FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1997
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Commission file number #0-10786
--------
Insituform Technologies, Inc.
--------------------------------------
(Exact name of registrant as specified
in its charter)
Delaware 13-3032158
--------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
702 Spirit 40 Park Drive
Chesterfield, Missouri 63005
-----------------------------------
(Address of Principal Executive Offices)
(314) 530-8000
---------------------
(Registrant's telephone number
including area code)
1770 Kirby Parkway, Suite 300
Memphis, Tennessee 38138
-----------------------------------
(Former name, former address and
former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 1, 1997
- - -------------------- -------------------------------
Class A, Common Stock, 26,915,752 Shares
$.01 par value
<PAGE>
INDEX
Page No.
Part I Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
Part II Other Information and Signatures:
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index to Exhibits 19
<PAGE>
<PAGE> PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June December
30, 1997 31, 1996
----------- ---------
(Unaudited)
<S> <C> <C>
Assets
- - ------
Current
- - -------
Cash and cash equivalents,
restricted $595 and $573 $39,204 $13,476
Receivables (Note 3) 66,551 68,627
Costs and estimated earnings in
in excess of billings 25,417 20,127
Inventories (Note 4) 13,153 15,781
Deferred income taxes 5,442 5,158
Prepaid expenses and miscellaneous 5,290 7,710
------- -------
Total current assets 155,057 130,879
------- -------
Property and equipment,
- - ----------------------
less accumulated depreciation
and amortization (Note 5) 56,202 57,266
------- -------
Other assets
- - ------------
Cost in excess of net assets of
businesses acquired less
accumulated amortization of
$11,113 and $9,837 (Note 2) 55,532 56,943
Patents and patent applications,
less accumulated amortization
of $4,193 and $3,889 10,674 10,049
Investments in licensees and
affiliated companies (Note 2) 4,837 3,137
Deferred income taxes 1,902 1,935
Non-compete agreements, less
accumulated amortization of
$3,804 and $3,327 2,221 2,699
Miscellaneous 6,144 5,036
------- -------
Total other assets 81,310 79,799
------- -------
$292,569 $267,944
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June December
30, 1997 31, 1996
---------- ---------
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
- - ------------------------------------
Current liabilities
- - -------------------
Notes payable to banks $ 1,452 $ 1,387
Accounts payable and accruals 41,849 40,578
Income taxes payable 2,212 2,801
Deferred income taxes 639 507
Current maturities of long-term
debt (Note 6) 2,395 6,730
-------- --------
Total current liabilities 48,547 52,003
Long-term debt, less current
maturities (Note 6)
- - --------------------------- 111,632 82,384
Deferred income taxes 3,635 3,635
- - ---------------------
Other long-term liabilities 921 1,084
- - --------------------------- -------- --------
Total liabilities 164,735 139,106
-------- --------
Commitments and contingencies
(Notes 7, 8 and 9)
- - -----------------------------
Minority interests 3,904 5,635
- - --------------------------- -------- --------
Common stock and other stockholders'
equity
- - ------------------------------------
Preferred stock, undesignated, $.10
par - shares authorized 2,000,000;
none outstanding 0 0
Common stock, $.01 par - shares
authorized 40,000,000; shares out-
standing 27,171,553 and 27,144,331
(Notes 2 and 6) 272 271
Additional paid-in capital 67,965 67,824
Retained earnings 60,344 59,049
-------- --------
128,581 127,144
Treasury stock, 255,801 shares (3,269) (3,269)
Cumulative foreign currency
translation adjustments (1,382) (672)
-------- --------
Total common stock and other
stockholders' equity 123,930 123,203
-------- --------
$292,569 $267,944
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
For the Three Months For the Six Months
Ended June 30 Ended June 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Construction contracts $69,974 $67,524 $139,704 $128,220
Product sales 4,435 2,872 10,201 8,632
Royalties and license fees 907 1,373 2,493 3,027
------ ------ ------- -------
Total revenues 75,316 71,769 152,398 139,879
Operating costs and expenses:
Cost of construction contracts 50,078 45,527 102,238 87,801
Cost of product sales 3,312 2,218 7,068 5,923
Royalty expense 35 126 180 258
Selling, administrative and general 14,055 14,717 29,065 29,472
Strategic marketing and product
development 1,478 1,692 3,439 3,757
Unusual items (Note 8) 3,845 0 3,845 0
------ ------ ------- -------
Total operating costs and expenses 72,803 64,280 145,835 127,211
------ ------ ------- -------
Operating income 2,513 7,489 6,563 12,668
Other expense:
Interest expense (2,271) (1,583) (4,180) (3,152)
Other income 375 395 647 835
------ ------ ------- -------
Total other expense (1,896) (1,188) (3,533) (2,317)
------ ------ ------- -------
Income before taxes on income 617 6,301 3,030 10,351
Taxes on income 315 2,466 1,305 4,117
------ ------ ------- -------
Income before minority interests and
equity in earnings 302 3,835 1,725 6,234
Minority interests in net income (259) (49) (451) (223)
Equity in earnings of affiliated companies 171 44 246 69
------ ------ ------- -------
Income before extraordinary item 214 3,830 1,520 6,080
Extraordinary item - loss on early
retirement of debt 0 0 (225) 0
------ ------ ------- -------
Net income $214 $3,830 $1,295 $6,080
====== ====== ======= =======
Earnings (loss) per share of common stock
and common stock equivalents (Note 2):
Income before extraordinary item $0.01 $0.14 $0.06 $0.22
Extraordinary loss, net of income tax 0 0 (0.01) 0
benefits ------ ------ ------- -------
Net income $0.01 $0.14 $0.05 $0.22
====== ====== ======= =======
Weighted average common and common
equivalent shares 26,940 27,244 26,939 27,241
====== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
- - ------------------------------------
Net income $1,295 $6,080
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 6,880 6,803
Amortization 2,403 2,271
Miscellaneous (997) (345)
Equity in earnings of affiliated companies (246) (69)
Minority interests 451 223
Deferred income taxes (119) 65
Changes in operating assets and liabilities:
Receivables 966 5,224
Costs in excess of billings under construction (5,290) (7,253)
Inventories 2,303 295
Prepaid expenses and miscellaneous 1,988 2,252
Miscellaneous other assets (975) (15)
Accounts payable and accruals 740 (589)
Income taxes payable (73) 3,229
------ ------
Net cash provided (used) by continuing operations 9,326 18,171
------ ------
Cash flows from investing activities:
- - ------------------------------------
Capital expenditures (7,797) (8,091)
Proceeds on disposal of property and equipment 198 0
Investments in licensees/affiliated companies 0 (1,006)
Patents and patent applications (1,154) (196)
------ ------
Net cash used by investing activities (8,753) (9,293)
------ ------
</TABLE>
(continued)
See accompanying notes to consolidated financial statements.
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from financing activities:
- - ------------------------------------
Proceeds from issuance of common stock 141 74
Increase in short-term borrowings 65 (183)
Proceeds from issuance of long-term debt (Note 6) 110,025 1,988
Repayments of long-term debt (Note 6) (84,922) (5,587)
Minority interests (75) (254)
------- -------
Net cash provided (used) by financing activities 25,234 (3,962)
------- -------
Effect of exchange rates changes on cash (79) 16
------- -------
Net increase (decrease) in cash and cash
equivalents for the period 25,728 4,932
------- -------
Cash and cash equivalents, beginning of period 13,476 11,416
------- -------
Cash and cash equivalents, end of period $39,204 $16,348
======= =======
Supplemental disclosures of cash flows
information: 1997 1996
- - -------------------------------------- ---- ----
Cash paid during six months ended June 30, for:
-----------------------------------------------
Interest $1,267 $3,072
Income taxes $ 491 $335
Non-cash investing and financing activities:
-------------------------------------------
Stock issued in connection with litigation
settlement $0 $322
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
1. GENERAL
In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the
financial position as of June 30, 1997 (unaudited) and the
unaudited results of operations and cash flows for the six months
ended June 30, 1997 and 1996. The financial statements have been
prepared in accordance with the requirements of Form 10-Q and
consequently do not include all the disclosures normally made in
an Annual Report on Form 10-K. Accordingly, the consolidated
financial statements included herein should be reviewed in
conjunction with the financial statements and the footnotes
thereto included in the Company's 1996 Annual Report on Form
10-K.
The results of operations for the six months ended June 30, 1997
and 1996 are not necessarily indicative of the results to be
expected for the full year.
2. CONDENSED SUMMARY OF ACCOUNTING POLICIES
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 55%
owned Mexican subsidiary, United Pipeline de Mexico S.A. de C.V.
All material intercompany balances, transactions and
stockholdings are eliminated.
The net assets of businesses purchased are recorded at their fair
value at the acquisition date and the financial statements
include their operations only from that date. Any excess of
acquisition costs over the fair value of net assets acquired is
included in the balance sheet as "Cost in excess of net assets of
businesses acquired."
Corporate investments are carried at cost if ownership is less
than 20% and 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. In
addition, the Company accounts for its interest in Midsouth
Partners, a domestic partnership 571/2% owned by the Company, on
the equity method, as a consequence of Midsouth's management
composition. Intercompany profits and losses are eliminated for
those investments carried on the equity method.
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
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.
