collectively, the PAL-Liner, the MARCH-Liner,
and the FREPP-Liner.
"Manufacturing Intellectual Property Rights" means any
patents, utility design, copyright and trademark existing, applied
for, registered in or otherwise effective in or affecting the
Territory from time to time, and owned and controlled by AICL
alone, or AICL and AE, or AICL and TG relating to the manufacturing
method and/or structure of the Liners including the patents and
patent applications set out in Schedule 2B, together with
improvements thereto as described in Clause 9.
"Manufacturing Know-How" means the expertise, practice,
experience and technical knowledge of industrial significance built
up by AICL which is necessary for the manufacture of the Liners.
"Manufacturing Technology" means the Manufacturing
Intellectual Property Rights and the Manufacturing Know-How.
"MARCH-Liner" means a liner made by externally extrusion-
coating non-woven material with thermoplastic resin used as a pipe
lining material developed by AICL for use with the PALTEM-MARCH
System.
"Materials" means the Liners, the SZ-Liner, the APOLLO-Liner,
resin, adhesive and materials required for end treatment used with
the PALTEM Systems.
"PAL-Liner" means a liner made by externally extrusion-coating
cylindrically woven material with thermoplastic resin or having
non-woven material and/or other suitable materials inside of the
extrusion-coated woven material, or other appropriate liners used
as a lining material developed by AICL for use with the PALTEM-HL
System.
"PALTEM-APOLLO System" means the patent pending process for
point repair by pulling the APOLLO-Robot together with the APOLLO-
Liner into the pipe, inflating and light-curing to form a new rigid
pipe at the spot to be repaired, including PALTEM-APOLLO-LAC System
forming a new pipe at a joint of the lateral and the pipe and
reconnecting the lateral.
"PALTEM-FREPP System" means the patent pending process for
restoration of pipes by pulling the FREPP-Liner into the pipe and
inflating to form a new rigid pipe within the pipe.
"PALTEM-HL System" means the patented process for restoration
of pipes by adhesive application or resin impregnation, turning the
adhesive coated or resin impregnated PAL-Liner inside out by
compressed air within the pipe to insert PAL-Liner into the pipe,
<PAGE>
and affixing the same to the inner surface of the pipe with the
adhesive, or forming a new rigid pipe within the pipe with curing
resin by heat.
"PALTEM-LACSTOP System" means the process comprising of
PALTEM-SZ-LAC System and PALTEM-APOLLO-LAC System.
"PALTEM-MARCH System" means the process for restoration of
pipes by resin impregnation, turning the resin impregnated MARCH-
Liner inside out by compressed air within the pipe to insert the
MARCH-Liner into the pipe, and forming a new rigid pipe within the
pipe with curing resin by heat.
"PALTEM-SZ System" means the patented process for restoration
of pipes by pulling SZ-Liner into the pipe, inflating, and forming
a new rigid pipe, within the pipe, with curing resin by heat,
including PALTEM-SZ-LAC forming a new pipe within a lateral using
the SZ liner.
"PALTEM Systems" means, collectively, the PALTEM-HL System,
the PALTEM-SZ System, the PALTEM-APOLLO System, the PALTEM-LACSTOP
System, the PALTEM-MARCH System and the PALTEM-FREPP System.
"PREMIX" means Premix, Inc., incorporated under applicable law
of Ohio and having its principal office at Route 20 and Harmon
Road, North Kingsville, Ohio 44068, U.S.A.
"Royalty Period" means each period provided as follows:
1) from the date of this Agreement to September 30th, 1994;
2) from October 1st, 1994 to March 31st, 1995;
3) after March 31st, 1995, each successive 6 month period from
April 1st to September 30th and from October 1st to March 31st of
the following year.
The Royalty Period for the minimum and maximum Running Royalty
Payment shall be pursuant to Clause 3.2.
"Running Royalty Payment" means the percentage payments set
out in item 2 of Schedule 1.
"SZ-Liner" means a line with freely-overlapping edges formed
from a pre-impregnated composite material sheet used as a pipe
lining material developed by AICL for use with the PALTEM-SZ
System.
"Technical Information" means the data, manuals, drawings and
specifications reasonably required for manufacture of the Liners
and the Materials and installation of the PALTEM Systems, together
with improvements thereto as described in Clause 9.
"Technology" means the Intellectual Property Rights and the
Know-How.
"Territory" means the Territory set out in item 4 of Schedule
1.
<PAGE>
"TG" means Tokyo Gas Co., Ltd., incorporation under applicable
law of Japan and having its principal office at 5-20 Kaigan 1-
Chome, Minato-ku, Tokyo, Japan.
2. Grant of License
2.1 ASHIMORI hereby grants to IMA the exclusive license to
use the Installation Technology in the territory. In this case for
rehabilitating sewers, tunnels, pipelines or other passageways in
the Application only, unless otherwise agreed, and on the terms as
follows.
2.2 ASHIMORI hereby grants to IMA the exclusive license to
use the Manufacturing Technology in the Territory and gives to IMA
the exclusive right to use and sell the Liners to a third party in
the Territory.
2.3 ASHIMORI hereby grants to IMA the exclusive license in
the Territory to manufacture, contract with others to manufacture,
or purchase from a third party the Materials, including the Liners,
the Ancillary Materials, and the Equipment. Notwithstanding the
above, IMA recognizes that AICL has granted to Premix the exclusive
license with respect to the manufacture of the SZ-Liner in part of
the Territory.
2.4 ASHIMORI shall not offer the Technology in the Territory
directly, nor shall it license or permit others to exploit the
Technology in the Territory for the Application.
2.5 ASHIMORI grants to IMA the right to sub-license the
Technology in the Territory, provided any sub-licensee shall be
submitted to ASHIMORI for its approval including a copy of sub-
license agreement prior to signing, and if ASHIMORI does not object
within 15 days after receipt by ASHIMORI, the sub-licensee shall be
deemed approved. ASHIMORI shall not unreasonably withhold its
approval of a sub-licensee. ASHIMORI hereby approves all Insituform
process companies as sub-licensees for the PALTEM Systems.
2.6 With regard to the manufacture of the Liners pursuant to
Clause 2.2, IMA shall manufacture extrusion-coat woven jacket with
thermoplastic resin by itself. In the case the IMA wishes to
contract with a third party to weave the jacket, IMA shall obtain
the prior written approval from ASHIMORI and shall secure
confidentiality agreements with ASHIMORI approval of such third
party suppliers. ASHIMORI shall not unreasonably withhold timely
approval. IMA recognizes an obligation to use all reasonable
efforts to protect all the licensed Manufacturing Know-How.
2.7 Nothing in this Agreement shall be deemed to require that
IMA use its best efforts to market the PALTEM Systems, inasmuch as
the value of IMA's efforts will be measured by its ability to meet
the requirements for the aggregate minimum Running Royalty in
Clause 3.2.
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<PAGE>
2.8 ASHIMORI having reserved all territories outside the
Territory for itself and other licensees, IMA shall not use the
Technology, or cause any other person to use the Technology outside
the Territory.
2.9 IMA shall not assign the License. Notwithstanding the
foregoing, IMA may, with the consent of ASHIMORI, which shall not
be unreasonably withheld, assign the License to any affiliates of
IMA or to a successor by merger, whether or not such affiliate or
successor offers a process which is competitive with any of the
PALTEM Systems.
2.10 IMA and ASHIMORI hereby acknowledge that the Technology
is a specialized and highly technological process and the
exploitation thereof throughout the world will be best served by
the grant of exclusive licenses to carefully selected licensees for
various defined territories. It is anticipated that in exploiting
the Technology, IMA will make significant financial investments in
capital and equipment, marketing and promotion and in providing
information and services, necessary for market development of the
PALTEM Systems and to assure high standards of quality.
2.11 Concurrently with entering into this Agreement, the
parties will proceed to enter into a mutually acceptable licensing
agreement whereby IMA will grant to AICL the exclusive license to
use the Tite Liner System in Japan, under conditions, with no
initial payment and of Running Royalty Payments of seven (7)% of
installation price. AICL may, with the consent of IMA assign the
license or sub-license to any affiliates of AICL or a successor by
merger, whether or not such affiliates or successor offers a
process which is competitive with the Tite Liner System in Japan,
IMA shall not unreasonably withhold its approval. The license
agreement for the Tite Liner System shall be concluded by the
parties separately.
2.12 ASHIMORI and IMA agree that AICL and IMA shall have a
right of first refusal to be granted an exclusive license of AICL's
and IMA's developing and future systems in Japan for AICL and in
the Territory for IMA dealing with pipe lining, pipe rehabilitation
and pipe construction, under conditions, initial payments and
minimum royalty to be mutually agreed upon.
3. Royalty
3.1 In consideration of the grant of the License and any
services provided hereunder, IMA shall pay to ASHIMORI -
(1) An initial payment of $100,000 for ASHIMORI's
transfer of the manufacturing Technology of the Liners,consisting
of $70,000 for PAL-Liner and $30,000 for FREPP-Liner Technologies,
within 30 days of the execution and delivery of this Agreement.
(2) The Running Royalty Payment set out in item 2.(1)
and (2) of Schedule 1.
<PAGE>
a. For installations prior to the date of this
Agreement, payment within 60 days of this Agreement.
b. For installations after the date of this
Agreement, payment within 60 days of the end of each Royalty
Period.
3.2 [Confidential treatment applied for.]
3.3 In consideration of the right to manufacture or arrange
for the manufacture of the Liners in Clause 2.2 above, IMA shall
pay Running Manufacturing Royalty Payment set out in item 2.(4) of
Schedule 1 on all sales to third parties within the Territory of
the Liners manufactured by IMA. This royalty does not apply to
sales for any installation of the PALTEM Systems for which IMA or
any of its sub-licensees are obligated to pay Running Installation
Royalties to ASHIMORI. IMA may sell the Liners for use outside the
Territory subject to the consent of ASHIMORI under conditions to be
set separately.
3.4 In case IMA or IMA's sub-licensees use the PAL-Liner, the
FREPP-Liner, the SZ-Liner, or the APOLLO-Liner by methods other
than the PALTEM Systems, IMA shall pay ASHIMORI the Running
Installation Royalty Payment set out in 2.(1) and (2) of Schedule
1 within 60 days after each Royalty Period. Notwithstanding the
above, if IMA uses the PAL-Liner for installations by other methods
than the PALTEM Systems, IMA shall receive a credit for royalties
which IMA must pay to Insituform Technologies, Inc. based on
agreements entered into prior to October 27, 1992. Further, no
Installation Running Royalties shall be payable for the use of
MARCH-Liner installed by other than PALTEM Systems.
3.5 Subject to the approval of the relevant authorities in
the Territory, all payments under Clause 3.1, 3.2, 3.3 and 3.4
shall be in US dollars to the following bank account of AIN.
Bank: The Sanwa Bank, London Branch
P.O. Box 36, City Place House
55 Basinghall Street
London, EC2V 5DL, England
Sort Code: 40-51-28
Account No.: 126969
and if due on a day on which the banks are not open for business,
shall be due on the succeeding day such banks are so open.
3.6 If IMA fails to pay any amount required to be paid
pursuant to Clause 3.1, 3.2, 3.3 and 3.4 on the due date, it shall
pay to ASHIMORI interest on that amount before, as well as after,
judgment at the rate of 3% + the prime rate per annum on due date
announced from time to time by Mark Twain Bank, St. Louis,
Missouri.
<PAGE>
<PAGE>
3.7 In the event IMA is required by the U.S. Internal Revenue
Code to withhold Federal income tax from the amounts payable by IMA
under this Agreement, IMA, as withholding agent, shall withhold the
requisite amount of tax from the amounts payable and deposit the
same with the Internal Revenue Service, and IMA shall provide to
ASHIMORI documentation evidencing such deposit.
