<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1995 Commission File No. 0-15280
INSITUFORM MID-AMERICA, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1319439
--------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
17988 Edison Avenue, Chesterfield, Missouri 63005-3700
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 532-6137
(Not applicable)
--------------------------------------------------------------------------------
(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 .
--- ---
<TABLE>
As of July 31, 1995, the following number of shares of each class of the
registrant's Common Stock was outstanding:
<CAPTION>
Shares
------
<S> <C>
Class A Common Stock, $.01 par value 8,321,948
Class B Common Stock, $.01 par value 2,472,985
</TABLE>
Page 1 of 26 pages.
<PAGE> 2
<TABLE>
FORM 10-Q
INDEX
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1995 and September 30, 1994 3
Condensed Consolidated Statements of Income
Three months ended June 30, 1995 and 1994;
Nine months ended June 30, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows
Nine months ended June 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 23
EXHIBIT INDEX 24
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
INSITUFORM MID-AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 September 30
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................... $ 2,924,814 $ 3,111,664
Accounts receivable.......................... 16,857,017 15,770,080
Costs and estimated earnings in
excess of billings on uncompleted
contracts.................................. 14,714,348 8,419,956
Prepaid/refundable income taxes.............. 418,739 521,272
Inventory.................................... 5,376,083 2,938,463
Prepaid expenses and other current
assets..................................... 4,485,481 2,782,654
----------- -----------
TOTAL CURRENT ASSETS................. 44,776,482 33,544,089
----------- -----------
PROPERTY AND EQUIPMENT......................... 51,116,101 34,025,871
Less accumulated depreciation.................. 21,979,637 12,018,479
----------- -----------
TOTAL PROPERTY AND EQUIPMENT......... 29,136,464 22,007,392
----------- -----------
LICENSE COSTS.................................. 1,872,686 1,770,546
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED.............................. 6,303,878 2,141,353
DEFERRED NON-COMPETE EXPENSE................... 3,669,200 923,046
PATENTS........................................ 3,255,805 3,492,509
OTHER.......................................... 2,905,538 -
----------- -----------
TOTAL OTHER ASSETS................... 18,007,107 8,327,454
----------- -----------
$91,920,053 $63,878,935
=========== ===========
(Continued)
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 4
<TABLE>
INSITUFORM MID-AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<CAPTION>
June 30 September 30
1995 1994
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks....................... $12,726,000 $ 6,460,214
Subordinated promissory note................. 3,000,000 -
Current portion of long-term debt............ 1,529,528 -
Accounts payable............................. 8,413,659 8,181,616
Dividends payable............................ 157,282 -
Accrued income taxes......................... 132,801 411,249
Accrued expenses............................. 4,963,449 6,810,141
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... 140,939 63,071
----------- -----------
TOTAL CURRENT LIABILITIES............ 31,063,658 21,926,291
----------- -----------
LONG-TERM LIABILITIES
Long-term debt less current portion.......... 14,024,344 -
Minority interest............................ 1,390,902 575,501
Deferred income taxes........................ 1,018,293 1,217,641
Other........................................ 890,872 283,748
----------- -----------
TOTAL LONG-TERM LIABILITIES.......... 17,324,411 2,076,890
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred Stock -- $.01 par value, 500,000
shares authorized, none issued or
outstanding................................ - -
Common Stock:
Class A -- $.01 par value, 13,000,000
shares authorized, 8,310,046 shares
issued and outstanding at June 30,
1995, 8,279,342 shares issued and
outstanding at September 30, 1994........ 83,100 82,793
Class B -- convertible $.01 par value,
6,000,000 shares authorized, 2,472,985
shares issued and outstanding............ 24,730 24,730
Additional paid-in capital................... 18,564,514 18,333,959
Retained earnings............................ 25,245,279 21,765,402
Cumulative translation adjustments........... (385,639) (331,130)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY........... 43,531,984 39,875,754
----------- -----------
$91,920,053 $63,878,935
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 5
<TABLE>
INSITUFORM MID-AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
---------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Contract revenues....................... $26,948,168 $17,370,889 $77,611,419 $54,292,881
Cost of contract revenues............... 19,834,798 12,814,206 57,270,715 39,182,517
----------- ----------- ----------- -----------
Gross profit............................ 7,113,370 4,556,683 20,340,704 15,110,364
Costs and expenses:
General and administrative expenses... 3,200,602 2,226,637 7,856,049 6,323,656
Selling expenses...................... 966,801 745,545 2,523,701 2,353,575
Research and development expenses..... 249,943 37,782 768,054 37,782
----------- ----------- ----------- -----------
4,417,346 3,009,964 11,147,804 8,715,013
----------- ----------- ----------- -----------
Income from operations.................. 2,696,024 1,546,719 9,192,900 6,395,351
----------- ----------- ----------- -----------
Interest income......................... 42,791 18,071 100,528 43,475
Interest expense........................ (458,207) (58,613) (782,679) (182,773)
Joint venture income.................... 245,011 100,000 385,011 143,865
Other expense........................... (103,659) (103,515) (153,308) (248,500)
----------- ----------- ----------- -----------
Income before income taxes and minority
interest.............................. 2,421,960 1,502,662 8,742,452 6,151,418
Provision for income taxes.............. 823,467 571,012 2,972,435 2,337,539
----------- ----------- ----------- -----------
Income before minority interest......... 1,598,493 931,650 5,770,017 3,813,879
Minority interest in income of
consolidated subsidiary............... (77,706) (45,222) (814,501) (70,981)
----------- ----------- ----------- -----------
Net income.............................. $ 1,520,787 $ 886,428 $ 4,955,516 $ 3,742,898
=========== =========== =========== ===========
Net income per common share............. $.14 $.08 $.45 $.34
==== ==== ==== ====
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 6
<TABLE>
INSITUFORM MID-AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
<CAPTION>
Nine Months Ended
June 30
-------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 4,955,516 $3,742,898
Adjustments to reconcile net income to net cash:
Decrease in accounts receivable.................. 1,249,920 2,254,370
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts.... (4,490,518) (2,683,917)
Decrease in insurance claim receivable........... - 3,003,511
Decrease in prepaid/refundable income taxes...... 215,213 52,793
Increase in inventory............................ (1,567,622) (46,807)
Increase in prepaid expense and other current
assets......................................... (898,876) (906,063)
Increase (decrease) in accounts payable.......... (689,959) 719,009
Increase in dividends payable.................... 157,282 -
Increase (decrease) in accrued income taxes...... (278,448) 177,982
Decrease in accrued expenses..................... (3,348,045) (572,487)
Increase (decrease) in billings in excess of
costs and estimated earnings on uncompleted
contracts...................................... 77,868 (419,084)
Depreciation..................................... 3,548,053 2,224,429
Amortization..................................... 686,692 502,091
Gain on sale of property and equipment........... (7,158) (3,877)
Deferred income tax provision.................... (199,348) (6,095)
Minority interest in income of consolidated
subsidiary................................... 815,401 70,981
Other, net....................................... (497,088) -
----------- ----------
Net cash provided (used) by operating
activities................................... (271,117) 8,109,734
----------- ----------
Cash flows from financing activities:
Increase (decrease) in notes payable to banks...... 6,815,333 (1,015,000)
Increase in long-term debt......................... 15,250,000 -
Repayment of current portion of long-term debt..... (151,310) -
Increase in subordinated promissory note........... 3,000,000 -
Dividends paid to common stockholders.............. (1,475,639) (1,473,629)
Proceeds from exercise of stock options............ 230,862 9,519
Proceeds from minority interest participation...... - 400,000
----------- ----------
Net cash provided (used) by financing
activities................................... 23,669,246 (2,079,110)
----------- ----------
Cash flows from investing activities:
Additions to property and equipment................ (5,342,721) (5,671,136)
Proceeds from sale of property and equipment....... 162,251 233,758
Acquisition of business............................ (18,250,000) -
Increase in license costs.......................... (100,000) -
----------- ----------
Net cash used by investing activities.......... (23,530,470) (5,437,378)
----------- ----------
Effect of exchange rate changes on cash.............. (54,509) (82,003)
----------- ----------
Net increase (decrease) in cash and cash equivalents. (186,850) 511,243
Cash and cash equivalents at September 30............ 3,111,664 2,088,966
----------- ----------
Cash and cash equivalents at June 30................. $ 2,924,814 $2,600,209
=========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 7
INSITUFORM MID-AMERICA, INC.
