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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] 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 (I.R.S. Employer
of 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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $.001 par value Nasdaq National Market
Preferred Stock Purchase Rights Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 17, 1999 was $53,626,462. As of March 17, 1999,
there were 28,192,036 shares of the registrant's Common Stock, $.001 par value,
outstanding.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning the executive officers and directors of the
Company is set forth below:
<TABLE>
<CAPTION>
NAME POSITION AGE DIRECTOR SINCE
---- -------- --- --------------
<S> <C> <C> <C>
Mark Johnson........................ Director, chairman of the board and 48 1995
chief executive officer
William P. Reid..................... President and chief operating officer 49 --
Lawrance W. McAfee(1)............... Director, executive vice president, chief 44 1995
financial officer and secretary
Thomas N. Amonett(1)(2)............. Director 55 1996
T. William Porter(2)................ Director 57 1995
James L. Rainey, Jr.(1)(2).......... Director 69 1993
James A. Read....................... Director 49 1997
</TABLE>
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(1) Member, audit committee of the board of directors.
(2) Member, compensation committee of the board of directors.
Mark E. Johnson. Mr. Johnson has been a director of the Company since
December 1995 and chairman of the board and chief executive officer since March
1996. He was also president of the Company from September 1998 until February
1999 and from March 1996 until May 1997. From February 1994 until December
1995, Mr. Johnson was a shareholder, director and president of Allied
Industries, Inc., a wholly-owned subsidiary of the Company since December 1995.
Prior to that time, Mr. Johnson was a private investor and was a shareholder
and served as chairman of the board, chief executive officer and president of
Semco, Inc., a manufacturer of pneumatic conveyancing equipment, and of
Stillbrooke Corporation, a cemetery and funeral home holding company. From 1982
to 1986, Mr. Johnson served as a partner of KPMG Peat Marwick LLP.
William P. Reid. Mr. Reid was named president and chief operating officer
of the Company in February 1999. From 1989 to 1998, Mr. Reid served as
president and chief executive officer of Gundle/SLT Environmental. Prior
thereto, Mr. Reid served as president of Sperry Sun Drilling Services, a
division of Baroid Corporation from 1982 to 1989. Previously, Mr. Reid held
several positions with Cameron Iron Works.
Lawrance W. McAfee. Mr. McAfee has been a director of the Company since
December 1995, and executive vice president and chief financial officer since
January 1993 and secretary since May 1993. From 1991 until the time he joined
the Company in 1993, Mr. McAfee served as a director and chief financial
officer of Waste Processor Industries, Inc., an environmental services company.
Prior to that time, Mr. McAfee served as senior vice president and chief
financial officer of Stillbrooke Corporation from 1989 to 1991. From 1982 to
1989, Mr. McAfee served as vice president and chief financial officer of U.S.
Home Corporation, a residential builder, developer and financial services
company.
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Thomas N. Amonett. Mr. Amonett has been a director of the Company since
April 1996. Since November 1997, Mr. Amonett has served as a director,
president and chief executive officer of American Residential Services, Inc., a
company engaged principally in providing comprehensive maintenance, repair,
replacement and new equipment installation services for heating, air
conditioning, plumbing, electrical, indoor air quality systems and major home
appliances. He served as interim president and chief executive officer of
Weatherford Enterra, Inc., an oilfield service and equipment company, from July
1996 to October 1997. From 1992 to 1996, he served as chairman of the board and
president of Reunion Resources Company (previously known as Buttes Gas and Oil
Company and now known as Reunion Industries, Inc.). Mr. Amonett also currently
serves as a director of PetroCorp Incorporated, an oil and gas producer, and
Reunion Industries, Inc.
T. William Porter. Mr. Porter has served as a director of the Company
since December 1995. Since 1981, Mr. Porter has been a partner of Porter &
Hedges, L.L.P., a Houston-based law firm and the Company's principal outside
legal counsel. Mr. Porter also serves on the board of Gundle/SLT Environmental,
Inc., a manufacturer and supplier of lining systems used in waste and
industrial containment systems, and Metals USA, Inc.
James L. Rainey. Mr. Rainey has served as a director of the Company since
October 1993. Mr. Rainey has been an independent business consultant since May
1991. From May 1986 through April 1991, Mr. Rainey served as president and
chief executive officer of Farmland Industries, Inc., the largest domestic
agricultural supply cooperative. Prior to that time, he spent over 20 years
with Kerr-McGee Corporation, including serving as president of Kerr-McGee
Chemical Corporation. Mr. Rainey also serves on the boards of Jacobs
Engineering Group, Inc. and the Wirthlin Group.