3.8 For the purpose of verification of the royalty payable
under Clause 3.1(2), 3.3 and 3.4 during the Duration, IMA shall
forward to AIN a report within 30 days of the end of each Royalty
Period of each year in a form reasonably satisfactory to AIN,
setting out separately the amount of royalty due and the basis
therefor allocated among the PALTEM Systems of PALTEM-HL, SZ,
APOLLO, LACSTOP, MARCH and FREPP, respectively, for calculation
thereof as follows-
(1) In respect of each contract of IMA for PALTEM
Systems installation-
(a) customer name;
(b) type of pipe;
(c) diameter and length of pipe;
(d) contract prices;
(e) installation prices;
(f) amount of royalty;
(2) for all such contracts, the total of the items in
Clause 3.8(1)(d), (e) and (f).
(3) In respect of each sales of the Liners to third
parties-
(a) customer name;
(b) kind of liner;
(c) diameter and length of liner;
(d) sales prices;
(e) amount of royalty;
(4) For all such sales, the total of the items in Clause
3.8(3)(d), and (e).
3.9 During the Duration, IMA shall keep true, accurate and
separate records containing the information sufficient for the
preparation of the reports to be provided under Clause 3.8 and
shall allow AIN, its agents or representatives, to inspect and make
copies of those records on reasonable advance notice during normal
business hours and shall give such AIN agents or representatives
suitable clarification as reasonably requested.
3.10 After the payments provided under Clause 3 are received
by ASHIMORI, they shall not be refundable for whatsoever reasons
except overpayments by miscalculation.
<PAGE>
<PAGE>
4. Duration
4.1 Duration shall be for an initial term of 15 years,
beginning on the date of this Agreement, subject to automatic
renewal for successive one-year terms thereafter, unless IMA gives
notice of non-renewal at least 90 days prior to the end of a term.
4.2 IMA shall have an obligation to pay Running Royalty
Payments provided, however, that ASHIMORI's sole remedies for IMA's
failure to meet such minimum Running Royalty Payments shall be as
set forth in this clause. All Running Royalty Payments shall count
toward these minimums. If IMA fails to meet the full payment of
minimum for one year (from October 1, 1997 to September 30, 1998,
the first one year to be applied to this clause), then ASHIMORI
shall have the right, after written notice thereof to IMA given no
later than 30 days after the due date for the Running Royalties for
the end of such year, to render this Agreement non-exclusive as to
all or any portion of the Territory and, if IMA fails to meet full
payments of the minimum for two consecutive years, then ASHIMORI
shall have the right, after written notice thereof to IMA given not
later than 30 days after the due date for the Running Royalties for
the end of such second consecutive year, to terminate this
Agreement during such immediately succeeding year.
4.3 The parties agree, that at the expiry of the initial, or
any subsequent, term, upon the request of either party the Running
Royalty minimum and rates will be subject to good faith
renegotiation, provided however, that in the event no agreement is
reached the provisions of Clauses 3.1(2), 3.2 and 3.3 and shall
remain unchanged and the failure to successfully renegotiate shall
not be subject to Clause 18.2.
5. Technical Information, Instruction and Training and
Supervision
5.1 ASHIMORI shall provide to IMA -
(1) the written Technical Information in English; and
(2) instruction and training as follows.
5.2 At a mutually acceptable time ASHIMORI shall, at IMA's
request, send its technical personnel to IMA to instruct and train
IMA's personnel in the proper use and operation of the PALTEM
Systems, using the Equipment, the Materials and the Ancillary
Materials. Similarly, at a mutually acceptable time, ASHIMORI shall
send manufacturing and technical personnel to instruct and train
IMA's personnel in the best available manufacturing processes for
weaving, and extrusion-coating, and other manufacturing techniques
required to produce the Liners which IMA has been granted the
rights to manufacture under this Agreement. IMA shall reimburse
ASHIMORI for the costs and expenses of ASHIMORI's personnel as
provided in item 1 of Schedule 1.
5.3 If IMA requests ASHIMORI to provide instruction and
training to its technical personnel at the site of AICL, and
ASHIMORI agrees (such agreement not to be unreasonably withheld by
<PAGE>
ASHIMORI), IMA shall bear all costs and expenses for its personnel
and shall reimburse ASHIMORI for the costs of the Materials and
Ancillary Materials necessary for providing such instruction and
training.
5.4 If IMA requests ASHIMORI to provide supervision under
conditions to be mutually agreed, in installation of the PALTEM
Systems, then ASHIMORI shall use its reasonable best efforts to
provide such supervision upon payment by IMA to ASHIMORI of the
costs and expenses of ASHIMORI's personnel as provided in item 1 of
Schedule 1.
6. Purchases from ASHIMORI
6.1 At IMA's request AICL shall supply the Materials or the
Equipment within a reasonable period of time on the terms mutually
agreed by the parties.
6.2 At IMA's request ASHIMORI shall provide design drawings
of the Equipment at a cost mutually agreed by the parties.
6.3 AICL and IMA will negotiate in good faith to resolve any
claim arising out of installation due to defects of the Materials
supplied by AICL. AICL's liability to IMA in respect of IMA's
purchases of the Materials from AICL shall be as specified in the
Material supply agreement to be concluded by AICL and IMA.
7. Governmental Regulation Authorization
7.1 IMA, at its expense, shall use its reasonable best
efforts to make all necessary applications to relevant authorities
within the Territory for necessary approvals, including approval of
National Sanitation Foundation (NSF) for the PALTEM-HL System and
FREPP System in potable water applications in IMA's own name and at
its own cost, and ASHIMORI shall render every assistance to IMA for
obtaining such approvals.
7.2 IMA hereby undertakes to acquire whatever US validation,
authorization, license or other approvals is required in order to
effectuate this Agreement and to perform lawfully all its
obligations under this Agreement. IMA shall promptly notify
ASHIMORI of completion of the acquisition of such US validation,
authorization, license or other approvals by sending to ASHIMORI a
copy thereof.
7.3 In the event that any change or revision is made to any
governmental regulations in the Territory having a material adverse
effect on IMA's use of the PALTEM Systems, or tax relating to
PALTEM Systems or any other regulation having a material adverse
effect on the performance of this Agreement, IMA shall immediately
inform ASHIMORI of such changes or revisions and forward to
ASHIMORI copies of the relevant documentation in the English
language.
<PAGE>
<PAGE>
7.4 IMA shall make all necessary applications for national
certifications and approvals for the PALTEM Systems from engineers
societies and organizations, including ASTM and NASSCO, as
reasonably required for IMA to conduct its business within the
Territory and the ASHIMORI shall render every assistance to IMA in
connection with obtaining such approvals and certifications. The
cost of obtaining such national approvals and certifications shall
be borne by IMA.
8. Promotion
IMA shall, in its sole and absolute discretion, promote the
PALTEM Systems throughout the Territory and shall make every effort
at all times to meet the demands for the PALTEM Systems throughout
the Territory to achieve sufficient business performance.
9. Improvement
9.1 Each party shall communicate to the other any non-
patentable improvements to, or new applications of the Technology
which that party may obtain or develop, and grant to the other a
non-exclusive license for such matters. Notwithstanding the
foregoing to the contrary, IMA's License for the Territory shall be
on an exclusive basis, unless otherwise specifically provided in
this Agreement.
9.2 If IMA makes modifications, improvements or inventions
relating to the PALTEM Systems that are patentable, IMA may, at its
own expense and in its own name file application for patents and
inform ASHIMORI of the content of any such application prior to
filing.
9.3 If AICL and AE and/or TG request to use any patents filed
under Clause 9.2, IMA shall grant to AICL and AE and/or TG the
right to use those patents on payment of royalties mutually agreed
by the parties.
9.4 If AICL alone or AICL in cooperation with AE and/or TG
makes major modifications, improvements or inventions relating to
the PALTEM Systems that are patentable and files application for
patents, ASHIMORI hereby agrees that it will grant to IMA the right
to use the patents (including those related to manufacture of the
Liners) without the necessity for payment of additional royalties.
10. Infringement of Patents, Misappropriation of Know-How
10.1 IMA shall notify ASHIMORI of any misappropriation or
infringement of the Technology in the Territory of which IMA
receives actual knowledge.
10.2 ASHIMORI agrees to defend the Know-How and Intellectual
Property Rights against infringement, at ASHIMORI's sole cost and
expense, provided, however, if such expense exceeds US $100,000,
ASHIMORI shall only be obligated to continue to prosecute an
infringement claim if IMA agrees to bear 50% of the cost in excess
of such amount. If ASHIMORI institutes proceedings for infringement
<PAGE>
or misappropriation of Know-How or Intellectual Property Rights
within, the Territory, IMA shall render every reasonable assistance
to ASHIMORI in such actions or proceedings.
10.3 All amounts actually recovered by ASHIMORI or IMA by way
of judgment, settlement or otherwise in respect of any claim
brought pursuant to Clause 10.2 shall be shared by the parties in
the following manner:
(1) First by each party to the extent of out-of-pocket
costs (including, without limitation, fees and disbursements of
counsel) actually incurred in connection with prosecuting such
claim, provided, however, that if the amount recovered shall be
less than the aggregate of such costs incurred by the parties, the
parties shall share such recovered amount pro rata in proportion to
the costs incurred;
(2) The excess, if any, over the amounts payable to the
respective parties pursuant to Clause 10.3(1) next shall be applied
to compensate each party for its actual damages arising out of the
conduct giving rise to such claim (including, but not limited to,
lost profits), provided, however, that if the amount recovered in
excess of the amount payable pursuant to Clause 10.3(1) shall be
less than the aggregate damages sustained by the parties, the
parties shall share such amount pro rata in proportion to the
respective amounts of damages sustained; and
(3) The excess, if any, over the amounts payable to the
parties pursuant to Clauses 10.3(1) and 10.3(2) shall be shared by
the parties 50% to each.
10.4 Notwithstanding ASHIMORI's rights and obligations in
Clause 10.2 above, IMA shall have the right, in AICL's name (if
required by law, otherwise in AICL's and IMA's name) to bring legal
actions against parties in the Territory for infringement of the
Licensed Patents and/or misappropriation of the Technology.
However, IMA shall execute legal actions at IMA's sole cost and
expense, and acquire all the amounts recovered by way of
settlement. ASHIMORI will promptly and fully cooperate and assist
IMA in prosecuting any such claim.
10.5 In the event of any claim or suit brought against IMA,
its subcontractors, sub-licensees, distributors and/or customers
alleging that the manufacture, use, sales and/or lease by any of
them constitutes the infringement of any patent, trademark or other
intellectual property rights owned by any third party, within the
Territory, AICL, at its cost if it is solely or principally caused
by the Technology, and subject to the limits of Clause 13.3 hereof,
shall institute, continue and defend the proceedings for such claim
or suit.
10.6 Except as otherwise provided in this Agreement, IMA shall
not file nor have any third party file any application for
intellectual property rights included in, disclosed or covered by
the Technology during the Duration.
<PAGE>
11. PALTEM Systems Trademarks
IMA may use ASHIMORI's trademarks relating to the PALTEM
Systems in the operation of those Systems. IMA acknowledges that
AICL is the proprietor of such trademarks, and agrees not to
challenge or oppose such proprietorship during the Duration. IMA
shall not file nor have a third party file any application for
registration of such trademarks, and shall cease using the same
upon the termination of this Agreement.
12. Confidentiality
12.1 During the term of this Agreement and notwithstanding the
expiry or termination of this Agreement, IMA shall keep any
Technology disclosed by ASHIMORI in strict secrecy and shall take
every reasonable precaution and measure to prevent the disclosure
of such information to any third party, and in the case of expiry
or termination for a period of ten (10) years from the date of this
Agreement or for a period of five (5) years from the date of expiry
or termination, whichever is the later, except for information.
(1) known to IMA when disclosed by ASHIMORI;
(2) which has entered into the public domain without the
fault of IMA; or
(3) which IMA legally obtained from any third party
without an obligation of confidentiality to ASHIMORI.
12.2 If during the Duration of this Agreement any Technology
enters into the public domain, IMA shall nonetheless continue to
make the Running Royalty Payments under Clause 3.1(2), 3.3 and 3.4
and without prejudice to any action against IMA for disclosure
contrary to the provisions of Clause 12.1.