Notes to Condensed Consolidated Financial Statements
1. Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normally
recurring accruals) considered necessary for a fair presentation
have been included. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the Company's Annual Report to Stockholders for the fiscal
year ended September 30, 1994.
Operating results for the nine months ended June 30, 1995 are
not necessarily indicative of the results that may be expected
for the fiscal year ending September 30, 1995.
<TABLE>
2. Computation of Income Per Share
Net income per common share was computed by dividing net income
by the weighted average number of common shares and common share
equivalents outstanding during each period.
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number
shares outstanding...... 11,114,936 11,125,205 11,088,223 11,117,438
</TABLE>
3. Legal Proceedings
By letters, dated April 4, 1995, Insituform North America Corp.
and NuPipe, Inc., subsidiaries of Insituform Technologies, Inc.
("ITI"), notified Insituform Southeast, Inc. and NuPipe Southeast
Corporation, then subsidiaries of ENVIROQ Corporation ("ENVIROQ"),
that the ITI subsidiaries refused to grant their consent under the
Insituform and NuPipe license agreements with the subsidiaries of
ENVIROQ to the transactions contemplated by the acquisition agreement
under which the Company acquired the pipeline rehabilitation business
of ENVIROQ. On April 4, 1995, Insituform North America Corp. and
NuPipe, Inc. (collectively, the "ITI Plaintiffs") filed a Complaint
for Declaratory Relief (the "Declaratory Action") against Insituform
Southeast, Inc., NuPipe Southeast Corporation, ENVIROQ Corporation and
the Company in the Chancery Court for the Thirtieth Judicial District
at Memphis, Shelby County, Tennessee. In the Declaratory Action, the
ITI Plaintiffs are seeking a declaratory judgment that they were within
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<PAGE> 8
their rights to refuse to consent under Insituform and NuPipe
licensee agreements with subsidiaries of ENVIROQ, to the
transactions contemplated by the acquisition agreement, and that
they possess all legal rights under such agreements arising out
of the failure by the respective licensees to obtain such
consent. The defendants have caused the Declaratory Action to
be removed to Federal District Court for the Western District
of Tennessee. Pursuant to agreements between the parties to the
Declaratory Action, the proceedings have been stayed by Court
order until the earlier to occur of the completion of the
proposed merger (the "Merger") with ITI Acquisition Corp., as
a result of which the Company would become a wholly-owned
subsidiary of ITI (see Note 6), or January 31, 1996. The
parties also have agreed to take no further legal action with
respect to the ITI Plaintiffs' failure to grant consent, in the
Declaratory Action or otherwise, through the earlier to occur
of the Merger or the termination of the related Agreement and
Plan of Merger prior to the Merger.
Insitu, Inc. ("Insitu"), one of the three partners in MidSouth
Partners, a Tennessee general partnership, has filed a demand
for arbitration claiming that E-MidSouth, Inc. ("E-MidSouth"),
another partner in MidSouth Partners and a wholly-owned
subsidiary of Insituform Southeast, Inc. (an indirect wholly-
owned subsidiary of the Company), has breached the partnership
agreement by ENVIROQ's entering into the acquisition agreement
with the Company. E-MidSouth denies that it has breached the
partnership agreement. The arbitration proceeding has been
stayed until September 1, 1995 by consent of the parties.
Pursuant to citations issued December 15, 1993, the Occupational
Safety and Health Administration, Kansas City Area Office
("OSHA"), alleged that the Company and its subsidiaries violated
certain provisions of the Occupational Safety and Health Act of
1970 in connection with rehabilitation activities in Kansas
City, Missouri in June 1993. The allegations related to an
accident in which one of the employees of a Company subsidiary
was swept away and drowned in a flash flood resulting from a
sudden and torrential thunderstorm. OSHA alleged that the
subsidiary's safety procedures were inadequate and assessed
penalties aggregating approximately $1 million. The Company
believes that OSHA's allegations neither accurately reflected
the facts and circumstances of the accident nor accurately
characterized the Company's strong safety program and commitment
thereto. The Company cooperated fully with OSHA in its
investigation and does not believe that the allegations were
warranted. To avoid the costs and uncertainties of defending
the citations in adversarial proceedings, the Company settled
this claim in July 1995 by agreeing to pay OSHA an aggregate of
$325,000 in equal semi-annual installments through January 1997.
Pursuant to a Complaint filed August 1, 1995, ENVIROQ Corporation
("ENVIROQ") initiated an action in the Circuit Court of Jefferson
County, Alabama, for a judgment on the $3.0 million Subordinated
Promissory Note (the "Subordinated Note") issued in connection
with the Company's acquisition of Insituform Southeast, Inc. and
related corporations in April 1995 (the "ENVIROQ Acquisition").
ENVIROQ claims that the Company is in default under the
Subordinated Note. The Company denies liability and intends to
vigorously defend the suit and pursue claims against ENVIROQ
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<PAGE> 9
arising out of the ENVIROQ Acquisition, including ENVIROQ's
obligations under the acquisition agreement. In the Company's
opinion, the ultimate resolution of this litigation will not
have a material adverse effect upon the Company's financial
condition or results of operations.
4. Long-Term Debt
As of June 30, 1995, the Company was in default under the
tangible net worth covenants in its term loan agreement, for
which the lenders have granted a waiver. The Company's
lenders also have waived the event of default arising out of
developments with respect to the Company's $3.0 million
Subordinated Promissory Note as described in Note 7.
5. Acquisition
On April 18, 1995, the Company completed the acquisition of the
pipeline rehabilitation business of ENVIROQ, including ENVIROQ's
Insituform process business which is conducted by its Insituform
Southeast, Inc. subsidiary. Insituform Southeast, Inc. operates
in a licensed territory consisting of Alabama, Florida, Georgia,
North Carolina and South Carolina. It also owns 42.5% of
Midsouth Partners, which is the licensee of the Insituform
process in Tennessee, most of Kentucky and northern Mississippi.
