ITEQ INC, 10-Q, 1999-11-15

ITEQ INC
10-Q, 1999-11-15
INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFING EQUIP

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<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 the Quarterly Period Ended September 30, 1999

[X] 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.

28,203,213
(Shares of common stock outstanding as of November 5, 1999)

<PAGE> 2
ITEQ, INC.

FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999
(unaudited) 3
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1998 (unaudited) and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 (unaudited) and 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20

PART II - OTHER INFORMATION 21
</TABLE>

2
<PAGE> 3
ITEQ, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(unaudited)
ASSETS

CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents ................................... $ 5,784 $ 6,665
Due on contracts and other receivables, net ................. 31,156 19,865
Costs and estimated earnings in excess of billings on
uncompleted contracts .................................. 16,566 12,094
Inventories ................................................. 19,252 9,094
Prepaid expenses, deposits and other assets ................. 3,442 2,848
Deferred tax asset .......................................... 1,402 1,895
Net assets of discontinued operations ....................... 93,762 68,915
--------- ---------
Total current assets ............................... 171,364 121,376
PROPERTY AND EQUIPMENT, NET ................................. 20,331 20,426
OTHER ASSETS, NET ........................................... 70,075 68,380
--------- ---------
TOTAL ASSETS ........................................... $ 261,770 $ 210,182
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Long-term debt classified as current ........................ $ -- $ 106,325
Accounts payable ............................................ 16,452 8,972
Accrued liabilities:
Job costs .............................................. 11,414 7,011
Accrued compensation and benefits ...................... 1,993 1,158
Accrued expenses and other current liabilities ......... 10,485 7,275
Billings in excess of costs and estimated earnings on
uncompleted contracts .................................. 1,026 473
--------- ---------
Total current liabilities .......................... 41,370 131,214

LONG-TERM OBLIGATIONS ....................................... 119,603 --
--------- ---------
Total Liabilities ............................. 160,973 131,214
--------- ---------

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;
28,298 and 28,336 shares issued at December 31, 1998
and September 30, 1999, respectively.................... 28 28
Treasury stock, at cost, 139 shares.......................... (1,000) (1,000)
Additional paid-in capital .................................. 131,450 131,610
Retained earnings (deficit) ................................. (27,826) (50,855)
Translation adjustment....................................... (1,855) (815)
--------- ---------
Total Stockholders' Equity ......................... 100,797 78,968
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............. $ 261,770 $ 210,182
========= =========
</TABLE>

See Notes to Consolidated Financial Statements

3
<PAGE> 4
ITEQ, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 36,127 $ 33,230 $ 128,258 $ 98,778
Cost of revenues 32,334 30,144 105,310 85,249
Selling, general and administrative expenses 5,565 4,853 16,451 15,722
Depreciation and amortization 995 1,387 2,677 3,134
Merger, acquisition and strategic charges 5,831 30 6,870 525
--------- --------- --------- ---------
Operating loss (8,598) (3,184) (3,050) (5,852)

Interest expense, net (1,028) (1,092) (2,239) (3,180)
Miscellaneous income (expense), net 51 (36) 438 34
--------- --------- --------- ---------
Earnings (Loss) from continuing operations
before income tax provision (benefit) (9,575) (4,312) (4,851) (8,998)
Income tax provision (benefit) (3,495) 2,203 (1,767) --
--------- --------- --------- ---------
Loss from continuing operations (6,080) (6,515) (3,084) (8,998)
--------- --------- --------- ---------

Earnings (Loss) from discontinued operations,
net of income tax provision (benefit) (1,224) (1,201) 3,134 (344)
Loss on disposal of discontinued operations -- (13,687) -- (13,687)
--------- --------- --------- ---------
Earnings (Loss) from discontinued operations,
net of income tax provision (benefit) (1,224) (14,888) 3,134 (14,031)
--------- --------- --------- ---------
Net earnings (loss) $ (7,304) $ (21,403) $ 50 $ (23,029)
========= ========= ========= =========

BASIC EARNINGS (LOSS) PER SHARE:
Loss from continuing operations $ (.22) $ (.23) $ (.11) $ (.32)
Earnings (Loss) from discontinued operations (.04) (.53) .11 (.50)
--------- --------- --------- ---------
Net earnings (loss) per common share $ (.26) $ (.76) $ .00 $ (.82)
========= ========= ========= =========

Weighted average common shares outstanding 28,158 28,196 27,526 28,189
========= ========= ========= =========

DILUTED EARNINGS (LOSS) PER SHARE:
Loss from continuing operations $ (.22) $ (.23) $ (.11) $ (.32)
Earnings (Loss) from discontinued operations (.04) (.53) .11 (.50)
--------- --------- --------- ---------
Net earnings (loss) per common share $ (.26) $ (.76) $ .00 $ (.82)
========= ========= ========= =========

Weighted average common and common
equivalent shares outstanding 28,158 28,210 28,645 28,196
========= ========= ========= =========
</TABLE>

See Notes to Consolidated Financial Statements

4
<PAGE> 5
ITEQ, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ............................................. $ 50 $(23,029)
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities of continuing
operations:
(Earnings) Loss from discontinued operations .................. (3,134) 14,031
Depreciation and amortization ................................. 2,677 3,134
Provision (Benefit) for deferred income taxes ................. (731) (440)
Non-cash interest ............................................. 120 252
Changes in assets and liabilities, net of effects of
businesses acquired:
Due on contracts and other receivables, net .............. 6,015 12,412
Inventories .............................................. (2,580) 10,156
Costs and estimated earnings in excess of billings on
uncompleted contracts .................................. 5,228 4,335
Prepaid expenses, deposits and other assets .............. (1,023) 168
Accounts payable and accrued liabilities ................. (3,631) (18,053)
Billings in excess of costs and estimated earnings on
uncompleted contracts ................................. (3,446) (631)
Other .................................................... (217) 2,214
-------- --------
Net cash provided (used) by operating activities of
continuing operations .................................. (672) 4,549
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired businesses, net of cash acquired ....... (19,801) --
Purchases of property and equipment ........................... (3,057) (1,307)
-------- --------
Net cash provided (used) by investing activities of
continuing operations ................................... (22,858) (1,307)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit ................ 30,130 (13,278)
Proceeds from exercise of stock options and warrants .......... 2,495 160
Purchase of treasury stock .................................... (1,000) --
-------- --------
Net cash provided (used) by financing activities of
continuing operations .................................. 31,625 (13,118)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......................... (95) (60)
-------- --------
CASH GENERATED (USED) IN DISCONTINUED OPERATIONS ................ (12,219) 10,817
-------- --------
Net increase (decrease) in cash and cash equivalents ...... (4,219) 881
Cash and cash equivalents, beginning of period ................ 9,681 5,784
-------- --------
Cash and cash equivalents, end of period ...................... $ 5,462 $ 6,665
======== ========
</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 September
30, 1999, the results of operations for the three and nine months ended
September 30, 1998 and 1999, and the cash flows for the nine months ended
September 30, 1998 and 1999.

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.

As a result of management's decision to discontinue the operations of
the storage tank group, the net assets of the storage tank group have been
reflected as discontinued operations and prior period financial statements have
been restated to reflect the discontinuance of these operations. See Note 6.

Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding including the dilutive
effect of common stock equivalents. The only reconciling difference between the
numerator and denominator 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
("FAS") 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. The Company's comprehensive
income (loss) was as follows:

<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss)............................ $ (7,304) $(21,403) $ 50 $(23,029)
Foreign currency translation adjustments .... (787) 329 (1,037) 1,040
-------- -------- -------- --------
Comprehensive income (loss) ............ $ (8,091) $(21,074) $ (987) $(21,989)
======== ======== ======== ========
</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, 1998, and September 30, 1999, due on contracts and
other receivables, excluding net assets of discontinued operations, consist of
the following:

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Billings on completed contracts and contracts in progress .. $ 30,750 $ 19,874
Retained contract receivables .............................. 762 476
Allowance for doubtful accounts ............................ (356) (485)
-------- --------
Total ........................................ $ 31,156 $ 19,865
======== ========
</TABLE>

NOTE 3 - INVENTORIES

Inventories consist of costs for which no related revenue has been
recognized. Inventories include materials used in the manufacturing process,
labor, overhead and purchased parts and are valued at the lower of cost or
market. The Company accrues certain open purchase orders as the Company would
incur substantial expense to cancel such purchase orders. These amounts are
included in work in progress inventory. Cost is determined by the average cost
method for materials and the first-in, first-out (FIFO) method for purchased
parts. Inventories at December 31, 1998 and September 30, 1999, excluding net
assets of discontinued operations, consist of the following:

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Raw materials ................ $ 2,381 $ 2,723
Work in progress ............. 16,857 6,031
Finished goods ............... 14 340
------- -------
Total ......... $19,252 $ 9,094
======= =======
</TABLE>

NOTE 4 - OTHER ASSETS

At December 31, 1998 and September 30, 1999, other assets, excluding
net assets of discontinued operations, consist of the following:

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Excess of costs over net assets acquired, net of accumulated amortization
of $4,164 and $5,392 at December 31, 1998 and
September 30, 1999, respectively ..................................... $53,018 $52,253
Licenses, trademarks and tradenames, net of accumulated
amortization of $2,232 and $2,644 at December 31, 1998 and
September 30, 1999, respectively ..................................... 14,259 13,690
Deferred tax asset ...................................................... 2,159 1,568
Other ................................................................... 639 329
------- -------
Total .................................................... $70,075 $67,840
======= =======
</TABLE>

7
<PAGE> 8
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 5 - MERGER, ACQUISITION AND STRATEGIC CHARGES

For the three and nine months ended September 30, 1999, the Company
recorded nonrecurring merger, acquisition and strategic charges totaling $30 and
$525. The charges included reorganization costs such as severance and other
personnel related costs.

For the three and nine months ended September 30, 1998, the Company
recorded nonrecurring merger, acquisition and strategic charges totaling $5,831
and $6,870, respectively, related to the restructuring of its process and
filtration operations. The charges included the costs of consolidating
manufacturing operations, severance and other personnel costs.

NOTE 6 - DISCONTINUED OPERATIONS

ALLIED

Operating losses during the phase out period were included in the loss
on disposal of discontinued operations. Losses before tax of $(3,867) were
incurred through September 30, 1998. The loss from discontinued operations
included in the statements of operations is reflected net of the effective
income tax rate for the applicable period.

FILTRATION GROUP

During September 1998 and effective September 30, 1998, management of
ITEQ adopted plans to discontinue the operations of its filtration group. The
majority of the filtration group's operations relate to manufacturing fabric
filters, wet and dry scrubbers and fiberglass reinforced plastic fans.

Effective September 1999, management of ITEQ reevaluated its plans
related to the disposal of the filtration group. Management determined that the
disposal of the group was not in the best interest of shareholders at that date.
Accordingly, the results of operations of this group have been reconsolidated
effective September 30, 1999 and all prior periods have been restated.
Additionally, depreciation and amortization were not recorded during the periods
while these operations were held for sale. Accordingly, depreciation expense for
the quarter ended September 30, 1999 reflects the previously unrecorded amounts.

STORAGE TANK GROUP

Effective September 1, 1999, management of ITEQ adopted a plan to
discontinue the operations of the storage tank group. The plan included the
intended sale of certain operations and the abandonment and liquidation of
certain other storage tank fabrication operations.

Effective March 26, 1999, the Company sold the assets of Texoma Tank
Company, a mobile tank leasing business, for $13,956 resulting in a pre-tax gain
of $4,156 which is included in the earnings (loss) from discontinued operations
in the accompanying statements of operations.

8
<PAGE> 9
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Effective October 4, 1999, the Company liquidated certain manufacturing
assets of the storage tank group for net proceeds of $2,159. Effective November
4, 1999, the Company sold its Provo, Utah storage tank manufacturing operation
for net proceeds of $1,878. Additionally, the Company has entered into four
non-binding letters of intent in the amount of $66,800 for the sale of the
majority of the storage tank group and is in the process of liquidating the
remaining portion of the storage tank group. Accordingly, the Company has
recorded an anticipated loss on disposal of the storage tank group of $13,687,
which includes the expected results of operations through the anticipated
disposal date, including interest of $1,766. Prior period results of operations
have been restated to reflect the discontinuance of these operations. The net
assets of the storage group have been reflected in the Company's consolidated
financial statements at their estimated net realizable value. These assets are
expected to be disposed of within the next twelve months; however, there can be
no assurance that they will be sold.

Sales from discontinued operations were $44,965 and $38,962 for the
three months ended September 30, 1998 and 1999 and $127,727 and $121,896 for the
nine months ended September 30, 1998 and 1999, respectively.
Summary operating results through August 31, 1999, are as follows:

<TABLE>
<CAPTION>
Two months ended Eight months ended
August 31, 1999 August 31, 1999
---------------- ------------------
<S> <C> <C>
Revenues .................................... $ 27,320 $ 110,254
Operating loss .............................. (158) (706)
Interest expense, net ....................... (849) (3,251)
Income (Loss) before income tax provision ... (1,095) 256
Income tax provision ........................ 106 600
Net loss from discontinued operations ....... (1,201) (344)
</TABLE>

The earnings (loss) from discontinued operations included in the
statements of operations are reflected net of the effective income tax rate for
the applicable period.

At December 31, 1998 and September 30, 1999, net assets of discontinued
operations consist of the following:

<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Current assets ........... $ 55,261 $ 47,111
Current liabilities ...... (24,884) (33,011)
-------- --------
Net current assets .. 30,377 14,100
-------- --------

Noncurrent assets ........ 63,385 54,815
Noncurrent liabilities ... -- --
-------- --------
63,385 54,815
-------- --------
Net assets .......... $ 93,762 $ 68,915
======== ========
</TABLE>

9
<PAGE> 10
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 7 - DEBT

In October 1997, the Company refinanced its existing credit facilities
under a non-amortizing revolving credit facility with various financial
institutions with a total commitment of $120,000 (loan sublimit of $109,000) as
of September 30, 1999 and maturing in October 2002. Pursuant to the asset sales
described in Note 6, the loan commitment was reduced on November 4, 1999 to
$118,222 (loan sublimit of $107,222). The loan facility bears interest, at
ITEQ'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 1.25% for the applicable base rate margin, and from 2.00% to 3.25%
for the applicable Eurodollar rate margin. This credit facility is secured by
substantially all of the assets of ITEQ, a pledge of 65% of the stock of each of
ITEQ's material foreign subsidiaries, and a pledge of the stock of ITEQ's
domestic subsidiaries and guarantees entered into by such domestic subsidiaries.
The outstanding balance under the credit facility at September 30, 1999 was
$106,325.

The Company was not in compliance with one of the financial covenants
in its credit facility during the third quarter of 1999. As a result, effective
September 30, 1999, the Company and its lenders entered into a Limited Waiver
Regarding Disposition of Certain Assets and Certain Financial Covenants (the
"Limited Waiver") that waived compliance with certain financial covenants in the
credit facility for the third quarter of 1999.

The Limited Waiver also imposed an additional financial covenant on the
Company regarding achievement of certain levels of EBITDA plus certain non-cash
losses for each of the months of September through December 1999. In September,
the Company incurred a loss, partially as a result of its decision to
discontinue the operations of its storage tank group. As a result, the Company
was not in compliance with this financial covenant for the month of September.
As of November 15, 1999, the Company and its lenders amended the credit
facility, the effect of which was to eliminate any noncompliance at September
30, 1999 with the financial covenants in the credit facility and with the
financial covenant in the Limited Waiver.

Based on its current and expected levels of operations, its cost
structure and the anticipated asset sales discussed in Note 6, the Company
likely will require waivers of financial covenant noncompliance under, or
further amendments to, the credit facility on or before February 1, 2000. As a
result, the Company has classified as current the amounts presently outstanding
under its credit facility.

The Company is currently in discussions with its lenders regarding
amendment of the credit facility. In conjunction with its management's strategic
plan, which includes restructuring the credit facility, the Company is selling
certain of its assets in order to reduce its outstanding indebtedness under the
credit facility. In October 1999, the Company liquidated certain manufacturing
assets of the storage tank group for net proceeds of $2,159. In November 1999,
the Company sold its Provo, Utah storage tank manufacturing operation for net
proceeds of $1,878. Additionally, the Company has entered into four non-binding
letters of intent providing for an aggregate purchase price of $66,800 for the
sale of the majority of the storage tank group and is in the process of
liquidating the remaining portion of the storage tank group.

The Company also intends to explore obtaining financing apart from the
credit facility, which may include the sale and leaseback of certain assets or
subordinated debt.

10
<PAGE> 11
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 8 - INCOME TAXES

The Company, each quarter, evaluates its expected annual effective
income tax rate. This evaluation in the quarter ended September 30, 1999
resulted in a year to date income tax provision of zero for the nine months
ended September 30, 1999 for continuing operations.

NOTE 9 - SEGMENT REPORTING

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue from external customers
Process $ 29,070 $ 24,921 $ 97,213 $ 75,322
Filtration 7,057 8,309 31,045 23,456
--------- --------- --------- ---------
Total $ 36,127 $ 33,230 $ 128,258 $ 98,778
========= ========= ========= =========

Depreciation and amortization
Process $ 725 $ 786 $ 1,879 $ 2,303
Filtration 253 584 751 782
Other 17 17 47 49
--------- --------- --------- ---------
Total $ 995 $ 1,387 $ 2,677 $ 3,134
========= ========= ========= =========

Operating profit (loss)
Process $ (2,867) $ (951) $ 5,845 $ (697)
Filtration (4,047) (1,341) (3,285) (2,112)
Other (1,684) (892) (5,610) (3,043)
--------- --------- --------- ---------
Total $ (8,598) $ (3,184) $ (3,050) $ (5,852)
========= ========= ========= =========

Earnings (Loss) from continuing
operations before income tax
provision (benefit)
Process $ (3,570) $ (1,673) $ 4,487 $ (2,917)
Filtration (4,288) (1,544) (3,648) (2,704)
Other (1,717) (1,095) (5,690) (3,377)
--------- --------- --------- ---------
Total $ (9,575) $ (4,312) $ (4,851) $ (8,998)
========= ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
1998 1999
------------------ -------------------
<S> <C> <C>
Identifiable assets of continuing operations
Process $126,316 $ 98,590
Filtration 29,839 28,715
Other 11,853 13,935
-------- --------
Total $168,008 $141,240
======== ========
</TABLE>

The Company does not have material intersegment revenues.