13. Representations and Warranties
13.1 ASHIMORI hereby represents and warrants that there are no
existing licenses, obligations or agreements inconsistent with the
terms of this Agreement and that ASHIMORI has all rights to the
PALTEM Systems and the Technology and has the full legal right to
grant the License to IMA hereunder.
13.2 ASHIMORI hereby represents and warrants that all
information given to IMA relating to the Intellectual Property
Rights, the Equipment, the Materials, the Ancillary Materials and
other articles supplied to IMA under this Agreement shall at all
times be the best known to ASHIMORI available to be supplied to
IMA.
13.3 ASHIMORI represents and warrants as of the date hereof
and to ASHIMORI's best knowledge that the use of the Technology by
IMA under this Agreement does not and will not infringe any third
party right. ASHIMORI shall be liable for actual costs or damages
arising from any claim by a third party that such use of the
Technology infringes its rights, within the following limits:
<PAGE>
a) For cases arising from installation of the PALTEM-
HL System:
US $100,000 plus the accumulated Running Royalty
Payments paid by IMA to ASHIMORI with regard to the
PALTEM-HL System
b) For cases arising from installation of the PALTEM-
SZ System:
US $100,000 plus the accumulated Running Royalty
Payments paid by IMA to ASHIMORI with regard to the
PALTEM-SZ System
c) For cases arising from installation of the PALTEM-
APOLLO System, PALTEM FREPP System, or the PALTEM-
LACSTOP System:
The respectively accumulated Running Royalty
Payments paid by IMA with regard to each concerned
system
d) For cases arising from use of the Manufacturing
Technology of the PAL-Liner:
US $70,000 plus the respectively accumulated
Running Royalty Payments paid by IMA with regard to
each concerned system
e) For cases arising from use of the Manufacturing
Technology of the FREPP-Liner:
US $30,000 plus the respectively accumulated
Running Royalty Payments paid by IMA with regard to
each concerned system
13.4 ASHIMORI represents and warrants that the PALTEM Systems
will perform substantially in accordance with all data and
specifications provided by ASHIMORI.
13.5 Subject to Clause 6.3 hereof, ASHIMORI hereby warrants
that the Equipment, the Materials and the Ancillary Materials
supplied to IMA by ASHIMORI will be free from defects and fit for
the intended use contemplated by this Agreement for one year from
the date of delivery. In no event could IMA bring claim against
ASHIMORI arising out of improper use of the PALTEM Systems by IMA
or IMA's sub-licensees.
13.6 Except than as set forth in this Agreement, there are no
warranties made by ASHIMORI, express or implied and in no event
shall ASHIMORI be liable to IMA for lost profits, good will or
other incidental or consequential damages.
14. Force Majeure
In the event of an Act of God (including but not limited to
flood, earthquake, typhoon, epidemic, or other natural calamity),
war, armed conflict or serious threat of the same (including but
not limited to the hostile attack, blockade, embargo, riot or
insurrection), governmental order or regulations (including but not
<PAGE>
limited to prohibition or restriction of imports, exports, the
regulation or allocation of energy resources), labor disputes
(including but not limited to strike, go-slow, lock-out or
sabotage) or any other cause beyond the reasonable control of the
parties hereto, neither party shall be liable for any failure to
perform any of its obligations hereunder, provided, however, that
the other party shall have the right to terminate this Agreement
upon prior written notice if either party is unable to fulfill
obligations under this Agreement due to any of the above mentioned
causes and such inability continues for a period in excess of six
(6) months.
15. Successor Company
The parties hereby undertake that in the event of either of
them in their present legal form being succeeded by a different
company or firm, they will confer and impose upon such successor
company of firm all the rights and obligations arising under this
Agreement.
16. Termination, Expiry and Breach
16.1 In addition to other rights of termination contained in
this Agreement, this Agreement may be terminated -
(1) by either party by notice to the other-
(a) in the event of a breach of one or more of the
provisions of this Agreement by the other party which has not been
remedied within 45 days after written notice; or
(b) if the other party becomes insolvent or goes
into liquidation, if a petition is presented for the winding-up of
the other party that is not dismissed within 14 days, if a
receiver, administrator or similar officer is appointed over the
party or all or any of the assets of the other party or in the
event of the other party entering into any scheme of arrangement or
composition with its creditors; or
(2) by ASHIMORI by notice to IMA-
(a) If IMA challenges the validity of any patents
comprised in the Intellectual Property Rights or contests the
secrecy or ownership of any Technology; or
(b) If IMA fails to make any payment due hereunder
to ASHIMORI within 10 business days of the due date and another 30
business days after serving notice; or
(3) by IMA by notice to ASHIMORI, if ASHIMORI
consistently fails to provide a proper and viable service in terms
of Technology transfer and ASHIMORI's Material and Equipment
quality, deliveries and price that IMA can reasonably expect of
ASHIMORI.
<PAGE>
16.2 Upon the termination of this Agreement IMA shall-
(1) cease to use the trademark of the PALTEM Systems;
(2) cease to use Technology;
(3) return to ASHIMORI the Technical Information and any
sample given by ASHIMORI to IMA; and
(4) pay Running Royalty Payments accrued under Clause
3.1(2), 3.3 and 3.4 settle immediately in full any accrued but
unpaid liabilities of IMA under this Agreement. Notwithstanding the
foregoing to the contrary, IMA may complete all jobs under contract
at the time of termination. The period IMA is allowed to use the
Technology shall not exceed one year from the date of the
termination.
16.3 Upon the termination of this Agreement, ASHIMORI shall
supply in the ordinary course of business for a period not
exceeding one year from the date of termination, all the Materials,
the Ancillary Materials and the Equipment necessary to complete the
IMA's jobs under contract at the time of termination. In addition,
upon termination of this Agreement, ASHIMORI shall have an option
to repurchase IMA's remaining Materials, the Ancillary Materials
and the Equipment, for a price equal to their then fair market
value. If ASHIMORI does not exercise such option within 30 days
after termination, ASHIMORI shall use its best efforts to assist
IMA in selling the Materials, Ancillary Materials and Equipment
then owned by IMA.
17. Notice
Any notice or communication required to be given by either
party to the other under this Agreement shall be given by certified
return receipt to the other at the address at the head of this
Agreement or any other address made known pursuant to be a notice
given in accordance with this paragraph and shall be effective on
receipt.
18. Applicable Law and Arbitration
18.1 This Agreement shall be governed by the laws of the State
of New York, U.S.A.
18.2 Any dispute, if any arise, should be finally settled in
New York City in accordance with the Rules of Conciliation and
Arbitration of International Chamber of Commerce.
19. Entire Agreement
This Agreement constitutes the entire agreement between the
parties hereto, and shall not be released, discharged, changed or
modified in any manner, except by instruments signed by duly
authorized officers or representatives of each of the parties.
<PAGE>
20. Indemnification
In addition to any other obligation hereunder, each party
shall promptly indemnify the other party and pay any and all
damages, losses, liabilities, costs and expenses, including
reasonable attorneys' fees, incident to any suits, actions,
investigations, claims or proceedings suffered, sustained, incurred
or required to be paid by the other party by reason of (i) any
breach or failure of observance of any representations, warranties
or agreements contained in this Agreement, or (ii) the indemnifying
party's negligence in performing its obligations or exercising any
rights (including but not limited to the exercise of license
rights) granted under this Agreement.
21. Amended and Restated Agreement
This Agreement amends and restates the Original License
Agreement, by and between the parties hereto, which Original
License Agreement shall be deemed superseded in all respects by
this Agreement as of the date first written above.
For and on behalf of for and on behalf of
Ashimori Industry Co., Ltd. Insituform Mid-America, Inc.
s/Shojiro Miyamoto s/Jerome Kalishman
- ----------------------------- -----------------------------
Name: Shojiro Miyamoto Name: Jerome Kalishman
Title: President Title: Chairman
Date: December 9, 1994 Date: December 5, 1994
<PAGE>
For and on behalf of
Ashimori International Limited
s/Ichiro Sama
- ------------------------------
Name: Ichiro Sama
Title: Chairman
Date: December 9, 1994
<PAGE>
<PAGE> SCHEDULE 1
1. Cost and Expenses of ASHIMORI's personnel
1) Travel Expenses: actual costs including round trip
business class or equivalent air fare between Japan and
destination airport in the U.S.A.
2) Hotel: actual cost of hotel mutually agreed upon by
ASHIMORI and IMA not to exceed US $150 per day.
3) Meal: actual cost.
4) Absence Fee: US $400 per business day absent from the
ASHIMORI.
5) Car Rental: actual costs or vehicle to be provided by
IMA.
6) The above cost and expenses shall be reviewed every two
(2) years by both parties.
2. Running Royalty Payment
The Running Royalty Payment shall be as follows:
1) Six (6%) percent of the Installation Price for the
PALTEM-HL and the PALTEM MARCH Systems;
2) Seven (7%) percent of the Installation Price for the
PALTEM-SZ, APOLLO, LACSTOP, and FREPP Systems;
3) These royalties shall apply to installations of the above
products by IMA and any sub-licensees in the Territory;
4) Manufacturing royalty of five (5%) percent on all sales
amount of the Liners, SZ Liner, or APOLLO Liner
manufactured and sold to third parties by IMA within the
Territory.
3. Application
The application shall be all possible pipes, passageways and
conduits.
4. Territory
The Territory shall be as follows:
1) The U.S.A., Canada, Mexico and the Caribbean (Puerto
Rico, U.S. Virgin Islands, British Virgin Islands,
Jamaica, Turks & Caicos Islands, Grenada, Aruba, Haiti,
Antigua and Barbuda, Republic of Cuba, St. Christopher
and Nevis, St. Vincent and the Grenadines, Saint Lucia,
Commonwealth of Dominica, Dominican Republic, Republic of
Trinidad and Tobago and Commonwealth of the Bahamas)
<PAGE>
<PAGE>
SCHEDULE 2A
(Method and Apparatus)
Patents and Patents Applications
PALTEM-HL
1) US Pat. No. 4,334,943 : Method for smoothly evaginating
Canada Pat. No. 1,158,849 tubular material under pressure
2) US Pat. No. 4,350,548 : Method and apparatus for
providing the inner surface of
a pipe line with a lining
Canada Pat. No. 1,155,741
3) US Pat. No. 4,882,470 : Boring device for opening
passage to branch portions of a
lined main pipe line
Canada Pat. No. 1,292,033 : Boring device for a lining
material applied onto the inner
surface of a pipe line
4) US Pat. No. 4,883,557 : Method for lining pipelines
with a pressurized gas
4,948,452 : Apparatus for lining pipe lines
including liquid seal means
Canada Pat. No. 1,286,963 : Method for lining pipe lines
5) US Pat. No. 5,197,540 : Boring device for lining
material in branched portions
of lined conduit
Canada Pat. No. 1,320,124
6) US Appln. No. 566,454 : Apparatus and equipments for
Canada Appln. No. 2,006,117 use in lining pipe line having
branched portions.
7) US Appln. No.
Canada Appln. No.
PCT/JP94/00705 : Structure and method in
relation to lining pipe lines.
<PAGE>
<PAGE>
SCHEDULE 2A
(Method and Apparatus)
Patents and Patents Applications
Page Two
PALTEM-SZ
1) US Appln. No. 902,731 : Lining material for pipe lines
224,970 and a process for providing pipe
lines therewith.
Canada Appln. No.
2,072,173
2) US Pat. No. 5,186,987 : Lining material for pipe lines
and a process for providing
pipe lines therewith.
Canada Appln. No.
2,040,186
PALTEM-APOLLO
1) US Appln. No. 043,727 : Method and apparatus for
repairing.
Canada Appln. No.
2,093,458
PALTEM-LACSTOP
1) US Appln. No.
Canada Appln. No.
Date of filing in Japan: July 22, 1994
2) US Appln. No.
Canada Appln. No.