Under the terms of the transaction, all assets and liabilities
related to ENVIROQ's interest in Synox Corporation (a
development stage company which is engaged in the business of
developing and testing a process for the treatment of municipal
wastewater "sludge"), and its ownership in SPRAYROQ Corporation
(a development stage company which offers a spray-applied
resinous product used in rehabilitation of manholes, among other
applications) were transferred to a newly organized subsidiary,
the stock of which was distributed to ENVIROQ's stockholders
immediately prior to the transaction with the Company. In
addition, ENVIROQ transferred $500,000 cash and the undeveloped
portion of real estate which it owned in Jacksonville, Florida
to the corporation spun-off.
Pursuant to the transaction, which was accounted for as a
purchase of stock, the Company paid $15.25 million cash and
issued a $3.0 million five-year subordinated promissory note in
consideration for a covenant not to compete and entered into an
agreement for consulting services providing for the Company's
payment of $1 million over five years. See Note 7 for
information regarding demands made for payment under the
foregoing subordinated promissory note.
<TABLE>
The condensed consolidated statements of income include the
ENVIROQ operations from the dates the respective stock was
acquired. Unaudited pro forma results of operations, assuming
the above-described acquisition had occurred at October 1, 1993
are as follows:
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<PAGE> 10
<CAPTION>
Nine Months Ended
June 30
------------------------
1995 1994
---- ----
<S> <C> <C>
Contract revenues.................. $89,663,163 $70,849,130
Net income......................... 4,272,540 3,902,226
Earnings per share................. $.39 $.35
</TABLE>
This pro forma information does not purport to be indicative of
the results that actually would have been obtained if the
operations had been combined as of October 1, 1993, and is not
intended to be a projection of future results.
See Note 3 for a description of the moratorium on rights in
dispute, including with respect to the Insituform licenses of
ENVIROQ's subsidiaries as a result of the consummation of the
transaction without ITI's consent and information concerning
arbitration proceedings initiated by one of the partners of
MidSouth Partners alleging an event of default by the ENVIROQ
subsidiary partner thereto.
6. Merger Agreement
The Company has entered into an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of May 23, 1995, by and among
the Company, Insituform Technologies, Inc. ("ITI"), and ITI
Acquisition Corp. ("ITI Sub"), a wholly-owned subsidiary of ITI,
providing for the merger (the "Merger") of ITI Sub into the
Company, as a result of which the Company would become a wholly-
owned subsidiary of ITI. Pursuant to the terms of the Merger
Agreement, holders of the Class A Common Stock of the Company
would be entitled to receive 1.15 shares of Class A Common Stock
of ITI ("ITI Stock") for each share of the Company's Class A
Common Stock held. In connection with the Merger, the holders
of the Company's Class B Common Stock have agreed to convert
their shares into Class A Common Stock on a share-for-share
basis immediately prior to the consummation of the Merger.
It is anticipated that the Merger will constitute a tax-free
reorganization under federal income tax laws and, accordingly,
holders of IMA Class A Common Stock would not recognize taxable
gain or loss upon their receipt of ITI Stock in the Merger. In
addition, it is anticipated that the Merger would be accounted
for using the pooling-of-interests method of accounting.
Consummation of the Merger is subject to customary closing
conditions, including approval by the respective stockholders
of the Company and ITI. Pending completion of the Merger, the
Company and ITI agreed to certain covenants relating to the
operation of their respective businesses. The Merger Agreement
also provides that it may be terminated prior to closing under
certain circumstances, including if the closing has not
occurred by January 31, 1996.
7. Subsequent Event
By letter, dated July 14, 1995, counsel for ENVIROQ Corporation
(formerly known as New ENVIROQ Corporation and hereafter
referred to as "New ENVIROQ") advised the Company that
a default had occurred with respect to the payment
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<PAGE> 11
of the interest due to New ENVIROQ on June 30, 1995 under the
Subordinated Promissory Note (the "Subordinated Note") in the
principal amount of $3.0 million issued by the Company in April
1995 in connection with the acquisition described in Note 5 (the
"ENVIROQ Acquisition"). New ENVIROQ demanded payment of such
interest installment and purported to declare the entire
principal due and payable. The Company advised New ENVIROQ that
such purported acceleration was improper and directed New
ENVIROQ to withdraw it. On August 1, 1995, New ENVIROQ filed
a lawsuit against the Company in the Circuit Court of Jefferson
County, Alabama, seeking a judgment in respect of the Company's
alleged default under the Subordinated Note.
The Company believes it is not in default under the Subordinated
Note and intends to vigorously defend the lawsuit and pursue
claims against New ENVIROQ arising out of the ENVIROQ
Acquisition, including ENVIROQ's obligations under the
acquisition agreement. The Company's senior lenders have waived
the event of default under the Company's principal financing
agreements which otherwise would have occurred as a result of
New ENVIROQ's actions in respect of the Subordinated Note. The
Company is seeking to negotiate a mutually acceptable resolution
regarding the status of the Subordinated Note. Pending such
resolution, the Company classified the obligation as a current
liability in the accompanying balance sheet. In the Company's
opinion, the ultimate resolution thereof will not have a
material adverse effect upon the Company's financial condition
or results of operations.
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<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Results of Operations
Contract revenues for the third quarter of the current
fiscal year were $26.9 million, an increase of 55% over the
amount reported for the comparable quarter of fiscal 1994.
Rehabilitation revenues increased 35% primarily due to the
acquisition of Insituform Southeast, Inc. which was
completed April 18, 1995. Corrosion and abrasion
protection revenues increased 107% as a result of
contracting operations in Latin America and improved market
conditions in Canada. Tunneling revenues increased 88% due
to the continuation of more normalized market conditions
compared to the prior year quarter.
Contract revenues for the nine months ended June 30, 1995
were $77.6 million, an increase of 43% from the
corresponding period in fiscal 1994. Corrosion and
abrasion protection revenues increased 173% as a result of
the Latin American general contracting and Tite Liner
operations. Tunneling revenues increased 98% due to the
continuation of more normalized market conditions.
Rehabilitation revenues, generated primarily by the
Insituform process, increased 6% due principally to the
acquisition of Insituform Southeast, Inc. on April 18,
1995. See Note 3 of the Notes to Condensed Consolidated
Financial Statements included elsewhere herein for a
description of the moratorium rights in dispute, including
with respect to the Insituform licenses of Insituform
Southeast, Inc., as a result of the consummation of such
acquisition without the consent of Insituform Technologies,
Inc. ("ITI").
Gross profit for the third quarter of fiscal 1995 was $7.1
million, a 56% increase over gross profit reported in the
corresponding quarter of the prior year. The increase was
the result of the aforementioned 55% increase in contract
revenues. As a percentage of contract revenues, gross
profit was 26.4% compared to 26.2% in the prior year
quarter due to improved equipment utilization efficiencies,
primarily in tunneling operations.
Gross profit for the nine months ended June 30, 1995 was
$20.3 million, a 35% increase compared to the amount
reported in the prior year period. The increase resulted
from the above-described contract revenue increases. Gross
profit as a percentage of contract revenues was 26.2% for
the recent year-to-date period, compared to 27.8% in the
corresponding period of the prior year. The reduction in
gross profit percentage for the current year period was
primarily attributable to the Company's operating as a
general contractor in its corrosion and abrasion business
in Latin America, which yields lower profit margins than
revenues generated by the Company's proprietary
technologies.