Earnings per share have been computed based upon the weighted
average number of common shares and common equivalent shares
outstanding during the respective periods. Common equivalent
shares include shares from the assumed exercise of common stock
options.
3. RECEIVABLES
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Trade, less allowance for
possible losses of
$1,007 and $1,031 $51,701 $52,030
Retainage under construction
contracts 11,268 12,456
Refundable income taxes 3,582 4,141
------- -------
$66,551 $68,627
======= =======
</TABLE>
4. INVENTORIES
Inventories are valued at the lower of cost or market.
Maintenance and office supplies are not inventoried.
Inventories are summarized as follows (in thousands):
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Construction materials $6,526 $9,615
Raw materials 1,453 968
Manufactured components 2,083 1,921
Work-in-process 886 1,289
Finished goods 2,205 1,988
------- -------
$13,153 $15,781
======= =======
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Land and land improvements $2,661 $2,667
Buildings and improvements 15,564 15,715
Machinery and equipment 79,579 77,608
Furniture and fixtures 8,827 8,796
Autos and trucks 2,772 2,647
Construction in progress 2,079 1,730
------- -------
111,482 109,163
Less: accumulated depreciation (55,280) (51,897)
------- -------
$56,202 $57,266
======= =======
</TABLE>
<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
6. LONG-TERM DEBT
In October 1995, the Company obtained a credit facility from
SunTrust Bank, Nashville, N.A. ("SunTrust"), as agent, and a
group of participating lenders which provided 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), other
term loans ($14.5 million), and short-term debt under line of
credit facilities ($16.0 million). Additional advances were
available for the expansion of the Company's business and for
general corporate purposes.
Prior to its prepayment in February 1997, the SunTrust facility
was due to mature in October 2000, with installments based on a
five-year amortization schedule, commencing December 31, 1997.
Interest on indebtedness under the facility was payable at either
(i) SunTrust's prime rate (8.25% at December 31, 1996), plus a
margin of up to .25% in the event certain financial ratios were
not maintained, or (ii) 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
facility was available to be borrowed from SunTrust pursuant to
a "swing line facility," which accrued interest at a rate per
annum equal to 0.5% below SunTrust's prime rate. Such facility
obligated the Company to comply with certain financial ratios and
restrictive covenants that, among other things, limited the
ability of the Company and its subsidiaries to incur
indebtedness, pay dividends, make loans and encumber any
properties, and required guarantees of certain domestic
subsidiaries.
Prior to its prepayment in February 1997, the 8.5% senior
subordinated note was subordinated in right to the Company's bank
and other institutional financing and to deferred consideration
incurred in connection with business acquisitions. Warrants to
purchase 350,877 unregistered shares of Common Stock were also
issued to the lender. The note was prepayable at the Company's
option, at premiums until July 1998 ranging from 3% to 1% of the
amount prepaid. The subordinated note also restricted the
Company's ability to pay dividends and repurchase outstanding
common stock.
On February 14, 1997 the Company completed a $110 million private
debt offering of 7.88% Senior Notes due February 14, 2007
("Senior Notes"). Interest is payable semi-annually in August and
February of each year, and each year, from February 2001 to
February 2006, inclusive, the Company is required to make
principal repayments of $15,715,000, together with an equivalent<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
payment at maturity. The Senior Notes may be prepaid at the
Company's option, in whole or in part, at any time, together with
a make-whole premium, and upon specified change in control events
each holder has the right to require the Company to purchase its
Senior Note without any premium thereon. The agreements pursuant
to which the Senior Notes were acquired obligate the Company to
comply with certain financial ratios and restrictive covenants
that, among other things, place limitations on operations and
sales of assets by the Company or its subsidiaries, and limit the
ability of the Company to incur further secured indebtedness and
liens and of subsidiaries to incur indebtedness, and, in the
event of default under the Senior Notes, limit the ability of the
Company to pay cash dividends or make other distributions to the
holders of its capital stock or to redeem such stock. Such
agreements also obligate the Company's subsidiaries to provide
guarantees to the holders of the Senior Notes if guaranties are
given by them to certain other lenders.
The transaction costs of $891,000 incurred in connection with the
private debt offering were recorded as deferred charges and will
be amortized over the life of the Senior Notes. The net proceeds
were used to repay existing indebtedness (approximately $85
million), as discussed above, and for general corporate purposes.
Certain capitalized costs related to prior existing borrowing
arrangements of $0.4 million were written off as a result. This
writeoff has been classified as an extraordinary loss from early
extinguishment of debt.
7. LITIGATION
The Company is involved in certain 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.
8. RESTRUCTURING
In the second quarter the Company commenced implementing its
plans to combine its corporate headquarters, engineering and
development center, and North American contracting headquarters
in new facilities located in Chesterfield, Missouri. The location
will also combine the offices of Affholder, Inc., the Company's
subsidiary responsible for tunneling, and the main operations
base for the central region of the Company's domestic pipeline
rehabilitation operations. During the second quarter the Company
recorded in operating expense an unusual item of $3.2 million for<PAGE>
<PAGE>
INSITUFORM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1997
employee severance, and moving employees and offices related to
the restructuring of its corporate headquarters and related
facilities.
9. PROXY CONTEST
In June 1997, a group, including Jerome Kalishman and Robert
Affholder, both directors of the Company, filed an amended
Schedule 13D pursuant to the Securities and Exchange Act of 1934
which stated that it was the intention of Messrs. Kalishman and
Affholder to propose a slate of individuals to run for election
to the Board of Directors of the Company at its 1997 annual
meeting of stockholders in opposition to the slate proposed by
the Company in its proxy statement. On July 25, 1997, the Company
and Messrs. Kalishman and Affholder entered into a settlement
agreement to resolve the outstanding proxy contest. The Company
has accrued the amount of $0.6 million (prior to any effect of
taxes) in the second quarter with respect to such matters.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition and results of operations during the periods included
in the accompanying consolidated financial statements.
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(R) and NuPipe(R) to
licensees. Construction contract revenue is generated primarily
by the Company's subsidiaries operating in the United States,
Canada, France, the United Kingdom, Chile, Argentina and Mexico.
Royalties and license fees are paid by the Company's 34
unaffiliated Insituform(R) licensees and sub-licensees and its
ten unaffiliated NuPipe(R) licensees.
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 for work performed. The Company's
consolidated subsidiaries obtain supplies of Insitutubes and
related materials from the Company.
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. See
"Results of Operations" below. 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.
<PAGE>
<PAGE>
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
At June 30, 1997, the Company had $39.2 million in cash, U.S.
treasury bills, and short-term investments, as compared to $13.5
million at December 31, 1996. Cash and cash equivalents increased
$25.7 million primarily as a result of the Company's completion
in February 1997 (the "Senior Note Closing") of the sale, in a
private transaction, of $110 million principal amount of its
7.88% Senior Notes, Series A, due February 14, 2007 (the "Senior
Notes"), approximately $85 million of which was applied at
closing to the refinancing of outstanding indebtedness of the
Company and the remainder of which was applied to short term
investments. The Company's working capital ratio was 3.2-to-1.0
at June 30, 1997 representing an increase from 2.5-to-1.0 at
December 31, 1996.
Operations provided cash of $9.3 million during the six months
ended June 30, 1997, as compared to cash provided of $18.2
million during the same period in 1996. This decrease is due
primarily to an increase in trade receivables (including costs
and estimated earnings in excess of billings) of $4.3 million in
first half of 1997, as compared to a decrease of $2.0 million in
the prior year. Furthermore, unlike first half 1996 in which
increases in accrued income taxes provided $3.2 million in cash,
during first half 1997 accrued income taxes decreased $0.1
million.
Trade receivables, including costs and estimated earnings in
excess of billings, increased 4.5% to $88.4 million from $84.6
million at December 31, 1996, reflecting a $0.3 million decrease
in trade receivables, a $1.2 million decrease in retainage
receivables, and an increase of $5.3 million in costs and
estimated earnings in excess of billings on construction
contracts. 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. In the United
States, retainage receivables are generally received within 60 to
90 days after the completion of a contract.
Capital expenditures were $7.8 million in the first six months of
1997, as compared to $8.1 million in the first six months of
1996. Capital expenditures generally reflect replacement
equipment required by the Company's contracting subsidiaries.
During the second quarter of 1997, the Company commenced
combination of its corporate headquarters, engineering and
development center, and North American contracting headquarters
in new facilities located in Chesterfield, Missouri, a suburb of
St. Louis. The cost of moving employees and offices is estimated<PAGE>
<PAGE>
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
at $3.5 million, including severance of approximately $1.0
million. These costs will be incurred as the move takes place
during 1997; in the second quarter, the Company incurred
approximately $0.8 million and accrued an additional $2.4
million. In addition, during 1997 the Company plans capital
expenditures in Chesterfield of $3.5 million in connection with
construction of a new research and development facility, of which
approximately $0.3 million has been incurred through the end of
the second quarter 1997.
Financing activities provided $25.2 million in cash in the first
half of 1997 as compared to cash used of $4.0 million in the
prior year. This difference is primarily related to the cash
generated from the Senior Notes of approximately $25.0 million in
February 1997, as compared to the first half of 1996, in which
the Company made net principal payments totaling $0.7 million
relating to the Company's prior existing credit facility with
SunTrust Bank, Nashville, N.A. ("SunTrust") and repayment of the
subordinated note issued in connection with the Enviroq
acquisition of $3.0 million.
