<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27986
ITEQ, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1667001
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
2727 ALLEN PARKWAY, SUITE 760, HOUSTON, TEXAS 77019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 713-285-2700
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date.
28,157,592
(Shares of common stock outstanding as of July 28, 1998)
================================================================================
<PAGE> 2
ITEQ, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998
(unaudited) 3
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 1997 (unaudited) and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1997 (unaudited) and 1998 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION 15
</TABLE>
2
<PAGE> 3
ITEQ, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 9,681 $ 3,095
Due on contracts and other receivables, net 72,140 75,255
Unbilled revenues 741 1,483
Costs and estimated earnings in excess of billings on uncompleted contracts 30,164 35,454
Inventories 13,138 17,866
Prepaid expenses, deposits and other assets 3,538 5,271
Deferred tax asset 7,589 4,362
Assets held for sale 2,925 2,925
--------- ---------
Total current assets 139,916 145,711
Property and equipment, net 42,198 50,673
Other assets, net 79,373 99,374
--------- ---------
TOTAL ASSETS $ 261,487 $ 295,758
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 24,861 $ 23,363
Accrued liabilities
Job costs 9,498 6,833
Accrued compensation and benefits 6,077 4,743
Accrued expenses and other current liabilities 25,634 19,170
Billings in excess of costs and estimated earnings on uncompleted contracts 8,194 6,440
Progress billings 579 1,076
Current maturities of long-term debt 104 81
Income taxes payable 438 438
--------- ---------
Total current liabilities 75,385 62,144
LONG-TERM LIABILITIES
Long-term obligations, less current maturities 89,954 120,302
Deferred tax liability 4,760 4,760
--------- ---------
Total Liabilities 170,099 187,206
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000 shares authorized, no shares issued
or outstanding -- --
Common stock, $.001 par value, 40,000 shares authorized:
26,912 shares issued and outstanding at December 31, 1997 and
28,287 shares issued at June 30, 1998 27 28
Additional paid-in capital 119,823 130,755
Treasury stock, at cost, 121 shares at June 30, 1998 -- (874)
Retained earnings (deficit) (27,644) (20,289)
Translation adjustment (818) (1,068)
--------- ---------
Total Stockholders' Equity 91,388 108,552
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 261,487 $ 295,758
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
ITEQ, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 78,210 $ 91,210 $ 152,289 $ 174,893
Cost of revenues 60,052 70,609 117,008 133,969
Selling, general and administrative expenses 10,425 10,299 20,302 20,973
Depreciation and amortization 1,882 2,043 3,600 3,984
Merger and acquisition costs -- 845 -- 1,039
--------- --------- --------- ---------
Operating profit 5,851 7,414 11,379 14,928
--------- --------- --------- ---------
Interest expense, net (1,540) (1,386) (3,397) (2,977)
Miscellaneous income, net 124 203 237 347
--------- --------- --------- ---------
Earnings from continuing operations
before income tax provision 4,435 6,231 8,219 12,298
Income tax provision 1,648 2,274 3,169 4,488
--------- --------- --------- ---------
Earnings from continuing operations 2,787 3,957 5,050 7,810
--------- --------- --------- ---------
Loss from discontinued operations, net of income tax
benefit (466) (455) (824) (455)
--------- --------- --------- ---------
Net earnings $ 2,321 $ 3,502 $ 4,226 $ 7,355
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE:
Earnings from continuing operations $ .12 $ .15 $ .23 $ .29
Loss from discontinued operations $ (.02) $ (.02) $ (.04) $ (.02)
--------- --------- --------- ---------
Net earnings per common share $ .10 $ .13 $ .19 $ .27
========= ========= ========= =========
Weighted average common shares outstanding 23,053 27,422 21,949 27,205
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings from continuing operations $ .12 $ .14 $ .22 $ .28
Loss from discontinued operations $ (.02) $ (.02) $ (.04) $ (.02)
--------- --------- --------- ---------
Net earnings per common share $ .10 $ .12 $ .18 $ .26
========= ========= ========= =========
Weighted average common and common
Equivalent shares outstanding 24,363 28,798 22,881 28,634
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
ITEQ, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,226 $ 7,355
Adjustments to reconcile net earnings to net cash provided (used)
by operating activities:
Non-cash interest 436 80
Depreciation and amortization 3,797 3,984
Provision for deferred income taxes 1,465 3,694
Changes in assets and liabilities:
Due on contracts and other receivables 135 668
Inventories 5,218 (1,854)
Costs and estimated earnings in excess of billings on
uncompleted contracts (297) (5,304)
Prepaid expenses, deposits and other assets (440) (1,600)
Accounts payable and accrued liabilities (7,579) (19,207)
Billings in excess of costs and estimated earnings on
uncompleted contracts 872 (1,743)
Progress billings 239 497
Other (613) (617)
-------- --------
Net cash provided by operating activities 7,459 (14,047)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired businesses, net of cash acquired (10,958) (23,055)
Contingent purchase consideration paid (2,190) --
Cash received from sales of land, buildings & equipment 82 --
Purchases of property and equipment (2,139) (2,524)
-------- --------
Net cash used by investing activities (15,205) (25,579)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term obligations 1,000 --
Net borrowings (payments) under line of credit (27,411) 31,648
Net proceeds from common stock offering 31,795 --
Proceeds from exercise of stock options and warrants 1,568 2,495
Purchase of treasury stock -- (874)
Other (8) --
-------- --------
Net cash provided by financing activities 6,944 33,269
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (67) (229)
-------- --------
Net decrease in cash and cash equivalents (869) (6,586)
Cash and cash equivalents, beginning of period 6,331 9,681
-------- --------
Cash and cash equivalents, end of period $ 5,462 $ 3,095
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Common stock issued as part of purchase price of GLM $ -- $ 8,438
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with regulation S-X pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position as of June 30,
1998, the results of operations for the three and six months ended June 30, 1997
and 1998, and the cash flows for the six months ended June 30, 1997 and 1998.
The unaudited consolidated financial statements include the accounts of
ITEQ, Inc. and its wholly-owned subsidiaries ("ITEQ" or the "Company").
Significant intercompany balances and transactions have been eliminated. Certain
reclassifications have been made to the prior period's consolidated financial
statements to conform with the current period presentation.
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Weighted average number of shares of common stock outstanding for diluted
earnings per share includes the dilutive effect of common stock equivalents. The
only reconciling difference between the numerators and denominators for basic
and diluted earnings per share is the impact of common stock options and
warrants outstanding calculated using the treasury stock method.