The 47% increase in operating expenses (selling,
general and administrative and research and
development) for the third quarter primarily resulted
from research and development costs associated with
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<PAGE> 13
the PALTEM product line in the development of high pressure
products and operating expenses associated with the
Insituform Southeast, Inc. acquisition completed on April
18, 1995. For the third quarter, operating expenses
represented 16.4% of contract revenues compared to 17.3%
for the third quarter of fiscal 1994.
The 28% increase in operating expenses for the year-to-date
period resulted primarily from the research and development
costs associated with development of high pressure PALTEM
products, operating expenses attributable to the Insituform
Southeast, Inc. acquisition and administrative expenses for
the corrosion and abrasion protection operations in Latin
America which commenced in January 1994. For the year-to-
date period, operating expenses represented 14.4% of
contract revenues compared to 16.1% in the prior year
period, as contract revenue growth continued to outpace
operating expense increases.
For the third quarter, income from operations increased 74%
compared to the same quarter in the prior year and
represented 10.0% of contract revenues compared to 8.9% in
the prior year quarter. The improvement resulted from the
increase in contract revenues and improved leveraging of
operating expenses which increased at a slower rate than
contract revenues.
Income from operations for the nine-month periods for
fiscal 1995 represented 11.8% of contract revenues. For
the current fiscal year, income from operations increased
44% over the prior year primarily as a result of improved
leveraging of operating expenses partially offset by the
reduction in gross profit margin.
Net income for the third quarter of the current fiscal year
increased 71% from that reported in the comparable period
of the prior year. The increase was the result of the
above-described factors affecting income from operations
offset by increased interest costs associated with the
borrowings to finance the Insituform Southeast, Inc.
acquisition completed on April 18, 1995. In addition the
Company benefitted from a lower effective tax rate of 34%
compared to 38% for the third quarter in the previous
fiscal year due to a change in the mix of profit contributions
among non-U.S. operations.
On a year-to-date basis, net income increased 32% over the
prior year period and represented 6.4% of contract revenues
compared to 6.9% for the comparable period of the prior
year. The reduction in net income as a percentage of
contract revenues was attributable to the allocation of
income to the owner of the minority interest in the
Company's Latin American subsidiary which is reported on a
consolidated basis.
<TABLE>
As of June 30, 1995, the Company's backlog compared to
September 30, 1994 by business type was as follows (in
millions).
-13-
<PAGE> 14
<CAPTION>
June 30 September 30
1995 1994
------- ------------
<S> <C> <C>
Rehabilitation........................ $40.2 $23.4
Tunneling............................. 17.4 9.0
Corrosion and abrasion protection..... 7.6 13.1
----- -----
$65.2 $45.5
===== =====
</TABLE>
The increase in backlog from September 30, 1994 to June 30,
1995 represents normal seasonal trends for rehabilitation
and a more normalized market for tunneling. Backlog at
June 30, 1995 reflected a record level for the Company as
of the end of a third fiscal quarter.
Liquidity and Capital Resources
The Company's working capital at June 30, 1995 was $13.7
million, an increase of $2.1 million from September 30,
1994, representing a current ratio of 1.4-to-1 compared to
1.5-to-1 at fiscal year end. The decrease in the current
ratio at June 30, 1995 was primarily attributable to the
reclassification of the subordinated promissory note
as described below and in Note 7 of the Condensed
Consolidated Financial Statements included elsewhere
herein. For the nine months ended June 30, 1995, the
Company used approximately $271,000 in cash for operating
activities. The major uses of cash were an increase in
costs and estimated earnings in excess of billings on
uncompleted contracts of approximately $4.5 million
resulting from timing differences between the recognition
of costs incurred for two tunneling projects and one
corrosion and abrasion project, compared to the contractual
terms as to when the customer may be invoiced for work
completed. It is anticipated that a major portion of this
increase associated with these three projects will be
invoiced by the end of the fourth fiscal quarter.
Inventory increased approximately $1.6 million due
primarily to purchases pursuant to the Company's license
agreement for its PALTEM systems products and inventory
stocks associated with the commencement of limited
manufacturing operations for rehabilitation and corrosion
and abrasion protection products. Prepaid expenses and
other current assets increased approximately $900,000 with
the majority of the increase representing an insurance
claim receivable. Accrued expenses decreased $3.3 million
of which a major portion related to the completion of a
large construction project in Latin America.
As of June 30, 1995, approximately $1.1 million of cash
represented cash of foreign subsidiaries. Unremitted
earnings from foreign subsidiaries as of June 30, 1995
approximated $3.3 million. The Company does not provide
for federal income taxes on such unremitted earnings because
earnings are reinvested and, in the opinion of management
of the Company, will continue to be reinvested indefinitely.
Upon distribution of these earnings in the form of
-14-
<PAGE> 15
dividends or otherwise, the Company would be subject to
both U.S. income taxes and withholding taxes in the various
international jurisdictions. Withholding taxes would be
payable if all previously unremitted earnings were remitted
to the U.S. parent. A portion of all of such withholding
taxes may be offset as credits against U.S. income taxes
payable.
For the nine months ended June 30, 1995, the Company
recorded capital expenditures of approximately $5.3 million
of which approximately $2.1 million related to the
construction of a proposed new manufacturing facility and
$3.2 million was for equipment purchases.
On February 15, 1995, the Company entered into a new bank
credit agreement pursuant to which its short-term unsecured
working capital line of credit was increased to $20
million. Interest on the line of credit is payable, at the
Company's option, at the bank's prime rate or a rate tied to
LIBOR. The applicable interest rate was approximately 8.5%
per annum at June 30, 1995. The Company believes that the
existing line of credit and funds generated internally from
operations are adequate for the Company's current capital
needs.
On April 18, 1995, the Company completed the acquisition of
the pipeline rehabilitation business of ENVIROQ Corporation
("ENVIROQ"). Pursuant to the transaction, the Company paid
$15.25 million cash funded by a seven-year term loan from
the Company's banks. Principal payments of such loan
amortize at the rate of $1.5 million per year during the
term thereof. Under the term loan arrangement, the Company
granted first mortgages on various real estate it owns and
pledged all the shares of its U.S. subsidiaries and a
portion of the shares of its Canadian subsidiaries. The
term loan agreement contains customary representations and
warranties and affirmative and negative covenants,
including the maintenance of certain financial ratios, and
a prohibition on the payment of cash dividends in excess of
the dividend rate currently in effect, which dividend
payments require the lender's consent as a result of the
Company's transaction with ITI described below. In
addition, the Company issued a $3.0 million five-year
subordinated promissory note in consideration for a
covenant not to compete and entered into an agreement for
consulting services providing for the Company's payment of
$1.0 million over five years.
By letter, dated July 14, 1995, counsel for ENVIROQ
Corporation (formerly known as New ENVIROQ Corporation and
hereafter referred to as "New ENVIROQ") alleged that a
default had occurred with respect to the payment of the
interest due to New ENVIROQ on June 30, 1995 under the
Subordinated Promissory Note (the "Subordinated Note") in
the principal amount of $3.0 million issued by the Company
in April 1995 in connection with the acquisition described
in Note 5 (the "ENVIROQ Acquisition"). New ENVIROQ demanded
payment of such interest installment and purported to declare
the entire principal due and payable. The Company advised
New ENVIROQ that such purported acceleration was improper
and directed New ENVIROQ to withdraw it. On
-15-
<PAGE> 16
August 1, 1995, New ENVIROQ filed a lawsuit against the
Company in the Circuit Court of Jefferson County, Alabama,
seeking a judgment in respect of the Company's alleged
default under the Subordinated Note.
