<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-27986
ITEQ, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1667001
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2727 ALLEN PARKWAY, SUITE 760, HOUSTON, TEXAS 77019
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: 713-285-2700
----------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
<S> <C>
Common Stock, $.001 par value Nasdaq National Market
Preferred Stock Purchase Rights Nasdaq National Market
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant as of April 10, 2000 was $27,513,109. As of April 10, 2000, there
were 28,400,629 shares of the registrant's Common Stock, $.001 par value,
outstanding.
Documents incorporated by reference. Certain portions of the
registrant's definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders ("Proxy Statement") are incorporated in Part III by reference.
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TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C> <C>
PART I
Item 1. Business...............................................................1
Item 2. Properties.............................................................8
Item 3. Legal Proceedings......................................................9
Item 4. Submission of Matters to a Vote of Security Holders....................9
PART II
Item 5. Market for the Registrant's Common Equity and
Related Shareholder Matters.......................................9
Item 6. Selected Financial Data...............................................10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................12
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...........18
Item 8. Financial Statements and Supplementary Data...........................18
Item 9. Disagreements on Accounting and Financial Disclosure..................18
PART III
Item 10. Directors and Executive Officers of the Registrant...................18
Item 11. Executive Compensation...............................................19
Item 12. Security Ownership of Certain Beneficial Owners and
Management......................................................19
Item 13. Certain Relationships and Related Transactions.......................19
PART IV
Item 14. Financial Statements and Financial Statement
Schedules, Exhibits and Reports on Form 8-K.....................20
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
ITEQ, Inc. ("ITEQ" or the "Company") designs, engineers, manufactures,
and services process and storage equipment and components. The Company's
products and services are utilized by customers in manufacturing processes
requiring the process, treatment, storage, or movement of gases and liquids.
Management of the Company believes that it is the leading domestic manufacturer
and servicer of shell and tube heat exchangers, principally for petrochemical
and refining applications. The Company is also a leading provider of maintenance
services for above-ground storage tanks ("AST") and related products primarily
for oil production and storage, petrochemical, refining, water storage, and
agriculture industries. The Company operates internationally, with its
equipment, systems and services sold or utilized in countries worldwide.
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,
the results of operations for prior periods are not necessarily comparable with
or indicative of results of operations for current or future periods.
Additionally, the Company discontinued its low margin fabrication operations
during 1997 and 1998, and adopted plans to dispose of a significant portion of
its storage tank operations in September 1999 as part of an overall debt
reduction initiative.
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.
Volatility in oil prices and the oversupply of certain commodity chemicals
during 1998 and 1999 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 1999 resulting in reduced demand for of the Company's products and
services. 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 1999. Refinery and petrochemical plant utilization remains high, and
management believes that the intermediate and long-term prospects for the sale
of the Company's equipment and services remain good and should exceed those of
its recent past.
The Company's results of operations for 1998 and 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. In September 1998, management adopted a plan
to discontinue the Company's filtration operations. However, in September 1999,
it was determined by management that it was in the best interest of its
shareholders to continue those operations. Accordingly, the filtration
operations were reconsolidated for financial reporting purposes in the third
quarter of 1999. Management adopted, in September 1999, a plan to dispose of
certain operations of the Company's storage tank operations, the proceeds from
which will be utilized to reduce the Company's indebtedness. Management has
implemented a plan to restructure the filtration operations and believes that
the markets for its products are improving.
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The Company was incorporated in Delaware in 1990 under the name
Air-Cure Environmental, Inc. The Company changed its name in 1993 to Air-Cure
Technologies, Inc. and again in March 1997, to ITEQ, Inc. The Company's
principal executive offices are located at 2727 Allen Parkway, Suite 760,
Houston, Texas 77019, and its telephone number is (713) 285-2700.
All amounts included herein are in thousands of dollars, except per
share amounts or as otherwise noted.
BUSINESS STRATEGY
The Company's objective is to be a leading provider of manufactured
products and services used in the niche industrial markets in which it operates.
It intends to gain market share by providing the highest level of service and
engineered solutions to its customers' problems. The Company intends to continue
to position itself to take advantage of any increase in capital and maintenance
spending in the refining and petrochemical markets.
The Company had pursued an aggressive strategy of acquiring leading
providers of complementary manufactured products and services in highly
fragmented industrial equipment markets, with a view to further consolidating
those markets. The consolidation of these units proved more difficult than
management had perceived, and coupled with a downturn in the markets served, led
to this strategy being abandoned in 1999.
ACQUISITION HISTORY
Since its inception in 1990 through mid 1998, the Company experienced
substantial growth through acquisitions. The Company's business was originally
focused on the highly regulated air pollution control industry. However,
beginning in 1995 with the merger with Allied Industries, Inc. ("Allied") the
Company increased its focus on the process equipment business which accelerated
with the November 1996 acquisition of Ohmstede, Inc. ("Ohmstede"). In addition,
in August 1997, ITEQ completed the acquisition of Exell, Inc. ("Exell"), a
manufacturer of shell and tube heat exchangers and previously a competitor of
the Company's Ohmstede operations.
The Company entered the industrial and municipal AST and related
equipment and service industry through the merger with Astrotech International
Corporation ("Astrotech") in October 1997.
In April 1998, ITEQ completed the acquisition of Reliable Steel, Inc.
("Reliable"), a manufacturer of storage tanks and structural components. In
addition, in June 1998, ITEQ completed the acquisition of G.L.M. Tanks and
Equipment, Ltd. ("GLM"), a Canadian manufacturer of storage tanks, pressure
vessels, and process equipment.
The following table sets forth certain information concerning the
businesses which have been acquired by ITEQ through December 31, 1999:
<TABLE>
<CAPTION>
DATE PRINCIPAL
ACQUIRED COMPANY ACQUIRED PRODUCTS INDUSTRY SERVED
---------------- -------- --------- ---------------
<S> <C> <C> <C>
Air-Cure, Inc.(1) 1990 Fabric filters Electric utilities, coal
Interel, Inc.(2) 1991 Dry scrubbers, packed and Waste treatment, foundry, smelter
mini scrubbers, heat
exchangers
Ceilcote Air Pollution Control, 1992 Wet scrubbers, tower Microelectronics, chemical
Inc.(2) internals, FRP fans processing, waste treatment,
food processing
</TABLE>
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<TABLE>
<CAPTION>
DATE PRINCIPAL
ACQUIRED COMPANY ACQUIRED PRODUCTS INDUSTRY SERVED
---------------- -------- --------- ---------------
<S> <C> <C> <C>
VIC Environmental Systems, Inc.(2) 1994 Carbon adsorption systems Pharmaceutical, rubber
Amerex Industries, Inc.(2) 1994 Fabric filters, wet and dry Steel, cement and lime,
scrubbers refining, foundry
Allied Industries, Inc.(3)(4) 1995 Air separation equipment, Petrochemical, plastics, refining
reactors, blenders, stacks,
towers and columns, pressure
vessels
Ohmstede, Inc. 1996 Heat exchangers Petrochemical, refining
Exell, Inc. 1997 Heat exchangers Petrochemical, refining
Astrotech International 1997 Aboveground storage tanks, Petrochemical, refining, water
Corporation(5) pressure vessels, bins, storage, pulp and paper, mining,
silos, stacks and liners, alcohol, agriculture, water
scrubbers, shopbuilt tanks treatment, power generation,
process systems
Reliable Steel, Inc. 1998 Storage tanks and structural Pulp and paper, municipal water
components treatment and refining
G.L.M. Tanks & Equipment Ltd. 1998 Storage tanks, pressure Oil and gas, refining, pulp and
vessels and process equipment paper, petrochemical and mining
</TABLE>
(1) Divested in November 1996.
(2) During September 1998 and effective September 30, 1998, management of ITEQ
adopted plans to dispose of its filtration operations. However, effective
September 1999, management of ITEQ reevaluated its plans related to this
disposal and has reconsolidated the filtration operations.
(3) Accounted for as a poolings-of-interests; all other acquisitions accounted
for as purchases.
(4) During August 1997, management of ITEQ adopted and implemented plans to
discontinue certain of its low margin generic fabrication operations of
its Allied subsidiary.
(5) Effective September 1, 1999, management of ITEQ adopted a plan to
discontinue the operations of a significant portion of its storage tank
operations. See Note 3 to the Consolidated Financial Statements for
discussion of the impact attributable to these discontinued operations.
DISPOSITION OF ASSETS
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.
Filtration Operations. During September 1998 and effective September
30, 1998, management of ITEQ adopted plans to discontinue its filtration
operations. The majority of the filtration operations relate to manufacturing
fabric filters, wet and dry scrubbers and fiberglass reinforced fans and
enclosures.
Effective September 1999, management of ITEQ reevaluated its plans
related to the disposal of the filtration operations. Management determined that
the disposal of these operations was not in the best interest of shareholders at
that date. Accordingly, the results of filtration operations have been
reconsolidated effective September 30, 1999 and all prior periods have been
restated. Management has implemented a plan to restructure the filtration
operations and believes that the markets for its products are improving.
Storage Tank Operations. Effective March 26, 1999, the Company sold the
assets of Texoma Tank Company, a mobile tank leasing business. Effective
September 1, 1999, management of ITEQ adopted a plan to dispose of certain
storage tank operations. The plan
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included the intended sale of certain operations and the abandonment and
liquidation of certain other storage tank fabrication operations.
During the fourth quarter of 1999 and first quarter of 2000, the
Company sold the following assets and businesses of its storage tank operations:
<TABLE>
<CAPTION>
Effective Date Description Proceeds
<S> <C> <C>
October/December 1999 Manufacturing and field equipment assets $ 3,600
November 1999 Provo, Utah storage operations $ 1,778
January 2000 Land and facilities in Birmingham, AL $ 1,052
February 2000 San Luis Obispo storage tank $ 8,900
manufacturing and field erect operation
February 2000 Manufacturing and field equipment assets $ 542
February 2000 Graver Tank & Mfg. Co., Inc. $ 4,000
March 2000 HMT operating unit $ 40,000
</TABLE>
Proceeds from the foregoing transactions were used to reduce
indebtedness under the Company's credit facility. At December 31, 1999, the
Company had classified separately on its balance sheet the assets and
liabilities of the portion of its storage tank operations being liquidated. The
carrying values reflected therein represent the lower of cost or estimated net
realizable value, and the Company recorded a non-cash charge of $20,670 in the
fourth quarter of 1999 to reduce certain carrying values to the net realizable
amount. (See Note 4 of Notes to Consolidated Financial Statements)
PRODUCTS AND SERVICES
The following table sets forth, for the periods indicated, the revenues
contributed from the Company's significant classes of products and services.
Revenues attributable to acquisitions accounted for as purchases have been
included for the periods after acquisitions and revenues from acquisitions
accounted for as poolings-of-interests have been included for all relevant
periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Process Equipment Operations $ -- $ 32,828 $142,161 $133,291 $102,865
Storage Tank Operations 100,424 109,929 127,718 169,842 144,853
Filtration Operations 74,549 66,058 65,720 39,661 32,699
-------- -------- -------- -------- --------
TOTALS $174,973 $208,815 $335,599 $342,794 $280,417
======== ======== ======== ======== ========
</TABLE>
For information with respect to the Company's financial data by
geographic location, see Note 17 to the Consolidated Financial Statements.
Process Equipment Operations. The Company's line of custom-built shell
and tube heat exchangers are marketed under the well-established OHMSTEDE and
EXELL names primarily to the petrochemical and refining industries in the Gulf
Coast area. In addition, the Company markets its products throughout the United
States and internationally by capitalizing on its existing distribution network
and customer relationships. The Company has a substantial installed base of heat
exchangers, since OHMSTEDE units were marketed for more than 40 years and EXELL
units were marketed for more than 20 years prior to acquisition. Aftermarket
services are provided both in the field and at one of the Company's six plant
locations. Field service work ranges from minor field repair and maintenance to
de-coking (i.e., the removal of fouling from tubes) or complete unit
reconstruction.
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Shell and tube heat exchangers are used in a variety of temperature
control, heating and cooling, and other plant operation applications and are
integrated into a variety of industrial processes that allow heat to be
transferred from one fluid or gas involved in the process to another. Usually
the fluid or gas being cooled runs through a series of tubes in the heat
exchanger, while the cooling fluid flows simultaneously in the opposite
direction in the void between the outer shell of the units and the tube bundles.
Storage Tank Operations. The Company designs, fabricates and erects
storage tanks for the storage of petrochemical products, municipal water and
other liquids. These include standard product lines of aboveground storage
tanks, underground storage tanks as well as field and shop custom fabricated
tanks and other projects.
Filtration Operations. Filtration products are marketed by the Company
under the Amerex, VIC Environmental Systems, Ceilcote Air Pollution Control,
Interel, Tellerette(R) and IWS tradenames and to engineering and construction
firms and directly to end-users for environmental and general industrial
applications. Such systems operate by filtering air or gas through many large
filter bags ("baghouses") that capture ambient particulate matter or by venting
a particulate-laden air stream through an aerosol spray which captures the
particulates ("scrubbers"). Baghouses and scrubbers are custom-designed systems
which may be of substantial scale and incorporate a variety of products
manufactured by the Company. These products include wet scrubbers, dry
scrubbers, axial and centrifugal fiberglass reinforced plastic fans ("FRP
fans"), heat exchangers, ductwork, aeration towers ("strippers"), scrubber
packing, tower internals, air washers, carbon adsorption systems, quenches,
cooling and condensing towers, mist eliminators and pneumatic conveying systems,
Such products are sold as components to other systems fabricators or
incorporated into complete systems designed and constructed by the Company.
SALES AND MARKETING
The Company's products and services are marketed through a staff of
in-house and regional sales personnel and in certain cases, through
commission-based, representative organizations, each operating in an exclusive
territory and serving industrial customers located in that territory.
Inquiries from potential customers are referred to Company engineering
personnel for any necessary product or system design and for job cost estimation
and preparation of price quotations or bid packages for submission to the
prospective customer. The interval between customer inquiry and confirmation of
an order or contract execution varies substantially. In general, orders are
filled for components, small systems, or service work on a purchase order basis
at fixed prices or time and material for heat exchanger repair on normal 30-day
trade terms. Larger, more complex systems or new heat exchangers that involve
long lead times are filled on a contract basis. Though contract terms are
subject to considerable variation, contracts normally provide for progress
payments, price adjustment provisions for some major materials during periods
when metal goods prices are subject to volatility and, except for sales from
certain foreign subsidiaries, are either dollar denominated or payable in
currencies with fixed exchange rates against the dollar. As a result, working
capital, raw material pricing, and currency translation risks are not normally
significant to the Company. Most contracts for products to be exported for sale
are secured by letters of credit drawn on major commercial banks. In certain
instances, particularly in the performance of aftermarket heat exchanger
services, work may be undertaken on a time and materials basis on normal 30-day
credit terms.
The Company has entered into formal "corporate alliances" with certain
of its customers, under which the Company has been designated a preferred vendor
for various products. The
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Company intends to continue to pursue additional strategic alliances or other
corporate partnering arrangements. In addition, the Company will continue to
expand its emphasis on aftermarket sales and services in an effort to minimize
the potential cyclical nature of industry capital spending.
MARKET CONDITIONS AND COMPETITION
Market Conditions. The industrial equipment markets in which the
Company operates are mature. Worldwide capital expenditures for hydrocarbon
processing equipment, industrial and municipal storage facilities have exceeded
$30 billion per year in recent years. Although the Company's products and
services are utilized in a number of industrial applications, a majority of its
recent annual revenues has been attributable to the hydrocarbon processing
industry which includes refining, petrochemical, and plastics. A significant
portion of the Company's revenues from those markets is attributable to plant
expansions, upgrades and maintenance and to a lesser extent the construction of
new industrial capacity abroad. The Company estimates that 55% to 60% of its
sales are the result of the customer's capital equipment requirements and that
40% to 45% of its sales are the result of the customer's maintenance
requirements. In an effort to minimize the effects of cyclical capital spending,
the Company intends increasingly to emphasize greater market penetration in
aftermarkets and diversification into other less cyclical domestic markets by
capitalizing on its broad range of product lines with potential customers and
through extension of its "corporate alliance" program into other industries. See
"Significant Customers". Since virtually all of the Company's revenues are
attributable to products and systems manufactured to customer specifications, it
carries very little finished goods inventory and purchases raw materials,
components and subassemblies only on a job specific, often "just in time" basis.
During the year ended December 31, 1999, certain components and subassemblies
were purchased from numerous subcontractors, typically under fixed price
arrangements. Should the need arise, the Company believes that any subcontractor
or supplier can be replaced without significant disruption to its business.
Competition. The markets in which the Company's process equipment and
storage tank operations compete in North America are generally fragmented, and
most competitors in these niche markets are relatively small, privately held
businesses. In North American markets, competition is based on several factors,
including reputation, manufacturing capabilities, availability of plant
capacity, price, performance and dependability. In foreign markets, competition
varies widely. In some international markets, price competition is more intense
than that prevailing in North America while in others, where prior relationships
and product quality receive more customer emphasis than do marginal pricing
differentials, price competition is less intensive. As a result of innovative
design solutions, quality of product workmanship and dependability of on-time
performance, the Company's product and services are sold, in certain
circumstances, in situations where it is not the apparent low bidder. Although
the Company does not typically maintain supply or service contracts with its
customers, a significant portion of the Company's annual revenues represents
repeat business from its customers.
In the filtration business, the Company is often asked by end-users to
submit proposals or bids for entire systems, thus bypassing engineering and
construction firms in the procurement process. When awarded such jobs, the
Company designs the entire system, purchases certain "off-the-shelf" or
fabricated components from vendors or subcontractors, and manufactures those
portions of the system for which it has particular expertise. The partially
completed system is then delivered to the customer's site for final assembly and
installation by field construction personnel who may be subcontractors for, or
supervised, by the Company.
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ENVIRONMENTAL MATTERS
The Company is subject to numerous federal, state, local and foreign
laws and regulations relating to the storage, handling, emission and discharge
of materials into the environment, including the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA"), the Clean Water Act, the
Clean Air Act (including the 1990 Amendments) ("CAA") and the Resource
Conservation and Recovery Act ("RCRA"). Each of these statutes allows the
imposition of substantial civil and criminal penalties, as well as permit
revocation, for violations of the requirements. Although the Company's
operations may involve environmental management issues typically associated with
manufacturing operations, the Company believes that it is in material compliance
with all environmental laws. The Company is not a party to any threatened or
pending legal proceedings relating to the environment. The Company is not a
party to any environmental administrative actions other than at its leased Exell
facility in Beaumont, Texas. The Company is investigating soil and groundwater
contamination and has been accepted into the Texas Voluntary Cleanup Program.
Management believes the Company is adequately reserved for the exposure based on
current information. It is possible that future developments, such as changes in
existing laws, regulations or enforcement practices under environmental laws,
could lead to material costs of environmental compliance and cleanup by the
Company.
SIGNIFICANT CUSTOMERS
The Company's principal customers have been refining and petrochemical
processors, pulp and paper, power generation, agriculture, food processing,
specialty construction, mining and waste treatment concerns. The Company
participates in "corporate alliance" programs with certain of its customers,
including BP-Amoco , Chevron Corporation, Lyondell-Citgo, Dow Chemical, E. I. Du
Pont, Olin Corporation, Hoechst Celanese, Shell, Tosco and Marathon under which
it is a designated preferred vendor for various types of equipment and services
primarily relating to its heat exchanger and related service business. Such
customers accounted for approximately $41.6 million and $37.5 million of total
shipments for the years ended December 31, 1998 and 1999, respectively. Although
the terms of these arrangements vary widely, they do not involve any minimum
purchase obligations, but set forth the basis upon which the Company is to be
paid for work performed -- either on the basis of cost plus a predetermined
profit margin or cost of materials plus agreed labor rates -- and involve the
exchange of a broad range of information with the customer, including the
customer's expected future requirements for the product and services classes
covered by the arrangement and the expected timing of future job awards, and the
Company's existing and expected future material and labor costs, as well as
periodic reports on continuing productivity improvements and total quality
management. The Company intends to continue its focus on entering into
additional strategic alliances or other corporate partnering arrangements. Due
to the contractual nature of the Company's operations, it is anticipated that
significant portions of future consolidated revenues may be attributable to a
limited number of customers in any particular year, although it is likely that
the particular customers may vary from year to year. For the year ended December
31, 1999, 1998 or 1997, no single customer accounted for as much as 10% of the
Company's consolidated revenues.
BACKLOG
At December 31, 1999, the Company's backlog was $63.7 million compared
to $86.0 million at December 31, 1998. Such backlog consisted of written orders
or commitments believed to be firm contracts for products and services. Such
agreements are occasionally varied or modified by mutual consent and in certain
instances may be cancelable by the customer on short notice without substantial
penalty. As a result, the Company's backlog as of any particular date may not be
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indicative of the Company's actual operating results for any subsequent fiscal
period. Management believes that substantially all of the orders and commitments
included in backlog at December 31, 1999 will be completed within the next
twelve months.
EMPLOYEES
At December 31, 1999, the Company employed approximately 1,662
full-time personnel, including approximately 171 union represented employees at
ten domestic manufacturing facilities who are subject to collective bargaining
agreements. The Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
ITEQ's principal facilities are shown in the table below:
<TABLE>
<CAPTION>
Approximate
Building Space
Location Status (Square Feet) Description
-------- ------ -------------- -----------
<S> <C> <C> <C>
CORPORATE:
Houston, TX Leased through June 9,600 Corporate offices
30, 2001
PROCESS:
Beaumont, TX Owned 25,000 Manufacturing facility and offices
Corpus Christi, TX Owned 42,000 Manufacturing facility and offices
LaPorte, TX Owned 78,000 Manufacturing facility and offices
Sulfur, LA Owned 90,000 Manufacturing facility and offices
St. Gabriel, LA Owned 90,000 Manufacturing facility and offices
Beaumont, TX Leased 98,000 Manufacturing facility and offices
Pasadena, TX Owned 154,000 Fabrication facility and offices
STORAGE:
Houston, TX* Owned/Leased Offices 54,000 Manufacturing facility and offices
through April 30,
2001
Beaumont, TX* Owned 8,100 Service Center
Kelton, PA* Owned 7,500 Fabrication facility and offices
Tonkawa, OK* Owned 10,000 Fabrication facility and offices
Warsaw, IN* Leased through 11,000 Offices
August 31, 2001
Birmingham, AL* Owned 86,500 Fabrication facility
Orem, UT* Owned 36,700 Fabrication facility
Port Allen, LA* Leased 3,500 Warehouse
Rosemont, MN* Leased 11,000 Warehouse
Mendota Heights, MN* Leased 11,900 Offices
Calgary, Alberta, Canada Leased 1,800 Office
Nisku, Alberta, Canada Owned 60,000 Manufacturing facility and offices
Battleford, Saskatchewan,
Canada Owned 50,000 Manufacturing facility and offices
Olympia, WA Leased 38,000 Manufacturing facility and offices
San Luis Obispo, CA* Owned 25,600 Fabrication facility, warehouse and
offices
Fresno, CA Owned 109,000 Fabrication facility, warehouse and
offices
FILTRATION:
Woodstock, GA* Leased through June 10,000 Warehouse and offices
30, 1999
Woodstock, GA Leased through 5,900 Warehouse and offices
September 30, 2001
Woodstock, GA Leased through June 3,000 Offices
30, 2000
</TABLE>
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<TABLE>
<CAPTION>
Approximate
Building Space
Location Status (Square Feet) Description
-------- ------ -------------- -----------
<S> <C> <C> <C>
La Grange, OH Leased through March 95,000 Manufacturing facility and
31, 2006 warehouse
Strongsville, OH Leased through 10,000 Laboratory and offices
January 31, 2010
Pfungstadt, Germany Leased 20,000 Manufacturing facility and
offices
Singapore Leased through May 6,400 Manufacturing facility and
31, 2000 offices
Cheshire, UK Leased 1,500 Sales office
</TABLE>
* Closed or sold facilities during the fourth quarter of 1999 and the
first quarter of 2000.
ITEM 3. LEGAL PROCEEDINGS
Certain of the Company's subsidiaries are parties to legal proceedings
in the ordinary course of business. While the outcome of lawsuits or other
proceedings cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial condition, results of
operations or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "ITEQ." The high and low sales prices per share for the periods
indicated were as follows:
<TABLE>
<CAPTION>
HIGH LOW
------- ---------
<S> <C> <C>
1998
First Quarter $14 1/4 $ 9 7/8
Second Quarter $15 $ 6 1/4
Third Quarter $ 8 $ 1 13/16
Fourth Quarter $ 3 3/8 $ 2
1999
First Quarter $ 2 7/8 $ 2
Second Quarter $ 2 1/2 $ 1 11/16
Third Quarter $ 2 7/16 $ 2 1/16
Fourth Quarter $ 2 1/16 $ 9/16
</TABLE>
On April 10, 2000, the last reported sale price for the Common Stock,
as quoted by the Nasdaq National Market, was $31/32 per share. As of the same
date, there were approximately 3,432 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on the Common
Stock. The Company intends to retain any future earnings for reinvestment in its
business and does not intend to pay cash dividends in the foreseeable future.
Furthermore, the Company is prohibited from declaring or paying cash dividends
on its capital stock under the terms of certain of the Company's indebtedness.
9
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data for the years ended
December 31, 1995, 1996, 1997, 1998 and 1999 is derived from the audited
consolidated financial statements of the Company. Accounts from acquisitions
accounted for as purchases have been included for the periods subsequent to
acquisition and all accounts, for relevant periods, have been restated to
reflect acquisitions accounted for as poolings-of-interests. Historical results
of operations, percentage fluctuations and any trends that may be inferred from
the data below are not necessarily indicative of the results of operations for
any future period. The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Consolidated Financial Statements and notes
thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating Data(1)(2):
Revenues .............................. $ 174,973 $ 208,815 $ 335,599 $ 342,794 $ 280,417
Cost of revenues ...................... 133,869 159,637 260,117 275,569 255,948
Impairment of long-lived assets
held for sale ....................... -- -- -- -- 20,670
Impairment of long-lived assets ....... -- -- -- -- 21,556
Merger, acquisition
and strategic charges ............... 170 2,022 17,956 12,528 3,543
Operating profit (loss)................ 8,858 11,881 7,831 8,591 (64,107)
Earnings (Loss) from
continuing operations before
extraordinary loss .................. 4,289 5,466 35 741 (77,069)
Loss from discontinued operations ..... (798) (1,542) (2,956) (923) --
Extraordinary loss from
early extinguishment of debt ........ -- -- (3,080) -- --
Net earnings (loss) ................... $ 3,491 $ 3,924 $ (6,001) $ (182) $ (77,069)
BASIC EARNINGS (LOSS) PER SHARE:
From continuing operations before
extraordinary loss .................. $ .21 $ .26 $ -- $ .02 $ (2.73)
From discontinued
Operations .......................... (.04) (.07) (.12) (.03) --
Extraordinary loss from
early extinguishment of debt ........ -- -- (.13) -- --
--------- --------- --------- --------- ---------
Net earnings (loss) ................... $ .17 $ .19 $ (.25) $ (.01) $ (2.73)
========= ========= ========= ========= =========
Weighted average common
shares outstanding .................. 20,560 20,645 24,301 27,686 28,193
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................ $ 137,395 $ 224,752 $ 261,487 $ 286,654 $ 180,130
Working capital (deficit)........... 28,117 42,573 64,531 124,976 (44,444)
Long-term debt...................... 28,294 84,685 89,954 119,603 --
Stockholders' equity................ 54,721 60,306 91,388 100,797 25,162
</TABLE>
- --------------------------------------------------------------------------------
(1) Astrotech's historical operating results and balances have been included
using Astrotech's fiscal years ended September 30. Effective January 1,
1997, ITEQ changed Astrotech's fiscal year to December 31 and the reported
1997 and 1998 amounts are for the year then ended. As a result, the
three-month period ended December 31, 1996 for Astrotech is not presented.
Revenues and earnings from continuing operations for this period were
$33,804 and $1,181, respectively.
(2) 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 it's Allied subsidiary, and during 1998 Allied ceased
operations. See Note 3 to the Consolidated Financial Statements.
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS OR OTHERWISE NOTED)
GENERAL
Since its inception in 1990 the Company has experienced substantial
growth through acquisitions. Also, the Company's annual results for the 1997,
1998 and 1999 time periods have also been affected by the disposition of certain
assets and operations. Due to the magnitude of these acquisitions and
dispositions and the integration of the acquired operations with the Company's
existing businesses, the results of operations for prior periods are not
necessarily comparable with or indicative of results of operations for current
or future periods.
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, low oil prices and the oversupply of certain commodity chemicals
during the second half of 1998 and throughout much of 1999 have adversely
affected many of the Company's customers in the refining and petrochemical
industries. Certain petrochemical and refining customers deferred equipment
purchases related to certain major projects during the second half of 1998 and
1999 that reduced demand for some of the Company's products. These factors have
increased pricing pressure on new equipment resulting in a decline in the
Company's gross margins and operating profits in both 1998 and 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 remain
strong.
The Company's results of operations for the years ended December 31,
1999 and 1998 were also adversely affected by conditions relating to the
Company's business combination following the October 1997 merger with Astrotech.
On November 12, 1998, the Company announced actions to restructure its
management organization, reduce its underlying cost structure and refocus the
Company's efforts on providing superior customer service. 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.
In 1997, the Company discontinued its low margin generic fabrication
operations at its Allied subsidiary. These operations concluded during 1998. In
September 1998, the Company adopted a plan to discontinue its filtration
operations; however, in September 1999, the Company determined that continuing
its filtration operations was more feasible than pursuing further plans to
dispose of these assets. In September 1999, as part of a debt reduction
initiative, the Company adopted plans to dispose, either through sale or
liquidation, of certain assets of its storage tank operations. Texoma Tank was
sold in March 1999 for $14.0 million. The majority of the assets of the storage
tank operations were sold during the last quarter of 1999 and first quarter of
2000 and the proceeds were used to reduce indebtedness.
The Company records most of its revenues using the
percentage-of-completion method of accounting. 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> 15
The Company recognizes revenue from certain short-term contracts using
the completed contract method of accounting. Revenue is recognized under this
method 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
quarters.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
Revenues
For the year ended December 31, 1999, total revenues were $280,417 as
compared to $342,794 for the comparable period in 1998. The total decrease of
$62,377, or 18%, was comprised of decreases in storage tank operations of
$24,989, process equipment operations of $30,426 and filtration operations of
$6,962. The decrease in storage tank operations resulted from the sale of Texoma
Tank in March 1999, and the decision in September 1999 to close or sell a
significant portion of the Company's storage tank operations. The decrease for
process equipment operations was primarily due to a decline in the demand for
new heat exchangers by the hydrocarbon processing industry. The Company's
principal customers for heat exchangers normally experience lower capital
expenditures during periods of depressed refined product margin, as was the case
throughout much of 1999. The decrease for filtration operations was primarily
the result of the Company's decision to discontinue such operations in August
1998 which led to lower purchases by our customers in subsequent periods.
Cost of Revenues
Cost of revenues for the year ended December 31, 1999 was $255,948 as
compared to $275,569 for the same period in 1998. This decrease of $19,621, or
7%, was partially attributable to decreases in revenues, as discussed in the
foregoing paragraph. However, due to significant fixed costs inherent in the
Company's manufacturing processes, the decreases in revenues resulted in a lower
revenue base to absorb fixed costs. Accordingly, the Company's gross margin in
sales decreased by $42,756 for the year ended December 31, 1999 versus 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended
December 31, 1999 were $36,234 as compared to $37,793 for the preceding twelve
month period. The decrease of $1,559 was primarily attributable to personnel
cost savings due to the decision to dispose of a significant portion of the
storage tank operations.
Depreciation and Amortization
For the year ended December 31, 1999, depreciation and amortization
expense was $8,472, an increase of $159 over the $8,313 amount recorded for the
full year of 1998. The increase for 1999 was primarily attributable to GLM being
included for the full year of 1999, partially offset by the sale of Texoma Tank
in March 1999.
13
<PAGE> 16
Merger, Acquisition and Strategic Charges
During the year ended December 31, 1999, the Company had nonrecurring
merger, acquisition and strategic charges totaling $3,543, as compared to
similar type charges during 1998 of $12,528. The costs recorded in 1999 and 1998
consist primarily of the costs, estimated as incremental job costs, to combine
the operations of the Company and Astrotech including losses associated with two
plant closings and business integration and reorganization costs including
severance.
Impairment
During the year ended December 31, 1999, the Company recorded two
non-cash charges related to the impairment of its fixed assets. A charge of
$20,670 was recorded to reduce the carrying value of the majority of the assets
of the storage tank business which are being disposed of either through the sale
or shut-down of facilities. Also, a charge of $21,556 was recorded to reduce the
carrying value of goodwill related to GLM Tanks and Equipment, Ltd. and Exell,
Inc.
(Gain) Loss on sales of assets
During the year ended December 31, 1999, the Company sold certain
operating assets for a net gain of $1,899. Texoma Tank was sold in March 1999
for $13,956 and a gain of $4,156 was recognized. During the fourth quarter of
1999, certain storage tank assets and business were sold for gross proceeds of
$5,378 and a loss of $2,260 was recorded. Also in 1999, the Company sold a
portion of interest in certain aviation rights for $301 and recognized a gain of
$3.
Interest Expense, net
Interest expense for the 1999 annual period was $9,353, as compared to
$7,821 for the comparable period in 1998. The increase in interest expense was
the result of higher average debt balances in 1999 versus 1998, primarily as a
result of debt incurred for the purchases of GLM and Reliable in 1998.
Additionally, average interest rates in 1999 were higher than in 1998.
Income Taxes
For the year ended December 31, 1999, the Company recorded a provision
of $4,373 primarily relating to the valuation allowance provided against the
net deferred tax assets and to provide for current state and foreign income
taxes. As there is no assurance the Company will generate sufficient taxable
income to avail itself of the benefit of certain deferred tax assets,
particularly net operating loss carryforwards, a valuation allowance has been
recorded for all of the Company's deferred tax assets.
Discontinued Operations
During August 1997 and effective on August 31, 1997, management of ITEQ
adopted plans to discontinue certain of its low margin generic fabrication
operations at its Allied subsidiary. The loss from these discontinued operations
for and 1998 was $923, net of a $520 income tax benefit.
14
<PAGE> 17
1998 COMPARED WITH 1997
Revenues
Total revenues for 1998 increased $7,195, or 2%, from $335,599 for 1997
to $342,794. Storage tank operations revenues increased by $42,124 of which
$19,194 is due to internal growth and $11,575 is a result of the April 1998
acquisition of Reliable and the June 1998 acquisition of GLM. Additionally, 1998
revenues in the storage tank operations increased by $11,355 as a result of the
May 1997 acquisition of Trusco.
Revenues decreased by $8,870 for process equipment operations. This
decrease was primarily due to a decrease from Graver Manufacturing Co.,
Inc.(fabricator of storage tanks and pressure vessels) in 1998 as compared to
1997 due to the restructuring of Graver to concentrate on higher margin jobs and
the discontinuance of certain low margin fabricating business. This decrease was
partially offset by the August 1997 acquisition of Exell.
Revenues for filtration operations decreased by $26,059, primarily due
to the decision in 1998 to reflect these operations of the Company as a
discontinued operation.
Cost of Revenues
Cost of revenues for 1998 increased $15,452 or 6%, to $275,569 from
$260,117 for 1997 primarily due to the increased revenues discussed above. Gross
margins declined from 22.5% to 19.6% from 1997 to 1998 due to softening market
conditions. The storage tank cost of revenue increased by $34,379, of which
$9,080 is due to the acquisition of GLM and Reliable, $10,380 is due to the 1997
acquisition of Trusco and the remaining $14,919 is a result of internal growth.
Cost of revenues decreased by $5,830 for process equipment operations
as a result of the above mentioned restructuring at Graver which was partially
offset by the inclusion of Exell for the full year in 1998. Cost of revenues for
filtration operations decreased by $13,097 as a result of declining revenues as
discussed above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1998 decreased by
$4,355 and represented 13% of revenues in 1997 and 11% of revenues in 1998. The
primary cause for decreased expenses are reduction of costs subsequent to the
merger between the Company and Astrotech.
Depreciation and Amortization
Depreciation and amortization expense for 1998 increased by $766 and
was primarily attributable to acquisitions related to the storage tank and
process equipment operations.
Merger, Acquisition and Strategic Charges
In 1998, the Company recorded nonrecurring merger, acquisition and
strategic charges totaling $12,528. Merger and acquisition costs of $1,117
related to a terminated purchase agreement and the termination of a proposed
tender offer and other acquisition related activity.
15
<PAGE> 18
The Company incurred a strategic charge of $11,411. The charge included
the costs, estimated as incremental job costs, to combine the operations of the
Company and Astrotech including losses associated with two plant closings and
business integration and reorganization costs. The Company also incurred
severance costs and other benefits associated with employee terminations,
including that of the Company's former president and chief operating officer,
and legal and accounting services fees.
Interest Expense, net
Interest expense for 1998 increased $1,850 to $7,821 from $5,971 in
1997. The increase in interest expense is a result of higher overall debt
balances in 1998.
Income Taxes
The income tax expense from continuing operations for 1998 was $431 as
compared to $2,344 in 1997. The 1997 effective tax rate was significantly higher
than the Company's normal effective tax rate due to nondeductible acquisition
expenses related to the merger with Astrotech.
Discontinued Operations
During August 1997 and effective on August 31, 1997, management of ITEQ
adopted plans to discontinue certain of its low margin generic fabrication
operations at its allied subsidiary. the loss from these discontinued operations
for 1997 and 1998 was $2,956 and $923, respectively, net of $1,613 and $520
income tax benefit, respectively.