The Company implemented Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," effective January 1, 1998. This standard
requires that all items required to be recognized under this standard as
components of comprehensive income, such as the Company's foreign currency
translation adjustments, be reported in a financial statement. The Company's
comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- ---------------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 2,321 $ 3,502 $ 4,226 $ 7,355
Foreign currency
translation adjustments (85) (160) (510) (250)
------- ------- ------- -------
Total $ 2,236 $ 3,342 $ 3,716 $ 7,105
======= ======= ======= =======
</TABLE>
6
<PAGE> 7
ITEQ. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2 - DUE ON CONTRACTS AND OTHER RECEIVABLES
At December 31, 1997, and June 30, 1998, due on contracts and other
receivables consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
<S> <C> <C>
Billings on completed contracts and contracts in progress $ 68,522 $ 71,744
Retained contract receivables 4,599 4,339
Allowance for doubtful accounts (981) (828)
-------- --------
Total $ 72,140 $ 75,255
======== ========
</TABLE>
NOTE 3 - INVENTORIES
Inventories consist of costs for which no related revenue has been
recognized. Inventories include materials used in the manufacturing process, and
purchased parts and are valued at the lower of cost or market. Cost is
determined by the average cost for materials and the first-in, first-out (FIFO)
method for purchased parts. At December 31, 1997 and June 30, 1998, inventories
consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
<S> <C> <C>
Raw materials $ 6,910 $ 7,114
Work in progress 5,027 10,176
Finished goods 1,201 576
------- -------
Total $13,138 $17,866
======= =======
</TABLE>
NOTE 4 - OTHER ASSETS
At December 31, 1997 and June 30, 1998, other assets consist of the
following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
<S> <C> <C>
Excess of costs over net assets acquired, net of accumulated
amortization of $7,787 and $ 8,959 at December 31, 1997
and June 30, 1998, respectively $65,867 $86,567
Licenses, trademarks and tradenames, net of accumulated
amortization of $1,639 and $1,910 at December 31, 1997 and
June 30, 1998, respectively 11,607 11,280
Other 1,899 1,527
------- -------
Total $79,373 $99,374
======= =======
</TABLE>
NOTE 5 - BUSINESS ACQUISITIONS
On October 28, 1997, the Company issued approximately 9,541 shares of
ITEQ common stock in exchange for all the outstanding shares of Astrotech
International Corporation ("Astrotech") common stock. The merger has been
accounted for as a pooling-of-interests and, accordingly, the Company's
consolidated financial statements have been restated to include the accounts and
operations of Astrotech. In addition, all outstanding options to purchase
Astrotech common stock were converted into options to
7
<PAGE> 8
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
purchase shares of ITEQ common stock, as adjusted for the exchange ratio. In
connection with the merger, the Company amended and restated its Certificate of
Incorporation to, among other things, increase its authorized shares of common
stock from 30,000 to 40,000.
Effective April 1, 1998, the Company purchased the assets of Reliable
Steel Fabricators, Inc. ("Reliable") for approximately $4,000 in cash. This
acquisition has been accounted for as a purchase, and accordingly, the results
of operations have been included in the Company's financial statements from
April 1, 1998 forward. Reliable is a manufacturer of storage tanks serving the
Pacific Northwest.
Effective June 1, 1998, the Company purchased the assets of G.L.M.
Tanks and Equipment, Ltd. ("GLM"), a Canadian company, for a total purchase
price of approximately $28,500, consisting of 796 shares of the Company's common
stock, valued at approximately $8,400, and cash consideration of approximately
$20,100. This acquisition has been accounted for as a purchase, and accordingly,
the results of operations have been included in the Company's financial
statements from June 1, 1998 forward. GLM is a manufacturer of storage tanks and
process equipment in western Canada.
NOTE 6 - MERGER AND ACQUISITION COSTS
Merger, acquisition and restructuring costs of $194 for the three
months ended March 31, 1998 relate to the terminated purchase agreement with
Matrix Service Company. Merger and acquisition costs of $845 for the three
months ended June 30, 1998 relate primarily to the termination of the proposed
tender offer for McConnell Dowell Corporation Limited.
NOTE 7 - DISCONTINUED OPERATIONS
During August 1997 and effective on August 31, 1997, management of ITEQ
adopted plans to discontinue certain of its low margin generic fabrication
operations at its Allied subsidiary. Certain of the net assets of Allied's
operations will be liquidated as remaining orders in process are completed. The
estimated completion date of the net asset liquidation is the third quarter of
1998. The net assets of Allied of $ 3,075 are included in the June 30, 1998
consolidated balance sheet. Management believes the recorded liability for the
estimated loss on disposal of discontinued operations is adequate. The adequacy
of this liability is evaluated each quarter.
Operating losses during the phase out period have been included in the
loss on disposal of discontinued operations. Losses before tax of $3,454 have
been incurred through June 30, 1998. The loss from discontinued operations
included in the statement of operations is reflected net of the effective income
tax rate for the applicable period. Interest expense has been allocated based on
intercompany debt balances. After-tax interest expense of $262 has been included
in the estimated loss on disposal for the six months ended June 30, 1998.
Discontinued operations have not been separated in the consolidated statements
of cash flows and, therefore, amounts for certain captions will not agree with
the respective consolidated statements of operations. The discontinued
operations accrual was increased by $455, net of $256 income tax benefit, in the
second quarter of 1998.
8
<PAGE> 9
NOTE 8 - COMMON STOCK
In May 1997, the Company sold approximately 5,058 shares of ITEQ common
stock. The primary use of the offering proceeds of approximately $31,795 was to
reduce debt incurred for the Company's acquisition program.
9
<PAGE> 10
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
GENERAL
Since its inception in 1990 the Company has experienced substantial
growth through a combination of strategic acquisitions and internal growth. Due
to the magnitude of these acquisitions and the integration of the acquired
operations with the Company's existing businesses, results of operations for
prior periods are not necessarily comparable with or indicative of results of
operations for current or future periods.
The Company records substantially all revenues using the
percentage-of-completion method. Under this method, the Company recognizes as
revenues that portion of the total contract price which the cost of work
completed to date bears to the estimated total cost of the work included in the
contract. Because contracts may extend over more than one fiscal period,
revisions of cost and profit estimates are made periodically and are reflected
in the accounting period in which they are determined. If the estimate of total
costs on a contract indicates a loss, the total anticipated loss is recognized
immediately. Contract costs include all direct material, labor and
subcontracting costs and those indirect costs related to contract performance,
such as supplies, tools and repairs.
The Company recognizes revenue from certain short-term contracts using
the completed contract method. Revenue is recognized when a project is
substantially complete. The contracts under this revenue recognition method are
typically less than three months in duration.
The Company historically has experienced quarterly fluctuations in its
operating results. Operating results in any quarter are dependent upon the
timing of equipment and system sales, which may vary considerably among periods.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenues
Revenues for the three months ended June 30, 1998 increased $13,000 to
$91,210 from $78,210 for the three months ended June 30, 1997 primarily due to
the May 1997 acquisition of Trusco Tank, Inc. ("Trusco") and the August 1997
acquisition of Exell, Inc. ("Exell"), the April 1998 acquisition of Reliable
Steel Fabricators, Inc. ("Reliable") and the June 1998 acquisition of G.L.M.
Tanks and Equipment, Ltd. ("GLM"), and internal growth of the storage systems
group, partially offset by decreased revenues for the filtration group and
Graver Tank & Mfg. Co. Inc. ("Graver").
Cost of Revenues
Cost of revenues for the three months ended June 30, 1998 increased
$10,557 to $70,609 from $60,052 primarily due to the increased revenues as
discussed above.
10
<PAGE> 11
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended
June 30, 1998 decreased by $126 to $10,299 from $10,425.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended June
30, 1998 increased from $1,882 to $2,043 primarily due to the Trusco, Exell,
Reliable and GLM acquisitions.
Merger and Acquisition Costs
Merger and acquisition costs of $845 for the three months ended June
30, 1998 relate primarily to the termination of the proposed tender offer for
McConnell Dowell Corporation Limited.
Interest Expense, net
Interest expense for the three months ended June 30, 1998 and 1997 was
$1,386 and $1,540, respectively. The decrease in interest expense reflects the
application of the net proceeds of the May 1997 stock offering to reduce debt
and the refinancing of existing credit facilities in October 1997 in connection
with the merger with Astrotech International Corporation ("Astrotech").
Income Taxes
The effective tax rate for the three months ended June 30, 1998 and
1997 was approximately 36% and 37%, respectively.