At December 31, 1996, $76.3 million was outstanding under the
Company's credit agreement dated October 25, 1995 (the "Credit
Agreement") with SunTrust Bank, as agent, and a group of
participating lenders (the "Lenders"), which provided for
advances by the Lenders 1997 on a revolving basis aggregating up
to $105 million (including a $5 million standby letter of credit
facility). Indebtedness pursuant to the Credit Agreement was due
to mature in October 2000, with installments based on a five-year
amortization schedule, commencing December 31, 1997. Interest on
indebtedness under the Credit Agreement was payable at a rate per
annum selected by the Company as either SunTrust's prime 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 was available for borrowings 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 obligated the Company to comply with certain
financial ratios and restrictive covenants that, among other
things, limited the ability of the Company and its subsidiaries
to incur further indebtedness, pay dividends, make loans and
encumber any properties, and required guarantees of certain
domestic subsidiaries. At the Senior Note Closing, all
outstanding indebtedness to the Lenders under the Credit
Agreement, and outstanding indebtedness owed to SunTrust under an
industrial revenue bond encumbering the Company's Batesville
facility ($3.4 million principal amount recorded at December 31,
1996), was prepaid.
<PAGE>
<PAGE>
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
At the Senior Note Closing, the Company also prepaid amounts
outstanding under the Company's senior subordinated note acquired
by Hanseatic Corporation ("Hanseatic") in July 1993 ($4.8 million
principal amount recorded at December 31, 1996), which required
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 was
subordinated to bank and other institutional financing, and
purchase money debt incurred in connection with acquisitions of
businesses. The note was prepayable at the option of the Company,
at premiums until the fifth anniversary of closing ranging from
3% to 1% of the amount prepaid ($100,000 paid at the Senior Note
Closing). Warrants with respect to 350,877 shares of 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 Common Stock of $14.25, and such shares are entitled to
demand and incidental registration rights.
The Senior Notes issued by the Company in February 1997 mature on
February 14, 2007, and bear interest, payable semi-annually in
August and February of each year, at the rate per annum of 7.88%.
Each year, from February 2001 to February 2006, inclusive, the
Company will be required to make principal payments of $15.7
million, together with an equivalent payment at maturity. The
Senior Notes may be prepaid at the Company's option, in whole or
in part, at any time, together with a make whole premium, and
upon specified change in control events each holder has the right
to require the Company to purchase its Senior Note without any
premium thereon.
The note purchase agreements pursuant to which the Senior Notes
were acquired obligate the Company to comply with certain
financial ratios and restrictive covenants that, among other
things, place limitations on operations and sales of assets by
the Company and its subsidiaries, and limit the ability of the
Company to incur further secured indebtedness and liens and of
subsidiaries to incur indebtedness, and, in the event of default
under the Senior Notes, limit the ability of the Company to pay
cash dividends or make other distributions to the holders of its
capital stock or to redeem such stock. Such agreements also
obligate the Company's subsidiaries to provide guaranties to
holders of the Senior Notes if guaranties are delivered by them
to specified other lenders. To the extent not utilized to
refinance indebtedness of the Company at the Senior Note Closing,
proceeds of the sale of the Senior Notes are available for
general corporate purposes, including possible acquisitions of
products, technologies and businesses and repurchases of Common
Stock. The Company has not reached any determination with respect
to any such transaction, and there can be no assurance that any
such transaction will be undertaken.
<PAGE>
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
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, aggregating $1.4
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.
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 is seeking to implement an additional
revolving credit facility for general corporate purposes.
RECENTLY ISSUED ACCOUNTING STANDARDS
- - ------------------------------------
In the first quarter of 1997, the Financial Accounting Standards
Board (the "Board") issued Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128"), effective for
financial statements for both interim and annual periods ending
after December 15, 1997. The new standard replaces the provisions
prescribed by the Accounting Principles Board Opinion 15,
simplifying earnings per share calculations and requiring further
disclosures. In addition, the Board also issued Statement of
Financial Accounting Standards No. 129, Disclosure of Information
about Capital Structure ("SFAS 129"), effective for financial
statements for periods ending after December 15, 1997. SFAS 129
continues the existing requirements to disclose pertinent rights
and privileges of all securities other than ordinary common
stock, but expands the number of companies subject to the
requirements. The Company does not believe the provisions of SFAS
128 and SFAS 129, and its adoption thereof, will have a material
effect on the Company's financial statements.
RESULTS OF OPERATIONS
- - ---------------------
Six Months Ended June 30, 1997 Compared to Six Months Ended June
30, 1996
Revenues. Revenues for the second quarter increased 4.9% to
$75.3 million from $71.8 million in the comparable period of the
prior year, while revenues for the first half of 1997 increased
8.9% to $152.4 million from $139.9 million in the prior year.
This increase reflected increases in both construction revenues
and product sales, offset by decreases in royalties and license
fees.
<PAGE>
<PAGE>
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------
Construction revenues during the second quarter increased 3.7% to
$70.0 million from $67.5 million in the comparable period of
1996, while, for the first half of 1997, construction revenues
increased by 9.0% to $139.7 million from $128.2 million in 1996.
The increase was primarily a result of increased activity in the
Company's corrosion and abrasion operations, and in its tunneling
operations. Fluctuations in currency exchange rates of the
British pound sterling and Canadian dollar to the United States
dollar positively impacted construction revenues by approximately
$0.2 million in the first half of 1997.
Product sales for the second quarter increased 51.7% to $4.4
million from $2.9 million in the comparable period of 1996, while
product sales for the first half of 1997 increased 18.6% to $10.2
million from $8.6 million in 1996. This increase was primarily
attributable to increased volume in the Company's offshore
manufacturing operations, and to a lesser extent, sales to
independent licensees in the United States.
Royalty and license fees for the second quarter decreased 35.7%
to $0.9 million from $1.4 million in 1996, while, for the first
half of 1996, royalties and license fees decreased 16.7% to $2.5
million from $3.0 million in 1996. The decrease was primarily
attributable to lower royalties collected from independent
licensees outside of the United States. In addition, in the
second quarter of 1996, license fees of $0.3 million were
recorded for licenses signed in Taiwan and Germany.
Operating costs and expenses. Cost of construction contracts for
the second quarter increased 10.1% to $50.1 million from $45.5
million in the comparable period of 1996, while, for the first
half of 1996, cost of construction contracts increased 16.4% to
$102.2 million from $87.8 million in 1996. Construction costs as
a percentage of construction revenues increased in the second
quarter to 71.6% as compared to 67.4% in the second quarter of
1996. For the first half of 1997, construction costs as a
percentage of construction revenues increased to 73.2% from 68.5%
in the first half of 1996. This increase was due principally to
lower margins achieved by the Company's pipeline rehabilitation
operations, primarily as a result of increased price competition,
along with increased volume by the Company's corrosion and
abrasion operations, and tunneling operations, which
traditionally achieve lower margins.
Cost of product sales for the second quarter increased 50.0% to
$3.3 million from $2.2 million in 1996, while, for the first half
of 1997, cost of product sales increased 20.3% to $7.1 million
from $5.9 million in 1996. The increase in the second quarter was
due primarily to increased volume in Japan. For the second
quarter, cost of product sales as a percentage of product sales
decreased to 75.0% from 75.9% in 1996, due principally to
improved margins in Japan. For the first half of 1997, cost of<PAGE>
<PAGE>
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------------
product sales as a percentage of product sales increased to 69.6%
from 68.6% in 1996, due principally to increased volume in
offshore manufacturing operations which traditionally carry lower
margins than the United States manufacturing operations.
As a percentage of revenues, selling, administrative and general
expenses in the second quarter were 18.7% compared to 20.5% in
1996, while, for the first half of 1997, selling, administrative
and general expenses as a percentage of revenues were 19.1%
compared to 21.1% in the first half of 1996. The decrease is
attributable primarily to economies of scale resulting from
higher volume, along with management's effort to control overhead
costs throughout the Company's operations, principally in the
United States. In the second quarter of 1997, selling,
administrative and general expenses decreased 4.1% to $14.1
million compared to $14.7 million in the second quarter of 1996,
while, in the first half of 1997, selling, administrative and
general expenses decreased 1.4% to $29.1 million from $29.5
million in the first half of 1996. This decrease was primarily
due to cost reorganization of the Company's pipeline
rehabilitation operations through elimination of positions and
realignment of responsibilities. This was offset slightly by
increased overhead costs related to the buildup of personnel for
the Company's corrosion and abrasion operations in Argentina,
Chile and Mexico.
In the second quarter, strategic marketing and product
development costs decreased 12.8% to $1.5 million compared to
$1.7 million in 1996, while, in the first half of 1997, strategic
marketing and product development costs decreased 10.5% to $3.4
million compared to $3.8 million. The decrease is primarily due
to controlled spending in advertising and research projects.
Unusual items. During the second quarter the Company recorded in
operating expense an unusual item of $3.2 million for employee
severance, and moving employees and offices related to the
restructuring of its corporate headquarters and related
facilities.