Extraordinary Loss
During the third quarter of 1997, the Company repaid its subordinated
notes using available proceeds under its revolving credit facility. In October
1997, in connection with the Astrotech merger, the Company refinanced its and
Astrotech's existing credit facilities. The Company incurred an extraordinary
loss of $4,812, ($3,080 net of taxes), related to the write-off of unamortized
debt issuance and discount costs.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999 the Company's cash position was $5,287 compared
with $5,784 at December 31, 1998. At December 31, 1999, the Company had a net
working capital deficit of $44,444, as compared to net working capital of
$124,976 at December 31, 1998. However, such working capital amounts are not
indicative of traditional or future results due to (1) the inclusion in current
assets of property, equipment and intangibles held for sale, and (2) the
classification of the Company's long-term obligations as current liabilities due
to debt compliance issues. Absent these two items, net working capital at
December 31, 1999 and 1998 would be $34,385 and $66,609, respectively. For the
year ended December 31, 1999, the Company's operating activities, prior to
working capital changes, consumed $24,869 of cash whereas for 1998, operating
activities before working capital changes provided cash of $5,262. Including
working capital changes, cash used in operating activities totaled $1,967 and
$14,036 for the years ended December 31, 1999 and 1998, respectively.
16
<PAGE> 19
Changes in working capital components consumed $19,944 of cash in 1998
and provided cash of $22,902 in 1999. The 1998 amounts included cash payments of
$7,757 related to the Astrotech merger which were accrued in 1997. In 1999, the
sale and closure of certain storage operations resulted in working capital used
in such operations to be converted to cash.
Investing activities provided $18,172 of cash in 1999 compared to cash
used of $22,799 in 1998. In 1999, the proceeds from the sales of assets provided
$19,643 of cash whereas in 1998, the acquisition of businesses consumed $23,055
of cash.
Financing activities consumed cash of $16,729 in 1999 as proceeds from
the sales of assets were used to reduce indebtedness. In 1998, investing
activities, principally the borrowing of funds to complete acquisitions,
provided cash of $33,138.
In connection with the October 1997 merger with Astrotech, ITEQ
refinanced its and Astrotech's existing credit facilities under a new
non-amortizing revolving credit facility with various financial institutions
with a commitment of $145,000 as of December 31, 1998 (reducing to $135,000 on
December 31, 1999) and maturing in October 2002 and bearing 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 2.0% 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 December 31, 1999 was
$102,687, bearing interest at a rate of 9.8%.
The Company's credit facility requires the Company to maintain certain
levels of net earnings before interest, taxes and depreciation and amortization
("EBITDA"), interest coverage, working capital and stockholders' equity and
contain 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. At certain times throughout the year and
as of December 31, 1999 and through April 3, 2000, the Company was not in
compliance with certain financial covenants of its loan agreement. As a result,
the Company has classified as current the amounts outstanding under its credit
facility as of December 31, 1999 as, under the terms of the credit facility,
balances borrowed are due and payable if the event of default is not remedied
within a specified time period.
The Company and its lenders entered into a Limited Waiver and Eighth
Amendment to Revolving Credit Agreement at April 3, 2000 which waived compliance
with certain financial covenants in the credit facility through June 29, 2000.
Additional provisions require that the capital expenditures may not exceed $1.0
million during the first six months of 2000. The Company believes this amount to
be adequate in support of anticipated capital expenditure needs. The Limited
Waiver and Eighth Amendment provides for borrowing capacity up to a total
commitment of approximately $58.0 million with interest at the Base Rate plus
the Applicable Margin, as defined. At April 3, 2000, the balance outstanding was
$51,780. At December 31, 1999 and 1998, the outstanding balance under the credit
facility was $102,687 and $119,603, respectively. Balances outstanding at
December 31, 1999 and 1998 bore interest at a rate of 9.8% and 7.0%,
respectively. As discussed in Note 19 of Notes to Consolidated Financial
Statements, the Company has used the net proceeds from the sale of assets and
businesses to reduce its indebtedness under its credit facility.
Except with respect to funding any future acquisitions, management
believes that cash generated from operations, existing cash balances and
available borrowing capacity will be sufficient to meet ITEQ's anticipated cash
requirements for 2000. Management further believes that ITEQ could obtain
additional capital to make acquisitions primarily through either issuances of
common or preferred stock, or debt or lease financing, however, such financing
may not be available when required or on terms acceptable to ITEQ.
17
<PAGE> 20
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 ITEQ's financial
position, business strategy, and plans of management for future operations are
forward-looking statements. Although ITEQ 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.
ITEM 7A. 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. The Company has $102.7 million of variable interest
rate long-term debt outstanding at December 31, 1999. The rate in effect at
December 31, 1999 was 9.8%. A hypothetical one tenth of one percent increase or
decrease in the December 31, 1999 interest rates in effect for this debt is
approximately $100 before taxes.
FOREIGN CURRENCY RISK. Except for sales from certain foreign
subsidiaries, the Company's sales are either US dollar denominated or payable in
currency with fixed exchange rates against the US dollar. The Company has
operations in Canada, Germany and Singapore in addition to operations in the
United States and other countries. These companies' functional currencies are
the Canadian dollar, the German Mark and the Singapore dollar, respectively. The
Company's financial results from these foreign operations are translated into US
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 other countries as
mentioned above. As a result, the Company is exposed to risks normally
associated with operations located outside the U.S. and Canada, including
political, economic, social and labor instabilities, as well as foreign exchange
controls, currency fluctuations and taxation changes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder is included in this report as set
forth in the "Index to Financial Statements" on page F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding directors is set forth
in the Proxy Statement under the caption entitled "Election of Directors" and is
incorporated herein by reference.
18
<PAGE> 21
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Proxy
Statement under the caption "Compensation of Directors and Executive Officers"
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Proxy
Statement under the captions "Election of Directors" and "Compensation of
Directors and Executive Officers" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 2000 ITEQ sold its wholly owned-subsidiary Graver
Manufacturing Company, a maker of field erected pressure vessels, to a newly
formed entity 60% owned by an unaffiliated individual and 40% owned by ITEQ's
chairman of the board. The $4.0 million sales price for Graver Manufacturing
consisted of $3 million cash and a $1 million five-year term note bearing
interest at 9% per annum and secured by all the outstanding capital stock of
Graver Manufacturing. In connection with this transaction, Graver Manufacturing
was independently appraised, and management is of the opinion that the terms of
this transaction were at least as favorable to ITEQ as could have been obtained
from an unrelated third party.
19
<PAGE> 22
PART IV
ITEM 14. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K
(a)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
See "Index to Financial Statements" set forth on page F-1.
(a)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 - Amended and Restated Certificate of Incorporation of the
Registrant. (Filed as Appendix E to the Joint Proxy
Statement/Prospectus of the Registrant and Astrotech on October
3, 1997 and incorporated herein by reference).
3.2 - Amended and Restated Bylaws of the Registrant. (Filed as an
exhibit to Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference).
4.1 - See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining the rights of
holders of Common Stock.
4.2 - Second Amendment to Revolving Credit Agreement, dated as of
December 14, 1998, among the Registrant, the Guarantors and
various lending institutions including BankBoston, N.A., as
Agent, and Deutsche Bank AG, as Documentation Agent (Filed as an
exhibit to Form 8-K filed December 22, 1998 and incorporated
herein by reference).
4.3 - First Amendment to Rights Agreement effective November 19, 1998
between the Registrant and Harris Trust and Savings Bank, as
Rights Agent. (Filed as an exhibit to Form 8-K filed November 20,
1998 and incorporated herein by reference).
4.4 - Rights Agreement dated as of September 4, 1998 between the
Registrant and Harris Trust and Savings Bank, as Rights Agent,
which includes as Exhibit C thereto the Form of Right
Certificate. (Filed as an exhibit to Form 8-K filed September 15,
1998 and incorporated herein by reference).
4.5 - Revolving Credit Agreement dated as of October 28, 1997 by and
among the Registrant, the Guarantors and various lending
institutions including Deutsche Bank AG as Documentation Agent
and BankBoston, N.A. as Agent. (Filed as an exhibit to Form 10-Q
for the quarter ended September 30, 1997 and incorporated herein
by reference).
4.6 - Warrant Agreement, dated November 18, 1996, between the
Registrant and International Mezzanine Capital, B.V.
("Mezzanine"). (Filed as an exhibit to Form 8-K dated December 5,
1996 and incorporated herein by reference).
4.7 - Warrant Agreement dated November 18, 1996, between the Registrant
and First Commerce Corporation ("First Commerce"). (Filed as an
exhibit to Form 8-K dated December 5, 1996 and incorporated
herein by reference).
4.8 - Registration Rights Agreement dated November 18, 1996, among the
Registrant, Mezzanine, and First Commerce. (Filed as an exhibit
to Form 8-K dated December 5, 1996 and incorporated herein by
reference).
4.9 - Warrant Agreement, dated April 24, 1996, between the Registrant
and Sanders Morris Mundy, Inc. (Filed as an exhibit to Form 10-Q
for the quarter ended September 30, 1996 and incorporated herein
by reference).
4.10 - Warrant Agreement, dated December 1992, between Registrant and
Pennsylvania Merchant Group, Ltd. (Filed as an exhibit to Form
10-K for fiscal year ending March 31, 1993 and incorporated
herein by reference).
4.11 - Third Amendment to Revolving Credit Amendment, dated as of March
26, 1999, among the Registrant, the Guarantors and various
lending institutions including BankBoston, B.A., as Agent, and
Deutsche Bank AG, as Documentation Agent. (Filed as an exhibit to
Form 10-Q/A for the quarter ended September 30, 1999 and
incorporated herein by reference).
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.12 - 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. (Filed as an exhibit to
Form 10-Q/A for the quarter ended September 30, 1999 and
incorporated herein by reference).
4.13 - 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. (Filed as an exhibit to
Form 10-Q/A for the quarter ended September 30, 1999 and
incorporated herein by reference).
4.14 - 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.
(Filed as an exhibit to Form 10-Q/A for the quarter ended
September 30, 1999 and incorporated herein by reference).
4.15 - 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, Deutsche Bank AG, as Documentation Agent. (Filed
as an exhibit to Form 10-Q/A for the quarter ended September 30,
1999 and incorporated herein by reference).
4.16 - Seventh Amendment to Revolving Credit Agreement, dated as of
November 15, 1999, among the Registrant, the Guarantors and
various lending institutions including BankBoston, N.A., as
Agent, and Deutsche Bank AG, as Documentation Agent. (Filed as an
exhibit to Form 10-Q/A for the quarter ended September 30, 1999
and incorporated herein by reference).
*4.17 - Limited Waiver for the Revolving Disposition of Certain Assets
for the Revolving Credit Agreement, dated as of November 23,
1999, among the Registrant, the Guarantors and various lending
institutions including BankBoston, N.A., as Agent, and Deutsche
Bank AG, as Documentation Agent.
*4.18 - Limited Waiver for the Revolving Credit Agreement, dated as of
December 10, 1999 among the Registrant, the Guarantors and
various lending institutions including BankBoston, N.A. as Agent,
and Deutsche Bank as Documentation Agent.
*4.19 - Limited Waiver Regarding Certain Covenants and Disposition of
Certain Assets for the Revolving Credit Agreement, dated as of
January 24, 2000, among the Registrant, the Guarantors and
various lending institutions including BankBoston, N.A. as Agent,
and Deutsche Bank AG, as Documentation Agent.
*4.20 - Limited Waiver and Eight Amendment to the Revolving Credit
Agreement, dated as of April 3, 2000, among the Registrant, the
Guarantors and various lending institutions including Fleet
National Bank (f/k/a/ BankBoston, N.A.), as Agent, and Deutsche
Bank AG, as Documentation Agent.
10.1 - Plan and Agreement of Merger dated as of June 30, 1997, by and
between the Registrant and Astrotech International Corporation
("Astrotech"). (Filed as Appendix A to the Joint Proxy
Statement/Prospectus of the Registrant and Astrotech on October
3, 1997 and incorporated herein by reference).
10.2 - Stock Purchase Agreement dated as of April 30, 1997, by and
between Jared A. Trussler, Ray E. Crosno and Leslie D. Scott
("Sellers") and Astrotech (predecessor-in-interest to the
Registrant). (Filed as an exhibit to Form 8-K of Astrotech dated
as of May 14, 1997 and incorporated herein by reference).
10.3 - Stock Purchase Agreement, dated April 24, 1997, among the owners
of Exell, Inc. ("Exell") and the Registrant. (Filed as an exhibit
to Amendment No. 2 to the Registrant's Registration Statement on
Form S-2 (No. 333-23245) and incorporated herein by reference).
10.4 - First and Second Amendment to Exell Stock Purchase Agreement
among the owners of Exell and the Registrant. (Filed as an
exhibit to Form 10-Q for the quarter ending June 30, 1997 and
incorporated herein by reference).
10.5 - Amendment No. 2, as of February 28, 1997, to the Stock Purchase
Agreement dated February 7, 1994, by and among Astrotech
(predecessor-in-interest to the Registrant), Brown-Minneapolis
Tank & Fabricating Company ("BMT") and Irwin Jacobs. (Filed as an
exhibit to Form 10-Q for the quarter ended March 31, 1997 of
Astrotech and incorporated herein by reference).
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.6 - Purchase and Sale Agreement, dated as of the Effective Date (as
defined therein), between Babel, Miller & Blackwell Partnership
(the "Partnership") and the Registrant. (Filed as an exhibit to
Form 8-K dated August 28, 1997 and incorporated herein by
reference).
10.7 - First Amendment to Purchase and Sale Agreement, effective August
13, 1997, among the Partnership, Beaumont Franklin Street
Properties, L.L.C. ("BFSP"), Neches Street Properties, L.L.C.
("NSP") and the Registrant. (Filed as an exhibit to Form 8-K
dated August 28, 1997 and incorporated herein by reference).
*10.8 - Agreement dated January 29, 1999 between the Registrant and
William P. Reid.
*10.9 First Amendment to Employment Agreement Between William P. Reid
and ITEQ, Inc. dated March 20, 2000.
10.10 - Severance Agreement dated September 17, 1998, between Registrant
and John Camardella. (Filed as an exhibit to Form 10-Q for the
quarter ended September 30, 1998 and incorporated herein by
reference).
10.11 - Employment Agreement dated September 30, 1997 for Mark E.
Johnson. (Filed as an exhibit to Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference).
10.12 - Employment Agreement dated March 1, 1996, between the Registrant
and Lawrance W. McAfee. (Filed as an exhibit to Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
10.13 - Employees Stock Purchase Plan, as amended, dated December 15,
1994. (Filed as an exhibit to Form 10-K for year ended December
31, 1994 and incorporated herein by reference).
10.14 - Director Stock Option Plan, as amended. (Plan filed as an exhibit
to Proxy Statement for Annual Meeting of Stockholders held on
June 29, 1995, and amendment filed as an exhibit to Form 10-Q for
the quarter ended June 30, 1996 both of which are incorporated
herein by reference).
10.15 - Amended and Restated ITEQ 1990 Stock Option Plan. (Filed as
Appendix D to Joint Proxy Statement/Prospectus of the Registrant
and Astrotech on October 3, 1997 and incorporated herein by
reference).
10.16 - 1984 Stock Option Plan. (Filed as an exhibit to Astrotech's
Registration Statement on Form S-8 (No. 33-3360) and incorporated
herein by reference).
10.17 - 1989 Stock Incentive Plan. (Filed as an exhibit to Astrotech's
Registration Statement on Form S-8 (No. 33-2975) and incorporated
herein by reference).
10.18 - The 1994 Stock Option Plan for the Employees of BMT. (Filed as an
exhibit to Astrotech's Registration Statement on Form S-8 (No.
33-85106) and incorporated herein by reference).
10.19 - 1995 Non-Employee Directors' Stock Option Plan. (Filed as an
exhibit to Astrotech's Proxy Statement of Astrotech for the
Annual Meeting of Shareholders filed on or about April 10, 1995).
10.20 - Lease, dated August 13, 1997 among Beaumont Franklin Street
Properties, L.L.C., Neches Street Properties, L.L.C. and Exell.
(Filed as an exhibit to Form 8-K dated August 28, 1997 and
incorporated herein by reference).
10.21 - Lease Agreement dated May 25, 1994, between Halligan and Labbe
Enterprises, L.L.C. and Amerex Industries, Inc. (Filed as an
exhibit to Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
10.22 - License and Technical Assistance Agreement dated August 28, 1991,
between Interel Environmental Technologies, Inc. and Heinrich
Luhr Staubtechnik GmbH & Co. (Filed as an exhibit to Form S-1
(No. 33-44205) and incorporated herein by reference).
*10.23 Asset Purchase Agreement between HMT, Inc., as Buyer, ITEQ, Inc.,
as Parent and ITEQ Storage Systems, Inc., ITEQ Construction
Services, Inc. and ITEQ Tank Services, Inc., as Sellers, dated
January 28, 2000.
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
*10.24 - First Amendment to Asset Purchase Agreement between HMT, Inc., as
Buyer, ITEQ, Inc., as Parent and ITEQ Storage Systems, Inc., ITEQ
Construction Services, Inc. and ITEQ Tank Services, Inc., as
Sellers, dated March 13, 2000.
*21.1 - List of Subsidiaries of the Registrant.
*23.1 - Consent of Arthur Andersen LLP.
*27 - Financial Data Schedule.
</TABLE>
* Filed herewith.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of 1999.
23
<PAGE> 26
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.........................................................F-2
Consolidated Balance Sheets-December 31, 1998 and December 31, 1999..............................F-3
Consolidated Statements of Operations--Years ended December 31, 1997,
1998 and 1999..................................................................................F-4
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1997, 1998 and 1999...............................................................F-5
Consolidated Statements of Cash Flows--Years ended December 31, 1997,
1998 and 1999..................................................................................F-6
Notes to Consolidated Financial Statements.......................................................F-7
</TABLE>
F-1
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of ITEQ, Inc.:
We have audited the accompanying consolidated balance sheets of ITEQ, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ITEQ, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, for the year ended December 31, 1999, the
Company incurred a net loss of $77.1 million, used cash from operations
of $2.0 million, and had a working capital deficit at December 31, 1999 of $44.4
million. As of December 31, 1999, and through April 3, 2000, the Company was in
default of certain financial and other covenants under its revolving credit
facility. On April 3, 2000, the Company and its lenders entered into a Limited
Waiver and Eighth Amendment to the Revolving Credit Agreement which waived
compliance with certain financial covenants through June 29, 2000. The Company
is currently in negotiations with its lenders regarding such credit facility.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are described in
Note 1. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
Houston, Texas
April 3, 2000
F-2
<PAGE> 28
ITEQ, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................................... $ 5,784 $ 5,287
Due on contracts and other receivables, net ................................................. 33,240 25,072
Costs and estimated earnings in excess of billings on
uncompleted contracts .................................................................. 16,723 11,053
Inventories, net ............................................................................ 20,855 12,425
Prepaid expenses, deposits and other assets ................................................. 3,440 3,476
Deferred tax asset .......................................................................... 1,403 --
Assets of businesses held for sale .......................................................... 109,785 53,211
--------- ---------
Total current assets ............................................................... 191,230 110,524
PROPERTY AND EQUIPMENT, NET ................................................................. 22,136 21,890
OTHER INTANGIBLE ASSETS, NET ................................................................ 73,288 47,716
--------- ---------
TOTAL ASSETS ........................................................................... $ 286,654 $ 180,130
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Long-term obligations classified as current ................................................. $ -- $ 102,687
Accounts payable ............................................................................ 17,357 11,349
Accrued liabilities:
Job costs .............................................................................. 11,414 9,445
Accrued compensation and benefits ...................................................... 2,057 1,534
Accrued expenses and other current liabilities ......................................... 10,761 9,427
Billings in excess of costs and estimated earnings on
uncompleted contracts .................................................................. 1,104 1,806
Liabilities of businesses held for sale ..................................................... 23,561 18,720
--------- ---------
Total current liabilities .......................................................... 66,254 154,968
LONG-TERM OBLIGATIONS ....................................................................... 119,603 --
Total Liabilities ............................................................. 185,857 154,968
--------- ---------
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 authorized
28,298 and 28,350 shares issued and outstanding at
December 31, 1998 and 1999 ............................................................. 28 28
Treasury stock, at cost, 139 shares at December 31, 1999 and 1998 ........................... (1,000) (1,000)
Additional paid-in capital .................................................................. 131,450 131,637
Retained deficit ............................................................................ (27,826) (104,895)
Accumulated comprehensive loss .............................................................. (1,855) (608)
--------- ---------
Total Stockholders' Equity ......................................................... 100,797 25,162
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................................. $ 286,654 $ 180,130
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 29
ITEQ, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenues .................................................. $ 335,599 $ 342,794 $ 280,417
Cost of revenues .......................................... 260,117 275,569 255,948
Selling, general and administrative expenses .............. 42,148 37,793 36,234
Depreciation and amortization ............................. 7,547 8,313 8,472
Merger, acquisition and strategic charges ................. 17,956 12,528 3,543
Impairment of long-lived assets held for sale ............. -- -- 20,670
Impairment of long-lived assets ........................... -- -- 21,556
(Gain) loss on sales of assets ............................ -- -- (1,899)
--------- --------- ---------
Operating profit (loss) ................................... 7,831 8,591 (64,107)
Interest expense, net ..................................... (5,971) (7,821) (9,353)
Miscellaneous income, net ................................. 519 402 764
--------- --------- ---------
Earnings (Loss) from continuing operations before
income tax provision and extraordinary loss ............ 2,379 1,172 (72,696)
Income tax provision ...................................... 2,344 431 4,373
--------- --------- ---------
Earnings (Loss) from continuing operations before
extraordinary loss ..................................... 35 741 (77,069)
--------- --------- ---------
Loss from discontinued operations, net of
income tax benefit of $547, ............................ (1,061) -- --
Loss on disposal of discontinued operations,
net of income tax benefit of $1,066 and 520 respectively (1,895) (923) --
--------- --------- ---------
Loss from discontinued operations ......................... (2,956) (923) --
--------- --------- ---------
Extraordinary loss on early extinguishment
of debt, net of income tax benefit of $1,732 ........... (3,080) -- --
--------- --------- ---------
Net loss .................................................. $ (6,001) $ (182) $ (77,069)
========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE:
Earnings (Loss) from continuing operations ................ $ -- $ .02 $ (2.73)
Loss from discontinued operations ......................... (.12) (.03) --
Extraordinary loss ........................................ (.13) -- --
--------- --------- ---------
Net loss per common share ................................. $ (.25) $ (.01) $ (2.73)
========= ========= =========
Weighted average common shares outstanding ................ 24,301 27,686 28,193
========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (Loss) from continuing operations ................ $ -- $ .02 $ (2.73)
Loss from discontinued operations ......................... (.11) (.03) --
Extraordinary loss ........................................ (.12) -- --
--------- --------- ---------
Net loss per common share ................................. $ (.23) $ (.01) $ (2.73)
========= ========= =========
Weighted average common and common equivalent shares
outstanding ............................................ 25,583 27,982 28,193
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 30
ITEQ, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED ACCUMULATED TOTAL
STOCK TREASURY PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT STOCK CAPITAL (DEFICIT) INCOME (LOSS) (a) EQUITY
---------- --------- ---------- ---------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 ..... 20,688 $ 21 $ -- $ 82,984 $ (22,824) $ 125 $ 60,306
Issuance of 5,058 shares of
common stock ................. 5,058 5 -- 31,790 -- -- 31,795
Exercise of warrants ........... 190 -- -- 857 -- -- 857
Stock issued for employee
stock purchase plan and
exercise of stock options .... 976 1 -- 4,192 -- -- 4,193
Effect of change in Astrotech
year end ..................... -- -- -- -- 1,181 -- 1,181
Foreign currency
translation adjustment ....... -- -- -- -- -- (943) (943)
Net loss ....................... -- -- -- -- (6,001) -- (6,001)
------ --------- --------- --------- --------- --------- -------------
BALANCE, DECEMBER 31, 1997 ..... 26,912 27 -- 119,823 (27,644) (818) 91,388
Exercise of warrants ........... 322 -- -- 1,530 -- -- 1,530
Stock issued for employee
stock purchase plan and
exercise of stock options .... 268 -- -- 1,659 -- -- 1,659
Repurchase of common stock ..... -- -- (1,000) -- -- -- (1,000)
Stock issued for GLM acquisition 796 1 -- 8,438 -- -- 8,439
Foreign currency
translation adjustment ....... -- -- -- -- -- (1,037) (1,037)
Net loss ....................... -- -- -- -- (182) -- (182)
------ --------- --------- --------- --------- --------- -------------
BALANCE, DECEMBER 31, 1998 ..... 28,298 28 (1,000) 131,450 (27,826) (1,855) 100,797
Stock issued for the employee
stock purchase plan .......... 52 -- -- 187 -- -- 187
Foreign currency
translation adjustment ....... -- -- -- -- -- 1,247 1,247
Net loss ....................... -- -- -- -- (77,069) -- (77,069)
------ --------- --------- --------- --------- --------- -------------
BALANCE, DECEMBER 31, 1999 ..... 28,350 $ 28 $ (1,000) $ 131,637 $(104,895) $ (608) $ 25,162
====== ========= ========= ========= ========= ========= =============
</TABLE>
(a) The only component of comprehensive income (loss) that is not included
in the accompanying consolidated statements of operations is the
foreign currency translation adjustment. Comprehensive income (loss)
for each of the three years ended December 31, is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net Loss $ (6,001) $ (182) $(77,069)
Foreign Currency Translation Adjustment (943) (1,037) 1,247
-------- -------- --------
Comprehensive Loss $ (6,944) $ (1,219) $(75,822)
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 31
ITEQ, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... $ (6,001) $ (182) $(77,069)
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization .......................... 7,859 8,314 8,472
Impairment of long-lived assets ........................ -- -- 21,556
Impairment of assets held for sale ..................... -- -- 20,670
Provision (benefit) for deferred income taxes .......... (3,240) (2,211) 3,562
Non-cash write-offs related to discontinued operations . 824 -- --
Gain (loss) on sale of assets .......................... -- -- (1,899)
Extraordinary loss on early extinguishment of debt ..... 4,812 -- --
Change in Astrotech fiscal year end .................... 1,181 -- --
Tax benefit from employee stock plans .................. 630 707 --
Non-cash write-offs from restructuring ................. 5,055 -- --
Other .................................................. (1,146) (1,366) (161)
Changes in assets and liabilities, net of effects of
businesses acquired:
Due on contracts and other receivables, net ......... (3,559) 12,569 8,168
Costs and estimated earnings in excess of billings
on uncompleted contracts .......................... (2,859) 3,800 5,670
Inventories, net .................................... 5,106 (10,941) 8,430
Prepaid expenses, deposits and other assets ......... (985) (736) (34)
Assets of businesses held for sale .................. -- (7,781) 16,743
Accounts payable and accrued liabilities ............ 3,002 (14,451) (9,835)
Billings in excess of costs and estimated earnings
on uncompleted contracts ......................... (3,838) (2,997) 701
Liabilities of businesses held for sale ........... -- 1,239 (6,941)
-------- -------- --------
Net cash provided (used) by operating activities ..... 6,841 (14,036) (1,967)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired businesses, net of cash acquired .. (18,776) (23,055) --
Purchases of property and equipment ...................... (5,377) (2,282) (1,471)
Contingent purchase consideration paid ................... (3,354) -- --
Cash received from sale of land, buildings & equipment ... -- 2,538 19,643
-------- -------- --------
Net cash provided (used) by investing activities ...... (27,507) (22,799) 18,172
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations ...................... 17,840 -- --
Proceeds from subordinated debt & warrants ............... (15,000) -- --
Payments of long-term obligations ........................ (70,830) -- --
Net borrowings (repayments) under line of credit ......... 55,531 30,949 (16,916)
Net proceeds from common stock offering .................. 31,795 -- --
Proceeds from exercise of stock options and warrants ..... 4,420 3,189 187
Cash paid for stock repurchase ........................... -- (1,000) --
-------- -------- --------
Net cash provided (used) by financing activities ..... 23,756 33,138 (16,729)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .................... (399) (200) 27
-------- -------- --------
Net increase (decrease) in cash and cash equivalents . 2,691 (3,897) (497)
Cash and cash equivalents, beginning of period ........... 6,990 9,681 5,784
-------- -------- --------
Cash and cash equivalents, end of period ................. $ 9,681 $ 5,784 5,287
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................... $ 6,853 $ 7,504 $ 10,004
======== ======== ========
Cash paid (refunded) for income taxes .................... $ 380 $ 1,812 $ (301)
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 32
ITEQ, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1--ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ITEQ, Inc. ("ITEQ" or the "Company") designs, engineers, manufactures,
and services process and storage equipment and components. The Company's
products and services are utilized by customers in manufacturing processes
requiring the process, treatment, storage, or movement of gases and liquids.
Management of the Company believes that it is the leading domestic manufacturer
and servicer of shell and tube heat exchangers, principally for petrochemical
and refining applications and that the Company is a leading provider of
maintenance services for above-ground storage tanks and related products
primarily for oil production and storage, petrochemical, refining, water
storage, food and agriculture industries. The Company also manufactures
specialized process equipment, such as pressure vessels, principally for the
refining, petrochemical and plastics industries. The Company operates
internationally, with its equipment, systems and services sold or utilized in
countries worldwide.
BUSINESS AND MARKET CONDITIONS
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, low 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 markets 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 the second
half of 1998 and during 1999 that reduced demand for some of the Company's
products. These factors have increased pricing pressure on new equipment
resulting in a decline in the Company's gross margins and operating profits in
1998 and 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 remain strong.
The Company's results of operations for the year ended December 31,
1998 and 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, reduce its
underlying cost structure and refocus the Company's efforts on providing
superior customer service. These actions include 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. This included replacing certain
management personnel.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing capital resources consist of cash balances, cash
provided by its operating activities and funds available under its line of
credit. For the year ended December 31, 1999, the Company incurred a net loss of
$77.1 million and used cash from operations of $2.0 million. The Company also
had a working capital deficit of $44.4 million as of December 31, 1999. The
Company was not in compliance with certain covenants of its credit facility at
December 31, 1999, therefore, all amounts due under the credit facility are
classified as current on the accompanying Consolidated Balance Sheet. On April
3, 2000, the Company and its lenders entered into a Limited Waiver and Eighth
Amendment, to Revolving Credit Agreement (the "Amendment") which waived
compliance with certain financial covenants in the credit facility through June
29, 2000. Provisions of the Amendment require that capital expenditures not
exceed $1.0 million during the first six months of 2000. Management believes
this amount to be adequate in support of anticipated capital
F-7
<PAGE> 33
expenditure needs during this period. The Amendment also provides for borrowing
capacity up to a total commitment of $58.0 million. During the first quarter of
2000, the Company's indebtedness under the credit facility was reduced by
$50,907, primarily with proceeds obtained from the sale of certain assets (See
Note 19 of Notes to Consolidated Financial Statements). As of April 3, 2000, the
Company's debt balance under its credit facility was $51,780.
Management believes that cash generated from operations, existing cash
balances, and its additional borrowing capacity as provided for by the Amendment
will be sufficient to meet the anticipated cash requirements of the Company's
operations during 2000. Management of the Company is currently in negotiations
with its lenders related to the restructuring of its credit facility.
Additionally, management is also reviewing various alternatives of raising
additional funds, which may include the sale of additional assets or the
issuance of either debt or equity securities. However, unless the Company is
successful in restructuring its credit facility or obtaining additional
financing, there is substantial doubt about the Company's ability to continue as
a going concern.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DETAIL OF CERTAIN BALANCE
SHEET ACCOUNTS
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial statements
follows.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of ITEQ,
Inc. and its wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
REVENUE RECOGNITION
The Company records most of its revenues using the
percentage-of-completion method of accounting. Under this method, the Company
recognizes as revenues that portion of the total contract price which the cost
of work completed to date bears to the estimated total cost of the work included
in the contract. Because contracts may extend over more than one fiscal period,
revisions of cost and profit estimates are made periodically and are reflected
in the accounting period in which they are determined. If the estimate of total
costs on a contract indicates a loss, the total anticipated loss is recognized
immediately. Contract costs include all direct material, labor and
subcontracting costs and those indirect costs related to contract performance,
such as supplies, tools and repairs.
The Company recognizes revenue from certain short-term contracts using
the completed contract method. Revenue is recognized when a project is
substantially complete. The contracts under this revenue recognition method are
typically less than three months in duration.
"Costs and estimated earnings in excess of billings on uncompleted
contracts" represents revenues recognized in excess of amounts billed. Such
revenues are expected to be billed and collected within one year. "Billings in
excess of costs and estimated earnings on uncompleted contracts" represents
billings in excess of revenues recognized.
F-8
<PAGE> 34
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary investments,
including those with an original maturity of three months or less, to be cash
equivalents. Cash and cash equivalents consist primarily of interest-bearing
accounts.
DUE ON CONTRACTS AND OTHER RECEIVABLES
At December 31, 1998 and 1999, due on contracts and other receivables
consist of:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Billings on completed contracts and contracts
in progress......................................................... $ 32,883 $ 25,256
Retained contract receivables.......................................... 762 431
Allowance for doubtful accounts ...................................... (405) (615)
-------- --------
Due on contracts and other receivables, net................... $ 33,240 $ 25,072
======== ========
</TABLE>
All retainages as of December 31, 1999 are expected to be collected by December
31, 2000.
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 in 1998 and 1999. Cost is determined by
the average cost method for raw materials and the first-in, first-out (FIFO)
method for purchased parts. Inventory at December 31, 1998 and 1999, consists of
the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Raw materials........................................ $ 3,246 $ 3,005
Work in progress..................................... 17,459 9,070
Finished goods....................................... 256 604
-------- --------
20,961 12,679
Less: Allowance for obsolete inventory............... (106) (254)
-------- --------
Inventories, net............................... $ 20,855 $ 12,425
======== ========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, including costs to ready
assets for use. Depreciation and amortization of property and equipment is
computed on the straight-line method over the estimated useful lives of the
assets and is recognized as depreciation expense in the statements of
operations. At December 31, 1998 and 1999, property and equipment was comprised
of the following items:
F-9
<PAGE> 35
<TABLE>
<CAPTION>
Estimated Useful
Lives 1998 1999
--------------------- -------- --------
<S> <C> <C> <C>
Land N/A $ 2,051 $ 2,114
Furniture and fixtures 3-15 years 2,863 3,864
Machinery and equipment 5-15 years 8,394 9,142
Buildings and improvements 7-39 years 12,835 12,384
Leasehold improvements 3-10 years 209 217
Tanks and trucks held for lease 4-15 years 41 121
-------- --------
26,393 27,842
Less-accumulated depreciation and
amortization (4,257) (5,952)
-------- --------
Property and equipment, net $ 22,136 21,890
======== ========
</TABLE>
Repair and maintenance costs are expensed as incurred while major
renewals and betterments are capitalized. The cost of assets retired or
otherwise disposed of and the related accumulated depreciation are eliminated
from the accounts in the year of disposal.
The Company reviews certain long-lived assets for impairment whenever
events indicate that the carrying amount of an asset may not be recoverable and
recognizes an impairment loss under certain circumstances in the amount by which
the carrying value exceeds the fair value of the asset. (See Note 5 of Notes to
Consolidated Financial Statements.)
OTHER INTANGIBLE ASSETS, NET
The excess of costs over net assets acquired, licenses, trademarks and
tradenames are amortized on a straight-line basis over periods ranging from five
to forty years. The Company monitors each entity's historical and expected
performance in the context of the value assigned to acquisition intangibles and
to the amortization period applied to each intangible asset. The Company
assesses the recoverability of its goodwill whenever adverse events or changes
in circumstances or business climate indicate that expected undiscounted future
cash flows for individual business units may not be sufficient to support
recorded goodwill.
For the year ended December 31, 1999, the Company recorded a write down
of $21,556 for impairment of the carrying value of goodwill related to G.L.M.
Tanks and Equipment, Ltd. ("GLM") and Exell, Inc. ("Exell"). (See Note 5 of
Notes to Consolidated Financial Statements). The Company modifies the life
and/or the carrying amount of an acquired intangible if an impairment is
identified. Amortization expense from continuing operations was $2,695, $2,893
and $3,547 for the years ended December 31, 1997, 1998 and 1999, respectively.
At December 31, 1998 and 1999, other intangible assets, net was
comprised of the following items:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Excess of costs over net assets acquired, net of
accumulated amortization of $4,226 and $27,435
at December 31, 1998 and 1999, respectively $ 56,231 $ 32,993
Licenses, patents, trademarks and tradenames, net
of accumulated amortization of $2,232 and $2,857
at December 31, 1998 and 1999, respectively 14,259 14,405
Deferred tax asset 2,159 --
Other 639 318
-------- --------
Other intangible assets, net $ 73,288 $ 47,716
======== ========
</TABLE>
F-10
<PAGE> 36
INCOME TAXES
Deferred taxes are provided based on temporary differences between the
book and tax basis of assets and liabilities using presently enacted tax rates.
A valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefit, or that future deductibility is uncertain.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings per share ("EPS") is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the year. Diluted EPS is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding including the
dilutive effect of common stock equivalents. The only difference between basic
and diluted earnings per share is the impact of common stock options and
warrants outstanding calculated using the treasury stock method. As the Company
had a net loss from continuing operations before extraordinary loss for the year
ended December 31, 1999, the inclusion of common stock equivalents in the
calculation of earnings per share for 1999 would be antidilutive and therefore
is not presented.
TRANSLATION ADJUSTMENT
The financial activity of the Company's non-U.S. operations located in
Canada, Germany, England, Australia and Singapore are translated into U.S.
dollars at current rates, except that revenues, costs and expenses are
translated at average current rates during each reporting period. Currency
transaction gains and losses are included in the Consolidated Statement of
Operations.