11
<PAGE> 12
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 acquisitions. 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
discontinued its low margin fabrication operations during 1997 and 1998, and
adopted plans to discontinue the storage group operations in September 1999.

The Company's results of operations are affected by certain conditions
outside the Company's control, including overall industrial economic conditions
and specifically the demand for hydrocarbon processing products and services.
Additionally, recent volatility in oil prices and the oversupply of certain
commodity chemicals have adversely affected many of the Company's customers in
the refining and petrochemical industries. The downturn in the Asian market has
reduced export opportunities and to a limited degree increased domestic
competition from foreign equipment producers. Certain petrochemical and refining
customers deferred equipment purchases related to certain major projects during
1998 and thus far in 1999 resulting in reduced demand for some of the Company's
products. These factors have also increased pricing pressure on new equipment
resulting in a decline in the Company's gross margins and operating profits in
1998 and thus far in 1999. However, refinery and plant utilization remains near
capacity, and management believes that the intermediate and long-term prospects
for the sale of the Company's equipment, parts and services to the hydrocarbon
processing industry exceed those of its recent past.

The Company's results of operations for 1998 and of the first nine
months of 1999 were also adversely affected by conditions relating to the
Company's business combination following the October 1997 merger with Astrotech
International Corporation ("Astrotech"). On November 12, 1998, the Company
announced actions to restructure its management organization and reduce its
underlying cost structure. These actions included a multi-step strategic plan
designed to enhance future operations which was developed based on an in-depth
review of the Company's operations and systems. However, due to extended adverse
economic conditions in the Company's markets, management adopted, in September
1999, a plan to discontinue the operations of the Company's storage tank group.
The proceeds from the expected sale of this group will be utilized to reduce the
Company's indebtedness. The Company recognized an estimated loss on disposal of
this group of $13,687 including an estimate of future operating losses through
the anticipated disposal dates. Management also determined previously that
effective September 30, 1998 the filtration group was non-core and decided to
dispose of this business unit. However, in September 1999, management determined
that it was not in the shareholders best interest to dispose of these operations
at that date. Accordingly, those operations have been reconsolidated.

The Company records most of its 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.

12
<PAGE> 13
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 accounted for 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 SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998

REVENUES

Total revenues for the three months ended September 30, 1999 were
$33,230, a decrease of $2,897, or 8%, from revenues of $36,127 for the three
months ended September 30, 1998. Revenues within the process group were $24,921,
a decrease of $4,149 from $29,070 principally due to a decline in the demand for
new heat exchangers resulting from a significant decrease in capital
expenditures by the hydrocarbon processing industry due to depressed refined
products margins. Revenues within the filtration group were $8,309, an increase
of $1,252 from $7,057.

COST OF REVENUES

Cost of revenues for the three months ended September 30, 1999 were
$30,144, a decrease of $2,190, or 7%, from cost of revenues of $32,334 for the
three months ended September 30, 1998. Gross margins declined from 1998 to 1999
mainly due to softening market conditions which resulted in increased pricing
pressure. Cost of revenues within the process group decreased by $1,143, from
$23,510 to $22,367. Cost of revenues within the filtration group decreased by
$1,047 from $8,824 to $7,777.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the three months ended
September 30, 1999 decreased by $712 and represented 15% of revenues for both
the three months ended September 30, 1998 and 1999. The process group costs
decreased by $435. Filtration group costs decreased by $129. Corporate costs
were lower primarily due to reduced personnel related costs.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense for the three months ended
September 30, 1999 increased by $392 largely due to the recording, in the
period, of nine months of depreciation and amortization expense on the
filtration group's property and equipment which represented assets previously
held for sale.

MERGER, ACQUISITION AND STRATEGIC CHARGES

For the three months ended September 30, 1999, the Company recorded
nonrecurring merger, acquisition and strategic charges totaling $30 consisting
primarily of severance and other personnel related costs.

Merger, acquisition and strategic charges of $5,831 for the three
months ended September 30, 1998 relate to the consolidation of manufacturing
facilities at the process group, the write down of certain assets at the
filtration group, severance and other personnel related costs at the process and
filtration groups.

13
<PAGE> 14
INTEREST EXPENSE, NET

Interest expense for the three months ended September 30, 1999 was
$1,092, an increase of $64 from $1,028 in 1998. This increase is a result of
higher interest rates on the Company's credit facility.

INCOME TAXES

The income tax expense (benefit) from continuing operations for the
three months ended September 30, 1999 was $2,203 as compared to ($3,495) for the
comparable period in 1998. The Company determined that its annual effective
income tax rate for 1999 was expected to be zero. Accordingly, the cumulative
tax expense (benefit) was adjusted in the quarter ended September 30, 1999. The
effective tax rate for the three months ended September 30, 1998 was 36.5%.

DISCONTINUED OPERATIONS

ALLIED

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. Such operations ceased in the third quarter
of 1998. The loss from discontinued operations for the three months ended
September 30, 1998 was $730, net of a $409 income tax benefit.

FILTRATION GROUP

STORAGE TANK GROUP

Effective March 26, 1999, the Company sold the assets of Texoma Tank
Company, a mobile tank leasing business, for $13,956 resulting in a pre-tax gain
of $4,156 which is included in earnings (loss) from discontinued operations in
the accompanying statements of operations.

14
<PAGE> 15
Effective October 4, 1999, the Company liquidated certain manufacturing
assets of the storage tank group for net proceeds of $2,159. Effective November
4, 1999, the Company sold its Provo, Utah storage tank manufacturing operation
for net proceeds of $1,878. Additionally, the Company has entered into four
non-binding letters of intent in the amount of $66,800 for the sale of the
majority of the storage tank group and is in the process of liquidating the
remaining portion of the storage tank group. Accordingly, the Company has
recorded an anticipated loss on disposal of the storage tank group of $13,687,
which includes the expected results of operations through the anticipated
disposal date, including interest of $1,766. Prior period results of operations
have been restated to reflect the discontinuance of these operations. The net
assets of the storage group have been reflected as net assets of discontinued
operations in the accompanying consolidated balance sheets at their estimated
net realizable value. These assets are expected to be disposed of within the
next twelve months; however, there can be no assurance that they will be sold.

Sales from discontinued operations were $44,965 and $38,962 for the
three months ended September 30, 1998 and 1999, respectively.

The earnings (loss) from discontinued operations included in the
statements of operations are reflected net of the effective income tax rate for
the applicable period.

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998

REVENUES

Total revenues for the nine months ended September 30, 1999 were
$98,778, a decrease of $29,480, or 23%, from $128,258 for the nine months ended
September 30, 1998. Revenues within the process group decreased by $21,891
principally due to a decline in demand for new heat exchangers resulting from a
significant decrease in capital expenditures by the hydrocarbon processing
industry due to depressed refined products margins. Revenues within the
filtration group decreased by $7,589 principally due to a decrease in demand for
filtration products from a reduction in the capital expenditures by the steel
industry due to depressed steel prices.

COST OF REVENUES

Cost of revenues for the nine months ended September 30, 1999 were
$85,249, a decrease of $20,061, or 19%, from $105,310 for the nine months ended
September 30, 1998. Cost of revenues within the process group decreased by
$12,050, from $76,678 to $64,628. Gross margins declined from 1998 to 1999
mainly due to softening market conditions which resulted in increased pricing
pressure. Cost of revenues within the filtration group decreased $8,011 from
$28,632 to $20,621 and the gross margins in 1999 improved due to several large
contracts which experienced cost overruns in 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the nine months ended
September 30, 1999 decreased by $729 and represented 13% and 16% of revenues for
the nine months ended September 30, 1998 and 1999, respectively. The process
group costs increased by $618 as a result of nine months of expense in 1999
related to the GLM Tanks and Equipment, Ltd. ("GLM") acquisition compared to
recognizing only a partial period in 1998. The filtration group costs decreased
$273. Corporate costs were lower primarily due to reduced personnel related
costs.

15
<PAGE> 16
DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense for the nine months ended
September 30, 1999 increased by $457.

MERGER, ACQUISITION AND STRATEGIC CHARGES

For the nine months ended September 30, 1999, the Company recorded
nonrecurring merger, acquisition and strategic charges totaling $525. The charge
included severance and other personnel related costs.

For the nine months ended September 30, 1998, the Company recorded
nonrecurring merger, acquisition and strategic charges totaling $6,870 relating
to the consolidation of manufacturing operations at the process group, the write
down of certain assets at the filtration group, severance and other personnel
related costs at the process and filtration groups.

INTEREST EXPENSE, NET

Interest expense for the nine months ended September 30, 1999 was
$3,180, an increase of $941 from $2,239 in 1998. This increase is a result of
higher interest rates and nine months of interest in 1999 related to the GLM
acquisition compared to only a partial period in 1998.

INCOME TAXES

The Company did not reflect an income tax benefit from continuing
operations for the nine months ended September 30, 1999 because it expects the
effective income tax rate to be zero for the year ending December 31, 1999. The
income tax benefit recognized in 1998 was 36.4% of the pretax loss.

DISCONTINUED OPERATIONS

ALLIED

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. Such operations ceased in the third quarter
of 1998. The loss from discontinued operations for the nine months ended
September 30, 1998 was $923, net of a $519 income tax benefit.

FILTRATION GROUP

16
<PAGE> 17
STORAGE TANK GROUP

Effective March 26, 1999, the Company sold the assets of Texoma Tank
Company, a mobile tank leasing business, for $13,956 resulting in a pre-tax gain
of $4,156 which is included in the loss on disposal of discontinued operations
in the accompanying statements of operations.

Effective October 4, 1999, the Company liquidated certain manufacturing
assets of the storage tank group for net proceeds of $2,159. Effective November
4, 1999, the Company sold its Provo, Utah storage tank manufacturing operation
for net proceeds of $1,878. Additionally, the Company has entered into four
non-binding letters of intent in the amount of $66,800 for the sale of the
majority of the storage tank group and is in the process of liquidating the
remaining portion of the storage tank group. Accordingly, the Company has
recorded an anticipated loss on disposal of the storage tank group of $13,687,
which includes the expected results of operations through the anticipated
disposal date, including interest of $1,766. Prior period results of operations
have been restated to reflect the discontinuance of these operations. The net
assets of the storage group have been reflected in the Company's consolidated
balance sheets at their net realizable value. These assets are expected to be
disposed of within the next twelve months, however, there can be no assurance
that they will be sold.

Sales from discontinued operations were $127,727 and $121,896 for the
nine months ended September 30, 1998 and 1999, respectively.

The earnings (loss) from discontinued operations included in the
statements of operations are reflected net of the effective income tax rate for
the applicable period.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1999 the Company's cash position was $6,665 compared
with $5,784 at December 31, 1998.

The Company's existing capital resources consist of cash balances, cash
provided by its operating activities and funds available under its line of
credit. There was $2,675 of unused commitment under the line of credit as of
September 30, 1999. The Company's operating activities from continuing
operations, provided $4,549 in cash during the nine months ended September 30,
1999. For a discussion of the terms of the Company's credit facility, see Note 7
to the unaudited consolidated financial statements, included herein.

The Company's cash requirements consist of its general working capital
needs, capital expenditures and obligations under its leases and indebtedness.
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 subcontract costs incurred prior to the receipt of corresponding
progress payments under the contract with respect to which such costs are
incurred. Management anticipates that the Company will make capital expenditures
for continuing operations of approximately $1,500 in 1999 as compared to $3,683
in 1998.

ITEQ's principal credit facility requires the Company to maintain
certain levels of earnings before interest, taxes and depreciation and
amortization ("EBITDA"), interest coverage, working capital and stockholders'
equity and contains other restrictive covenants. Such instruments also limit the
ability of the Company to incur additional indebtedness, to pay dividends or to
make acquisitions and certain investments.

17
<PAGE> 18
The Company was not in compliance with one of the financial covenants
in its credit facility during the third quarter of 1999. As a result, effective
September 30, 1999, the Company and its lenders entered into a Limited Waiver
Regarding Disposition of Certain Assets and Certain Financial Covenants (the
"Limited Waiver") that waived compliance with certain financial covenants in the
credit facility for the third quarter of 1999.

Based on its current and expected levels of operations, its cost
structure and the anticipated asset sales described in Note 6, the Company
likely will require waivers of financial covenant noncompliance under, or
further amendments to, the credit facility on or before February 1, 2000. There
can be no assurance that the Company will be able to obtain such waivers or
amendments to the credit facility. If the Company is unable to do so, or obtain
a new credit facility, on terms satisfactory to the Company, its liquidity,
operations and financial condition will be adversely affected, and the Company's
ability to carry out its strategic objectives and return to profitability may be
jeopardized.

The Company also intends to explore obtaining financing apart from the
credit facility, which may include the sale and leaseback of certain assets or
subordinated debt. The Company's ability to obtain a satisfactory amendment of
its credit facility may depend, in part, upon the Company's successful
completion of the asset sales, its future financial performance and its ability
to obtain alternative financing.

Management believes that cash generated from operations, cash generated
from proposed asset sales, existing cash balances and available borrowing
capacity will be sufficient to meet ITEQ's anticipated cash requirements for
1999.

YEAR 2000 ISSUE

ITEQ is facing the Year 2000 issue which arises from the past practice
of utilizing two digits (as opposed to four) to represent the year in some
computer programs and software and could result in computational or operational
errors. The Year 2000 problem could result in system failures or miscalculations
causing disruptions of the operations of ITEQ, its vendors and its customers.

18
<PAGE> 19
ITEQ developed a multi-phase plan to resolve potential Year 2000
problems relating to its information technology ("IT") systems and embedded chip
technology contained in certain of its facilities and a limited number of
products it produces, including identifying and evaluating all IT systems and
embedded chip technology according to their potential business impact;
identifying IT systems and embedded chip technology that use date functions and
assessing them for Year 2000 functionality; reprogramming or replacing
equipment/systems, where necessary, to ensure Year 2000 readiness; testing the
code modifications and new equipment/systems to ensure successful operation in a
post-1999 environment; and adoption of contingency plans in the case of
potential Year 2000 failures. ITEQ currently has identified the IT systems and
embedded chip technology utilizing date functions and has assessed them for Year
2000 compliance. ITEQ believes that remediation of the most critical functions
of its systems has been completed. Final deployment of Year 2000 compliant
financial applications to one of its locations is expected to be completed by
November 30, 1999. The Company is continuing to test certain code modifications
to ensure Year 2000 readiness.

ITEQ relies on numerous third-party vendors and suppliers for a wide
variety of goods and services, including raw materials, banking,
telecommunications and utilities such as water and electricity. Many of ITEQ's
operations would be adversely affected if these supplies and services were
curtailed as a result of a supplier's Year 2000 noncompliance. ITEQ has
attempted to contact its major third party vendors to ensure that they have an
effective plan in place to address the Year 2000 problem. Although some vendors
have not responded to the Company's inquiries, ITEQ has not been informed of any
supplier's Year 2000 noncompliance. The Company believes the failure of a third
party to complete their Year 2000 compliance program will be the area of
greatest risk.

ITEQ currently estimates that its Year 2000 costs will not exceed $.5
million, most of which have been incurred in 1999. This cost estimate excludes
the direct costs of the Solomon financial systems implementation (which is a
Year 2000 compliant system) for one of its subsidiaries, the costs of which are
being capitalized. Certain of the non-capitalized costs may or may not be
recurring. ITEQ expects that these expenses will be funded through cash flow
from operations.

If ITEQ's Year 2000 issues were unresolved, potential consequences
would include, among other possibilities, the inability to accurately and timely
process customers' orders, process financial transactions, bill customers, or
report accurate data to management, shareholders, customers, and others as well
as business interruptions or shutdowns, financial losses, and litigation related
to Year 2000 issues. The Company could incur higher administrative costs as a
result of having to process financial information manually or through
alternative microcomputer systems.

ITEQ has contingency/recovery plans aimed at ensuring the continuity of
critical business functions before and after December 31, 1999. The Company's
contingency plans include the use of alternative vendors and other third parties
that are Year 2000 compliant and the use of alternative data processing systems
or temporary manual information systems as necessary. Although, ITEQ cannot
guarantee that it will be able to resolve all of its Year 2000 issues, the
Company believes that any disruptions will be temporary and would not be
material to our overall business or results of operations.

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.

19
<PAGE> 20
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

MARKET RISK. The Company's results of operations are affected by
certain conditions outside the Company's control, including overall industrial
economic conditions and specifically the demand for hydrocarbon processing
products and services.

INTEREST RATE RISK. Based on the Company's overall interest rate
exposure during the nine months ended September 30, 1999, and assuming similar
interest rate volatility in the future, a near-term (12 months) change in
interest rates would not materially affect the Company's consolidated financial
position, results of operations or cash flows. A 10% change in the rate of
interest would not have a material effect on the Company's financial position,
results of operations or cash flows.

FOREIGN CURRENCY RISK. Except for sales from certain foreign
subsidiaries, the Company's sales are either U.S. dollar denominated or payable
in currency with fixed exchange rates against the U.S. dollar. The Company has
operations in Canada, the United Kingdom, Germany and Singapore in addition to
operations in the United States and other countries. These companies' functional
currencies are the Canadian dollar, the British pound, the German Mark and the
Singapore dollar, respectively. The Company's financial results from these
foreign operations are translated into U.S. dollars in consolidation. As such,
the Company is exposed to foreign currency risk to the extent that there are
fluctuations in local currency exchange rates against the U.S. dollar.