The Company denies liability to New ENVIROQ and intends to
vigorously defend the lawsuit and pursue claims against New
ENVIROQ arising out of the ENVIROQ Acquisition, including
ENVIROQ's obligations under the acquisition agreement. The
Company's senior lenders have waived the event of default
under the Company's principal financing agreements which
otherwise would have occurred as a result of New ENVIROQ's
actions in respect of the Subordinated Note. The Company
is seeking to negotiate a mutually acceptable resolution
regarding the status of the Subordinated Note. Pending
such resolution, the Company classified the obligation
as a current liability in the accompanying balance
sheet. In the Company's opinion, the ultimate
resolution thereof will not have a material adverse
effect upon the Company's financial condition or
results of operations.
See Note 3 of the Condensed Consolidated Financial
Statements included elsewhere herein for a description of
the moratorium on assertion of rights in dispute, including
with respect to the Insituform licenses of ENVIROQ's
subsidiaries as a result of the consummation of the ENVIROQ
acquisition without ITI's consent, and for information
concerning arbitration proceedings initiated by one of the
partners of MidSouth Partners (in which a subsidiary of the
Company acquired through ENVIROQ owns a 42.5% general
partnership interest) alleging an event of default by such
subsidiary. If the transaction with ITI described below is
not consummated, the Company and ITI anticipate that they
would engage in litigation arising out of the disputes
between the parties (including the ENVIROQ acquisition), if
they are unable to reach a mutually acceptable settlement.
The Company has entered into an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of May 23, 1995,
by and among the Company, ITI, and ITI Acquisition Corp.
("ITI Sub"), a wholly-owned subsidiary of ITI, providing
for the merger (the "Merger") of ITI Sub into the Company,
as a result of which the Company would become a wholly-
owned subsidiary of ITI. Pursuant to the terms of the
Merger Agreement, holders of the Class A Common Stock of
the Company will be entitled to receive 1.15 shares of
Class A Common Stock of ITI ("ITI Stock") for each share of
the Company's Class A Common Stock held. In connection
with the Merger, the holders of the Company's Class B
Common Stock have agreed to convert their shares into Class
A Common Stock on a share-for-share basis immediately prior
to the consummation of the Merger.
-16-
<PAGE> 17
It is anticipated that the Merger will constitute a tax-
free reorganization under federal income tax laws and,
accordingly, holders of the Company's Class A Common Stock
would not recognize taxable gain or loss upon their receipt
of ITI Stock in the Merger. In addition, it is anticipated
that the Merger would be accounted for using the pooling-
of-interests method of accounting.
Consummation of the Merger is subject to customary closing
conditions, including approval by the respective
stockholders of the Company and ITI. Pending completion of
the Merger, the Company and ITI agreed to certain covenants
relating to the operation of their respective businesses.
The Merger Agreement also provides that it may be
terminated prior to closing under certain circumstances,
including if the closing has not occurred by January 31,
1996.
The Company has deferred approximately $0.3 million of
expenses incurred through June 30, 1995 related to the
transaction, which will be expensed in the quarter in which
the transaction is complete. The Company anticipates that
the total amount of expenses exclusive of reorganization
costs related to the transaction (including amounts
deferred through June 30, 1995) will be approximately $2.5
million.
During April 1995, the Company commenced construction of a
manufacturing facility to produce materials used for
proprietary rehabilitation technologies, including those
licensed under its agreement with Ashimori Industry Co.,
Ltd. The Company acquired land adjacent to its
headquarters building in fiscal 1994 for the construction
of the facility. Prior to the execution of the Merger
Agreement, construction activities had progressed to site
excavation, completion of the foundation and erection of a
portion of the structural steel. To date the Company has
funded the land acquisition and construction expenditures
utilizing borrowings under its line of credit. As a result
of the Merger Agreement, the Company and ITI have discussed
the possible relocation of the planned manufacturing
processes to ITI's present facility. As of the date
hereof, the Company has not determined whether, in view of
the covenants contained in and consents required under the
Merger Agreement, to complete construction of the building
for use as a manufacturing facility or an office and
operations facility or whether to seek to dispose of the
property. It is anticipated that such determination will
be made in consultation with ITI based upon the perceived
needs of the proposed North American contracting operations
and the business plans of the combined companies after the
Merger. If the Company determines to utilize such
property in connection with its future operations, it would
expect to obtain long-term financing therefor, however, it
has abandoned its previous plans to utilize industrial
revenue bond financing for the project.
The Company has entered into certain license agreements to
offer pipeline rehabilitation technologies and anticipates
that it will have no difficulty exceeding its minimum
royalty requirements under its Insituform licenses
and its Ashimori license. Presently, the Company
-17-
<PAGE> 18
is pursuing product development and manufacturing for the
PALTEM process in the United States. The Company does not
believe that its commitments under its technology license
agreements will have a material adverse effect on its
income from operations in future periods.
Recently Issued Accounting Standard
In March 1995, the Financial Accounting Standards Board
issued FAS No. 121. FAS No. 121 requires that long-lived
assets, certain identifiable intangibles and goodwill to be
held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
FAS No. 121 is effective for the Company's fiscal year
1997. Management believes that the adoption of this
accounting standard will not have a material impact on its
operating results and financial condition.
-18-
<PAGE> 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
By letters, dated April 4, 1995, Insituform North
America Corp. and NuPipe, Inc., subsidiaries of
Insituform Technologies, Inc. ("ITI"), notified
Insituform Southeast, Inc. and NuPipe Southeast
Corporation, both subsidiaries of ENVIROQ
Corporation ("ENVIROQ"), that the ITI subsidiaries
refused to grant their consent under the Insituform
and NuPipe license agreements with the subsidiaries
of ENVIROQ to the transactions contemplated by the
acquisition agreement under which the Company
acquired the pipeline rehabilitation business of
ENVIROQ. On April 4, 1995, Insituform North America
Corp. and NuPipe, Inc. (collectively, the "ITI
Plaintiffs") filed a Complaint for Declaratory
Relief (the "Declaratory Action") against Insituform
Southeast, Inc., NuPipe Southeast Corporation,
ENVIROQ Corporation and the Company in the Chancery
Court for the Thirtieth Judicial District at
Memphis, Shelby County, Tennessee. In the
Declaratory Action, the ITI Plaintiffs are seeking
a declaratory judgment that they were within their
rights to refuse to consent under Insituform and
NuPipe licensee agreements with subsidiaries of
ENVIROQ, to the transactions contemplated by the
acquisition agreement, and that they possess all
legal rights under such agreements arising out of
the failure by the respective licensees to obtain
such consent. The defendants have caused the
Declaratory Action to be removed to Federal District
Court for the Western District of Tennessee.
Pursuant to agreements between the parties to the
Declaratory Action, the proceedings have been stayed
by Court order until the earlier to occur of the
completion of the proposed merger (the "Merger") of
the Company with ITI Acquisition Corp. as a result
of which the Company would become a wholly-owned
subsidiary of ITI (see Note 6 to the Condensed Consolidated
Financial Statements included elsewhere in this report),
or January 31, 1996. The parties also have agreed to take no
further legal action with respect to the ITI Plaintiffs'
failure to grant consent, in the Declaratory Action
or otherwise, through the earlier to occur of the
Merger or the termination of the related Agreement
and Plan of Merger prior to the Merger.