James A. Read. Mr. Read has served as a director of the Company since
January 1997. Since 1988, Mr. Read has served as a managing director of
Mezzanine Management Limited, an independent private debt and equity fund
management and advisory company. Mr. Read also serves on the boards of Core
Laboratories N.V., JJI Lighting Group, Inc., Western Sky Industries, Inc. and
Industrial Acoustic Corporation in the United States and Page One
Communications Limited, Wellington Holding plc, and CF Holdings Ltd.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes of ownership with the Commission. Executive
officers, directors and greater than 10% shareholders are required to furnish
the Company with copies of all Section 16(a) reports they file. Based solely on
its review of the forms received by it, the Company believes that during the
year ended December 31, 1998, all filing requirements applicable to the
Company's executive officers, directors and 10% shareholders were met, except
Mr. Rainey was late in filing one Form 4 Report related to one sales
transaction.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to the
Company for the periods indicated of each individual who was (i) the chief
executive officer at any time during the period or (ii) an executive officer at
December 31, 1998 (collectively, the "Named Executives").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------
STOCK
OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER (SHARES)
- --------------------------- ---- ------ ----- ----- --------
<S> <C> <C> <C> <C> <C>
Mark E. Johnson(1) ................. 1998 $400,000 -- -- 150,000
Chairman and chief executive ... 1997 $350,000 $350,000 -- --
officer ........................ 1996 $330,886 $200,000 -- --
Lawrance W. McAfee ................. 1998 $230,000 -- -- 25,000
Executive vice president, ...... 1997 $208,333 $157,500 $ 47,112(2) 25,000
chief financial officer and .... 1996 $192,067 $110,000 -- 106,250
secretary
</TABLE>
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(1) Served as president from September 1998 until February 1999 and from
March 1996 until May 1997.
(2) Consists of reimbursement of relocation expenses.
OPTION GRANTS
The following sets forth information about stock option grants during
1998 to the Named Executives.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZED VALUE AT
PERCENTAGE OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
GRANTED OPTION TERM (1)
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION --------------------------------
NAME GRANTED (2) IN 1998 PRICE DATE (3) 5% 10%
- ---- ----------- ------- ----- -------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Mark E. Johnson 150,000 55.2% $ 11.625 5/5/03 $ 481,766 $1,064,577
Lawrance W. McAfee 25,000 9.2% $ 11.00 6/8/03 $ 75,977 $ 167,890
</TABLE>
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(1) Potential values stated are the result of using the Securities and
Exchange Commission (the "Commission") method of calculations of 5%
and 10% appreciation in value from the date of grant to the end of
the option term. Such assumed rates of appreciation and potential
realizable values are not necessarily indicative of the appreciation,
if any, which may be realized in future periods.
(2) The options were granted for terms of five years, subject to earlier
termination in certain events related to termination of employment.
(3) The options vest over three or four years from the date of grant.
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OPTION EXERCISES AND YEAR-END VALUES
None of the Named Executives exercised any options during 1998, except Mr.
McAfee who exercised 40,000 options. The following table sets forth information
with respect to the options exercised by each Named Executive in 1998 and the
unexercised options to purchase shares of Common Stock for each of the Named
Executives held by them at December 31, 1998.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
SHARES DECEMBER 31, 1998 OPTIONS AT
ACQUIRED (SHARES) DECEMBER 31, 1998(1)
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark E. Johnson -- -- 75,000 75,000 -- --
Lawrance W. McAfee 40,000 $322,520 178,438 32,812 -- --
</TABLE>
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(1) Represents the difference between the closing price of the Common
Stock on the Nasdaq National Market on December 31, 1998 ($2.125 per
share), and any lesser exercise price.
EMPLOYMENT AGREEMENTS
Mr. Johnson is employed under an agreement entered into effective
September 1997 providing for a three year term, and for which an additional one
year term is added to the term of the agreement upon the expiration of each one
year period, subject to prior termination of the agreement by either party.