In June 1997, a group, including Jerome Kalishman and Robert
Affholder, both directors of the Company, filed an amended
Schedule 13D pursuant to the Securities and Exchange Act of 1934
which stated that it was the intention of Messrs. Kalishman and
Affholder to propose a slate of individuals to run for election
to the Board of Directors of the Company at its 1997 annual
meeting of stockholders in opposition to the slate proposed by
the Company in its proxy statement. On July 25, 1997, the Company
and Messrs. Kalishman and Affholder entered into a settlement
agreement to resolve the outstanding proxy contest. The Company
has accrued the amount of $0.6 million (prior to any effect of
taxes) in the second quarter with respect to such matters.
<PAGE>
<PAGE>
ITEM 2. (CONTINUED) MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------------
Other income(expense). In the second quarter, interest expense
increased 43.8% to $2.3 million from $1.6 million in 1996, while
during the first half of 1997, interest expense increased 31.3%
to $4.2 million from $3.2 million in the same period in 1996.
This increase was primarily due to the larger principal amount of
the Senior Notes issued in February 1997. In the second quarter,
notwithstanding the return on proceeds invested from a portion of
the Senior Note financing, other income was virtually unchanged,
while, during the first half, other income decreased 25.0% to
$0.6 million from $0.8 million. This decrease was primarily due
to an increase in miscellaneous expenses incurred by the
Company's operations in the United States.
Taxes on income. In the second quarter, taxes on income
decreased to $0.3 million from $2.5 million in 1996, due
primarily to a decrease in income before taxes on income of $5.7
million. In the first half, taxes on income decreased to $1.3
million from $4.1 million, due primarily to a decrease in income
before taxes on income of $7.3 million. The Company's effective
tax rate for the first half of 1997 was 43.1%, compared to 39.8%
in 1996, due primarily to an increase in income coming from tax
jurisdictions with higher tax rates.
Extraordinary item. In February 1997, as a result of the closing
of the Senior Notes financing, certain previous debt facilities
were retired. Costs of $0.4 million ($0.2 million after-tax)
associated with these debt facilities which were capitalized,
such as commitment fees and legal costs, were written off.
Net income. As a result of the foregoing, net income for the
second quarter of 1997 was $0.2 million, a decrease of $3.6
million or 94.7%, from 1996. Net income for the first half of
1997 was $1.3 million, a decrease of $4.8 million, or 78.7%, from
1996.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
In proceedings previously reported by the Company (Western Slope
Utilities, Inc. v. Insituform Technologies, Inc. and Insituform
Netherlands B.V. [Civil Action No. 96-N-2394]) wherein plaintiffs
seek, among other things, a judgment declaring the Company's
serial impregnation patent invalid, plaintiff's application with
the United States Court of Appeals for the Federal Circuit for an
order to transfer the case back to the U.S. District Court for
the District of Colorado from the U.S. District Court for the
Southern District of Texas has been denied.
On April 15, 1997, the United States District Court for the
Eastern District of Louisiana denied the motion for summary
judgment by Affholder, Inc. ("Affholder"), a subsidiary of the
Company, in LaRoche Industries, Inc. v. Affholder, Inc. (Civil
Action 96-3487 (L)), wherein LaRoche Industries, Inc. ("LaRoche")
alleges that Affholder and another subsidiary of the Company,
United Pipeline Systems USA, Inc. ("UPS"), performed negligent
rehabilitation work on and employed defective materials in repair
of a brine line for LaRoche. Damages are unspecified, but LaRoche
has submitted a bill of particulars for an amount in excess of
$2.7 million. Affholder has denied the allegations and asserted
various affirmative defenses. Discovery is proceeding with no
trial date set. LaRoche has filed a companion suit against both
Affholder and UPS in Louisiana State Court, but no summons has
been issued.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) The exhibits filed as part of this Quarterly Report on
Form 10-Q are listed on the annexed Index to Exhibits.
(b) During the quarter ended June 30, 1997, the Company
filed: (i) a Current Report on Form 8-K dated April 1, 1997,
which, under "Item 5. Other Events" thereunder, reported the
Company's plan to combine its corporate headquarters, engineering
and development center and North American contracting
headquarters; and (ii) a Current Report of Form 8-K dated June
23, 1997 which, under "Item 5. Other Events" thereunder, reported
the postponement of the Company's annual meeting of stockholders,
the change in the Chairman of the Board of the Company, and the
resignation of a director. In addition, the Company has filed
(iii) a Current Report on Form 8-K dated July 3, 1997 which,
under "Item 5. Other Events" thereunder, reported an
agreement-in-principle to settle a proxy contest; and (iv) a
Current Report on Form 8-K dated July 25, 1997 which, under "Item
5. Other Events" thereunder, reported the definitive settlement
agreement. No financial statements were filed as part of any such
report.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
INSITUFORM TECHNOLOGIES, INC.
August 14, 1997 By: s/William A. Martin
-----------------------------
William A. Martin
Senior Vice President and
Principal Financial and
Accounting Officer
<PAGE>
<PAGE>
INDEX TO EXHIBITS
-----------------
10(a) - Severance Agreement dated as of June 19, 1997 between
the Company and Anthony W. Hooper
10(b) - Severance Agreement dated as of June 19, 1997 between
the Company and William A. Martin
10(c) - Severance Agreement dated as of June 19, 1997 between
the Company and Robert L. Kelley
27 - Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and is not filed
Exhibit 10(a)
SEVERANCE AGREEMENT
AGREEMENT dated as of the 19th day of June, 1997 by and
between Insituform Technologies, Inc., a Delaware corporation
(the "Company"), and Anthony W. Hooper (the "Executive").
W I T N E S S E T H:
WHEREAS, 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 assure that the Company shall have the
continued dedication of the Executive notwithstanding the
possibility, threat or occurrence of a Change of Control (as
defined below);
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the meanings set forth below:
(a) The term "Accrued Obligations" shall mean the sum of
the amounts described in clauses (1), (2), and (3) of Paragraph
(b)(i)(x) of Article II hereof.
(b) The term "Affiliate" shall mean any person controlling,
controlled by or under common control with the subject
referenced.
(c) The term "Annual Base Salary" shall mean an amount
equal to twelve times the highest monthly base salary paid or
payable, including any base salary which has been earned but
deferred, to the Executive by the Company or its Affiliates in
respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs, or, if higher, the
twelve-month period immediately preceding the month in which the
Date of Termination occurs.
(d) The term "Annual Bonus" shall mean the annual bonus
paid or payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for the
most recently completed fiscal year prior to the Effective Date,
or, if higher, for the most recently completed fiscal year prior
to the Date of Termination.
(e) The term "Business Combination" shall mean a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company.<PAGE>
<PAGE>
(f) The term "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties
with the Company or any of its Affiliates (other than any
such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or
the chief executive officer of the Company which
specifically identifies the manner in which the Board or
chief executive officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and
demonstrably injurious to the Company; or
(iii) conviction of a crime other than misdemeanor
traffic offenses or commission of an act of moral turpitude.
For purposes hereof, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in
the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of
a resolution duly adopted by the affirmative vote of not less
than 80% of the entire membership of the Board, finding that, in
the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) immediately
preceding.
(g) The term "Change of Control" shall mean:
(i) Prior to December 9, 1998, the election or
appointment of any two members of the Board except: (x)
pursuant to a nomination made in accordance with the
provisions of Section 7.3 of the Agreement and Plan of
Merger dated May 23, 1995 entered into, inter alia, by the
Company, or (y) in the case of a vacancy in the Board, in
accordance with Article VI of the Company's certificate of
incorporation (or, in the case of the re-election or re-
appointment of a member filling a vacancy created by an
increase in the Board, in accordance with the Company's
certificate of incorporation and by-laws); or
(ii) The acquisition by any Person of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the combined
voting power of the Outstanding Voting Securities; provided,
however, that the following acquisitions shall not<PAGE>
<PAGE>
constitute a Change of Control: (w) any acquisition directly
from the Company, (x) any acquisition by the Company, (y)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
Affiliate of the Company, or (z) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (w), (x) and (y) immediately preceding; or
(iii) Individuals who, as of the date hereof,
constitute the Incumbent Board cease for any reason to
constitute at least a majority of the Board unless they are
replaced with a slate nominated by at least a majority of
the Incumbent Board and further provided that any individual
becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall,
for purposes of this Sub-Paragraph (iii), be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board acting by at least a majority
thereof; or
(iv) Consummation of a Business Combination, in each
case, unless, following such Business Combination: (x) all
or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more
than 50% (20% in the case of any Business Combination being
proposed and implemented by at least a majority of the
Incumbent Board) of the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Voting Securities, (y) no Person beneficially
owns, directly or indirectly, 20% or more of the combined
voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination, and (z) at least
a majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board, or were nominated by at
least a majority of the members of the Incumbent Board, at<PAGE>
<PAGE>
the time of the execution of the initial agreement, or by
the action of the Board providing for such Business
Combination; or
(v) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
(h) The term "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the third
anniversary of the date hereof.
(i) The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
(j) The term "Date of Termination" shall mean: (i) if the
Executive's employment is terminated during the Protected Period
by the Company for Cause, or by the Executive for Good Reason,
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 during the Protected Period
by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's
employment is terminated during the Protected Period 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.