FOREIGN OPERATIONS. The Company has operations in countries other than
the United States as mentioned above. As a result, the Company is exposed to
risks normally associated with operations located outside the U.S., including
political, economic, social and labor instabilities, as well as foreign exchange
controls, currency fluctuations and taxation changes.

20
<PAGE> 21
PART II --- OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS:

*3.1 -- Amended and Restated Bylaws of the Registrant
*4.1 -- Third Amendment to Revolving Credit Agreement, dated as of
March 26, 1999, among the Registrant, the Guarantors and various
lending institutions including BankBoston, N.A., as Agent, and
Deutsche Bank AG, as Documentation Agent.
*4.2 -- Fourth Amendment to Revolving Credit Agreement, dated as of
June 16, 1999, among the Registrant, the Guarantors and various
lending institutions including BankBoston, N.A., as Agent, and
Deutsche Bank AG, as Documentation Agent.
*4.3 -- Fifth Amendment to Revolving Credit Agreement, dated as of
July 30, 1999, among the Registrant, the Guarantors and various
lending institutions including BankBoston, N.A., as Agent, and
Deutsche Bank AG, as Documentation Agent.
*4.4 -- Sixth Amendment and Limited Waiver to Revolving Credit
Agreement, dated as of September 3, 1999, among the Registrant,
the Guarantors and various lending institutions including
BankBoston, N.A., as Agent, and Deutsche Bank AG, as
Documentation Agent.
*4.5 -- Limited Waiver Regarding Disposition of Certain Assets and
Certain Financial Covenants for the Revolving Credit Agreement,
dated as of September 30, 1999, among the Registrant, the
Guarantors and various lending institutions including BankBoston,
N.A., as Agent, and Deutsche Bank AG, as Documentation Agent.
*27 -- Financial Data Schedule.

- -----------------
* Filed herewith.

(b) REPORTS ON FORM 8-K.

During the quarter ended September 30, 1999, the Company filed a Form
8-K dated July 6, 1999, with respect to William P. Reid, the current
President and Chief Operating Officer, being given the additional title
of Acting Chief Executive Officer of the Company.

21
<PAGE> 22
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: November 15, 1999 /s/ WILLIAM P. REID
-----------------------
William P. Reid
President and Acting Chief
Executive Officer

Date: November 15, 1999 /s/ KEITH L. MORGENROTH
--------------------------
Keith L. Morgenroth
Vice President of Finance and
Accounting

22
<PAGE> 23
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
*3.1 -- Amended and Restated Bylaws of the Registrant
*4.1 -- Third Amendment to Revolving Credit Agreement, dated as of
March 26, 1999, among the Registrant, the Guarantors and various
lending institutions including BankBoston, N.A., as Agent, and
Deutsche Bank AG, as Documentation Agent.
*4.2 -- Fourth Amendment to Revolving Credit Agreement, dated as of
June 16, 1999, among the Registrant, the Guarantors and various
lending institutions including BankBoston, N.A., as Agent, and
Deutsche Bank AG, as Documentation Agent.
*4.3 -- Fifth Amendment to Revolving Credit Agreement, dated as of
July 30, 1999, among the Registrant, the Guarantors and various
lending institutions including BankBoston, N.A., as Agent, and
Deutsche Bank AG, as Documentation Agent.
*4.4 -- Sixth Amendment and Limited Waiver to Revolving Credit
Agreement, dated as of September 3, 1999, among the Registrant,
the Guarantors and various lending institutions including
BankBoston, N.A., as Agent, and Deutsche Bank AG, as
Documentation Agent.
*4.5 -- Limited Waiver Regarding Disposition of Certain Assets and
Certain Financial Covenants for the Revolving Credit Agreement,
dated as of September 30, 1999, among the Registrant, the
Guarantors and various lending institutions including BankBoston,
N.A., as Agent, and Deutsche Bank AG, as Documentation Agent.
*27 -- Financial Data Schedule.
</TABLE>

- -----------------
* Filed herewith.

<PAGE> 1
EXHIBIT 3.1

RESTATED BYLAWS
OF
ITEQ, INC.*

ARTICLE I

OFFICES

Section 1. Registered Office. The registered office of the
Corporation required by the General Corporation Law of the State of Delaware to
be maintained in the State of Delaware shall be the registered office named in
the Amended and Restated Certificate of Incorporation of the Corporation, or
such other office as may be designated from time to time by the board of
directors in the manner provided by law. Should the Corporation maintain a
principal office or place of business within the State of Delaware, such
registered office need not be identical to such principal office or place of
business of the Corporation.

Section 2. Other Offices. The Corporation may also have
offices at such other places within or without the State of Delaware as the
board of directors may from time to time determine or the business of the
Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings. All meetings of the stockholders
will be held at the principal office of the Corporation, or at such other place
within or without the State of Delaware as may be determined by the board of
directors and stated in the notice of the meeting or in duly executed waivers of
notice the meeting.

Section 2. Annual Meetings. An annual meeting of the
Corporation's stockholders shall be held for the election of directors at such
date, time and place, either within or without the State of Delaware, as may be
designated by resolution of the board of directors from time to time; provided
that each successive annual meeting shall be held on a date within 13 months
after the date of the preceding annual meeting. At the annual meeting of
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of

- -------------------

*The Amended and Restated Bylaws of the Company were adopted by the
board of directors on July 23, 1997, and became effective on the Effective Date
of the ITEQ/Astrotech merger, which occurred as of 4:01 p.m. Eastern Standard
Time on October 28, 1997, and were amended by the board of directors on
September 20, 1999. These Restated Bylaws are a restatement of the Amended and
Restated Bylaws, as amended.

<PAGE> 2

the board of directors, or (c) otherwise properly brought before the meeting by
a stockholder of the Corporation. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, no less than 60 days nor more
than 180 days prior to the anniversary date of the immediately preceding annual
meeting; provided, however, that if the date of the annual meeting is more than
60 days later than the anniversary date of the immediately preceding annual
meeting, notice by the stockholder, to be timely, must be received not later
than the close of business on the tenth day following the earlier of (a) the
date on which a written statement setting forth the date of the annual meeting
was mailed to stockholders and (b) the date on which the date of the meeting is
first disclosed to the public. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting, (b) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such proposal, (c) the class and number of
shares of the Corporation that are beneficially owned by the stockholder, and
(d) any material interest of the stockholder in such business. In addition, if
the stockholder's ownership of shares of the Corporation, as set forth in the
notice, is solely beneficial, documentary evidence of such ownership must
accompany the notice. Notwithstanding anything else in these bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 2. The presiding
officer of an annual meeting shall, if the facts warrant, determine and declare
to the meeting that any business that was not properly brought before the
meeting is out of order and shall not be transacted at the meeting.

Section 3. Postponement or Adjournment of Meetings. The board
of directors may, at any time prior to the holding of a meeting of shareholders,
postpone such meeting to such time and place as is specified in the notice of
postponement of such meeting, which notice shall be given in accordance with
Article VI of these bylaws at least ten days before the date to which the
meeting is postponed. In addition, any meeting of the stockholders may be
adjourned at any time by the Chairman of the Board or such other person who
shall be lawfully acting as chairman of the meeting, if such adjournment is
deemed by the chairman of the meeting to be a reasonable course of action under
the circumstances.

Section 4. Notice of Annual Meeting. Written or printed notice
of the annual meeting, stating the place, day and hour thereof, will be served
upon or mailed to each stockholder entitled to vote thereat at such address as
appears on the books of the Corporation, not less than ten days nor more than 60
days before the date of the meeting.

Section 5. Special Meeting. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or the Certificate of Incorporation, may only be called by the
President, the Chairman of the Board, or the Chief Executive Officer.

Section 6. Notice of Special Meeting. Written notice of a
special meeting of stockholders, stating the place, day and hour and purpose or
purposes thereof, will be served upon

-2-
<PAGE> 3

or mailed to each stockholder entitled to vote thereat at such address as
appears on the books of the Corporation, not less than ten days nor more than 60
days before the date of the meeting.

Section 7. Business at Special Meeting. Business transacted at
all special meetings will be confined to the purpose or purposes stated in the
notice.

Section 8. Stockholder List. At least ten days before each
meeting of stockholders, a complete list of the stockholders entitled to vote at
such meeting or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each stockholder, will be
prepared by the Secretary. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during usual business
hours, for a period of ten days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice, or, if not so specified, at the place where the meeting is to be held.
Such list will also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any stockholder during the
whole time of the meeting.

Section 9. Quorum. The holders of a majority of the shares of
capital stock issued and outstanding and entitled to vote thereat, represented
in person or by proxy, will constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute, the Certificate of Incorporation or these bylaws. If, however, a quorum
is not present or represented at any meeting of the stockholders, the chairman
of the meeting or a majority of the shares of stock, present in person or
represented by proxy, although not constituting a quorum, shall have power to
postpone or recess the meeting without notice other than announcement at the
meeting of the date, time and place of the postponed or recessed meeting. At any
such adjourned meeting at which a quorum is represented any business may be
transacted which might have been transacted at the meeting as originally
noticed.

Section 10. Majority Vote. When a quorum is present at any
meeting, the vote of the holders of a majority of the shares having voting power
represented at the meeting in person or by proxy will decide any question
brought before the meeting, unless the question is one upon which, by statute or
express provision of the Certificate of Incorporation or these bylaws, a
different vote is required, in which case such express provision will govern and
control the decision of such question. Where a separate vote by class is
required, the affirmative vote of the majority of shares of such class present
in person or represented by proxy at the meeting shall be the act of such class.

Section 11. Proxies. At any meeting of the stockholders every
stockholder having the right to vote will be entitled to vote in person or by
proxy appointed by an instrument in writing subscribed by such stockholder or
his duly authorized attorney in fact and bearing a date not more than eleven
months prior to the date of the meeting.

Section 12. Voting. Unless otherwise provided by statute, the
Certificate of Incorporation or these bylaws, each stockholder will have one
vote for each share of stock having voting power, registered in his name on the
books of the Corporation.

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Section 13. Voting of Stock of Certain Holders; Elections;
Inspections. Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officers, agent or proxy as the bylaws of such
corporation may prescribe, or in the absence of such provision, as the Board of
Directors of such corporation may determine. Shares standing in the name of a
deceased person may be voted by the executor or administrator of such deceased
person, either in person or by proxy. Shares standing in the name of a guardian,
conservator or trustee may be voted by such fiduciary, either in person or by
proxy, but no fiduciary shall be entitled to vote shares held in such fiduciary
capacity without a transfer of such shares into the name of the fiduciary.
Shares standing in the name of a receiver may be voted by the receiver. A
stockholder whose shares are pledged shall be entitled to vote such shares,
unless in the transfer by the pledgor on the books of the Corporation, he has
expressly empowered the pledgee to vote thereon, in which case only the pledgee,
or his proxy, may represent the stock and vote thereon.

If shares or other securities having voting power stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given in
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect:

(a) If only one votes, his act binds all;

(b) If more than one vote, the act of the majority so voting
binds all;

(c) If more than one vote, but the vote is evenly split on any
particular matter, each fraction may vote the securities in question
proportionally, or any person voting the shares, or a beneficiary, if
any, may apply to the Court of Chancery or such other court as may have
jurisdiction to appoint an additional person to act with the persons so
voting the shares, which shall then be voted as determined by a majority
of such persons and the person appointed by the Court.

All voting, except as required by the Certificate of
Incorporation or where otherwise required by law, may be by a voice vote;
provided, however, that upon demand therefor by stockholders holding a majority
of the issued and outstanding stock present in person or by proxy at any
meeting, a stock vote shall be taken. Every stock vote shall be taken by written
ballots, each of which shall state the name of the stockholder or proxy voting
and such other information as may be required under the procedure established
for the meeting. All elections of directors shall be by ballot, unless otherwise
provided in the Certificate of Incorporation.

At any meeting at which a vote is taken by ballots, the
chairman of the meeting may appoint one or more inspectors, each of whom shall
subscribe an oath or affirmation to execute faithfully the duties of inspector
at such meeting with strict impartiality and according to the best of his
ability. Such inspector shall receive the ballots, count the votes and make and
sign a certificate

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of the result thereof. The chairman of the meeting may appoint any person to
serve as inspector, except no candidate for the office of director shall be
appointed as inspector.

ARTICLE III

BOARD OF DIRECTORS

Section 1. Powers. The business and affairs of the Corporation
will be managed by a board of directors. The board may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute,
by the Certificate of Incorporation or these bylaws directed or required to be
exercised or done by the stockholders.

Section 2. Number of Directors. The number of directors which
constitute the whole board will be no less than three and no more than twelve,
as such number shall be determined by resolution of the board of directors from
time to time or, if such number is not so determined, the number shall be seven;
provided that no decrease in the number of directors shall have the effect of
shortening the term of any incumbent director.

Section 3. Nomination. Only persons who are nominated in
accordance with the procedures set forth in these bylaws shall be eligible to
serve as directors. Nominations of persons for election to the board of
directors of the Corporation may be made by or at the direction of the board of
directors or by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this Section 3, who shall
be entitled to vote for the election of directors at the meeting, and who
complies with the notice procedures set forth in this Section 3.

Nominations by stockholders shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation (a) in the case of an annual
meeting, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that if
the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder, to be timely, must be so received
not later than the close of business on the tenth day following the earlier of
the day on which notice of the date of the meeting was mailed or prior public
disclosure of the meeting date was made, and (b) in the case of a special
meeting at which directors are to be elected, not later than the close of
business on the tenth day following the earlier of the day on which notice of
the date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the Corporation's
books, of such stockholder

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and (ii) the class and number of shares of the Corporation which are
beneficially owned by such stockholder and also which are owned of record by
such stockholder; and (c) as to the beneficial owner, if any, on whose behalf
the nomination is made, (i) the name and address of such person and (ii) the
class and number of shares of the Corporation which are beneficially owned by
such person. At the request of the board of directors, any person nominated by
the board of directors for election as a director shall furnish to the Secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.

The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Section 3, and if he shall so
declare, the defective nomination shall be disregarded.

Section 4. Election and Term. The directors shall be elected
at the annual meeting of stockholders, except as provided in Section 5 of this
Article III, and each director elected shall hold office until his successor
shall be elected and shall qualify. Directors need not be residents of Delaware
or stockholders of the Corporation.

Section 5. Vacancies. If any vacancy occurs in the Board of
Directors caused by the death, resignation, retirement, disqualification, or
removal from office of any director, or otherwise, or if any new directorship is
created by an increase in the authorized number of directors, a majority of the
directors then in office, though less than a quorum, or a sole remaining
director, may choose a successor or fill the resulting vacancy or the newly
created directorship; and a director so chosen shall hold office until the next
election and until his successor shall be duly elected and shall qualify, unless
sooner removed.

Section 6. Resignation; Removal. Any director may resign at
any time. Any director may be removed either for or without cause at any special
meeting of stockholders duly called and held for such purpose.

ARTICLE IV

MEETINGS AND COMMITTEES OF THE BOARD

Section 1. First Meeting. Each newly elected board of
directors may hold its first meeting for the purpose of organization and the
transaction of business, if a quorum is present, immediately after and at the
same place as the annual meeting of the stockholders, and no notice of such
meeting shall be necessary; or the board may meet for such purpose at such place
and time as is fixed by the consent in writing of all the directors.

Section 2. Regular Meetings. Regular meetings of the board may
be held at such time and place either within or without the State of Delaware
and with such notice or without notice as is determined from time to time by the
board.

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Section 3. Special Meetings. Special meetings of the board may
be called by the President or the Chairman of the Board of directors on one
day's notice to each director, either personally or by mail, telegram or
facsimile transmission. Special meetings will be called by the President or the
Secretary in like manner and on like notice upon the written request of any
director.

Section 4. Quorum and Voting. At all meetings of the board, a
majority of the directors will be necessary and sufficient to constitute a
quorum for the transaction of business. The act of a majority of the directors
present at any meeting at which there is a quorum will be the act of the board
of directors, except as may be otherwise specifically provided by statute, the
Certificate of Incorporation or these bylaws. If a quorum is not present at any
meeting of directors, the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present.

Section 5. Telephone Meetings. The directors may hold their
meetings in any manner permitted by law. Without limitation, at any meeting of
the board, a member may attend by telephone, radio, television, interactive
media or similar means of communication by means of which all participants can
hear each other and which permits him to participate in the meeting, and a
director so attending will be deemed present at the meeting for all purposes,
including the determination of whether a quorum is present.

Section 6. Action by Written Consent. Any action required or
permitted to be taken by the board of directors or the executive committee, if
one is established, under applicable statutory provisions, the Certificate of
Incorporation, or these bylaws, may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all the members of the
board of directors or executive committee, as the case may be, and filed with
the minutes of the proceedings of the directors or executive committee, as the
case may be.

Section 7. Committees of Directors. The board of directors
may, by resolution passed by a majority of the whole board, establish one or
more committees. Each committee shall consist of one or more members of the
board. Members of committees of the board of directors shall be elected annually
by vote of a majority of the board. Presence of a majority of the committee
members shall constitute a quorum at committee meetings. A Committee may act by
majority vote of its voting members present at a meeting. Each committee shall
have and may exercise such of the powers of the board of directors in the
management of the business and affairs of the Corporation as may be provided in
these bylaws or by resolution of the board of directors. Each committee may
authorize the seal of the Corporation to be affixed to any document or
instrument. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of such committee. Meetings of a committee may be called
by any member of the committee by written, telegraphic, facsimile or telephonic
notice to all members of the committee and shall be at such time and place as
shall be stated in the notice of such meeting. Any member of a committee may
participate in any meeting of the committee by means of conference telephone or
similar communications equipment. In the absence or disqualification of a member
of

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any committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum may, if deemed
advisable, unanimously appoint another member of the board to act at the meeting
in the place of the disqualified or absent member. Each committee may fix such
other rules and procedures governing conduct of its meetings as it shall deem
appropriate.