Pursuant to the agreement, Mr. Johnson received an annual salary of $350,000
per year from the date of the agreement through December 31, 1997 at which time
his base salary was adjusted to $400,000, and he is entitled to participate in
the Company's incentive bonus plan. For the periods after December 31, 1997,
Mr. Johnson's base salary is established by the compensation committee, but no
adjustment may result in a base salary less than the highest amount authorized
by the committee to be paid during any previous year. Mr. Johnson's agreement
provides that if he is terminated by the Company without cause, or he elects to
terminate his employment for good reason, following a change of control, he is
entitled to payment of three times the highest base salary earned by him in the
immediately preceding three years plus three times the greater of (i) the
maximum award for which he is eligible under the Company's incentive bonus plan
for the calendar year of termination, or (ii) the largest award earned under
the incentive bonus plan. Following such termination, all rights and options to
contingent incentive compensation, except the incentive bonus, defined
contribution plans and health and life insurance, shall immediately become
fully vested, exercisable and distributable. In addition, following such
termination, the Company must maintain all insured and self-insured employee
welfare benefit coverage until commencement of equivalent benefits from a new
employer, but not longer than three years, or, at Mr. Johnson's option, pay him
a sum equal to three times the average annual cost to the Company of such
coverage over the years before said termination. If a change of control occurs
as a result of a consummated tender offer, the agreement requires that, upon
Mr. Johnson's election, the Company purchase a certain percentage of the shares
acquired by him under any benefit plan prior to the tender offer.
Mr. McAfee is employed under an agreement entered into effective March
1996 with the Company which is for a three year term and for which an
additional one year term is added to the term of the agreement upon the
expiration of each one year period, unless either party gives prior notice that
such one year additional term will not apply. Pursuant to the agreement, Mr.
McAfee received an initial base annual salary of $200,000, subject to annual
increase by the compensation committee, and is entitled to an annual bonus
equal to a percentage of base salary pursuant to a corporate incentive bonus
plan. Mr. McAfee's agreement also contains a provision pursuant to which if he
is terminated subsequent to a change of control
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in the Company or Mr. McAfee elects to terminate his employment within one year
after such change of control, he is entitled to payment of two times his base
compensation. The agreement also provides that the employee will not compete
with the business of the Company for a period of two years after termination of
the agreement.
DIRECTOR COMPENSATION
Directors not employed by the Company are granted annually options to
purchase 10,000 shares of Common Stock under the Directors' Stock Option Plan
to compensate them for their services. They also receive $1,000 for each
meeting of the board and committee meeting they attend provided that directors
receive no additional compensation for attendance at committee meetings held on
the same day as a board meeting. In addition, they are reimbursed for their
expenses of attending these meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock at April 1, 1999, by each
stockholder who is known by the Company to own beneficially more than 5% of the
outstanding Common Stock.
<TABLE>
<CAPTION>
NAME OF PERSON NUMBER OF
OR IDENTITY OF GROUP SHARES PERCENT OF CLASS
-------------------- ------ ----------------
<S> <C> <C>
Mark E. Johnson............................. 1,443,062(1) 5.1%
2727 Allen Parkway, Suite 760
Houston, Texas 77019
Pierre S. Melcher........................... 2,077,039(2) 7.4%
5345 Mandell
Houston, Texas 77005
Don Sanders................................. 1,649,900(3) 5.9%
3100 Chase Tower
Houston, TX 77002
Stephen Watson.............................. 1,466,000(4) 5.2%
237 Park Avenue, Suite 801
New York, New York 10017
Robert Alpert............................... 1,439,200(5) 5.1%
Three Allen Center
333 Clay, Suite 4150
Houston, TX 77002
</TABLE>
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(1) Includes 75,000 shares which may be acquired upon exercise of
outstanding options.
(2) Includes 140,000 shares owned by Mr. Melcher, as sole trustee of the
Kathryn Lewis Melcher Trust ("the KLM Trust"); 80,000 shares owned by
Mr. Melcher, as sole trustee of the Paul Nicholas Melcher Trust (the
"PNM Trust"); 1,819,039 shares owned by Polaris Partners Ltd.
("Polaris"); and 38,000 shares owned jointly by Mr. Melcher and his
spouse, Patricia B. Melcher. Mr. Melcher is also the sole trustee of
the Melcher 1998 Management Trust (the "Management Trust"), the
general partner of Polaris. As sole trustee of the KLM Trust, the PNM
Trust and the Management Trust, Mr. Melcher may be deemed to be the
beneficial owner of the shares owned by the KLM Trust, the PNM Trust
and Polaris.