(k) The term "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a
full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company
and reasonably acceptable to the Executive or the Executive's
legal representative. In such event during the Protected Period,
the Executive's employment with the Company shall terminate
effective on the Disability Effective Date.
(l) The term "Disability Effective Date" shall mean the
30th day after receipt by the Executive of Notice of Termination
in the event of Disability.
(m) The term "Effective Date" shall mean the first date
during the Change of Control Period on which a Change of Control
occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to
the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the<PAGE>
<PAGE>
"Effective Date" shall mean the date immediately prior to the
date of such termination of employment.
(n) The term "Exchange Act" shall mean the Securities
Exchange Act of 1934.
(o) The term "Excise Tax" shall mean the excise tax imposed
by Section 4999 of the Code and any interest or penalties
incurred by the Executive with respect to such excise tax.
(p) The term "Good Reason" shall mean:
(i) the assignment to the Executive during the
Protected Period of any duties inconsistent in any respect
with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities at least commensurate in all material
respects with the most significant of those held, exercised
and assigned at any time during the 120-day period
immediately preceding the Effective Date, or any other
action by the Company during the Protected Period which
results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; or
(ii) the Company's requiring the Executive during the
Protected Period to be based at any office or location other
than the Company's corporate head office or the Company's
requiring the Executive during the Protected Period to
travel on Company business to a substantially greater extent
than required immediately prior to the Effective Date; or
(iii) any purported termination during the Protected
Period by the Company of the Executive's employment
otherwise than for "cause".
For purposes hereof, any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in
this Agreement to the contrary notwithstanding, a termination by
the Executive for any reason during the earlier of the 30-day
period immediately following the first anniversary of the
Effective Date, or (if the Effective Date has occurred) the 30-
day period immediately preceding the expiration of the Protected
Period, shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(q) The term "Gross-Up Payment" shall mean the additional
payment described under Paragraph (c) of Article III hereof.
(r) The term "Incumbent Board" shall mean the individuals
who, as of the date hereof, constitute the Board.<PAGE>
<PAGE>
(s) The term "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 is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
thirty days after the giving of such notice).
(t) The term "Other Benefits" shall mean the other amounts
and benefits described under clause (iv) of paragraph (b) of
Article II hereof.
(u) The term "Outstanding Voting Securities" shall mean the
then outstanding voting securities of the Company entitled to
vote generally in the election of directors.
(v) The term "Payment" shall mean any payment or
distribution by the Company to or for the benefit of the
Executive pursuant to the terms of this Agreement (but determined
without regard to any additional payments required under
Paragraph (c) of Article III).
(w) The term "Protected Period" shall mean the period from
and after the Effective Date through and including the expiration
of the Change in Control Period.
(x) The term "Person" shall mean any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act).
(y) The term "Welfare Benefit Plans" shall mean all welfare
benefit plans, practices, policies and programs provided by the
Company and its Affiliates (including, without limitation,
medical, prescription, dental, disability, employee life, group
life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its Affiliates, but in no event
shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer
executives of the Company and its Affiliates.
<PAGE>
<PAGE>
ARTICLE II
OBLIGATIONS OF THE COMPANY UPON
TERMINATION DURING PROTECTED PERIOD
(a) Notice of Termination. Any termination during the
Protected Period by the Company for Cause, or by the Executive
for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Paragraph (a)
of Article IV of this Agreement.
(b) Good Reason; Other Than for Cause, Death or Disability.
If the Company shall, during the Protected Period, terminate the
Executive's employment other than for Cause or Disability or the
Executive shall, during the Protected Period, terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
(x) The sum of (1) the Executive's actual base
salary through the Date of Termination to the extent
not theretofore paid, (2) the product of (x) the Annual
Bonus and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the
Date of Termination, and the denominator of which is
365 and (3) any compensation previously deferred by the
Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid; and
(y) The amount equal to the product of (1) three
and (2) the sum of (x) the Annual Base Salary and (y)
the Annual Bonus; and
(z) An amount equal to any sums accrued or cred-
ited to or for the Executive under or pursuant to any
excess or supplemental retirement plan in which the
Executive participates as a result of any contract
between the Company and the executive or as a result of
any limitations on benefits which can be provided to
highly compensated employees as may be prescribed by
the Code or the Employee Retirement Income Security
Act, as the same may be amended or supplemented from
time to time, or by any act which replaces either of
the foregoing which the Executive would receive if the
Executive's employment continued for three years after
the Date of Termination, assuming for this purpose that
all accrued benefits are fully vested, and assuming
that the Executive's compensation in each of the three
years is equal to the Annual Base Salary and the Annual
Bonus over the actuarial equivalents of the Executive's<PAGE>
<PAGE>
actual benefit (paid or payable), if any, under such
retirement plan and such requirements as of the Date of
Termination;
(ii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them under the Welfare Benefit Plans
if the Executive's employment had not been terminated or, if
more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of
the Company and its Affiliates and their families, provided,
however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other
welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to
such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until three
years after the Date of Termination and to have retired on
the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with out placement services
the scope and provider of which shall be selected by the
Executive in his reasonable discretion; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the
Company and its affiliated companies.
(c) Death. If the Executive's employment is terminated
during the Protected Period by reason of the Executive's death,
this Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination. Other
Benefits, as utilized in this Paragraph (c), shall include,
without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least
equal to the most favorable benefits provided by the Company and
its Affiliates to the estates and beneficiaries of peer
executives of the Company and such Affiliates under such plans,<PAGE>
<PAGE>
programs, practices and policies relating to death benefits, if
any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in
effect on the date of the Executive's death with respect to other
peer executives of the Company and its Affiliates and their
beneficiaries.
(d) Disability. If the Executive's employment is terminated
during the Protected Period by reason of the Executive's
Disability, this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued
Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in
a lump sum in cash within 30 days of the Date of Termination.
Other Benefits, as utilized in this Paragraph (d), shall include,
and the Executive shall be entitled after the Disability Effec-
tive Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the
Company and its Affiliates to disabled executives and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its
Affiliates and their families.
(e) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated during the Protected Period for
Cause, this Agreement shall terminate without further obligations
to the Executive other than the obligation to pay to the
Executive (x) his actual base salary through the Date of
Termination, (y) the amount of any compensation previously
deferred by the Executive, and (z) Other Benefits, in each case
to the extent theretofore unpaid. If the Executive voluntarily
terminates employment during the Protected Period, excluding a
termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination.
<PAGE>
<PAGE>
ARTICLE III
CERTAIN COVENANTS
(a) Non-Exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided
by the Company or any of its Affiliates and for which the
Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its Affiliates,
except that any and all severance arrangements extended by the
Company to the Executive and otherwise applicable in the
circumstances covered by this Agreement shall no longer operate
and shall be superseded by the provisions hereof.
(b) Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result
of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as
a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement).
(c) Certain Additional Payments by the Company.
(i) Except as set forth below, in the event it shall
be determined that any Payment would be subject to any Excise
Tax, then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes, including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto), and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Paragraph (c),
if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the
greatest amount that could be paid to the Executive such that the
receipt of Payments would not give rise to any Excise Tax, then
no Gross-Up Payment shall be made to the Executive and the<PAGE>
<PAGE>
Payments, in the aggregate, shall be reduced to such greatest
amount.
(ii) All determinations required to be made under this
Paragraph (c) shall be made by the Company's independent
auditors, who shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. All
fees and expenses of the accounting firm acting hereunder shall
be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Paragraph (c), shall be paid by the
Company to the Executive within five days of the receipt of the
accounting firm's determination.
(iii) The Executive shall promptly notify the Company
in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. If the Company notifies the Executive in
writing prior to the expiration of 30 days after receipt of such
notice that it desires to contest such claim, the Executive
shall: (A) give the Company any information reasonably requested
by the Company relating to such claim, and (B) take such action
in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest. Without
limitation on the foregoing provisions of this Paragraph (c), the
Company shall control all proceedings taken in connection with
such contest.
ARTICLE IV
MISCELLANEOUS
(a) Notices. All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
6364 Massey Manor Cove
Memphis, Tennessee 38120
If to the Company:
1770 Kirby Parkway, Suite 300
Memphis, TN 38138
Attention: General Counsel<PAGE>
<PAGE>
With a copy to:
Krugman Chapnick & Grimshaw LLP
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663
Attention: Howard Kailes, Esq.
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(b) Entire Agreement. This Agreement shall contain the
entire agreement of the parties with respect to the transactions
contemplated hereby.
(c) Successors.
(i) This Agreement is personal to the Executive and
without the prior written consent of the Company 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.
(ii) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.
(iii) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or other-
wise) to all or substantially all of the business and/or assets
of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(d) Governing Law; Captions; Amendments. This Agreement
shall be governed by and construed in accordance with the laws of
the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
<PAGE>
<PAGE>
(f) Withholding. The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(g) No Waiver. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this
Agreement the failure to assert any right the Executive or the
Company may have hereunder, including, without limitation, the
right of the Executive to terminate employment for Good Reason,
shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(h) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its
Board of Directors, the Company has caused these presents to be
executed in its name on its behalf, all as of the day and year
first above written.
Executive:
s/Anthony W. Hooper
----------------------------------
Anthony W. Hooper
Insituform Technologies, Inc.