Discontinued Operations
During August 1997 and effective on August 31, 1997, management of ITEQ
adopted plans to discontinue certain of its low margin generic fabrication
operations at its Allied subsidiary. Certain of the net assets of Allied's
operations will be liquidated as remaining orders in process are completed. The
estimated completion date of the net asset liquidation is the third quarter of
1998. The loss from discontinued operations for the three months ended June 30,
1997 and June 30, 1998 was $466 and $455, respectively, net of $259 and $256
income tax benefit, respectively.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues
Revenues for the six months ended June 30, 1998 increased $22,604 to
$174,893 from $152,289 for the six months ended June 30, 1997 primarily due to
the May 1997 acquisition of Trusco, the August 1997 acquisition of Exell, the
April 1998 acquisition of Reliable and the June 1998 acquisition of GLM, and
internal growth of the storage systems group, partially offset by decreased
revenues for the filtration group and Graver.
Cost of Revenues
Cost of revenues for the six months ended June 30, 1998 increased
$16,961 to $133,969 from $117,008 primarily due to the increased revenues as
discussed above.
11
<PAGE> 12
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended
June 30, 1998 increased by $671 to $20,973 from $20,302 which was primarily
attributable to acquisitions.
Depreciation and Amortization
Depreciation and amortization expense for the six months ended June 30,
1998 increased by $384 from $3,600 to $3,984 primarily due to the above
mentioned acquisitions.
Merger and Acquisition Costs
Merger and acquisition costs of $1,039 for the six months ended June
30, 1998 relate primarily to the termination of the proposed tender offer for
McConnell Dowell Corporation Limited.
Interest Expense, net
Interest expense for the six months ended June 30, 1998 and 1997 was
$2,977 and $3,397, respectively. The decrease in interest expense reflects the
application of the net proceeds of the May 1997 stock offering to reduce debt
and the refinancing of existing credit facilities in October 1997 in connection
with the merger with Astrotech.
Income Taxes
The effective tax rate for the six months ended June 30, 1998 and 1997
was approximately 36% and 39%, respectively.
Discontinued Operations
During August 1997 and effective on August 31, 1997, management of ITEQ
adopted plans to discontinue certain of its low margin generic fabrication
operations at its Allied subsidiary. Certain of the net assets of Allied's
operations will be liquidated as remaining orders in process are completed. The
estimated completion date of the net asset liquidation is the third quarter of
1998. The loss from discontinued operations for the six months ended June 30,
1997 and June 30, 1998 was $824 and $455, respectively, net of $433 and $256
income tax benefit, respectively.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's cash position was $3,095 compared with
$9,681 at December 31, 1997. Net working capital at June 30, 1998 was $83,567
compared to $64,531 at December 31, 1997.
The Company's existing capital resources consist of cash balances, cash
provided by its operating activities and funds available under its line of
credit. The Company's operating activities used $14,047 in cash during the six
months ended June 30, 1998. Cash used by operations includes cash payments of
$5,872 for merger, acquisition and restructuring costs which were accrued as of
December 31, 1997 and $1,071 of cash payments to fund discontinued operations
through June 30, 1998.
The Company's cash requirements consist of its general working capital
needs, capital expenditures, obligations under its leases and indebtedness, and
capital required for future acquisitions. The Company's general working capital
requirements consist of salary costs and related overhead and the purchase price
of materials and components, and may also include subcontracts with respect to
which such costs are incurred. Management anticipates that the Company will make
capital expenditures of approximately $6,000 in 1998 as compared to
approximately $5,377 in 1997.
In November 1996, the Company amended its principal credit agreement to
increase its maximum borrowings in conjunction with the Ohmstede, Inc.
acquisition. The financing consisted of a $35,000 term loan and a $38,000
revolving line of credit facility. In May 1997, the Company sold approximately
5,058 shares of common stock and used the net proceeds (approximately $31,795)
to reduce debt. In addition to the bank financing, in November 1996, the Company
issued Senior Subordinated Notes ("Subordinated Notes") to two institutional
lenders in an aggregate amount of $15,000. The Subordinated Notes were scheduled
to mature November 18, 2003, and bore interest at an initial rate of 12%. As
additional consideration, the Subordinated Note holders received warrants to
purchase an aggregate of 1,760 shares of the Company's common stock at $5.10 per
share, subject to adjustment. The warrants may be exercised at any time prior to
expiration on November 18, 2003. Approximately $2,300 of warrant value was
reflected as equity and as debt discount that was being amortized as additional
interest expense over the seven year life of the Subordinated Notes. In 1997,
the Company repaid the Subordinated Notes and refinanced its then existing
revolving credit facility which resulted in an extraordinary charge of
approximately $3,080, net of an estimated tax benefit of $1,732.
In October 1997, in connection with the merger with Astrotech, the
Company refinanced its and Astrotech's existing credit facilities under a new
non-amortizing revolving credit facility with various financial institutions
with a commitment amount of up to $175,000 maturing in October 2002 and bearing
interest, at the Company's option, at BankBoston, N.A.'s ("BankBoston")
customary base rate or at BankBoston's Eurodollar rate plus, in either case, an
agreed upon margin ranging from 0% to 2.5% for the applicable base rate margin,
and from 1% to 1.75% for the applicable Eurodollar rate margin. The new credit
facility is secured by substantially all of the assets of the Company, a pledge
of the stock of the Company's domestic subsidiaries and guarantees entered into
by such subsidiaries.
The Company's principal credit facility requires the Company to
maintain certain levels of working capital and stockholders' equity and contains
other restrictive covenants. Such instruments also limit the ability of the
Company to incur additional indebtedness and to make acquisitions and certain
investments. At June 30, 1998, the Company was in compliance with the provisions
of its loan agreements.
Except with respect to funding any future acquisitions, management
believes that funds available under its credit facilities, together with cash
generated from operations, will be sufficient to meet the Company's anticipated
cash requirements for 1998. Management further believes that the Company could
obtain additional capital to make acquisitions primarily through either
issuances of common or preferred stock or debt or lease financing, although no
assurance can be given with respect to whether such financing would be available
when required or whether such financing can be obtained on terms acceptable to
the Company.
13
<PAGE> 14
The Company is currently in the process of evaluating its computer
software programs and operating systems to ensure such programs and systems will
be able to process transactions in the year 2000. However, the Company does not
expect that such costs to modify its programs and systems will be material to
its financial condition or results of operations. The Company does not currently
have information concerning the year 2000 compliance of its suppliers and
customers. In the event the Company's significant suppliers or customers do not
successfully and timely achieve year 2000 compliance, the Company's operations
could be adversely affected.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements other than statements of
historical facts included in the preceding discussion regarding the Company's
financial position, business strategy, and plans of management for future
operations are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
14
<PAGE> 15
PART II --- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 8, 1998, the Company held its annual meeting of
stockholders, the purpose of which was to elect a board of seven directors to
serve until the next annual meeting or until their successors are elected and
qualify. There were present at the meeting, in person and by proxy, the holders
of 23,698,300 shares of common stock or approximately 87% of the total number of
issued and outstanding shares which were entitled to vote. The results of the
vote were as follows:
<TABLE>
<CAPTION>
Number of Number of
Name of Nominee Votes For Votes Withheld
--------------- ---------- --------------
<S> <C> <C>
Mark E. Johnson 23,622,919 75,381
Thomas N. Amonett 23,678,036 20,264
John Camardella 23,548,558 149,742
Lawrance W. McAfee 23,623,327 74,973
T. William Porter 23,619,099 79,201
James L. Rainey, Jr 23,677,654 20,646
James A. Read 23,622,651 75,649
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
<TABLE>
<S> <C>
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant. (Filed as Appendix E to the Joint Proxy
Statement/Prospectus of the Registrant and Astrotech on October 3,
1997 and incorporated herein by reference).