Date of filing in Japan: July 22, 1994
<PAGE>
<PAGE>
SCHEDULE 2B
(Lining material)
Patents and Patents Applications
PALTEM-HL
1) US Pat. No. 4,600,615 : Tubular lining material and a
method and apparatus for
manufacturing same
4,871,413 : Apparatus for manufacturing
tubular lining material
2) US Pat. No. 4,681,783 : Tubular lining material for
pipe lines
3) US Pat. No. 4,684,556 : Tubular lining material for
Canada Pat. No. 1,222,962 pipe lines
4) US Pat. No. 4,877,665 : Lining material for pipe lines
Canada Pat. No. 1,279,022
5) US Pat. No. 5,077,107 : Lining material for pipe lines
Canada Appln. No.
594,925
US Pat. No. 5,164,237
PALTEM-MARCH
1) US Appln. No.
Canada Appln. No.
Date of filing in Japan: May 9, 1994
PALTEM-FREPP
1) US Appln. No.
Canada Appln. No.
PCT/JP94/00704 : A tubular material for
repairing a pipe line and a
process for treating therewith
in pipe lines.
EXHIBIT 10.14
INSITUFORM MID-AMERICA, INC.
EMPLOYMENT AGREEMENT
This agreement ("Agreement") has been entered into as of the
17th day of December, 1993, by and between Insituform Mid-America,
Inc., a Delaware corporation (the "Company"), and Franklin T.
Driver, an individual ("Executive").
RECITALS
The Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its
stockholders to attract and encourage the attention and dedication
of the Executive to the Company as a member of the Company's
management. The Board desires to provide for the employment of the
Executive, and the Executive is willing to commit himself to serve
the Company. Therefore, in order to accomplish these objectives,
the Board has caused the Company to enter into this Agreement with
the Executive.
IT IS AGREED AS FOLLOWS:
Section 1: Definitions and Construction.
1.1 Definitions. For purposes of this Agreement, the following
words and phrases, whether or not capitalized, shall have the
meanings specified below, unless the context plainly requires a
different meaning.
1.1(a) "Board" means the Board of Directors of the
Company.
1.1(b) "Code" shall mean the Internal Revenue Code of
1986, as amended.
1.1(c) "Company" means Insituform Mid-America, Inc., a
Delaware corporation.
1.1(d) "Effective Date" shall mean the date first written
above.
1.1(e) "Employment Period" means the period beginning on
January 15, 1994 and ending on the Date of Termination as defined
in Section 3.5.
1.1(f) "Peer Executives" means executive officers of the
Company other than the Chairman of the Board, the Vice Chairman of
the Board and Jerome Kalishman and Robert W. Affholder (if either
of such individuals is not then serving as Chairman of the Board or
Vice Chairman of the Board).
1.1(g) "Term" means the period beginning on the date
hereof and continuing thereafter until either the Executive or the
Company Shall have given written notice of termination to the other
<PAGE>
at least six months prior to the effective date of termination,
which date shall be no earlier than January 14, 1997, and this
Agreement shall expire as of the termination date specified in such
notice.
1.2 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of Missouri,
without reference to its conflict of law principles.
Section 2: Terms and Conditions of Employment.
2.1 Period of Employment. The Executive shall remain in the
employ of the Company throughout the Employment Period in
accordance with the terms and provisions of this Agreement.
2.2 Positions and Duties.
2.2(a) Throughout the Employment Period, the Executive
shall serve as Vice President-Product Development/Manufacturing,
subject to the reasonable directions of the Company's chief
executive officer or his or her designee.
2.2(b) Throughout the Employment Period (but excluding
any periods of vacation and leave to which he is entitled), the
Executive shall devote substantially all his attention and time
during normal business hours to the business and affairs of the
Company and shall use his reasonable best efforts to perform
faithfully and efficiently such responsibilities as are assigned to
him under or in accordance with this Agreement; provided that, it
shall not be a violation of this paragraph for the Executive to (i)
serve on corporate, civic, political or charitable boards or
committees, or (ii) manage personal investments, so long as such
activities do not significantly interfere with the performance of
the Executive's responsibilities as an employee of the Company in
accordance with this Agreement or violate the Company's conflict of
interest policy as in effect from time to time.
2.3 Situs of Employment. Throughout the Employment Period, the
Executive's services shall be performed at any office of the
Company as directed by the Company's chief executive officer or his
or her designee.
2.4 Compensation.
2.4(a) Annual Base Salary. The Executive shall receive an
annual base salary ("Annual Base Salary") at a rate of at least
$160,000 per year which shall be paid in equal or substantially
equal installments at the times the Company generally pays its
corporate executives. During the Employment Period, the Annual Base
Salary payable to the Executive shall be reviewed at least annually
and may be increased in the sole and absolute discretion of the
Board.
<PAGE>
<PAGE>
2.4(b) Bonuses. In addition to Annual Base Salary, the
Executive shall be awarded discretionary bonuses at such times and
in such amounts as determined in the sole and absolute discretion
of the Board.
2.4(c) Incentive, Savings and Retirement Plans.
Throughout the Employment Period, the Executive shall be entitled
to participate in all incentive, savings and retirement plans
generally available to Peer Executives of the Company.
2.4(d) Welfare Benefit Plans. Throughout the Employment
Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and
programs provided by the Company (including, without limitation,
medical, prescription, dental, disability, employee life, group
life, accidental death and travel accident insurance plans and
programs) to the extent generally available to Peer Executives of
the Company. In addition, during the Employment Period the Company
will pay the cost of life insurance, issuable at standard rates on
the Executive's life, with a death benefit payable to the
Executive's beneficiaries of at least $300,000.
2.4(e) Expenses. Throughout the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the policies, practices and procedures generally applicable to Peer
Executives of the Company.
2.4(f) Fringe Benefits. Throughout the Employment Period,
the Executive shall be entitled to such fringe benefits as
generally are provided to Peer Executives of the Company. Such
benefits shall include (but not be limited to) the Company's
furnishing Executive, at the Company's expense, with the use of a
vehicle appropriate for Executive's position.
2.4(g) Vacation. Throughout the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
plans, policies, programs and practices generally provided with
respect to Peer Executives of the Company.
2.4(h) Stock Options. At such date not more than 90 days
after the Effective Date, specified by Executive by notice to the
Company, the Company will execute and deliver to Executive a
Non-Incentive Stock Option Agreement substantially in the form of
Exhibit A hereto, to purchase up to 20,000 shares of Class A Common
Stock at an exercise price equal to the fair market value of such
stock on the date of grant.
2.4(i) Relocation Expenses. In lieu of any relocation
expenses to which Executive otherwise may be entitled under the
foregoing provisions of this Section 2.4, upon Executive's
submission of appropriate documentation, the Company shall
reimburse Executive for actual and reasonable expenses incurred by
him for: (a) moving his residence from Memphis, Tennessee to St.
<PAGE>
Louis, Missouri; (b) mortgage interest on a residence purchased in
St. Louis, Missouri, incurred from the date of purchase until the
earlier of (i) the date Executive's residence in Memphis, Tennessee
is sold or (ii) one year after the date of such purchase; and (c)
real estate sales commission paid on the sale of Executive's
residence in Memphis, Tennessee.
Section 3: Termination of Employment.
3.1 Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment
Period.
3.2 Disability. If the Company determines in good faith that
a Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below),
it may give to the Executive written notice in accordance with
Section 6.1 of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of
such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean
that the Executive has been unable, with reasonable accommodation,
to perform the essential functions required of the Executive
hereunder on a full-time basis for a period of six months by reason
of a physical and/or mental condition. "Disability" shall be deemed
to exist when certified by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be
withheld unreasonably). The Executive will submit to such medical
or psychiatric examinations and tests as such physician deems
necessary to make any such Disability determination.
3.3 Termination for Cause. The Company may terminate the
Executive's employment during the Employment Period for "Cause,"
which shall mean termination based upon: (i) the Executive's
willful and continued failure to substantially perform his duties
with the Company (other than as a result of incapacity due to
physical or mental condition), after a demand for substantial
performance is delivered to him by the Company, which indemnifies
with reasonable specificity the manner in which the Executive has
not substantially performed his duties and the Executive has been
given a reasonable opportunity to substantially cure such
performance deficiencies, (ii) the Executive's commission of an act
constituting a criminal offense involving moral turpitude,
dishonesty, or breach of trust, or (iii) the Executive's material
breach of any provision of this Agreement. For purposes of this
Section, no act, or failure to act on the Executive's part shall be
considered "willful" unless done, or omitted to be done, without
good faith and without reasonable belief that the act or omission
was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until (i) he receives a Notice of
<PAGE>
Termination (as defined in Section 3.4) from the Company and has
been given the cure opportunity described in clause (i) of the
immediately preceding sentence, (ii) he is given the opportunity,
with counsel, to be heard before the Board, and (iii) the Board
finds, in its good faith opinion, the Executive engaged in the
conduct set forth in the Notice of Termination.
3.4 Notice of Termination. Any termination by the Company for
Cause or Disability, shall be communicated by Notice of Termination
to the other party, given in accordance with Section 6.1. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and (iii)
if the Date of Termination (as defined below) is other than the
date of receipt of such notice, specifies the termination date
(which date shall be not more than 15 days after the giving of such
notice). The failure by the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing
of Cause shall not waive any right of the Company hereunder, or
preclude the Company from asserting such fact or circumstance in
enforcing the Company's rights hereunder.
3.5 Date of Termination. "Date of Termination" shall be
determined as follows: (i) if the Executive's employment is
terminated by the Company for Cause, the Date of Termination shall
be the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be, or (iii) if the
Executive's employment is terminated as a result of the expiration
of the Term, the Date of Termination shall be the last day of the
Term.
Section 4: Non-Competition.
4.1 Non-Compete Agreement.
Acknowledging that the covenants contained in this Section 4
are part of the consideration for, and are reasonable in light of,
the employment and compensation covenants of the Company,
applicable to Executive's employment, Executive hereby covenants
and agrees with the Company that during the Employment Period, and
thereafter during the Non-Compete Period (as hereinafter defined)
that:
(a) Executive will not, directly or indirectly, engage in
the business of rehabilitating, lining, relining, coating,
constructing or reconstructing pipelines, sewers, conduits or
passageways (the "Services") anywhere in the world, nor
otherwise engage in prohibited competition, as such term is
defined in Section 4.1(b). The parties hereto agree that it is
<PAGE>
contemplated that the Company will continue to seek and obtain
work in the United States and internationally and acknowledge
that the Company's business presently involves operations in
the United States and internationally. Accordingly, Executive
agrees that the foregoing geographic scope is reasonable in
light of current and presently anticipated operations of the
Company. Notwithstanding any other provision of this Section
4.1 to the contrary, there shall be no prohibition against
Executive's employment or other association, subsequent to the
Employment Period, with a multi-divisional company, so long as
such company undertakes reasonable steps to ensure that the
operations with which Executive is involved in such company do
not include the Services and Executive does not violate the
confidentiality obligations set forth in Section 4.4.
(b) "Prohibited competition" shall include, but not be
limited to, acting as consultant, advisor, independent
contractor, officer, manager, employee, principal, agent,
director or trustee of any corporation, partnership,
association or agent or agency, or directly or indirectly
owning more than one percent of the outstanding capital stock:
of any corporation, or being a member or employee of any
partnership or any owner or employee of any other business,
any of which is engaged in providing any of the Services.
"Prohibited competition" also shall include (in addition
to the foregoing):
(i) Accepting employment with a customer of the
Company or of the Company's subsidiaries with the intent
or purpose of transferring defined business performed by
the Company or the Company's subsidiaries to a
department, division or affiliate of the customer;
(ii) Requesting or advising any of the customers,
suppliers or other business contacts of the Company or
the Company's subsidiaries to withdraw, curtail or cancel
their business with the Company or the Company's
subsidiaries; or
(iii) Causing or inducing, or attempting to cause or
induce, either directly or indirectly, any employees,
sales representatives, consultants or other personnel of
the Company or the Company's subsidiaries to terminate
their relationships or employment or breach their
agreements with the Company or the Company's
subsidiaries, whether for the purpose of accepting
employment with Executive or any other person, firm,
association or corporation with which Executive is
associated, or otherwise.