USE OF ESTIMATES
The presentation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUES
Management believes the carrying amounts of cash, accounts receivable,
accounts payable and accrued liabilities are reasonable estimates of their fair
values due to the short-term maturities of these instruments. In management's
opinion, the fair value of long-term obligations (classified as current as of
December 31, 1999) approximates carrying value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company maintains its cash with various financial institutions. Accounts
receivable at any given time are concentrated in a relatively large number of
primarily domestic customers. An allowance for doubtful accounts has been
provided for estimated losses. To mitigate credit risk, the Company may require
customers to make advance payments or secure obligations with letters of credit.
F-11
<PAGE> 37
NEW ACCOUNTING STANDARDS
The Company implemented Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," effective January 1, 1998. This standard
requires that all items required to be recognized under this standard as
components of comprehensive income (loss), such as the Company's foreign
currency translation adjustments, be reported in a financial statement. See
Consolidated Statements of Stockholders' Equity.
In June 1999, the Financial Accounting Standards Board amended
Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Instruments and Hedging Activities," by issuing SFAS No. 137 to defer
the effective date of SFAS No. 133 to fiscal years beginning after June 15,
2000. Management believes the adoption of this statement will not have a
significant impact on its results of operations or financial position.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years'
consolidated financial statements to conform with the December 31, 1999
presentation.
NOTE 3--DISCONTINUED OPERATIONS
ALLIED
During August 1997 and effective 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.
Sales from Allied's discontinued operations were $15,297 and $3,867 for
the years ended 1997 and 1998, respectively. Summary operating results through
August 31, the date of measurement, for 1997 were as follows:
<TABLE>
<S> <C>
Revenues.............................................. $11,800
Operating loss........................................ 578
Interest expense...................................... 1,030
Loss before income taxes.............................. 1,608
Income tax benefit.................................... 547
Net loss from Allied's discontinued operations........ 1,061
</TABLE>
Operating losses during the phase out period have been included in the
loss on disposal of discontinued operations in the accompanying financial
statements. Net losses of $923 were incurred for the year ended December 31,
1998 while losses of $1,895 were incurred in 1997 subsequent to the measurement
date.
STORAGE TANK OPERATIONS
Effective September 1, 1999, management of ITEQ adopted a plan to
discontinue the Company's storage tank operations. The plan included the
intended sale of a majority of the operations and the abandonment and
liquidation of the remaining storage tank fabrication operations. A portion of
the Company's storage tank operations, Texoma Tank Company, had been sold in
March 1999 for $13,956, resulting in a pretax gain of $4,156 which is included
in earnings
F-12
<PAGE> 38
(loss) from continuing operations in the accompanying Consolidated Statements of
Operations. Subsequent to September 30, 1999, management of ITEQ elected to
continue operating certain assets related to storage tank operations and
accordingly, the results for the storage tank operations have been
reconsolidated in the earnings (loss) from continuing operations in the
accompanying Consolidated Statements of Operations. Sales involving certain
assets and business related to the storage tank operations have been concluded
during the fourth quarter of 1999 and the first quarter of 2000 (see Note 4 and
19 of the Notes to Consolidated Financial Statements).
FILTRATION
During September 1998 and effective September 30, 1998, management of
ITEQ adopted plans to discontinue its filtration operations. The majority of the
filtration 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 filtration operations. Management determined that the
disposal of these operations were not in the best interest of shareholders at
that date. Accordingly, the results for filtration operations have been
reconsolidated effective September 30, 1999 and all prior periods have been
restated. In the Company's 1998 Consolidated Financial Statements, filtration
operations were reflected separately as a discontinued operation.
NOTE 4--BUSINESSES HELD FOR SALE
During 1999 and during the first quarter of 2000, the Company concluded
several transactions involving the sale and liquidation of assets and business
related to the Company's storage tank operations. The transactions concluded as
of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Pretax
Sales Gain (Loss)
Description Period Proceeds on Sale
----------- ------ -------- -----------
<S> <C> <C> <C>
Texoma Tank Company March 1999 $ 13,956 $ 4,156
Clinton October/December 1999 3,600 (1,876)
Provo November 1999 1,778 (384)
</TABLE>
During the first quarter of 2000, as discussed in Note 19 of Notes to
Consolidated Financial Statements, the Company concluded substantially all of
the remaining transactions related to the businesses and assets held for sale.
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," the assets and liabilities of
businesses held for sale at December 31, 1999 have been separately stated on the
accompanying balance sheet. The "held for sale" amounts reflected on the
Consolidated Balance Sheet at December 31, 1998 also include the comparable
assets and business sold or held for sale during the year ended December 31,
1999. The carrying value for such assets and liabilities represents their
estimated net realizable value which has been based on the net sales proceeds
received during the first quarter of 2000, estimated recoverability of working
capital and estimated costs of liquidating the remaining assets. During the year
ended December 31, 1999, the Company recorded an impairment loss of $20,670 for
the difference between the carrying value and the net realizable value of
businesses held for sale at December 31, 1999.
F-13
<PAGE> 39
The results of operations for businesses held for sale included in the
accompanying Consolidated Statements of Operations are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1998 1999
-------- --------
<S> <C> <C>
Revenues $164,119 $137,412
Cost of Revenues 131,875 130,561
Operating Profit (Loss) (before impairment) 7,236 (15,129)
</TABLE>
NOTE 5--IMPAIRMENT OF LONG-LIVED ASSETS
In addition to reviewing the carrying value of assets held for sale
(See Note 4 of Notes to Consolidated Financial Statements), SFAS No. 121
requires that long-lived assets held for use be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value of the asset
may not be recoverable. The impairment required to reduce the carrying value of
the storage tank operations to estimated net realizable value (see Note 4 of
Notes to Consolidated Financial Statements) was a triggering event which
indicated the necessity of reviewing the carrying value of all long-lived
assets. At December 31, 1999, the Company determined that the carrying amount of
certain assets held for use exceeded an estimate of their future undiscounted
net cash flows. Accordingly, the Company recorded an impairment loss of $21,556
to reduce the carrying value of the goodwill related to GLM, which was acquired
in June 1998 and Exell, which was acquired in August 1997 (see Note 6 of Notes
to Consolidated Financial Statements) to an amount equal to their estimated fair
market value (based on estimated discounted net cash flows).
NOTE 6--BUSINESS COMBINATIONS
Results of operations for business combinations accounted for as
purchases are included in the accompanying consolidated financial statements
since the date of acquisition. With respect to business combinations accounted
for as poolings-of-interests, the consolidated financial statements have been
restated for all periods presented as if the companies had been combined since
inception.
GLM
Effective June 1, 1998, the Company purchased the shares of G.L.M.
Tanks and Equipment, Ltd. ("GLM"), a Canadian company, for approximately
$28,500, consisting of 796 shares of the Company's common stock, valued based on
the average closing prices of the Company's stock when the principal terms were
agreed and announced at approximately $8,400, and cash consideration of
approximately $19,870 and acquisition expenses of approximately $230. The
acquisition was accounted for as a purchase. GLM is a manufacturer of storage
tanks and process equipment in western Canada.
RELIABLE
Effective April 1, 1998, the Company purchased the assets of Reliable
Steel Fabricators, Inc. ("Reliable") for approximately $4,000 in cash. This
acquisition has been accounted for as a purchase. Reliable is a manufacturer of
storage tanks serving the Pacific Northwest.
F-14
<PAGE> 40
ASTROTECH
On October 28, 1997, the Company merged with Astrotech in a
transaction accounted for as a pooling-of-interests (the "Merger"). Astrotech is
a domestic designer, fabricator and supplier of proprietary storage tank
products and services providing a range of inspection, engineering, construction
and maintenance services for aboveground storage tanks and also offering mobile
storage tank leasing services. Industries served include refining,
petrochemical, wastewater treatment, agricultural, pulp and paper, mining, water
storage, power generation and process systems. The Company issued approximately
9,541 shares of ITEQ common stock in exchange for all the outstanding shares of
Astrotech common stock based on an exchange ratio of .93 of a share of ITEQ
common stock for each share of Astrotech common stock outstanding. In addition,
all outstanding options to purchase Astrotech common stock were converted into
options to purchase shares of ITEQ common stock, as adjusted for the exchange
ratio.
Combined and separate results of the Company during the periods
preceding the Merger were as follows:
<TABLE>
<CAPTION>
EARNINGS FROM
CONTINUING NET
REVENUES OPERATIONS EARNINGS
---------- ------------- --------
<S> <C> <C> <C>
Nine months ended September 30, 1997 (unaudited):
ITEQ............................................. $ 131,479 $ 5,372 $ 546
Astrotech........................................ 110,943 3,531 3,531
---------- --------- --------
Combined................................... $ 242,422 $ 8,903 $ 4,077
========== ========= ========
</TABLE>
EXELL
Effective August 1, 1997, the Company purchased all of the capital
stock of Exell, Inc. ("Exell") for total cash consideration of approximately
$8,088 plus assumption of certain liabilities. The cash consideration consisted
of $7,864 in purchase price and $224 for related acquisition expenses. Exell is
a manufacturer of shell and tube heat exchangers and was previously a competitor
of the Company's Ohmstede operation.
The purchase price has been allocated to the assets purchased and the
liabilities assumed based upon the estimated fair values at the date of the
acquisition as follows:
<TABLE>
<S> <C>
Working capital........................................... $ 1,424
Property and equipment.................................... 1,422
Excess of costs over net assets acquired.................. 5,242
---------
Total purchase price............................ $ 8,088
=========
</TABLE>
TRUSCO
On May 1, 1997, the Company purchased all of the issued and outstanding
shares of capital stock of Trusco Tank, Inc. ("Trusco") and two parcels of real
property used in Trusco's business and owned by two of its shareholders. Trusco
is a designer, fabricator and field erector of steel structures, including
storage tanks, pressure vessels and shop-built tanks (both aboveground and
underground). Trusco's customers include municipal water districts, wastewater
treatment facilities, oil companies, industrial facilities, wineries and various
process industries.
F-15
<PAGE> 41
The purchase price of $11,458 consisted of $10,958 in cash and $500 of
acquisition-related expenses. In addition, the Company repaid Trusco's existing
bank obligations totaling $4,500.
The purchase price has been allocated to the assets purchased and
liabilities assumed based upon the estimated fair values at the date of
acquisition as follows:
<TABLE>
<S> <C>
Working capital...................................... $ 4,800
Property and equipment............................... 3,658
Debt assumed......................................... (4,726)
Excess of costs over net assets acquired............. 7,726
--------
Total purchase price.............................. $ 11,458
========
</TABLE>
NOTE 7--MERGER, ACQUISITION AND STRATEGIC CHARGES
For the year ended December 31, 1999, the Company recorded nonrecurring
merger, acquisition and strategic charges totaling $3,543. The charge included
costs, estimated as incremental job costs, to combine the operations of the
Company and Astrotech including severance costs and other benefits associated
with employee terminations.
For the year ended December 31, 1998, the Company recorded nonrecurring
merger, acquisition and strategic charges totaling $12,528. Merger and
acquisition costs of $1,117 related to terminated purchase agreements and other
acquisition related activity. In addition, the Company incurred a strategic
charge of $11,411. The charge included the costs, estimated as incremental jobs
costs, to combine the operations of the Company and Astrotech including losses
associated with two plant closings and business integration and reorganization
costs. The Company also incurred severance costs and other benefits associated
with employee terminations, including that of the Company's former president and
chief operating officer, and legal and accounting services fees.
During the fourth quarter of 1997, the Company recorded nonrecurring
charges totaling $17,956 in connection with the merger with Astrotech and the
related restructuring of operations including the elimination of excess capacity
and duplicate facilities. Of this amount, (i) transaction costs totaled $5,145,
which consisted of professional fees paid to financial advisors, accountants and
attorneys, (ii) costs to combine the operations of the Company and Astrotech
included write-downs for duplicate facilities and excess capacity of $5,276,
(iii) severance costs and other benefits totaled $4,221 and (iv) business
integration and reorganization costs totaled $3,314. Transactions costs include
professional fees of $361 related to a terminated purchase agreement.
Approximately $5,055 of the asset write-down was non-cash.
NOTE 8--CONTRACTS IN PROGRESS
The Company obtains substantially all of its contracts through
competitive bids. The Company's prerequisites for billing on contracts vary with
individual contract terms. The Company sometimes has bonds or letters of credit
as collateral on accounts receivable, and generally all amounts are due in the
month following performance under contract except for retainages that are
collected upon completion of the contract. The Company has lien rights on
certain contracts.
Costs incurred to date, estimated earnings and the related progress
billings to date on contracts in progress are as follows:
F-16
<PAGE> 42
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Costs incurred to date................. $ 86,760 $ 49,113
Estimated earnings..................... 17,182 9,258
--------- ---------
Revenue recognized..................... 103,942 58,371
Progress billings to date.............. (88,323) (49,124)
--------- ---------
$ 15,619 $ 9,247
========= =========
</TABLE>
The preceding is included in the accompanying consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
Uncompleted contracts $ 16,723 $ 11,053
Billings in excess of costs and estimated earnings on
Uncompleted contracts (1,104) (1,806)
--------- ---------
$ 15,619 $ 9,247
========= =========
</TABLE>
NOTE 9--LONG-TERM OBLIGATIONS
In October 1997, the Company refinanced its existing credit facilities
under a non-amortizing revolving credit facility with various financial
institutions, which matures in October 2002. 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 Company's credit facility requires the Company to maintain certain
levels of net earnings before interest, taxes and depreciation and amortization
("EBITDA"), interest coverage, working capital and stockholders' equity and
contain 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. At certain times throughout the year and
as of December 31, 1999 and through April 3, 2000, the Company was not in
compliance with certain financial covenants of its loan agreement. As a result,
the Company has classified as current the amounts outstanding under its credit
facility as of December 31, 1999 as, under the terms of the credit facility,
balances borrowed are due and payable if the event of default is not remedied
within a specified time period.
The Company and its lenders entered into a Limited Waiver and Eighth
Amendment to Revolving Credit Agreement at April 3, 2000 which waived compliance
with certain financial covenants in the credit facility through June 29, 2000.
Additional provisions require that capital expenditures may not exceed $1.0
million during the first six months of 2000. The Company believes this amount to
be adequate in support of anticipated capital expenditure needs. The Limited
Waiver and Eighth Amendment provides for borrowing capacity up to a total
commitment of approximately $58.0 million with interest at the Base Rate plus
the Applicable Margin, as defined. At April 3, 2000, the balance outstanding was
$51,780. At December 31, 1999 and 1998, the outstanding balance under the credit
facility was $102,687 and $119,603, respectively. Balances outstanding at
December 31, 1999 and 1998 bore interest at a rate of 9.8% and 7.0%,
respectively. As discussed in Note 19 of Notes to Consolidated
F-17
<PAGE> 43
Financial Statements, the Company has used the net proceeds from the sale of
assets and businesses to reduce its indebtedness under its credit facility.
During the third quarter of 1997, the Company repaid its subordinated
notes using available proceeds under its revolving credit facility. In October
1997, in connection with the Astrotech merger, the Company refinanced its and
Astrotech's existing credit facilities. The Company incurred an extraordinary
loss of $4,812 ($3,080 net of taxes), related to the write-off of unamortized
debt issuance and discount costs.
NOTE 10--LEASE COMMITMENTS
The Company and its subsidiaries are obligated under various leases for
office and manufacturing facilities and certain machinery, equipment and
fixtures. Certain leases have renewal or escalation clauses or both. The
following is a schedule of minimum rental commitments under all non-cancelable
leases:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C> <C>
2000................................................. $ 959
2001................................................. 811
2002................................................. 719
2003................................................. 699
2004................................................. 654
Thereafter........................................... 630
-------
Total................................................ $ 4,472
=======
</TABLE>
The leases provide for payment of maintenance and other expenses by the
Company. Rent expense from continuing operations was approximately $1,438,
$1,772 and $1,873 for the years ended December 31, 1997, 1998 and 1999.
NOTE 11--INCOME TAXES
Provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal .................... $ 5,483 $ -- $ --
State ...................... 853 387 760
Foreign .................... 557 236 52
------- ------- -------
Total current provision ............. 6,893 623 812
------- ------- -------
Deferred:
Federal .................... (3,867) 510 745
State ...................... (567) 40 1,611
Foreign .................... (115) (742) 1,205
------- ------- -------
Total deferred provision ............ (4,549) (192) 3,561
------- ------- -------
Provision for income taxes........... $ 2,344 $ 431 $ 4,373
======= ======= =======
</TABLE>
F-18
<PAGE> 44
The earnings (loss) before taxes relating to foreign operations totaled
approximately $685, ($954) and ($23,678) million for the years ended
December 31, 1997, 1998 and 1999, respectively.
The tax effects of the financial reporting and income tax reporting
basis differences which give rise to the deferred income tax asset and liability
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1999
-------- --------
<S> <C> <C>
Net current deferred income tax assets:
Compensation recognition...................................... $ 387 $ 309
Accruals & reserves........................................... 735 3,879
Contract accounting........................................... 281 371
-------- --------
$ 1,403 $ 4,559
======== ========
Net non-current deferred income tax assets (liabilities):
Depreciation.................................................. $ (7,908) $ (3,452)
Amortization.................................................. (1,187) 2,328
Tax benefit carry forwards.................................... 11,400 16,721
Valuation allowance........................................... (146) (20,156)
-------- --------
$ 2,159 $ (4,559)
======== ========
</TABLE>
As of December 31, 1998 and 1999, the Company had regular U.S. net
operating losses carried forward for tax reporting purposes totaling
approximately $22,142 and $35,000 respectively, which begin to expire in 2011.
For financial reporting purposes, as of December 31, 1999, a valuation allowance
amounting to $20,156 has been established to fully offset the Company's deferred
tax assets, including those relating to its carryforwards. The valuation
allowance increased by approximately $20,010 during the year ended December 31,
1999, primarily as a result of the Company's additional net operating losses.
Differences between the Company's effective income tax rate and the
statutory federal income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Tax provision at the federal statutory income
tax rate ........................................... $ 833 $ 398 $(24,717)
Differences in foreign versus U.S. tax rates .......... 68 (172) (31)
State income taxes, net of federal benefit ............ 116 57 (1,120)
Amortization of intangible assets ..................... 349 506 369
Write off intangible assets ........................... -- -- 9,188
Prior Year True Up .................................... -- -- 225
Subpart F Income ...................................... -- -- 226
Non-deductible transaction costs ...................... 910 60 --
Increase in valuation allowance ....................... -- -- 20,010
Other ................................................. 68 (418) 223
-------- -------- --------
Total tax provision .......................... $ 2,344 $ 431 $ 4,373
======== ======== ========
</TABLE>
NOTE 12--COMMON STOCK AND PREFERRED STOCK
On September 4, 1998, the Board of Directors of the Company declared a
distribution of one right for each outstanding share of common stock to
stockholders of record at the close of business on September 14, 1998 and
designated 300 shares of the authorized preferred stock as a class to be
distributed under a stockholder rights agreement. Upon the occurrence of certain
events enumerated by the stockholder rights agreement, each right entitles the
registered holder to purchase
F-19
<PAGE> 45
a fraction of a share of the Company's authorized preferred stock. The rights,
among other things, will cause substantial dilution to a person or group that
attempts to acquire the Company. The rights expired on March 4, 2000.
NOTE 13--STOCK WARRANTS AND OPTIONS
STOCK WARRANTS
At December 31, 1999, subordinated debt warrants for 1,460 shares of
common stock at an exercise price of $5.10 per share were outstanding. These
warrants were issued in November 1996 and expire in November 2003. The exercise
price of the subordinated debt warrants is subject to adjustment. In 1998,
warrants for 334 shares were exercised for net proceeds of $1,530.
STOCK OPTIONS
On October 1, 1990, the Company's Board of Directors approved an
Employee Stock Option Plan (the "Plan") which was subsequently amended. This
plan provides for the issuance of up to 10% of the Company's outstanding shares
of Common Stock but initially not less than 1,250 shares of Common Stock
(subject to anti-dilution provisions). Options granted expire in five to ten
years, and the option price, which must be at least the fair market value of the
Company's stock at the date of grant can be paid in cash or in shares of the
Company's Common Stock. Options may not be transferred by the optionee other
than by will or the laws of descent and distribution.
The Company's Board of Directors approved the Directors' Stock Option
Plan on May 19, 1993, which provides for the issuance of up to 200 shares of
Common Stock (subject to anti-dilution provisions). The plan currently provides
that each outside director will be granted an option to purchase 10 shares of
Common Stock at the fair market value of the Common Stock at the date of grant
at each time the director is elected, re-elected or appointed to the Board of
Directors. Options granted under this plan expire after ten years, and the
option price must be paid in cash. Options may not be transferred by the
optionee other than by will or the laws of descent and distribution.
Prior to the merger with Astrotech, Astrotech maintained four stock
option plans for its employees and nonemployee directors, the 1984 Stock Option
Plan, the 1989 Stock Incentive Plan, the 1994 Stock Option Plan for Employees of
BMT (the "BMT Plan") and the 1995 Nonemployee Directors Stock Option Plan. The
numbers of options and exercise price per share were converted to ITEQ options
in accordance with the exchange rate in the merger agreement. The Merger
effected no other terms of any of the plans. All outstanding options, except for
grants under the BMT Plan, are fully exerciseable. The BMT Plan options issued
vest at the rate of 20% per year after the first anniversary from the date of
grant.
The Company follows SFAS No. 123, "Accounting for Stock-Based
Compensation," which provides financial accounting and reporting standards for
stock-based employee compensation plans and for transactions in which an entity
issues its equity instruments to acquire goods and services from non-employees.
SFAS No. 123 requires, among other things, that compensation cost be calculated
for fixed stock options at the grant date by determining fair value using an
option-pricing model. The Company has the option of recognizing the compensation
cost over the vesting period as an expense in the statement of operations or
making pro forma disclosures in the notes to the financial statements for
employee stock based compensation.
F-20
<PAGE> 46
The Company has elected to make these pro forma disclosures and the Company's
net loss and loss per share would have approximated the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported................................. $ (6,001) $ (182) $(77,069)
Pro forma................................... (6,446) (930) (77,735)
Basic net loss per common share:
As reported................................. (.25) (.01) (2.73)
Pro forma................................... (.27) (.03) (2.76)
Diluted net loss per common share:
As reported................................. (.23) (.01) (2.73)
Proforma.................................... (.25) (.03) (2.76)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1996, the resulting pro forma compensation
cost may not be representative of the pro forma cost to be expected in future
years. The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 GRANTS 1998 GRANTS 1999 GRANTS
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Expected stock price volatility 54.17% - 61.78% 64.07% - 70.98% 58.05% - 73.69%
Risk free interest rate 5.51% - 5.57% 4.21% - 5.70% 4.57% - 6.56%
Expected life of options 5 to 10 years 5 to 10 years 5 to 10 years
</TABLE>
A summary of the status of the Company's stock option plans at December
31, 1997, 1998 and 1999 and changes during the years then ended is presented in
the table below:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ---------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 1,907 $ 3.60 1,293 $ 4.81 1,088 $ 6.26
Granted .................................... 453 7.35 320 9.52 930 1.51
Exercised................................... (967) (3.67) (259) (3.57) -- --
Forfeited................................... (100) (3.65) (257) (5.71) (276) 5.19
Expired .................................... -- -- (9) (4.75) (276) 4.18
------- ---------- ----- ---------- ----- ----------
Outstanding at end of year.................. 1,293 $ 4.81 1,088 $ 6.26 1,466 $ 3.84
===== ========== ===== ========= ===== ==========
Exercisable at end of year ................. 553 $ 3.78 614 $ 5.43 596 $ 4.71
===== ========== ===== ========= ===== ==========
Weighted average fair value of options
granted..................................... $5.16 $4.48 $3.95
===== ===== =====
</TABLE>
The options outstanding at December 31, 1999 have exercise prices
between $0.625 and $13.94 and a weighted average remaining contractual life of
4.2 years.
The Company maintains an Employee Stock Purchase Plan whereby all
employees are eligible for participation after ninety days of service. Under
this plan, employees may purchase stock at 90% of the current market price of
the stock. The Company issued 9, 9 and 52 shares under the Employee Stock
Purchase Plans during the years ended December 31, 1997, 1998 and 1999,
respectively.
F-21
<PAGE> 47
NOTE 14--CONTINGENCIES
Certain of the Company's subsidiaries are parties to legal proceedings
in the ordinary course of business. While the outcome of lawsuits or other
proceedings cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial condition, results of
operations or liquidity of the Company.
The Company is self-insured for certain losses relating to employee
medical benefits. The Company has purchased $1 million in insurance coverage for
claims in excess of Minimum Deductible amounts, as defined. Thereafter, the
Company is liable for all ensuing claims. The Company determines the level of
accruals by reviewing its historical experience and current year claim activity.
An additional accrual for incidents incurred but not reported to the Company is
established for each year using management estimates and is based on prior
experience. Management believes that adequate accruals have been established for
expected liabilities arising from such obligations.
NOTE 15--RETIREMENT PLANS
The Company maintains several defined contribution plans covering
substantially all of its employees. Employees may contribute to these plans and
contributions may be matched at the Company's discretion in varying amounts. The
Company also contributes to union-sponsored retirement plans for its employees
covered under collective bargaining agreements. Amounts contributed are
determined based upon a percentage of wages paid or amounts per hour worked by
such employees or a match of the employees' contributions.
NOTE 16--SEGMENT REPORTING
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenue from external customers
Storage .................................. $ 127,718 $ 169,842 $ 144,853
Process .................................. 142,161 133,291 102,865
Filtration ............................... 65,720 39,661 32,699
--------- --------- ---------
Total .................................. $ 335,599 $ 342,794 $ 280,417
========= ========= =========
Revenue from internal operating segments
Storage .................................. $ 843 $ 790 $ 1,342
Process .................................. 1,004 2,804 16
Filtration ............................... 408 303 204
--------- --------- ---------
Total .................................. $ 2,255 $ 3,897 $ 1,562
========= ========= =========
Depreciation and amortization
Storage .................................. $ 4,141 $ 4,605 $ 4,546
Process .................................. 2,347 2,637 2,807
Filtration ............................... 790 1,009 1,045
Other .................................... 269 62 74
--------- --------- ---------
Total .................................. $ 7,547 $ 8,313 $ 8,472
========= ========= =========
Operating profit (loss)
Storage .................................. $ 9,217 $ 15,438 $ (44,711)
Process .................................. 14,305 12,497 (11,595)
Filtration ............................... 5,128 (3,433) (3,073)
Other .................................... (20,819) (15,911) (4,728)
--------- --------- ---------
Total .................................. $ 7,831 $ 8,591 $ (64,107)
========= ========= =========
</TABLE>
F-22
<PAGE> 48
<TABLE>
<S> <C> <C> <C>
Earnings (Loss) from continuing operations before
income tax provision and extraordinary loss
Storage.................................................... $ 7,304 $ 7,521 $ (51,689)
Process.................................................... 8,579 7,403 (13,095)
Filtration................................................. 4,499 (4,262) (3,785)
Other...................................................... (18,003) (9,490) (4,127)
---------- --------- ---------
Total.................................................... $ 2,379 $ 1,172 $ (72,696)
========== ========= =========
Identifiable assets
Storage.................................................... $ 90,356 $ 140,905 $ 73,188
Process.................................................... 94,112 105,615 68,464
Filtration................................................. 37,504 29,839 28,988
Other...................................................... 39,515 10,295 9,490
---------- --------- ---------
Total.................................................... $ 261,487 $ 286,654 $ 180,130
========== ========= =========
</TABLE>
NOTE 17--MAJOR CUSTOMERS AND FOREIGN OPERATIONS
Due to the nature of the Company's business, contracts are generally
nonrecurring. For the years ended December 31, 1997, 1998 and 1999, no single
customer accounted for 10% of revenues. Financial data by geographical area is
as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
United States $ 308,765 $ 319,493 $ 248,674
Canada -- 8,141 14,350
England 5,233 5,091 4,517
Germany 7,749 2,954 7,192
Singapore 6,364 4,296 2,658
Australia 7,488 2,819 3,026
--------- --------- ---------
$ 335,599 $ 342,794 $ 280,417
========= ========= =========
Operating profit (loss):
United States $ 6,305 $ 9,134 $ (47,113)
Canada -- 48 (16,976)
England 219 356 (110)
Germany 490 (1,052) 42
Singapore 284 69 (29)
Australia 533 36 79
--------- --------- ---------
$ 7,831 $ 8,591 $ (64,107)
========= ========= =========
Identifiable assets:
United States $ 245,847 $ 242,149 $ 147,950
Canada -- 32,133 17,814
England 2,985 3,937 3,615
Germany 7,732 4,972 7,552
Singapore 3,126 2,014 1,454
Australia 1,797 1,449 1,745
--------- --------- ---------
$ 261,487 $ 286,654 $ 180,130
========= ========= =========
</TABLE>
International sales accounted for approximately 8%, 4%, and 7% of total
revenue in 1999, 1998 and 1997, respectively.
NOTE 18--UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1999
Revenues $ 77,171 $ 71,310 $ 72,192 $ 59,744
Net earnings (loss) 961 (2,587) (21,403) (54,040)
Basic earnings (loss) per share .03 (.09) (.76) (1.91)
Diluted earnings (loss) per share .03 (.09) (.76) (1.91)
1998
Revenues $ 83,683 $ 91,210 $ 81,092 $ 86,809
Earnings (loss) from
continuing operations 3,853 3,694 (6,574) (232)
Net earnings (loss) 3,853 3,501 (7,304) (232)
Basic earnings (loss) per share:
from continuing operations .14 .13 (.23) (.02)
net earnings (loss) .14 .12 (.26) (.01)
Diluted earnings (loss) per share:
from continuing operations .14 .13 (.23) (.02)
net earnings (loss) .14 .12 (.26) (.01)
</TABLE>
F-23
<PAGE> 49
NOTE 19--SUBSEQUENT EVENTS (UNAUDITED)
At December 31, 1999, the Company had net assets of businesses held for
sale of $34,491. During the first quarter of 2000, the Company concluded several
transactions for the sale of such assets and received gross proceeds totaling
$54.4 million. Proceeds received were used to reduce the Company's indebtedness
under its credit facility. For all transactions except the sale of its HMT
facility, the net proceeds received were equal to the assets' carrying value as
of December 31, 1999. The following transactions were concluded during the
quarter ended March 31, 2000.
In January, the Company received $542 from the sale of substantially
all of the assets of its Clinton and Provo facilities located in Texas and Utah,
respectively.
In January, the Company received $1,052 from the sale of a certain
tract of land and improvements in Birmingham, Alabama.
In February, the Company received $8,900 from the sale of certain
assets and properties associated with its San Luis Obispo, California facility.
In February, the Company received gross proceeds of $4,000 for the
stock purchase sale of 100% of the issued and outstanding capital stock of
Graver Manufacturing Co., Inc. to a newly formed entity owned 60% by an
unaffiliated individual and 40% by the Company's Chairman of the Board. In
connection with this transaction, Graver Manufacturing, was independently
appraised. Management is of the opinion that the terms of this transaction were
at least as favorable to the Company as could have been obtained from an
unrelated third party.
In March, the Company received gross proceeds of $40,000 from the sale
of substantially all of the assets of its HMT operating unit. The Company
realized a gain of approximately $14.1 million on this sale and the gain has
been recorded in the Company's results of operations for the quarter ended
March 31, 2000.
F-24
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 14th day of
April, 2000.
ITEQ, Inc.
(Registrant)
By: /s/ WILLIAM P. REID
--------------------------------
William P. Reid
Chief Executive Officer,
President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated and on the 14th day of April, 2000.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
- ---------------------------- Director and Chairman of the Board
Mark E. Johnson
/s/ WILLIAM P. REID
- ---------------------------- Chief Executive Officer, President and Secretary
William P. Reid
/s/ THOMAS N. AMONETT
- ---------------------------- Director
Thomas N. Amonett
- ---------------------------- Director
Pierre S. Melcher
/s/ JAMES L. RAINEY, JR.
- ---------------------------- Director
James L. Rainey, Jr.
- ---------------------------- Director
James A. Read
/s/ ROY RIMMER
- ---------------------------- Director
Roy Rimmer
/s/ DONALD J. SCHORTGEN
- ---------------------------- Chief Financial Officer and Assistant Secretary
Donald J. Schortgen
</TABLE>
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 - Amended and Restated Certificate of Incorporation of the
Registrant. (Filed as Appendix E to the Joint Proxy
Statement/Prospectus of the Registrant and Astrotech on October
3, 1997 and incorporated herein by reference).
3.2 - Amended and Restated Bylaws of the Registrant. (Filed as an
exhibit to Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference).
4.1 - See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining the rights of
holders of Common Stock.
4.2 - Second Amendment to Revolving Credit Agreement, dated as of
December 14, 1998, among the Registrant, the Guarantors and
various lending institutions including BankBoston, N.A., as
Agent, and Deutsche Bank AG, as Documentation Agent (Filed as an
exhibit to Form 8-K filed December 22, 1998 and incorporated
herein by reference).
4.3 - First Amendment to Rights Agreement effective November 19, 1998
between the Registrant and Harris Trust and Savings Bank, as
Rights Agent. (Filed as an exhibit to Form 8-K filed November 20,
1998 and incorporated herein by reference).
4.4 - Rights Agreement dated as of September 4, 1998 between the
Registrant and Harris Trust and Savings Bank, as Rights Agent,
which includes as Exhibit C thereto the Form of Right
Certificate. (Filed as an exhibit to Form 8-K filed September 15,
1998 and incorporated herein by reference).
4.5 - Revolving Credit Agreement dated as of October 28, 1997 by and
among the Registrant, the Guarantors and various lending
institutions including Deutsche Bank AG as Documentation Agent
and BankBoston, N.A. as Agent. (Filed as an exhibit to Form 10-Q
for the quarter ended September 30, 1997 and incorporated herein
by reference).
4.6 - Warrant Agreement, dated November 18, 1996, between the
Registrant and International Mezzanine Capital, B.V.
("Mezzanine"). (Filed as an exhibit to Form 8-K dated December 5,
1996 and incorporated herein by reference).
4.7 - Warrant Agreement dated November 18, 1996, between the Registrant
and First Commerce Corporation ("First Commerce"). (Filed as an
exhibit to Form 8-K dated December 5, 1996 and incorporated
herein by reference).
4.8 - Registration Rights Agreement dated November 18, 1996, among the
Registrant, Mezzanine, and First Commerce. (Filed as an exhibit
to Form 8-K dated December 5, 1996 and incorporated herein by
reference).
4.9 - Warrant Agreement, dated April 24, 1996, between the Registrant
and Sanders Morris Mundy, Inc. (Filed as an exhibit to Form 10-Q
for the quarter ended September 30, 1996 and incorporated herein
by reference).
4.10 - Warrant Agreement, dated December 1992, between Registrant and
Pennsylvania Merchant Group, Ltd. (Filed as an exhibit to Form
10-K for fiscal year ending March 31, 1993 and incorporated
herein by reference).
4.11 - Third Amendment to Revolving Credit Amendment, dated as of March
26, 1999, among the Registrant, the Guarantors and various
lending institutions including BankBoston, B.A., as Agent, and
Deutsche Bank AG, as Documentation Agent. (Filed as an exhibit to
Form 10-Q/A for the quarter ended September 30, 1999 and
incorporated herein by reference).
4.12 - 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. (Filed as an exhibit to
Form 10-Q/A for the quarter ended September 30, 1999 and
incorporated herein by reference).
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.13 - 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. (Filed as an exhibit to
Form 10-Q/A for the quarter ended September 30, 1999 and
incorporated herein by reference).
4.14 - 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.
(Filed as an exhibit to Form 10-Q/A for the quarter ended
September 30, 1999 and incorporated herein by reference).
4.15 - 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, Deutsche Bank AG, as Documentation Agent. (Filed
as an exhibit to Form 10-Q/A for the quarter ended September 30,
1999 and incorporated herein by reference).
4.16 - Seventh Amendment to Revolving Credit Agreement, dated as of
November 15, 1999, among the Registrant, the Guarantors and
various lending institutions including BankBoston, N.A., as
Agent, and Deutsche Bank AG, as Documentation Agent. (Filed as an
exhibit to Form 10-Q/A for the quarter ended September 30, 1999
and incorporated herein by reference).
*4.17 - Limited Waiver for the Revolving Disposition of Certain Assets
for the Revolving Credit Agreement, dated as of November 23,
1999, among the Registrant, the Guarantors and various lending
institutions including BankBoston, N.A., as Agent, and Deutsche
Bank AG, as Documentation Agent.
*4.18 - Limited Waiver for the Revolving Credit Agreement, dated as of
December 10, 1999 among the Registrant, the Guarantors and
various lending institutions including BankBoston, N.A. as Agent,
and Deutsche Bank as Documentation Agent.
*4.19 - Limited Waiver Regarding Certain Covenants and Disposition of
Certain Assets for the Revolving Credit Agreement, dated as of
January 24, 2000, among the Registrant, the Guarantors and
various lending institutions including BankBoston, N.A. as Agent,
and Deutsche Bank AG, as Documentation Agent.
*4.20 - Limited Waiver and Eight Amendment to the Revolving Credit
Agreement, dated as of April 3, 2000, among the Registrant, the
Guarantors and various lending institutions including Fleet
National Bank (f/k/a/ BankBoston, N.A.), as Agent, and Deutsche
Bank AG, as Documentation Agent.
10.1 - Plan and Agreement of Merger dated as of June 30, 1997, by and
between the Registrant and Astrotech International Corporation
("Astrotech"). (Filed as Appendix A to the Joint Proxy
Statement/Prospectus of the Registrant and Astrotech on October
3, 1997 and incorporated herein by reference).