3.2 -- Amended and Restated Bylaws of the Registrant. (Filed as an
exhibit to Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining the rights of
holders of Common Stock.
4.2 -- Revolving Credit Agreement dated as of October 28, 1997 by and
among the Registrant, the Guarantors and various lending
institutions including Deutsche Bank AG as Documentation Agent and
BankBoston, N.A. as Agent. (Filed as an exhibit to Form 10-Q for
the quarter ended September 30, 1997 and incorporated herein by
reference).
4.3 -- Warrant Agreement, dated November 18, 1996, between the Registrant
and International Mezzanine Capital, B.V. ("Mezzanine"). (Filed as
an exhibit to Form 8-K dated December 5, 1996 and incorporated
herein by reference).
4.4 -- Warrant Agreement dated November 18, 1996, between the Registrant
and First Commerce Corporation ("First Commerce"). (Filed as an
exhibit to Form 8-K dated December 5, 1996 and incorporated herein
by reference).
4.5 -- Registration Rights Agreement dated November 18, 1996, among the
Registrant, Mezzanine, and First Commerce. (Filed as an exhibit to
Form 8-K dated December 5, 1996 and incorporated herein by
reference).
*10.1-- Employment Agreement dated April 28, 1998, between the Registrant
and John Camardella.
*27 -- Financial Data Schedule.
</TABLE>
- -------------
* Filed herewith.
(b) REPORTS ON FORM 8-K.
During the quarter ended June 30, 1998, the Company filed a Form 8-K dated June
26, 1998 with respect to the HMT, Inc. 401(k) Profit Sharing Plan and Trust.
15
<PAGE> 16
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.
ITEQ, INC.
Date: August 11, 1998 /s/ Lawrance W. McAfee
---------------------------------
Lawrance W. McAfee
Executive Vice President and
Chief Financial Officer
Date: August 11, 1998 /s/ Kathryn S. Henderson
---------------------------------
Kathryn S. Henderson
Corporate Controller
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant. (Filed as Appendix E to the Joint Proxy
Statement/Prospectus of the Registrant and Astrotech on October 3,
1997 and incorporated herein by reference).
3.2 -- Amended and Restated Bylaws of the Registrant. (Filed as an
exhibit to Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference).
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining the rights of
holders of Common Stock.
4.2 -- Revolving Credit Agreement dated as of October 28, 1997 by and
among the Registrant, the Guarantors and various lending
institutions including Deutsche Bank AG as Documentation Agent and
BankBoston, N.A. as Agent. (Filed as an exhibit to Form 10-Q for
the quarter ended September 30, 1997 and incorporated herein by
reference).
4.3 -- Warrant Agreement, dated November 18, 1996, between the Registrant
and International Mezzanine Capital, B.V. ("Mezzanine"). (Filed as
an exhibit to Form 8-K dated December 5, 1996 and incorporated
herein by reference).
4.4 -- Warrant Agreement dated November 18, 1996, between the Registrant
and First Commerce Corporation ("First Commerce"). (Filed as an
exhibit to Form 8-K dated December 5, 1996 and incorporated herein
by reference).
4.5 -- Registration Rights Agreement dated November 18, 1996, among the
Registrant, Mezzanine, and First Commerce. (Filed as an exhibit to
Form 8-K dated December 5, 1996 and incorporated herein by
reference).
*10.1-- Employment Agreement dated April 28, 1998, between the Registrant
and John Camardella.
*27 -- Financial Data Schedule.
</TABLE>
- -------------
* Filed herewith.
<PAGE> 1
EXHIBIT 10.1
April 28, 1998
Mr. John Camardella
4060 Deverell Street
Alpharetta, GA 30202
Dear Mr. Camardella:
ITEQ, Inc. (the "Company") considers the establishment and maintenance
of a sound and vital management to be essential for the protection and
enhancement of the best interests of the Company and its shareholders. In view
of your experience and performance in the business of the Company and its
subsidiaries, the Company desires to retain your services for an extended
period. In addition, the Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control may arise
and that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders.
Accordingly, the board of directors of the Company (the "Board") has
determined that appropriate steps should be taken to assure the Company of the
continuation of your services and to reinforce and encourage the attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a change
in control of the Company. In particular the Board believes it important,
should the Company or its shareholders receive a proposal for or notice of
transfer of control of the Company, that you be able to assess and advise the
Board whether such transfer would be or is in the best interests of the Company
and its shareholders, and to take such other action regarding such proposal or
transfer as the Board might determine to be appropriate without being
influenced by the uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this
letter agreement (the "Agreement"), which has been approved by the Board and
which supersedes any previous employment arrangements between you and the
Company in their entirety, sets forth the terms of your continued employment by
the Company and the compensation and severance benefits which the Company
agrees will be provided to you in the event of a change in control and if your
employment with the Company should be terminated under the circumstances
described below.
Reference is made to Annex I hereto for definitions of certain terms
used in this Agreement, and such definitions are incorporated herein by such
reference with the same effect
<PAGE> 2
Mr. John Camardella
April 28, 1998
Page 2
as if set forth herein. Certain capitalized terms used in this Agreement in
connection with the description of various Plans are defined in the respective
Plans, but if any conflicts with a definition herein contained, the latter
shall prevail.
1. Term of Employment. The Company hereby agrees to continue
your employment and you hereby agree to serve the Company for an employment
period commencing on the date hereof and initially ending the second
anniversary from the date hereof; provided, however, that on each successive
March 1 commencing in 1999, the employment period shall automatically be
extended for one additional year (with the date to which the employment period
has most recently been so extended being hereinafter referred to as the
"Expiration Date" and the period commencing the date hereof and ending on the
Expiration Date being hereinafter referred to as the "Employment Period"),
subject to prior termination of the Employment Period pursuant to Section 4 of
this Agreement.
2. Duties.
(a) During the Employment Period, you shall serve the
Company as its President and Chief Operating Officer and perform your duties
and responsibilities diligently, faithfully and loyally and devote such time to
the Company's affairs as may be necessary to the end of achieving the proper,
efficient and successful operation of the Company's business. In such
capacities you shall (i) generally have the duties of such offices as specified
in the Bylaws, (ii) report directly to the Board and (iii) have general
executive supervision and management of the business and affairs of the
Company, subject to the direction of the Board or any Committee or Chief
Executive Officer thereof. The foregoing shall not, however, be deemed to
restrict you from attending to matters or engaging in activities not directly
related to the business of the Company, if reasonable in scope and time
commitment and not otherwise in violation of this Agreement.
(b) If during the Employment Period, (i) a tender offer
or exchange offer is made for more than 20% of the Company's outstanding Voting
Securities or (ii) a transaction is proposed which, if consummated, would
result in a Change of Control, you agree that you will not leave your
employment with the Company (other than as a result of Disability or upon
Retirement) and will also continue to render the services contemplated in the
introductory paragraphs of this Agreement.
3. Compensation.
<PAGE> 3
Mr. John Camardella
April 28, 1998
Page 3
(a) Base Salary. As compensation for your services, the
Company agrees to pay you basic compensation at the rate of $300,000 per annum
through December 31, 1998 ("Base Salary"), payable on a current basis in equal
installments not less frequently than monthly, subject only to such payroll and
withholding deductions as may be required by law or the terms of Plans in which
you are a participant. For periods subsequent to December 31, 1998, your Base
Salary shall be established annually by the Compensation Committee of the Board
and paid on the same basis as for the prior year, but no such adjustment shall
result in a Base Salary for any year of less than the highest annual rate so
authorized by the Committee to be paid to you during any previous calendar
year(s) of the Company ended during the Employment Period, except upon your
prior written consent.