(c) As used herein, the term Non-Compete Period shall
mean the period ending upon the expiration of one year
following the Date of Termination.
<PAGE>
4.2 Injunctive Relief. Executive recognizes that the breach of
any of his obligations under this Section 4 hereof may give rise to
irreparable injury to the Company or its subsidiaries inadequately
compensable in damages and that, accordingly, the Company or any of
its subsidiaries may seek injunctive relief against the breach or
threatened breach of the within undertaking, in addition to other
remedies at law or in equity which may be available. Executive
acknowledges that compliance with Executive's obligations under
Section 4 hereof will not impair his ability to earn a livelihood.
4.3 Scope. If any restriction set forth in this Section 4 is
found by any court of competent Jurisdiction to be unenforceable
because it extends for too long a period of time or over too great
range of activities or in too broad a geographic area, it shall be
interpreted and amended automatically to extend only over the
maximum period of time, range of activities or geographic area as
to which it may be enforceable to protect the interests of the
Company and its subsidiaries.
4.4 Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or
confidential information, acknowledge or data relating to the
Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during
the Executive's employment by the Company and which shall not be or
become public acknowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the
Company, or as may otherwise be required by law or legal process,
communicate or divulge any such information, acknowledge or data to
anyone other than the Company and those designated by it. In
addition, Executive agrees to execute and deliver any
confidentiality or non-disclosure agreements required of Company
personnel pursuant to any license agreement entered into by the
Company or any subsidiary.
Section 5: Successors.
5.1 Successors of Executive. This Agreement is personal to the
Executive and, without the prior written consent of the Company,
the rights (but not the obligations) shall not be assignable by the
Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
5.2 Successors Of Company. As used in this Agreement, the term
Company shall mean the Company as hereinabove defined and any
successor to its business and/or assets which assumes and agrees to
perform the Company's obligations under this Agreement by operation
of law or otherwise.
<PAGE>
<PAGE>
Section 6: Miscellaneous.
6.1 Notice. For purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when delivered
or mailed by certified or registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses
or to such other address as one party may have furnished to the
other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
Notice to Executive:
Franklin T. Driver
6710 Kirby Oak Lane
Memphis, Tennessee 38119
Notice to Company:
Insituform Mid-America, Inc.
17988 Edison Avenue
Chesterfield, Missouri 63005
Attention: President
6.3 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
6.4 Withholding. The Company may withhold from any amounts
payable under this Agreement such Federal, state or local taxes as
shall be required to be withheld pursuant to any applicable law or
regulation.
6.5 Waiver. The Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Company may have
hereunder, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
6.6 Arbitration. The parties have agreed that any and all
disputes arising out of the terms, application or interpretation of
this Agreement or relating to Executive's employment by the
Company, or the termination of such employment, except disputes
involving the enforcement of the restrictive covenants in Section
4.1, shall be submitted to arbitration in St. Louis, Missouri in
accordance with the rules and procedures of the American
Arbitration Association (the "AAA"). Included within the parties'
intent and desire to arbitrate under this Agreement are all claims
Executive may have or assert under any federal, state or local law.
No party shall publicly disclose the existence or nature of any
arbitration proceeding hereunder, provided, however, that the
Company may disclose such information to the extent necessary or
advisable, based upon the advice of counsel, to comply with the
Company's obligations under applicable securities laws.
<PAGE>
Either party may initiate the arbitration of a dispute under
this Agreement by submitting a written request to arbitrate to the
other party, which request shall set forth the issue the party
wishes to arbitrate, the provisions of the Agreement or law the
requesting party contends govern the resolution of the dispute, a
recital of the facts and any law the requesting party contends
supports its position, and the remedy or relief requested. If the
parties cannot agree upon an arbitrator within ten days of a
request to arbitrate a dispute, either party may request the AAA to
submit a list of seven arbitrators with experience arbitrating
disputes involving executive employment contracts. The Company and
the Executive, by alternately striking names with the Executive
striking the first name, shall select one arbitrator who shall hear
and decide the issues. The selection of the arbitrator shall be
made in the manner prescribed within seven days following the
receipt of the panel from AAA.
The decision of the arbitrator shall be final and binding upon
the parties, provided, however, a limited review (appeal) may be
had by an action to set aside, vacate, or modify the arbitration
award in accordance with principles applicable to arbitration
awards as established by federal law. The parties intend this
Agreement to arbitrate to be fully enforceable under the Federal
Arbitration Act and of the Revised Statute of Missouri.
The arbitrator's fees and costs and expenses shall be shared
equally by the Company and the Executive. Each party shall bear its
owns costs, expense, and attorneys' fees in connection therewith.
* * *
IN WITNESS WHEREOF, the Executive and, the Company, pursuant
to the authorization from its Board, have caused this Agreement to
be executed in its name on its behalf, all as of the day and gear
first above written.
THIS AGREEMENT CONTAINS A BINDING
ARBITRATION CLAUSE WHICH MAY BE ENFORCED
BY THE PARTIES
INSITUFORM MID-AMERICA, INC.
By s/E.R. Jayne II
--------------------------------------
Name: E.R. Jayne
-----------------------------------
Title: President 12/20/93
----------------------------------
EXECUTIVE
s/Franklin T. Driver
----------------------------------------
Franklin T. Driver
<PAGE>
EXHIBIT A
NON-INCENTIVE STOCK OPTION AGREEMENT
This Non-Incentive Stock Option Agreement (hereinafter
"Agreement"), entered into and effective as of the day of
, 199 , in the County of St. Louis, Missouri, by and
between INSITUFORM MID-AMERICA, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and the Optionee whose
name is set forth on the last page hereof (hereinafter referred to
as the "Optionee").
WHEREAS, optionee intends to devote significant time and
effort to the success of the Company; and
WHEREAS, the Company has determined that it is in the best
interests of the Company to issue stock options to encourage
motivation and incentive by Optionee.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein:
1. GRANT OF OPTION. Subject to the terms and conditions of
this Agreement, the Company hereby grants to Optionee the right,
privilege and option to purchase up to the number of shares of
Class A Common Stock, par value $.01, of the Company ("Common
Stock") set forth below the Optionee's name on the last page
hereof, at a price of $ per share (the fair market value of
such shares at the close of business on the date first written
above). Such option shall become vested on a cumulative basis as to
20% of such covered shares on the anniversary date hereof in each
of 199 , 199 , 199 , 199 and 199 , provided that the Optionee
continues to be an employee of the Company on each such anniversary
date.
2. TERM OF OPTION. The term of this Option shall expire on
December , 200 (ten years from the date hereof).
3. TIME OF EXERCISE OF OPTION. The Option shall be exercisable
during its term in whole or in part from time to time beginning on
the date hereof, but may be exercised only as to the total number
of shares then vested as described in paragraph 1, less any shares
previously purchased hereunder.
4. INCORPORATION OF STOCK OPTION PLAN. This Agreement is
entered into pursuant to the Insituform Mid-America, Inc. Stock
Option Plan, as amended (hereinafter "Plan"), approved by the
stockholders of the Company, which Plan is by this reference
incorporated herein and made a part hereof. Capitalized terms used
herein, unless otherwise defined, shall have the respective
meanings ascribed to them in the Plan. A complete copy of the Plan
may be obtained from the Secretary of the Company. The Option
covered by this Agreement is not intended to be an-Incentive Stock
option as defined in Section 422 of the Internal Revenue Code of
<PAGE>
1986, as amended. The material provisions of the Plan applicable to
this Option are as follows:
a. METHOD OF EXERCISE OF OPTION. This Option shall be
exercised, in whole or in part to the extent then exercisable, by
a written notice delivered to the Secretary of the Company stating
the number of shares with respect to which the Option is being
exercised, accompanied by payment in cash or, in the discretion of
the Company's Stock Option Committee (the "Committee"), in
previously owned Class A Common Stock or a combination of cash and
Class A Common Stock, to the Company in the amount of the exercise
price of shares to be purchased.
b. STOCK APPRECIATION RIGHT. Instead of exercising an Option,
an Optionee may request that the Committee authorize payment of the
difference between the fair market value of part or all of the
Class A Common Stock Subject to the Option And the exercise price
of the Option determined as of the date the Committee receives the
request from the Optionee. The Committee shall have the sole
authority to grant or deny such request.
c. TERMINATION OF OPTION. Subject to the express terms and
conditions of the Plan, this Option shall terminate in all events
on the earlier of (i) the date set forth in paragraph 2 hereof, or
(ii) upon the expiration of three months after the termination of
Optionee's employment with the Company and its subsidiaries (unless
the termination is for cause, voluntary on the part of Optionee
without the consent of the Company or in violation of Optionee's
employment agreement with the Company, in which event this Option
shall immediately expire upon termination of employment); except
that in the event of Optionee's death, Optionee's personal
representative may exercise this Option (to the extent exercisable
at the date of death) within 18 months after Optionee's employment
terminates because of death.
d. NON-TRANSFERABILITY OF OPTION. This Option is
non-transferable by Optionee except by will or the laws of descent
and distribution and shall be exercisable during Optionee's
lifetime only by Optionee.
e. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC. In the
event of the payment of a stock dividend, a split-up or
consolidation of shares, or any like capital adjustment of the
Company as provided under the Plan, then to the extent the option
hereunder remains outstanding and unexercised, there shall be a
corresponding adjustment to the number of Shares covered under this
Option, and in the purchase price per share, to the end that
optionee shall retain the Optionee's proportionate interest without
change in the total purchase price-under this option.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its Chairman of the Board, Vice Chairman or
President, and Optionee has signed the same in duplicate originals.
INSITUFORM MID-AMERICA, INC.
By
--------------------------------------
Name:
Title:
Franklin T. Driver
----------------------------------------
Name of Optionee (Typed)
20,000
----------------------------------
Number of Shares Covered by Option
----------------------------------------
Signature of Optionee
, 199
----------------------------------------
Date
EXHIBIT 10.19
OPTION AGREEMENT
AGREEMENT dated as of this 15th day of December 1995
(hereinafter referred to as this "Option Agreement"), by and
between SOUND PIPE LIMITED, a corporation organized and existing
under the laws of the Turks and Caicos Islands (hereinafter
referred to as the "Corporation"), and INSITUFORM TECHNOLOGIES,
INC., a corporation organized and existing under the laws of the
State of Delaware (hereinafter referred to as "ITI").
W I T N E S S E T H:
WHEREAS, the Corporation is engaged in the development and
design of certain technologies having application in the trenchless
pipeline rehabilitation industry, and in connection therewith has
acquired certain substantial and valuable know-how, inventions and
techniques, and certain valuable proprietary information with
respect thereto; and
WHEREAS, ITI, together with its subsidiaries, is, among other
things, engaged in the commercial exploitation of various
trenchless rehabilitation processes used in the Option Field (as
such term is hereinafter defined); and
WHEREAS, ITI desires to conduct certain impregnation and
inversion tests utilizing the Corporation's technologies, so as to
evaluate various proposals to collaborate with the Corporation in
further developing the Subject Intellectual Property (as such term
is hereinafter defined), and to provide for additional testing and
evaluation thereof so as to verify the technical and commercial
viability of the Subject Intellectual Property; and
WHEREAS, in furtherance of such efforts, ITI desires to
acquire from the Corporation the right and option to enter into a
license agreement whereby ITI would obtain from the Corporation an
exclusive, worldwide, perpetual license to commercialize and
exploit the Subject Intellectual Property, and to have the right-
of-first offer to commercialize the ET Tube (as such term is
hereinafter defined), upon the terms and subject to the provisions
thereof;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, the parties
hereto hereby agree as follows:
ARTICLE I
GRANT OF OPTION
1.1 Grant of Option; Forbearance.
(a) The Corporation, for and in consideration of the sum of
Two Hundred Fifty Thousand ($250,000) Dollars (hereinafter referred
to as the "Deposit"), the receipt and sufficiency of which is
hereby acknowledged by the Corporation, does hereby grant to ITI,
<PAGE>
and ITI hereby accepts and acquires from the Corporation, the right
and option (hereinafter referred to as the "Option") to negotiate
with a view to entering into an agreement with the Corporation
(hereinafter referred to as the "Proposed License Agreement")
providing for the commercialization and exploitation of the Subject
Intellectual Property, in the uses permitted thereunder, through
the grant by the Corporation to ITI, subject to contract, of an
exclusive, worldwide, perpetual license with respect thereto, and
the extension by the Corporation to ITI of the right-of-first offer
to commercialize the ET Tube, upon such mutually acceptable terms
and the provisions (if any) as shall be contained in the Proposed
License Agreement formulated by the parties. In connection
therewith, the Corporation hereby agrees that, during the entire
period of the Term (as hereinafter defined), unless both parties
shall have earlier evidenced their abandonment of negotiations
relative to the Proposed License Agreement in a writing signed by
both parties, the Corporation shall not, and shall not permit or
suffer any Affiliate (as hereinafter defined) to, directly or
indirectly, initiate, solicit or encourage inquiries or proposals,
or participate in any negotiation or discussion for the purpose or
with the intention of leading to any proposal, concerning any sale,
transfer, license or disposition, in whole or in part, of the
Subject Intellectual Property or the ET Tube, or any rights
therein, for use within the Option Field, or the sale or other
disposition of all or substantially all of the capital stock of the
Corporation or the merger or consolidation of the Corporation with
or into any other entity, or any similar transaction, or effectuate
any such transaction.