10.2 - Stock Purchase Agreement dated as of April 30, 1997, by and
between Jared A. Trussler, Ray E. Crosno and Leslie D. Scott
("Sellers") and Astrotech (predecessor-in-interest to the
Registrant). (Filed as an exhibit to Form 8-K of Astrotech dated
as of May 14, 1997 and incorporated herein by reference).
10.3 - Stock Purchase Agreement, dated April 24, 1997, among the owners
of Exell, Inc. ("Exell") and the Registrant. (Filed as an exhibit
to Amendment No. 2 to the Registrant's Registration Statement on
Form S-2 (No. 333-23245) and incorporated herein by reference).
10.4 - First and Second Amendment to Exell Stock Purchase Agreement
among the owners of Exell and the Registrant. (Filed as an
exhibit to Form 10-Q for the quarter ending June 30, 1997 and
incorporated herein by reference).
10.5 - Amendment No. 2, as of February 28, 1997, to the Stock Purchase
Agreement dated February 7, 1994, by and among Astrotech
(predecessor-in-interest to the Registrant), Brown-Minneapolis
Tank & Fabricating Company ("BMT") and Irwin Jacobs. (Filed as an
exhibit to Form 10-Q for the quarter ended March 31, 1997 of
Astrotech and incorporated herein by reference).
10.6 - Purchase and Sale Agreement, dated as of the Effective Date (as
defined therein), between Babel, Miller & Blackwell Partnership
(the "Partnership") and the Registrant. (Filed as an exhibit to
Form 8-K dated August 28, 1997 and incorporated herein by
reference).
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.7 - First Amendment to Purchase and Sale Agreement, effective August
13, 1997, among the Partnership, Beaumont Franklin Street
Properties, L.L.C. ("BFSP"), Neches Street Properties, L.L.C.
("NSP") and the Registrant. (Filed as an exhibit to Form 8-K
dated August 28, 1997 and incorporated herein by reference).
*10.8 - Agreement dated January 29, 1999 between the Registrant and
William P. Reid.
*10.9 First Amendment to Employment Agreement Between William P. Reid
and ITEQ, Inc. dated March 20, 2000.
10.10 - Severance Agreement dated September 17, 1998, between Registrant
and John Camardella. (Filed as an exhibit to Form 10-Q for the
quarter ended September 30, 1998 and incorporated herein by
reference).
10.11 - Employment Agreement dated September 30, 1997 for Mark E.
Johnson. (Filed as an exhibit to Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference).
10.12 - Employment Agreement dated March 1, 1996, between the Registrant
and Lawrance W. McAfee. (Filed as an exhibit to Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by
reference).
10.13 - Employees Stock Purchase Plan, as amended, dated December 15,
1994. (Filed as an exhibit to Form 10-K for year ended December
31, 1994 and incorporated herein by reference).
10.14 - Director Stock Option Plan, as amended. (Plan filed as an exhibit
to Proxy Statement for Annual Meeting of Stockholders held on
June 29, 1995, and amendment filed as an exhibit to Form 10-Q for
the quarter ended June 30, 1996 both of which are incorporated
herein by reference).
10.15 - Amended and Restated ITEQ 1990 Stock Option Plan. (Filed as
Appendix D to Joint Proxy Statement/Prospectus of the Registrant
and Astrotech on October 3, 1997 and incorporated herein by
reference).
10.16 - 1984 Stock Option Plan. (Filed as an exhibit to Astrotech's
Registration Statement on Form S-8 (No. 33-3360) and incorporated
herein by reference).
10.17 - 1989 Stock Incentive Plan. (Filed as an exhibit to Astrotech's
Registration Statement on Form S-8 (No. 33-2975) and incorporated
herein by reference).
10.18 - The 1994 Stock Option Plan for the Employees of BMT. (Filed as an
exhibit to Astrotech's Registration Statement on Form S-8 (No.
33-85106) and incorporated herein by reference).
10.19 - 1995 Non-Employee Directors' Stock Option Plan. (Filed as an
exhibit to Astrotech's Proxy Statement of Astrotech for the
Annual Meeting of Shareholders filed on or about April 10, 1995).
10.20 - Lease, dated August 13, 1997 among Beaumont Franklin Street
Properties, L.L.C., Neches Street Properties, L.L.C. and Exell.
(Filed as an exhibit to Form 8-K dated August 28, 1997 and
incorporated herein by reference).
10.21 - Lease Agreement dated May 25, 1994, between Halligan and Labbe
Enterprises, L.L.C. and Amerex Industries, Inc. (Filed as an
exhibit to Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
10.22 - License and Technical Assistance Agreement dated August 28, 1991,
between Interel Environmental Technologies, Inc. and Heinrich
Luhr Staubtechnik GmbH & Co. (Filed as an exhibit to Form S-1
(No. 33-44205) and incorporated herein by reference).
*10.23 Asset Purchase Agreement between HMT, Inc., as Buyer, ITEQ, Inc.,
as Parent and ITEQ Storage Systems, Inc., ITEQ Construction
Services, Inc. and ITEQ Tank Services, Inc., as Sellers, dated
January 28, 2000.
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
*10.24 - First Amendment to Asset Purchase Agreement between HMT, Inc., as
Buyer, ITEQ, Inc., as Parent and ITEQ Storage Systems, Inc., ITEQ
Construction Services, Inc. and ITEQ Tank Services, Inc., as
Sellers, dated March 13, 2000.
*21.1 - List of Subsidiaries of the Registrant.
*23.1 - Consent of Arthur Andersen LLP.
*27 - Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 4.17
LIMITED WAIVER
REGARDING DISPOSITION OF CERTAIN ASSETS
This LIMITED WAIVER REGARDING DISPOSITION OF CERTAIN ASSETS is made and
entered into as of November 23, 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, 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 heretofore amended, the "Credit Agreement"), pursuant
to which the Banks have extended credit to the Borrower on the terms set forth
therein;
WHEREAS, ITEQ Storage Systems, Inc. ("ITEQ Storage"), a Guarantor, wishes
to sell certain goods at auction, to be conducted in one or more auction sales;
WHEREAS, such goods consist of the field erect equipment and the remote
sales office equipment of the North-South and Union groups of ITEQ Storage, as
described on Annex A attached hereto (the "Specified Goods");
WHEREAS, the Borrower has requested that the Banks and the Agent waive the
provisions of Section 7.4 of the Credit Agreement and other provisions of the
Loan Documents to permit such auction sales free and clear of the Agent's
security interest in the Specified Goods sold; and
WHEREAS, the Banks and the Agent have agreed to honor such request upon the
terms and subject to the conditions contained herein;
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. LIMITED WAIVER. For each auction sale, the Banks and the Agent
hereby consent to the sale of Specified Goods at such auction sale and to the
release by the Agent of the Agent's security interest in such Specified Goods,
subject to the satisfaction of each of the following conditions:
<PAGE> 2
-2-
(a) such Specified Goods shall be sold only for cash paid within a
period of 20 days (or such other period as is approved in writing by the
Majority Banks) following the completion with such auction sale;
(b) the net cash proceeds of such auction sale, if not paid directly
to the Agent by the applicable purchasers, shall, upon receipt by the
Borrower or ITEQ Storage of such net cash proceeds, be forthwith paid to
the Agent for application to the Revolving Credit Loans;
(c) each of the Total Commitment of $115,000,000 and the second dollar
figure of $107,221,980.97, respectively, set forth in the first sentence of
Section 2.1 of the Credit Agreement, shall be permanently and automatically
reduced by an amount equal to the net cash proceeds of such auction sale,
such reduction to be effective at the time at which such net cash proceeds
are first received by the Borrower, ITEQ Storage or the Agent;
(d) the Agent and its counsel shall have reviewed and shall be
reasonably satisfied with the terms and conditions of the auction agreement
and the auctioneer chosen for such auction sale;
(e) unless otherwise waived in writing by the Majority Banks, 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 auction
sale or would occur as a result thereof;
(f) such auction sale shall have been completed by June 30, 2000 (or
such other period as is approved in writing by the Majority Banks); and
(g) the aggregate amount of net cash proceeds of the second and any
subsequent auction sales, together with the aggregate amount of net cash
proceeds from the first and any earlier auction sales, shall not be less
than $650,000 (or such other amount as is approved in writing by the
Majority Banks).
As used in this Section 1, the term "net cash proceeds" of an auction sale means
the gross cash proceeds of such auction sale, net of reasonable direct
transaction costs, such as auctioneer's fees, transfer taxes and professional
fees and expenses incurred on account of such auction sale.
SECTION 2. RELEASES, ETC. Upon satisfaction of the conditions set forth in
SECTION 1 as to each auction sale, the Agent is instructed by the Banks to
provide such Uniform Commercial Code or other releases and confirmations of
releases of the Agent's security interest in the Specified Goods sold at such
auction sale as the Borrower or ITEQ Storage may reasonably request. The Agent
may provide such releases and confirmations in escrow and in advance of the
satisfaction of such conditions so long as such releases and confirmations are
not released from
<PAGE> 3
-3-
the escrow until satisfaction of such conditions. The Agent shall be entitled to
assume that any factual condition set forth in SECTION 1, not evident from the
Agent's own books and records, has been met unless the officers of the Agent
active upon the Borrower's account have actual knowledge that such condition has
not been met.
SECTION 3. CONDITIONS TO EFFECTIVENESS. This Waiver shall not become
effective until executed and delivered by the Borrower, the Guarantors, the
Banks and the Agent.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower hereby
represents and warrants to the Banks and the Agent that (a) the Specified Goods
are no longer used or useful in the operations of the businesses of the Borrower
and its Subsidiaries as such businesses are now proposed to be conducted, and
(b) all rights of the Borrower or ITEQ Storage under any auction agreement for
the auction of any Specified Goods, or under any purchase and sale agreement
arising out of the auction sale of any Specified Goods, constitute Collateral in
which the Agent has, for the benefit of the Banks and the Agent, a prior
perfected security interest to secure the payment and performance of the
Obligations. The Borrower covenants that, at no time prior to completion of the
auction sale for any Specified Goods, will the Borrower cause or permit such
Specified Goods to be located in a jurisdiction in which the Agent has not filed
Uniform Commercial Code financing statements perfecting the Agent's security
interest in such Specified Goods without providing at least 30 days' prior
written notice to the Agent.
SECTION 5. RATIFICATION, ETC. This Waiver is limited solely to the auction
sales of the Specified Goods upon the terms and subject to the conditions
contained herein. 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 is a Loan Document.
SECTION 6. COUNTERPARTS. This Waiver may be executed in any number of
counterparts, which together shall constitute one instrument.
SECTION 7. 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> 4
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/ WILLIAM P. REID
---------------------------------
Name: William P. Reid
Title: President
<PAGE> 5
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.)
G.L.M. ACQUISITION, L.L.C.
By: /s/ WILLIAM P. REID
---------------------------------
Name: William P. Reid
Title: President
<PAGE> 6
THE LENDERS:
BANKBOSTON, N.A.,
individually and as Agent
By:/s/ VIRGINIA DENNETT
---------------------------------
Name: Virginia Dennett
Title: Vice President
DEUTSCHE BANK AG,
individually and as Documentation Agent
By:/s/ MARGARET S. CHEEVER
---------------------------------
Name: Margaret S. Cheever
Title: Managing Director
By: /s/ PAUL HATFIELD
---------------------------------
Name: Paul Hatfield
Title: Vice President
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. Peter
Title: Vice President
<PAGE> 7
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/ MARK B. GROVER
---------------------------------
Name: Mark B. Grover
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ RAYMOND VENTURA
---------------------------------
Name: Raymond Ventura
Title: Vice President & 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, IV
---------------------------------
Name: William E. Livingstone, IV
Title: Managing Director
UNION BANK OF CALIFORNIA, N.A.
By: /s/ EMILY DENNY MCKNIGHT
---------------------------------
Name: Emily Denny McKnight
Title: Vice President
<PAGE> 8
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> 9
Annex A
SPECIFIED GOODS
<PAGE> 10
November 9, 1999 PAGE: 1
UNION ASSET LISTING
Accumulated Depreciation Thru: 10/31/99
<TABLE>
<CAPTION>
Co. asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class E
GRA001 GENERATOR (2) 6VF173230.242 A 04/01/96 35,000.00 24,694.44 10,305.56
GRA004 DIESEL GENERATOR (STEWART & STEV) A 04/01/96 12,000.00 8,466.67 3,533.33
GRA010 REPR MIXER A 04/01/96 2,000.00 1,411.11 588.89
GRA013 MANTIS 3612 A 04/01/96 140,000.00 70,777.78 69,222.22
GRA014 WELDING MACHINE - JOB 410320 A 04/01/96 6,000.00 4,233.33 1,766.67
GRA015 LINCOLN K0227 W. ATTCH. A 04/01/96 2,500.00 1,763.89 736.11
GRA016 CUMMINS REPAIR A 04/01/96 4,000.00 2,822.22 1,177.78
GRA020 REBUILD WORK FLAT - CHIMNEY WK A 04/01/96 75,000.00 37,916.68 37,083.32
GRA021 DERRICK ENHANCEMENT - CHIMNEY A 04/01/96 75,000.00 37,916.68 37,083.32
GRA022 CATHEAD A 04/01/96 15,000.00 7,583.34 7,416.66
GRA002 12 MILLER 400 AMO WELD MACH A 01/01/98 12,000.00 8,466.67 3,533.33
GRA003 DIESEL GENERATOR (STEWART & STEV) A 04/01/96 12,000.00 8,466.67 3,533.33
GRA005 WELDING MACHINE (8) A 04/01/96 12,500.00 8,819.44 3,680.56
GRA006 AIR COMPRESSOR(2) A 04/01/96 12,000.00 8,466.67 3,533.33
GRA008 MILLER WELDING MACHINE (8) A 04/01/96 45,000.00 31,750.00 13,250.00
009 POWER CLIMBER (2) A 04/01/96 6,000.00 4,233.33 1,766.67
GRA011 TRIPOD MILLER #51 A 04/01/96 2,000.00 1,411.11 588.89
GRA012 UNIT #1 GUNITE RIG REPR A 04/01/96 2,000.00 1,411.11 588.89
GRA017 REFIT WHEELABRATOR MACHINE A 04/01/96 75,000.00 52,916.67 22,083.33
GRA018 REP OIL COOLUER-SULLR MOD 20-125 A 04/01/96 500.00 352.78 147.22
(SN23504)
GRA019 STAK PAK PLASMA UNITS (5) A 04/01/96 12,000.00 8,466.67 3,533.33
GRA023 MANTIC CRANE # 105237 A 07/01/96 196,376.00 92,265.57 104,110.43
GRA024 MANTIS REPR 3612 A 08/01/96 8,478.00 5,416.50 3,061.50
GRA025 MANTIS REPR 3612 A 09/01/96 6,956.00 4,328.17 2,627.83
Class E
SubTotal
769,310.00 434,357.50 334,952.50
Grand Total: 769,310.00 434,357.50 334.952.50
========== ========== ==========
</TABLE>
<PAGE> 11
November 9, 1999 PAGE: 1
NORTH/SOUTH ASSET LISTING
Accumulated Depreciation Thru: 10/31/99
<TABLE>
<CAPTION>
Co. asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Description Current NBV
- ---------- ------------------------------ -------------- ---- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
MACK MODEL R600 R685ST77213 A 07/01/84 2,500.00 2,447.91 52.09
Class A
SubTotal:
2,500.00 2,447.91 52.09
Class D
CEA644 GATEWAY2000 P5-90 PC GDBPENT090PI A 01/25/95 3,524.09 2,408.14 1,115.95
FF6718 CAD SYSTEM 4704AJ2B1086 A 05/01/87 7,260.00 6,292.00 968.00
FF6729 CAD STATION 4740AJ2B0514 A 12/01/87 3,440.00 2,981.31 458.69
443 ALTIMA COMPUTER W/40MB 94500984 A 03/30/90 1,145.00 992.31 152.69
444 EXPESS 386 PORT COMPUTER WT102675 A 04/10/90 1,875.00 1,625.00 250.00
CEA469 PORT COMPAQ W/10MB HD 1510060591 A 09/18/90 230.00 199.32 30.68
CEA454 GENICOM 4440 PRINTER 9018579510 A 06/29/90 3,230.00 2,799.32 430.68
CEA482 CAD SYSTEM 386 33MHZ TOW T011958 A 02/12/91 1,785.00 1,547.00 238.00
CEA482 CAD SYSTEM 386 33MHZ TOW T014315 A 02/12/91 1,785.00 1,547.00 238.00
CEA482 PLOTTERS FOR CAD SYSTEM 2938A15263 A 02/20/91 710.00 615.32 94.68
CEA482 PLOTTERS FOR CAD SYSTEM 2938A15270 A 02/20/91 710.00 615.32 94.68
CEA541 PLOTTER 3005L40174 A 04/10/92 610.00 528.68 81.32
CEA541 EPRESS 486 CAD STATION T032468 A 04/10/92 1,155.00 1,001.00 154.00
CEA541 EPRESS 486 CAD STATION T032672 A 04/10/92 1,155.00 1,001.00 154.00
CEA541 EPRESS 486 CAD STATION T032671 A 04/10/92 1,155.00 1,001.00 154.00
CEA541 EPRESS 486 CAD STATION T032669 A 04/10/92 1,155.00 1,001.00 154.00
CEA541 EPRESS 486 CAD STATION T032670 A 04/10/92 1,155.00 1,001.00 154.00
CEA551 NEC LASER PRINTER 292516930 A 04/09/92 705.00 611.00 94.00
CEA598 EXPRESS 486-33DX 54439 A 02/01/93 1,080.00 936.00 144.00
CEA616 486-33 COMPUTER 93151130 A 12/06/93 2,126.57 1,843.02 283.55
CEA621 486-33 COMPUTER 93219653 A 12/01/93 1,665.66 1,443.56 222.10
CEA622 486-33 COMPUTER 93328763 A 12/01/93 1,665.66 1,443.56 222.10
CEA628 386 NOTEBOOK COMPUTER 002428 A 12/14/93 878.63 761.48 117.15
CEA625 486DX-33MHZ PERS COMPUTER 93244835 A 01/28/94 2,350.22 2,036.85 313.37
CEA633 486DX2-66MHZ 107205 A 08/20/94 2,442.79 1,872.79 570.00
CEA673 486DX2-66 COMPUTER N159028033 A 06/16/95 2,205.18 1,323.10 882.08
CEA672 SWITCH BOX.CARTRIDGE.TRAY A 09/19/95 1,293.16 711.23 581.93
CEA681 LAPTOP COMPUTER 5704797UN A 08/05/95 3,439.12 2,006.16 1,432.96
CEA683 COMPUTER W/DIGITIZER LTNM50812461 A 09/29/95 4,578.20 2,518.00 2,060.20
CEA699 CABLEING - COMPUTER NETWORK PHONES A 02/14/96 41,028.15 19,830.27 21,197.88
CEA699 CABLEING - COMPUTER NETWORK A 04/09/96 1,574.31 708.42 865.89
CEA699 WAN SETUP A 05/02/96 2,014.00 872.74 1,141.26
CEA699 PC WORK STATIONS A 03/15/96 2,284.05 1,065.89 1,218.16
CEA699 PC WORK STATIONS A 03/15/96 2,284.05 1,065.89 1,218.16
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
</TABLE>
<PAGE> 12
November 9, 1999 PAGE: 2
NORTH/SOUTH ASSET LISTING
Accumulated Depreciation Thru: 10/31/99
<TABLE>
<CAPTION>
Co. asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 PC WORK STATIONS A 11/22/95 2,753.78 1,422.80 1,330.98
CEA699 WINBOOKS A 01/12/96 4,040.05 2,020.04 2,020.01
IBM Think Pad PC A 11/01/99 2,450.67 0.00 2,450.67
IBM Think Pad PC A 11/01/99 2,450.67 0.00 2,450.67
IBM Think Pad PC A 11/01/99 2,450.66 0.00 2,450.66
Computer Parts A 11/01/99 2,516.00 0.00 2,516.00
HP 9816 COMPUTER 2346A14177 A 05/01/84 4,140.00 3,680.00 460.00
CALCOMP 1200ES LASER PRINTER 9511642009 A 04/18/95 4,693.01 3,076.53 1,616.48
WAN SETUP A 02/02/96 69,939.50 27,698.26 42,241.24
COMPAQ SERVER A 01/17/96 23,315.07 11,787.06 11,528.01
5SI MX PRINTER A 12/26/95 4,407.81 2,301.84 2,105.97
5SI MX PRINTER W/DUPLEXING UNIT A 01/09/96 5,101.33 2,664.03 2,437.30
HP 1600C PRINTER A 01/30/96 1,467.66 741.97 725.69
HP 1600C PRINTER A 01/30/96 1,435.75 725.85 709.90
PC WORK STATIONS A945289 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS CUE20012711 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A940343 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS NEC5704797VN A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A940539 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A945242 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A940305 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A945185 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A958942 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A959025 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A940510 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A960715 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A922278 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A940681 A 11/22/95 2,753.78 1,484.00 1,269.79
PC WORK STATIONS A940304 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS CUE20012715 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A960666 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS A940662 A 11/22/95 2,753.78 1,483.99 1,269.79
PC WORK STATIONS N159028033 A 11/22/95 2,753.78 1,483.99 1,269.79
</TABLE>
<PAGE> 13
November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 3
Accumulated Depreciation Thru: 10/31/99
<TABLE>
<CAPTION>
Co asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PC WORK STATIONS A945079 A 11/22/95 2,753.79 1,484.00 1,269.79
PC WORK STATIONS A979360 A 11/22/95 2,753.79 1,484.00 1,269.79
PC WORK STATIONS A939993 A 11/22/95 2,753.79 1,484.00 1,269.79
PC WORK STATIONS CUE20012712 A 11/22/95 2,753.79 1,484.00 1,269.79
WINBOOKS FKG31AW5485 063 A 01/12/96 4,040.05 2,109.81 1,930.24
WINBOOKS FKG31AW3525 391 A 01/12/96 4,040.05 2,109.81 1,930.24
PC WORK STATIONS A940673 A 02/23/96 2,230.20 1,090.32 1,139.88
PC WORK STATIONS A940409 A 02/23/96 2,230.20 1,090.32 1,139.88
ADDITIONAL HARD DRIVE-EGAN A 11/15/96 1,427.21 507.46 919.75
SERVER
COMPAQ 4.3 GB A 12/13/96 1,321.65 447.89 873.76
ADDITIONAL SERVER MEMORY A 02/17/97 1,059.35 306.03 753.32
ENGINEERING WORKSTATION-COMPAQ 6649bbq1p197 A 03/17/97 3,417.14 987.18 2,429.96
W/17 IN MONITOR
ENGINEERING WORKSTATION-COMPAQ 6649bbq1p197 A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
ENGINEERING WORKSTATIONS COMPAQ 6649bbq1p197 A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
ENGINEERING WORKSTATIONS COMPAQ 6650bbq1p964 A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
ENGINEERING WORKSTATIONS COMPAQ 6649bbq1p197 A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
ENGINEERING WORKSTATIONS COMPAQ 6649bbq1p197 A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
ENGINEERING WORKSTATIONS COMPAQ 6638bbq2q820 A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
ENGINEERING WORKSTATIONS COMPAQ 6649bbq1p191 A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
ENGINEERING WORKSTATIONS COMPAQ 6649bbq1p184 A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
ENGINEERING WORKSTATIONS COMPAQ 6649bbq1p185 A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
ENGINEERING WORKSTATIONS COMPAQ A 03/17/97 3,417.15 930.23 2,486.92
W/17 IN MONITOR
Todd O'Donnell Computer A 11/01/99 3,740.09 0.00 3,740.09
Class D
Sub Total: 401,930.71 199,294.18 202,636.53
Class F
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
</TABLE>
<PAGE> 14
November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 4
Accumulated Depreciation Thru:
<TABLE>
<CAPTION>
Co aset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
DC600 Welder U1980314966 A 11/01/99 2,613.00 0.00 2,613.00
DC600 Welder U1970407521 A 11/01/99 2,613.00 0.00 2,613.00
DC600 Welder U1980408675 A 11/01/99 2,613.00 0.00 2,613.00
DC600 Welder U1980408633 A 11/01/99 2,613.00 0.00 2,613.00
Lincoln Welder DC600 A 11/01/99 3,923.25 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
DC 600 Welder U1980408670 A 11/01/99 2,613.25 0.00 2,613.25
DC 600 Welder U1980215499 A 11/01/99 2,613.00 0.00 2,613.00
DC 600 Welder U1980215497 A 11/01/99 2,613.00 0.00 2,613.00
DC 600 Welder U1980408669 A 11/01/99 2,613.00 0.00 2,613.00
DC 600 Welder U1980215496 A 11/01/99 2,613.00 0.00 2,613.00
DC 600 Welder U1930408650 A 11/01/99 2,613.00 0.00 2,613.00
Spreader Bar A 11/01/99 2,304.00 0.00 2,304.00
Spreader Bar A 11/01/99 2,304.00 0.00 2,304.00
Spreader Bar A 11/01/99 2,304.00 0.00 2,304.00
Spreader Bar A 11/01/99 2,064.00 0.00 2,064.00
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
</TABLE>
<PAGE> 15
November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 5
Accumulated Depreciation Thru:
<TABLE>
<CAPTION>
Co asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,923.13 0.00 3,923.13
Lincoln Welder DC600 A 11/01/99 3,925.94 0.00 3,925.94
Field Office Van A 11/01/99 49,961.00 0.00 49,961.00
Corner Weld Tracker LN9 Wire Feeder A 11/01/99 4,858.90 0.00 4,858.90
Field Erection Van Unit A 11/01/99 35,612.73 0.00 35,612.73
Field Crew Van A 11/01/99 3,002.30 0.00 3,002.30
Wire Feed Welders LN9 A 11/01/99 13,070.38 0.00 13,070.38
Vertical Weld Buggies A 11/01/99 82,541.96 0.00 82,541.96
Field Equipment AFE#99 FET 01 A 11/01/99 53,868.00 0.00 53,868.00
Auto Girth Welders A 11/01/99 56,660.41 0.00 56,660.41
Floor Welders A 11/01/99 5,379.00 0.00 5,379.00
WELDING CAGES A 06/01/75 800.00 535.87 264.13
WELDING CAGE A 06/01/75 800.00 535.87 264.13
4-WELDING CAGES WINDGIRDE A 02/01/75 3,400.00 2,277.47 1,122.53
JIGS & FIXTURES LIFT-ROOF A 01/01/75 500.00 334.92 165.08
WELDING CAGE A 06/01/75 800.00 535.87 264.13
WELDING CAGE A 06/01/75 800.00 535.87 264.13
WELDING CAGE A 06/01/75 800.00 535.87 264.13
WELDING CAGE WINDGIRDER A 01/01/75 500.00 334.92 165.08
NA-3N HEAD & CONTROLS A 03/28/77 1,500.00 1,004.76 495.24
MILLER WELDER SR4-444 HHO 29792 A 08/01/77 700.00 468.89 231.11
MILLER WELDER SR4-444 HHO297892 A 08/01/77 700.00 468.89 231.11
MILLER WELDER SR4-444 HHO297852 A 08/01/77 700.00 468.89 231.11
MILLER WELDER SR4-444 HHO297882 A 08/01/77 700.00 468.89 231.11
MILLER WELDER SR4-444 HHO29787 A 08/01/77 700.00 468.89 231.11
MILLER WELDER SR4-444 HHO297912 A 08/01/77 700.00 468.89 231.11
MILLER WELDER SR-4-444 HHO297902 A 08/01/77 700.00 468.89 231.11
MILLER WELDER SR4-444 HHO29786 A 08/01/77 700.00 468.89 231.11
MILLER WELDER SR4-444 HHO29792 A 08/01/77 700.00 468.89 231.11
MILLER WELDER SR4-444 HHO297892 A 08/01/77 700.00 468.89 231.11
WELD SHAVER 479 A 05/01/77 500.00 334.92 165.08
2-FLAT BED TRAILERS F30096 F30097 A 06/01/77 3,500.00 2,344.44 1,155.56
GRINDER ABB21093 A 06/01/78 200.00 133.95 66.05
GRINDER ABB21039 A 06/01/78 200.00 133.95 66.05
GRINDER ABB21377 A 06/01/78 200.00 133.95 66.05
GRINDER ABC07194 A 06/01/78 200.00 133.95 66.05
GRINDER ABE07238 A 06/01/78 200.00 133.95 66.05
GRINDER ABE07269 A 06/01/78 200.00 133.95 66.05
GRINDER ABE09085 A 06/01/78 200.00 133.95 66.05
</TABLE>
<PAGE> 16
November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 6
Accumulated Depreciation Thru:
<TABLE>
<CAPTION>
Co. asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
GRINDER ABE09091 A 06/01/78 200.00 133.95 66.05
GRINDER ABE09079 A 06/01/78 200.00 133.95 66.05
GRINDER INGERSOLL RAND ABE07276 A 06/01/78 200.00 133.95 66.05
GRINDER INGERSOLL RAND ABO0505058A A 06/01/78 200.00 133.95 66.05
GRINDER INGERSOLL RAND ABE20070 A 06/01/78 200.00 133.95 66.05
WELD SHAVER 473 A 06/01/78 500.00 334.92 165.08
AUTOMATIC VERTICAL WELDER A 11/01/78 30,000.00 20,095.24 9,904.76
LN22 SQUIRT WELDER 59507 A 01/01/79 500.00 334.92 165.08
LN22 SQUIRT WELDER A 01/01/79 500.00 334.92 165.08
MIG WELDING SYSTEM-FEEDER A 04/01/79 1,000.00 669.85 330.15
MIG WELDING SYSTEM-FEEDER A 04/01/79 1,000.00 669.85 330.15
SCAFFOLD BOARDS A 08/01/79 5,000.00 3,349.20 1,650.80
STUD GUN A 03/01/80 1,700.00 1,138.74 561.26
STORAGE CONTAINER A 02/01/80 1,700.00 1,138.74 561.26
SULLAIR 50HP AIR COMPRESS 51410 A 09/01/80 29,800.00 19,961.27 9,838.73
PORTA POWER JACK A 09/01/80 1,000.00 669.85 330.15
MARK IV BUG O SYSTEM A 08/01/80 1,000.00 669.85 330.15
MILLEP WELDER SR4-444 JA441551 A 07/01/81 700.00 468.89 231.11
MILLER WELDER SR4-444 JB506243 A 07/01/81 700.00 468.89 231.11
AIR TUGGER A 03/01/82 3,600.00 2,411.43 1,188.57
BOLT TENSION CALIBRATOR 7908 A 03/01/83 500.00 334.92 165.08
CHAIN HOIST 1315B108 A 07/01/84 1,200.00 803.81 396.19
CHAIN HOIST A 07/01/84 1,200.00 803.81 396.19
AUTO GIRTH WELDER WITH CONTROL A 05/01/84 14,000.00 9,377.77 4,622.23
PANELS & MILLER RECT
SELF PRIMING PUMP 3-60 20/440 A 05/01/84 800.00 535.97 264.13
MILLER WELDERS SR4-444 JE764115 A 05/01/84 700.00 468.89 231.11
MILLER WELDERS SR4-444 JE764120 A 05/01/84 700.00 468.89 231.11
MILLER ZIP CUT PLASMA CUT JE828249 A 05/01/85 1,000.00 669.85 330.15
8)ALUM SCAFFOLD 24X24 A 05/01/83 1,500.00 1,004.76 495.24
SULLAIR MODEL 10-30H A/C 13202 A 07/01/84 12,400.00 8,306.04 4,093.96
SULLAIR MODEL 10-30H A/C 19139 A 07/01/84 12,400.00 8,306.04 4,093.96
SULLAIR MODEL 10-30H A/C 36098 A 07/01/84 12,400.00 8,306.04 4,093.96
SULLAIR MODEL 10-30H A/C 36102 A 07/01/84 12,400.00 8,306.04 4,093.96
SULLAIR MODEL 10-30H A/C 45955 A 07/01/84 12,400.00 8,306.04 4,093.96
CATERPILLAR GENERATOR 3406 90U4168 A 07/01/84 13,325.00 8,925.62 4,399.38
CATERPILLAR GENERATOR 3406 90U8593 A 07/01/84 13,325.00 8,925.62 4,399.38
LINCOLN POWER SOURCESA800 1668715 A 07/01/84 700.00 468.89 231.11
LINCOLN POWER SOURCESA800 A658791 A 07/01/84 700.00 468.89 231.11
LINCOLN POWER SOURCESA800 A558406 A 07/01/84 700.00 468.89 231.11
LINCOLN POWER SOURCESA800 A380556 A 07/01/84 700.00 468.89 231.11
LINCOLN POWER SOURCESA800 A649226 A 07/01/84 700.00 468.89 231.11
LINCOLN POWER SOURCESA800 A531870 A 07/01/84 700.00 468.89 231.11
LINCOLN POWER SOURCESA800 A531871 A 07/01/84 700.00 468.89 231.11
LINCOLN POWER SOURCESA800 A558370 A 07/01/84 700.00 468.89 231.11
LINCOLN POWER SOURCESA800 A654008 A 07/01/84 700.00 468.89 231.11
</TABLE>
<PAGE> 17
November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 7
Accumulated Depreciation Thru: 10/31/99
<TABLE>
<CAPTION>
Co. asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
LINCOLN POWER SOURCESA800 A372677 A 07/01/84 700.00 468.89 231.11
LINCOLN 500AMP WELD MCHNE AC-418855 A 07/01/84 700.00 468.89 231.11
LINCOLN 500AMP WELD MCHNE AC-405318 A 07/01/84 700.00 468.89 231.11
LINCOLN 500AMP WELD MCHNE AC-421160 A 07/01/84 700.00 468.89 231.11
LINCOLN 500AMP WELD MCHNE AC-421131 A 07/01/84 700.00 468.89 231.11
LINCOLN 500AMP WELD MCHNE AC-418825 A 07/01/84 700.00 468.89 231.11
LINCOLN 500AMP WELD MCHNE AC-421168 A 07/01/84 700.00 468.89 231.11
LINCOLN 500AMP WELD MCHNE AC-421104 A 07/01/84 700.00 468.89 231.11
LINCOLN 500AMP WELD MCHNE AC-421134 A 07/01/84 700.00 468.89 231.11
3)MILLER 750 AMP RECTIFIE ??APPROX 1O YRS A 02/22/89 975.00 633.09 321.91
CAT MODEL D34006 175W GENERATOR WO 982100 A 10/05/90 13,350.00 8,942.38 4,407.62
PAC 5 X T PLASMA CUTTER A 04/05/91 1,300.00 870.80 429.20
REBUILD COMPRESSOR A 12/01/91 6,000.00 4,019.05 1,980.95
REBUILD GENERATOR 90U8408 A 04/01/92 15,000.00 10,047.63 4,952.37
SULLAIR 12-5OH AIR COMP. 003-86427 A 04/01/92 29,800.00 19,961.27 9,838.73
SULLAIR 12-50H AIR COMP 003-86426 A 04/01/92 29,800.00 19,961.27 9,838.73
MILLER SRH444 WELDERS KC 172193 A 06/03/92 700.00 468.89 231.11
MILLER SRH444 WELDERS KC 172195 A 06/03/92 700.00 468.89 231.11
MILLER SRH444 WELDERS KC 172197 A 06/03/92 700.00 468.89 231.11
MILLER SRH444 WELDERS KC 172199 A 06/03/92 700.00 468.89 231.11
MILLER SRH444 WELDERS KC 172204 A 06/03/92 700.00 468.89 231.11
MILLER SRH444 WELDERS KC 172205 A 06/03/92 700.00 468.89 231.11
MILLER SRH444 WELDERS KC 172206 A 06/03/92 700.00 468.89 231.11
MILLER SRH444 WELDERS KC 172207 A 06/03/92 700.00 468.89 231.11
CEA521 MILLER SRH444 WELDERS KC 172208 A 06/03/92 700.00 468.89 231.11
MILLER SRH444 WELDERS KC 172209 A 06/03/92 700.00 468.89 231.11
AIR TUGGER HU 23059 A 08/14/92 3,600.00 2,411.43 1,188.57
AUTO GIRTH WELDER A 11/14/92 12,000.00 8,038.09 3,961.91
AUTO GIRTH WELDER A 11/14/92 12,000.00 8,038.09 3,961.91
OVERHAUL GENERATOR 90U4168 A 12/09/92 21,000.00 14,066.66 6,933.34
SULLAIR 50HP AIR COMPRESS 12BS50HACAC 003 A 04/15/93 29,800.00 19,961.27 9,838.73
SULLAIR 50HP AIR COMP. 12BS50HACAC 003 A 04/15/93 29,800.00 19,961.27 9,838.73
SHELL BUGGIES A 02/27/93 2,500.00 1,674.61 825.39
SHELL BUGGIES A 02/27/93 2,500.00 1,674.61 825.39
SHELL BUGGIES A 02/27/93 2,500.00 1,674.61 825.39
SHELL BUGGIES A 02/27/93 2,500.00 1,674.61 825.39
SHELL BUGGIES A 02/27/93 2,500.00 1,674.61 825.39
PLATE BUGGIES A 11/26/93 1,000.00 669.85 330.15
PLATE BUGGIES A 11/26/93 1,000.00 669.85 330.15
PLATE BUGGIES A 11/26/93 1,000.00 669.85 330.15
PLATE BUGGIES A 11/26/93 1,000.00 669.85 330.15
PLATE BUGGIES A 11/26/93 1,000.00 669.85 330.15
NEOTRONICSS GAS MONITOR A 11/26/93 1,000.00 669.85 330.15
OXYGEN MONITOR A 12/06/93 1,885.16 1,262.77 622.39
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
</TABLE>
<PAGE> 18
November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 8
Accumulated Depreciation Thru: 10/31/99
<TABLE>
<CAPTION>
Co asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
MILLER MODEL SRH-444 ARC WELDERS A 03/01/94 705.00 472.24 232.76
BMT ELECTRIC DISTRIBUTION PANEL A 03/01/94 1,350.00 904.30 445.70
BOARDS
BMT ELECTRIC DISTRIBUTION PANEL A 03/01/94 1,350.00 904.30 445.70
BOARDS
BMT ELECTRIC DISTRIBUTION PANEL A 03/01/94 3,750.00 2,511.91 1,238.09
BOARDS
BMT ELECTRIC DISTRIBUTION PANEL A 03/01/94 3,750.00 2,511.91 1,238.09
BOARDS
</TABLE>
<PAGE> 19
November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 9
Accumulated Depreciation Thru: 10/31/99
<TABLE>
<CAPTION>
Co. asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BMT ELECTRIC DISTRIBUTION PANEL A 03/01/94 3,750.00 2,511.91 1,238.09
BOARDS
BMT ELECTRIC DISTRIBUTION PANEL A 03/01/94 3,750.00 2,511.91 1,238.09
BOARDS
SKY CLIMBER MODEL EAGLE MANLIFTS A 03/01/94 900.00 602.85 297.15
SKY CLIMBER MODEL EAGLE MANLIFTS A 03/01/94 900.00 602.85 297.15
WOOD FRAME CREW VANS A 03/01/94 4,600.00 3,081.27 1,518.73
WOOD FRAME CREW VANS A 03/01/94 4,600.00 3,081.27 1,518.73
WOOD FRAME CREW VANS A 03/01/94 4,600.00 3,081.27 1,518.73
WOOD FRAME CREW VANS A 03/01/94 4,600.00 3,081.27 1,518.73
WOOD FRAME CREW VANS A 03/01/94 4,600.00 3,081.27 1,518.73
SPREADERS, AIR TUGGER, GRINDERS, ETC A 03/01/94 47,825.00 32,035.16 15,789.84
OVERHAUL CAT 3406 DIESEL ENGINE IN 90U68593 A 04/05/95 12,543.21 4,982.43 7,560.78
GENERATOR
TEMP SEAL-FLOATNG ROOF A 07/31/95 7,742.11 2,817.26 4,924.95
REBUILD #2 GENERATOR 90U8408 A 01/17/96 11,882.49 3,729.79 8,152.70
WIRE FEED WELDER A 06/30/96 5,389.38 1,467.11 3,922.27
WIRE FEED WELDER A 06/30/96 5,389.39 1,467.11 3,922.28
WALK IN TOOL BOX A 04/30/96 7,459.96 2,155.10 5,304.86
REMANUFACTURE/EXCHANGE AIR A 06/30/96 10,080.87 2,744.24 7,336.63
COMPRESSOR
PARTS/LABOR REPAIR DYNEX REGULATOR A 05/31/96 2,208.60 619.64 1,588.96
REBUILD #1 GENERATOR A 09/17/96 6,375.20 1,576.O8 4,799.12
REBUILD #3 GENERATOR A 07/23/96 5,127.77 1,353.16 3,774.61
REBUILD #4 GENERATOR 90U4168 A 10/08/96 2,553.41 631.26 1,922.15
CATERPILLAR FORKLIFT 3CM00594 A 01/24/97 28,177.14 6,026.79 22,150.35
26 FOOT SPREADER BAR A 10/01/97 1,882.12 277.10 1,605.02
WIRE FEEDER POWER SOURCE A 10/16/97 6,157.24 855.16 5,302.08
W/COMPONENTS
WIRE FEEDER POWER SOURCE A 10/16/97 6,157.25 855.16 5,302.09
W/COMPONENTS
POWER SOURCES W-SUB ARC CONTROLS A 01/10/98 8,807.45 1,100.93 7,706.52
AND COMPONENTS
POWER SOURCES W-SUB ARC CONTROLS A 01/10/98 8,807.45 1,100.93 7,706.52
AND COMPONENTS
HYDRAULIC SHOP PRESS A 06/01/78 300.00 188.81 111.19
5 TON SPREADER BARS A 07/01/81 3,300.00 2,076.91 1,223.09
Class= F
Sub Total
1,259,592.70 421,307.81 838,284.89
Class= M
STEEL FRAME STORAGE TRAILERS A 03/01/94 2,165.00 1,362.57 802.43
STEEL FRAME STORAGE TRAILERS A 03/01/94 2,170.00 1,365.71 804.29
1980 CAT V180 D3D-5209V A 10/30/95 42,813.00 12,724.98 30,088.02
Generator, 150KW A 11/01/99 25,026.02 0.00 25,026.02
Asset Adjustment A 01/01/97 617.50 116.64 500.86
BANDING MACHINE A 08/01/82 800.00 503.49 296.51
CHAIN SAW - STIHL A 08/01/82 300.00 188.81 111.19
PANEL BOARD W/4 PORTS A 04/20/93 700.00 440.56 259.44
STORAGE BUILDINGS A 03/19/93 20,500.00 12,901.99 7,598.01
</TABLE>
<PAGE> 20
November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 10
Accumulated Depreciation Thru: 10/31/99
<TABLE>
<CAPTION>
Co asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HITACHI KOKI DRILL PRESS 7/8 IN CAP. 300358 A 03/01/94 350.00 220.28 129.72
DOALL MODEL C-8 HORIZONTAL CUTOFF 223-65123 A 03/01/94 1,800.00 1,132.86 667.14
BAND SAW
BENCH TYPE WELDING CABLE WINDER A 03/01/94 800.00 503.49 296.51
GALVANIZED FRAME DRUM STORAGE A 03/01/94 400.00 251.74 148.26
SHED 18 X 8 X 9
SATELLITE METAL CLAD OFFICE TRAILER A 03/01/94 400.00 251.74 148.26
STEEL FRAME STORAGE TRAILERS A 03/01/94 2,165.00 1,362.57 802.43
Class** M
SubTotal:
101,006.52 33,327.43 67,679.09
Class* O
CEA642 XEROX 5009 RE COPIER 516849 A 01/02/95 761.24 532.88 228.36
FF 6743 SOUND SHIELD FOR PRINTER A 03/01/88 225.00 195.00 30.00
FF 6747 PANASONIC TYPEWWRITER PJUA83ZB A 11/01/88 320.00 160.00 160.00
FF 6749 HANGING FILE CENTER A 02/01/89 200.00 99.99 100.01
CEA714 CALCOMP DRAWING PADS A 01/08/96 781.61 247.50 534.11
LATERAL FILES A 07/01/76 3,285.17 1,660.83 1,624.34
Office Furniture A 11/01/99 8,038.00 0.00 8,038.00
23-5 DRAWER DRAWING CABINE A 05/01/85 2,810.00 1,420.60 1,389.40
IBM WHEELWRITER TYPEWRITE 6032712 A 02/01/87 480.00 242.66 237.34
BRASS/GLASS TABLE CAT#757 4296A A 12/01/87 50.00 25.27 24.73
4) CHAIRS RECEPTION AREA A 12/01/87 625.00 315.98 309.02
SECRETARIAL DESK/CREDENZA A 12/01/87 690.00 348.83 341.17
TRADE SHOW BOOTH 10 PANEL EXHIBIT A 01/01/88 2,650.00 1,339.72 1,310.28
IBM WHEELWRITER 0038424 A 08/01/88 550.00 278.05 271.95
RECORDS RETENTION SHELVES A 02/01/89 540.00 273.00 267.00
PAPER SHREDDER MODEL 3801 A 03/01/89 480.00 242.66 237.34
TRADE SHOW EXHIBIT A 06/01/89 2,425.00 2,155.56 269.44
TABLE TOP DISPLAY A 09/01/89 470.00 417.76 52.24
RENOVATE OUTLINE DISPLAY A 05/31/91 710.00 631.10 78.90
5-DRAWER FILE HN-685LL A 07/30/92 255.00 128.92 126.08
LATERAL FILES A 07/01/76 3,284.83 1,660.66 1,624.17
5 DRAWER LATERAL FILE A 11/11/93 320.00 161.77 158.23
TRADE SHOW BOOTH PANELS A 12/01/93 1,690.10 1,502.31 187.79
Class** O
SubTotal:
31,640.95 14,041.05 17,599.90
Class** S
+ Solomon Accounting System (60%) A 10/01/99 568,000.00 9,466.66 558,533.34
390 PRESSURE VESSEL DES PROG A 12/01/89 115.00 99.68 15.32
570 P O WRITER A 11/03/92 580.00 502.67 77.33
612 HAGEN SYSTEMS SOFTWARE A 05/20/80 5,920.00 5,130.68 789.32
CEA623 REPERTOIRE SOFTWARE A 12/02/93 2,675.00 2,318.31 356.69
AUTOCAD UPGRADE SOFTWARE A 04/10/92 180.00 160.00 20.00
SOFTWARE A 11/22/95 8,535.21 4,599.52 3,935.69
AUTOCAD LT A 01/17/97 14,372.77 4,391.69 9,981.08
</TABLE>
<PAGE> 21
November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 11
Accumulated Depreciation Thru: 10/31/99
<TABLE>
<CAPTION>
Co asset Act. Acquired Acquired Accumulated
no Description Serial Number Code Date Value Depreciation Current NBV
- --------- ---------------------------------- --------------- ------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Class** S
SubTotal:
Grand Total 600,377.98 26,669.21 573,708.77
2,397,048.86 697,087.59 1,699,961.27
============ ========== ============
</TABLE>
<PAGE> 1
EXHIBIT 4.18
LIMITED WAIVER
This LIMITED WAIVER is made and entered into as of December 10, 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, 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 has informed the Banks and the Agent that ITEQ
Aviation, Inc., a Subsidiary of the Borrower, has sold its one-half interest in
an airplane timeshare to a third party for net cash proceeds of approximately
$301,000 (the "Sale") without the prior written consent of the Banks;
WHEREAS, as a result of the Sale an Event of Default exists under the
provisions contained Section 7.4 of the Credit Agreement (the "Existing Event of
Default");
WHEREAS, the Borrower has requested that the Banks and the Agent waive
the Existing Event of Default, subject to the conditions contained herein; and
WHEREAS, the Banks and the Agent have agreed to honor such request upon
the terms and subject to the conditions contained herein;
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. LIMITED WAIVER. The Banks and the Agent hereby waive the
Existing Event of Default, subject to the satisfaction of the conditions
precedent contained in Section 2 hereof. As used in this Section 1, the term
"net cash proceeds" of the Sale means the gross cash proceeds of the Sale, net
of reasonable direct
<PAGE> 2
-2-
transaction costs, such as broker's fees, transfer taxes and professional fees
and expenses incurred on account of the Sale.