By s/Silas Spengler
--------------------------------
Silas Spengler*
* (pursuant to resolutions adopted
June 19, 1997 by special committee
of the board of directors created
by resolutions dated June 16,
1997)
Exhibit 10(b)
SEVERANCE AGREEMENT
AGREEMENT dated as of the 19th day of June, 1997 by and
between Insituform Technologies, Inc., a Delaware corporation
(the "Company"), and William A. Martin (the "Executive").
W I T N E S S E T H:
WHEREAS, 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 assure that the Company shall have the
continued dedication of the Executive notwithstanding the
possibility, threat or occurrence of a Change of Control (as
defined below);
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the meanings set forth below:
(a) The term "Accrued Obligations" shall mean the sum of
the amounts described in clauses (1), (2), and (3) of Paragraph
(b)(i)(x) of Article II hereof.
(b) The term "Affiliate" shall mean any person controlling,
controlled by or under common control with the subject
referenced.
(c) The term "Annual Base Salary" shall mean an amount
equal to twelve times the highest monthly base salary paid or
payable, including any base salary which has been earned but
deferred, to the Executive by the Company or its Affiliates in
respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs, or, if higher, the
twelve-month period immediately preceding the month in which the
Date of Termination occurs.
(d) The term "Annual Bonus" shall mean the annual bonus
paid or payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for the
most recently completed fiscal year prior to the Effective Date,
or, if higher, for the most recently completed fiscal year prior
to the Date of Termination.
(e) The term "Business Combination" shall mean a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company.<PAGE>
<PAGE>
(f) The term "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties
with the Company or any of its Affiliates (other than any
such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or
the chief executive officer of the Company which
specifically identifies the manner in which the Board or
chief executive officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and
demonstrably injurious to the Company; or
(iii) conviction of a crime other than misdemeanor
traffic offenses or commission of an act of moral turpitude.
For purposes hereof, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in
the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of
a resolution duly adopted by the affirmative vote of not less
than 80% of the entire membership of the Board, finding that, in
the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) immediately
preceding.
(g) The term "Change of Control" shall mean:
(i) Prior to December 9, 1998, the election or
appointment of any two members of the Board except: (x)
pursuant to a nomination made in accordance with the
provisions of Section 7.3 of the Agreement and Plan of
Merger dated May 23, 1995 entered into, inter alia, by the
Company, or (y) in the case of a vacancy in the Board, in
accordance with Article VI of the Company's certificate of
incorporation (or, in the case of the re-election or re-
appointment of a member filling a vacancy created by an
increase in the Board, in accordance with the Company's
certificate of incorporation and by-laws); or
(ii) The acquisition by any Person of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the combined
voting power of the Outstanding Voting Securities; provided,
however, that the following acquisitions shall not<PAGE>
<PAGE>
constitute a Change of Control: (w) any acquisition directly
from the Company, (x) any acquisition by the Company, (y)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
Affiliate of the Company, or (z) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (w), (x) and (y) immediately preceding; or
(iii) Individuals who, as of the date hereof,
constitute the Incumbent Board cease for any reason to
constitute at least a majority of the Board unless they are
replaced with a slate nominated by at least a majority of
the Incumbent Board and further provided that any individual
becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall,
for purposes of this Sub-Paragraph (iii), be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board acting by at least a majority
thereof; or
(iv) Consummation of a Business Combination, in each
case, unless, following such Business Combination: (x) all
or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more
than 50% (20% in the case of any Business Combination being
proposed and implemented by at least a majority of the
Incumbent Board) of the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Voting Securities, (y) no Person beneficially
owns, directly or indirectly, 20% or more of the combined
voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination, and (z) at least
a majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board, or were nominated by at
least a majority of the members of the Incumbent Board, at<PAGE>
<PAGE>
the time of the execution of the initial agreement, or by
the action of the Board providing for such Business
Combination; or
(v) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
(h) The term "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the third
anniversary of the date hereof.
(i) The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
(j) The term "Date of Termination" shall mean: (i) if the
Executive's employment is terminated during the Protected Period
by the Company for Cause, or by the Executive for Good Reason,
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 during the Protected Period
by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's
employment is terminated during the Protected Period 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.
(k) The term "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a
full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company
and reasonably acceptable to the Executive or the Executive's
legal representative. In such event during the Protected Period,
the Executive's employment with the Company shall terminate
effective on the Disability Effective Date.
(l) The term "Disability Effective Date" shall mean the
30th day after receipt by the Executive of Notice of Termination
in the event of Disability.
(m) The term "Effective Date" shall mean the first date
during the Change of Control Period on which a Change of Control
occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to
the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the<PAGE>
<PAGE>
"Effective Date" shall mean the date immediately prior to the
date of such termination of employment.
(n) The term "Exchange Act" shall mean the Securities
Exchange Act of 1934.
(o) The term "Excise Tax" shall mean the excise tax imposed
by Section 4999 of the Code and any interest or penalties
incurred by the Executive with respect to such excise tax.
(p) The term "Good Reason" shall mean:
(i) the assignment to the Executive during the
Protected Period of any duties inconsistent in any respect
with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities at least commensurate in all material
respects with the most significant of those held, exercised
and assigned at any time during the 120-day period
immediately preceding the Effective Date, or any other
action by the Company during the Protected Period which
results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; or
(ii) the Company's requiring the Executive during the
Protected Period to be based at any office or location other
than the Company's corporate head office or the Company's
requiring the Executive during the Protected Period to
travel on Company business to a substantially greater extent
than required immediately prior to the Effective Date; or
(iii) any purported termination during the Protected
Period by the Company of the Executive's employment
otherwise than for "cause".
For purposes hereof, any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in
this Agreement to the contrary notwithstanding, a termination by
the Executive for any reason during the earlier of the 30-day
period immediately following the first anniversary of the
Effective Date, or (if the Effective Date has occurred) the 30-
day period immediately preceding the expiration of the Protected
Period, shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(q) The term "Gross-Up Payment" shall mean the additional
payment described under Paragraph (c) of Article III hereof.
(r) The term "Incumbent Board" shall mean the individuals
who, as of the date hereof, constitute the Board.<PAGE>
<PAGE>
(s) The term "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 is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
thirty days after the giving of such notice).
(t) The term "Other Benefits" shall mean the other amounts
and benefits described under clause (iv) of paragraph (b) of
Article II hereof.
(u) The term "Outstanding Voting Securities" shall mean the
then outstanding voting securities of the Company entitled to
vote generally in the election of directors.
(v) The term "Payment" shall mean any payment or
distribution by the Company to or for the benefit of the
Executive pursuant to the terms of this Agreement (but determined
without regard to any additional payments required under
Paragraph (c) of Article III).
(w) The term "Protected Period" shall mean the period from
and after the Effective Date through and including the expiration
of the Change in Control Period.
(x) The term "Person" shall mean any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act).
(y) The term "Welfare Benefit Plans" shall mean all welfare
benefit plans, practices, policies and programs provided by the
Company and its Affiliates (including, without limitation,
medical, prescription, dental, disability, employee life, group
life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its Affiliates, but in no event
shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer
executives of the Company and its Affiliates.
<PAGE>
<PAGE>
ARTICLE II
OBLIGATIONS OF THE COMPANY UPON
TERMINATION DURING PROTECTED PERIOD
(a) Notice of Termination. Any termination during the
Protected Period by the Company for Cause, or by the Executive
for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Paragraph (a)
of Article IV of this Agreement.
(b) Good Reason; Other Than for Cause, Death or Disability.
If the Company shall, during the Protected Period, terminate the
Executive's employment other than for Cause or Disability or the
Executive shall, during the Protected Period, terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
(x) The sum of (1) the Executive's actual base
salary through the Date of Termination to the extent
not theretofore paid, (2) the product of (x) the Annual
Bonus and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the
Date of Termination, and the denominator of which is
365 and (3) any compensation previously deferred by the
Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid; and
(y) The amount equal to the product of (1) three
and (2) the sum of (x) the Annual Base Salary and (y)
the Annual Bonus; and
(z) An amount equal to any sums accrued or cred-
ited to or for the Executive under or pursuant to any
excess or supplemental retirement plan in which the
Executive participates as a result of any contract
between the Company and the executive or as a result of
any limitations on benefits which can be provided to
highly compensated employees as may be prescribed by
the Code or the Employee Retirement Income Security
Act, as the same may be amended or supplemented from
time to time, or by any act which replaces either of
the foregoing which the Executive would receive if the
Executive's employment continued for three years after
the Date of Termination, assuming for this purpose that
all accrued benefits are fully vested, and assuming
that the Executive's compensation in each of the three
years is equal to the Annual Base Salary and the Annual
Bonus over the actuarial equivalents of the Executive's<PAGE>
<PAGE>
actual benefit (paid or payable), if any, under such
retirement plan and such requirements as of the Date of
Termination;
(ii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them under the Welfare Benefit Plans
if the Executive's employment had not been terminated or, if
more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of
the Company and its Affiliates and their families, provided,
however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other
welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to
such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until three
years after the Date of Termination and to have retired on
the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with out placement services
the scope and provider of which shall be selected by the
Executive in his reasonable discretion; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the
Company and its affiliated companies.