(b) In the event that (x) both parties shall have executed
and delivered the writing heretofore contemplated evidencing the
abandonment of negotiations hereunder, or (y) both parties shall,
for whatever reason, not have entered into the Proposed License
Agreement prior to the expiration of the Term, the Corporation
shall return the Deposit to ITI within 30 days after the later to
occur of (i) the date of such writing or the expiration of the
Term, as the case may be, or (ii) the date of the first publication
of the operating results of ITI covering at least a 30-day period
after October 25, 1995.
(c) For purposes hereof, the following terms shall have the
meanings set forth below:
(i) "Affiliate" shall mean any person or entity
controlling, controlled by or under common control with the subject
referenced; provided, however, that, for purposes hereof: (x) ITI
and any entity controlled by ITI, shall not be construed as an
Affiliate of the Corporation, and (y) the Corporation and any
entity controlled by the Ringwood Group (other than ITI and any
entity controlled by the ITI) shall not be construed as an
Affiliate of ITI.
(ii) "AS System" shall mean a method of initiating the
curing of cured-in-place pipes manufactured with the use of the LR
System whether prior to , during and/or after its insertion into
<PAGE>
the pipeline or passageway to be rehabilitated by the releasing of
catalysts and promoters through the use of energy, such as heat
and/ or radiated energy, including, without limitation, microwaves,
electromagnetic force or ultrasonic energy, and any improvements to
the method.
(iii) "Confidential Material" shall mean all information
furnished to a Receiving Party, whether before or after the date
hereof and through the expiration of the Term, by a Disclosing
Party, or acquired, received, developed or learned by a Receiving
Party in the course of its relations with a Disclosing Party, or in
any manner relating to the proprietary plans, policies, business or
affairs of a Disclosing Party, including, without limitation, data,
drawings, materials and other communications concerning any
manufacturing or production or other process or any research and
development or marketing and/or sales plans or results related to
the business of a Disclosing Party; provided, however, that the
term "Confidential Material" shall not include information which:
(i) is or becomes generally available to the public other than as
a result of a disclosure by a Receiving Party, or (ii) was
available on a non-confidential basis prior to its disclosure to a
Receiving Party from a source other than a Disclosing Party, or
(iii) becomes available to a Receiving Party on a non-confidential
basis from a source other than a Disclosing Party, provided that
such source has a legal right to disclose such information to the
Receiving Party.
(iv) "Copyrights" shall mean and include any and all
copyrights at common and/or statutory law which relate to any means
of expression including, but not limited to, photographs, software,
firmware, diagrams and other visual presentations, having to do
with the AS System and/or the LR System or useful in connection
with the commercialization thereof, which the Corporation or its
Affiliates has, or hereinafter acquires the right to license to
others.
(v) "Disclosing Party" shall mean a party hereto,
together with its Affiliates and their respective officers,
directors, employees, agents and representatives, disclosing
Confidential Material.
(vi) "ET Tube" shall mean an extruded material and method
to manufacture such material, utilized or potentially utilized in
connection with the AS System and/or the LR System, with or without
temporary or permanent films on its interior and exterior surfaces,
such tubes or liners to be utilized in cured-in-place trenchless
pipeline rehabilitation processes by extruding resin composites in
continuous tubular or flat shapes that are subsequently rolled and
seamed to form a tubular shape and any improvements in connection
therewith.
(vii) "Know-how" shall mean and include any and all
technological information, ideas and techniques relating to the AS
System and/or the LR System, whether owned now or acquired or
controlled hereinafter by the Corporation or its Affiliates, except
<PAGE>
any information, ideas or techniques which are common knowledge to
the industry or which are readily available from sources other than
the Corporation.
(viii) "LR System" shall mean a method of
manufacturing catalysts and promoters encapsulated in capsules or
associated with inorganic particles that remain latent (or uncured)
when mixed with a specified thermoset resin at specified
temperatures for specified periods and permits resin to cure after
activation by an energy source, the thermoset resin composition
including the catalyst and promoters and any improvements.
(ix) "Option Field" shall mean the reconstruction,
rehabilitation, repair and construction of pipelines, tunnels,
sewers and other passageways.
(x) "Patent Rights" shall mean and include the patents
patent applications relating to the AS System and/or the LR System
whether now or hereafter acquired or controlled by the Corporation.
(xi) "Receiving Party" shall mean a party hereto,
together with its Affiliates and their respective officers,
directors, employees, agents and representatives, receiving
Confidential Material.
(xii) "Ringwood Group" shall mean Brian Chandler, Douglas
K. Chick, Ringwood Limited, Barford Limited, as trustee of the
Anthony Basmadjian Settlement, Parkwood Limited, as trustee of the
Anthony Basmadjian "P" Settlement, and any other person or entity
which, together with any one or more of the foregoing, constitute
a group (as defined under Section 13(d) of the United States
Securities Exchange Act of 1934, as amended) with respect to
securities of the Licensee.
(xiii) "Subject Intellectual Property" shall mean any and
all Know-how, Patent Rights and Copyrights, and other proprietary
rights now owned or hereinafter acquired by the Corporation or any
of its Affiliates and relating to the AS System and/or the LR
System.
(xiv) "Term" shall mean the period commencing on the date
hereof and expiring three months after the date hereof.
1.2 Exercise of Option.
The Option shall be exercisable by ITI subsequent to
completion of mutually satisfactory terms of the Proposed License
Agreement by the parties, but solely within the Term, upon
providing written notice to the Corporation of such exercise
together with two executed copies of the Proposed License
Agreement, whereupon the Corporation shall execute both copies and
return one fully-executed copy to ITI.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE CORPORATION
The Corporation hereby represents, warrants and covenants
that:
2.1 Incorporation.
It is duly organized, validly existing and in good standing
under the laws of the Turks and Caicos Islands and has full
corporate power and authority to own the Subject Intellectual
Property and to enter into this Option Agreement and perform its
covenants and agreements hereunder. It is in good standing in each
other jurisdiction wherein the failure so to qualify would have a
material adverse effect on its ability to enter into this Option
Agreement or perform its covenants and agreements hereunder.
2.2 Authorization.
The execution and delivery of this Option Agreement by it, the
performance by it of its covenants and agreements hereunder and the
consummation by it of the transaction contemplated herein have been
duly authorized by all necessary corporate action. When executed
and delivered by it in this Option Agreement shall constitute its
valid and legally binding agreement enforceable against it in
accordance with the terms hereof, except as may be limited by
bankruptcy, insolvency or other laws affecting generally the
enforceability of creditors' rights and by limitations on the
availability of equitable remedies.
2.3 Conflicts.
Neither the execution and delivery of this Option Agreement
nor the consummation of the transactions contemplated herein will
violate any provision of the articles or memorandum of association
of the Corporation or any law, rule, regulation, writ, judgment,
injunction, decree, determination, award, or other order of any
court, government or governmental agency or instrumentality,
domestic or foreign, binding upon the Corporation, or conflict with
or result in any breach of or event of termination under any of the
terms of, or constitute a default under or result in the
termination of or the creation or imposition of any mortgage, deed
of trust, pledge, lien, security interest or other charge or
encumbrance of any nature pursuant to, the terms of any contract or
agreement to which the Corporation is a party or by which the
Corporation or any of its assets and properties is bound.
2.4 Proprietary Rights.
Neither the Corporation, nor any of its agents, employees or
independent contractors, has taken or, shall take any action in any
way inconsistent with the Corporation's exclusive ownership of all
right, title and interest in and to the Subject Intellectual
<PAGE>
Property as heretofore developed. At the date hereof, no party has
or shall have any right, title or interest whatsoever in the
Subject Intellectual Property or any part thereof, which in any way
prohibits or restricts any transaction contemplated hereunder. No
Affiliate of the Corporation owns or controls any intellectual
property in any way constituting the LR System, the AS System, the
Subject Intellectual Property, or any part thereof, except for
intellectual property owned by the Corporation. There are no
outstanding options, licenses or agreements of any kind whatsoever
entered into by the Corporation, or any agent, employee or
independent contractor of the Corporation, relating to the use or
ownership of the Subject Intellectual Property by any party other
than the Corporation. At the date hereof, the Corporation has
maintained the Subject Intellectual Property, including, without
limitation, its trade secrets, know-how and other intellectual or
intangible property rights with respect thereto, as confidential
information, and has not, to the Corporation's knowledge, suffered
any of its trade secrets, know-how, other intellectual or
intangible property rights with respect to or utilized in
connection with the Subject Intellectual Property to enter into the
public domain. All employees of the Corporation are legally bound
to transfer to the Corporation any right, title or interest they
have or may have in the Subject Intellectual Property.
2.5 Patents.
Except for the patents and applications therefor heretofore
furnished by the Corporation to ITI, neither the Corporation nor
any Affiliate holds, or has applied for, any United States or
foreign letters patent relating to the LR System, the AS System,
the Subject Intellectual Property, or any part thereof. The
Corporation owns all right, title and interest in and to the
inventions and processes covered by the Patent Rights heretofore
evidenced by the Corporation to ITI, free and clear of all liens,
claims, charges or encumbrances whatsoever, such Patent Rights are
(except with respect to office actions in connection with
applications for any such Patent Rights [copies of which have been
available to ITI]) valid and in full force and effect as of the
date hereof, and, to the Corporation's knowledge, no event has
occurred and is continuing which, after notice or lapse of time or
otherwise, would result in the invalidity or forfeiture of such
Patent Rights, or any part thereof, or any of the Corporation's
rights thereto. The Corporation has furnished ITI with true and
complete copies of all documents and instruments establishing or
evidencing the ownership, scope and nature of such Patent Rights.
2.6 Infringement.
There are no claims, disputes, actions, suits or proceedings,
including, without limitation, suits for patent or other
infringement, pending or, to the Corporation's knowledge,
threatened against or affecting the Patent Rights or the Subject
Intellectual Property or the use thereof by the Corporation or ITI.
To the Corporation's knowledge:
<PAGE>
(a) neither the Patent Rights nor the Subject
Intellectual Property, nor the use of the Patent Rights nor
the Subject Intellectual Property, nor any part thereof, by
ITI under the Proposed License Agreement, if and when executed
and delivered, will infringe or conflict with any patents,
patent applications, know-how, processes, trade secrets,
techniques, procedures or other proprietary property rights
held by any third party; and
(b) the Corporation has not failed to comply with any
law, rule, regulation, writ, judgment, injunction, decree,
determination, award or other order of any court or other
governments agency or instrumentality, in any jurisdictions in
which the Subject Intellectual Property is covered by letters
patent, which relates to the Subject Intellectual Property, or
any part thereof, and there is no basis for any claim for
compensation, damages or otherwise arising out of any
violation of the foregoing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ITI
3.1 Incorporation.
It is duly organized, validly existing and in good standing
under the laws of Delaware has full corporate power and authority
to enter into this Option Agreement and perform its covenants and
agreements hereunder. It is in good standing in each other
jurisdiction wherein the failure so to qualify would have a
material adverse effect on its ability to enter into this Option
Agreement or perform its covenants and agreements hereunder.