SECTION 2. CONDITIONS TO EFFECTIVENESS. This Waiver shall not become
effective unless the following conditions are satisfied on or prior to 5:00 p.m.
Boston time on Friday, December 10, 1999: (a) This Waiver shall have been
executed and delivered by the Borrower, the Guarantors, the Majority Banks and
the Agent, and (b) the Borrower shall have reimbursed the Agent for, or paid
directly, all fees, costs and expenses incurred by the Agent's counsel and for
which invoices have been delivered.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Banks and the Agent that (a) the airplane
timeshare is no longer used or useful in the operations of the businesses of the
Borrower and its Subsidiaries as such businesses are now proposed to be
conducted, (b) to the best of the Borrower's knowledge and belief, the
approximate value of the airplane timeshare sold under the Sale is $313,000 and
(c) the net cash proceeds of the Sale have been deposited in the operating
account of the Borrower at BankBoston, N.A.
SECTION 4. RATIFICATION, ETC. This Waiver is limited solely to the Sale
upon the terms and subject to the conditions contained herein. 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 is a Loan Document.
SECTION 5. COUNTERPARTS. This Waiver may be executed in any number of
counterparts, which together shall constitute one instrument.
SECTION 6. 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> 3
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/ WILLIAM P. REID
---------------------------------
Name: William P. Reid
Title: President
<PAGE> 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.)
G.L.M. ACQUISITION, L.L.C.
By: /s/ WILLIAM P. REID
---------------------------------
Name: William P. Reid
Title: President
<PAGE> 5
THE LENDERS:
BANKBOSTON, N.A.,
individually and as Agent
By: /s/ VIRGINIA DENNETT
---------------------------------
Name: Virginia Dennett
Title: Vice President
DEUTSCHE BANK AG,
individually and as Documentation Agent
By: /s/ JPS CRAWFORD
---------------------------------
Name: JPS Crawford
Title: Managing Director
By: /s/ SILVIA L. SPEAR
---------------------------------
Name: Silvia L. Spear
Title: 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
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/ MARK B. GROVER
---------------------------------
Name: Mark B. Grover
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ RAYMOND VENTURA
---------------------------------
Name: Raymond Ventura
Title: Vice President & 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, IV
----------------------------------
Name: William E. Livingstone, IV
Title: Managing Director
<PAGE> 7
UNION BANK OF CALIFORNIA, N.A.
By: /s/ EMILY DENNY MCKNIGHT
---------------------------------
Name: Emily Denny McKnight
Title: Vice President
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 4.19
LIMITED WAIVER
REGARDING CERTAIN COVENANTS
AND
DISPOSITION OF CERTAIN ASSETS
This LIMITED WAIVER is made and entered into as of January 24, 2000 (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 are or 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 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 has requested that the Banks and the Agent suspend or
waive certain covenants and other provisions contained in the Credit Agreement
and other Loan Documents; and
WHEREAS, the Banks and the Agent have agreed to honor such requests upon
the terms and subject to the conditions contained herein;
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. LIMITED SUSPENSION OF CERTAIN FINANCIAL COVENANTS.
(a) The Banks and the Agent hereby agree temporarily to suspend the
Borrower's obligation to comply with Sections 8.1, 8.2, 8.3, 8.4, 8.6 and 8.7 of
the Credit Agreement until 5 p.m., Boston time, on February 29, 2000, provided,
that each of the following conditions are met:
(i) the Borrower's EBITDA for the month of November, 1999, plus any
non-cash losses incurred in that month in connection with the Clinton Sale
for that month, is no less than negative $386,000,
(ii) the Borrower's EBITDA for the month of December, 1999, is no less
than negative $350,000, exclusive, to the extent otherwise included in the
computation of EBITDA for the month of December, 1999,
<PAGE> 2
-2-
of any increase in the Borrower's reserve for discontinued assets
attributable to the HMT Sale and not exceeding $4,000,000 in the aggregate,
(iii) the Borrower's EBITDA for the month of January, 2000, is no less
than negative $350,000, and
(iv) the Borrower shall have provided to the Banks and the Agent,
within 25 days following the end of each of December, 1999, and January,
2000, a certificate signed by the Borrower's chief financial officer
certifying as to the Borrower's compliance with minimum EBITDA condition
for that month as set forth in this SECTION.1(a), together with the details
thereof as reasonably requested by the Agent.
(b) At 5:00 p.m., Boston time, on February 29, 2000, or at such earlier
time as any condition set forth in SECTION.1(a) is not met, the provisions of
SECTION.1(a) shall expire and be of no further force or effect, and the Banks
and the Agent shall thereupon have all of the rights and remedies set forth in
the Credit Agreement and the other Loan Documents as if the Borrower's
compliance with Sections 8.1, 8.2, 8.3, 8.4, 8.6 and 8.7 of the Credit Agreement
had never been suspended.
SECTION 2. WAIVER REGARDING CERTAIN INVESTMENT RESTRICTIONS. The Banks and
the Agent hereby waive any provision of Section 7.3 of the Credit Agreement that
would otherwise restrict or prohibit:
(a) the Borrower's investments in its International Subsidiaries (other
than International Guarantors) made prior to January 11, 2000, provided that,
after giving effect to each such investment when originally made, all of such
investments did not at that time exceed a total amount equal to 7% of
Consolidated Total Assets, and
(b) an additional investment by the Borrower in Air-Cure Environmental GmbH
("Air-Cure") not to exceed $1,000,000 (or the equivalent thereof in
Deutschmarks), provided that such investment meets each of the following
conditions:
(i) Air-Cure shall have obtained from an institutional lender in
Germany (the "German Lender"), reasonably satisfactory to the Agent, a
working capital line of credit not to exceed $1,000,000 (or the equivalent
thereof in Deutschmarks),
(ii) Air-Cure's obligations to the German Lender under the line of
credit shall be secured by a prior perfected security interest in all or
substantially all of the existing and after-acquired personal property
assets of Air-Cure, subject only to such exceptions as are customary under
German law and are satisfactory to the Agent,
(iii) the Borrower shall have requested the Agent to issue under the
Credit Agreement, and the Agent shall have issued, in favor the
<PAGE> 3
-3-
German Lender a Financial Letter of Credit, in a Maximum Drawing Amount not
to exceed $1,000,000 (or the equivalent thereof in Deutschmarks),
supporting Air-Cure's payment obligations to the German Lender under the
line of credit and requiring, as a condition to draw thereunder,
presentation of a certificate of the German Lender as to Air-Cure's payment
default under the line of credit, together with a written assignment by the
German Lender to the Agent, for the benefit of the Banks and the Agent, of
all of the German Lender's right, title and interest in the line of credit
and the collateral security therefor, and
(iv) the documents evidencing the line of credit, the attachment,
perfection and priority of the collateral security therefor, the Financial
Letter of Credit, the draw certificate, the form of assignment, the related
Letter of Credit Application, and all other documents, certificates and
opinions relating to thereto and reasonably requested by the Agent shall be
in form and substance reasonably satisfactory to the Agent and shall be
executed and delivered by the parties thereto to the reasonable
satisfaction of the Agent.
(c) The Borrower agrees that it shall, and shall cause its Subsidiaries to,
continue to comply with the provisions of Section 7.3 of the Credit Agreement,
except as expressly modified in SECTIONS.2 (a) and (b).
SECTION 3. LIMITED WAIVER REGARDING SALES OF CERTAIN ASSETS.
(a) As used in this SECTION 3, the following terms have the meanings set
forth below:
Birmingham. The tank manufacturing operations of the Borrower and its
Subsidiaries located in Birmingham, Alabama.
Birmingham Assets. The assets of Birmingham to be sold as described on
Exhibit A attached hereto.
Birmingham Sale. The sale by the Borrower or one or more of its
Subsidiaries of the Birmingham Assets.
Escrow Funds. For any Subject Sale, any funds constituting the deferred
portion of the purchase price for such Subject Sale to be held in escrow,
whether pending determination of future assets or liabilities or otherwise. The
term includes, if applicable, any interest on such funds.
Escrow Letter of Credit. For any Subject Sale, a Financial Letter of Credit
issued by the Agent, at the request of the Borrower, in favor of the buyer under
such Subject Sale or in favor of the buyer's nominee.
Fresno. The shop built operations of the Borrower and its Subsidiaries
located in Fresno, California.
<PAGE> 4
-4-
Fresno Assets. The assets of Fresno to be sold as described on Exhibit B
attached hereto.
Fresno Sale. The sale by the Borrower or one or more of its Subsidiaries of
the Fresno Assets.
Graver. Graver Manufacturing Co., Inc., a Delaware corporation.
Graver Assets. The assets and, if applicable, the issued and outstanding
capital stock of Graver and ITEQ Aviation, to be sold as described on Exhibit C
attached hereto.
Graver Sale. The sale by the Borrower or one or more of its Subsidiaries of
the Graver Assets.
HMT. The so-called HMT divisions of ITEQ Storage.
HMT Assets. The assets of HMT and, if applicable, the issued and
outstanding capital stock of one or more Subsidiaries of ITEQ Storage or the
Borrower to be sold as described on Exhibit D attached hereto.
HMT Sale. The sale by the Borrower and one or more of its Subsidiaries of
the HMT Assets.
ITEQ Aviation. ITEQ Aviation, Inc., a Delaware corporation.
ITEQ Storage. ITEQ Storage Systems, Inc., a Delaware corporation.
Net Cash Proceeds. For each Subject Sale, the gross cash proceeds, 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. The
term does not include (a) any Escrow Funds or (b) any funds received by the
Agent pursuant to SECTION 3(a)(vi) in exchange for the issuance of an Escrow
Letter of Credit.
Reliable. Reliable Steel, Inc., a Delaware corporation.
Reliable Assets. The assets and, if applicable, the issued and outstanding
capital stock of Reliable, to be sold as described on Exhibit E attached hereto.
Reliable Sale. The sale by the Borrower or one or more of its Subsidiaries
of the Reliable Assets.
SLO The field erect operations of ITEQ Storage located in San Luis Obispo,
California.
SLO Assets. The assets of SLO to be sold as described on Exhibit F
attached hereto.
<PAGE> 5
-5-
SLO Sale. The sale by the Borrower or one or more of its Subsidiaries of
the SLO Assets.
Subject Assets. The Birmingham Assets, the Fresno Assets, the Graver
Assets, the HMT Assets, the Reliable Assets and the SLO Assets.
Subject Sales. The Birmingham Sale, the Fresno Sale, the Graver Sale, the
HMT Sale, the Reliable Sale and the SLO Sale.
(b) The Banks and the Agent hereby consent to each Subject Sale, to the
release by the Agent of the Agent's security interest in the Subject Assets
applicable to such Subject Sale, and to the release from its guaranty of any
Subsidiary which is a Guarantor and all of whose capital stock is being sold as
part of such Subject Assets, provided that, for such Subject Sale, each of the
following conditions are met:
(i) the Net Cash Proceeds of such Subject Sale shall be no less than
the amount set forth in the table below opposite such Subject Sale, and
such Subject Sale shall have been completed by the date set forth in such
table opposite such Subject Sale:
<TABLE>
<CAPTION>
----------------------------- ------------------------------------ --------------------------------
NET CASH PROCEEDS TO BE RECEIVED
SUBJECT SALES AT CLOSING COMPLETION DATE
----------------------------- ------------------------------------ --------------------------------
<S> <C> <C>
HMT Sale $38,500,000 February 28, 2000
Graver Sale $3,000,000 February 28, 2000
SLO Sale $8,500,000 February 28, 2000
Fresno Sale $1,600,000 June 30, 2000
Reliable Sale $2,500,000 June 30, 2000
Birmingham Sale $600,000 June 30, 2000
</TABLE>
(ii) the Net Cash Proceeds of such Subject Sale, if not paid directly
to the Agent by the buyer, shall, upon receipt by the Borrower or any
Subsidiary of such Net Cash Proceeds, be forthwith paid to the Agent for
application to the Obligations,
(iii) each of the then Total Commitment and the then maximum permitted
outstanding amount of the Revolving Credit Loans, as set forth in the first
sentence of Section 2.1 of the Credit Agreement, shall be permanently and
automatically reduced by an amount equal to the Net Cash Proceeds of such
Subject Sale, such reduction to be effective at the time at which such Net
Cash Proceeds are first received by the Borrower or any Subsidiary,
(iv) the Agent's security interest under the Security Documents shall
attach, on a first perfected basis, to any non-cash proceeds of such
Subject Sale, the Borrower hereby agreeing to, and to cause any applicable
Subsidiary to,
<PAGE> 6
-6-
(A) deliver any such non-cash proceeds consisting of instruments
or investment property, together with indorsements and stock powers
executed in blank, to the Agent to hold as Collateral under the
Security Documents,
(B) permit the Agent to notify any escrow agent of the Agent's
security interest, for the benefit of the Banks and the Agent, in any
Escrow Funds, and cause the escrow agent to agree, at the time of the
establishment of the escrow, using irrevocable instructions
satisfactory to the Agent, to deliver the Escrow Funds, to the Agent,
without further consent of the Borrower or such Subsidiary, for
application to the Obligations, to such extent and at such time as
delivery would otherwise be available to the Borrower or such
Subsidiary under the terms of the escrow, and
(C) take any other action as may be necessary or, in the opinion
of the Agent, advisable for the Agent to perfect and to maintain its
perfection and priority of such security interest,
(v) the Agent and its counsel shall have reviewed and shall be
reasonably satisfied with the terms and conditions of the purchase and sale
agreement of such Subject Sale, any escrow arrangements, and all related
documents as well as the identity of the buyer thereunder to the extent not
previously disclosed to the Banks and the Agent prior to January 12, 2000,
(vi) to the extent that any such purchase and sale agreement shall
provide that payment of any portion of the purchase price is to be deferred
as Escrow Funds, the Borrower or any applicable Subsidiary shall have used
reasonable commercial efforts to afford the Agent the option to receive the
Escrow Funds for application to the then outstanding Revolving Credit Loans
(or if the Revolving Credit Loans have been paid in full, then application
to other Obligations) in exchange for the issuance of an Escrow Letter of
Credit and, if such option is granted to and exercised by the Agent, such
funds shall have been received by the Agent upon issuance of the Escrow
Letter of Credit, provided, however, that such efforts shall not be
required of the Borrower or such Subsidiary, and the Agent may not exercise
any such option granted, if the Maximum Drawing Amount of all Escrow
Letters of Credit, including the Maximum Drawing Amount of any such
proposed Escrow Letter of Credit, would exceed (A) the amount of the Total
Commitment, minus (B) the then maximum permitted outstanding amount of
Revolving Credit Loans as set forth in Section 2.1 of the Credit Agreement,
minus (C) the Letter of Credit sublimit set forth in Section 3.1(a)(i) of
the Credit Agreement,
(vii) prior to such Subject Sale, the Banks and the Agent shall have
received copies of, and shall be satisfied with, the results of
<PAGE> 7
-7-
appraisals and valuations by professional appraisers and valuation experts,
to the extent so engaged by the Borrower or any of its Subsidiaries to
support the sales price reflected in the purchase and sale agreement for
such Subject Sale, and
(viii) unless otherwise waived in writing by the Majority Banks, after
otherwise giving effect to this Waiver, no Default or Event of Default
shall have occurred and shall be continuing at the time of completion of
such Subject Sale or would occur as a result thereof.
(c) Upon satisfaction of the conditions set forth in SECTION 3(b) for a
Subject Sale, the Agent is instructed by the Banks (i) to provide such Uniform
Commercial Code or other releases and confirmations of releases of the Agent's
security interest in the applicable Subject Assets sold under such Subject Sale,
(ii) to provide any releases or confirmations of release of any Guarantor from
its guaranty if all of the capital stock of such Guarantor is comprised in the
Subject Sale sold under such Subject Sale, and (iii) if applicable, to deliver
to the Borrower or its nominee any certificated securities of such Guarantor's
capital stock in the possession or under the control of the Agent. The Agent
shall be entitled to assume that any factual condition set forth in SECTION
3(b), not evident from the Agent's own books and records, has been met unless
the officers of the Agent active upon the Borrower's account have actual
knowledge that such condition has not been met.
(d) The Agent and the Banks acknowledge and agree that the Letter of Credit
sublimit set forth in Section 3.1(a)(i) of the Credit Agreement, and which is
currently $5,000,000, shall not include the Maximum Drawing Amount of any Escrow
Letter of Credit. The Maximum Drawing Amount of Escrow Letters of Credit shall
otherwise be included in computations of credit availability under the Credit
Agreement when such availability is measured by reference to the Maximum Drawing
Amounts of Letters of Credit. In the event of a drawing under an Escrow Letter
of Credit, the then maximum permitted outstanding amount of Revolving Credit
Loans, as set forth in the first sentence of Section 2.1 of the Credit
Agreement, shall be increased by the amount of such drawing. Any drawing under
an Escrow Letter of Credit shall not increase the Total Commitment.
(e) The provisions of this SECTION 3 supersede (i) in respect of the
Birmingham Sale, the Limited Waiver Regarding Disposition of Certain Assets and
Certain Financial Covenants dated as of September 30, 1999, and (ii) in respect
of the HMT Sale, the Limited Waiver Regarding Disposition of Assets dated as of
December 8, 1999.
SECTION 4. WAIVER FEES. The Borrower hereby agrees to pay to the Agent, for
the account of the Banks that execute this Waiver, a waiver fee equal to $15,000
in the aggregate (the "Waiver Fee"). The Waiver Fee shall 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.
<PAGE> 8
-8-
SECTION 5. CONDITIONS TO EFFECTIVENESS. This Waiver shall not become
effective unless on or prior to 5:00 p.m. Boston time on Monday, January 24,
2000, (a) the Waiver Fee shall have been paid to the Agent for the account of
each of the Banks that execute this Waiver, and (b) this Waiver shall have been
executed and delivered by the Borrower, the Guarantors, the requisite Banks and
the Agent. For purposes of Sections 1 and 2, the requisite Banks are the
Majority Banks. For purposes of Section 3, the requisite Banks are all of the
Banks. Any Exhibit relating to a Subject Sale referred to in Section 3 may be
delivered by the Borrower after this Waiver has become effective, but the
provisions of Section 3 applicable to such Subject Sale will not become
effective until the Agent has received and approved such Exhibit.
SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Banks and the Agent as follows:
SECTION 6.1. 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.
SECTION.6.2. 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. RATIFICATION, ETC. This Waiver is limited to the waivers set
forth herein and upon the terms and subject to the conditions contained herein.
Except as expressly stated herein, 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 is a Loan Document.
<PAGE> 9
-9-
SECTION 8. 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 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 9. COUNTERPARTS. This Waiver may be executed in any number of
counterparts, which together shall constitute one instrument.
SECTION 10. 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:
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.)
G.L.M. ACQUISITION, L.L.C.
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 W. DENNETT
--------------------------------
Name: Virginia W. Dennett
Title: Vice President
DEUTSCHE BANK AG,
individually and as Documentation Agent
By: /s/ MARGARET S. CHEAVER
---------------------------------
Name: Margaret S. Cheaver
Title: Managing Director
By: /s/ ROBERT C. WHEELER
---------------------------------
Name: Robert C. Wheeler
Title: 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/ T. BANCROFT MATTEI
-----------------------------------
Name: T. Bancroft Mattei
Title: Account Officer
THE FUJI BANK, LIMITED
By: /s/ RAYMOND VENTURA
-----------------------------------
Name: Raymond Ventura
Title: Vice President & 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, IV
-----------------------------------
Name: William E. Livingstone, IV
Title: Managing Director
<PAGE> 14
UNION BANK OF CALIFORNIA, N.A.
By: /s/ JOEL STEINER
-----------------------------------
Name: Joel Steiner
Title: Vice President
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 4.20
LIMITED WAIVER AND EIGHTH AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
This LIMITED WAIVER AND EIGHTH AMENDMENT TO CREDIT AGREEMENT is made
and entered into as of April 3, 2000 (this "Amendment"), among (a) ITEQ, INC., a
Delaware corporation (the "Borrower"), (b) THE GUARANTORS signatories hereto as
guarantors, (c) FLEET NATIONAL BANK (f/k/a BankBoston, N.A.), a national banking
association having a place of business at 100 Federal Street, Boston,
Massachusetts 02110 (acting in its individual capacity, "Fleet"), and the other
lending institutions which are or become parties to the Credit Agreement defined
below (together with Fleet, the "Banks"), (d) DEUTSCHE BANK AG, as documentation
agent (the "Documentation Agent"), and (e) FLEET NATIONAL BANK, 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 the 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 has requested that the Banks and the Agent
suspend or waive certain covenants and amend other provisions contained in the
Credit Agreement and other Loan Documents; and
WHEREAS, the Banks and the Agent have agreed to honor such requests
upon the terms and subject to the conditions contained herein;
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. TEMPORARY SUSPENSION OF CERTAIN PROVISIONS OF THE CREDIT
AGREEMENT.
(a) Subject to the satisfaction of the conditions precedent set forth
in Section 9 and in consideration and reliance upon the agreements of the
Borrower and the Guarantors contained herein, the Banks and the Agent hereby
agree temporarily to suspend the Borrower's obligation to comply with Sections
8.1, 8.2, 8.3, 8.4, 8.5, 8.6 and 8.7 and, only with respect to the period ended
December 31, 1999, paragraphs (a), (b) and (c) of Section 6.4 (the "Specified
Covenants") of the Credit Agreement from February 29, 2000 until 5 p.m., Boston
time, on June 29, 2000; provided, that each of the following conditions are
satisfied throughout such period:
<PAGE> 2
-2-
(i) the Borrower will not make or permit any Subsidiary to
make, Capital Expenditures or enter into Capitalized Leases and
operating leases with rental obligations, in an aggregate amount
greater than $1,000,000 for all such Capital Expenditures, Capitalized
Leases and rental obligations for the period from January 1, 2000 to
June 29, 2000,
(ii) the Borrower will not cause or permit the combined
monthly EBITDA for any period of two-consecutive months to be less than
the combined minimum EBITDA for such two-month period set forth below:
<TABLE>
<CAPTION>
-------------------------------------------------
TWO - MONTH PERIOD MINIMUM EBITDA
-------------------------------------------------
<S> <C>
February and March 2000 $455,000
-------------------------------------------------
March and April 2000 $438,000
-------------------------------------------------
April and May 2000 $746,000
-------------------------------------------------
</TABLE>
(iii) the Borrower shall have provided to the Banks and the
Agent, within 20 days following the end of each of the two-month
periods set forth above, a certificate signed by the Borrower's chief
financial officer certifying as to the Borrower's compliance with each
of the conditions for such period as set forth herein, together with
the details thereof as reasonably requested by the Agent; and
(iv) the Borrower shall deliver to the Banks as soon as
available its financial statements for the fiscal period ended December
31, 1999.
(b) At 5:00 p.m., Boston time, on June 29, 2000, or at such earlier
time as any condition set forth in Section 1(a) is not met or any other Event of
Default under the Credit Agreement shall occur (other than the Borrower's
failure to comply with the Specified Covenants through June 29, 2000), the
provisions of Section 1(a) shall expire and be of no further force or effect,
and the Banks and the Agent shall thereupon have all of the rights and remedies
set forth in the Credit Agreement and the other Loan Documents as if the
Borrower's compliance with the Specified Covenants had never been suspended.
(c) The waiver set forth in Section 1(a) shall apply only to the
Specified Covenants. No waiver with respect to any other Default or Event of
Default, whether presently existing or hereafter arising, is granted hereby. Any
obligation to make Swing Line Loans, to make Revolving Credit Loans or to issue,
extend or renew Letters of Credit shall, at all times, be subject to the
satisfaction of all of the terms and conditions of the Credit Agreement,
including, without limitation, the conditions precedent set forth in the Credit
Agreement. The Banks and the Agent shall, at all times, retain all of the rights
and remedies in respect of any Default or Event of Default under the Credit
Agreement other than, during the limited period described in Section 1(a), with
respect to the Specified Covenants.
<PAGE> 3
-3-
SECTION 2. AMENDMENT TO CREDIT AGREEMENT.
SECTION 2.1 DEFINITIONS.
(a) The following new definitions are hereby inserted in Section 1.1 of
the Credit Agreement in their appropriate alphabetical order:
"Agency Account Agreements. See Section 6.21(b)."
"Borrowing Base. At the relevant time of reference thereto, an amount
determined by the Agent by reference to the most recent Borrowing Base Report,
which is equal to the aggregate of:
(a) 65% of that amount which is (i) the total sum,
for each of four weeks ended prior to the date on which the
Borrowing Base Report is due, of the amount of the outstanding
Accounts Receivable of the Borrower and the Guarantors not
more than 60 days overdue as of the last Business Day of each
such week, minus, for such week, reserves and write-offs
therefor taken by the Borrower and the Guarantors in
accordance with their past practices and generally accepted
accounting principles consistently applied by the Borrower and
the Guarantors divided by (ii) four; and
(b) $46,000,000."
"Borrowing Base Report. A Borrowing Base Report signed by the chief
financial officer of the Borrower and in a form and containing details
satisfactory to the Agent."
"Cash Flow Statements. On a consolidated basis for the Borrower and its
Subsidiaries, a rolling 13-week cash flow forecast in a form satisfactory to the
Agent prepared by the Borrower showing comparisons of actual to forecast
performance for prior weekly periods."
"Eighth Amendment. The Limited Waiver and Eighth Amendment to Revolving
Credit Agreement dated as of April 3, 2000, among the Borrower, the Guarantors,
the Banks, the Documentation Agent and the Agent."
"Eighth Amendment Effective Date. The date on which the conditions set
forth in Section 9 of the Eighth Amendment are satisfied."
"Excess Line Fee. See Section 4.1(d)."
"Fleet. Fleet National Bank, a national banking association, in its
individual capacity."
"Fleet Concentration Account. See Section 6.21(b)."
<PAGE> 4
-4-
"Interim Concentration Account. See Section 6.21(b)."
"Letter of Credit Commitment. $2,110,000, as such amount may be reduced
from time to time."
"Local Accounts. See Section 6.21(b)."
"Revolver Commitment. $54,450,327, as such amount may be reduced from
time to time."
(b) The definition of Agent's Head Office is hereby amended by deleting
the word "Head" and replacing it with the word "Boston."
(c) The definition of Applicable Commitment Rate is hereby amended and
restated in its entirety as follows: "Applicable Commitment Rate. The applicable
rate with respect to the Commitment Fee is 0.5%."
(d) The definition of Base Rate is hereby deleted in its entirety and
replaced with the following:
"Base Rate. The higher of (a) the variable annual rate of interest so
designated from time to time by Fleet as its "prime rate", such rate being a
reference rate and not necessarily representing the lowest or best rate being
charged to any customer or (b) one-half of one percent (1/2%) above the
overnight federal funds effective rate, as published by the Board of the Federal
Reserve System, as in effect from time to time. Changes in the Base Rate
resulting from any changes in Fleet's "prime rate" shall take place immediately
without notice or demand of any kind on the effective day of such change."
(e) The definition of BKB is hereby deleted.
(f) The definition Guarantors is hereby amended by adding the following
phrase to the end thereof ", and the "New Guarantors" (as such term is defined
in the Eighth Amendment").
(g) The definition of Issuing Bank is hereby amended and restated in
its entirety to read as follows:
"Issuing Bank. Fleet."