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(3) Includes 946,500 shares owned by Mr. Sanders individually, 648,400
shares owned by certain of Mr. Sanders' clients, and 55,000 shares
owned by Mr. Sanders' spouse individually. Mr. Sanders is chairman of
the executive committee of Sanders Morris Mundy, Inc., an investment
banking firm. Mr. Sanders shares the power to dispose, or direct the
disposition, of the 648,400 shares owned by certain of his clients
and, as a result, may be deemed to beneficially own said 648,400
shares. In addition, Mr. Sanders may be deemed to beneficially own
the 55,000 shares owned by his spouse. Mr. Sanders disclaims any
beneficial ownership of the 55,000 shares owned by his spouse.
(4) Includes shares held by a private investment partnership, an offshore
investment company and several managed accounts (the "Client
Shares"). Because Mr. Watson has sole power to vote, or direct the
voting of, and to dispose, or direct the disposition, of Client
Shares, he may be deemed to beneficially own said shares.
(5) Includes 400,000 shares owned by Mr. Alpert individually; 110,000
shares owned by Wildwood Capital Company ("WCC"); 242,500 shares
owned by Markus Ventures, L.P. ("MVLP"); 110,000 shares owned by
Markus Investments, Inc. ("MII"); 200,000 shares owned by James
Ventures, L.P. ("JVLP"); 351,700 shares owned by James Investments,
Inc. ("JII"); and 25,000 shares owned by Mr. Alpert's mother, Gladys
Alpert ("GA"). Mr. Alpert is the sole shareholder and president of
Danro Corporation. Danro is the managing general partner of WCC, MVLP
and JVLP. MVLP is the sole shareholder of MII, and JVLP is the sole
shareholder of JII. Mr. Alpert is the chairman of JII and MII. As the
sole shareholder and president of Danro, Mr. Alpert may be deemed to
beneficially own the shares owned by WCC, MVLP, MII, JVLP and JII
and, as GA's son, Mr. Alpert may be deemed to beneficially own the
shares owned by GA.
MANAGEMENT STOCKHOLDINGS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock at April 1, 1999, by (i) all
directors, (ii) the chief executive officer and other executive officers and
(iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME OF PERSON OR NUMBER OF PERCENT OF
IDENTITY OF GROUP SHARES (1) CLASS
----------------- ---------- ----------
<S> <C> <C>
Mark E. Johnson............................................................ 1,443,062 5.1%
Thomas N. Amonett.......................................................... 33,000 *
Lawrance W. McAfee......................................................... 187,953 *
T. William Porter.......................................................... 35,000 *
James L. Rainey, Jr........................................................ 40,000 *
James A. Read.............................................................. 25,000 *
William P. Reid ........................................................... -- --
All directors and executive officers as a group (7 persons)(2)............. 1,764,015 6.2%
</TABLE>
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* Less than 1% of outstanding shares.
(1) Includes shares underlying outstanding stock options, as follows: Mr.
Johnson - 75,000; Mr. Amonett - 32,000; Mr. McAfee - 178,438; Mr.
Porter - 35,000; Mr. Rainey - 40,000; and Mr. Read - 25,000.
(2) Includes all shares referred to note in (1) above.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company enters into transactions with related parties only with the
approval of a majority of the independent and disinterested members of the
board of the directors and only on terms the Company believes to be comparable
to or better than those that would be available from unaffiliated parties.
James A. Read was elected a director of the Company in January 1997. On
November 18, 1996, the Company entered into a Subordinated Note and Warrant
Purchase Agreement (the "Note Agreement") pursuant to which the Company
borrowed (and subsequently repaid) $15,000,000, which was used as partial
consideration for the acquisition of Ohmstede, Inc. Mr. Read is affiliated with
International Mezzanine Capital, B.V., which purchased $13,000,000 of the
subordinated notes and received a warrant to purchase 1,525,333 shares of the
Company's common stock at an exercise price of $5.10 per share. During 1998,
warrants for 300,000 shares of common stock were exercised. The warrant for the
remaining 1,225,333 shares of common stock expires November 2003. Pursuant to
the Note Agreement, so long as the subordinated notes are outstanding or, if
longer, the number of shares issued and outstanding upon exercise of the
warrants plus the number of shares purchasable upon exercise of outstanding
warrants held by the original holders is at least 5% of the issued and
outstanding common stock of the Company, the holders have the right to nominate
one individual for election to the board of directors. Mr. Read is the
individual designated for nomination by the holders.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
ITEQ, Inc.
By: /s/ LAWRANCE W. McAFEE
------------------------------
Lawrance W. McAfee
Executive Vice President and
Chief Financial Officer
Date: April 29, 1999
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