3.2 Authorization.
The execution and delivery of this Option Agreement by it, the
performance by it of its covenants and agreements hereunder and the
consummation by it of the transactions contemplated herein have
been duly authorized by all necessary corporate action. When
executed and delivered by it, this Option Agreement shall
constitute its valid and legally binding agreement enforceable in
accordance with the terms hereof, except as may be limited by
bankruptcy, insolvency or other laws affecting generally the
enforceability of creditors' rights and by limitations on the
availability of equitable remedies.
3.3 Conflicts.
Neither the execution and delivery of this Option Agreement
nor the consummation of the transactions contemplated herein will
violate any provision of the certificate of incorporation or bylaws
of ITI or any law, rule, regulation, writ, judgment, injunction,
decree, determination, award, or other order of any court,
government or governmental agency or instrumentality, domestic or
foreign, binding upon ITI, or conflict with or result in any breach
<PAGE>
of or event of termination under any of the terms of, or constitute
a default under or result in the termination of or the creation or
imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature pursuant to,
the terms of any contract or agreement to which ITI is a party or
by which ITI or any of its assets and properties is bound.
ARTICLE IV
CERTAIN COVENANTS
4.1 Covenants of the Corporation.
The Corporation hereby covenants and agrees that, from and
after the date hereof and through the Term or, if earlier, the date
of any writing executed and delivered by both parties evidencing
the abandonment of negotiations hereunder, it shall:
(a) afford ITI and its officers, employees, accountants,
counsel and other authorized representatives reasonable
access, during ordinary business hours, to its properties and
all relevant books and records, and shall use its reasonable
efforts to cause its representatives to furnish to ITI such
additional data and other information as ITI may from time to
time reasonably request; and shall hold itself and its
employees available to consult with ITI with respect to the
Subject Intellectual Property in such manner as ITI shall from
time to time reasonably request in order for ITI fully to
investigate and evaluate the practicability of entering into
the Proposed License Agreement.
(b) give prompt notice in writing to ITI of: (i) the
occurrence, or failure to occur, of any event known to the
Corporation, which occurrence or failure would be likely to
cause any representation or warranty of the Corporation
contained in this Option Agreement to be untrue or inaccurate
in any material respect, from the date hereof to the exercise
or expiration of the Option, (ii) any notice or other
communication received by the Corporation from any person
alleging that the consent of such person is or may be required
by the Corporation in connection with the transactions
contemplated by this Option Agreement, (iii) any notice or
other communication received by the Corporation, from any
governmental or regulatory agency or authority in connection
with the transactions contemplated by this Option Agreement,
(iv) any actions, suits, claims, investigations or proceedings
known to the Corporation, commenced or, to the best of its
knowledge, threatened against the Corporation, or relating to
or involving the Corporation which relate to the consummation
of the transactions contemplated by this Option Agreement, and
(v) any failure known to the Corporation or any officer,
director, employee or agent thereof to comply with or satisfy
any covenant, condition or agreement to be complied with or
satisfied by it hereunder.
<PAGE>
The giving of any such notice under this Section 4.1 shall in
no way change or modify the representations and warranties of the
Corporation contained herein or otherwise affect the remedies
available to ITI hereunder or otherwise.
4.2 Confidentiality.
(a) Each Receiving Party shall hold in absolute secrecy and
treat confidentially all Confidential Material, and not disclose,
reproduce, publish, distribute or by any other means disseminate,
in whole or in part, any Confidential Material, except in order to
exercise its rights under this Option Agreement (without reference
to this Section 4.2). No Receiving Party may in any manner use for
its benefit or for the benefit of others any Confidential Material,
except as shall be specifically necessary for the Receiving Party
to exercise its rights authorized under this Option Agreement
(without reference to this Section 4.2). Upon expiration or
termination of the Term (in the event the Proposed License has not
been executed and delivered by both parties), the parties shall
each return to the other all Confidential Material of the other
party in its possession and any copies which it has made of the
same. The provisions of this paragraph (a) (and related provisions
of paragraph (c) of this Option Agreement) shall survive the
expiration of the Term.
(b) ITI covenants that, during the Term, it shall not,
directly or indirectly, contest or aid in contesting the
Corporation's rights in and to any Confidential Material disclosed
by the Corporation to ITI and constituting Subject Intellectual
Property.
(c) Each party hereby acknowledges and agrees that its
agreements contained under this Section 4.2 are of a special,
unique, and extraordinary nature and that a non-breaching party
would suffer irreparable injury as a consequence of the violation
thereof, and by reason thereof each party hereby consents and
agrees that, if it should in any way violate such provisions, the
non-breaching party shall be entitled to an injunction to be issued
by any court of competent jurisdiction, restraining the violator
from committing or continuing any such violation.
ARTICLE V
MISCELLANEOUS
5.1 Notices.
All notices, requests or instruction hereunder shall be in
writing and delivered personally or sent by registered or certified
mail, postage prepaid, as follows:
<PAGE>
(1) if to the Corporation:
Post Office Box 156
Hibiscus Square
Bond Street
Grand Turk, Turks and Caicos Islands
with a copy to:
Adtech Limited
10 Harrowden Road
Bracmills
Northampton NN4 7EB
United Kingdom
if to ITI:
1770 Kirby Parkway
Suite 300
Memphis, Tennessee 38138
Any of the above addresses may be changed at any time by notice
delivered to the other party as provided above; provided, however,
that any such notice with respect to change of address shall be
effective only upon receipt.
5.2 Entire Agreement.
This Option Agreement contains the entire agreement between
the parties hereto with respect to the transaction contemplated
hereby. No modification hereof shall be effective unless in writing
and signed by the party against which it is sought to be enforced.
5.3 Further Action.
Each of the parties hereto shall use such party's best efforts
to take such actions as may be necessary or reasonably requested by
the other party hereto to carry out and consummate the transactions
contemplated by this Option Agreement.
5.4 Benefit of Agreement.
This Option Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns, except that, other than as provided hereunder, neither
party may assign its rights or obligations hereunder without the
prior written approval of the other party having first been
obtained.
5.5 Exclusions.
In the event that any one or more of the provisions of this
Option Agreement is, or are, held to be invalid, it is agreed
between the parties that, if legally practical said provision or
<PAGE>
provisions shall be considered never to have been contained herein
and this Option Agreement shall otherwise continue in force and
effect. To the extent that the provisions of this Option Agreement
provide for periods of notice less than those required by
applicable law, or provide for termination, cancellation,
non-renewal or the like other than in accordance with applicable
law, such provisions shall, to the extent such are not in
accordance with applicable law, not be effective, and the parties
shall comply with applicable law in connection with each of these
matters.
5.6 Gender.
Words of the neuter gender utilized in this Option Agreement
shall be deemed to be of the masculine or feminine gender where the
context requires. Words of the singular number utilized in this
Option Agreement shall be deemed to be plural where the context
requires and vice versa.
5.7 Expenses.
Except as otherwise herein provided, each of the parties
hereto shall bear its own expenses in connection with this Option
Agreement and the transactions contemplated herein.
5.8 Governing Law.
This Option Agreement shall be governed by and construed in
accordance with English law. The Corporation hereby irrevocably
and unconditionally: (a) submits for itself and its property in any
legal action or proceeding relating to this Option Agreement or for
recognition and enforcement of any judgment in respect thereof, to
the non-exclusive general jurisdiction of the English courts and
further, in any legal action or proceeding relating to paragraph
(b) of Section 1.1 of this Option Agreement or for recognition and
enforcement of any judgment in respect thereof, to the non-
exclusive general jurisdiction of the courts of the State of
Tennessee, the courts of the United States of America for the
Western District of Tennessee and appellate courts from any of the
foregoing; (b) consents that any such action or proceeding may be
brought in such courts, to the extent aforesaid, and waives any
objection that it may now or hereafter have to the venue of any
such action or proceeding in any such court as aforesaid or that
such action or proceeding was brought in an inconvenient forum and
agrees not to plead or claim the same; (c) agrees that service of
process in any such action or proceeding may be effected by mailing
a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to Messrs.
Royds and Treadwell, No. 2 Crane Court, London, United Kingdom,
EC4A2BL; and (d) agrees that nothing herein shall affect the right
to effect service of process in any other manner permitted by law
or shall limit the right to use in any other jurisdiction.
<PAGE>
<PAGE>
5.9 Captions.
The captions appearing in this Option Agreement are inserted
for the convenience of the parties only and shall not be construed
to affect the meaning of the provisions of this Option Agreement.
5.10 Counterparts.
This Option Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Option Agreement had duly executed by
the parties hereto as of the date first above written.
ATTEST: SOUND PIPE LTD.
s/Allan Beaks By s/Arthur Morris
- -------------------------- ----------------------------
ATTEST: INSITUFORM TECHNOLOGIES, INC.
s/William A. Martin By s/Jean-Paul Richard
- -------------------------- ----------------------------
<PAGE>
<PAGE>
GUARANTY
The undersigned, Douglas K. Chick and Brian Chandler
(hereinafter referred to as the "Guarantors"), hereby, jointly and
severally, guarantee to ITI the payment and performance of the
Corporation's obligation contained under paragraph (b) of Section
1.1 of the foregoing Option Agreement. The foregoing guaranty
shall be enforceable against the Guarantors, jointly and severally,
regardless of whether or not ITI or anyone acting on ITI's behalf
shall have instituted any suit, action or proceeding or exhausted
its remedies or taken any steps to enforce any rights against the
Corporation or any other person either pursuant to the provisions
of the Option Agreement or at law or in equity, and regardless of
any other condition or contingency.
The obligations and agreements of the Guarantors, and each of
them, under this guaranty shall not be affected or impaired by the
voluntary or involuntary liquidation, sale or other disposition of
all or substantially all the assets of the Corporation or
receivership, insolvency, bankruptcy, reorganization or other
similar proceedings affecting the Corporation or any of its assets,
or the consolidation or merger of the Corporation or any other
cause, whether similar or dissimilar to the foregoing.
The provisions of Section 5.8 of the foregoing Option
Agreement shall by this reference be deemed to be incorporated into
this guaranty as if set forth herein, provided that the reference
therein to the Corporation shall be deemed a reference to the
undersigned, and each of them.
IN WITNESS WHEREOF, the undersigned have executed this
guaranty as of the date first above written.
s/Douglas K. Chick
-----------------------------------
Douglas K. Chick
s/Brian Chandler
-----------------------------------
Brian Chandler
EXHIBIT 10.20
EQUIPMENT LEASE
THIS LEASE executed as of October 10, 1989, between A-Y-K-E
PARTNERSHIP, a Missouri partnership (hereinafter referred to as
"LESSOR"), and AFFHOLDER, INC, a Missouri corporation (hereinafter
referred to as "LESSEE").
1. LESSOR leases to LESSEE, and LESSEE leases from LESSOR, one
(1) Lovat M-96 Tunnel Mole Machine, Serial No. 1700.
2. The term of this Lease shall begin on the date hereof and
shall end upon thirty (30) day's written notice given by either
party to the other.
3. The leased property shall be used solely for jobs
identified on schedules executed by both parties.
4. LESSOR will be paid an amount per lineal foot of tunnel as
installed, all as set out on each schedule, based upon LESSEE's
monthly pay estimate as approved by the project engineer for the
Owner, with a guaranteed minimum rental as set out on
each-schedule.
5. LESSEE may make alterations, additions or improvements to
the leased property, so long as its value is not reduced thereby.
All such additions and improvements shall immediately become the
property of the LESSOR and subject to the terms of this Lease.