(h) The definition of Mortgages is hereby amended and restated in its
entirety to read as follows:
"Mortgages. The several mortgages and deeds of trust, or other
instruments, whether dated or to be dated on, prior to or after the Closing
Date, from the Borrower and its Subsidiaries to the Agent with respect to the
fee interests of the
<PAGE> 5
-5-
Borrower and its Subsidiaries in the Real Property and in form and substance
satisfactory to the Banks and the Agent."
SECTION 2.2. AMENDMENT TO SECTION 2.1 OF THE CREDIT AGREEMENT. Section
2.1 of the Credit Agreement is hereby amended as follow.
(a) The Total Commitment is permanently reduced to $57,670,000.
(b) Starting from the words "provided that" in line 7 to the end of the
first sentence is amended and restated as follow:
"provided that (i) the outstanding aggregate amount of Swing Line
Loans, Revolving Credit Loans, unpaid Reimbursement Obligations, and the Maximum
Drawing Amount shall not exceed $57,670,000 at any time, as such amount may be
reduced from time to time (the "Total Commitment"), and (ii) the outstanding
Swing Line Loans and Revolving Credit Loans shall not exceed the lesser of (i)
the Revolver Commitment and (ii) the Borrowing Base at any time."
SECTION 2.3. AMENDMENT TO SECTION 2.2 OF THE CREDIT AGREEMENT. Section
2.2(c) is hereby inserted in appropriate section order as follow:
"(c) Any reduction or termination in the Revolver Commitment or the
Letter of Credit Commitment shall be permanent and may not be reinstated."
SECTION 2.4. AMENDMENT TO SECTIONS 2.4 AND 2.5 OF THE CREDIT AGREEMENT.
The Borrower shall no longer be permitted the option for Revolving Credit Loans
to bear interest by reference to the Eurodollar Rate after February 29, 2000.
Section 2.4 of the Credit Agreement is hereby amended and restated in its
entirety as follows:
"SECTION 2.4. INTEREST ON LOANS. The outstanding principal
amount of the Revolving Credit Loans (including Swing Line Loans) shall
bear interest at the rate per annum equal to the Base Rate plus the
Applicable Base Rate Margin on Base Rate Loans. Interest shall be
payable monthly in arrears on the first Business Day of each calendar
month and on the Maturity Date for all Loans."
SECTION 2.5. AMENDMENT TO SECTION 2.10 OF THE CREDIT AGREEMENT. Section
2.10 of the Credit Agreement is hereby amended by inserting the item "(a)" after
the phrase "If any time" and inserting the following at the end of the section,
but before the period:
", and (b) the sum of the Swing Line Loans and the Revolving Credit
Loans shall exceed the lesser of the Revolver Commitment and the Borrowing Base,
the amount of such excess will be immediately paid to the Agent for application
to the Obligations until such excess has been reduced to zero."
SECTION 2.6. AMENDMENT TO SECTION 3.1(a) OF THE CREDIT AGREEMENT.
Section 3.1(a) of the Credit Agreement starting from the words "provided,
however" in line 9 of the paragraph to the end of the first sentence of such
paragraph is amended and restated as follow:
<PAGE> 6
-6-
"provided, however, that after giving effect to such request, the
Maximum Drawing Amount plus all unpaid Reimbursement Obligations shall not
exceed the Letter of Credit Commitment."
SECTION 2.7. AMENDMENT TO SECTION 4.1 OF THE CREDIT AGREEMENT. Section
4.1(a) of the Credit Agreement is hereby amended and restated in its entirety
and a new Section 4.1(d) is hereby inserted in appropriate section order as
follow:
"(a) COMMITMENT FEE. The Borrower agrees to pay to the Agent, for the
respective account of each Bank, a fee (the "Commitment Fee") calculated at the
Applicable Commitment Fee Rate on the daily unused portion of the Revolver
Commitment and the Letter of Credit Commitment. The Commitment Fee shall be
payable in arrears on the last day of each calendar month, with a final payment
on the Maturity Date."
"(d) EXCESS LINE FEE. The Borrower agrees to pay to the Agent, for the
ratable accounts of the Banks, an excess line fee in arrears, on the last day of
each calendar month, on the average daily amount by which the Revolver
Commitment exceeds $51,780,327 (the "Excess Line Fee"). The Excess Line Fee
shall be calculated on such average daily amount at the monthly rate of one
percent (1%)."
SECTION 2.8. AMENDMENT TO SECTION 6 OF THE CREDIT AGREEMENT. Section 6
of the Credit Agreement is hereby amended, restated, modified or added as
follows
(a) Section 6.4 of the Credit Agreement is hereby amended by deleting
the word "and" at the end of Section 6.4(f), replacing the period at the end of
Section 6.4(g) with a semi-colon, and inserting the following subsections in
appropriate section order therein:
"(h) on second Business Day of each calendar week a Cash Flow
Statement in a form and containing details satisfactory to the Agent,
together with, in the case of the second Cash Flow Statement during any
calendar month, evidence satisfactory to the Agent that the Cash Flow
Statement has been reviewed by Arthur Andersen & Co. for accuracy,
completeness, appropriateness of the methodology and controls and
reasonableness of assumptions; and
(i) on the second Business Day of each calendar week a
Borrowing Base Report as of the last day of the immediately preceding
calendar week."
(b) The following new subsections are inserted in Section 6 of the
Credit Agreement in appropriate section order: -
"SECTION 6.20. MANDATORY COMMITMENT REDUCTION. The Borrower hereby
agrees that the Total Commitment and the Revolver Commitment shall both be
reduced by an amount equal to (a) 100% of the Net Cash Proceeds of asset sales
and casualty insurance proceeds received by the Borrower or any Subsidiary other
than, so long as no Event of Default has occurred, sales of obsolete equipment
from and after March 27, 2000 and not exceeding $50,000 in the aggregate, (b)
100% of the
<PAGE> 7
-7-
Net Cash Proceeds of any new debt offerings by the Borrower or any
Subsidiary, exclusive or any purchase money debt, and (c) 50% of the Net Cash
Proceeds of any equity offerings by the Borrower or any Subsidiary. For purposes
of this section, Net Cash Proceeds shall have the same meaning assigned to such
term in the Limited Waiver dated as of January 24, 2000 entered into by the
Borrower and the Banks."
"SECTION 6.21. CASH MANAGEMENT SYSTEM. (a) The Borrower or any
Guarantor (other than the International Guarantors) may maintain one or more
disbursement accounts (the "Specified Accounts") for which the Agent does not
have lock box or agency account arrangement and if, such accounts are maintained
with the Agent or any Bank, the Agent or such Bank will have waived any right of
setoff to reduce the Obligations with the sum maintained in the Specified
Accounts. The Borrower and the Guarantors (other than the International
Guarantors) may at all times maintain in the Specified Accounts up to the total
sum of $1,500,000 to be used for general working capital purposes. The Borrower
hereby agrees to provide the account information in respect of the Specified
Accounts (other than the Specified Accounts maintained with the Agent or any
Bank) to the Agent, in form and substance satisfactory to the Agent, including,
without limitation, weekly account balances of the Specified Accounts.
(b) Except for the Specified Accounts, the Borrower and the Guarantors
(other than the International Guarantors) shall establish with the Agent a cash
management system satisfactory to the Agent by no later than April 17, 2000. The
Borrower and the Guarantors shall (i) establish a depository account (the "Fleet
Concentration Account") under the control of the Agent for the benefit of the
Banks and the Agent, in the name of the Borrower, (ii) instruct all account
debtors and other obligors, pursuant to notices of assignment and instruction
letters in form and substance satisfactory to the Agent, to remit all cash
proceeds of Accounts Receivable to local depository accounts ("Local Accounts")
or concentration depository accounts ("Interim Concentration Accounts") with
financial institutions which have entered into agency account agreements and, if
applicable, lock box agreements (collectively, "Agency Account Agreements") in
form and substance satisfactory to the Agent, or the Fleet Concentration
Account, (iii) direct all depository institutions with Local Accounts to cause
all funds held in each such Local Account to be transferred no less frequently
than once each day to, and only to, an Interim Concentration Account or the
Fleet Concentration Account, (iv) direct all depository institutions with
Interim Concentration Accounts to cause all funds of the Borrower and its
Guarantors held in such Interim Concentration Accounts to be transferred daily
to, and only to, the Fleet Concentration Account, and (v) at all times ensure
that immediately upon the Borrower's or any of its Guarantors' receipt of any
funds constituting or cash proceeds of any Collateral, all such amounts shall
have been deposited in a Local Account, an Interim Concentration Account or the
Fleet Concentration Account. Good funds credited to the Fleet Concentration
Account will be applied as follows, unless (i) an Event of Default specified in
Section 12(g) or (h) has occurred or (ii) any other Event of Default has
occurred and the Agent is enforcing its rights with respect thereto, in which
case all such funds shall be applied in accordance with Section 12.4 of the
Credit Agreement:
<PAGE> 8
-8-
(A) first, to interest and the amounts (exclusive of
principal amount) due and owing on the Swing Line Loans and
the Revolving Credit Loans,
(B) second, so long as no Default or Event of Default
has occurred and is continuing and to the extent that the
aggregate credit balance in the Specified Accounts does not
exceed $1,500,000, to the Specified Accounts as from time to
time instructed by the Borrower,
(C) third, to principal on the Swing Line Loans,
(D) fourth, to principal on the Revolving Credit
Loans,
(E) fifth, to cash collateralize the Reimbursement
Obligations in an amount equal to 110% of the Maximum Drawing
Amounts of all Letters of Credit outstanding, and
(F) sixth, to all other Obligations.
SECTION 2.9. AMENDMENT TO SECTION 7.1 OF THE CREDIT AGREEMENT. Section
7.1 of the Credit Agreement is hereby amended by deleting the word "and" at the
end of subsection (h) and inserting the word "; and" at the end of subsection
(i) in lieu of the period and inserting the following new subsection in
appropriate section order therein"
"(j) Indebtedness incurred for working capital purposes by the
International Subsidiaries that are not International Guarantors."
SECTION 2.10. AMENDMENT TO SECTION 7.2 OF THE CREDIT AGREEMENT. Section
7.2 of the Credit Agreement is hereby amended by deleting the word "and" at the
end of subsection (i) and inserting the word "; and" at the end of subsection
(j) in lieu of the period and inserting the following new subsection in
appropriate section order therein:
"(k) Liens incurred by International Subsidiaries that are not
International Guarantors securing Indebtedness incurred by such International
Subsidiary and permitted by Section 7.1(j)."
SECTION 2.11. AMENDMENT TO SECTION 12 OF THE CREDIT AGREEMENT. Section
12 of the Credit Agreement is hereby amended by inserting after Section 12.3 the
following new Section 12.4:
"12.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that
following the occurrence or during the continuance of any Default or
Event of Default, the Agent or any Bank, as the case may be, receives
any monies in connection with the enforcement of any the Security
Documents, or otherwise with respect to the realization upon any of the
Collateral, such monies shall be distributed for application as
follows:
<PAGE> 9
-9-
(a) First, to the payment of, or (as the
case may be) the reimbursement of the Agent for or in
respect of all reasonable costs, expenses,
disbursements and losses which shall have been
incurred or sustained by the Agent in connection with
the collection of such monies by the Agent or for any
amount owing to the Agent or Fleet as cash management
bank, for the exercise, protection or enforcement by
the Agent of all or any of the rights, remedies,
powers and privileges of the Agent under this Credit
Agreement or any of the other Loan Documents or in
respect of the Collateral or in support of any
provision of adequate indemnity to the Agent against
any taxes or liens which by law shall have, or may
have, priority over the rights of the Agent to such
monies;
(b) Second, to all other Obligations in such
order or preference as the Majority Banks may
determine; provided, however, that (i) distributions
shall be made (A) pari passu among Obligations with
respect to the Agent's fee and all other Obligations
and (B) with respect to each type of Obligation owing
to the Banks, such as interest, principal, fees and
expenses, among the Banks pro rata, and (ii) the
Agent may in its discretion make proper allowance to
take into account any Obligations not then due and
payable;
(c) Third, upon payment and satisfaction in
full or other provisions for payment in full
satisfactory to the Banks and the Agent of all of the
Obligations, to the payment of any obligations
required to be paid pursuant to Section 9-504(1)(c)
of the Uniform Commercial Code of the Commonwealth of
Massachusetts; and
(d) Fourth, the excess, if any, shall be
returned to the Borrower or to such other Persons as
are entitled thereto."
SECTION 2.12. AMENDMENT TO SECTION 15.2 OF THE CREDIT AGREEMENT.
Section 15.2 of the Credit Agreement is hereby amended by inserting after the
end of item (i) the following proviso as item (ii) and sequentially renumbering
the subsequent items accordingly:
<PAGE> 10
-10-
"(ii) the reversal or withdrawal of any provisional credits granted by
the Agent upon the transfer of funds from lock box, bank agency or concentration
accounts or in connection with the provisional honoring of checks or other
items,".
SECTION 3. ADDITIONAL SECURITY. (a) In addition to the Obligations
being guaranteed by the current Guarantors, the Obligations shall be further
guaranteed pursuant to documents in a form satisfactory to the Agent by Air-Cure
(Canada) Technologies, Ltd. and G.L.M. Tanks & Equipment Ltd. (the "New
Guarantors").
(b) The Obligations and the guaranteed obligations of the Guarantors
(such term hereinafter includes the New Guarantors) shall, to the extent not
already accomplished, be secured by a first perfected security interest in all
existing and after-acquired tangible and intangible personal property of the
Borrowers and the Guarantors and first perfected mortgages and deeds of trust in
all existing and after-acquired fee real property of the Borrower and the
Guarantors, all pursuant to documents in a form satisfactory to the Agent.
(c) The Collateral security shall include (i) mortgages and deeds of
trust over all fee real estate interests of the Borrower and the Guarantors,
(ii) all intellectual property of the Borrower and the Guarantors, and (iii) a
pledge of 100% of the capital stock of all U.S. Subsidiaries or to the extent a
pledge by the Borrower or any Guarantor of the capital stock of its
International Subsidiary would result in income recognition by the Borrower or
the Guarantor for U.S. income tax purposes, then 65% of the stock of such
International Subsidiary.
SECTION 4. INVESTMENT BANKER. The Borrower hereby agrees to (a)
promptly and in any event by no later than April 30, 2000, identify and engage
an investment banking firm of recognized standing and reasonably satisfactory to
the Majority Banks to explore the strategic business alternatives available to
the Borrower, and (b) on or prior to June 15, 2000, arrange for such investment
banking firm to make a presentation to the Banks and the Agent as to such firm's
recommendations in respect of the strategic business alternatives available to
the Borrower and plans to work with the Borrower to timely implement such
recommendations.
SECTION 5. COMMERCIAL FINANCE EXAMINATION. The Borrower and the
Guarantors agree to permit the Agent to conduct a commercial finance
examination, on the premises of the Borrower or any Guarantor and at other
locations where assets of the Borrower or any Guarantor are located, with
respect to the inventory and accounts receivable components of the Collateral
and the Borrowing Base, and with respect to other aspects of the assets,
liabilities and financial condition of the Borrower or the Guarantor as the
Agent may so elect. The Agent shall be permitted to use either internal or third
party examiners. The Borrower and the Guarantors acknowledge, agree and confirm
that (a) any reports or analyses generated by any examiner are not property of
the Borrower or any Guarantor, (b) none of the Borrower and the Guarantors shall
assert any claim to any such report or analyses and (c) pursuant to Section 15.1
of the Credit Agreement, the fees and expenses of such examiner are for the
account of the Borrower. So long as no Event of Default has
<PAGE> 11
-11-
occurred and is continuing, the Agent agrees that the fees of the examiner shall
not exceed the total sum of $9,250 plus reasonable expenses.
SECTION 6. LIQUIDATION ANALYSIS. The Borrower and the Guarantors hereby
agree to (a) permit PricewaterhouseCoopers LLP ("PWC"), on behalf of counsel to
the Agent, to formulate a liquidation analysis of the Borrower and the
Guarantors and (b) cooperate with PWC in such liquidation analysis. The Borrower
and the Guarantors acknowledge, agree and confirm that (a) any reports or
analyses generated by PWC are not property of the Borrower or any Guarantor, (b)
none of the Borrower and the Guarantors shall assert any claim to any such
report or analyses and (c) pursuant to Section 15.1 of the Credit Agreement, the
fees and expenses of PWC are for the account of the Borrower. So long as no
Event of Default has occurred and is continuing, the Agent agrees that the fees
of PWC for the liquidation analysis shall not exceed the total sum of $130,000
plus reasonable expenses.
SECTION 7. BANKS' CONSIDERATION. The Banks shall entertain and consider
the requests by the Borrower (a) to permit the Borrower to sell the secured
promissory note made payable to the Borrower in respect of the Graver Sale (as
defined in Section 3(a) of the Limited Waiver dated as of January 24, 2000 (the
"Waiver")) to a buyer reasonably acceptable to the Agent, with the proceeds of
such sale to be applied to reduce the Revolver Commitment, and (b) for the Agent
to issue an Escrow Letter of Credit (as defined in Section 3(a) of the Waiver),
outside of the Letter of Credit Commitment, with the Revolver Commitment to be
reduced by the Maximum Drawing Amount of such Escrow Letter of Credit.
SECTION 8. CLOSING FEE. The Borrower hereby agrees to pay to the Agent,
for the account of the Banks, a closing fee equal to $50,000 in the aggregate
(the "Closing Fee"). The Closing Fee shall be shared pro rata by the Banks in
accordance with their Commitments. The Closing Fee shall be nonrefundable and
fully earned as of the date hereof.
SECTION 9. CONDITIONS TO EFFECTIVENESS. This Amendment shall not become
effective unless on or prior to 5:00 p.m., Boston time, April 3, 2000,
(a) the Agent and the Banks shall have received and be satisfied with
the Borrower's pro forma consolidated and consolidating cash flow statements for
the period to June 30, 2000,
(b) this Amendment shall have been executed and delivered by the
Borrower, the Guarantors, the Majority Banks and the Agent and, in case of the
each of the New Guarantors, a guaranty satisfactory to the Agent shall have been
executed and delivered,
(c) the Borrower shall have paid the Closing Fee to the Agent for the
account of each of the Banks,
<PAGE> 12
-12-
(d) the Agent shall have received evidence satisfactory to it as to the
perfection and priority of all additional security interests, mortgages and
deeds of trust and other instruments described in Section 3 above,
(e) the Agent shall have received evidence satisfactory to it of
appropriate corporate or other entity actions approving the terms and conditions
set forth herein, and
(d) the Borrower shall have reimbursed the Agent for, or paid directly,
all fees, costs, and expenses incurred by the Agent's counsel and PWC and for
which invoices have been delivered.
SECTION 10. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Banks and the Agent as follows:
SECTION 10.1. 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 Amendment, no
Default or Event of Default has occurred and is continuing.
SECTION 10.2. 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 10.3. CERTAIN SUBSIDIARIES. The Borrower represents, warrants
and covenants that its Subsidiaries ITEQ Tank Management, LLC, ITEQ Tank, LLC
and ITEQ Tank Construction, LLC have no assets and are not conducting any
business and will not acquire any assets or conduct any business.
SECTION 11. RATIFICATION, ETC. This Amendment is limited to the waiver
and amendments to the Credit Agreement set forth herein and upon the terms and
subject to the conditions contained herein. Except as expressly stated herein,
the
<PAGE> 13
-13-
Waiver, 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 is a
Loan Document.
SECTION 12. RELEASE. In order to induce the Agent and the Banks to
enter into this Amendment, 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 Amendment, 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 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 13. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, which together shall constitute one instrument.
SECTION 14. 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> 14
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/ WILLIAM P. REID
-------------------------------
Name: William P. Reid
Title: President & CEO
<PAGE> 15
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.)
G.L.M. ACQUISITION, L.L.C.
AIR-CURE (CANADA) TECHNOLOGIES, LTD.
G.L.M. TANKS & EQUIPMENT LTD.
By: /s/ WILLIAM P. REID
---------------------------------
Name: William P. Reid
Title: President & CEO
<PAGE> 16
THE LENDERS:
FLEET NATIONAL BANK
(f/k/a BankBoston, N.A.),
individually and as Agent
By: /s/ VIRGINIA W. DENNETT
------------------------------------------
Name: Virginia W. Dennett
Title: Director
DEUTSCHE BANK AG,
individually and as Documentation Agent
By:
------------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
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> 17
PARIBAS (f/k/a Banque Paribas)
By: /s/ LARRY ROBINSON
------------------------------------------
Name: Larry Robinson
Title: Vice President
By: /s/ ROSINE K. MATTHEWS
------------------------------------------
Name: Rosine K. Matthews
Title: Vice President
COMERICA BANK
By: /s/ T. BANCROFT MATTEI
------------------------------------------
Name: T. Bancroft Mattei
Title: Account Officer
THE FUJI BANK, LIMITED
By: /s/ RAYMOND VENTURA
------------------------------------------
Name: Raymond Ventura
Title: Vice President & 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, IV
------------------------------------------
Name: William E. Livingstone, IV
Title: Managing Director
<PAGE> 18
UNION BANK OF CALIFORNIA, N.A.
By:
------------------------------------------
Name:
Title:
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 10.8
[ITEQ LETTERHEAD]
January 29, 1999
Mr. William P. Reid
23 Misty Grove Circle
Houston, Texas 77380
Dear Mr. Reid:
ITEQ, Inc. (the "Company") considers the establishment and maintenance
of a sound and vital management to be essential for the protection and
enhancement of the best interests of the Company and its shareholders. In view
of your experience and performance in the business of the Company and its
subsidiaries, the Company desires to retain your services for an extended
period. In addition, the Company recognizes that, as is the case with many
publicly-held corporations, the possibility of a change in control may arise and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders.
Accordingly, the board of directors of the Company (the "Board") has
determined that appropriate steps should be taken to assure the Company of the
continuation of your services and to reinforce and encourage the attention and
dedication of members of the Company's management to their assigned duties
without distraction in circumstances arising from the possibility of a change in
control of the Company. In particular the Board believes it important, should
the Company or its shareholders receive a proposal for or notice of transfer of
control of the Company, that you be able to assess and advise the Board whether
such transfer would be or is in the best interests of the Company and its
shareholders, and to take such other action regarding such proposal or transfer
as the Board might determine to be appropriate without being influenced by the
uncertainties of your own situation.
In order to induce you into the employ of the Company, this letter
agreement (the "Agreement"), which has been approved by the Board, sets forth
the terms of your continued employment by the Company and the compensation and
severance benefits which the Company agrees will be provided to you in the event
of a change in control and if your employment with the Company should be
terminated under the circumstances described below.
Reference is made to Annex I hereto for definitions of certain terms
used in this Agreement, and such definitions are incorporated herein by such
reference with the same effect as if set forth herein. Certain capitalized terms
used in this Agreement in connection with the description of
<PAGE> 2
various Plans are defined in the respective Plans, but if any conflicts with a
definition herein contained, the latter shall prevail.
1. Term of Employment. The Company hereby agrees to continue your
employment and you hereby agree to serve the Company for an employment period
commencing on the date hereof and initially ending the third anniversary from
the date hereof; provided, however, that on each successive January 29,
commencing in 2002, the employment period shall automatically be extended for
one additional year (with the date to which the employment period has most
recently been so extended being hereinafter referred to as the "Expiration Date"
and the period commencing the date hereof and ending on the Expiration Date
being hereinafter referred to as the "Employment Period"), subject to prior
termination of the Employment Period pursuant to Section 4 of this Agreement.
2. Duties.
(a) During the Employment Period, you shall serve the Company
as its President and Chief Operating Officer and perform your duties and
responsibilities diligently, faithfully and loyally and devote such time to the
Company's affairs as may be necessary to the end of achieving the proper,
efficient and successful operation of the Company's business. In such capacities
you shall (i) generally have the duties of such offices as specified in the
Bylaws, (ii) report directly to the Chief Executive Officer and (iii) have
general executive supervision and management of the business and affairs of
the operations of the Company, subject to the direction of the Chief Executive
Officer, the Board or any Committee thereof. The foregoing shall not,
however, be deemed to restrict you from attending to matters or engaging in
activities not directly related to the business of the Company, if reasonable in
scope and time commitment and not otherwise in violation of this Agreement.
(b) If during the Employment Period, (i) a tender offer or
exchange offer is made for more than 20% of the Company's outstanding Voting
Securities or (ii) a transaction is proposed which, if consummated, would result
in a Change of Control, you agree that you will not leave your employment with
the Company (other than as a result of Disability or upon Retirement) and will
also continue to render the services contemplated in the introductory paragraphs
of this Agreement.
3. Compensation.
(a) Base Salary. As compensation for your services, the
Company agrees to pay you basic compensation at the rate of $340,000 per annum
through December 31, 1999 ("Base Salary"), payable on a current basis in equal
installments not less frequently than monthly, subject only to such payroll and
withholding deductions as may be required by law or the terms of Plans in
<PAGE> 3
which you are a participant. For periods subsequent to December 31, 1999, your
Base Salary shall be established annually by the Compensation Committee of the
Board and paid on the same basis as for the prior year, but no such adjustment
shall result in a Base Salary for any year of less than the highest annual rate
so authorized by the Committee to be paid to you during any previous calendar
year(s) of the Company ended during the Employment Period, except upon your
prior written consent.
(b) Plans. In addition to your Base Salary, you will
participate in the Bonus Plan and be eligible to participate in the Defined
Contribution Plan and Other Plans, for each year during the Employment Period.
(c) Other. The Company shall reimburse you for all reasonable
expenses paid or incurred by you in the performance of your duties under this
Agreement in accordance with the Company's normal expense reimbursement policies
applicable to senior executives.
4. Termination. Upon compliance by the initiating party with any
applicable procedures set forth in Section 5 hereof, your employment with the
Company:
(a) shall terminate automatically upon your death or
Retirement;
(b) may be terminated prior to the Expiration Date at the
discretion of the Chief Executive Officer or the Board upon your
Disability;
(c) may be terminated prior to the Expiration Date at the
discretion of the Chief Executive Officer or the Board for Cause;
(d) may be terminated prior to the Expiration Date at your
discretion, other than for Good Reason;
(e) may be terminated prior to the Expiration Date at the
discretion of the Chief Executive Officer or the Board prior to a
Change of Control without Cause;
(f) may be terminated prior to the Expiration Date at the
discretion of the Chief Executive Officer or the Board at or after a
Change of Control without Cause;
(g) may be terminated prior to the Expiration Date at your
discretion for Good Reason prior to a Change of Control; or
<PAGE> 4
(h) may be terminated prior to the Expiration Date at your
discretion for Good Reason at or after a Change of Control.
5. Procedures for Termination. If it is intended that your
employment be terminated:
(a) pursuant to Section 4(b), the Company shall transmit to
you written notice setting forth the particulars upon which the Company
bases its determination that a Disability exists, requiring that you
resume your duties within 30 days following the date thereof, failing
which a "final discharge" shall then occur;
(b) pursuant to Section 4(c), the Company shall transmit to
you written notice setting forth the Cause for which you are proposed
to be dismissed in sufficient detail to permit a reasonable assessment
of the bona fides thereof, and setting a meeting with the Chief
Executive Officer not less than 30 days following the date of such
notice at which the Chief Executive Officer shall consider your
termination and at which you and your counsel shall have the
opportunity to be heard, following which the Chief Executive Officer
shall either by resolution withdraw the notice, or if he so finds in
his good faith opinion, issue his report within ten days thereafter
that Cause exists and specifying the particulars of its findings, in
which latter event a "final discharge" shall occur. After receipt of a
notice of intended termination for Cause, you shall not have any
authority to incur any obligation of any kind whatsoever on behalf of
the Company pending withdrawal of such notice or "final discharge;"
(c) pursuant to Section 4(d), you shall transmit to the
Company written notice specifying that your resignation is other than
for Good Reason;
(d) pursuant to Section 4(e) or 4(f) the Company shall
transmit to you written notice specifying that your termination is
without Cause;
(e) pursuant to Section 4(g) or 4(h), you shall transmit to
the Company written notice setting forth the particulars upon which you
base your determination that Good Reason exists and, only if the stated
basis therefor is capable of being cured, requesting a cure within 10
days, failing which a "final separation" shall then occur, and if such
stated basis is not capable of cure by the Company, "final separation"
shall occur co-extensive with delivery of the notice.
For purposes of this Agreement, a "Termination Date" shall be deemed to
have occurred upon (i) the happening of any event contemplated by Section 4(a)
[death or Retirement], (ii) the date
<PAGE> 5
of "final discharge" in the case of termination initiated under Sections 5(a)
[Disability] or 5(b)[Cause], (iii) the date of "final separation" in the case of
a termination initiated under Section 5(e) [Good Reason], or (iv) the 30th day
following the date of any notice contemplated by Sections 5(c) [resignation
without Good Reason] or 5(d) [discharge without Good Reason; provided, that any
proceeding initiated pursuant to Section 10 hereof within 15 days after the
giving of any notice under this Section 5 shall (anything else in this Agreement
to the contrary notwithstanding) automatically toll the effectiveness of any
Termination Date until final resolution of such proceeding. Each notice which
complies with the requirements of this Section 5 is hereinafter referred to as a
"Termination Notice".
6. Effect of Termination. If your employment is terminated:
(a) pursuant to Sections 4(a) [death or Retirement], 4(b)
[Disability], 4(c) [Cause], or 4(d) [resignation without Good Reason],
then you shall be entitled to receive (i) payment when due of your Base
Salary through the end of the first monthly pay period ended after the
Termination Date and (ii) all benefits under the Plans in which you are
at the time a participant, to the extent the same are vested under the
terms thereof at the Termination Date, and (except as otherwise
provided herein) all other obligations of the Company under this
Agreement shall thereupon cease; or
(b) pursuant to Sections 4(e) [discharge without Cause prior
to Change of Control] or 4(g) [resignation for Good Reason prior to
Change of Control], then you shall become entitled to all benefits
conferred upon you by the Termination Package, and (except as otherwise
provided herein) all other obligations of the Company under this
Agreement shall thereupon cease; or
(c) pursuant to Sections 4(f) [discharge without Cause after
Change of Control] or 4(h) [resignation for Good Reason after Change of
Control], then you shall become entitled to all benefits conferred upon
you by the Severance Package, and (except as otherwise provided herein)
all other obligations of the Company under this Agreement shall
thereupon cease.
You shall not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment, nor shall the amount
of any payment provided for in this Agreement be reduced by any compensation
earned by you as the result of employment by another employer after any
Effective Date or Termination Date.
<PAGE> 6
7. Excise Tax. To the extent that the acceleration of vesting or any
payment, distribution or issuance made to you pursuant to this Agreement
following any Effective Date or Change of Control is subject to federal income,
excise, or other tax at a rate above the rate ordinarily applicable to like
payments paid in the ordinary course of business ("Penalty Tax"), whether as a
result of the provisions of Section 280G(b)(1) and 4999(a) of the Internal
Revenue Code of 1986, as amended, any similar or analogous provisions of any
statute adopted subsequent to the date hereof, or otherwise, then the Company
shall pay you an additional amount of cash (the "Additional Amount") such that
the net amount received by you, after paying any applicable Penalty Tax and any
federal or state income tax on such Additional Amount, shall be equal to the
amount that you would have received if such Penalty Tax were not applicable.
8. Deferral of Payments; Early Payments. At any time prior to a
Termination Date, you may irrevocably direct the Company that any amounts which
are or should become payable to you under the Severance Package or Termination
Package shall be paid to you in three equal installments, payable on or within
ten days following the Termination Date, and on the first and second
anniversaries of the initial installment payment. In addition, if any payment to
you in respect of a stock-based benefit which is precipitated by the occurrence
of an Effective Date or a Termination Date and which would, in and of itself,
give rise to a short-swing profit under Section 16(b) of the Exchange Act, then
both the payment and the entitlement to payment thereof, shall automatically be
deferred until the earliest date (not later than 183 days following a
Termination Date) at which the payment of such benefit would not, in and of
itself, result in a short-swing profit. The Company and you further agree that
when it has become apparent in our collective best judgment (as expressed by the
Compensation Committee of the Board, in the case of the Company) that a Change
of Control is likely to occur and further that a likely consequence thereof will
be the occurrence of a Termination Date, the Company and you will use reasonable
good faith efforts to undertake and conclude negotiations intended to result in
the payment to you of a portion of the Severance Package earlier than would
otherwise be the case hereunder, thereby increasing the benefit conferred upon
you and the tax efficiency of such payments to the Company, with any consequent
tax savings to be allocated between you and the Company in such reasonable
proportions as we shall agree; unless so agreed to by both parties in writing,
no such negotiation or agreement shall affect the Company's obligations to you
under any other provision of this Agreement.
<PAGE> 7
ten days following consummation of the Tender Offer nor more than three years
after the Effective Date, up to that number of Shares which shall be equal to
the product of (x) the number of Shares acquired by you upon exercise or
distribution of any benefit under any Plan prior to consummation of the Tender
Offer, multiplied by (y) the decimal equivalent of (I) the number of Shares
accepted for purchase or exchange in the Tender Offer, divided by (II) the
number of Shares timely and validly tendered pursuant to the Tender Offer. In
the event the above obligation to purchase Shares occurs by reason of a cash
tender offer or a combination cash tender offer and exchange offer, the cash
price per share to be paid to you hereunder shall be equal to the highest price
paid in cash pursuant to the Tender Offer. In the event such obligation occurs
by reason of an exchange offer, the cash price per share to be paid to you
hereunder shall be equal to the closing price, if traded on a stock exchange, or
the average bid and asked prices, if traded in the over-the-counter market, of
the security of the person so exchanged for the Shares (the "Exchange Security")
on the first day on which the Exchange Security could have been sold by you on
such exchange or in the over-the-counter market, as the case may be, in a
regular broker's transaction had your Shares been tendered and accepted,
multiplied by the number of Exchange Securities (or fraction thereof) issued in
the Tender Offer for each Company Share; and
(b) if a Change of Control occurs pursuant to a Tender Offer
and (i) a merger, consolidation, reorganization, sale, spin-off, or purchase of
assets under which all remaining outstanding Shares will be converted into or
become exchangeable for cash, or for securities ("Merger Security") issued or to
be issued by the Person who made the Tender offer (or a subsidiary or affiliate
of such Person), is thereafter proposed to the Company or its shareholders, and
(ii) such merger, consolidation, reorganization or purchase of assets occurs
less than three years after the Effective Date, and (iii) the amounts of cash
into which each Share would be converted if the transaction is effected wholly
for cash, or the Merger Security Value (as defined below) if such transaction is
effected wholly for Merger Securities, or the sum of the cash and the Merger
Security Value if the Transaction is effected partly for cash and partly for
Merger Securities, as the case may be, is less than 95% of the per share price
that would have been paid by the Company for such portion of your Shares had you
exercised your option to require the Company to purchase such Shares under
Section 9(a) above, the Company shall pay you (whether or not a Termination Date
has occurred following a Change of Control), an amount in cash equal to the
difference between the aggregate price you would have received from the number
of Shares the Company would have been required to purchase from you had you
exercised such option under Section 9(a) and the amount of cash and/or the
Merger Security Value received for the same number of Shares in such merger,
consolidation, reorganization or purchase of assets. Such cash payment shall be
made to you on a business day selected by you upon no less than ten calendar
days' notice to the Company or its Successor (as hereinafter defined). For
purposes of this Section 9(b), "Merger Security Value" shall mean the closing
price, if traded on a stock exchange, or the average bid and asked prices if
traded
<PAGE> 8
9. Dispute Resolution. It is irrevocably agreed that if any dispute
arises between us under this Agreement, or as to any interpretive matter under
or alleged breach of this Agreement, the exclusive remedy of each of us shall be
to commence binding arbitration proceedings under the rules of the American
Arbitration Association (the "Rules"), with any such arbitration proceeding to
be conducted in Houston, Texas, applying the substantive law of the State of
Texas ("Arbitration"). If Arbitration is commenced prior to an Effective Date,
each of us will deposit with the arbitrator(s), 50% of the arbitrator's
preliminary estimate of the costs of arbitration (excluding counsel fees and
expenses) as security for costs; if Arbitration is commenced after an Effective
Date, the Company will be solely responsible for all costs thereof and shall
deposit with the arbitrator(s) 100% of the arbitrator(s) preliminary estimate
thereof. Notwithstanding any contrary provision of the Rules or Texas law, the
Company shall have the burden of proof with respect to any of the following
which are at issue in Arbitration: (i) that Cause or Disability existed at the
time any notice was given to you under Section 5 based upon either them and/or
the sufficiency of such notice; and (ii) that Good Reason did not exist at the
time notice was given to the Company under Section 5 based upon Good Reason (but
only if such notice was dated on or after an Effective Date) and/or the
sufficiency of such notice; and (iii) that a Change of Control has not occurred.
Any final ruling of the arbitrator(s) in an Arbitration shall be final and
binding for all purposes, and judgment on any Arbitration award may be entered
and enforced in any court having jurisdiction.
The Company and you irrevocably agree that in the event the
arbitrator(s) shall determine (after hearing) that any matter presented in
Arbitration is one which under Texas law is not susceptible to arbitration, in
such event (and only in such event), (i) exclusive jurisdiction over the
non-arbitrable issue shall be in the lowest Texas state court of general
jurisdiction sitting in Harris County, Texas, (ii) we are each at the time
present in Texas for the purpose of conferring personal jurisdiction; (iii) any
such action may be brought in such courts, and any objection that the Company or
you may now or hereafter have to the venue of such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
court is waived, and we each agree not to
<PAGE> 9
plead or claim the same, (iv) service of process in any such proceeding or
action may be effected by mailing a copy thereof by registered or certified
mail, return receipt requested (or any substantially similar form of mail),
postage prepaid, to such party at the address provided in Section 13 hereof, (v)
no punitive or consequential damages shall be awarded in any such action or
proceeding and we each agree not to plead or claim the same; and (vi) prior to
any trial on the merits, we will submit any such non-arbitrable issue to court
supervised, non-binding mediation.