ARTICLE V

COMPENSATION OF DIRECTORS

The Board of Directors shall have the authority to fix the
compensation of directors. The board shall also have the authority to fix the
compensation of members of committees of the board. No provision of these bylaws
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.

ARTICLE VI

NOTICES

Section 1. Methods of Notice. Whenever any notice is required
to be given to any stockholder under the provisions of any statute, the
Certificate of Incorporation or these bylaws, it will not be construed to
require personal notice, but such notice may be given in writing by mail
addressed to such stockholder at such address as appears on the books of the
Corporation, and such notice shall be deemed to be given at the time when the
same shall be deposited in the United States mail with postage thereon prepaid.

Section 2. Waiver of Notice. Whenever any notice is required
to be given to any stockholder or director under the provisions of any statute,
the Certificate of Incorporation or these bylaws, a waiver thereof in writing
signed by the person or persons entitled to the notice, whether before or after
the time stated therein, will be deemed equivalent to the giving of such notice.
Attendance at any meeting will constitute a waiver of notice thereof except as
otherwise provided by statute.

ARTICLE VII

OFFICERS

Section 1. Executive Officers. The officers of the Corporation
shall consist of President, Vice President, Treasurer, and Secretary, each of
whom shall be elected by the board of directors. The board of directors may also
elect a chairman of the board, chief executive officer, chief

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operating officer, chief financial officer, additional vice presidents, and one
or more assistant secretaries and assistant treasurers. The chairman of the
board shall not be an officer of the Corporation unless otherwise expressly set
forth in a duly adopted resolution of the board of directors. Any two or more
offices may be held by the same person, and none of the officers of the
Corporation need be directors, except that the chairman of the board must be a
director, whether or not he is an officer, of the Corporation.

Section 2. Other Officers and Agents. The board may elect or
appoint such other officers, assistant officers and agents as it deems
necessary, who will hold their offices for such terms and shall exercise such
powers and perform such duties as determined from time to time by the board.

Section 3. Compensation. The compensation of all officers of
the Corporation will be fixed by the board of directors except as otherwise
directed by the board.

Section 4. Term, Removal and Vacancies. The officers of the
Corporation will hold office until their resignation or their successors are
chosen and qualify. Any officer, agent or member of the executive committee
elected or appointed by the board of directors may be removed at any time by the
board of directors; provided, that such removal shall be without prejudice to
the contract rights, if any, of the removed party. If any such office becomes
vacant for any reason, the vacancy will be filled by the board of directors.

Section 5. Chairman of the Board. The Chairman of the Board,
if one is elected, shall preside at meetings of the board of directors and
stockholders. The chairman shall have such powers and duties as may from time to
time be prescribed by duly adopted resolutions of the board of directors.

Section 6. Chief Executive Officer. The Chief Executive
Officer, if one is elected, shall preside at meetings of the board of directors
and stockholders if there is no chairman of the board or in his absence. The
Chief Executive Officer shall formulate and submit to the board of directors or
the executive committee, if any, matters of general policy of the Corporation
and shall supervise and have overall responsibility for the business,
administration and operations of the Corporation. In general, he shall perform
all duties as from time to time may be assigned to him by the board. He shall
from time to time make such reports of the affairs of the Corporation as the
board may require.

Section 7. President, Chief Operating Officer, and Chief
Financial Officer. The President, the Chief Operating Officer and the Chief
Financial Officer shall have such duties as shall be assigned to each from time
to time by the Chairman of the Board, the Chief Executive Officer and the board.
During the absence of the Chief Executive Officer or during his inability to
act, the President shall exercise the powers and shall perform the duties of the
Chief Executive Officer, subject to the direction of the Board of Directors.
Subject to any limitations imposed on such officers

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by the Board of Directors, each such officer shall have the power and authority
to take actions necessary for the proper performance of his duties.

Section 8. Vice Presidents. The Vice Presidents, in the order
determined by the board of directors, will, in the absence or disability of the
President, perform the duties and exercise the powers of the President, and will
perform such other duties as the board of directors and President may prescribe.

Section 9. Secretary. The Secretary will attend all meetings
of the board of directors and all meetings of the stockholders and record all
votes and the minutes of all proceedings in a book to be kept for that purpose
and will perform like duties for the standing committees of the board when
required. He will give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the board of directors, and will perform
such other duties as may be prescribed by the board of directors, the Chief
Executive Officer and the President. He will keep in safe custody the seal of
the Corporation and, when authorized by the board, affix the seal to any
instrument requiring it, and when so affixed it shall be attested by his
signature or by the signature of an assistant secretary.

Section 10. Assistant Secretaries. The assistant secretaries
in the order determined by the board of directors will perform, in the absence
or disability of the Secretary, the duties and exercise the powers of the
Secretary and will perform such other duties as the board of directors, the
Chief Executive Officer and the President may prescribe.

Section 11. Treasurer. The Treasurer will have the custody of
the Corporate's funds and securities and will keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and will
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the board of
directors. The Treasurer will disburse the funds of the Corporation as may be
ordered by the board, and will render to the board of directors, the Chief
Executive Officer and the President, whenever they may require it, an account of
all of his transactions as Treasurer and of the financial condition of the
Corporation.

Section 12. Assistant Treasurers. The Assistant Treasurers in
the order determined by the board of directors, in the absence or disability of
the Treasurer, perform the duties and exercise the powers of the Treasurer and
will perform such other duties as the board of directors and President may
prescribe.

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ARTICLE VIII

SHARES AND STOCKHOLDERS

Section 1. Certificates Representing Shares. The certificates
representing shares of the Corporation will be numbered and entered in the books
of the Corporation as they are issued. They will exhibit the holder's name and
number of shares and will be signed by the President or Vice-President and the
Secretary or an Assistant Secretary, and will be sealed with the seal of the
Corporation or a facsimile thereof. The signature of any such officer may be
facsimile if the certificate is countersigned by a transfer agent or registered
by a registrar, other than the Corporation itself or an employee of the
Corporation. In case any officer who has signed or whose facsimile signature has
been placed upon such certificate has ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the date of its issuance.

Section 2. Transfer of Shares. Upon surrender to the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it will be the duty
of the Corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Notwithstanding the foregoing, no transfer will be recognized by the Corporation
if such transfer would violate federal or state securities laws, the Certificate
of Incorporation, or any stockholders agreements which may be in effect at the
time of the purported transfer.

Section 3. Fixing Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of stockholders for any other proper purpose, the
board of directors may provide that the stock transfer books be closed for a
stated period not to exceed, in any case, 60 days. If the stock transfer books
are closed for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, such books must be closed for at least ten
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the board of directors may fix in advance a date as the record date for
any such determination of stockholders, such date, in any case, to be not more
than 60 days and, in case of a meeting of stockholders, not less than ten days
prior to the date on which the particular action requiring such determination of
stockholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of stockholders entitled to notice of
or to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the board of directors declaring such dividend
is adopted, as the case may be, will be the record date for such determination
of stockholders. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as herein provided, such determination
will apply to any adjournment thereof except where the determination has been
made through the closing of stock transfer books and the stated period of
closing has expired.

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Section 4. Registered Stockholders. The Corporation is
entitled to recognize the exclusive right of a person registered on its books as
the owner of a share or shares to receive dividends, and to vote as such owner,
and for all other purposes; and the Corporation is not bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it has express or other notice thereof, except
as otherwise provided by the laws of Delaware.

Section 5. Lost Certificate. The board of directors may direct
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representatives, to
advertise the same in such manner as it shall require and/or give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.

Section 6. Fractional Share Interests. The Corporation may,
but shall not be required to, issue fractions of a share. If the Corporation
does not issue fractions of a share, it shall (a) arrange for the disposition of
fractional interests by those entitled thereto, (b) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
factions are determined, or (c) issue script or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a full
share upon the surrender of such script or warrants aggregating a full share. A
certificate for a fractional share or an uncertificated fractional share shall,
but script or warrants shall not unless otherwise provided therein, entitle the
holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the corporation in the event of liquidation.
The board of directors may cause script or warrants to be issued subject to the
conditions that they shall become void if not exchanged for certificates
representing the full shares or uncertificated full shares before a specified
date, or subject to the conditions that the shares for which script or warrants
are exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of script or warrants, or subject to any other
conditions which the board of directors may impose.

ARTICLE IX

GENERAL

Section 1. Dividends. The board of directors may from time to
time declare, and, if so declared, the Corporation pay, dividends on its
outstanding shares of capital stock in cash, in property, or in its own shares,
except when the declaration or payment thereof would be contrary to law or the
Certificate of Incorporation. Such dividends may be declared at any regular or
special

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meeting of the board, and the declaration and payment will be subject to all
applicable provisions of law, the Certificate of Incorporation and these bylaws.

Section 2. Reserves. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the directors from time to time, in their absolute discretion,
deem proper as a reserve fund to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors may think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.

Section 3. Directors' Annual Statement. The board of directors
will present at each annual meeting and when called for by vote of the
stockholders at any special meeting of the stockholders, a full and clear
statement of the business and condition of the Corporation.

Section 4. Checks. All checks or demands for money and notes
of the Corporation will be signed by such officer or officers or such other
person or persons as the board of directors may from time to time designate.

Section 5. Corporate Records. The Corporation will keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its stockholders giving the names and
addresses of all stockholders and the number and class of shares held by each.
All other books and records of the Corporation may be kept at such place or
places within or without the State of Delaware as the board of directors may
from time to time determine.

Section 6. Seal. The corporate seal will have inscribed
thereon the name of the Corporation. The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or reproduced.

Section 7. Amendment. These bylaws may be altered, amended or
repealed or new bylaws may be adopted at any annual meeting of the stockholders
or at any special meeting of the stockholders at which a quorum is present or
represented, provided notice of the proposed alteration, amendment, repeal or
adoption be contained in the notice of such meeting, by the affirmative vote of
the holders of a majority of the shares entitled to vote at such meeting and
present or represented thereat, or by the affirmative vote of a majority of the
board of directors at any regular or special meeting of the board, subject to
the right of the stockholders entitled to vote with respect thereto to amend or
repeal bylaws adopted or amended by the board.

Section 8. Indemnification. Except as otherwise provided in
the Certificate of Incorporation, each director, officer and former director or
officer of the Corporation, and any person who may have served or who may
hereafter serve at the request of the Corporation as a director or officer of
another corporation in which it owns shares of capital stock or of which it is a
creditor, is hereby indemnified by the Corporation against expenses actually and
necessarily incurred by him in connection with the defense of any action, suit
or proceeding in which he is made a party by reason

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of being or having been such director or officer to the fullest extent
authorized by the General Corporation Law of the State of Delaware, or any other
applicable law as may from time to time be in effect. Such indemnification will
not be deemed exclusive of any other rights to which such director, officer or
other person may be entitled under any agreement, vote of stockholders, or
otherwise. Without limitation, nothing in this section shall limit any
indemnification provisions in the Certificate of Incorporation.

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<PAGE> 1
EXHIBIT 4.1

THIRD AMENDMENT
TO REVOLVING CREDIT AGREEMENT

and

WAIVER REGARDING DISPOSITION OF ASSETS HELD BY TEXOMA
TANK COMPANY, INC.

This THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT is made and entered
into as of March 26, 1999 (this "Amendment") by and among (a) ITEQ, INC., a
Delaware corporation (the "Borrower"), (b) THE GUARANTORS, (c) BANKBOSTON,
N.A., a national banking association having its principal place of business at
100 Federal Street, Boston, Massachusetts 02110 (acting in its individual
capacity, "BKB"), and the other lending institutions which become parties to
the Credit Agreement defined below (together with BKB, the "Banks"), (d)
DEUTSCHE BANK AG, as documentation agent (the "Documentation Agent"), and (e)
BANKBOSTON, N.A., as agent for the Banks (acting in such capacity, the
"Agent"). Capitalized terms used herein without definition shall have the
meanings assigned to such terms in the Credit Agreement defined below.

WHEREAS, the Borrower, the Guarantors, the Banks, the Documentation
Agent and the Agent have entered into that certain Revolving Credit Agreement,
dated as of October 28, 1997 (as amended and in effect from time to time, the
"Credit Agreement"), pursuant to which the Banks have extended credit to the
Borrower on the terms set forth therein;

WHEREAS, the Borrower wishes to cause substantially all of the assets
of Texoma Tank Company, Inc., a wholly-owned Subsidiary of the Borrower
("Texoma"), to be sold;

WHEREAS, the Borrower, the Guarantors, the Banks, the Documentation
Agent and the Agent have agreed to amend the Credit Agreement as hereinafter
set forth;

NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

<PAGE> 2
2

SECTION 1. AMENDMENTS AND WAIVERS UNDER THE CREDIT AGREEMENT.

SECTION 1.1 AMENDMENT TO SECTION 1.1 OF THE CREDIT AGREEMENT

The following new definitions are hereby added to Section 1.1 of the
Credit Agreement

"Texoma. Texoma Tank Company, Inc., a wholly-owned Subsidiary of the
Borrower."

"Texoma Asset Sale. The sale by Texoma of substantially all of
Texoma's assets pursuant to the Texoma Asset Purchase Agreement."

"Texoma Asset Purchase Agreement. The Asset Purchase Agreement, dated
as of March 26, 1999, pursuant to which Texoma sells to United Rentals (North
America), Inc. or one of its affiliates substantially all of Texoma's assets,
in form and substance reasonably satisfactory to the Agent."

SECTION 1.2 AMENDMENT TO SECTION 2.1 OF THE CREDIT AGREEMENT.

The Total Commitment is hereby reduced pursuant to Section 2.2 of the
Credit Agreement to $135,000,000 and the dollar figure "$145,000,000" in the
first sentence of Section 2.1 of the Credit Agreement is hereby replaced with
the dollar figure "$135,000,000".

SECTION 1.3 WAIVER UNDER SECTION 7.4 OF THE CREDIT AGREEMENT.

Under Section 7.4 of the Credit Agreement the Borrower may not permit
any of its Subsidiaries to dispose of assets other than the sale of equipment
in the ordinary course of business. The Borrower has requested the Agent and
the Banks to consent to the sale by Texoma of substantially all of Texoma's
assets (the "Texoma Asset Sale"). The Banks and the Agent hereby consent to the
Texoma Asset Sale and the release of all liens and security interests held by
the Banks and the Agent on Texoma's assets that are sold pursuant to the Texoma
Asset Sale, and the Banks and the Agent hereby waive Section 7.4 of the Credit
Agreement to the extent that Section 7.4 prohibits the Texoma Asset Sale,
provided that the net cash proceeds received by the Borrower in consideration
for the Texoma Asset Sale are not less than $12,000,000, provided further that
such net cash proceeds be immediately applied to repay the Revolving Credit
Loans, provided further that no Default or Event of Default (other than any
Default or Event of Default that is expressly waived under this Section 1.3) is
occurring at the time of the Texoma Asset Sale or would occur as a result
thereof, and provided further that the Texoma Asset Sale takes place before
April 30, 1999.

<PAGE> 3
3

SECTION 1.4 AMENDMENT TO SECTION 7 OF THE CREDIT AGREEMENT.

The following new Section 7.10 is added to the Credit Agreement:

"SECTION 7.10 TEXOMA TANK COMPANY. The Borrower will not permit Texoma
to have any material assets after the effectiveness of the Texoma Asset Sale
unless the Agent, for the benefit of the Banks and the Agent, shall have a
first priority perfected security interest therein."

SECTION 1.5 AMENDMENT TO SECTION 8.1 OF THE CREDIT AGREEMENT.

Section 8.1 of the Credit Agreement is hereby replaced in its entirety
with the following new Section 8.1:

"SECTION 8.1 FUNDED DEBT TO CAPITALIZATION RATIO. The Borrower
shall not at any time before the application of the net proceeds from
the Texoma Asset Sale to the Revolving Credit Loans permit the ratio
of (a) Funded Debt to (b) the sum of Funded Debt plus Net Worth to
exceed 55%. The Borrower shall not at any time after the application
of the net proceeds of the Texoma Asset Sale to the Revolving Credit
Loans permit the ratio of (a) Funded Debt to (b) the sum of Funded
Debt plus Net Worth to exceed 54%."

SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on the date on which the following conditions shall have been
satisfied:

2.1 LOAN DOCUMENTS. Each of this Amendment and all related
documents shall have been duly executed and delivered by the
respective parties thereto, shall be in full force and effect and
shall be in form and substance reasonably satisfactory to the Agent.

2.2 CORPORATE ACTION. All corporate action necessary for the
valid execution, delivery and performance by the Borrower and each
Guarantor of this Amendment, and each of the related documents to
which it is or is to become a party, shall have been duly and
effectively taken, and evidence thereof reasonably satisfactory to the
Agent shall have been provided to the Agent.

2.3 PROCEEDINGS AND DOCUMENTS. All proceedings in connection
with the transactions contemplated by this Amendment and all other
documents incident hereto shall be reasonably satisfactory in
substance and in form to the Banks and to the Agent.

2.4 CLOSING OF TEXOMA ASSET SALE. The Texoma Asset Purchase
Agreement shall have been executed and delivered by the parties
thereto and shall be in full force and effect in substantially the
same form delivered to the Agent prior to the effectiveness of this

<PAGE> 4
4

Amendment, such similarity to extend to terms governing the
obligations of Texoma thereunder and all other material terms.

SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Banks and the Agent as follows:

(a) REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. Each
of the representations and warranties of the Borrower contained in the
Credit Agreement as amended hereby or in any document or instrument
delivered pursuant to or in connection with the Credit Agreement as
amended hereby are true as of the date hereof (except to the extent of
changes resulting from transactions contemplated or permitted by the
Credit Agreement and changes occurring in the ordinary course of
business which singly or in the aggregate are not materially adverse,
or to the extent that such representations and warranties relate
solely and expressly to an earlier date) and, taking into account this
Amendment, no Default or Event of Default has occurred and is
continuing.

(b) AUTHORITY, NO CONFLICTS, ETC. The execution, delivery and
performance of this Amendment and the transactions contemplated hereby
(i) are within the corporate authority of the Borrower and the
Guarantors, (ii) have been duly authorized by all necessary corporate
proceedings, (iii) do not conflict with or result in any material
breach or contravention of any provision of law, statute, rule or
regulation to which the Borrower or any Guarantor is subject or any
judgment, order, writ, injunction, license or permit applicable to the
Borrower or Guarantors so as to materially adversely affect the
assets, business or any activity of the Borrower or Guarantors, and
(iv) do not conflict with any provision of the corporate charter or
bylaws of the Borrower or Guarantors or any agreement or other
instrument binding upon them. The execution, delivery and performance
of this Amendment will result in valid and legally binding obligations
of the Borrower and Guarantors enforceable against each in accordance
with the respective terms and provisions hereof.

SECTION 4. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects
and shall continue in full force and effect. This Amendment and the Credit
Agreement shall hereafter be read and construed together as a single document,
and all references in the Credit Agreement, any other Loan Document or any
agreement or instrument related to the Credit Agreement shall hereafter refer
to the Credit Agreement as amended by this Amendment.

SECTION 5. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, which together shall constitute one instrument.

<PAGE> 5
5

SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE A CONTRACT UNDER THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, SHALL FOR ALL PURPOSES BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF SAID JURISDICTION,
WITHOUT REFERENCE TO CONFLICTS OF LAW, AND IS INTENDED TO TAKE EFFECT AS A
SEALED INSTRUMENT.

<PAGE> 6

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
an instrument under seal to be effective as of the date first above written.

THE BORROWER:

ITEQ, INC.

By: /s/ LAWRANCE W. MCAFEE
---------------------------
Lawrance W. McAfee
Chief Financial Officer

<PAGE> 7

THE GUARANTORS:

ITEQ MANAGEMENT COMPANY
EXELL, INC. (a Delaware corporation which is successor by merger to EXELL,
INC., a Texas corporation)
ITEQ TANK SERVICES, INC. (successor by merger to HMT TANK SERVICE, INC.)
RELIABLE STEEL, INC.
AIR-CURE DYNAMICS, INC.
AMEREX INDUSTRIES, INC.
OHMSTEDE, INC.
INTEREL ENVIRONMENTAL TECHNOLOGIES, INC.
ALLIED INDUSTRIES, INC.
ITEQ CONSTRUCTION SERVICES, INC. (f/k/a HMT CONSTRUCTION SERVICES, INC.)
ITEQ INTELLECTUAL PROPERTIES, INC. (f/k/a AIX INTELLECTUAL PROPERTIES, INC.)
ITEQ INVESTMENTS, INC. (f/k/a ASTROTECH INVESTMENTS, INC.)
TEXOMA TANK COMPANY, INC.
ITEQ STORAGE SYSTEMS, INC. (f/k/a BROWN-MINNEAPOLIS TANK & FABRICATING CO.,
successor by merger to HMT, INC., HMT SENTRY SYSTEMS, INC. and TRUSCO TANK,
INC.)
GRAVER MANUFACTURING CO., INC. (f/k/a GRAVER HOLDING COMPANY, successor by
merger to GRAVER TANK & MFG. CO., INC., GRAVER TANK INTERNATIONAL, INC.,
GRAVER POWER, INC., and GRAVER TANK & VESSEL, INC.)

By: /s/ LAWRANCE W. MCAFEE
----------------------------
Lawrance W. McAfee
Chief Financial Officer

<PAGE> 8

THE LENDERS:

BANKBOSTON, N.A.,
individually and as Agent

By: /s/ TIMOTHY M. LAURION
------------------------------------
Timothy M. Laurion, Director

DEUTSCHE BANK AG,
individually and as Documentation Agent

By: /s/ JEAN HANNIGAN
------------------------------------
Name: Jean Hannigan
Title: Vice President

By: /s/ ANDREAS NEUMEIER
------------------------------------
Name: Andreas Neumeier
Title: Vice President

BANK OF SCOTLAND

By: /s/ ANNIE CHIN TAT
------------------------------------
Name: Annie Chin Tat
Title: Senior Vice President

BANK ONE, TEXAS, N.A.

By: /s/ KATHY TURNER
------------------------------------
Name: Kathy Turner
Title: Vice President

<PAGE> 9

PARIBAS (f/k/a Banque Paribas)

By: /s/ SCOTT CLINGAN
------------------------------------
Name: Scott Clingan
Title: Vice President

By: /s/ LARRY ROBINSON
------------------------------------
Name: Larry Robinson
Title: Vice President

COMERICA BANK

By: /s/ REGINALD M. GOLDSMITH III
------------------------------------
Name: Reginald M. Goldsmith III
Title: Vice President

THE FUJI BANK, LIMITED, HOUSTON AGENCY

By: /s/ RAYMOND VENTURA
------------------------------------
Name: Raymond Ventura
Title: Vice President & Manager

HIBERNIA NATIONAL BANK

By: /s/ ANGELA BENTLEY
------------------------------------
Name: Angela Bentley
Title: Portfolio Manager

NATIONSBANK, N.A. (successor by merger
to NationsBank of Texas, N.A.)

By: /s/ FOREST SCOTT SINGHOFF
------------------------------------
Name: Forest Scott Singhoff
Title: Senior Vice President

UNION BANK OF CALIFORNIA, N.A.

By: /s/ A. PASHA MOGHADDAM
------------------------------------
Name: A. Pasha Moghaddam
Title: Vice President

<PAGE> 10

CHASE BANK TEXAS, NATIONAL ASSOCIATION
(f/k/a Texas Commerce Bank, N.A.)

By: /s/ SCOTT GELLER
-----------------------------------------------
Name: Scott Geller
Title: Senior Vice President & Credit Executive

<PAGE> 1
EXHIBIT 4.2

FOURTH AMENDMENT
TO REVOLVING CREDIT AGREEMENT

and

LIMITED WAIVER REGARDING FINANCIAL COVENANTS

This FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT AND LIMITED WAIVER
REGARDING FINANCIAL COVENANTS is made and entered into as of June 16, 1999 (this
"Amendment") by and among (a) ITEQ, INC., a Delaware corporation (the
"Borrower"), (b) THE GUARANTORS, (c) BANKBOSTON, N.A., a national banking
association having its principal place of business at 100 Federal Street,
Boston, Massachusetts 02110 (acting in its individual capacity, "BKB"), and the
other lending institutions which become parties to the Credit Agreement defined
below (collectively, the "Banks"), (d) DEUTSCHE BANK AG, as documentation agent
(the "Documentation Agent"), and (e) BANKBOSTON, N.A., as agent for the Banks
(acting in such capacity, the "Agent"). Capitalized terms used herein without
definition shall have the meanings assigned to such terms in the Credit
Agreement defined below.

WHEREAS, the Borrower, the Guarantors, the Banks, the Documentation
Agent and the Agent have agreed to amend the Credit Agreement and waive certain
provisions thereof as hereinafter set forth;

NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

SECTION 1. AMENDMENTS AND WAIVERS UNDER THE CREDIT AGREEMENT.

SECTION 1.1 DEFINITIONS.

The following new definitions are hereby inserted in Section 1.1 of
Credit Agreement:

"Fourth Amendment. The Fourth Amendment to Revolving Credit
Agreement and Limited Waiver Regarding Financial Covenants, dated as of
the Fourth Amendment Effective Date, among the Borrower, the Guarantors,
the Banks, the Documentation Agent and the Agent."

<PAGE> 2

-2-

"Fourth Amendment Effective Date. The date on which the
conditions set forth in Section 3 of the Fourth Amendment are
satisfied."

SECTION 1.2 AMENDMENT TO SECTION 2.1 OF THE CREDIT AGREEMENT.

(a) The Total Commitment is hereby reduced pursuant to Section 2.2 of
the Credit Agreement to $125,000,000 and the dollar figure "$135,000,000" in the
first sentence of Section 2.1 of the Credit Agreement is hereby replaced with
the dollar figure "$125,000,000".

(b) Section 2.1 of the Credit Agreement is hereby further amended by
inserting the following language at the end of the first sentence of such
Section but before the final period thereof:

", provided further that the outstanding amount of Revolving
Credit Loans (including Swing Line Loans) shall not exceed a maximum
aggregate amount outstanding of $112,500,000 at any time during the
period commencing on the Fourth Amendment Effective Date and ending on
July 31, 1999"

SECTION 1.3 AMENDMENT TO SECTION 3.1(a) OF THE CREDIT AGREEMENT.

Section 3.1(a) of the Credit Agreement is hereby amended by inserting
the following words at the end of the first sentence thereof: "provided further,
however, that during the period commencing on the Fourth Amendment Effective
Date and ending on July 31, 1999 the Maximum Drawing Amount plus unpaid
Reimbursement Obligations shall not exceed $5,000,000".

SECTION 1.4 AMENDMENT TO SECTION 6.4 OF THE CREDIT AGREEMENT.

Section 6.4 of the Credit Agreement is hereby amended by deleting the
word "and" at the end of clause (e) thereof, redesignating clause (f) thereof as
clause (g) and by inserting the following new clause (f) therein:

"(f) on or before June 18, 1999, a forecast of operations
for each fiscal quarter ending on or after the Fourth Amendment
Effective Date and on or before December 31, 2000; and"

SECTION 1.5 AMENDMENT TO SECTION 8.5 OF THE CREDIT AGREEMENT.

Section 8.5 of the Credit Agreement is hereby amended by deleting the
word "or" immediately before clause (c) thereof and by inserting after such
clause (c) the following new clause (d):

"or (d) $1,500,000 during the Borrower's fiscal quarter ending
on June 30, 1999"

<PAGE> 3

-3-

SECTION 1.6 LIMITED WAIVER UNDER SECTION 8 OF THE CREDIT AGREEMENT.

Under Section 8 of the Credit Agreement the Borrower is required to
comply with certain financial covenants. The Borrower has requested the Agent
and the Banks to make certain waivers with respect to the Borrower's compliance
with Sections 8.1, 8.2, 8.3, 8.4, 8.6 and 8.7 of the Credit Agreement. The Banks
and the Agent hereby agree to waive Sections 8.1, 8.2, 8.3, 8.4, 8.6 and 8.7 of
the Credit Agreement, such waiver to be effective until July 30, 1999; provided
that effective as of July 31, 1999 the Borrower shall be required to comply with
Sections 8.2, 8.3 and 8.6 of the Credit Agreement (such Sections of the Credit
Agreement referred to herein as the "Periodically Measured Financial Covenants")
as such Periodically Measured Financial Covenants may apply to any (i) fiscal
quarter, (ii) period of four consecutive fiscal quarters or (iii) other fiscal
time or period ending on or subsequent to (but not before) June 30, 1999;
provided further that effective as of July 31, 1999 the Borrower shall be
required to comply with Sections 8.1, 8.4 and 8.7 of the Credit Agreement (such
Sections of the Credit Agreement referred to herein as the "All-times Financial
Covenants") as such All-times Financial Covenants may apply to any point in time
occurring on or subsequent to (but not before) June 30, 1999; provided further
that on or before July 31, 1999 the Borrower shall, in accordance with Section
6.4(c) of the Credit Agreement, be required to deliver a Compliance Certificate
demonstrating compliance with the covenants contained in Sections 6, 7 and 8 of
the Credit Agreement, including, without limitation, with (a) the Periodically
Measured Financial Covenants as they may apply to any (i) fiscal quarter, (ii)
period of four consecutive fiscal quarters or (iii) other fiscal time or period
ending on June 30, 1999 and (b) the All-times Financial Covenants as they apply
on June 30, 1999.

SECTION 2. AMENDMENT FEES. The Borrower hereby agrees to pay to the
Agent for the account of each Bank party hereto an amount equal to 0.075% of the
Commitment of such Bank as such Commitment is in effect on the date hereof (such
amounts referred to herein as the "Amendment Fees").

SECTION 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on the date on which the following conditions shall have been
satisfied:

3.1 LOAN DOCUMENTS. Each of this Amendment and all related
documents shall have been duly executed and delivered by the respective
parties thereto, shall be in full force and effect and shall be in form
and substance satisfactory to the Agent.

3.2 CORPORATE ACTION. All corporate action necessary for the
valid execution, delivery and performance by the Borrower and each
Guarantor of this Amendment and each of the related documents to which
it is or is to become a party shall have been duly and effectively
taken, and evidence thereof satisfactory to the Agent shall have been
provided to the Agent.

<PAGE> 4

-4-

3.4 PROCEEDINGS AND DOCUMENTS. All proceedings in connection
with the transactions contemplated by this Amendment and all other
documents incident hereto shall be reasonably satisfactory in substance
and in form to the Banks and to the Agent.

SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Banks and the Agent as follows:

(a) REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. Each
of the representations and warranties of the Borrower contained in the
Credit Agreement as amended hereby or in any document or instrument
delivered pursuant to or in connection with the Credit Agreement as
amended hereby are true as of the date hereof (except to the extent of
changes resulting from transactions contemplated or permitted by the
Credit Agreement and changes occurring in the ordinary course of
business which singly or in the aggregate are not materially adverse,
or to the extent that such representations and warranties relate solely
and expressly to an earlier date) and, taking into account this
Amendment, no Default or Event of Default has occurred and is
continuing.

(b) AUTHORITY, NO CONFLICTS, ETC. The execution, delivery and
performance of this Amendment and the transactions contemplated hereby
(i) are within the corporate authority of the Borrower and the
Guarantors, (ii) have been duly authorized by all necessary corporate
proceedings, (iii) do not conflict with or result in any material
breach or contravention of any provision of law, statute, rule or
regulation to which the Borrower or any Guarantor is subject or any
judgment, order, writ, injunction, license or permit applicable to the
Borrower or Guarantors so as to materially adversely affect the assets,
business or any activity of the Borrower or Guarantors, and (iv) do not
conflict with any provision of the corporate charter or bylaws of the
Borrower or Guarantors or any agreement or other instrument binding
upon them. The execution, delivery and performance of this Amendment
will result in valid and legally binding obligations of the Borrower
and Guarantors enforceable against each in accordance with the
respective terms and provisions hereof.

SECTION 5. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects and
shall continue in full force and effect. This Amendment and the Credit Agreement
shall hereafter be read and construed together as a single document, and all
references in the Credit Agreement, any other Loan Document or any agreement or
instrument related to the Credit Agreement shall hereafter refer to the Credit
Agreement as amended by this Amendment.

SECTION 6. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, which together shall constitute one instrument.

<PAGE> 5

-5-

SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE A CONTRACT UNDER THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, SHALL FOR ALL PURPOSES BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF SAID JURISDICTION,
WITHOUT REFERENCE TO CONFLICTS OF LAW, AND IS INTENDED TO TAKE EFFECT AS A
SEALED INSTRUMENT.

[Signature Pages Follow]

<PAGE> 6

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
an instrument under seal to be effective as of the date first above written.

THE BORROWER:

ITEQ, INC.

By: /s/ LAWRANCE W. MCAFEE
---------------------------------------
Lawrance W. McAfee
Chief Financial Officer

<PAGE> 7

THE GUARANTORS:

ITEQ MANAGEMENT COMPANY
EXELL, INC. (a Delaware corporation which is
successor by merger to EXELL, INC., a Texas
corporation)
ITEQ TANK SERVICES, INC. (successor by
merger to HMT TANK SERVICE, INC.)
RELIABLE STEEL, INC.
AIR-CURE DYNAMICS, INC.
AMEREX INDUSTRIES, INC.
OHMSTEDE, INC.
INTEREL ENVIRONMENTAL
TECHNOLOGIES, INC.
ALLIED INDUSTRIES, INC.
ITEQ CONSTRUCTION SERVICES, INC.
(f/k/a HMT CONSTRUCTION SERVICES,
INC.)
ITEQ INTELLECTUAL PROPERTIES, INC.
(f/k/a AIX INTELLECTUAL PROPERTIES,
INC.)
ITEQ INVESTMENTS, INC. (f/k/a
ASTROTECH INVESTMENTS, INC.)
TEXOMA TANK COMPANY, INC.
ITEQ STORAGE SYSTEMS, INC. (f/k/a
BROWN-MINNEAPOLIS TANK &
FABRICATING CO., successor by merger to
HMT, INC., HMT SENTRY SYSTEMS, INC.
and TRUSCO TANK, INC.)
GRAVER MANUFACTURING CO., INC.
(f/k/a GRAVER HOLDING COMPANY,
successor by merger to GRAVER TANK &
MFG. CO., INC., GRAVER TANK
INTERNATIONAL, INC., GRAVER POWER,
INC., and GRAVER TANK & VESSEL, INC.)

By: /s/ LAWRANCE W. MCAFEE
------------------------------------------
Lawrance W. McAfee
Chief Financial Officer

<PAGE> 8

THE LENDERS:

BANKBOSTON, N.A.,
individually and as Agent

By: /s/ TIMOTHY M. LAURION
------------------------------------------
Timothy M. Laurion, Director

DEUTSCHE BANK AG,
individually and as Documentation Agent

By: /s/ JEAN HANNIGAN
------------------------------------------
Name: Jean Hannigan
Title: Vice President

By: /s/ ANDREAS NEUMEIER
------------------------------------------
Name: Andreas Neumeier
Title: Vice President

BANK OF SCOTLAND

By: /s/ ANNIE GLYNN
------------------------------------------
Name: Annie Glynn
Title: Senior Vice President

BANK ONE, TEXAS, N.A.