Insitu, Inc. ("Insitu"), one of the three partners
in MidSouth Partners, a Tennessee general
partnership, has filed a demand for arbitration
claiming that E-MidSouth, Inc. ("E-MidSouth"),
another partner in MidSouth Partners and a wholly-
owned subsidiary of Insituform Southeast, Inc. (an
indirect wholly-owned subsidiary of the Company),
has breached the partnership agreement by ENVIROQ's
entering into the acquisition agreement with the
Company. E-MidSouth denies that it has breached the
partnership agreement. The arbitration proceeding
has been stayed until September 1, 1995 by consent
of the parties.
Pursuant to citations issued December 15, 1993, the
Occupational Safety and Health Administration,
Kansas City Area Office ("OSHA"), alleged that the
Company and its subsidiaries violated certain
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<PAGE> 20
provisions of the Occupational Safety and Health Act
of 1970 in connection with rehabilitation activities
in Kansas City, Missouri in June 1993. The allegations
related to an accident in which one of the employees of a
Company subsidiary was swept away and drowned in a flash
flood resulting from a sudden and torrential thunderstorm.
OSHA alleged that the subsidiary's safety procedures were
inadequate and assessed penalties aggregating approximately
$1 million. The Company believes that OSHA's allegations
neither accurately reflected the facts and circumstances of
the accident nor accurately characterized the Company's
strong safety program and commitment thereto. The Company
cooperated fully with OSHA in its investigation and
does not believe that the allegations were
warranted. To avoid the costs and uncertainties of
defending the citations in adversarial proceedings,
the Company settled this claim in July 1995 by
agreeing to pay OSHA an aggregate of $325,000 in
equal semi-annual installments through January 1997.
Pursuant to a Complaint filed August 1, 1995,
ENVIROQ Corporation ("ENVIROQ") initiated an action
in the Circuit Court of Jefferson County, Alabama,
for a judgment on the $3.0 million Subordinated
Promissory Note (the "Subordinated Note") issued in
connection with the Company's acquisition of
Insituform Southeast, Inc. and related corporations
in April 1995 (the "ENVIROQ Acquisition"). ENVIROQ
claims that the Company is in default under the
Subordinated Note. The Company denies liability and
intends to vigorously defend the suit and pursue
claims against ENVIROQ arising out of the ENVIROQ
Acquisition, including ENVIROQ's obligations under
the acquisition agreement. In the Company's
opinion, the ultimate resolution of this litigation
will not have a material adverse effect upon the
Company's financial condition or results of
operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
2.1 Merger Agreement, dated as of
November 2, 1994, by and among the registrant, IMA
Merger Sub, Inc., ENVIROQ Corporation and New
ENVIROQ Corporation, filed as Exhibit 10.6 to
registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994, is
incorporated by reference herein.
2.2 Agreement and Plan of Merger, dated
as of May 23, 1995, by and among the registrant,
Insituform Technologies, Inc. and ITI Acquisition
Corp., filed as Exhibit No. 2 to registrant's
Current Report on Form 8-K dated May 23, 1995, is
incorporated by reference herein.
3.1 Registrant's Certificate of
Incorporation and amendments thereto filed as
Exhibit 3.1 to registrant's Registration Statement
on Form S-1 (Reg. No. 33-10771) is incorporated by
reference herein.
-20-
<PAGE> 21
3.2 Registrant's By-Laws, as currently in
effect, filed as Exhibit No. 3.2 to registrant's
Registration Statement on Form S-1 (Reg. No. 33-
10771) are incorporated by reference herein.
4 Form of Conversion Letter, dated May
23, 1995, by and among the registrant, Insituform
Technologies, Inc. and the holders of the
registrant's Class B Common Stock with respect to
the conversion of the shares of Class B Common Stock
into shares of Class A Common Stock, filed as
Exhibit 4.1 to registrant's Current Report on Form
8-K dated May 23, 1995, is incorporated by reference
herein.
10.1 Credit Agreement, dated as of
February 15, 1995, by and among the registrant, The
Boatmen's National Bank of St. Louis and Mark Twain
Bank filed as Exhibit 10.1 to registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995, is incorporated by reference herein.
10.2 Term Loan Agreement, dated April 18,
1995, by and among the registrant, The Boatmen's
National Bank of St. Louis and Mark Twain Bank filed
as Exhibit 10.2 to registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, is
incorporated by reference herein.
10.3 Promissory Note, dated February 15,
1995, issued by the registrant to The Boatmen's
National Bank of St. Louis filed as Exhibit 10.3 to
registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, is incorporated by
reference herein.
10.4 Promissory Note, dated February 15,
1995, issued by the registrant to Mark Twain Bank
filed as Exhibit 10.4 to registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995, is incorporated by reference herein.
10.5 Term Note, dated April 18, 1995,
issued by the registrant to The Boatmen's National
Bank of St. Louis filed as Exhibit 10.5 to
registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, is incorporated by
reference herein.
10.6 Term Note, dated April 18, 1995,
issued by the registrant to Mark Twain Bank filed as
Exhibit 10.6 to registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, is
incorporated by reference herein.
10.7 Stock Pledge Agreement, dated April
18, 1995, by and between the registrant and The
Boatmen's National Bank of St. Louis filed as
Exhibit 10.8 to registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, is
incorporated by reference herein.
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<PAGE> 22
10.8 Consulting Agreement, dated April 18,
1995, by and between the registrant and New ENVIROQ
Corporation is filed herewith.
10.9 Covenant Not to Compete, dated April
18, 1995, by and among the registrant, New ENVIROQ
Corporation, Marinelli Securities Associates and
SCE, Incorporated filed as Exhibit 10.9 to
registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, is incorporated by
reference herein.
10.10 Employment Agreement, dated
April 18, 1995, by and between the registrant and
James J. Baird, Jr. filed as Exhibit 10.10 to
registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, is incorporated by
reference herein.
10.11 Amended and Restated Cooperation
Agreement, dated as of April 28, 1995, among the
registrant, Insituform Technologies, Inc. and IMA
Merger Sub, Inc. filed as Exhibit 10.11 to
registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, is incorporated by
reference herein.
10.12 Standard Form of Agreement
between Owner and Contractor, dated March 1995, by
and between the registrant and Turner Construction
Company filed as Exhibit 10.12 to registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, is incorporated by reference herein.
10.13 Subordinated Promissary Note, dated
April 18, 1995, issued by the registrant to New
ENVIROQ Corporation, filed as Exhibit 10.7 to
registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995 is incorporated by
reference herein.
10.14 First Amendment to Credit Agreement,
dated as of April 24, 1995, by and among the
registrant, The Boatmen's National Bank of St. Louis
and Mark Twain Bank is filed herewith.
27 Financial Data Schedule
(b) Reports on Form 8-K: The registrant filed a report
on Form 8-K on April 28, 1995 to report pursuant to
Item 2. of Form 8-K the acquisition of all the
outstanding stock of ENVIROQ Corporation. Such
report subsequently was amended by Amendment No. 1
on Form 8K/A filed on July 3, 1995. The registrant
also filed a report on Form 8-K on June 2, 1995 to
report pursuant to Item 1 of Form 8-K the execution
of an Agreement and Plan of Merger among the
registrant, Insituform Technologies, Inc. and ITI
Acquisition Corp.