(c) Death. If the Executive's employment is terminated
during the Protected Period by reason of the Executive's death,
this Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination. Other
Benefits, as utilized in this Paragraph (c), shall include,
without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least
equal to the most favorable benefits provided by the Company and
its Affiliates to the estates and beneficiaries of peer
executives of the Company and such Affiliates under such plans,<PAGE>
<PAGE>
programs, practices and policies relating to death benefits, if
any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in
effect on the date of the Executive's death with respect to other
peer executives of the Company and its Affiliates and their
beneficiaries.
(d) Disability. If the Executive's employment is terminated
during the Protected Period by reason of the Executive's
Disability, this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued
Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in
a lump sum in cash within 30 days of the Date of Termination.
Other Benefits, as utilized in this Paragraph (d), shall include,
and the Executive shall be entitled after the Disability Effec-
tive Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the
Company and its Affiliates to disabled executives and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its
Affiliates and their families.
(e) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated during the Protected Period for
Cause, this Agreement shall terminate without further obligations
to the Executive other than the obligation to pay to the
Executive (x) his actual base salary through the Date of
Termination, (y) the amount of any compensation previously
deferred by the Executive, and (z) Other Benefits, in each case
to the extent theretofore unpaid. If the Executive voluntarily
terminates employment during the Protected Period, excluding a
termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination.
<PAGE>
<PAGE>
ARTICLE III
CERTAIN COVENANTS
(a) Non-Exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided
by the Company or any of its Affiliates and for which the
Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its Affiliates,
except that any and all severance arrangements extended by the
Company to the Executive and otherwise applicable in the
circumstances covered by this Agreement shall no longer operate
and shall be superseded by the provisions hereof.
(b) Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result
of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as
a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement).
(c) Certain Additional Payments by the Company.
(i) Except as set forth below, in the event it shall
be determined that any Payment would be subject to any Excise
Tax, then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes, including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto), and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Paragraph (c),
if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the
greatest amount that could be paid to the Executive such that the
receipt of Payments would not give rise to any Excise Tax, then
no Gross-Up Payment shall be made to the Executive and the<PAGE>
<PAGE>
Payments, in the aggregate, shall be reduced to such greatest
amount.
(ii) All determinations required to be made under this
Paragraph (c) shall be made by the Company's independent
auditors, who shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. All
fees and expenses of the accounting firm acting hereunder shall
be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Paragraph (c), shall be paid by the
Company to the Executive within five days of the receipt of the
accounting firm's determination.
(iii) The Executive shall promptly notify the Company
in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. If the Company notifies the Executive in
writing prior to the expiration of 30 days after receipt of such
notice that it desires to contest such claim, the Executive
shall: (A) give the Company any information reasonably requested
by the Company relating to such claim, and (B) take such action
in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest. Without
limitation on the foregoing provisions of this Paragraph (c), the
Company shall control all proceedings taken in connection with
such contest.
ARTICLE IV
MISCELLANEOUS
(a) Notices. All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
6364 Massey Manor Cove
Memphis, Tennessee 38120
If to the Company:
1770 Kirby Parkway, Suite 300
Memphis, TN 38138
Attention: General Counsel<PAGE>
<PAGE>
With a copy to:
Krugman Chapnick & Grimshaw LLP
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663
Attention: Howard Kailes, Esq.
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(b) Entire Agreement. This Agreement shall contain the
entire agreement of the parties with respect to the transactions
contemplated hereby.
(c) Successors.
(i) This Agreement is personal to the Executive and
without the prior written consent of the Company 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.
(ii) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.
(iii) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or other-
wise) to all or substantially all of the business and/or assets
of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(d) Governing Law; Captions; Amendments. This Agreement
shall be governed by and construed in accordance with the laws of
the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
<PAGE>
<PAGE>
(f) Withholding. The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(g) No Waiver. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this
Agreement the failure to assert any right the Executive or the
Company may have hereunder, including, without limitation, the
right of the Executive to terminate employment for Good Reason,
shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(h) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its
Board of Directors, the Company has caused these presents to be
executed in its name on its behalf, all as of the day and year
first above written.
Executive:
s/William A. Martin
----------------------------------
William A. Martin
Insituform Technologies, Inc.
By s/Silas Spengler
--------------------------------
Silas Spengler*
* (pursuant to resolutions adopted
June 19, 1997 by special committee
of the board of directors created
by resolutions dated June 16,
1997)
Exhibit 10(c)
SEVERANCE AGREEMENT
AGREEMENT dated as of the 19th day of June, 1997 by and
between Insituform Technologies, Inc., a Delaware corporation
(the "Company"), and Robert L. Kelley (the "Executive").
W I T N E S S E T H:
WHEREAS, 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 assure that the Company shall have the
continued dedication of the Executive notwithstanding the
possibility, threat or occurrence of a Change of Control (as
defined below);
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the meanings set forth below:
(a) The term "Accrued Obligations" shall mean the sum of
the amounts described in clauses (1), (2), and (3) of Paragraph
(b)(i)(x) of Article II hereof.
(b) The term "Affiliate" shall mean any person controlling,
controlled by or under common control with the subject
referenced.
(c) The term "Annual Base Salary" shall mean an amount
equal to twelve times the highest monthly base salary paid or
payable, including any base salary which has been earned but
deferred, to the Executive by the Company or its Affiliates in
respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs, or, if higher, the
twelve-month period immediately preceding the month in which the
Date of Termination occurs.
(d) The term "Annual Bonus" shall mean the annual bonus
paid or payable, including any bonus or portion thereof which has
been earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for the
most recently completed fiscal year prior to the Effective Date,
or, if higher, for the most recently completed fiscal year prior
to the Date of Termination.
(e) The term "Business Combination" shall mean a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company.<PAGE>
<PAGE>
(f) The term "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties
with the Company or any of its Affiliates (other than any
such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or
the chief executive officer of the Company which
specifically identifies the manner in which the Board or
chief executive officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and
demonstrably injurious to the Company; or
(iii) conviction of a crime other than misdemeanor
traffic offenses or commission of an act of moral turpitude.
For purposes hereof, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without
reasonable belief that the Executive's action or omission was in
the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of
a resolution duly adopted by the affirmative vote of not less
than 80% of the entire membership of the Board, finding that, in
the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) immediately
preceding.
(g) The term "Change of Control" shall mean:
(i) Prior to December 9, 1998, the election or
appointment of any two members of the Board except: (x)
pursuant to a nomination made in accordance with the
provisions of Section 7.3 of the Agreement and Plan of
Merger dated May 23, 1995 entered into, inter alia, by the
Company, or (y) in the case of a vacancy in the Board, in
accordance with Article VI of the Company's certificate of
incorporation (or, in the case of the re-election or re-
appointment of a member filling a vacancy created by an
increase in the Board, in accordance with the Company's
certificate of incorporation and by-laws); or
(ii) The acquisition by any Person of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the combined
voting power of the Outstanding Voting Securities; provided,
however, that the following acquisitions shall not<PAGE>
<PAGE>
constitute a Change of Control: (w) any acquisition directly
from the Company, (x) any acquisition by the Company, (y)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
Affiliate of the Company, or (z) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (w), (x) and (y) immediately preceding; or
(iii) Individuals who, as of the date hereof,
constitute the Incumbent Board cease for any reason to
constitute at least a majority of the Board unless they are
replaced with a slate nominated by at least a majority of
the Incumbent Board and further provided that any individual
becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall,
for purposes of this Sub-Paragraph (iii), be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board acting by at least a majority
thereof; or
(iv) Consummation of a Business Combination, in each
case, unless, following such Business Combination: (x) all
or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding
Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more
than 50% (20% in the case of any Business Combination being
proposed and implemented by at least a majority of the
Incumbent Board) of the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors of the corporation resulting from
such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Voting Securities, (y) no Person beneficially
owns, directly or indirectly, 20% or more of the combined
voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination, and (z) at least
a majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board, or were nominated by at
least a majority of the members of the Incumbent Board, at<PAGE>
<PAGE>
the time of the execution of the initial agreement, or by
the action of the Board providing for such Business
Combination; or
(v) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
(h) The term "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the third
anniversary of the date hereof.
(i) The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
(j) The term "Date of Termination" shall mean: (i) if the
Executive's employment is terminated during the Protected Period
by the Company for Cause, or by the Executive for Good Reason,
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 during the Protected Period
by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's
employment is terminated during the Protected Period 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.
(k) The term "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a
full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company
and reasonably acceptable to the Executive or the Executive's
legal representative. In such event during the Protected Period,
the Executive's employment with the Company shall terminate
effective on the Disability Effective Date.
(l) The term "Disability Effective Date" shall mean the
30th day after receipt by the Executive of Notice of Termination
in the event of Disability.
(m) The term "Effective Date" shall mean the first date
during the Change of Control Period on which a Change of Control
occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to
the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the<PAGE>
<PAGE>
"Effective Date" shall mean the date immediately prior to the
date of such termination of employment.
(n) The term "Exchange Act" shall mean the Securities
Exchange Act of 1934.
(o) The term "Excise Tax" shall mean the excise tax imposed
by Section 4999 of the Code and any interest or penalties
incurred by the Executive with respect to such excise tax.