If proceedings are commenced prior to an Effective Date, all actual
costs of Arbitration or court proceedings involving any non-arbitrable issue
(excluding, in each case, counsel fees and expenses), shall be apportioned by
the arbitrator(s) or the court in such manner as shall be deemed equitable in
light of any final Arbitration award or judgment; if commenced on or after an
Effective Date, all such costs shall be borne exclusively by the Company.
Anything else in this Section to the contrary notwithstanding, nothing
in this Agreement shall impair your ability to seek specific performance of your
right to be paid under, and to receive all other benefits conferred by, Section
3 of this Agreement during the pendency of any dispute or proceeding concerning
Sections 5, 6 and/or 8 hereof.
10. Successors; Binding Agreement.
(a) Upon your written request, the Company will seek to have
any Successor (as defined below), by agreement in form and substance
satisfactory to you, expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it. If there has been a Change of Control prior to, or a Change of Control will
result from, any such succession, then failure of the Company to obtain at your
request such agreement prior to or upon the effectiveness of any such succession
(other than by merger or consolidation) shall constitute Good Reason for
termination by you of your employment and, upon delivery of a Notice of
Termination by you to the Company, you shall be entitled to the benefits
provided in Section 6(c) hereof. "Successor" shall mean any Person that succeeds
to, or has the ability to control, the Company's business as a whole, directly
by merger, consolidation or spin-off or indirectly by purchase of the Company's
Voting Securities or acquisition of all or substantially all of the assets of
the Company.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
<PAGE> 10
11. Fees and Expenses. The Company shall pay all legal fees and
reasonable expenses incurred by you (including costs of arbitration) as a result
of (a) your termination following a Change of Control (including all such fees
and expenses, if any, incurred in contesting or disputing any such termination)
or (b) your seeking to obtain, assert or enforce any right or benefit conferred
upon you by this Agreement.
12. Notices. Any and all notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given when
delivered in person to the persons specified below or deposited in the United
States mail, certified or registered mail, postage prepaid and addressed as
follows:
If to the Company: ITEQ, Inc.
2727 Allen Parkway
Houston, Texas 77019
Attention: Chief Executive Officer
<PAGE> 11
If to you: William P. Reid
23 Misty Grove Circle
The Woodlands, TX 77380
Either party may change, by the giving of notice in accordance with
this Section 12, the address to which notices are thereafter to be sent.
13. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Survival. All obligations undertaken and benefits conferred
pursuant to this Agreement, except those set forth in Sections 1 and 2, shall
survive the Employment Period and continue thereafter until performed in full.
15. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in writing signed by you and the Chairman of the Compensation Committee of the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or of compliance with, any condition or provision
<PAGE> 12
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the internal laws of the State of Texas.
If this letter correctly sets forth our understanding with respect to
the subject matter hereof, please sign and return one copy of this letter to the
Company.
Sincerely,
ITEQ, INC.
BY: /s/ Mark E. Johnson
----------------------------------------
Mark E. Johnson
Chief Executive Officer
Agreed to as of the 29th
day of January, 1999.
/s/ William P. Reid
- ---------------------------------
William P. Reid
<PAGE> 13
ANNEX I TO AGREEMENT DATED JANUARY 29, 1999
BETWEEN
ITEQ, INC.
AND
WILLIAM P. REID
DEFINITION OF
CERTAIN TERMS
"BONUS PLAN" means (i) for calendar 1999, the Company's obligation to
pay to you the amounts, if any, to which you would be entitled under the
Company's corporate incentive bonus plan as presently in effect and (ii) for
each subsequent year, any Plan adopted by the Board which provides for the
payment of additional compensation on an annual basis to senior executive
officers contingent upon the Company's results of operations for that specific
year, as such Plan shall be amended or modified to, but not on or after, any
Effective Date.
"BYLAWS" means the bylaws of the Company as in effect at the date
hereof and as the same shall be amended or otherwise modified to, but not on or
after, any Effective Date.
"CAUSE" means (i) your conviction by a court of competent jurisdiction,
from which conviction no further appeal can be taken, of a felony-grade crime
involving scienter, or (ii) your willful failure to perform substantially your
duties with the Company (other than a failure due to physical or mental illness)
which is materially and demonstrably injurious to the Company, or (iii) only
prior to an Effective Date, the engaging by you in any "business" engaged in
activities in direct competition with the Company, whether as an employee,
officer or director or through the beneficial ownership by you of 10% or more of
the Voting Securities of such "business." No act or failure to act on your part
shall be considered "willful" unless done, or omitted to be done, by you in bad
faith and without reasonable belief that your action or omission was in, or not
opposed to, the best interests of the Company.
"CHANGE OF CONTROL" means the earliest date at which:
(i) Any Person is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company's
outstanding Voting Securities, other than through the purchase of Voting
Securities directly from the Company through a private placement; or
A-1
<PAGE> 14
(ii) individuals who constitute the Board on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least two-thirds of the directors comprising the
Incumbent Board shall from and after such election be deemed to be a member of
the Incumbent Board; or
(iii) the Company is merged or consolidated with another corporation or
entity and as a result of such merger or consolidation less than 60% of the
outstanding Voting Securities of the surviving or resulting corporation or
entity shall then be owned by the former stockholders of the Company; or
(iv) a tender offer or exchange offer is made and consummated by a
Person other than the Company for the ownership of 20% or more of the Voting
Securities of the Company then outstanding; or
(v) all or substantially all of the assets of the Company are sold or
transferred to a Person as to which (A) the Incumbent Board does not have
authority (whether by law or contract) to directly control the use or further
disposition of such assets and (B) the financial results of the Company and such
Person are not consolidated for financial reporting purposes.
Anything else in this definition to the contrary notwithstanding, no
Change of Control shall be deemed to have occurred by virtue of any transaction
which results in you, or a group of Persons which includes you, acquiring more
than 20% of either the combined voting power of the Company's outstanding Voting
Securities or the Voting Securities of any other corporation or entity which
acquires all or substantially all of the assets of the Company, whether by way
of merger, consolidation, sale of such assets or otherwise.
"CHARTER" means the certificate of incorporation of the Company as in
effect at the date hereof and as the same shall be amended or otherwise modified
to, but not on or after, any Effective Date.
"DEFINED CONTRIBUTION PLAN" means the ITEQ, Inc. 401K Plan, as the same
shall be amended or modified to, but not on or after, any Effective Date.
"DISABILITY" means your continuing full-time absence from your duties
with the Company for 180 days or longer as a result of physical or mental
incapacity.
"EFFECTIVE DATE" means the earliest date upon which (i) any of the
events set forth under the definition of Change of Control shall have occurred,
(ii) the receipt by the Company of a Schedule 13D stating the intention of any
Person to take actions which, if accomplished, would constitute a Change of
Control, or (iii) the public announcement by any Person of its intention to take
any such action, in each case without regard for any contingency or condition
which has not been satisfied on such date.
A-2
<PAGE> 15
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GOOD REASON" means any of the following:
(i) except as a result of your death or Retirement, or
following the receipt by you of a Notice of Termination for Cause or
due to Disability, a change in your status, title(s) or position(s) as
an officer of the Company which, in your reasonable judgment, does not
represent a promotion, with commensurate adjustment of compensation,
from your status, title(s) and position(s) or the assignment to you of
any duties or responsibilities which, in your reasonable judgment, are
inconsistent with such status, title(s) or position(s), or the
withdrawal from you of any duties or responsibilities which in your
reasonable opinion are consistent with such status, title(s) or
position(s), or any removal of you from or any failure to reappoint or
reelect you to such position(s); or
(ii) a reduction by the Company in your base salary; or
(iii) the failure by the Company to continue in effect any
Plan in which you were then participating other than as a result of the
normal expiration or amendment of any such Plan in accordance with its
terms, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in
any such Plan on at least as favorable a basis to you as is the case on
the date hereof or which would materially reduce your benefits under
any of such Plan or deprive you of any material benefit enjoyed by you
on the date hereof, except as proposed by you to the Board or the
Compensation Committee thereof; or
(iv) the failure by the Company upon a Change of Control to
obtain the assumption of this Agreement by any Successor (other than by
merger or consolidation); or
(v) any purported termination by the Company of your
employment which is not effected pursuant to a Notice of Termination;
and for purposes of this Agreement, no such purported termination shall
be effective; or
(vi) any refusal by the Company to continue to allow you to
attend to matters or engage in activities not directly related to the
business of the Company which you attended to or were engaged in prior
to the date hereof and which do not otherwise violate your obligations
hereunder; or
A-3
<PAGE> 16
(viii) any continuing material default by the Company in the
performance of its obligations under this Agreement, whether before or
after a Change of Control.
"OTHER PLANS" means any thrift; bonus or incentive; stock option or
stock accumulation; pension; medical, disability, accident or life insurance
plan, program or policy of the Company which is intended to benefit the chief
executive officer and/or executive officers of the Company (other than the Bonus
Plan or Defined Contribution Plan).
"PERSON" means any individual, corporation, partnership, group,
association or other "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, other than the Company or any Plans sponsored by the
Company.
"PLANS" means the Bonus Plan, Defined Contribution Plan and Other
Plans.
"RETIREMENT" means termination of your employment on the "normal
retirement date" coextensive with your attainment of age 65.
"SEVERANCE PACKAGE" means your right to receive, and the Company's
obligation to pay and/or perform on, the following:
(a) on or within ten days following an applicable Termination
Date, the Company shall pay to you a lump sum, cash amount equal to the
sum of (i) three times the highest annual rate of Base Salary in effect
during the current year or any of the three years preceding the
Termination Date and (ii) three times the greater of (A) the maximum
award you would have been eligible to receive under the Bonus Plan in
respect of the current year, regardless of any limitations otherwise
applicable to the Bonus Plan (i.e., the failure to have completed any
vesting period or the current measurement period, or the failure to
achieve any performance goal applicable to all or any portion of the
measurement period) or (B) the largest award earned (whether or not
paid) under the Bonus Plan in respect of any of the three years
preceding the Termination Date; and
(b) in addition to your entitlement to the vested portion of
your interest in the Defined Contribution Plan in accordance with the
terms of that plan, the Company shall pay to you, on or within ten days
following the applicable Termination Date, an amount in cash equal to
the unvested portion of the Company's contributions to your account;
and
(c) immediately upon an applicable Termination Date, all
options and rights to contingent incentive compensation granted to you
under the Plans (other than the Bonus and Defined Contribution Plans
and medical, disability, accident and life insurance plans and programs
for which separate provision is made herein) which are not then fully
vested, exercisable, distributable or otherwise performable by the
Company shall immediately become fully vested, exercisable,
distributable or otherwise performable by the Company as though any and
all applicable performance goals had been met or achieved at maximum
A-4
<PAGE> 17
levels for all performance periods (including those extending beyond
the Termination Date) and any and all other Plan contingencies had been
satisfied in full at the Termination Date and the maximum benefits
thereunder had been earned at the Termination Date, and solely for
purposes of determining when any outstanding option shall lapse or
expire, you shall be deemed to remain in the Company's employ until the
option would have otherwise expired notwithstanding any contrary
provision in the pertinent stock option plan or related option
agreement;
(d) following an applicable Termination Date, you shall
receive all benefits under and in accordance with the terms of the
Plans (other than the Bonus and Defined Contribution Plans and medical,
disability, accident and life insurance plans and programs and any
subsequently adopted Other Plan fitting the description contained in
clause (c) above, for all of which separate provision is made herein)
in which you are at the time a participant, but only to the extent the
same are vested under the terms of such Plans at the Termination Date;
and
(e) unless you give notice to the Company pursuant to the next
sentence within 90 days following an applicable Termination Date, the
Company shall maintain in full force and effect, at its sole expense
for the continued benefit of you and your dependents during the period
from the Termination Date through the earlier of (i) two years from
the Termination Date or (ii) the commencement date of equivalent
benefits from a new employer, all insured and self-insured employee
welfare benefit Plans in which you were entitled to participate
immediately prior to the Termination Date. Alternatively, if you notify
the Company that you so elect, the Company shall pay you within five
days of such notification an amount in cash equal to two times the
average annual cost incurred by the Company during the preceding three
calendar years as a result of your participation in such welfare
benefit Plans (or such fewer whole calendar years as you have so
participated). If your participation in any such welfare benefit Plan
is barred, the Company, at its sole cost and expense, shall arrange to
have issued for the benefit of you and your dependents individual
policies of insurance providing benefits substantially similar (on an
after-tax basis) to those which you are entitled to receive under such
Plans. You shall not be required to pay any premiums or other charges
for such policies. At the end of two years after the Termination
Date, the Company, provided you have not previously received or are not
then receiving equivalent benefits from a new employer, shall arrange,
at its sole cost and expense, to enable you to convert you and your
dependents' coverage under such Plans to individual policies or
programs upon the same terms as employees of the Company may apply for
such conversions.
Anything else in this Agreement to the contrary notwithstanding, if an
applicable Termination Date results from a merger or a tender offer or an
exchange offer, then unless otherwise agreed to by both parties in writing, all
amounts to which you shall at the closing thereof, or which you may upon
subsequent notice or lapse of time, become entitled under this Severance Package
or Section
A-5
<PAGE> 18
9 shall be accelerated to, and become immediately due and payable
contemporaneously with, such closing.
"SHARES" means shares of Common Stock, $.001 par value, of the Company
at the date of this Agreement, as the same shall be subsequently amended,
modified or changed. The term "market value," when used with respect to a Share
means the closing price therefor on the NASDAQ National Market or if not listed
thereon, on such other exchange as shall at the time constitute the principal
exchange for trading in Shares.
"TERMINATION PACKAGE" means your right to receive, and the Company's
obligation to pay and/or perform on, the following:
(a) on or within ten days following an applicable Termination
Date, the Company shall pay to you a lump sum cash amount equal to the
one times the highest annual rate of base salary in effect during the
current year or any of the three years preceding the Termination Date.
(b) following an applicable Termination Date, you shall
receive all benefits under and in accordance with the terms of the
Plans (other than the Bonus Plan, for which separate provision is made
above) in which you are at the time a participant, but only to the
extent the same are vested under the terms of such Plans at the
Termination Date.
"VOTING SECURITIES" means, with respect to any corporation or business
enterprise, those securities which under ordinary circumstances are entitled to
vote for the election of directors or others charged with comparable duties
under applicable law.
A-6
<PAGE> 1
EXHIBIT 10.9
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN WILLIAM P. REID AND ITEQ, INC.
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is made
and entered into effective as of March 20, 2000, between William P. Reid (the
"Executive"), and ITEQ, Inc., a Delaware corporation (the "Company").
WHEREAS, the Executive and the Company are parties to that certain
Employment Agreement dated January 29, 1999 (the "Agreement"), whereby Executive
was employed by the Company; and
WHEREAS, the Executive and the Company desire to amend the Agreement as
hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
1. The provision "Chief Operating Officer" contained in the second line
of Section 2(a) of the Agreement is hereby amended to be "Chief Executive
Officer".
2. The provision "Chief Executive Officer" contained in Section
2(a)(ii) of the Agreement is hereby amended to be "Board".
3. The provision "the Chief Executive Officer," contained in Section
2(a)(iii) of the Agreement is hereby deleted.
4. The provision "the Chief Executive Officer or" contained in the
Sections 4(b), 4(c), 4(e) and 4(f) of the Agreement is hereby deleted.
5. The provision "Chief Executive Officer" contained in the fourth line
of Section 5(b) of the Agreement is hereby amended to be "Board".
6. The provision "Chief Executive Officer" contained in the fifth line
of Section 5(b) of the Agreement is hereby amended to be "Board".
7. The provision "Chief Executive Officer" contained in the seventh
line of Section 5(b) of the Agreement is hereby amended to be "Board".
8. The provision "he" contained in the seventh line of Section 5(b) of
the Agreement is hereby amended to be "it".
9. The provision "his" contained twice in the eighth line of Section
5(b) of the Agreement is hereby amended to be "its".
<PAGE> 2
10. The provision "Section 10" contained in the eighth line of the last
full paragraph of Section 5 of the Agreement is hereby amended to be "Section
9".
11. The provision "Section 13 hereof" contained in the thirteenth line
of the second paragraph of Section 9 of the Agreement is hereby amended to be
"Section 12 hereof".
12. The notice address, if to the Company, in Section 12 of the
Agreement is deleted and replaced in its entirety with the following:
ITEQ, Inc.
2727 Allen Parkway, Suite 760
Houston, Texas 77019
Attention: Chairman, Compensation
Committee of the Board of Directors
13. Except as otherwise amended hereby, the Agreement remains in full
force and effect.
EXECUTED effective as of the date first set forth above.
ITEQ, INC.
By: /s/ PIERRE S. MELCHER
------------------------------------
Pierre S. Melcher
Chairman, Compensation Committee of the
Board of Directors
/s/ WILLIAM P. REID
---------------------------------------
William P. Reid
2
<PAGE> 1
EXHIBIT 10.23
ASSET PURCHASE AGREEMENT
BETWEEN
HMT INC.
as Buyer,
ITEQ, INC.
as Parent
and
ITEQ STORAGE SYSTEMS, INC., ITEQ CONSTRUCTION SERVICES, INC. AND
ITEQ TANK SERVICES, INC.
as Sellers
Dated January 28, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE I THE TRANSACTION.................................................................................1
1.1. Sale and Purchase of Assets.....................................................................1
1.2. Excluded Assets.................................................................................3
1.3. Assumption of Liabilities.......................................................................4
1.4. Purchase Price..................................................................................6
1.5. Net Working Capital Estimate....................................................................6
1.6. Payments........................................................................................6
1.7. Post-Closing Adjustment.........................................................................7
1.8. Closing.........................................................................................9
1.9. Certain Consents................................................................................9
1.10. Deliveries and Proceedings at Closing...........................................................9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER.......................................................11
2.1. Organization; Power and Authority..............................................................11
2.2. Qualification; Location of Business and Assets.................................................12
2.3. Authorization and Enforceability...............................................................12
2.4. Subsidiaries; Ownership........................................................................12
2.5. No Violations..................................................................................12
2.6. Financial Statements...........................................................................13
2.7. Undisclosed Liabilities........................................................................14
2.8. No Changes.....................................................................................14
2.9. Taxes..........................................................................................15
2.10. Accounts Receivable............................................................................16
2.11. Inventory......................................................................................17
2.12. No Pending Litigation or Proceedings...........................................................17
2.13. Contracts; Compliance..........................................................................17
2.14. Compliance with Laws...........................................................................18
2.15. Environmental Matters..........................................................................18
2.16. Assets.........................................................................................20
2.17. Real Estate....................................................................................21
2.18. Condition of the Assets........................................................................23
2.19. Employees......................................................................................23
2.20. Insurance......................................................................................24
2.21. Intellectual Property Rights...................................................................24
2.22. Employee Benefit Plans.........................................................................26
2.23. Brokerage......................................................................................29
2.24. Related Party Transactions.....................................................................29
2.25. Solvency.......................................................................................29
2.26. Bank Approval..................................................................................29
2.27. Disclosure.....................................................................................29
2.28. Disclaimer of Other Representations and Warranties.............................................29
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER........................................................30
3.1. Organization; Corporate Power and Authority....................................................30
3.2. Authorization and Enforceability...............................................................30
3.3. Brokerage......................................................................................30
3.4. No Violations..................................................................................30
3.5. Buyer's Capital Structure......................................................................31
ARTICLE IV CERTAIN COVENANTS.....................................................................................31
4.1. Interim Conduct of the Business................................................................31
4.2. Buyer's Approval of Certain Transactions.......................................................32
4.3. Consents to Assignment.........................................................................33
4.4. Government Notification........................................................................34
4.5. This Section Intentionally Left Blank..........................................................34
4.6. Access, Information and Documents..............................................................34
4.7. Tax Reporting and Allocation of Consideration..................................................35
4.8. Negotiations...................................................................................35
4.9. Covenant Not to Compete; Nonsolicitation; Confidentiality......................................36
4.10. Fulfillment of Agreements......................................................................37
4.11. Insurance......................................................................................37
4.12. [Bulk Transfers................................................................................38
4.13. Employee Matters...............................................................................38
4.14. Benefit Plans..................................................................................39
4.15. Accounts Receivable............................................................................41
4.16. Real Estate....................................................................................42
4.17. Tax Matters....................................................................................43
4.18. Intercompany Accounts..........................................................................44
4.19 ITEQ Intellectual Properties, Inc..............................................................44
4.20. Use of HMT Name................................................................................44
4.21. Bank Approval Maintenance......................................................................44
4.22. Financing......................................................................................45
4.23. Employment Agreements..........................................................................45
4.24. Product Warranty Claims........................................................................45
4.25. Disclosure Letter..............................................................................45
4.26. Foreign Subsidiary Board Action................................................................46
4.27. Pro Forma Statements...........................................................................46
4.28. Software Licenses..............................................................................46
4.29. Tulsa Litigation...............................................................................46
4.30. Master Lease Agreements........................................................................46
ARTICLE V CONDITIONS TO CLOSING; TERMINATION.............................................................47
5.1. Conditions Precedent to Obligations of Buyer...................................................47
5.2. Conditions Precedent to the Obligations of Sellers.............................................49
5.3. Termination....................................................................................51
ARTICLE VI INDEMNIFICATION................................................................................51
6.1. Indemnification By Sellers and Parent..........................................................51
6.2. Indemnification by Buyer.......................................................................52
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C> <C>
6.3. General Indemnification Procedures.............................................................53
6.4. Termination of Indemnification.................................................................55
6.5. Limitation on Indemnification Obligations of the Seller and the Principals.....................56
6.6. Governing Law..................................................................................56
6.7. Fraud..........................................................................................56
6.8. Indemnification Exclusive Remedy...............................................................56
ARTICLE VII MISCELLANEOUS .......................................................................................57
7.1. Survival.......................................................................................57
7.2. Notices. ......................................................................................57
7.3. Expenses.......................................................................................58
7.4. Entire Agreement...............................................................................58
7.5. Assignment; Binding Effect; Severability.......................................................58
7.6. Governing Law..................................................................................59
7.7. Execution in Counterparts......................................................................59
7.8. Public Announcement............................................................................59
7.9. No Third Party Beneficiaries...................................................................59
7.10. Headings.......................................................................................59
7.11. Further Assurances.............................................................................59
7.12. Amendment and Waiver...........................................................................59
7.13. Gender and Certain References..................................................................60
7.14. Time is of the Essence.........................................................................60
7.15. Parent's Authority.............................................................................60
ARTICLE VIII DEFINITIONS ........................................................................................60
</TABLE>
Exhibits
Exhibit A Assumption Agreement
Exhibit B Escrow Agreement
Exhibit C Bill of Sale
Exhibit D Sellers' Counsel Opinion
Exhibit E Buyer's Counsel Opinion
Exhibit F Transition Services Agreement
Exhibit G 401(k) Opinion Letter
Exhibit H Assignment of Leases
-iii-
<PAGE> 5
ASSET PURCHASE AGREEMENT
This is an ASSET PURCHASE AGREEMENT (the "Agreement"), dated
as of January 28, 2000, by and among HMT Inc., a Delaware corporation ("Buyer"),
ITEQ, Inc., a Delaware corporation ("Parent"), ITEQ Storage Systems, Inc., a
Minnesota corporation ("ITEQ Storage"), ITEQ Construction Services, Inc., a
Delaware corporation ("ITEQ Construction"), and ITEQ Tank Services, Inc., a
Delaware corporation ("ITEQ Tank"). As used herein, ITEQ Storage, ITEQ
Construction and ITEQ Tank are hereinafter sometimes referred to individually as
a "Seller" and collectively as the "Sellers".
Background
The Sellers and Australasian HMT Pty. Ltd., an Australian
corporation, HMT Canada, Ltd., a Canadian corporation, HMT Rubbaglas Limited, an
English corporation, HMT Tank Systems B.V., a Netherlands corporation, and HMT
Singapore Pte. Ltd., a Singapore corporation (collectively, the "Foreign
Subsidiaries"), are engaged in the business of above-ground storage tank ("AST")
repair and maintenance, AST tank field service, AST tank inspection and
engineering and the design, manufacture, assembly, sale and installation of AST
tank products (the "Business"). Sellers desire to sell and transfer to Buyer and
Buyer desires to purchase from Sellers substantially all of the assets of
Sellers used in the Business and all of the capital stock of the Foreign
Subsidiaries all upon the terms and subject to the conditions set forth in this
Agreement.
Terms
In consideration of the mutual covenants contained herein and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE TRANSACTION
1.1. Sale and Purchase of Assets. Subject to the terms and conditions
hereof and in reliance upon the representations and warranties contained herein,
on the Closing Date, Parent and Sellers will sell, transfer, convey and assign
to Buyer (and/or, at Buyer's election, to one or more corporations, limited
partnerships or limited liability companies that Buyer controls (the "Buyer
Subsidiaries")), free and clear of all Encumbrances of every kind, nature and
description, except Permitted Encumbrances, and Buyer (and/or, at Buyer's
election, the Buyer Subsidiaries) will purchase from Parent and Sellers, the
Purchased Assets, the Business as a going concern and the goodwill related
thereto for the Purchase Price specified in Section 1.4. For purposes of this
Agreement, "Purchased Assets" shall mean all of Parent's and Sellers' business,
properties, assets, goodwill and rights of every kind, nature and description
existing on the Closing Date, constituting, primarily related to, primarily used
in or otherwise necessary or material to the conduct of the Business as
currently conducted by Sellers, wherever such assets are located and whether
real, personal or mixed, tangible or intangible, and whether or not any of such
assets have any value for accounting purposes or are carried or reflected on or
specifically referred to in Parent's or any Seller's books or financial
statements, except for the Excluded Assets, including,
<PAGE> 6
without limitation, all of Parent's and Sellers' right, title and interest in
and to the following, as the same may exist on the Closing Date to the extent
constituting, primarily related to, primarily used in or otherwise necessary or
material to the conduct of the Business as currently conducted by Sellers:
(a) all of the Business' cash, cash in banks, certificates of
deposit, cash equivalents, bank and mutual fund accounts, deposits, investments,
securities, advance payments, and other cash equivalents on hand or on deposit
in any financial institution on the Closing Date;
(b) all machinery, equipment, fixtures, tools, supplies,
tooling, dies, spare parts, fixtures and improvements, and similar capital
items, including without limitation the items listed in Section 1.1(b) of the
Disclosure Letter;
(c) all inventory, including without limitation, finished
goods, work-in-process, supplies, raw materials, recycled materials, scrap,
containers, consigned inventory, central, shared or common inventory, parts and
spares, a summary of which and the principal locations of which are set forth in
Section 1.1(c) of the Disclosure Letter;
(d) all other tangible assets, including office furniture,
office equipment and supplies, inventory, computer hardware, leasehold
improvements, motor vehicles and trailers, including without limitation the
items listed in Section 1.1(d) of the Disclosure Letter;
(e) all trade and other notes and accounts receivable of the
Business;
(f) all books and records (except for financial books and
records of Parent or any Seller), manuals, documents, books of account,
correspondence, sales and credit reports, customer lists, subscription lists,
mailing lists, literature, brochures, marketing or promotional material and the
like, including, without limitation, all discs, tapes and other media storing
data and other information and all software and information management systems
(the materials described in this subsection hereinafter being referred to as
"Business Records");
(g) all rights under all contracts, contractual rights,
agreements, leases, warranty rights, distribution and sales representative
agreements and instruments, including those identified in Section 2.13 of the
Disclosure Letter, and including those (i) for the lease of machinery and
equipment, real property, motor vehicles, or furniture and office equipment,
(ii) for the performance of services, (iii) which restrain or restrict any
person from directly or indirectly competing with the Business or from
disclosing confidential or proprietary information, and (iv) any such contracts,
agreements, instruments and leases entered into between the date hereof and the
Closing Date that are consistent with the terms of this Agreement (collectively,
the "Assumed Contracts");
(h) all real property, leaseholds and subleaseholds therein,
together with all fixtures, fittings, buildings, structures and other
improvements erected thereon, and easements, rights, privileges and other
appurtenances thereto, as more particularly described in Section 1.1(h) of the
Disclosure Letter hereto;
(i) all guarantees, warranties, indemnities and similar rights
with respect to any and all of the Purchased Assets and all related claims,
credits, rights of recovery and set off;
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<PAGE> 7
(j) all of Sellers' claims, choses in action, causes of action
and judgments relating to the Purchased Assets or the operation of the Business;
(k) (a) all patents, patent applications, copyrights,
copyright registrations and copyright registration applications and all rights
thereto, (b) all registered and unregistered trademarks, including, but not
limited to, "HMT", trade names, product names, service marks, designs, logotypes
and trade dress, trademark and service mark registrations and applications for
trademark and service mark registrations, together with all rights related
thereto, (c) all patent, trademark, service mark, trade name, copyright,
know-how and other intangible or proprietary rights granted to any Seller by
third parties under licensing or other agreements, (d) all know-how, proprietary
information, inventions, technologies, designs, technical data, production
methods, trade and business secrets, engineering data, models, prototypes,
drawings, diagrams, bills of material, manuals and other similar information,
(e) all inventions (whether patentable or unpatentable and whether or not
reduced to practice) and all improvements thereto, (f) all computer hardware and
software whether internally developed, purchased, or licensed, (g) all other
proprietary rights, and (h) all rights of action arising from the items listed
in clauses (a) through (g) above, including but not limited to, all claims by
reason of, and the right to collect damages for, the past, present or future
infringement, dilution or misappropriation thereof ((a) through (h)
collectively, the "Intellectual Property"), including but not limited to, the
Intellectual Property set forth in Section 2.21(a) of the Disclosure Letter.
(l) all franchises, consents, licenses, permits,
certifications, orders, registrations, and approvals granted by any
governmental, quasi-governmental or non-governmental third Person;
(m) all rights of the Sellers to any insurance proceeds
relating to the damage, destruction or impairment of assets or other rights
described in this Section 1.1 which would have been Purchased Assets but for
such damage, destruction or impairment prior to the Closing;
(n) all prepaid and similar items, including without
limitation, all prepaid expenses, deferred charges, advance payments, claims for
refund and other prepaid items;
(o) all of the capital stock held by the Sellers in any of the
Foreign Subsidiaries.
(p) the Lock-Box Account; and
(q) the Holding Company IP.
1.2. Excluded Assets. Notwithstanding any other provision of this
Agreement, the Purchased Assets shall not include the following assets
(collectively, the "Excluded Assets"):
(a) all of the rights, claims or causes of action of the
Sellers against third parties to the extent they relate to the Excluded
Liabilities;
(b) any claim, right or interest of Sellers in and to any
refund of Taxes of any kind relating to any period prior to the Effective Time
and all amounts held in reserve by any
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<PAGE> 8
Seller relating to unpaid Taxes, in each case to the extent not accrued or
reflected on the Closing Statement;
(c) except as specified in Section 4.14 hereof, any assets
attributable or related to any Benefit Plans, including any amounts held in
reserve by any Seller for funding of or payment to any Benefit Plan, in each
case to the extent not accrued or reflected on the Closing Statement;
(d) except as provided in Section 1.1(o), all capital stock
and other ownership interests in any corporation or other business entity;
(e) subject to Section 1.1(m), the Insurance Policies (as
hereinafter defined);
(f) the real property and other assets described in Section
1.2(f) of the Disclosure Letter;
(g) Pre-Closing Tulsa Damages (as defined in Section 4.29
hereof);
(h) except as specifically set forth in Section 1.1(a)-(q)
hereof, any asset of any Seller not constituting, primarily related to,
primarily used in or otherwise necessary or material to the conduct of the
Business;
(i) any financial books and records of Parent or any Seller.
1.3. Assumption of Liabilities.
(a) Assumed Obligations. At the Closing, Buyer (and/or, at
Buyer's election, Buyer Subsidiaries) shall by an appropriate instrument of
assumption to be executed and delivered at Closing and to be substantially in
the form attached as Exhibit A hereto (the "Assumption Agreement"), assume and
agree to perform, pay or discharge, when due, to the extent not theretofore
performed, paid or discharged, except for any Excluded Liabilities, all of (a)
Sellers' obligations and liabilities under the Assumed Contracts arising after
the Effective Time; (b) all liabilities and obligations of Sellers (including
the obligations to make payments) resulting from facts or circumstances first
arising after the Effective Time under all licenses, permits, approvals,
certificates of occupancy and operating rights included in the Purchased Assets;
(c) Buyer's obligations pursuant to Section 7.3 hereof; and (d) any liabilities
and obligations reflected as ordinary course current liabilities on the Closing
Statement pursuant to Section 1.7 hereof (other than any Excluded Liabilities
and the current portion of any long-term liabilities), each to the extent such
liability or obligation is reflected on the Closing Statement. The obligations
and liabilities to be assumed by Buyer (and/or the Buyer Subsidiaries, if
applicable) pursuant to this Section are hereinafter sometimes referred to as
the "Assumed Liabilities." Except with respect to the Assumed Liabilities, Buyer
and, if applicable, the Buyer Subsidiaries do not hereby and shall not assume or
in any way undertake to pay, perform, satisfy or discharge any liabilities or
obligations of Sellers or Parent including, without limitation, the Excluded
Liabilities.
(b) Excluded Liabilities. Other than the Assumed Liabilities,
Sellers shall retain and Buyer and, if applicable, the Buyer Subsidiaries, shall
not assume or be liable for any
-4-
<PAGE> 9
liabilities and obligations of Sellers (all of such liabilities and obligations
not so assumed being herein called the "Excluded Liabilities") including without
limitation, the following:
(i) any liabilities or obligations in respect of
Excluded Assets;
(ii) any obligations of Parent or any Seller for
expenses or fees incident to or arising out of the negotiation, preparation,
approval or authorization of this Agreement or the consummation of the
transactions contemplated hereby, including, without limitation, all attorneys
and accountants fees and all brokers or finders fees or commissions payable by
Sellers;
(iii) any obligation of Parent or any Seller under or
arising out of this Agreement;
(iv) liabilities arising pre-Closing to the extent
that Parent or any Seller is insured or otherwise indemnified or which would
have been covered by insurance (or indemnification) but for a claim by the
insurer (or the indemnitor) that the insured (or the indemnitees) had breached
its obligations under the policy of insurance (or the contract of indemnity) or
had committed fraud in the insurance application;
(v) any liabilities or obligations, the existence of
which constitute a breach of the representations, warranties or covenants of
Sellers or Parent contained in this Agreement;
(vi) any obligations or liabilities of Sellers or
Parent to indemnify their respective officers, directors, employees or agents;
(vii) except as specifically provided in Sections
4.17 and 7.3 hereof, all federal, state, local, foreign and other Taxes imposed
on Sellers or Parent, including (A) any Tax that has been or may be incurred as
a result of the Sellers' operation of the Business or ownership of the Purchased
Assets whether or not assessed or determined on, before or after the Closing
Date, (B) any Tax unrelated to Parent's or Sellers' operation of the Business or
ownership of the Purchased Assets, (C) any Taxes imposed as a result of the
consummation of the transactions contemplated by this Agreement and (D) any
liability for Taxes pursuant to a Tax sharing agreement or Tax indemnity, or as
a transferee or successor, by contract or otherwise;
(viii) subject to Section 4.24, any product warranty,
product liability, service warranty, service liability or liquidated damages
liability of any nature in respect of products of the Business manufactured or
sold or services provided prior to Closing (individually, a "Product Warranty"
and collectively, the "Product Warranties");
(ix) any liabilities or obligations of any Seller
arising out of any capital leases (except as reflected as an ordinary course
current liability on the Closing Balance Sheet of the Business pursuant to
Section 1.7 hereof);
(x) any liabilities or obligations of Parent or any
Seller, contingent or otherwise, for any indebtedness of Parent or such Seller;
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<PAGE> 10
(xi) any liability, claim or expense of Parent or any
Seller specified in Section 4.13(f) hereof;
(xii) any Seller Environmental Liabilities;
(xiii) any liability or obligation of any Seller to
Parent, any other Seller or any other subsidiary of Parent or any Seller;
(xiv) notwithstanding the provisions of any consent
to assignment of an Assumed Contract, any liability or obligation of any Seller
under any Assumed Contract to the extent such liability or obligation relates to
any period prior to the Effective Time, including any liability or obligation
for any breach of or default under any Assumed Contract by any Seller which
liability or obligation relates to any such breach or default occurring prior to
the Effective Time;
(xv) any liability or obligation of Parent or any
Subsidiary pursuant to the Rubbaglas Earnout; and
(xvi) any other liability or obligation of Parent or
any Seller including any liability or obligation directly or indirectly arising
out of or relating to the operation of the Business or ownership of the
Purchased Assets prior to or on the Closing Date, whether contingent or
otherwise, fixed or absolute, known or unknown, matured or unmatured, present,
future or otherwise, except for the Assumed Liabilities.
1.4. Purchase Price. The purchase price payable to Sellers in
consideration of the transfer to Buyer (and/or the Buyer Subsidiaries, if
applicable) of the Purchased Assets shall be Forty Million Dollars
($40,000,000), plus (x) the amount, if any, by which Net Working Capital is
greater than $7,993,190 less (y) the amount, if any, by which Net Working
Capital is less than $7,993,190 (the "Cash Purchase Price"), subject to
adjustment as provided in Section 1.7, plus the assumption by Buyer of the
Assumed Liabilities (collectively, the "Purchase Price").