-22-
<PAGE> 23
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 MID-AMERICA, INC.
----------------------------
(Registrant)
Date August 14, 1995 /s/ Jerome Kalishman
------------------------- ----------------------------
Jerome Kalishman
Chairman of the Board
Date August 14, 1995 /s/ Joseph F. Olson
------------------------- ----------------------------
Joseph F. Olson
Chief Financial Officer
-23-
<PAGE> 24
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Merger Agreement, dated as of November 2, 1994, by and
among the registrant, IMA Merger Sub, Inc., ENVIROQ
Corporation and New ENVIROQ Corporation, filed as Exhibit
10.6 to registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994, is incorporated
by reference herein.
2.2 Agreement and Plan of Merger, dated as of May 23, 1995,
by and among the registrant, Insituform Technologies, Inc.
and ITI Acquisition Corp., filed as Exhibit No. 2 to
registrant's Current Report on Form 8-K dated May 23,
1995, is incorporated by reference herein.
3.1 Registrant's Certificate of Incorporation and amendments
thereto filed as Exhibit 3.1 to registrant's Registration
Statement on Form S-1 (Reg. No. 33-10771) is incorporated
by reference herein.
3.2 Registrant's By-Laws, as currently in effect, filed as
Exhibit No. 3.2 to registrant's Registration Statement
on Form S-1 (Reg. No. 33-10771) are incorporated by
reference herein.
4 Form of Conversion Letter, dated May 23, 1995, by and
among the registrant, Insituform Technologies, Inc. and
the holders of the registrant's Class B Common Stock with
respect to the conversion of the shares of Class B Common
Stock into shares of Class A Common Stock, filed as
Exhibit 4.1 to registrant's Current Report on Form 8-K
dated May 23, 1995, is incorporated by reference herein.
10.1 Credit Agreement, dated as of February 15, 1995, by and
among the registrant, The Boatmen's National Bank of St.
Louis and Mark Twain Bank filed as Exhibit 10.1 to
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, is incorporated by reference herein.
10.2 Term Loan Agreement, dated April 18, 1995, by and among
the registrant, The Boatmen's National Bank of St. Louis
and Mark Twain Bank filed as Exhibit 10.2 to registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, is incorporated by reference herein.
10.3 Promissory Note, dated February 15, 1995, issued by the
registrant to The Boatmen's National Bank of St. Louis
filed as Exhibit 10.3 to registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, is
incorporated by reference herein.
-24-
<PAGE> 25
10.4 Promissory Note, dated February 15, 1995, issued by the
registrant to Mark Twain Bank filed as Exhibit 10.4 to
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, is incorporated by reference herein.
10.5 Term Note, dated April 18, 1995, issued by the registrant
to The Boatmen's National Bank of St. Louis filed as
Exhibit 10.5 to registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, is incorporated by
reference herein.
10.6 Term Note, dated April 18, 1995, issued by the registrant
to Mark Twain Bank filed as Exhibit 10.6 to registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, is incorporated by reference herein.
10.7 Stock Pledge Agreement, dated April 18, 1995, by and
between the registrant and The Boatmen's National Bank of
St. Louis filed as Exhibit 10.8 to registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995,
is incorporated by reference herein.
10.8 Consulting Agreement, dated April 18, 1995, by and between
the registrant and New ENVIROQ Corporation is filed
herewith.
10.9 Covenant Not to Compete, dated April 18, 1995, by and
among the registrant, New ENVIROQ, Inc., Marinelli
Securities Associates and SCE, Incorporated filed as
Exhibit 10.9 to registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, is incorporated by
reference herein.
10.10 Employment Agreement, dated April 18, 1995, by and between
the registrant and James J. Baird, Jr. filed as Exhibit
10.10 to registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, is incorporated by
reference herein.
10.11 Amended and Restated Cooperation Agreement, dated as of
April 28, 1995, among the registrant, Insituform
Technologies, Inc. and IMA Merger Sub, Inc. filed as
Exhibit 10.11 to registrant's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1995, is incorporated by
reference herein.
10.12 Standard Form of Agreement between Owner and Contractor,
dated March 1995, by and between the registrant and Turner
Construction Company filed as Exhibit 10.12 to
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, is incorporated by reference herein.
10.13 Subordinated Promissary Note, dated April 18, 1995,
issued by the registrant to New ENVIROQ Corporation,
filed as Exhibit 10.7 to registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1995 is incorporated by reference herein.
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<PAGE> 26
10.14 First Amendment to Credit Agreement, dated as of April 24,
1995, by and among the registrant, The Boatmen's National
Bank of St. Louis and Mark Twain Bank is filed herewith.
27 Financial Data Schedule
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</TABLE>
<PAGE> 1
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT ("Agreement") is made and executed this 18th
day of April, 1995, by and between INSITUFORM Mid-America, Inc., a Delaware
corporation ("Mid-America"), and New Enviroq Corporation, a Delaware
corporation, ("Consultant").
W I T N E S S E T H:
WHEREAS, Mid-America is engaged in the business of rehabilitating,
lining, relining, coating, constructing and reconstructing pipelines, sewers,
conduits and passageways throughout the world; and
WHEREAS, Mid-America and Consultant desire to enter into a Consulting
Agreement on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutually dependent covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Retention of Services. Mid-America hereby retains the consulting
---------------------
services of Consultant, and Consultant agrees to provide consulting services
to Mid-America, under the terms and conditions set forth herein.
2. Term. This Agreement shall become effective on the date hereof and
----
shall remain in full force and effect for a period of five (5) years,
commencing on the date hereof.
3. Compensation. Mid-America shall pay to Consultant for its services
------------
hereunder, and Consultant shall accept for such services, the sum of Two
Hundred Thousand Dollars ($200,000.00) per annum, payable on or before April
18 of each consecutive year beginning April 18, 1996 (for an aggregate
payment amount of $1,000,000.00). Compensation payable hereunder shall be
subject to a right of offset by Mid-America pursuant to Section 2.13 of a
Merger Agreement between Mid-America, Consultant and Enviroq Corporation
dated November 2, 1994 and to which a form of this Agreement is annexed
as an Exhibit.
4. Duties. Consultant shall, at any reasonable time, as specified
------
below, and from time to time during the term hereof, as Mid-America may
reasonably request, consult with, advise and otherwise assist the officers
and administrative employees of Mid-America and its subsidiaries with
respect to any phase of the business conducted by Mid-America. Without
limiting the foregoing, Consultant shall consult with and assist
Mid-America with respect to its cured in place or folded and formed
underground pipeline replacement business activities. The availability
of Consultant to perform the duties set forth hereunder shall at all
times be subject to the health, the health of family members, personal
vacation and travel schedule, and other business beyond the control of
<PAGE> 2
representatives of Consultant and their non-availability under any of
such situations shall not be deemed a default by Consultant under this
Agreement.
5. Reimbursement of Expenses. In the event that Mid-America shall
-------------------------
specifically request Consultant to perform services that require its
representatives to travel outside the metropolitan area of their principal
residence, or incur other expenses, Mid-America shall reimburse Consultant
for all reasonable expenses so incurred.