6. LESSEE, at its own cost and expense, shall keep the leased
property in good repair, condition and working order, and shall not
subject the leased property to careless or needlessly rough usage.
7. LESSOR shall at all times during business hours have the
right to enter upon the premises where the leased property may be
located for the purpose of inspecting it or observing its use.
<PAGE>
8. On expiration of this Lease, LESSEE shall return the leased
property to LESSOR in good repair, by delivering the leased
property at LESSEE's expense to LESSOR's principal place of
business in St. Louis County, Missouri. Nothing herein shall impose
upon LESSEE the obligation to perform a general overhaul.
9. LESSEE shall inspect the leased property before the
commencement of the Lease. Unless LESSEE gives written notice to
the LESSOR within five (5) days after receipt of the leased
property specifying any defect in or other objection to the leased
property, it shall be conclusively presumed, as between LESSOR and
LESSEE, that LESSEE has fully inspected the leased property and
found it to be in good condition and repair and in full conformance
with any and all express or implied representations, promises,
statements or warranties with respect to the merchantability,
suitability, or fitness for purpose of the leased property.
10. LESSEE, at its own expense, shall carry casualty and
liability insurance in such amounts and form as LESSOR shall
reasonably require, with carriers acceptable to LESSOR.
11. LESSEE shall pay all taxes and fees connected with this
Lease or the LESSEE's use of the leased equipment, including any
use or sales taxes resulting therefrom.
12. LESSEE shall indemnify LESSOR against all claims, actions,
proceedings, costs, damages and liabilities, including attorneys'
fees, arising out of, relating to or connected with this Lease, or
resulting from the use of the leased property.
13. This lease shall be governed by and construed under the
laws of the State of Missouri.
<PAGE>
14. LESSEE shall not, without the prior written consent of the
LESSOR, assign, transfer, pledge or hypothecate this Lease, the
leased property, or any part thereof, or any interest therein, nor
sublet or lend the leased property or any part thereof, nor permit
the leased property or any part thereof to be used by anyone other
than the LESSEE or LESSEE's employees.
15. This instrument shall be binding upon and inure to the
benefit of the respective parties and their legal representatives,
successors and assigns.
IN WITNESS WHEREOF, this instrument was executed by the
parties as of the date first above written.
A-Y-K-E PARTNERSHIP
By s/Jerome Kalishman
---------------------------------
Jerome Kalishman
Manager
"LESSOR"
AFFHOLDER, INC.
By s/Robert W. Affholder
---------------------------------
Robert W. Affholder
President
"LESSEE"
<PAGE>
<PAGE>
SCHEDULE #1
TO LEASE BETWEEN A-Y-K-E PARTNERSHIP AND AFFHOLDER, INC.
This schedule is incorporated into and becomes a part of that
certain equipment lease executed as of October 10, 1989 between
A-Y-R-E Partnership and Affholder, Inc.
1) The leased property may be used for the East Water Project
for the City of Houston, Texas.
2) The rental will be $25.00 per lineal foot of tunnel as
installed, with a guaranteed minimum rental of $10,000.00.
3) The job shall commence on or before October 10, 1989 and
end not later than December 31, 1989.
IN WITNESS WHEREOF, this schedule was executed by the parties
as of October 10, 1989.
A-Y-K-E PARTNERSHIP
By s/Jerome Kalishman
---------------------------------
Jerome Kalishman
Manager
"LESSOR"
AFFHOLDER, INC.
By s/Robert W. Affholder
---------------------------------
Robert W. Affholder
President
"LESSEE"
<PAGE>
<PAGE>
SCHEDULE #2
TO LEASE BETWEEN A-Y-K-E PARTNERSHIP AND AFFHOLDER, INC.
This schedule is incorporated into and becomes a part of that
certain equipment lease executed as of October 10, 1989 between
A-Y-K-E Partnership and Affholder, Inc.
1) As of this date Lessor has leased the leased property to
S.E.C. Corp.
2) During the term such lease is in effect, the lease to which
this schedule relates shall be in abeyance.
3) Affholder, Inc. shall perform all of the Lessor's
obligations under the S.E.C. lease other than the furnishing of the
Lovat Tunnel Machine. In consideration for Affholder, Inc.
performing such other obligations and the administrative work in
connection with the lease, Affholder, Inc. shall be entitled to all
sums collected under such lease other than the machine rental and
shall also be entitled to 15% of the machine rental.
IN WITNESS WHEREOF, this schedule was executed by the parties
as of January 11, 1990.
A-Y-K-E PARTNERSHIP
By s/Jerome Kalishman
---------------------------------
Jerome Kalishman
Manager
"LESSOR"
AFFHOLDER, INC.
By s/Robert W. Affholder
---------------------------------
Robert W. Affholder
President
"LESSEE"<PAGE>
<PAGE>
SCHEDULE #3
BETWEEN A-Y-K-E PARTNERSHIP AND AFFHOLDER, INC.
This schedule is incorporated into and becomes a part of that
certain equipment lease executed as of October 10, 1989 between
A-Y-K-E Partnership and Affholder, Inc.
1) The leased property may be used for the installation of a
tunnel on the Almeda-Sims Diversion, Contract #1, WW-4155 Project
for the City of Houston, Texas.
2) The rental will be $17.00 per lineal foot, with a
guaranteed minimum rental of $136,000.00.
3) The job shall commence on or before April 15, 1990 and end
not later than June 31, 1991.
IN WITNESS WHEREOF, this schedule was executed by the parties
as of January 11, 1990.
A-Y-K-E PARTNERSHIP
By s/Jerome Kalishman
---------------------------------
Jerome Kalishman
Manager
"LESSOR"
AFFHOLDER, INC.
By s/Robert W. Affholder
---------------------------------
Robert W. Affholder
President
"LESSEE"
EXHIBIT 21
SUBSIDIARIES OF INSITUFORM TECHNOLOGIES, INC.
The following table sets forth certain information as of
December 31, 1995 concerning the Company and certain of its
subsidiaries. Unless otherwise indicated all securities of such
subsidiaries are owned by the Company:
<TABLE>
<CAPTION>
% of
Name Place of Incorporation Voting Securities
---- ---------------------- -----------------
<S> <C> <C>
Affholder, Inc. Missouri 100%<F1>
E-Midsouth, Inc. Florida 100%<F2>
GCO Acquisition Corp. Delaware 100%<F3>
Gelco Services, Inc. Oregon 100%<F4>
H.T. Schneider, Inc. New York 100%
IMA Merger Sub, Inc. Delaware 100%<F1>
INA Acquisition Corp. Delaware 100%
Insituform California, Inc. Delaware 100%
Insituform Canada Limited Alberta 100%<F1>
Insituform Central, Inc. Delaware 100%<F1>
Insituform France S.A. France 66.6%<F5>
Insituform Gulf South, Inc. Delaware 100%<F6>
Insituform International, Inc. Liberia and Delaware 100%<F3>
Insituform Japan K.K. Japan 100%<F3>
Insituform Licensees
B.V./S.A. Netherlands and Delaware 100%<F3>
Insituform Linings Plc. United Kingdom 51.0%<F7><F8>
Insituform Management
Services, Inc. Guernsey and Delaware 100%<F3>
Insituform Mid-America, Inc. Delaware 100%
Insituform Mid-America
Investments, Inc. Delaware 100%
Insituform Midwest, Inc. Delaware 100%
Insituform Missouri, Inc. Delaware 100%<F1>
Insituform (Netherlands)
B.V. Netherlands and Delaware 100%<F9>
Insituform of New England, Massachusetts
Inc. 100%<F10>
Insituform North America
Corp. Tennessee 100%
Insituform North, Inc. Delaware 100%<F1>
Insituform Overseas Limited United Kingdom 100%<F7>
Insituform Permaline Limited United Kingdom 100%<F7>
Insituform Plains, Inc. Delaware 100%<F1>
Insituform de Puerto Rico
Inc. Puerto Rico 100%<F1>
Insituform Rockies, Inc. Delaware 100%<F1>
Insituform
Rohrsanieurungstechnik GmbH Germany 33.3%<F7>
Insituform Southeast, Inc. Florida 100%<F11>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
% of
Name Place of Incorporation Voting Securities
---- ---------------------- -----------------
<S> <C> <C>
Insituform Southwest California (Partnership) 100%<F12>
Insituform Technologies
Limited United Kingdom 100%<F3>
Insituform Texark, Inc. Delaware 100%<F1>
Mar-Tech Insituform Limited British Columbia 100%<F4>
Midsouth Partners
(partnership) Tennessee (Partnership) 57.5%<F13>
Naylor Industries, Inc. Delaware 100%
NuPipe, Inc. Oregon 100%
NuPipe International, Inc. Delaware 100%<F14>
NuPipe Limited United Kingdom 100%
PALTEM Systems, Inc. Delaware 100%<F1>
Pipe Rehab International, Inc. Delaware 100%
Tite Liner NRO Corp. Alberta 100%<F1>
United Pipeline Systems, Inc. Alberta 100%<F1><F15>
United Pipeline Systems USA,
Inc. Delaware 100%<F1>
United Sistema de Tuberias
Ltda. Chile 60%<F1>
Other subsidiaries of the Company are not named in the table
above. Such unnamed subsidiaries considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary.
<FN>
<F1> Securities are owned by Insituform Mid-America, Inc.
<F2> Securities are owned by Insituform Southeast, Inc.
<F3> Securities are owned by INA Acquisition Corp.
<F4> Securities are owned by GCO Acquisition Corp.
<F5> The remaining 33.3% is owned by a subsidiary of Lyonnaise des
Eaux S.A.
<F6> Securities are owned by Naylor Industries, Inc.
<F7> Securities are owned by Insituform Technologies Limited
<F8> An additional 10% is owned by Insituform
Rohrsanieurungstechnik GmbH
<F9> Securities are owned by Insituform Licensees B.V./S.A.
<F10> Securities are owned by H.T. Schneider, Inc.
<F11> Securities are owned by IMA Merger Sub, Inc.
<F12> 80% of partnership interest owned by Insituform
California, Inc. and 20% owned by NuPipe California, Inc.
<F13> Securities are owned 42.5% by E-Midsouth, Inc. and 15% by
Insituform California, Inc.
<F14> Securities are owned by NuPipe, Inc.
<F15> Effective January 1, 1996, United Pipeline Systems, Inc.
was amalgamated with Insituform Canada Limited.
</TABLE>
EXHIBIT 23
Consent of Independent Certified Public Accountants
Insituform Technologies, Inc.
Memphis, Tennessee
We hereby consent to the incorporation by reference in
Registration Statement No. 33-00002 on Form S-8, Registration
Statement No. 33-42543 on Form S-8, Registration Statement No. 33-
55988 on Form S-8, Registration Statement No. 33-82486 on Form S-8,
Registration Statement No. 33-82488 on Form S-8 and Registration
Statement No. 33-63953 on Form S-8 of our report dated March 8,
1996, relating to the consolidated financial statements of
Insituform Technologies, Inc. appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
BDO SEIDMAN, LLP
Memphis, Tennessee
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000353020
<NAME> Insituform Technologies, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,322
<SECURITIES> 1
<RECEIVABLES> 44,557
<ALLOWANCES> 540
<INVENTORY> 9,581
<CURRENT-ASSETS> 76,208
<PP&E> 30,413
<DEPRECIATION> 21,580
<TOTAL-ASSETS> 168,753
<CURRENT-LIABILITIES> 29,195
<BONDS> 0
<COMMON> 146
0
0
<OTHER-SE> 82,872
<TOTAL-LIABILITY-AND-EQUITY> 168,753
<SALES> 19,184
<TOTAL-REVENUES> 126,100
<CGS> 11,122
<TOTAL-COSTS> 81,329
<OTHER-EXPENSES> 30,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,512
<INCOME-PRETAX> 9,619
<INCOME-TAX> 3,760
<INCOME-CONTINUING> 5,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,886
<EPS-PRIMARY> 0.410
<EPS-DILUTED> 0.410
</TABLE>