By: /s/ GREG SMOTHERS
------------------------------------------
Name: Greg Smothers
Title: Vice President

<PAGE> 9

PARIBAS (f/k/a Banque Paribas)

By: /s/ SCOTT CLINGAN
------------------------------------------
Name: Scott Clingan
Title: Vice President

By: /s/ TIMOTHY A. DONNON
------------------------------------------
Name: Timothy A. Donnon
Title: Managing Director

COMERICA BANK

By: /s/ REGINALD M. GOLDSMITH III
------------------------------------------
Name: Reginald M. Goldsmith, III
Title: Vice President

THE FUJI BANK, LIMITED, HOUSTON AGENCY

By:
------------------------------------------
Name:
Title:

HIBERNIA NATIONAL BANK

By: /s/ ANGELA BENTLEY
------------------------------------------
Name: Angela Bentley
Title: Portfolio Manager

NATIONSBANK, N.A. (successor by merger
to NationsBank of Texas, N.A.)

By: /s/ RICHARD L. NICHOLS, JR.
------------------------------------------
Name: Richard L. Nichols, Jr.
Title: Managing Director

UNION BANK OF CALIFORNIA, N.A.

By: /s/ A. PASHA MOGHADDAM
------------------------------------------
Name: A. Pasha Moghaddam
Title: Vice President

CHASE BANK TEXAS, NATIONAL ASSOCIATION
(f/k/a Texas Commerce Bank, N.A.)

By: /s/ JAMES R. DOLPHIN
------------------------------------------
Name: James R. Dolphin
Title: SVP

<PAGE> 1
EXHIBIT 4.3

FIFTH AMENDMENT
TO REVOLVING CREDIT AGREEMENT

This FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT is made and entered
into as of July 30, 1999 (this "Amendment") by and among (a) ITEQ, INC., a
Delaware corporation (the "Borrower"), (b) THE GUARANTORS, (c) BANKBOSTON, N.A.,
a national banking association having its principal place of business at 100
Federal Street, Boston, Massachusetts 02110 (acting in its individual capacity,
"BKB"), and the other lending institutions which become parties to the Credit
Agreement defined below (collectively, the "Banks"), (d) DEUTSCHE BANK AG, as
documentation agent (the "Documentation Agent"), and (e) BANKBOSTON, N.A., as
agent for the Banks (acting in such capacity, the "Agent"). Capitalized terms
used herein without definition shall have the meanings assigned to such terms in
the Credit Agreement defined below.

WHEREAS, the Borrower, the Guarantors, the Banks, the Documentation
Agent and the Agent have agreed to amend the Credit Agreement as hereinafter set
forth;

NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

SECTION 1. AMENDMENTS AND WAIVERS UNDER THE CREDIT AGREEMENT.

SECTION 1.1 DEFINITIONS.

(a) The following new definitions are hereby inserted in Section 1.1 of
Credit Agreement in their appropriate alphabetical order:

"Fifth Amendment. The Fifth Amendment to Revolving Credit
Agreement, dated as of the Fifth Amendment Effective Date, among the
Borrower, the Guarantors, the Banks, the Documentation Agent and the
Agent."

"Fifth Amendment Effective Date. The date on which the
conditions set forth in Section 3 of the Fifth Amendment are
satisfied."

<PAGE> 2

-2-

(b) The definition of "Pricing Table" in the Credit Agreement is hereby
amended and restated in its entirety as follows:

"Pricing Table

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
APPLICABLE APPLICABLE BASE APPLICABLE APPLICABLE
[ ] EURODOLLAR RATE MARGIN L/C MARGIN COMMITMENT RATE
PRICING RATIO MARGIN (PER ANNUM) (PER ANNUM) (PER ANNUM)
(PER ANNUM)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Less than 2.50:1 2.00% 0.00% 2.00% 0.375%
-------------------------------------------------------------------------------------------------------
Greater than or equal 2.25% 0.00% 2.25% 0.375%
to 2.50:1 but less
than 3.00:1
-------------------------------------------------------------------------------------------------------
Greater than or equal 2.50% 0.50% 2.50% 0.375%
to 3.00:1 but less
than 3.50:1
-------------------------------------------------------------------------------------------------------
Greater than or equal 2.75% 0.75% 2.75% 0.500%
to 3.50:1 but less
than 4.00:1
-------------------------------------------------------------------------------------------------------
Greater than or equal 3.25% 1.25% 3.25% 0.500%
to 4.00:1
-------------------------------------------------------------------------------------------------------
</TABLE>

Any change in the applicable margin shall become effective on
the first day after receipt by the Banks of financial statements
delivered pursuant to Section 6.4(a) or (b) which indicate a change in
the Pricing Ratio. If at any time such financial statements are not
delivered within the time periods specified in Section 6.4(a) or (b),
the applicable margin shall be the highest rate set forth in the
respective column of the Pricing Table, subject to adjustment upon
actual receipt of such financial statements. Notwithstanding anything
herein to the contrary, the Applicable Eurodollar Margin, the
Applicable Base Rate Margin, the Applicable L/C Margin and the
Applicable Commitment Rate shall be, respectively, 3.25%, 1.25%, 3.25%
and 0.50% from the Fifth Amendment Effective Date until the receipt of
the Compliance Certificate and the financial statements required
pursuant to Section 6.4(b) and (c) of the Credit Agreement with respect
to the period ending on March 31, 2000."

(c) The definition of "Pricing Ratio" in the Credit Agreement is hereby
amended by inserting the following language before the final period thereof:

<PAGE> 3

-3-

"provided, however, that the Pricing Ratio as of the end of
the fiscal quarter ending on March 31, 2000 shall be the ratio of (a)
Funded Debt as at the end of such quarter to (b) the product of EBITDA
for the period of three (3) consecutive fiscal quarters ending on such
date times 1.3333."

SECTION 1.2 AMENDMENT TO SECTION 2.1 OF THE CREDIT AGREEMENT.

(a) The Total Commitment is hereby reduced pursuant to Section 2.2 of
the Credit Agreement to $120,000,000 and the dollar figure "$125,000,000" in the
first sentence of Section 2.1 of the Credit Agreement is hereby replaced with
the dollar figure "$120,000,000".

(b) Section Section 2.1 of the Credit Agreement is hereby further
amended by inserting the following language at the end of the first sentence of
such Section but before the final period thereof:

", provided further that the outstanding amount of Revolving
Credit Loans (including Swing Line Loans) shall not exceed a maximum
aggregate amount outstanding of $115,000,000 at any time on or
subsequent to the Fifth Amendment Effective Date"

SECTION 1.3 AMENDMENT TO SECTION 3.1(a) OF THE CREDIT AGREEMENT.

Section Section 3.1(a) of the Credit Agreement is hereby amended by
replacing the dollar figure in the eleventh line thereof with the dollar figure
"$7,500,000".

SECTION 1.4 AMENDMENT TO SECTION 5 OF THE CREDIT AGREEMENT. The
following new Section Section 5.22 is hereby added to the Credit Agreement:

"SECTION 5.22 YEAR 2000 PROBLEM. The Borrower has (i) reviewed
the areas within the Borrower's and its Subsidiaries' businesses and
operations which could be adversely affected by failure to become "Year
2000 Compliant" (i.e. that computer applications, imbedded microchips
and other systems used by the Borrower or any of its Subsidiaries, will
be able properly to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December
31, 1999), (ii) developed a reasonably detailed plan and timetable to
become Year 2000 Compliant in a timely manner, and (iii) committed
adequate resources to support the Year 2000 plan of the Borrower and
its Subsidiaries. Based upon such review, the Borrower reasonably
believes that the Borrower and its Subsidiaries will become "Year 2000
Compliant" in a timely manner except to the extent that failure to do
so will not have any materially adverse effect on the business or
financial condition of the Borrower or any of its Subsidiaries taken as
a whole."

SECTION 1.5 AMENDMENT TO SECTION 8.2 OF THE CREDIT AGREEMENT.

Notwithstanding anything to the contrary in Section 1.6 of the Fourth
Amendment, compliance with Section 8.2 of the Credit Agreement as in effect
prior to

<PAGE> 4

-4-

the effectiveness of this Amendment and as such Section 8.2 applies to the
fiscal quarter of the Borrower ending on or about June 30, 1999 is hereby
waived. Section 8.2 of the Credit Agreement is hereby replaced in its entirety
with the following new Section 8.2:

"SECTION 8.2 LEVERAGE RATIO.

(a) As of the end of the fiscal quarter of the Borrower ending
March 31, 2000, the ratio of (i) Funded Debt as at the end of such
quarter to (ii) the product of EBITDA for the period of three (3)
consecutive fiscal quarters ending on such date times 1.3333 shall not
exceed 5.50:1.00.

(b) As of the end of any fiscal quarter of the Borrower
commencing with the fiscal quarter ending June 30, 2000, the ratio of
(i) Funded Debt as at the end of such quarter to (ii) EBITDA for the
period of four (4) consecutive fiscal quarters ending on such date
(such ratio, measured at any time before or after June 30, 2000,
referred to herein as the "Leverage Ratio") shall not exceed the ratios
set forth in the table below opposite the period in which each such
fiscal quarter ends:

<TABLE>
<CAPTION>
------------------------------------------------------------------

Period: Ratio:
------------------------------------------------------------------
<S> <C>
April 1, 2000 - June 30, 2000 5.00:1
------------------------------------------------------------------

July 1, 2000 - December 31, 2000 4.50:1
------------------------------------------------------------------

January 1, 2001 - March 31, 2001 4.00:1
------------------------------------------------------------------

April 1, 2001 - September 30, 2001 3.75:1
------------------------------------------------------------------

October 1, 2001 and thereafter 3.25:1"
------------------------------------------------------------------
</TABLE>

SECTION 1.6 AMENDMENT TO SECTION 8.3 OF THE CREDIT AGREEMENT.
Notwithstanding anything to the contrary in Section 1.6 of the Fourth Amendment,
compliance with Section 8.3 of the Credit Agreement as in effect prior to the
effectiveness of this Amendment and as such Section 8.3 applies to the fiscal
quarter of the Borrower ending on or about June 30, 1999 is hereby waived.
Section 8.3 of the Credit Agreement is hereby replaced in its entirety with the
following new Section 8.3:

"SECTION 8.3 INTEREST COVERAGE RATIO.

As of the end of any fiscal quarter of the Borrower commencing
with the fiscal quarter ending September 30, 1999, the ratio of (i)
EBITDA minus Capital Expenditures for (A) the fiscal quarter ending
September 30, 1999, (B) the two fiscal quarters ending December 31,
1999, (C) the three consecutive

<PAGE> 5

-5-

fiscal quarters ending March 31, 2000 and (D) any period of four
consecutive fiscal quarters ending thereafter to (ii) Consolidated
Total Interest Expense for such period of one, two, three or four
consecutive fiscal quarters, as applicable, shall not be less than the
ratios set forth in the table below opposite the period in which such
period ends:

<TABLE>
<CAPTION>
--------------------------------------------------------------------

Period: Ratio:
--------------------------------------------------------------------
<S> <C>
July 1, 1999 - September 30, 1999 1.25:1
--------------------------------------------------------------------

October 1, 1999 - December 31, 1999 1.50:1
--------------------------------------------------------------------

January 1, 2000 - June 30, 2000 1.75:1
--------------------------------------------------------------------

July 1, 2000 and thereafter 2.00:1"
--------------------------------------------------------------------
</TABLE>

SECTION 1.7 AMENDMENT TO SECTION 8.5 OF THE CREDIT AGREEMENT. Section
8.5 of the Credit Agreement is hereby replaced in its entirety with the
following new Section 8.5:

"SECTION 8.5 CAPITAL EXPENDITURES. The Borrower will not make,
or permit any Subsidiary to made, in the aggregate, Capital
Expenditures in excess of (a) $1,250,000 in any fiscal quarter
beginning with the fiscal quarter ending on September 30, 1999 and (b)
$4,400,000 in any period of four consecutive quarters beginning with
the period of four consecutive fiscal quarters of the Borrower and its
Subsidiaries ending on June 30, 2000."

SECTION 1.8 AMENDMENT TO SECTION 8.6 OF THE CREDIT AGREEMENT.
Notwithstanding anything to the contrary in Section 1.6 of the Fourth Amendment,
compliance with Section 8.6 of the Credit Agreement as in effect prior to the
effectiveness of this Amendment and as such Section 8.6 applies to the fiscal
quarter of the Borrower ending on or about June 30, 1999 is hereby waived.
Section 8.6 of the Credit Agreement is hereby replaced in its entirety with the
following new Section 8.6:

"SECTION 8.6 MINIMUM QUARTERLY EBITDA. The Borrower shall not
permit EBITDA to be less than (A) $3,800,000 during the fiscal quarter
ending on September 30, 1999, (B) $4,850,000 during the fiscal quarter
ending on December 31, 1999 and (C) $5,000,000 during any fiscal
quarter ending on or after March 31, 2000."

SECTION 1.9 AMENDMENT TO SECTION 12.1 OF THE CREDIT AGREEMENT. Section
12.1 of the Credit Agreement is hereby amended by replacing the period at the
end of Section 12.1(l) with the text "; and" and by inserting the following new
Section 12.1(m):

"(m) if the Agent shall fail, in its reasonable judgment, to
be satisfied with its commercial finance exam of the Borrower completed
on or prior to

<PAGE> 6
-6-

September 15, 1999, provided, however, that if the commercial finance
exam of the Borrower is not completed on or prior to September 15,
1999, it shall be an Event of Default if the Agent shall fail, in its
reasonable judgment, to be satisfied with its commercial finance exam
of the Borrower completed on or about September 29, 1999."

SECTION 2. AMENDMENT FEES. The Borrower hereby agrees to pay to the
Agent, for the account of each Bank which executes this Amendment, an amount
equal to 0.30% of the Commitment of each such Bank as such Commitment is in
effect after giving effect to this Amendment (such amounts referred to herein as
the "Amendment Fees").

SECTION 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on the date on which the following conditions shall have been
satisfied:

3.3 PROCEEDINGS AND DOCUMENTS. All proceedings in connection
with the transactions contemplated by this Amendment and all other
documents incident hereto shall be reasonably satisfactory in substance
and in form to the Banks and to the Agent.

3.4 AMENDMENT FEES. The Amendment Fees shall have been paid to
the Agent for the account of each Banks which executes this Amendment.

SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Banks and the Agent as follows:

(a) REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. Each
of the representations and warranties of the Borrower contained in the
Credit Agreement as amended hereby or in any document or instrument
delivered pursuant to or in connection with the Credit Agreement as
amended hereby are true as of the date hereof (except to the extent of
changes resulting from transactions contemplated or permitted by the
Credit Agreement and changes occurring in the ordinary course of
business which singly or in the aggregate are not materially adverse,
or to the extent that such representations and warranties relate solely
and expressly to an earlier date) and, taking into account this
Amendment, no Default or Event of Default has occurred and is
continuing.

<PAGE> 7

-7-

(b) AUTHORITY, NO CONFLICTS, ETC. The execution, delivery and
performance of this Amendment and the transactions contemplated hereby
(i) are within the corporate authority of the Borrower and the
Guarantors, (ii) have been duly authorized by all necessary corporate
proceedings, (iii) do not conflict with or result in any material
breach or contravention of any provision of law, statute, rule or
regulation to which the Borrower or any Guarantor is subject or any
judgment, order, writ, injunction, license or permit applicable to the
Borrower or Guarantors so as to materially adversely affect the assets,
business or any activity of the Borrower or Guarantors, and (iv) do not
conflict with any provision of the corporate charter or bylaws of the
Borrower or Guarantors or any agreement or other instrument binding
upon them. The execution, delivery and performance of this Amendment
will result in valid and legally binding obligations of the Borrower
and Guarantors, enforceable against each in accordance with the
respective terms and provisions hereof.

SECTION 5. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects and
shall continue in full force and effect. This Amendment and the Credit Agreement
as amended heretofore shall hereafter be read and construed together as a single
document, and all references in the Credit Agreement, any other Loan Document or
any agreement or instrument related to the Credit Agreement shall hereafter
refer to the Credit Agreement as amended by this Amendment.

SECTION 6. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, which together shall constitute one instrument.

<PAGE> 8

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
an instrument under seal to be effective as of the date first above written.

THE BORROWER:

ITEQ, INC.

By: /s/ LAWRANCE W. MCAFEE
--------------------------------------------
Lawrance W. McAfee
Chief Financial Officer

<PAGE> 9

THE GUARANTORS:

ITEQ MANAGEMENT COMPANY
EXELL, INC. (a Delaware corporation which is successor by
merger to EXELL, INC., a Texas corporation)
ITEQ TANK SERVICES, INC. (successor by merger to HMT TANK
SERVICE, INC.)
RELIABLE STEEL, INC.
AIR-CURE DYNAMICS, INC.
AMEREX INDUSTRIES, INC.
OHMSTEDE, INC.
INTEREL ENVIRONMENTAL TECHNOLOGIES, INC.
ALLIED INDUSTRIES, INC.
ITEQ CONSTRUCTION SERVICES, INC. (f/k/a HMT CONSTRUCTION
SERVICES, INC.)
ITEQ INTELLECTUAL PROPERTIES, INC. (f/k/a AIX INTELLECTUAL
PROPERTIES, INC.)
ITEQ INVESTMENTS, INC. (f/k/a ASTROTECH INVESTMENTS, INC.)
TEXOMA TANK COMPANY, INC.
ITEQ STORAGE SYSTEMS, INC. (f/k/a BROWN-MINNEAPOLIS TANK &
FABRICATING CO., successor by merger to HMT, INC., HMT
SENTRY SYSTEMS, INC. and TRUSCO TANK, INC.)
GRAVER MANUFACTURING CO., INC. (f/k/a GRAVER HOLDING
COMPANY, successor by merger to GRAVER TANK & MFG. CO.,
INC., GRAVER TANK INTERNATIONAL, INC., GRAVER POWER, INC.,
and GRAVER TANK & VESSEL, INC.)