(p) The term "Good Reason" shall mean:
(i) the assignment to the Executive during the
Protected Period of any duties inconsistent in any respect
with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities at least commensurate in all material
respects with the most significant of those held, exercised
and assigned at any time during the 120-day period
immediately preceding the Effective Date, or any other
action by the Company during the Protected Period which
results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive; or
(ii) the Company's requiring the Executive during the
Protected Period to be based at any office or location other
than the Company's corporate head office or the Company's
requiring the Executive during the Protected Period to
travel on Company business to a substantially greater extent
than required immediately prior to the Effective Date; or
(iii) any purported termination during the Protected
Period by the Company of the Executive's employment
otherwise than for "cause".
For purposes hereof, any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in
this Agreement to the contrary notwithstanding, a termination by
the Executive for any reason during the earlier of the 30-day
period immediately following the first anniversary of the
Effective Date, or (if the Effective Date has occurred) the 30-
day period immediately preceding the expiration of the Protected
Period, shall be deemed to be a termination for Good Reason for
all purposes of this Agreement.
(q) The term "Gross-Up Payment" shall mean the additional
payment described under Paragraph (c) of Article III hereof.
(r) The term "Incumbent Board" shall mean the individuals
who, as of the date hereof, constitute the Board.<PAGE>
<PAGE>
(s) The term "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 is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
thirty days after the giving of such notice).
(t) The term "Other Benefits" shall mean the other amounts
and benefits described under clause (iv) of paragraph (b) of
Article II hereof.
(u) The term "Outstanding Voting Securities" shall mean the
then outstanding voting securities of the Company entitled to
vote generally in the election of directors.
(v) The term "Payment" shall mean any payment or
distribution by the Company to or for the benefit of the
Executive pursuant to the terms of this Agreement (but determined
without regard to any additional payments required under
Paragraph (c) of Article III).
(w) The term "Protected Period" shall mean the period from
and after the Effective Date through and including the expiration
of the Change in Control Period.
(x) The term "Person" shall mean any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act).
(y) The term "Welfare Benefit Plans" shall mean all welfare
benefit plans, practices, policies and programs provided by the
Company and its Affiliates (including, without limitation,
medical, prescription, dental, disability, employee life, group
life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer
executives of the Company and its Affiliates, but in no event
shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer
executives of the Company and its Affiliates.
<PAGE>
<PAGE>
ARTICLE II
OBLIGATIONS OF THE COMPANY UPON
TERMINATION DURING PROTECTED PERIOD
(a) Notice of Termination. Any termination during the
Protected Period by the Company for Cause, or by the Executive
for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Paragraph (a)
of Article IV of this Agreement.
(b) Good Reason; Other Than for Cause, Death or Disability.
If the Company shall, during the Protected Period, terminate the
Executive's employment other than for Cause or Disability or the
Executive shall, during the Protected Period, terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
(x) The sum of (1) the Executive's actual base
salary through the Date of Termination to the extent
not theretofore paid, (2) the product of (x) the Annual
Bonus and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the
Date of Termination, and the denominator of which is
365 and (3) any compensation previously deferred by the
Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid; and
(y) The amount equal to the product of (1) three
and (2) the sum of (x) the Annual Base Salary and (y)
the Annual Bonus; and
(z) An amount equal to any sums accrued or cred-
ited to or for the Executive under or pursuant to any
excess or supplemental retirement plan in which the
Executive participates as a result of any contract
between the Company and the executive or as a result of
any limitations on benefits which can be provided to
highly compensated employees as may be prescribed by
the Code or the Employee Retirement Income Security
Act, as the same may be amended or supplemented from
time to time, or by any act which replaces either of
the foregoing which the Executive would receive if the
Executive's employment continued for three years after
the Date of Termination, assuming for this purpose that
all accrued benefits are fully vested, and assuming
that the Executive's compensation in each of the three
years is equal to the Annual Base Salary and the Annual
Bonus over the actuarial equivalents of the Executive's<PAGE>
<PAGE>
actual benefit (paid or payable), if any, under such
retirement plan and such requirements as of the Date of
Termination;
(ii) for three years after the Executive's Date of
Termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy,
the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would
have been provided to them under the Welfare Benefit Plans
if the Executive's employment had not been terminated or, if
more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of
the Company and its Affiliates and their families, provided,
however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other
welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to
such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until three
years after the Date of Termination and to have retired on
the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with out placement services
the scope and provider of which shall be selected by the
Executive in his reasonable discretion; and
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or
which the Executive is eligible to receive under any plan,
program, policy or practice or contract or agreement of the
Company and its affiliated companies.
(c) Death. If the Executive's employment is terminated
during the Protected Period by reason of the Executive's death,
this Agreement shall terminate without further obligations to the
Executive's legal representatives under this Agreement, other
than for payment of Accrued Obligations and the timely payment or
provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination. Other
Benefits, as utilized in this Paragraph (c), shall include,
without limitation, and the Executive's estate and/or
beneficiaries shall be entitled to receive, benefits at least
equal to the most favorable benefits provided by the Company and
its Affiliates to the estates and beneficiaries of peer
executives of the Company and such Affiliates under such plans,<PAGE>
<PAGE>
programs, practices and policies relating to death benefits, if
any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in
effect on the date of the Executive's death with respect to other
peer executives of the Company and its Affiliates and their
beneficiaries.
(d) Disability. If the Executive's employment is terminated
during the Protected Period by reason of the Executive's
Disability, this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued
Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive in
a lump sum in cash within 30 days of the Date of Termination.
Other Benefits, as utilized in this Paragraph (d), shall include,
and the Executive shall be entitled after the Disability Effec-
tive Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the
Company and its Affiliates to disabled executives and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, as in effect generally
with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the
Executive's family, as in effect at any time thereafter generally
with respect to other peer executives of the Company and its
Affiliates and their families.
(e) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated during the Protected Period for
Cause, this Agreement shall terminate without further obligations
to the Executive other than the obligation to pay to the
Executive (x) his actual base salary through the Date of
Termination, (y) the amount of any compensation previously
deferred by the Executive, and (z) Other Benefits, in each case
to the extent theretofore unpaid. If the Executive voluntarily
terminates employment during the Protected Period, excluding a
termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 30 days of the Date of
Termination.
<PAGE>
<PAGE>
ARTICLE III
CERTAIN COVENANTS
(a) Non-Exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided
by the Company or any of its Affiliates and for which the
Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its Affiliates,
except that any and all severance arrangements extended by the
Company to the Executive and otherwise applicable in the
circumstances covered by this Agreement shall no longer operate
and shall be superseded by the provisions hereof.
(b) Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result
of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as
a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement).
(c) Certain Additional Payments by the Company.
(i) Except as set forth below, in the event it shall
be determined that any Payment would be subject to any Excise
Tax, then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes, including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto), and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Paragraph (c),
if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the
greatest amount that could be paid to the Executive such that the
receipt of Payments would not give rise to any Excise Tax, then
no Gross-Up Payment shall be made to the Executive and the<PAGE>
<PAGE>
Payments, in the aggregate, shall be reduced to such greatest
amount.
(ii) All determinations required to be made under this
Paragraph (c) shall be made by the Company's independent
auditors, who shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. All
fees and expenses of the accounting firm acting hereunder shall
be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Paragraph (c), shall be paid by the
Company to the Executive within five days of the receipt of the
accounting firm's determination.
(iii) The Executive shall promptly notify the Company
in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-Up Payment. If the Company notifies the Executive in
writing prior to the expiration of 30 days after receipt of such
notice that it desires to contest such claim, the Executive
shall: (A) give the Company any information reasonably requested
by the Company relating to such claim, and (B) take such action
in connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest. Without
limitation on the foregoing provisions of this Paragraph (c), the
Company shall control all proceedings taken in connection with
such contest.
ARTICLE IV
MISCELLANEOUS
(a) Notices. All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
6364 Massey Manor Cove
Memphis, Tennessee 38120
If to the Company:
1770 Kirby Parkway, Suite 300
Memphis, TN 38138
Attention: General Counsel<PAGE>
<PAGE>
With a copy to:
Krugman Chapnick & Grimshaw LLP
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663
Attention: Howard Kailes, Esq.
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(b) Entire Agreement. This Agreement shall contain the
entire agreement of the parties with respect to the transactions
contemplated hereby.
(c) Successors.
(i) This Agreement is personal to the Executive and
without the prior written consent of the Company 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.
(ii) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.
(iii) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or other-
wise) to all or substantially all of the business and/or assets
of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(d) Governing Law; Captions; Amendments. This Agreement
shall be governed by and construed in accordance with the laws of
the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
<PAGE>
<PAGE>
(f) Withholding. The Company may withhold from any amounts
payable under this Agreement such Federal, state, local or
foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(g) No Waiver. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this
Agreement the failure to assert any right the Executive or the
Company may have hereunder, including, without limitation, the
right of the Executive to terminate employment for Good Reason,
shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(h) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its
Board of Directors, the Company has caused these presents to be
executed in its name on its behalf, all as of the day and year
first above written.
Executive:
s/Robert L. Kelley
----------------------------------
Robert L. Kelley
Insituform Technologies, Inc.
By s/Silas Spengler
--------------------------------
Silas Spengler*
* (pursuant to resolutions adopted
June 19, 1997 by special committee
of the board of directors created
by resolutions dated June 16,
1997)
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