(b) Plans. In addition to your Base Salary, you will
participate in the Bonus Plan and be eligible to participate in the Defined
Contribution Plan and Other Plans, for each year during the Employment Period.
(c) Other. The Company shall reimburse you for all
expenses paid or incurred by you in the performance of your duties under this
Agreement in accordance with the Company's normal expense reimbursement
policies applicable to senior executives.
4. Termination. Upon compliance by the initiating party with any
applicable procedures set forth in Section 5 hereof, your employment with the
Company:
(a) shall terminate automatically upon your death or
Retirement;
(b) may be terminated prior to the Expiration Date at the
discretion of the Board upon your Disability;
(c) may be terminated prior to the Expiration Date at the
discretion of the Board for Cause;
(d) may be terminated prior to the Expiration Date at
your discretion, other than for Good Reason;
(e) may be terminated prior to the Expiration Date at the
discretion of the Board prior to a Change of Control without Cause;
(f) may be terminated prior to the Expiration Date at the
discretion of the Board at or after a Change of Control without Cause;
<PAGE> 4
Mr. John Camardella
April 28, 1998
Page 4
(g) may be terminated prior to the Expiration Date at
your discretion for Good Reason prior to a Change of Control; or
(h) may be terminated prior to the Expiration Date at
your discretion for Good Reason at or after a Change of Control.
5. Procedures for Termination. If it is intended that your
employment be terminated:
(a) pursuant to Section 4(b), the Company shall transmit
to you written notice setting forth the particulars upon which the
Company bases its determination that a Disability exists, together
with a Board resolution adopted by at least two-thirds of the members
of the Board requiring that you resume your duties within 30 days
following the date thereof, failing which a "final discharge" shall
then occur;
(b) pursuant to Section 4(c), the Company shall transmit
to you written notice setting forth the Cause for which you are
proposed to be dismissed in sufficient detail to permit a reasonable
assessment of the bona fides thereof, and setting a meeting of the
Board not less than 30 days following the date of such notice at which
the Board shall consider your termination and at which you and your
counsel shall have the opportunity to be heard, following which the
Board shall either by resolution withdraw the notice, or if it so
finds in its good faith opinion, issue its report within ten days
thereafter that Cause exists and specifying the particulars of its
findings, in which latter event a "final discharge" shall occur.
After receipt of a notice of intended termination for Cause, you shall
not have any authority to incur any obligation of any kind whatsoever
on behalf of the Company pending withdrawal of such notice or "final
discharge;"
(c) pursuant to Section 4(d), you shall transmit to the
Company written notice specifying that your resignation is other than
for Good Reason;
(d) pursuant to Section 4(e) or 4(f) the Company shall
transmit to you written notice specifying that your termination is
without Cause;
(e) pursuant to Section 4(g) or 4(h), you shall transmit
to the Company written notice setting forth the particulars upon which
you base your determination that Good Reason exists and, only if the
stated basis therefor is capable of being cured, requesting a cure
within 10 days, failing which a "final separation" shall then occur,
and
<PAGE> 5
Mr. John Camardella
April 28, 1998
Page 5
if such stated basis is not capable of cure by the Company, "final
separation" shall occur co-extensive with delivery of the notice.
For purposes of this Agreement, a "Termination Date" shall be deemed
to have occurred upon (i) the happening of any event contemplated by Section
4(a) [death or Retirement], (ii) the date of "final discharge" in the case of
termination initiated under Sections 5(a) [Disability] or 5(b)[Cause], (iii)
the date of "final separation" in the case of a termination initiated under
Section 5(e) [Good Reason], or (iv) the 30th day following the date of any
notice contemplated by Sections 5(c) [resignation without Good Reason] or 5(d)
[discharge without Good Reason; provided, that any proceeding initiated
pursuant to Section 10 hereof within 15 days after the giving of any notice
under this Section 5 shall (anything else in this Agreement to the contrary
notwithstanding) automatically toll the effectiveness of any Termination Date
until final resolution of such proceeding. Each notice which complies with the
requirements of this Section 5 is hereinafter referred to as a "Termination
Notice."
6. Effect of Termination. If your employment is terminated:
(a) pursuant to Sections 4(a) [death or Retirement], 4(b)
[Disability], 4(c) [Cause], or 4(d) [resignation without Good Reason],
then you shall be entitled to receive (i) payment when due of your
Base Salary through the end of the first monthly pay period ended
after the Termination Date and (ii) all benefits under the Plans in
which you are at the time a participant, to the extent the same are
vested under the terms thereof at the Termination Date, and (except as
otherwise provided herein) all other obligations of the Company under
this Agreement shall thereupon cease; or
(b) pursuant to Sections 4(e) [discharge without Cause
prior to Change of Control] or 4(g) [resignation for Good Reason prior
to Change of Control], then you shall become entitled to all benefits
conferred upon you by the Termination Package, and (except as
otherwise provided herein) all other obligations of the Company under
this Agreement shall thereupon cease; or
(c) pursuant to Sections 4(f) [discharge without Cause
after Change of Control] or 4(h) [resignation for Good Reason after
Change of Control], then you shall become entitled to all benefits
conferred upon you by the Severance Package, and (except as otherwise
provided herein) all other obligations of the Company under this
Agreement shall thereupon cease.
<PAGE> 6
Mr. John Camardella
April 28, 1998
Page 6
You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment, nor shall the
amount of any payment provided for in this Agreement be reduced by any
compensation earned by you as the result of employment by another employer
after any Effective Date or Termination Date.
7. Excise Tax. To the extent that the acceleration of vesting or
any payment, distribution or issuance made to you pursuant to this Agreement
following any Effective Date or Change of Control is subject to federal income,
excise, or other tax at a rate above the rate ordinarily applicable to like
payments paid in the ordinary course of business ("Penalty Tax"), whether as a
result of the provisions of Section 280G(b)(1) and 4999(a) of the Internal
Revenue Code of 1986, as amended, any similar or analogous provisions of any
statute adopted subsequent to the date hereof, or otherwise, then the Company
shall pay you an additional amount of cash (the "Additional Amount") such that
the net amount received by you, after paying any applicable Penalty Tax and any
federal or state income tax on such Additional Amount, shall be equal to the
amount that you would have received if such Penalty Tax were not applicable.
8. Deferral of Payments; Early Payments. At any time prior to a
Termination Date, you may irrevocably direct the Company that any amounts which
are or should become payable to you under the Severance Package or Termination
Package shall be paid to you in two equal installments, payable on or within
ten days following the Termination Date, and on the first anniversary of the
initial installment payment. In addition, if any payment to you in respect of
a stock-based benefit which is precipitated by the occurrence of an Effective
Date or a Termination Date and which would, in and of itself, give rise to a
short-swing profit under Section 16(b) of the Exchange Act, then both the
payment and the entitlement to payment thereof, shall automatically be deferred
until the earliest date (not later than 183 days following a Termination Date)
at which the payment of such benefit would not, in and of itself, result in a
short-swing profit. The Company and you further agree that when it has become
apparent in our collective best judgment (as expressed by the Compensation
Committee of the Board, in the case of the Company) that a Change of Control is
likely to occur and further that a likely consequence thereof will be the
occurrence of a Termination Date, the Company and you will use reasonable good
faith efforts to undertake and conclude negotiations intended to result in the
payment to you of a portion of the Severance Package earlier than would
otherwise be the case hereunder, thereby increasing the benefit conferred upon
you and the tax efficiency of such payments to the Company, with any consequent
tax savings to be allocated between you and the Company in such reasonable
proportions as we shall agree; unless so agreed to by both parties in writing,
no such negotiation or agreement shall affect the Company's obligations to you
under any other
<PAGE> 7
Mr. John Camardella
April 28, 1998
Page 7
provision of this Agreement.