6. Relationship Between Parties. The parties intend that the
----------------------------
relation between them created by this Agreement is that of contractor
(Mid-America) and independent consultant (Consultant). No agent, employee,
or servant of Mid-America shall be deemed to be the employee, agent, or
servant of Consultant solely because of his or her relationship with
Consultant, and none of the benefits provided by Mid-America to its
employees, including, but not limited to, workers' compensation insurance
and unemployment insurance, are available from Mid-America to Consultant.
7. Governing Law. The validity, interpretation and construction of
-------------
this Agreement will be governed by the laws of the state of Delaware.
8. Amendment. This Agreement may be amended only by an instrument in
---------
writing executed by both of the parties hereto.
9. Assignment. This Agreement shall not be assignable by either party.
----------
10. Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding among the parties hereto with respect to the subject matter
hereof, and supersedes any prior negotiations, agreements, understandings or
arrangements among the parties hereto with respect to the subject matter
hereof.
11. Waivers. Compliance with the provisions of this Agreement may be
-------
waived only by an instrument in writing executed by the party granting the
waiver.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
INSITUFORM MID-AMERICA, INC.
By: /s/ Jerome Kalishman
---------------------------------
--------------------------
Its Chairman
-------------------
"Mid-America"
-2-
<PAGE> 3
NEW ENVIROQ CORPORATION
By: /s/ William J. Long
---------------------------------
William J. Long
--------------------------
Its President
-------------------
"Consultant"
-3-
<PAGE> 1
FIRST AMENDMENT
TO
CREDIT AGREEMENT
This First Amendment to Credit Agreement (this "Amendment"), made and
entered into effective as of the 24th day of April, 1995, by and among
INSITUFORM MID-AMERICA, INC., a Delaware corporation ("Borrower"), THE
BOATMEN'S NATIONAL BANK OF ST. LOUIS and MARK TWAIN BANK, as lenders
("Lenders") and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, as agent ("Agent").
RECITALS:
A. Borrower and Lenders have entered into that certain Credit Agreement
dated as of February 15, 1995 (the "Loan Agreement") pursuant to which
Lenders have extended a $20,000,000 revolving credit facility to
Borrower.
B. Borrower has requested that Lenders amend the Loan Agreement to remove
United Pipeline Systems, Inc. as a Guarantor. Lenders are willing to do
so, subject to the terms and conditions set forth herein.
In consideration of the mutual covenants and promises contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and Lenders hereby agree as follows:
1. DEFINITIONS. All capitalized terms used and not otherwise defined herein
shall have the meanings given them in the Loan Agreement.
2. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is hereby amended
as follows:
2.1 GUARANTORS. Section 1.10 of the Loan Agreement is hereby deleted
in its entirety and the following is substituted in lieu thereof:
"1.10 GUARANTORS. "Guarantors" shall mean the present subsidiaries
of the Borrower, including but not limited to: Affholder, Inc.,
Insituform Central, Inc., Insituform Missouri, Inc., Insituform North,
Inc., Insituform Plains, Inc., Insituform de Puerto Rico, Inc.,
Insituform Rockies, Inc., Insituform Texark, Inc., PALTEM Systems, Inc.,
and United Pipeline Systems USA, Inc. "Guarantors" shall not include
United Pipeline Systems, Inc."
3. RETURN OF GUARANTY. Promptly after the execution of this Amendment by
Borrower, Bank shall return to Borrower the original, executed Guaranty of
United Pipeline Systems, Inc.
4. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby represents
and warrants to Lenders that (i) this Amendment has been duly authorized by
Borrower's board of directors, (ii) no consents are necessary from any third
parties for Borrower's execution, delivery or performance of this Amendment,
(iii) this Amendment constitutes the legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except
to the extent that the enforceability thereof against Borrower may be
limited by bankruptcy, insolvency, fraudulent conveyance,
<PAGE> 2
reorganization, moratorium or similar laws affecting the enforceablity of
creditors' rights generally or by equitable principles of general application
(whether considered in an action at law or in equity), (iv) except as
disclosed on the disclosure schedule attached to the Loan Agreement, all of
the representations and warranties contained in Section 4 of the Loan
---------
Agreement, as amended by this Amendment, are true and correct in all material
respects with the same force and effect as if made on and as of the date of
this Amendment, and (v) there exists no Default or Event of Default under the
Loan Agreement, as amended by this Amendment.
5. EFFECT ON LOAN DOCUMENTS. Except as specifically amended hereby, the
Loan Documents shall remain in full force and effect and are hereby ratified
and confirmed in all respects. The execution, delivery and effectiveness of
this Amendment shall not operate as a waiver of any right, power or remedy
of Lenders under the Loan Documents, nor constitute a waiver of any provision
of the Loan Documents except as specifically set forth herein. Upon the
effectiveness of this Amendment, each reference in the Loan Agreement to
"the Agreement", "hereunder", "hereof", "herein", or words of like import,
shall mean and be a reference to the Loan Agreement, as amended hereby.
6. REAFFIRMATION. Borrower hereby ratifies, affirms, acknowledges, and
agrees that the Loan Agreement (as amended by this Amendment) represents the
valid, enforceable and collectible obligations of Borrower, and Borrower
further acknowledges that there are no existing claims, defenses, personal
or otherwise, or rights of setoff whatsoever known to Borrower with respect
to any of the Loan Documents.
7. GOVERNING LAW. This Amendment has been delivered in St. Louis, Missouri
and shall be governed by and construed in accordance with the laws and
decisions of the State of Missouri without giving effect to the choice or
conflicts of law principles thereunder.
8. SECTION TITLES. The section titles contained in this Amendment are
and shall be without substance, meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
9. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, and on separate counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
[rest of page is intentionally blank]
-2-
<PAGE> 3
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first above written.
INSITUFORM MID-AMERICA, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
AS AGENT AND A LENDER
By:___________________________________
Name:_________________________________
Title:________________________________
MARK TWAIN BANK, AS A LENDER
By:___________________________________
Name:_________________________________
Title:________________________________
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Insituform
Mid-America, Inc. Condensed Consolidated Balance Sheet at June 30, 1995,
and from the Condensed Consolidated Statement of Earnings and Condensed
Consolidated Statement of Cash Flows for the nine months ended June 30, 1995,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 2,924,814
<SECURITIES> 0
<RECEIVABLES> 16,857,017
<ALLOWANCES> 0
<INVENTORY> 5,376,083
<CURRENT-ASSETS> 44,776,482
<PP&E> 51,116,101
<DEPRECIATION> 21,979,637
<TOTAL-ASSETS> 91,920,053
<CURRENT-LIABILITIES> 31,063,658
<BONDS> 14,024,344
<COMMON> 107,830
0
0
<OTHER-SE> 43,424,154
<TOTAL-LIABILITY-AND-EQUITY> 91,920,053
<SALES> 77,611,419
<TOTAL-REVENUES> 77,611,419
<CGS> 57,270,715
<TOTAL-COSTS> 68,418,519
<OTHER-EXPENSES> (332,231)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 782,679
<INCOME-PRETAX> 8,742,452
<INCOME-TAX> 2,972,435
<INCOME-CONTINUING> 4,955,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,955,516
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