By: /s/ LAWRANCE W. MCAFEE
-------------------------------------------
Lawrance W. McAfee
Chief Financial Officer

<PAGE> 10

THE LENDERS:

BANKBOSTON, N.A.,
individually and as Agent

By: /s/ TIMOTHY M. LAURION
-------------------------------------------
Timothy M. Laurion, Director

DEUTSCHE BANK AG,
individually and as Documentation Agent

By: /s/ PAUL L. HARINSTEIN
-------------------------------------------
Name: Paul L. Harinstein
Title: Managing Director

By: /s/ IRENE EGUES
-------------------------------------------
Name: Irene Egues
Title: Vice President

BANK OF SCOTLAND

By: /s/ ANNIE GLYNN
-------------------------------------------
Name: Annie Glynn
Title: Senior Vice President

BANK ONE, TEXAS, N.A.

By: /s/ KATHY TURNER
-------------------------------------------
Name: Kathy Turner
Title: VP -- Director

<PAGE> 1
EXHIBIT 4.4

SIXTH AMENDMENT
AND
LIMITED WAIVER

This SIXTH AMENDMENT AND LIMITED WAIVER (this "Amendment") is made and
entered into as of September 3, 1999 by and among (a) ITEQ, INC., a Delaware
corporation (the "Borrower"), (b) THE GUARANTORS, (c) BANKBOSTON, N.A., a
national banking association having its principal place of business at 100
Federal Street, Boston, Massachusetts 02110 (acting in its individual capacity,
"BKB"), and the other lending institutions which become parties to the Credit
Agreement defined below (collectively, the "Banks"), (d) DEUTSCHE BANK AG, as
documentation agent (the "Documentation Agent"), and (e) BANKBOSTON, N.A., as
agent for the Banks (acting in such capacity, the "Agent"). Capitalized terms
used herein without definition shall have the meanings assigned to such terms in
the Credit Agreement defined below.

WHEREAS, the Borrower, the Guarantors, the Banks, the Documentation Agent
and the Agent have entered into that certain Revolving Credit Agreement, dated
as of October 28, 1997 (as amended and in effect from time to time, the "Credit
Agreement"), pursuant to which the Banks have extended credit to the Borrower on
the terms set forth therein;

WHEREAS, the Borrower, the Guarantors, the Banks, the Documentation Agent
and the Agent have agreed to amend and waive a provision thereof as hereinafter
set forth;

NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

SECTION 1. AMENDMENT TO SECTION 2.1 OF THE CREDIT AGREEMENT.

Section 2.1 of the Credit Agreement is hereby amended by deleting
the last proviso of the first sentence thereof and by inserting the following
language at the end of the first sentence of such Section but before the final
period thereof:

", provided further that the outstanding amount of Revolving Credit
Loans (including Swing Line Loans) shall not exceed a maximum aggregate amount
outstanding of $109,000,000 at any time on or subsequent to the effective date
of the Sixth Amendment hereto."

SECTION 2. LIMITED WAIVER UNDER SECTION 8.7 OF THE CREDIT AGREEMENT.

The Banks and the Agent hereby agree to waive Section 8.7 of the Credit
Agreement from July 31, 1999 through August 30, 1999; provided that effective as
of August 31, 1999, the Borrower shall be required to comply with Section 8.7 of
the Credit Agreement as such covenant may apply to any point in time occurring
on or subsequent to August 31, 1999;

<PAGE> 2
-2-

provided further that on or before September 30, 1999 the Borrower shall, in
accordance with Section 6.4(c) of the Credit Agreement, deliver a Compliance
Certificate demonstrating compliance with the covenants contained in Sections 7
and 8 of the Credit Agreement, including, without limitation, Section 8.7 as it
applies on August 31, 1999.

SECTION 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on the date which this Amendment shall have been duly executed and
delivered by the respective parties hereto.

SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Banks and the Agent that each of the representations and
warranties of the Borrower contained in the Credit Agreement as amended hereby
or in any document or instrument delivered pursuant to or in connection with the
Credit Agreement as amended hereby are true as of the date hereof (except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement and changes occurring in the ordinary course of business which
singly or in the aggregate are not materially adverse, or to the extent that
such representations and warranties relate solely and expressly to an earlier
date) and, taking into account this Amendment, no Default or Event of Default
has occurred and is continuing.

SECTION 5. RATIFICATION, ETC. Except as expressly amended and waived
hereby, the Credit Agreement, the other Loan Documents and all documents,
instruments and agreements related thereto are hereby ratified and confirmed in
all respects and shall continue in full force and effect. The Credit Agreement,
as amended, shall hereafter be read and construed together as a single document,
and all references in the Credit Agreement, any other Loan Document or any
agreement or instrument related to the Credit Agreement shall hereafter refer to
the Credit Agreement as amended by this Amendment.

SECTION 6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, which together shall constitute one instrument.

SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE A CONTRACT UNDER THE LAWS
OF THE COMMONWEALTH OF MASSACHUSETTS, SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF SAID JURISDICTION, WITHOUT
REFERENCE TO CONFLICTS OF LAW, AND IS INTENDED TO TAKE EFFECT AS A SEALED
INSTRUMENT.

<PAGE> 3

-3-

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
an instrument under seal to be effective as of the date first above written.

THE BORROWER:
- -------------

ITEQ, INC.

By: /s/ Lawrance W. McAfee
-----------------------
Lawrance W. McAfee
Chief Financial Officer

<PAGE> 4

-4-

THE GUARANTORS:
- ---------------

ITEQ MANAGEMENT COMPANY
EXELL, INC. (a Delaware corporation which is
successor by merger to EXELL. INC., a Texas
corporation)
ITEQ TANK SERVICES, INC. (successor by
merger to HMT TANK SERVICE, INC.)
RELIABLE STEEL, INC.
AIR-CURE DYNAMICS, INC.
AMEREX INDUSTRIES, INC.
OHMSTEDE, INC.
INTEREL ENVIRONMENTAL
TECHNOLOGIES, INC.
ALLIED INDUSTRIES, INC.
ITEQ CONSTRUCTION SERVICES, INC.
(f/k/a HMT CONSTRUCTION SERVICES,
INC.)
ITEQ INTELLECTUAL PROPERTIES, INC.
(f/x/a AIX INTELLECTUAL PROPERTIES,
INC.)
ITEQ INVESTMENTS, INC. (f/k/a
ASTROTECH INVESTMENTS, INC.)
TEXOMA TANK COMPANY, INC.
ITEQ STORAGE SYSTEMS, INC. (f/k/a
BROWN-MINNEAPOLIS TANK &
FABRICATING CO., successor by merger to
HMT, INC., HMT SENTRY SYSTEMS, INC.
and TRUSCO TANK, INC.)
GRAVER MANUFACTURING CO., INC.
(f/k/a GRAVER HOLDING COMPANY,
successor by merger to GRAVER TANK &
MFG. CO., INC., GRAVER TANK
INTERNATIONAL, INC., GRAVER POWER,
INC., and GRAVER TANK & VESSEL, INC.)

By: /s/ Lawrance W. McAfee
-----------------------
Lawrance W. McAfee
Chief Financial Officer

<PAGE> 5

-5-

THE LENDERS:
- ------------

BANKBOSTON, N.A.,
individually and as Agent

By: /s/ Virginia Dennett
------------------------------------
Virginia Dennett, Director

DEUTSCHE BANK AG,
individually and as Documentation Agent

By: /s/ Paul L. Harinstein
------------------------------------
Name: Paul L. Harinstein
Title: Managing Director

By: /s/ Margaret S. Cheever
------------------------------------
Name: Margaret S. Cheever
Title: Managing Director

BANK OF SCOTLAND

By: /s/ Annie Glynn
------------------------------------
Name: Annie Glynn
Title: Senior Vice President

BANK ONE, TEXAS, N.A.

By: /s/ Bradley C. Peters
------------------------------------
Name: Bradley C. Peters
Title: Vice President

<PAGE> 6

-6-

PARIBAS (f/k/a Banque Paribas)

By: /s/ Scott Clingan
------------------------------------
Name: Scott Clingan
Title: Director

By: /s/ Larry Robinson
------------------------------------
Name: Larry Robinson
Title: Vice President

COMERICA BANK

By: /s/ Charles E. Pohl
------------------------------------
Name: Charles E. Pohl
Title: First Vice President

THE FUJI BANK, LIMITED, HOUSTON AGENCY

By: /s/ Raymond Ventura
------------------------------------
Name: Raymond Ventura
Title: Vice President and Manager

HIBERNIA NATIONAL BANK

By: /s/ Christopher Pitre
------------------------------------
Name: Christopher Pitre
Title: Vice President

BANK OF AMERICA, N.A., (f/k/a NationsBank, N.A.)

By: /s/ William E. Livingstone, III
------------------------------------
Name: William E. Livingstone, III
Title: Managing Director

UNION BANK OF CALIFORNIA, N.A.

By: /s/ Emily Denny McKnight
------------------------------------
Name: Emily Denny McKnight
Title: Vice President

<PAGE> 7
-7-

CHASE BANK TEXAS, NATIONAL ASSOCIATION
(f/k/a Texas Commerce Bank, N.A.)

By: /s/ Bruce A. Shilcutt
------------------------------------
Name: Bruce A. Shilcutt
Title: Vice President

<PAGE> 1
EXHIBIT 4.5

LIMITED WAIVER
REGARDING DISPOSITION OF CERTAIN ASSETS
AND
CERTAIN FINANCIAL COVENANTS

This LIMITED WAIVER REGARDING DISPOSITION OF CERTAIN ASSETS AND CERTAIN
FINANCIAL COVENANTS is made and entered into as of September 30, 1999 (this
"Waiver"), among (a) ITEQ, INC., a Delaware corporation (the "Borrower"), (b)
THE GUARANTORS signatories hereto as guarantors, (c) BANKBOSTON, N.A., a
national banking association having its principal place of business at 100
Federal Street, Boston, Massachusetts 02110 (acting in its individual capacity,
"BKB"), and the other lending institutions which become parties to the Credit
Agreement defined below (together with BKB, the "Banks"), (d) DEUTSCHE BANK AG,
as documentation agent (the "Documentation Agent"), and (e) BANKBOSTON, N.A., as
agent for the Banks (acting in such capacity, the "Agent"). Capitalized terms
used herein without definition shall have the meanings assigned to such terms in
the Credit Agreement defined below.

WHEREAS, the Borrower wishes to cause assets comprising the Clinton
Plant, the Provo Plant and the Birmingham Plant (each as defined herein) to be
sold and has requested certain limited waivers under the Credit Agreement to
permit such sales and to release the Agent's and the Banks' security interests
therein;

WHEREAS, the Borrower has requested certain additional limited waivers
under the Credit Agreement with respect to certain financial covenants contained
in the Credit Agreement;

WHEREAS, the Banks, the Documentation Agent and the Agent have agreed
to make certain limited waivers under the Credit Agreement as hereinafter set
forth;

NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

SECTION 1. DEFINITIONS. The following terms when used herein or in any
other Loan Document shall have the meanings set forth below:

Birmingham Plant. The premises described on Exhibit A attached hereto
and all of the fixtures, equipment and other goods of the Borrower or any of its

<PAGE> 2
2

Subsidiaries that used to comprise the tank manufacturing facility formerly
operated at such premises and that are located at such premises and are to be
sold pursuant to the Birmingham Sale Agreement, exclusive of equipment and other
goods that have been, or, prior to the Birmingham Sale, will be, transferred to
one or more other facilities of the Borrower or any of its Subsidiaries.

Birmingham Sale. The sale by the Borrower or its Subsidiaries of the
Birmingham Plant pursuant hereto and pursuant to the Birmingham Sale Agreement.

Birmingham Sale Agreement. The Purchase and Sale Agreement in form and
substance satisfactory to the Agent pursuant to which the Borrower or its
Subsidiaries sell the Birmingham Plant.

Clinton Plant. All of the equipment and other goods of the Borrower or
any of its Subsidiaries comprising the tank manufacturing facility located at
2828 Clinton Drive, Houston, TX 77020 consisting of equipment and other goods
located at such premises that are to be sold pursuant to the Clinton Sale
Agreement and that have been used as part of such facility, provided, however,
that the Clinton Plant shall not include those assets listed on Exhibit B
hereto.

Clinton Sale. The sale by the Borrower or its Subsidiaries of the
Clinton Plant pursuant hereto and pursuant to the Clinton Sale Agreement.

Clinton Sale Agreement. The sale agreement in form and substance
satisfactory to the Agent pursuant to which the Borrower or its Subsidiaries
sell the Clinton Plant.

Provo Plant. The premises described on Exhibit C attached hereto and
all of the fixtures, equipment and other goods of the Borrower or any of its
Subsidiaries comprising the tank manufacturing facility located at such premises
and any other assets of the Borrower or any of its Subsidiaries used exclusively
to operate such tank manufacturing facility, in each case that are to be sold
pursuant to the Provo Sale Agreement.

Provo Sale. The sale by the Borrower or its Subsidiaries of the Provo
Plant pursuant hereto and pursuant to the Provo Sale Agreement.

Provo Sale Agreement. The sale agreement in form and substance
satisfactory to the Agent pursuant to which the Borrower or its Subsidiaries
sell the Provo Plant.

Subject Plants. The Birmingham Plant, the Clinton Plant and the Provo
Plant.

<PAGE> 3

Subject Sales. The Birmingham Sale, the Clinton Sale and the Provo
Sale.

Subject Sale Agreements. The Birmingham Sale Agreement, the Clinton
Sale Agreement and the Provo Sale Agreement.

SECTION 2. LIMITED WAIVERS UNDER THE CREDIT AGREEMENT.

SECTION 2.1. LIMITED WAIVER UNDER SECTION 7.4 OF THE CREDIT AGREEMENT.

Under Section 7.4 of the Credit Agreement the Borrower may not and may
not permit any of its Subsidiaries to dispose of assets other than such
disposals which consist of the sale of equipment in the ordinary course of
business. The Borrower has requested the Agent and the Banks to consent to
the Subject Sales. The Banks and the Agent hereby consent to the Subject Sales
and to the release by the Agent of all liens and security interests held by the
Agent for the benefit of the Banks and the Agent on assets comprising the
Subject Plants that are sold pursuant to the applicable Subject Sales, and the
Banks and the Agent hereby waive Section 7.4 of the Credit Agreement to the
extent that Section 7.4 prohibits the Subject Sales, provided, however, for each
Subject Sale, each of the following conditions applicable to such Subject Sale
are satisfied:

(a) the net cash proceeds received by the Borrower or any of
its Subsidiaries in consideration (i) for the Birmingham Sale shall not
be less than $1,100,000, (ii) for the Clinton Sale shall not be less
than $2,160,000 and (iii) for the Provo Sale shall not be less than
$1,500,000;

(b) any net cash proceeds of any Subject Sale received by the
Borrower or any of its Subsidiaries shall, concurrently with the
completion of such Subject Sale, be paid to the Agent for application
to repay the Revolving Credit Loans outstanding;

(c) (i) the Total Commitment shall be permanently and
automatically reduced by an amount equal to the net cash proceeds of
any Subject Sale simultaneously with such Subject Sale and the dollar
figure set forth in the tenth line of Section 2.1 of the Credit
Agreement shall be simultaneously and automatically reduced to reflect
such reduction in the Total Commitment, (ii) the dollar figure
immediately before the words "at any time on or subsequent to the
effective date of the Sixth Amendment hereto" in Section 2.1 of the
Credit Agreement (such dollar figure referred to herein as the "Loan
Sublimit") shall be permanently and automatically reduced by an amount
equal to the net cash proceeds of the Birmingham Sale simultaneously
with the Birmingham Sale and (iii) the Loan Sublimit shall be
permanently and automatically reduced by an amount equal to the net
cash proceeds of the Provo Sale simultaneously with the Provo Sale;

<PAGE> 4

(d) the Agent shall be satisfied that any noncash proceeds of
such Subject Sale, including, without limitation, deferred purchase
price promissory notes, shall at all times be subject to a first
priority perfected security interest, free of encumbrances other than
Permitted Liens, in favor of the Banks and the Agent, with arrangements
being in place, satisfactory to the Agent, for the Agent to have
possession or control, at the time of completion of any Subject Sale,
of any noncash proceeds for which perfection of the Agent's security
interest therein must be by possession or control;

(e) prior to any Subject Sale other than the Birmingham Sale,
the Banks shall have received and shall be satisfied with the results
of appraisals and valuations by professional appraisers and valuation
experts, engaged by the Borrower or any of its Subsidiaries and
satisfactory to the Banks, to support the sales price reflected in the
applicable Subject Sale Agreement;

(f) prior to any Subject Sale, the Agent shall have received
and be satisfied with any agreements or other documentation related to
such Subject Sale, including, without limitation, the applicable
Subject Sale Agreement;

(g) the Subject Sale (i) for the Birmingham Sale shall occur
on or prior to December 31, 1999, (ii) for the Clinton Sale shall occur
on or prior to October 15, 1999 and (iii) for the Provo Sale shall
occur on or prior to December 31, 1999; and

(h) after otherwise giving effect to this Waiver, no Default
or Event of Default shall have occurred and shall be continuing at the
time of such Subject Sale or would occur as a result thereof.

As used in this Section 2.1 of this Waiver, the term "net cash proceeds" of any
Subject Sale means gross cash proceeds of such Subject Sale, net of reasonable
direct transaction costs, such as broker's fees, transfer taxes and professional
fees and expenses incurred on account of such Subject Sale.