9. Dispute Resolution. It is irrevocably agreed that if any
dispute arises between us under this Agreement, or as to any interpretive
matter under or alleged breach of this Agreement, the exclusive remedy of each
of us shall be to commence binding arbitration proceedings under the rules of
the American Arbitration Association (the "Rules"), with any such arbitration
proceeding to be conducted in Houston, Texas, applying the substantive law of
the State of Texas ("Arbitration"). If Arbitration is commenced prior to an
Effective Date, each of us will deposit with the arbitrator(s), 50% of the
arbitrator's preliminary estimate of the costs of arbitration (excluding
counsel fees and expenses) as security for costs; if Arbitration is commenced
after an Effective Date, the Company will be solely responsible for all costs
thereof and shall deposit with the arbitrator(s) 100% of the arbitrator(s)
preliminary estimate thereof. Notwithstanding any contrary provision of the
Rules or Texas law, the Company shall have the burden of proof with respect to
any of the following which are at issue in Arbitration: (i) that Cause or
Disability existed at the time any notice was given to you under Section 5
based upon either them and/or the sufficiency of such notice; and (ii) that
Good Reason did not exist at the time notice was given to the Company under
Section 5 based upon Good Reason (but only if such notice was dated on or after
an Effective Date) and/or the sufficiency of such notice; and (iii) that a
Change of Control has not occurred. Any final ruling of the arbitrator(s) in
an Arbitration shall be final and binding for all purposes, and judgment on any
Arbitration award may be entered and enforced in any court having jurisdiction.
The Company and you irrevocably agree that in the event the
arbitrator(s) shall determine (after hearing) that any matter presented in
Arbitration is one which under Texas law is not susceptible to arbitration, in
such event (and only in such event), (i) exclusive jurisdiction over the
non-arbitrable issue shall be in the lowest Texas state court of general
jurisdiction sitting in Harris County, Texas, (ii) we are each at the time
present in Texas for the purpose of conferring personal jurisdiction; (iii) any
such action may be brought in such courts, and any objection that the Company
or you may now or hereafter have to the venue of such action or proceeding in
any such court or that such action or proceeding was brought in an inconvenient
court is waived, and we each agree not to plead or claim the same, (iv) service
of process in any such proceeding or action may be effected by mailing a copy
thereof by registered or certified mail, return receipt requested (or any
substantially similar form of mail), postage prepaid, to such party at the
address provided in Section 14 hereof, (v) no punitive or consequential damages
shall be awarded in any such action or proceeding and we each agree not to
plead or claim the same; and (vi) prior to any trial on the merits, we will
submit any such non-arbitrable issue to court supervised, non-binding
mediation.
<PAGE> 8
Mr. John Camardella
April 28, 1998
Page 8
If proceedings are commenced prior to an Effective Date, all actual
costs of Arbitration or court proceedings involving any non-arbitrable issue
(excluding, in each case, counsel fees and expenses), shall be apportioned by
the arbitrator(s) or the court in such manner as shall be deemed equitable in
light of any final Arbitration award or judgment; if commenced on or after an
Effective Date, all such costs shall be borne exclusively by the Company.
Anything else in this Section to the contrary notwithstanding, nothing
in this Agreement shall impair your ability to seek specific performance of
your right to be paid under, and to receive all other benefits conferred by,
Section 3 of this Agreement during the pendency of any dispute or proceeding
concerning Sections 5, 6 and/or 8 hereof.
10. Other Activities During Employment.
(a) During the term of your employment by the
Corporation, neither you nor any entity in which you may be interested as a
partner, trustee, director, officer, employee, shareholder, option holder,
lender of money or guarantor, shall engage directly or indirectly in any
business competitive with that of the Company; provided, however, that the
foregoing shall not be deemd to prevent you from investing in securities of any
company having a class of securities which is publicly traded, so long as such
investment holdings do not, in the aggregate, constitute more than 5% of any
class of such company's securities. Without limiting the generality of the
foregoing, a business or a company may be deemed to be competitive with the
Company if 10% or more of its gross revenues are derived, directly or
indirectly, from the design, marketing, sale, fabrication, construction or
servicing of (a) equipment or systems, or component parts thereof, intended to
(i) control or limit the concentration of dust, fly ash or other particulates
in ambient air or combustion exhaust streams by filtration through fabric
filter systems, or (ii) remove, reduce, limit or control the concentration or
emission of chemicals, particulates, mists or gases in process gas streams or
combustion exhaust gas streams by combining or mixing such chemicals,
particulates, mists or gases with other liquids, gases or solids, or (b) heat
exchangers, air separation equipment, process vessels, reactors, blenders,
trayed columns or other types of custom process and containment equipment.
(b) You shall not at any time during the term of this
Agreement or after the termination hereof directly or indirectly divulge,
furnish, use, publish or make accessible to any person or entity any
Confidential Information (as hereinafter defined). Any records of confidential
information prepared by you or which come into your possession during this
Agreement are and remain the property of the Company and upon termination of
your
<PAGE> 9
Mr. John Camardella
April 28, 1998
Page 9
employment all such records and copies thereof shall be either left with or
returned to the Company.
(c) The term "Confidential Information" shall mean
information disclosed to you or known, learned, created or observed by you as a
consequence of or through your employment by the Company, not generally known
in the relevant trade or industry, about the Company's business activities,
products, customers, suppliers, product performance, customer requirements,
advertising, sales promotion, publicity, sales data, research, finances,
accounting, methods, procedures, trade secrets, business plans, client or
supplier lists, and client or supplier billing.
11. Post-Employment Activities.
(a) For a period of one year after voluntary termination
of your employment with the Company, regardless of the reason for such
voluntary termination, neither you nor any entity in which you may be
interested as a partner, trustee, director, officer, employee, shareholder,
option holder, lender of money or guarantor, shall engage directly or
indirectly in any business competitive with that of the Company (as defined in
Section 10(a)); provided; however, that the foregoing shall not be deemed to
prevent you from investing in securities which are publicly traded, so long as
such investment holdings do not, in the aggregate, constitute more than 5% of
any class of any such company's securities.
(b) You acknowledge that you have been employed for your
special talents and that your leaving the employ of the Company would seriously
and adversely affect the business of the Company. In addition to all remedies
permitted by law or in equity and without limiting any injunctive or other
relief to which the Company may be entitled in respect of any obligation of
yours, the Company shall be entitled to injunctive relief to enforce the
provisions of Sections 10 and 11 hereof.
(c) You will not, during the period of one year after
termination of your employment by the Company, regardless of the reason of such
termination, either in your individual capacity or as agent for another, hire
or offer to hire or entice away any person who has been an officer, employee,
or agent of the Company at any time during the immediately preceding year or in
any other manner persuade or attempt to persuade any of such persons to
discontinue their relationship with the Company or any of its affiliates nor
divert or attempt to divert from the Company or any of its subsidiaries any
business whatsoever by influencing or attempting to influence any customer or
supplier of the Company or any of its affiliates to diminish or discontinue its
business with the Company or such affiliate.