<PAGE> 5

SECTION 2.2. LIMITED WAIVER UNDER SECTION 8.3 OF THE CREDIT AGREEMENT.

The Banks and the Agent hereby waive Section 8.3 of the Credit
Agreement as Section 8.3 applies as of the end of the fiscal quarter ended
September 30, 1999 (but not as Section 8.3 applies for any other period),
provided that each of the Monthly EBITDA Conditions (as defined herein) is
satisfied.

SECTION 2.3. LIMITED WAIVER UNDER SECTION 8.6 OF THE CREDIT AGREEMENT.

The Banks and the Agent hereby waive Section 8.6 of the Credit
Agreement as Section 8.6 applies to the fiscal quarter ending September 30, 1999
(but not as Section 8.6 applies for any other period); provided, however, that:

(a) the sum of EBITDA plus noncash losses incurred in connection with
the Clinton Sale is greater than or equal to (i) $0 for the month of September,
1999, (ii) $0 for the month of October, 1999, (iii) $100,000 for the month of
November, 1999 and (iv) $100,000 for the month of December, 1999 (such
requirements related to minimum EBITDA for the months of September, October,
November and December collectively referred to herein as the "Monthly EBITDA
Conditions"); and

(b) (i) on or before October 25, 1999, the Borrower shall, in
accordance with Section 6.4(c) of the Credit Agreement, deliver a Compliance
Certificate demonstrating compliance with this Section 2.3 as it applies as of
the end of September, 1999, (ii) on or before November 25, 1999, the Borrower
shall, in accordance with Section 6.4(c) of the Credit Agreement, deliver a
Compliance Certificate demonstrating compliance with this Section 2.3 as it
applies as of the end of October, 1999, (iii) on or before December 25, 1999,
the Borrower shall, in accordance with Section 6.4(c) of the Credit Agreement,
deliver a Compliance Certificate demonstrating compliance with this Section 2.3
as it applies as of the end of November, 1999, (iv) on or before January 25,
1999, the Borrower shall, in accordance with Section 6.4(c) of the Credit
Agreement, deliver a Compliance Certificate demonstrating compliance with this
Section 2.3 as it applies as of the end of December, 1999.

SECTION 2.4. LIMITED WAIVER UNDER SECTION 8.7 OF THE CREDIT AGREEMENT.

The Banks and the Agent hereby waive Section 8.7 of the Credit
Agreement as Section 8.7 applies for the period from August 30, 1999 through
October 30, 1999 (but not for any other period, including any period commencing
on or after October 31, 1999); provided that on or before November 25, 1999, the
Borrower shall, in accordance with Section 6.4(c) of the Credit Agreement,
deliver a Compliance Certificate demonstrating compliance with the covenants
contained in Sections 7 and 8 of the Credit Agreement, including, without
limitation, Section 8.7 as it applies on October 31, 1999; provided further that
each of the Monthly EBITDA Conditions is satisfied.

<PAGE> 6
6

SECTION 3. AGREEMENT WITH RESPECT TO SECTION 3.1(a) OF THE CREDIT
AGREEMENT.

Section 3.1(a) of the Credit Agreement is hereby amended by replacing
the dollar figure in the eleventh line thereof with the dollar figure
"$5,000,000".

SECTION 4. WAIVER FEE. The Borrower hereby agrees to pay to the Agent,
for the account of each Bank that executes this Waiver, a waiver fee of $150,000
(such amount referred to herein as the "Waiver Fee"), such Waiver Fee to be
shared pro rata by the Banks that execute this Waiver in accordance with their
Commitments. The Waiver Fee shall be nonrefundable and fully earned as of the
date hereof, and half of such fee (being equal to the amount of $75,000 and
referred to herein as the "Upfront Portion of the Waiver Fee") shall be payable
to the Agent, for the respective accounts of such Banks, on the date hereof and
the remaining half of such fee (being equal to the amount of $75,000) shall be
payable to the Agent, for the respective accounts of such Banks, on November 1,
1999.

SECTION 5. CONDITIONS TO EFFECTIVENESS. This Waiver shall become
effective as of the date hereof, provided that the following conditions shall
have been satisfied on or prior to October 1, 1999:

SECTION 5.1. LOAN DOCUMENTS. Each of this Waiver and all
related documents shall have been duly executed and delivered by the
respective parties thereto, shall be in full force and effect and shall
be in form and substance reasonably satisfactory to the Agent.

SECTION 5.2. CORPORATE ACTION. All corporate action necessary
for the valid execution, delivery and performance by the Borrower and
each Guarantor of this Waiver, and each of the related documents to
which it is or is to become a party, shall have been duly and
effectively taken, and evidence thereof reasonably satisfactory to the
Agent shall have been provided to the Agent.

SECTION 5.3. PROCEEDINGS AND DOCUMENTS. All proceedings in
connection with the transactions contemplated by this Waiver and all
other documents incident hereto shall be reasonably satisfactory in
substance and in form to the Banks and to the Agent.

SECTION 5.4. COSTS AND EXPENSES. The Borrower shall have
reimbursed the Agent for the amount of the fees and expenses of Bingham
Dana LLP ("BDLLP"), special counsel to the Agent, for services rendered
to the Agent in connection with the Credit Agreement, to the extent
that copies of invoices therefor have been presented to the Borrower.
The Borrower shall have deposited the sum of $50,000 with
PricewaterhouseCoopers LLC ("PWC) in payment of BDLLP's obligation to
provide a retainer to PWC in such amount in connection with BDLLP's
engagement of PWC as financial advisor to BDLLP.
<PAGE> 7

SECTION 5.5. WAIVER FEE. The Borrower shall have paid the
Upfront Portion of the Waiver Fee to the Agent for the account of the
Banks that execute this Waiver.

SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Banks and the Agent as follows:

(a) REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. Each
of the representations and warranties of the Borrower contained in the
Credit Agreement as modified hereby or in any document or instrument
delivered pursuant to or in connection with the Credit Agreement as
modified hereby are true as of the date hereof (except to the extent of
changes resulting from transactions contemplated or permitted by the
Credit Agreement and changes occurring in the ordinary course of
business which singly or in the aggregate are not materially adverse,
or to the extent that such representations and warranties relate solely
and expressly to an earlier date) and, taking into account this Waiver,
no Default or Event of Default has occurred and is continuing.

(b) AUTHORITY, NO CONFLICTS, ETC. The execution, delivery and
performance of this Waiver and the transactions contemplated hereby (i)
are within the corporate authority of the Borrower and the Guarantors,
(ii) have been duly authorized by all necessary corporate proceedings,
(iii) do not conflict with or result in any material breach or
contravention of any provision of law, statute, rule or regulation to
which the Borrower or any Guarantor is subject or any judgment, order,
writ, injunction, license or permit applicable to the Borrower or
Guarantors so as to materially adversely affect the assets, business or
any activity of the Borrower or Guarantors, and (iv) do not conflict
with any provision of the corporate charter or bylaws of the Borrower
or Guarantors or any agreement or other instrument binding upon them.
The execution, delivery and performance of this Waiver will result in
valid and legally binding obligations of the Borrower and Guarantors
enforceable against each in accordance with the respective terms and
provisions hereof.

SECTION 7. BANK GROUP FINANCIAL CONSULTANT. The Borrower and the
Guarantors agree that, in connection with BDLLP's representation of the Agent on
matters relating to the Credit Agreement and the other Loan Documents, BDLLP may
retain and continue to retain PWC as financial consultant to, among other
things, make visits to, and discuss financial and operational matters with, the
Borrower and its Subsidiaries and to advise the Agent and the Banks as to the
Borrower's and its Subsidiaries' business, operations and financial condition
insofar as such matters relate to the Borrower's and its Subsidiaries'
performance and future ability to perform under the Loan Documents. PWC shall
not be limited in the frequency of visits to the facilities of the Borrower and
its Subsidiaries. The Borrower shall, and shall cause each of its Subsidiaries
to, cooperate with PWC and
<PAGE> 8
8

provide PWC with all information reasonably requested by PWC in connection with
its engagement by BDLLP. The Borrower and the Guarantors acknowledge that,
pursuant to Section 15 of the Credit Agreement, the fees and expenses of PWC are
for the account of the Borrower.

SECTION 8. BANK GROUP AGREEMENT. Each of the Banks (a) authorizes BDLLP
to engage PWC as special financial advisor to BDLLP in connection with BDLLP's
representation of the Agent on matters relating to the Credit Agreement and the
other Loan Documents and (b) agree to indemnify each of BDLLP and PWC and their
respective personnel from, and to hold each of BDLLP and PWC and their
respective personnel harmless against any and all claims, liabilities, costs and
expenses relating to the services that PWC renders in connection with such
engagement, except to the extent finally determined to have resulted from the
willful misconduct or fraudulent behavior of BDLLP or (as the case may be) PWC
relating to such services. Each of BDLLP and PWC may rely upon the provisions
contained in this Section 8 although not a party to this Waiver.

SECTION 9. RATIFICATION, ETC. Except as expressly modified hereby, the
Credit Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects and
shall continue in full force and effect. This Waiver and the Credit Agreement
shall hereafter be read and construed together as a single document, and all
references in the Credit Agreement, any other Loan Document or any agreement or
instrument related to the Credit Agreement shall hereafter refer to the Credit
Agreement as in effect after the effectiveness of this Waiver. This Waiver is a
Loan Document.

SECTION 10. RELEASE. In order to induce the Agent and the Banks to
enter into this Waiver, each of the Borrower and the Guarantors acknowledges and
agrees that: (i) neither the Borrower nor any Guarantor has any claim or cause
of action against the Agent or any Bank (or any of its respective directors,
officers, employees or agents); (ii) neither the Borrower nor any Guarantor has
any offset right, counterclaim or defense of any kind against any of their
respective obligations, indebtedness or liabilities to the Agent or any Bank;
and (iii) each of the Agent and the Banks has heretofore properly performed and
satisfied in a timely manner all of its obligations to the Borrower and each
Guarantor. The Borrower and the Guarantors wish to eliminate any possibility
that any past conditions, acts, omissions, events, circumstances or matters
would impair or otherwise adversely affect any of the Agent's and the Banks'
rights, interests, contracts, collateral security or remedies. Therefore, each
of the Borrower and the Guarantors unconditionally releases, waives and forever
discharges (A) any and all liabilities, obligations, duties, promises or
indebtedness of any kind of the Agent or any Bank to either the Borrower and any
Guarantor, except the obligations to be performed by the Agent or any Bank on or
after the date hereof as expressly stated in this Waiver, the Credit Agreement
and the other Loan Documents, and (B) all claims, offsets, causes of action,
suits or defenses of any kind whatsoever (if any), whether arising at law or in
equity, whether known or unknown, which the Borrower or any
<PAGE> 9
9

Guarantor might otherwise have against the Agent, any Bank or any of its
directors, officers, employees or agents, in either case (A) or (B), on account
of any past or presently existing condition, act, omission, event, contract,
liability, obligation, indebtedness, claim, cause of action, defense,
circumstance or matter of any kind.

SECTION 11. INDEMNIFICATION. The Borrower hereby agrees to indemnify
the Banks and their affiliates and to hold the Agent, the Banks and their
respective affiliates harmless from and against any loss, cost or expense
incurred or sustained by the Agent, the Banks or their respective affiliates in
providing payroll, collection, disbursement and other cash management services
to the Borrower, the Guarantors and their respective Subsidiaries. The parties
hereto further hereby agree that such indemnification obligations shall be
Obligations.

SECTION 12. COUNTERPARTS. This Waiver may be executed in any number of
counterparts, which together shall constitute one instrument.

SECTION 13. GOVERNING LAW. THIS WAIVER SHALL BE A CONTRACT UNDER THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, SHALL FOR ALL PURPOSES BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF SAID JURISDICTION,
WITHOUT REFERENCE TO CONFLICTS OF LAW, AND IS INTENDED TO TAKE EFFECT AS A
SEALED INSTRUMENT.

<PAGE> 10

IN WITNESS WHEREOF, the parties hereto have executed this Waiver as an
instrument under seal to be effective as of the date first above written.

THE BORROWER:
- -------------

ITEQ, INC.

By: /s/ Mark E. Johnson
-----------------------------------
Name: Mark E. Johnson
Title: Chairman

<PAGE> 11

THE GUARANTORS:
- ---------------

By: /s/ Mark E. Johnson
-----------------------------------
Name: Mark E. Johnson
Title: Chairman

<PAGE> 12

THE LENDERS:
- ------------

BANKBOSTON, N.A.,
individually and as Agent

By: /s/ Virginia Dennett
-----------------------------------
Name: Virginia Dennett
Title: Director

DEUTSCHE BANK AG,
individually and as Documentation Agent

By: /s/ Paul L. Harinstein
-----------------------------------
Name: Paul L. Harinstein
Title: Managing Director

By: /s/ Margaret S. Cheever
-----------------------------------
Name: Margaret S. Cheever
Title: Managing Director

BANK OF SCOTLAND

By: /s/ Annie Glynn
-----------------------------------
Name: Annie Glynn
Title: Senior Vice President

BANK ONE, TEXAS, N.A.

By: /s/ Bradley C. Peters
-----------------------------------
Name: Bradley C. Peters
Title: Vice President

<PAGE> 13

PARIBAS (f/k/a Banque Paribas)

By: /s/ Scott Clingan
-----------------------------------
Name: Scott Clingan
Title: Director

By: /s/ Larry Robinson
-----------------------------------
Name: Larry Robinson
Title: Vice President

COMERICA BANK

By: /s/ Charles E. Pohl
-----------------------------------
Name: Charles E. Pohl
Title: First Vice President

THE FUJI BANK, LIMITED

By: /s/ Raymond Ventura
-----------------------------------
Name: Raymond Ventura
Title: Vice President and Manager

HIBERNIA NATIONAL BANK

By: /s/ Christopher Pitre
-----------------------------------
Name: Christopher Pitre
Title: Vice President

BANK OF AMERICA, N.A., (f/k/a NationsBank, N.A.)

By: /s/ William E. Livingstone, III
-----------------------------------
Name: William E. Livingstone, III
Title: Managing Director

UNION BANK OF CALIFORNIA, N.A.

By: /s/ Emily Denny McKnight
-----------------------------------
Name: Emily Denny McKnight
Title: Vice President

<PAGE> 14

CHASE BANK TEXAS, NATIONAL ASSOCIATION
(f/k/a Texas Commerce Bank, N.A.)

By: /s/ Bruce A. Shilcutt
-----------------------------------
Name: Bruce A. Shilcutt
Title: Vice President

<PAGE> 15

Exhibit A
---------

All that real estate in Jefferson County, Alabama, described as follows:

Lot 2, according to the General American Transportation Subdivision, as
recorded in Map Book 99, Page 16, in the Probate Office of Jefferson County,
Alabama.

<PAGE> 16

Exhibit B
---------

1. Office furniture on the second floor of the office building
2. Leased copiers and computers
3. In-process material in and around the shop
4. Crane rails
5. Water fountains in the shop
6. Infrared heaters in the shop
7. Electric forklift
8. Mack truck tractor
9. Scale
10. Lot of shelves
11. Ohmstead field service equipment
12. Field Erect Equipment

<PAGE> 17

Exhibit C
---------

All that real estate in Utah County, Utah, described as follows:

Commencing at a point in the Southerly right of way line of a road, which
point of beginning is West along the section line (record bearing and basis of
bearings being North 89 deg. 33' 59" West) 1055.2 feet and South (measured
bearing being South 0 deg. 26' 01" West) 21.8 feet from the North quarter
corner of Section 34, Township 6 South, Range 2 East, Salt Lake Base and
Meridian; thence with said road line South 86 deg. 52' East (measured bearing
being South 86 deg. 25' 59" East) 182 feet to a point in the Westerly right of
way line of Denver and Rio Grande Western Railroad; thence South 37 deg. 33'
East (measured bearing being South 37 deg. 06' 59") along said right of way line
2038 feet to the North line of a road; thence with said road line South 71 deg.
19' West (measured bearing being South 71 deg. 45' 01" West) 150.4 feet
(measured distance being 145.2 feet); thence continuing on said road line North
87 deg. 48' West (measured bearing being North 87 deg. 21' 59" West) 259.7 feet
(measured distance being 265.57 feet) to the Easterly right of way line of the
Union Pacific Railroad; thence with said right of way line North 38 deg. 36'
West (measured bearing being North 38 deg. 09' 59" West) 1608 feet to the East
line of a road; thence with said road line North 2 deg. 09' 59" West) 1608 feet
to the East line of a road; thence with said road line North 2 deg. 28" West
(measured bearing being North 2 deg. 01' 59" West) 405.8 feet to the place of
beginning.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 6,665 5,462
<SECURITIES> 0 0
<RECEIVABLES> 19,865 72,710
<ALLOWANCES> 0 0
<INVENTORY> 9,094 17,683
<CURRENT-ASSETS> 121,376 139,128
<PP&E> 20,426 49,453
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 210,182 287,820
<CURRENT-LIABILITIES> 131,214 63,953
<BONDS> 106,325 118,784
0 0
0 0
<COMMON> 28 28
<OTHER-SE> 78,940 100,295
<TOTAL-LIABILITY-AND-EQUITY> 210,182 287,820
<SALES> 98,778 128,258
<TOTAL-REVENUES> 98,778 128,258
<CGS> 85,249 105,310
<TOTAL-COSTS> 85,249 105,310
<OTHER-EXPENSES> 19,381 25,998
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (3,180) (2,239)
<INCOME-PRETAX> (8,998) (4,851)
<INCOME-TAX> 0 (1,767)
<INCOME-CONTINUING> (8,998) (3,084)
<DISCONTINUED> (14,031) (3,134)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (23,029) 50
<EPS-BASIC> (0.82) 0
<EPS-DILUTED> (0.82) 0

</TABLE>