<PAGE> 10
Mr. John Camardella
April 28, 1998
Page 10
12. Successors; Binding Agreement.
(a) Upon your written request, the Company will seek to
have any Successor (as defined below), by agreement in form and substance
satisfactory to you, expressly assume 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 there has been a Change of Control prior to, or a Change of
Control will result from, any such succession, then failure of the Company to
obtain at your request such agreement prior to or upon the effectiveness of any
such succession (other than by merger or consolidation) shall constitute Good
Reason for termination by you of your employment and, upon delivery of a Notice
of Termination by you to the Company, you shall be entitled to the benefits
provided in Section 6(c) hereof. "Successor" shall mean any Person that
succeeds to, or has the ability to control, the Company's business as a whole,
directly by merger, consolidation or spin-off or indirectly by purchase of the
Company's Voting Securities or acquisition of all or substantially all of the
assets of the Company.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
13. Fees and Expenses. The Company shall pay all legal fees and
reasonable expenses incurred by you (including costs of arbitration) as a
result of (a) your termination following a Change of Control (including all
such fees and expenses, if any, incurred in contesting or disputing any such
termination) or (b) your seeking to obtain, assert or enforce any right or
benefit conferred upon you by this Agreement.
14. Notices. Any and all notices required or permitted to be
given hereunder shall be in writing and shall be deemed to have been given when
delivered in person to the persons specified below or deposited in the United
States mail, certified or registered mail, postage prepaid and addressed as
follows:
If to the Company: ITEQ, Inc.
2727 Allen Parkway
Houston, Texas 77019
Attention: Chairman, Compensation
Committee of the Board of Directors
<PAGE> 11
Mr. John Camardella
April 28, 1998
Page 11
If to you: John Camardella
4060 Deverell Street
Alpharetta, GA 30202
Either party may change, by the giving of notice in accordance with
this Section 14, the address to which notices are thereafter to be sent.
15. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
16. Survival. All obligations undertaken and benefits conferred
pursuant to this Agreement, except those set forth in Sections 1 and 2, shall
survive the Employment Period and continue thereafter until performed in full.
17. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
agreed to in writing signed by you and the Chairman of the Compensation
Committee of the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the internal laws of the State of Texas.
If this letter correctly sets forth our understanding with respect to
the subject matter hereof, please sign and return one copy of this letter to
the Company.
Sincerely,
ITEQ, INC.
BY:
-----------------------------------
<PAGE> 12
Mr. John Camardella
April 28, 1998
Page 12
T. William Porter
Chairman of the Compensation Committee
of the Board of Directors
Agreed to as of the 28th
day of April, 1998.
John Camardella
<PAGE> 13
ANNEX I TO AGREEMENT DATED APRIL 28, 1998
BETWEEN
ITEQ, INC.
AND
JOHN CAMARDELLA
DEFINITION OF
CERTAIN TERMS
"BONUS PLAN" means (i) for calendar 1998, the Company's obligation to
pay to you the amounts, if any, to which you would be entitled under the
Company's corporate incentive bonus plan as presently in effect and (ii) for
each subsequent year, any Plan adopted by the Board which provides for the
payment of additional compensation on an annual basis to senior executive
officers contingent upon the Company's results of operations for that specific
year, as such Plan shall be amended or modified to, but not on or after, any
Effective Date.
"BYLAWS" means the bylaws of the Company as in effect at the date
hereof and as the same shall be amended or otherwise modified to, but not on or
after, any Effective Date.
"CAUSE" means (i) your conviction by a court of competent
jurisdiction, from which conviction no further appeal can be taken, of a
felony-grade crime involving scienter, or (ii) your willful failure to perform
substantially your duties with the Company (other than a failure due to
physical or mental illness) which is materially and demonstrably injurious to
the Company, or (iii) only prior to an Effective Date, the engaging by you in
any "business" engaged in activities in direct competition with the Company,
whether as an employee, officer or director or through the beneficial ownership
by you of 10% or more of the Voting Securities of such "business." No act or
failure to act on your part shall be considered "willful" unless done, or
omitted to be done, by you in bad faith and without reasonable belief that your
action or omission was in, or not opposed to, the best interests of the
Company.
"CHANGE OF CONTROL" means the earliest date at which:
(i) Any Person is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's outstanding Voting Securities, other than through the purchase of
Voting Securities directly from the Company through a private placement; or
(ii) individuals who constitute the Board on the date hereof (the
"Incumbent Board")
A-1
<PAGE> 14
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote
of at least two-thirds of the directors comprising the Incumbent Board shall
from and after such election be deemed to be a member of the Incumbent Board;
or
(iii) the Company is merged or consolidated with another corporation
or entity and as a result of such merger or consolidation less than 60% of the
outstanding Voting Securities of the surviving or resulting corporation or
entity shall then be owned by the former stockholders of the Company; or
(iv) a tender offer or exchange offer is made and consummated by a
Person other than the Company for the ownership of 20% or more of the Voting
Securities of the Company then outstanding; or
(v) all or substantially all of the assets of the Company are sold
or transferred to a Person as to which (A) the Incumbent Board does not have
authority (whether by law or contract) to directly control the use or further
disposition of such assets and (B) the financial results of the Company and
such Person are not consolidated for financial reporting purposes.
Anything else in this definition to the contrary notwithstanding, no
Change of Control shall be deemed to have occurred by virtue of any transaction
which results in you, or a group of Persons which includes you, acquiring more
than 20% of either the combined voting power of the Company's outstanding
Voting Securities or the Voting Securities of any other corporation or entity
which acquires all or substantially all of the assets of the Company, whether
by way of merger, consolidation, sale of such assets or otherwise.
"CHARTER" means the certificate of incorporation of the Company as in
effect at the date hereof and as the same shall be amended or otherwise
modified to, but not on or after, any Effective Date.
"DEFINED CONTRIBUTION PLAN" means the ITEQ, Inc. 401K Plan, as the
same shall be amended or modified to, but not on or after, any Effective Date.
"DISABILITY" means your continuing full-time absence from your duties
with the Company for 180 days or longer as a result of physical or mental
incapacity.
"EFFECTIVE DATE" means the earliest date upon which (i) any of the
events set forth under the definition of Change of Control shall have occurred,
(ii) the receipt by the Company of a Schedule 13D stating the intention of any
Person to take actions which, if accomplished, would constitute a Change of
Control, or (iii) the public announcement by any Person of its intention to
take any such action, in each case without regard for any contingency or
condition
A-2
<PAGE> 15
which has not been satisfied on such date.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GOOD REASON" means any of the following:
(i) except as a result of your death or Retirement, or
following the receipt by you of a Notice of Termination for Cause or
due to Disability, a change in your status, title(s) or position(s) as
an officer of the Company which, in your reasonable judgment, does not
represent a promotion, with commensurate adjustment of compensation,
from your status, title(s) and position(s) or the assignment to you of
any duties or responsibilities which, in your reasonable judgment, are
inconsistent with such status, title(s) or position(s), or the
withdrawal from you of any duties or responsibilities which in your
reasonable opinion are consistent with such status, title(s) or
position(s), or any removal of you from or any failure to reappoint or
reelect you to such position(s); or
(ii) a reduction by the Company in your base salary; or
(iii) the failure by the Company to continue in effect any
Plan in which you were then participating other than as a result of
the normal expiration or amendment of any such Plan in accordance with
its terms, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in
any such Plan on at least as favorable a basis to you as is the case
on the date hereof or which would materially reduce your benefits
under any of such Plan or deprive you of any material benefit enjoyed
by you on the date hereof, except as proposed by you to the Board or
the Compensation Committee thereof; or
(iv) the Company's requiring you to be based anywhere
other than the Company's principal executive offices as they were
located as of the date hereof except for required travel on the
Company's business to an extent substantially consistent with your
business travel obligations on behalf of the Company prior to the date
hereof; or
(v) the failure by the Company upon a Change of Control
to obtain the assumption of this Agreement by any Successor (other
than by merger or consolidation); or
(vi) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination;
and for purposes of this Agreement, no such purported termination
shall be effective; or
(vii) any refusal by the Company to continue to allow you
to attend to matters or engage in activities not directly related to
the business of the Company which you
A-3
<PAGE> 16
attended to or were engaged in prior to the date hereof and which do
not otherwise violate your obligations hereunder; or
(viii) any continuing material default by the Company in the
performance of its obligations under this Agreement, whether before or
after a Change of Control.
"OTHER PLANS" means any thrift; bonus or incentive; stock option or
stock accumulation; pension; medical, disability, accident or life insurance
plan, program or policy of the Company which is intended to benefit the chief
executive officer and/or executive officers of the Company (other than the
Bonus Plan or Defined Contribution Plan).
"PERSON" means any individual, corporation, partnership, group,
association or other "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, other than the Company or any Plans sponsored by the
Company.
"PLANS" means the Bonus Plan, Defined Contribution Plan and Other
Plans.
"RETIREMENT" means termination of your employment on the "normal
retirement date" coextensive with your attainment of age 65.
"SEVERANCE PACKAGE" means your right to receive, and the Company's
obligation to pay and/or perform on, the following:
(a) on or within ten days following an applicable
Termination Date, the Company shall pay to you a lump sum, cash amount
equal to the sum of (i) two times the highest annual rate of Base
Salary in effect during the current year or any of the two years
preceding the Termination Date and (ii) two times the greater of (A)
the maximum award you would have been eligible to receive under the
Bonus Plan in respect of the current year, regardless of any
limitations otherwise applicable to the Bonus Plan (i.e., the failure
to have completed any vesting period or the current measurement
period, or the failure to achieve any performance goal applicable to
all or any portion of the measurement period) or (B) the largest award
earned (whether or not paid) under the Bonus Plan in respect of any of
the two years preceding the Termination Date; and
(b) in addition to your entitlement to the vested portion
of your interest in the Defined Contribution Plan in accordance with
the terms of that plan, the Company shall pay to you, on or within ten
days following the applicable Termination Date, an amount in cash
equal to the unvested portion of the Company's contributions to your
account; and
(c) immediately upon an applicable Termination Date, all
options and rights to contingent incentive compensation granted to you
under the Plans (other than the Bonus and Defined Contribution Plans
and medical, disability, accident and life insurance
<PAGE> 17
plans and programs for which separate provision is made herein) which
are not then fully vested, exercisable, distributable or otherwise
performable by the Company shall immediately become fully vested,
exercisable, distributable or otherwise performable by the Company as
though any and all applicable performance goals had been met or
achieved at maximum levels for all performance periods (including
those extending beyond the Termination Date) and any and all other
Plan contingencies had been satisfied in full at the Termination Date
and the maximum benefits thereunder had been earned at the Termination
Date, and solely for purposes of determining when any outstanding
option shall lapse or expire, you shall be deemed to remain in the
Company's employ until the option would have otherwise expired
notwithstanding any contrary provision in the pertinent stock option
plan or related option agreement;
(d) following an applicable Termination Date, you shall
receive all benefits under and in accordance with the terms of the
Plans (other than the Bonus and Defined Contribution Plans and
medical, disability, accident and life insurance plans and programs
and any subsequently adopted Other Plan fitting the description
contained in clause (c) above, for all of which separate provision is
made herein) in which you are at the time a participant, but only to
the extent the same are vested under the terms of such Plans at the
Termination Date; and
(e) unless you give notice to the Company pursuant to the
next sentence within 90 days following an applicable Termination Date,
the Company shall maintain in full force and effect, at its sole
expense for the continued benefit of you and your dependents during
the period from the Termination Date through the earlier of (i) two
years from the Termination Date or (ii) the commencement date of
equivalent benefits from a new employer, all insured and self-insured
employee welfare benefit Plans in which you were entitled to
participate immediately prior to the Termination Date. Alternatively,
if you notify the Company that you so elect, the Company shall pay you
within five days of such notification an amount in cash equal to two
times the average annual cost incurred by the Company during the
preceding two calendar years as a result of your participation in such
welfare benefit Plans (or such fewer whole calendar years as you have
so participated). If your participation in any such welfare benefit
Plan is barred, the Company, at its sole cost and expense, shall
arrange to have issued for the benefit of you and your dependents
individual policies of insurance providing benefits substantially
similar (on an after-tax basis) to those which you are entitled to
receive under such Plans. You shall not be required to pay any
premiums or other charges for such policies. At the end of two years
after the Termination Date, the Company, provided you have not
previously received or are not then receiving equivalent benefits from
a new employer, shall arrange, at its sole cost and expense, to enable
you to convert you and your dependents' coverage under such Plans to
individual policies or programs upon the same terms as employees of
the Company may apply for such conversions.
Anything else in this Agreement to the contrary notwithstanding, if an
applicable
A-5
<PAGE> 18
Termination Date results from a merger or a tender offer or an exchange offer,
then unless otherwise agreed to by both parties in writing, all amounts to
which you shall at the closing thereof, or which you may upon subsequent notice
or lapse of time, become entitled under this Severance Package shall be
accelerated to, and become immediately due and payable contemporaneously with,
such closing.
"SHARES" means shares of Common Stock, $.001 par value, of the Company
at the date of this Agreement, as the same shall be subsequently amended,
modified or changed. The term "market value," when used with respect to a
Share means the closing price therefor on the NASDAQ National Market or if not
listed thereon, on such other exchange as shall at the time constitute the
principal exchange for trading in Shares.
"TERMINATION PACKAGE" means your right to receive, and the Company's
obligation to pay and/or perform on, the following:
(a) on or within ten days following an applicable
Termination Date, the Company shall pay to you a lump sum cash amount
equal to 12 months base salary in effect at the Termination Date; and
(b) following an applicable Termination Date, you shall
receive all benefits under and in accordance with the terms of the
Plans in which you are at the time a participant, but only to the
extent the same are vested under the terms of such Plans at the
Termination Date.
"VOTING SECURITIES" means, with respect to any corporation or business
enterprise, those securities which under ordinary circumstances are entitled to
vote for the election of directors or others charged with comparable duties
under applicable law.
A-6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,095
<SECURITIES> 0
<RECEIVABLES> 75,255
<ALLOWANCES> 0
<INVENTORY> 17,866
<CURRENT-ASSETS> 145,711
<PP&E> 50,673
<DEPRECIATION> 0
<TOTAL-ASSETS> 295,758
<CURRENT-LIABILITIES> 62,144
<BONDS> 0
0
0
<COMMON> 28
<OTHER-SE> 108,524
<TOTAL-LIABILITY-AND-EQUITY> 295,758
<SALES> 174,893
<TOTAL-REVENUES> 174,893
<CGS> 133,969
<TOTAL-COSTS> 133,969
<OTHER-EXPENSES> 25,996
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,977
<INCOME-PRETAX> 12,298
<INCOME-TAX> 4,488
<INCOME-CONTINUING> 7,810
<DISCONTINUED> (455)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,355
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,766
<SECURITIES> 0
<RECEIVABLES> 36,474
<ALLOWANCES> 0
<INVENTORY> 6,264
<CURRENT-ASSETS> 69,328
<PP&E> 13,751
<DEPRECIATION> 0
<TOTAL-ASSETS> 129,448
<CURRENT-LIABILITIES> 40,227
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 58,115
<TOTAL-LIABILITY-AND-EQUITY> 129,448
<SALES> 152,289
<TOTAL-REVENUES> 152,289
<CGS> 117,008
<TOTAL-COSTS> 117,008
<OTHER-EXPENSES> 23,902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,397
<INCOME-PRETAX> 8,219
<INCOME-TAX> 3,169
<INCOME-CONTINUING> 5,050
<DISCONTINUED> (824)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,226
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.18
</TABLE>