1.5. Net Working Capital Estimate. No less than five Business Days
prior to the Closing Date, the Sellers shall have delivered to Buyer a good
faith estimate of Net Working Capital ("Estimated Net Working Capital") as of
the end of business on the Closing Date together with (i) a statement of the
calculation of Estimated Net Working Capital and (ii) a certificate signed by
Sellers to the effect that Estimated Net Working Capital was determined in good
faith in accordance with the provisions of this Section 1.5, which calculation
shall be reasonably satisfactory to Buyer. The statement of Estimated Net
Working Capital shall be prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent with the Financial
Statements, giving preference to GAAP over consistency; provided, however, that
the concept of materiality shall be disregarded (the "Accounting Principles").
1.6. Payments. On the Closing Date, (i) Buyer shall pay to Parent, or
at the written direction of Parent, to BankBoston, by wire transfer (w)
Thirty-Eight Million Dollars ($38,000,000) plus (x) the amount, if any, by which
Estimated Net Working Capital is greater than $7,993,190 less (y) the amount, if
any, by which Estimated Net Working Capital is less than $7,993,190
(collectively, the "Cash Payment"), and (ii) Buyer shall pay Two Million Dollars
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<PAGE> 11
($2,000,000) (the "Escrow Fund") to the Escrow Agent by wire transfer pursuant
to the Escrow Agreement, substantially in the form of Exhibit B hereto (the
"Escrow Agreement").
1.7. Post-Closing Adjustment.
(a) As promptly as practicable, but no later than 120 days
after the Closing Date, Buyer will deliver to the Parent a statement setting
forth Net Working Capital (the "Closing Statement") as of the close of business
on the Closing Date (such statement shall contain the "Closing Net Working
Capital"). The Closing Statement shall be prepared in accordance with the
Accounting Principles; provided, that in the preparation of the Closing
Statement:
(i) The inventory balance for the Business as of the
Closing Date will be determined based on a physical count of the inventory of
the Business as of the Closing Date by Buyer and Buyer's accountants, in
accordance with the customary practices of the Sellers and their public
accountants as regards the taking of a physical inventory. The physically
counted inventory items will be valued at the lower of cost or market, the cost
thereof being determined on a first-in, first-out basis.
(ii) Net Working Capital shall not include any
Excluded Liabilities.
(iii) Net Working Capital shall not include the value
of any Excluded Assets.
(b) During the thirty (30) day period after the delivery of
the Closing Statement, Buyer shall provide Sellers and Parent, their employees,
agents and consultants with reasonable access during normal business hours to
its books, records, employees, agents and accountants used by Buyer in the
preparation of the Closing Statement. If, within thirty (30) days after the
delivery of the Closing Statement, Parent disputes in good faith that the
Closing Statement has not been prepared in accordance with the Accounting
Principles or that the Closing Statement is not mathematically accurate, Parent
shall deliver to Buyer within such period a written notice (the "Dispute
Notice") specifying in reasonable detail all disputed items and the basis
therefor (collectively, the "Disputed Items"). The failure by Parent to provide
a Dispute Notice within such thirty (30) day period to Buyer will constitute
Parent's acceptance of the Closing Statement. Parent shall be deemed to have
agreed with all items and amounts included in the Closing Statement except such
items that are specifically disputed in the Dispute Notice. If Parent provides
Buyer with a timely Dispute Notice, Buyer and Parent shall, within thirty (30)
days (or such longer period as mutually agreed upon by Buyer and Parent)
following the delivery of such Dispute Notice to Buyer (the "Resolution
Period"), negotiate in good faith to resolve the Disputed Items to their mutual
satisfaction. At the conclusion of the Resolution Period, Parent and Buyer shall
refer all unresolved Disputed Items to an independent public accounting firm
(the "Independent Accountant"). The Independent Accountant shall be a mutually
acceptable "big five" independent public accounting firm; provided, that in the
event Parent and Buyer are not able to mutually agree on an accounting firm, the
Independent Accountant shall be Ernst & Young, Houston, Texas office. The
parties shall cause the Independent Accountant to make a determination with
respect to each unresolved Disputed Item within thirty (30) days after its
engagement by Parent and Buyer to resolve such unresolved
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Disputed Items, which determination shall be made on the sole basis of whether
the Closing Statement has been prepared in accordance with the Accounting
Principles and whether the Closing Statement is mathematically accurate. Buyer
and Parent agree that the determination of the Independent Accountant shall be
final and binding upon the parties and that judgment may be entered upon the
determination of the Independent Accountant in any court having jurisdiction
over the party against which such determination is to be enforced. The
Independent Accountant shall determine, based solely on presentations by the
Buyer and Parent and their respective representatives, and not by independent
review, only those issues in dispute specifically set forth on the Dispute
Notice and shall prepare a revised Closing Statement and render a written report
as to the dispute and the resulting calculation of Closing Net Working Capital
which shall be conclusive and binding upon the parties. In resolving any
disputed item, the Independent Accountant: (w) shall be bound by the principles
set forth in Section 1.7 hereof, (x) shall limit its review to matters
specifically set forth in the Dispute Notice, (y) shall further limit its review
to whether the Closing Statement is mathematically accurate and has been
prepared in accordance with the Accounting Principles in accordance with Section
1.7 and (z) shall not assign a value to any item greater than the greatest value
for such item claimed by either party or less than the smallest value for such
item claimed by either party. The fees, costs, and expenses of the Independent
Accountant (i) shall be borne by the Sellers in the proportion that the
aggregate dollar amount of such disputed items so submitted that are
unsuccessfully disputed by Parent (as finally determined by the Independent
Accountant) bears to the aggregate dollar amount of such disputed items so
submitted and (ii) shall be borne by the Buyer in the proportion that the
aggregate dollar amount of such disputed items so submitted that are
successfully disputed by Parent (as finally determined by the Independent
Accountant) bears to the aggregate dollar amount of such items so submitted.
Whether any dispute is resolved by agreement among the parties or by the
Independent Accountant, changes to the Closing Statement shall be made hereunder
only for items as to which Parent has taken exception in the Dispute Notice. The
fees and expenses of the Buyer's independent accountants incurred in connection
with the issuance of the Closing Statement and review of any Dispute Notice
shall be borne by the Buyer, and the fees and expenses of the Parent's
independent accountants incurred in connection with its review of the Closing
Statement shall be borne by the Parent.
(c) Upon determination of the Closing Net Working Capital:
(i) In the event that Closing Net Working Capital is
greater than the Estimated Net Working Capital, Buyer shall pay Sellers an
aggregate amount equal to such excess in cash within five (5) Business Days
after the determination of Closing Net Working Capital pursuant to this Section
1.7.
(ii) In the event that Closing Net Working Capital is
less than the Estimated Net Working Capital, Sellers shall pay Buyer an
aggregate amount equal to such deficiency (the "Deficiency") in cash within five
(5) Business Days after the determination of Closing Net Working Capital
pursuant to this Section 1.7; provided that the first $500,000 of any Deficiency
shall be funded by a distribution to Buyer from the Escrow Fund out of the cash
otherwise distributable to Sellers pursuant to Section 2.5(a)(i) of the Escrow
Agreement.
(iii) In the event of a payment pursuant to either
1.7(c)(i) or (ii), such payment shall include interest thereon from the Closing
Date to the date of actual payment at a
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variable rate equal to the prime rate (as reported in the Wall Street Journal
"Money Rates") from and including the Closing Date to, but not including, the
date of payment.
1.8. Closing. The closing under this Agreement (the "Closing") will
take place at 10:00 A.M., local time, within three (3) Business Days after
satisfaction or waiver of the conditions set forth in Section 5.1 or 5.2 at the
offices of Porter & Hedges, L.L.P., Houston, Texas, or, if required by Buyer's
financing sources, at a location to be designated by such sources in New York,
New York, or if the conditions to Closing set forth in Article V of this
Agreement shall not have been satisfied by such date, as soon as practicable
after such conditions shall have been satisfied, or at such other time, date or
place as the parties shall mutually agree. The date on which Closing occurs is
sometimes referred to herein as the "Closing Date." For accounting and tax
purposes, the Closing shall be effective as of 11:59 p.m. on the Closing Date
(the "Effective Time").
1.9. Certain Consents. Nothing in this Agreement shall be construed as
an agreement to assign any contract, agreement, permit, franchise, right or
claim included in the Purchased Assets which is by its terms or in law
nonassignable, or is not assignable without the consent of the other party or
parties thereto, unless such consent shall have been given, or as to which all
the remedies for the enforcement thereof enjoyed by Sellers would not, as a
matter of law, pass to Buyer as an incident of the assignments provided for by
this Agreement (a "Non-Assignable Contract"). Buyer shall reasonably cooperate
with Sellers in their effort to obtain any such consent, including without
limitation providing its financial statements to the other party to the
applicable contract or agreement subject to a confidentiality agreement and
using its commercially reasonable efforts to obtain surety bonds with respect to
the applicable contract or agreement; provided, that the parties acknowledge
that Buyer may not be able to obtain such bonds until after the Closing. To the
extent that any such consent or approval in respect of, or an novation of, a
Non-Assignable Contract shall not have been obtained on or before the Closing
Date, the parties shall use their commercially reasonable efforts and shall
cooperate in any reasonable arrangement, to the extent permitted by law, to
assure the Buyer the benefits of such Non-Assignable Contract and to allow Buyer
to perform Sellers' obligations under such Non-Assignable Contract to the extent
arising after the Effective Time. To the extent lawful and reasonable under the
circumstances, including the obtaining of any such necessary consent or approval
after the Closing (provided that Sellers and their Affiliates shall not be
required to pay any money or other consideration in excess of nominal amounts to
effect such consent or approval), Sellers, at the request and under the
direction of Buyer, shall take all reasonable actions to assure that the rights
of the Sellers under the Non-Assignable Contracts shall be preserved for the
benefit of and delivered to the Buyer. Nothing in this Section shall in any way
diminish Parent's and Sellers' obligations hereunder to obtain all consents and
approvals (except for the Purchase Order Consents) and to take all such other
actions prior to or at Closing as are necessary to enable Sellers to convey or
assign valid title to all the Purchased Assets to Buyer.
1.10. Deliveries and Proceedings at Closing. At the Closing:
(a) Deliveries by Sellers. Sellers will deliver or cause to be
delivered to Buyer (and/or the Buyer Subsidiaries, if applicable):
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(i) a bill of sale and instrument of assignment to
the tangible Purchased Assets, duly executed by each Seller substantially in the
form of Exhibit C hereto (the "Bill of Sale");
(ii) special warranty deeds (the "Deeds") in the
customary and proper form for recording, duly executed and acknowledged, subject
only to Permitted Encumbrances and to all matters of record in the applicable
counties, to the extent valid, subsisting and enforceable and not shown on the
applicable Title Policy (as hereinafter defined), so as to convey to Buyer
(and/or the Buyer Subsidiaries, if applicable) good, marketable (with respect to
any Owned Real Property located outside of Texas) or indefeasible (with respect
to any Owned Real Property located in Texas) and insurable title to the Owned
Real Properties (as defined in Section 2.17 hereof) (the "Deeds");
(iii) an assignment of all licenses, permits and
warranties relating to the Purchased Assets and of any trademarks, trade names,
patents and the like relating to the Purchased Assets, including an assignment
of any patents relating to the Business which are owned by ITEQ IP (the
"Intangibles Assignment");
(iv) title certificates to any motor vehicles and
trailers owned by Sellers and included in the Purchased Assets duly executed by
the applicable Seller (together with any other transfer forms necessary to
transfer title to such vehicles);
(v) powers of attorney to Buyer to endorse all checks
made payable to Parent, any Seller or any of their Affiliates relating to trade
and other notes and accounts receivable of the Business and for the Lock-Box
Account;
(vi) the Escrow Agreement, duly executed by Parent
and each Seller;
(vii) the Assumption Agreement, as executed by each
Seller and the Parent;
(viii) the Bank Releases and Termination Statements;
(ix) an opinion of Porter & Hedges, L.L.P., dated as
of the Closing Date, substantially in the form of Exhibit D hereto (the
"Sellers' Counsel Opinion");
(x) the consents and approvals of third parties
listed in Section 2.5(b) of the Disclosure Letter.
(xi) a certificate from each Seller stating that it
is not a foreign person in accordance with Sections 897 and 1445 of the Code;
(xii) the Assignment of Leases, duly executed by the
Sellers;
(xiii) duly executed transfers of all of the capital
stock of each Foreign Subsidiary, duly executed share certificates with respect
to such stock in the name of Buyer and/or, at Buyer's option, the Buyer
Subsidiaries and the stock record books, if any, for each of
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the Foreign Subsidiaries which such books shall include the cancelled share
certificates of the Sellers;
(xiv) the Resignations;
(xv) evidence of the Board of Directors resolutions
referenced in Section 4.26 hereof.
(xvi) the certificates required by Sections 5.1; and
(xvii) such other instruments of conveyance as shall,
in the reasonable opinion of Buyer and its counsel, be necessary to vest in
Buyer (and/or the Buyer Subsidiaries, if applicable) good, valid and marketable
(or, with respect to Owned Real Property in Texas, indefeasible) title to the
Purchased Assets in accordance with Section 1.1.
(b) Deliveries by Buyer.
(i) At the Closing, Buyer will deliver to Sellers:
(1) the Closing Cash Payment as provided in
Section 1.6;
(2) the Assumption Agreement, duly executed
by Buyer;
(3) the Bill of Sale, duly executed by
Buyer;
(4) the Intangibles Assignment, duly
executed by Buyer;
(5) the Escrow Agreement, duly executed by
Buyer.
(6) an opinion of Dechert Price & Rhoads,
dated as of the Closing Date, substantially in the form of Exhibit E hereto
("Buyer's Counsel Opinion");
(7) the Assignment of Leases, duly executed
by Buyer; and
(8) the certificates required by Sections
5.2.
(ii) At the Closing, Buyer will deliver to the Escrow
Agent the Escrow Fund amount.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
As of the date of this Agreement, Parent and each Seller
hereby jointly and severally represent, warrant and covenant to and with Buyer
as follows:
2.1. Organization; Power and Authority. Parent and each Seller and
Foreign Subsidiary are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation set
forth in Section 2.1 of the Disclosure Letter.
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Each Seller and Foreign Subsidiary has all requisite power and authority to own,
lease or operate its properties and assets as now owned or leased and to carry
on its businesses as and where now being conducted. Parent and each Seller has
all requisite power and authority to make, execute, deliver and perform this
Agreement, the Bill of Sale, the Assumption Agreement and all other agreements,
documents and instruments to which Parent or each such Seller is a party and to
effect the transactions contemplated hereby and thereby.
2.2. Qualification; Location of Business and Assets. Each Seller is
duly qualified and in good standing as a foreign corporation and duly authorized
to do business in the jurisdictions set forth in Section 2.2 of the Disclosure
Letter, and such jurisdictions are the only jurisdictions wherein the character
of the Purchased Assets or the conduct of the Business make such qualification
necessary, except where the failure to so qualify would not have a Material
Adverse Effect. Set forth in Section 2.2 of the Disclosure Letter is each
location (specifying state, county and city) where any Seller or Foreign
Subsidiary: (a) has a place of business, (b) owns or leases real property, and
(c) owns or leases any other material tangible property, including equipment,
furniture and fixtures, relating to the Business.
2.3. Authorization and Enforceability. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of Parent and Sellers, including, if necessary, shareholder approval. This
Agreement has been, and at Closing the Ancillary Agreements will have been duly
executed and delivered by Sellers and Parent (to the extent such Seller and
Parent is a party thereto), and this Agreement constitutes, and at Closing the
Ancillary Agreements will constitute, the legal, valid and binding obligations
of Sellers and Parent (to the extent such Seller and Parent is a party thereto),
enforceable against each of them in accordance with their respective terms,
except as such enforcement may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting creditors' rights generally and general
principles of equity.
2.4. Subsidiaries; Ownership. No Seller or Foreign Subsidiary, directly
or indirectly, owns any stock of, or any other interest in, any other
corporation or business entity other than as set forth in Section 2.4 of the
Disclosure Letter. The outstanding capital stock of each Foreign Subsidiary is
owned beneficially and of record by ITEQ Storage. There are no outstanding
options, warrants, rights, agreements, calls, commitments or demands of any
character relating to the capital stock of any Foreign Subsidiary and no
securities convertible into or exchangeable for any of such capital stock.
2.5. No Violations.
(a) Except as set forth in Section 2.5(a) of the Disclosure
Letter, the execution, delivery and performance by Parent or any Seller of this
Agreement and the Ancillary Agreements to which such Seller or Parent is a party
and the consummation of the transactions contemplated hereby and thereby do not
and will not (a) contravene any provision of Parent's or any Seller's or Foreign
Subsidiary's charter or bylaws; (b) conflict with or result in a breach of or
constitute a default (or an event which might, with the passage of time or the
giving of notice or both, constitute a default) under any provision of, result
in acceleration of any obligation under, or give rise to a right by any party to
terminate or amend its obligations under, any
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<PAGE> 17
indenture, mortgage, loan or credit agreement or any other agreement or
instrument to which Parent or any Seller or Foreign Subsidiary is a party or by
which it or any of its assets may be bound or affected (including the Assumed
Contracts), except as a result of the failure to obtain any Purchase Order
Consent or any judgment or order of any court or governmental department,
commission, board, agency or instrumentality, domestic or foreign, or any
applicable law, rule or regulation, (c) violate any statute, rule, regulation or
ordinance applicable to Parent or any Seller or Subsidiary, (d) result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the Purchased Assets or Foreign Subsidiary Assets or give
to any third Person any interest or rights therein, (e) result in the maturation
or acceleration of any liability or obligation of Parent or any Seller or
Foreign Subsidiary (or give to any third Person the right to cause such a
maturation or acceleration), or (f) result in the termination of or loss of any
right (or give to any third Person the right to cause such a termination or
loss) under any agreement or contract to which Parent or any Seller or Foreign
Subsidiary is a party or by which any of them may be bound.
(b) Except for any approvals required by the HSR Act, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any Person is required by Parent or any Seller or Foreign
Subsidiary in connection with the execution and delivery of this Agreement, the
Ancillary Agreements or the consummation of the transactions contemplated hereby
or thereby, except for (i) any Purchase Order Consents or (ii) consents of third
Persons which are required to transfer or assign to Buyer any Purchased Assets
or assign the benefits of or delegate performance with regard thereto, which
consents referred to in this subclause (ii) are disclosed in Section 2.5(b) of
the Disclosure Letter.
2.6. Financial Statements.
(a) The books of account and related records of Sellers and
the Foreign Subsidiaries for the Business fairly reflect in reasonable detail
its assets, liabilities and transactions relating to the Business in accordance
with generally accepted accounting principles for the country in which such
Seller or Foreign Subsidiary is incorporated. Attached to Section 2.6(a) of the
Disclosure Letter are unaudited balance sheets of the Business as of December
31, 1996, December 31, 1997, December 31, 1998 and December 31, 1999 and income
statements for the periods then ended (such financial statements including the
notes thereto being referred to collectively herein as the "Financial
Statements").
(b) The Financial Statements have been compiled from and are
in accordance with the Sellers' and Foreign Subsidiaries' books and records and
fairly present in all material respects the financial condition, assets and
liabilities of the Business as of their respective dates and the results of
operations of the Business for the periods then ended, and have been prepared in
accordance with GAAP, consistently applied; provided that the Financial
Statements lack footnotes, schedules and other presentation items. Since October
31, 1997, there has not been any change in the method of accounting or keeping
of books of account or accounting practices with respect to the Business. All
references in this Agreement to the "Balance Sheet" shall mean the balance
sheets of the Division as of December 31, 1999 included in the Financial
Statements and all references to the "Balance Sheet Date" shall mean December
31, 1999.
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2.7. Undisclosed Liabilities. Neither, Parent nor any Seller or Foreign
Subsidiary has any liability or obligation of any nature, whether due or to
become due, absolute, contingent or otherwise, with respect to the Business,
including liabilities for or in respect of federal, state or local Taxes and any
interest or penalties related thereto, except (a) to the extent reflected as a
liability on the Balance Sheet, (b) incurred in the ordinary course of business
since the Balance Sheet Date and fully reflected as liabilities on Sellers'
books of account, none of which individually or in the aggregate, has had or
could reasonably be expected to have a Material Adverse Effect or (c) as
disclosed on Section 2.7 of the Disclosure Letter.
2.8. No Changes. Except as disclosed in Section 2.8 of the Disclosure
Letter, since the Balance Sheet Date, the Sellers and the Foreign Subsidiaries
have conducted the Business only in the ordinary course and in accordance with
past practices. Without limiting the generality of the foregoing sentence,
except as disclosed in Section 2.8 of the Disclosure Letter, since the Balance
Sheet Date:
(a) there has not been any change (or series of changes) in
the present or prospective condition (financial or otherwise), results of
operations, assets, liabilities, earnings, competitive position or business of
the Business that, individually or in the aggregate, has had or reasonably could
be expected to have a Material Adverse Effect, except as may have occurred as a
result of conditions affecting the industry of the Business generally;
(b) no Seller or Foreign Subsidiary has made or promised to
make any increase in any salaries, rates of pay or other compensation or
benefits of any Employees employed in the Business, except for customary
increases and progressions for employees which increases and progressions were
made in the ordinary course of business or changes in benefits generally
provided to all of such Seller's occupational and/or management employees;
(c) no Seller or Foreign Subsidiary has suffered any damage,
destruction or loss of any tangible assets or properties primarily related to,
primarily used in or otherwise necessary or material to the conduct of the
Business (whether or not covered by insurance) in excess of $50,000;
(d) no Seller or Foreign Subsidiary has suffered any strike or
other material labor trouble, or has entered into any material agreement or
material negotiation with any labor union or other collective bargaining
representative of any Employees;
(e) there has not been any change or any threat of any change
in any of any Seller's or Foreign Subsidiary's relations with, or any loss or
threat of loss of, any of the material suppliers, distributors or customers of
the Business;
(f) there has not been any cancellation or knowing waiver of
any right by Parent, Seller or any Foreign Subsidiary under any contract, lease,
agreement, license or permit which right is or was, prior to such cancellation
or waiver, material to the Business;
(g) there has not been any sale, transfer or other disposition
of, or subjection to any Encumbrance of, any assets, properties or rights
constituting, primarily related to, primarily used in or otherwise necessary or
material to the conduct of the Business, except for
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Permitted Encumbrances, sales of inventory and sales of obsolete or damaged
equipment or retirement of equipment, in each case in the ordinary course of
business;
(h) there has not been any making or authorization of any
capital expenditures in excess of $100,000 in the aggregate;
(i) there has not been any payment, discharge or satisfaction
of any material liability or obligation (whether accrued, absolute, contingent
or otherwise) of the Business, other than the payment, discharge or
satisfaction, in the ordinary course of business, of liabilities or obligations
shown or reflected on the Balance Sheet or incurred in the ordinary course of
business since the Balance Sheet Date;
(j) there have not been any write-offs as uncollectible of any
notes or accounts receivable of any Seller or Foreign Subsidiary with respect to
the Business or write-downs of the value of any assets by any Seller with
respect to the Business other than in immaterial amounts or in the ordinary
course of business consistent with past practice;
(k) there has not been any change by any Seller or Foreign
Subsidiary in any method of accounting or keeping its books of account or
accounting practices with respect to the Business;
(l) there has not been any disposition of or failure to keep
in effect any rights in, to or for the use of any patent, trademark, service
mark, trade name or copyright of the Business, or to the knowledge of Sellers,
any disclosure to any person not an Employee or other disposal of any trade
secret, process or know-how of the Business; or
(m) there has not been any material transaction, agreement or
event relating to the Business to which any Seller or Foreign Subsidiary is a
party or a participant outside the ordinary course of business or inconsistent
with such Seller's or Foreign Subsidiary's past practice relating to the
Business.
2.9. Taxes.
(a) All returns and reports for Taxes, including information
returns, that are required to have been filed in connection with, relating to,
or arising out of, the Business (the "Returns"), have been timely filed and all
such Returns are true, complete and accurate in all material respects. Except as
set forth in Section 2.9 of the Disclosure Letter, all Taxes that are shown to
have come due pursuant to such returns or reports (whether or not reflected on
such returns or reports) have been paid or accrued (and in the case of any such
Taxes of a Foreign Subsidiary, will, to the extent not paid as of the Closing,
be reflected as a Current Liability on the Closing Statement), and all other
Taxes in connection with, relating to, or arising out of, the Business for which
a notice of assessment or demand for payment has been received have been paid.
All such returns or reports have been prepared in accordance in all material
respects with all applicable laws and requirements and accurately reflect the
taxable income (or other measure of Tax) of the applicable Seller, Foreign
Subsidiary or other operator of the Business. Sellers, Parent or the Foreign
Subsidiaries have paid all other Taxes that otherwise have become due and
payable with respect to the Business except as set forth in Section 2.9 of the
Disclosure Letter, and Sellers, Parent or the Foreign Subsidiaries have
adequately provided for, on its books of
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account and related records, liability for all other Taxes relating to the
Business not yet due and payable. Neither Parent, nor any Seller or Foreign
Subsidiary has received any notice of proposed adjustment, deficiency or
underpayment of Taxes relating to the Business, which notice has not been
satisfied by payment or been withdrawn, and there are no claims or proposed
adjustments that have been, or are anticipated to be, asserted or threatened
relating to Taxes with respect to the Business. Neither Parent, nor any Seller
or Foreign Subsidiary is currently the subject of any audit or examination with
respect to Taxes relating to the Business.
(b) There are no liens or Encumbrances with respect to Taxes
upon the Purchased Assets or upon the Foreign Subsidiary Assets, in each case
other than customary liens for current Taxes not yet due and payable.
(c) None of the Purchased Assets or Foreign Subsidiary Assets
(i) is property that is required to be treated as owned by another person
pursuant to the "safe harbor lease" provisions of former Section 168(f)(8) of
the Code; (ii) is "tax-exempt use property" within the meaning of Section 168(h)
of the Code or (iii) directly or indirectly secures any debt the interest of
which is tax-exempt under Section 103(a) of the Code.
(d) Sellers, Parent and the Foreign Subsidiaries have withheld
and paid all Taxes required to be withheld and paid with respect to the Business
including, but not limited to, income, social security and employment Taxes.
(e) There is no ruling issued specifically to Parent or any
Seller or Foreign Subsidiary except rulings of general applicability to all
taxpayers or to the industry of the Business (or closing agreement to which any
Seller or any Affiliate is a party) concerning Taxes which would have continuing
effect on the Buyer or a Foreign Subsidiary after the Closing Date.
(f) None of the Purchased Assets is an entity that is treated
as a partnership for federal income tax purposes.
(g) Neither Parent nor any Seller is a foreign person within
the meaning of Sections 897 and 1445 of the Code.
(h) Neither Parent nor any Seller or Foreign Subsidiary has
waived any statute of limitations with respect to Taxes.
(i) Section 2.9 of the Disclosure Letter reflects each
jurisdiction in which any Seller or Foreign Subsidiary has filed income, sales
and use or payroll Tax returns with respect to the Business. No Seller or
Foreign Subsidiary has received any notice from a taxing authority for a
jurisdiction in which such entity has not filed Tax returns with respect to the
Business for a taxable period asserting that the Business may be subject to Tax
in that jurisdiction for such period.
2.10. Accounts Receivable. All of the trade accounts and notes
receivable of the Business reflected on the Balance Sheet or acquired after the
date thereof represent amounts receivable for merchandise actually delivered or
services actually provided (or, in the case of non-trade accounts or notes,
represent amounts receivable in respect of other bona-fide business
transactions), have arisen in the ordinary course of business, are not subject
to any material
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counterclaims or offsets and have been billed and are generally due within 30
days after such billing. All such receivables are fully collectible in the
normal and ordinary course of business, except as reserved in the Closing
Statement.
2.11. Inventory. All of the inventory of the Sellers and the Foreign
Subsidiaries relating to the Business and reflected in the Balance Sheet, and
all inventories acquired since the Balance Sheet Date, are valued at the lower
of cost or market, the cost thereof being determined on a first-in, first-out
basis. All of the inventory reflected in the Balance Sheet and all inventory
acquired since the Balance Sheet Date consist of items of a quality and quantity
usable and saleable in the ordinary course of business subject to any reserve
for writedown included in the Closing Statement.
2.12. No Pending Litigation or Proceedings. Except as set forth on
Section 2.12 of the Disclosure Letter, there are no actions, suits,
investigations, proceedings or claims pending or, to the best of Sellers'
knowledge, threatened by or against or affecting the Business or the Purchased
Assets, at law or in equity, by or before any court or governmental department,
agency or instrumentality. There are presently no outstanding judgments, decrees
or orders of any court or any governmental or administrative agency to which
Parent, any Seller or any Subsidiary is a party or is bound, that could
adversely affect the Business, the Purchased Assets, or the performance of the
obligations of Parent or any Seller hereunder, and neither Parent, any Seller or
Subsidiary is in default in respect of any such order, decree or ruling.
2.13. Contracts; Compliance. Section 2.13 of the Disclosure Letter
contains a complete and correct list of all outstanding contracts to which
Parent or, any Seller is a party or by which any of them is bound included in
the Purchased Assets or Assumed Liabilities and all outstanding contracts to
which any Foreign Subsidiary is a party or by which any of them is bound: (a)
which have unexpired terms of more than one (1) year and cannot be terminated by
the applicable Seller or Foreign Subsidiary without penalty or payment on thirty
(30) days notice or less; (b) which would require over the full term thereof
payments by or to any Seller or Foreign Subsidiary of more than $50,000; (c)
pursuant to which there were payments by or to any Seller or Foreign Subsidiary
of more than $50,000 for the twelve-month period ended November 30, 1999, (d)
which relate to mortgages, indentures, loan or credit agreements, security
agreements and other agreements relating to the borrowing of money or extension
of credit (other than bona fide trade accounts payable arising from the purchase
of goods or services in the ordinary course of business consistent with past
practice with payment terms not exceeding 90 days), (e) which relate to
employment or severance arrangements, (f) which are license agreements, (g)
which are customer purchase orders, (h) which were entered into out of the
ordinary course of business of the Business, or (i) which are otherwise material
to the Business (collectively the "Material Contracts"); provided that the list
of customer purchase orders included in Section 2.13 of the Disclosure Letter is
accurate as of January 26, 2000 and is subject to change as a result of the
ordinary course of operations of the Business between January 26, 2000 and the
Closing Date. True and correct copies of the contracts listed in Section 2.13 of
the Disclosure Letter (other than Purchase Orders which have unexpired terms of
less than one (1) year or which have unexpired terms of more than one (1) year
but can be terminated by the applicable Seller or Foreign Subsidiary without
penalty or payment in thirty (30) days notice or less) have been delivered to
Buyer. Each of the Material Contracts is valid, binding and enforceable against
the applicable Seller or Foreign Subsidiary, and to the
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knowledge of Sellers, the other parties thereto, in accordance with its terms
and is in full force and effect, except as such enforcement may be limited by
applicable bankruptcy, solvency, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity. Except as set
forth in Section 2.13 of the Disclosure Letter, the applicable Seller and/or
Foreign Subsidiary, and to the knowledge of Sellers, each of the other parties
thereto, have performed all material obligations required to be performed by
them under, and are not in material default under, any of the Material Contracts
and no event has occurred which, with notice or lapse of time, or both, would
constitute such a default by such Seller and/or Foreign Subsidiary, or to
Sellers' knowledge, the other parties thereto. Except as disclosed on Section
2.13 of the Disclosure Letter, Parent, Sellers and the Foreign Subsidiaries have
not received any written claim from any other party to any Material Contracts
that any Seller or Foreign Subsidiary has breached any obligations to be
performed by it thereunder, or is otherwise in default or delinquent in
performance thereunder. All sales representation and distributor agreements
pertaining to the Business are terminable by the applicable Seller or Foreign
Subsidiary without penalty or payment on ninety (90) days notice or less. There
are no agreements not to compete which adversely affect or restrict the conduct
of the Business or could reasonably be expected to adversely affect or restrict
the conduct of the Business by Buyer after the Closing.
2.14. Compliance with Laws. Section 2.14 of the Disclosure Letter sets
forth a list of all material permits, certificates, licenses, orders,
registrations, franchises, authorizations and other approvals from all federal,
state, local and foreign governmental and regulatory bodies which are required
in connection with the operation of the Business. Sellers and the Foreign
Subsidiaries hold and are in material compliance with all permits, certificates,
licenses, orders, approvals, consents, registrations, franchises and
authorizations required under all laws, rules and regulations in connection with
the Business, and, all of such permits, certificates, licenses, orders,
approvals, consents, registrations, franchises and authorizations are in full
force and effect. Except with respect to Environmental Laws (which are the
subject of Section 2.15 hereof), Sellers and the Foreign Subsidiaries have
conducted the Business in compliance in all material respects with all
applicable statutes, rules, regulations and orders, federal, governmental, state
and municipal. Except with respect to Environmental Laws (which are the subject
of Section 2.15 hereof), no notice, citation, summons or order has been received
by Parent, any Seller or Foreign Subsidiary, or to Sellers' knowledge, issued,
no complaint has been served, or to Sellers' knowledge filed, no proceedings
have been commenced, no penalty has been assessed and no investigation or review
is pending or, to Sellers' knowledge, threatened by any Governmental Authority
or other entity (a) with respect to any alleged violation by any Seller or
Foreign Subsidiary in connection with the conduct of the Business of any law,
ordinance, rule, regulation or order of any Governmental Authority or (b) with
respect to any alleged failure by Parent or any Seller or Foreign Subsidiary to
have or to comply with any permit, certificate, license, consent, approval,
registration or authorization required in connection with the Business or
otherwise applicable to the Business.
2.15. Environmental Matters.
(a) To the extent relating to the Business, except as
disclosed in Section 2.15 of the Disclosure Letter, which disclosed items could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect:
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(i) To the knowledge of Sellers, Sellers and the
Foreign Subsidiaries hold and formerly held, and are and have been, in
compliance in all material respects with, all Environmental Permits, and the
Sellers and Foreign Subsidiaries are and have been, in compliance in all
material respects with all applicable Environmental Laws, and there are no
circumstances known to Sellers or Parent that might prevent or interfere with
such compliance in the future;
(ii) Neither Parent nor any Seller or Foreign
Subsidiary has received any material Environmental Claim, and neither Parent nor
any Seller or Foreign Subsidiary is aware of any threatened material
Environmental Claim or of any circumstances, conditions or events that could
reasonably be expected to give rise to a material Environmental Claim against
Parent, Sellers or the Foreign Subsidiaries arising out of or relating to the
Business;
(iii) Neither Parent nor any Seller or Foreign
Subsidiary has entered into or agreed to any consent decree, order or agreement
under any Environmental Law, and neither Parent nor any Seller or Foreign
Subsidiary is subject to any judgment, determination of any Governmental
Authority, decree, order, notice of any Governmental Authority or, to Sellers'
knowledge, other requirement (except for ordinary day-to-day requirements under
Environmental Laws) relating to its compliance with any Environmental Law or to
its investigation, cleanup, remediation or removal of Hazardous Materials under
any applicable Environmental Law;
(iv) To the knowledge of Sellers, there are no past
or present actions, activities, events, conditions or circumstances, including
without limitation the use, generation, management, Release, threatened Release,
treatment or storage of Hazardous Materials (including, without limitation, with
respect to assets, businesses, properties or facilities currently or formerly
owned, operated, leased or used by Parent or any Seller or Foreign Subsidiary
with respect to the Business or with respect to any off-site location), in
material violation of, or in a manner or location that has or could give rise to
any material liability under, any Environmental Laws in effect on the date
hereof and the Closing Date or any contract or agreement;
(v) No modification, revocation, reissuance,
alteration, transfer, or amendment of the Environmental Permits, or any review
or approval of, any third party of the Environmental Permits is required in
connection with the execution or delivery of this Agreement or the consummation
of the transactions contemplated hereby or the uninterrupted continuation of the
Business following such consummation except for such modifications, revocations,
reissuances, alterations, transfers or amendments which can be obtained without
interruption to the continuation of the Business following such consummation and
which shall not impose any material additional obligations or limitations upon
Buyer after the Closing; and
(vi) There have been no unresolved claims made or, to
the knowledge of Sellers, threatened against the Parent or any Seller or Foreign
Subsidiary alleging that any disposal, release or threatened release of
Hazardous Materials at or from any tank or tank system which was designed,
upgraded, maintained, altered or otherwise serviced by the Business was or is,
in full or in part, a result of the acts, omissions or negligence of Parent or
any Seller or Foreign Subsidiary, or for which Parent or any Seller or Foreign
Subsidiary is or is alleged to be responsible or liable (including without
limitation at any customer's property).
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(b) The Sellers and the Parent have provided the Buyer with
copies of or access to all (i) environmental reports, studies, audits and
analyses; (ii) any material environmental correspondence or notices, and (iii)
and Environmental Permits, in each case with respect to the Business.
(c) For purposes of this Agreement, the following terms shall
have the following meanings:
"Environmental Claim" means any written notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability (including without limitation
liability or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damage, personal
injury, fines or penalties) arising out of, relating to, based on or resulting
from (i) the use, generation, management, Release, threatened Release,
treatment, storage or presence, of any Hazardous Materials at any location, or
(ii) any violation or alleged violation of any Environmental Law or
Environmental Permit or (iii) otherwise relating to obligations or liabilities
under any Environmental Laws.
"Environmental Permits" means all permits, licenses, consents,
registrations and other governmental authorizations required for the Business
and the operations of the Business and otherwise to conduct its business under
Environmental Laws, including without limitation any applicable federal, state,
local or other governmental tank installer certifications required to work on,
repair, alter, remove, upgrade or maintain storage tanks (to the extent the
Business conducts such activities).
"Environmental Laws" means all applicable federal, foreign,
state and local statutes, rules, regulations, ordinances, orders, codes or
practice (only with respect to U.K. law), circulars and guidance notices (only
with respect to U.K. law), decrees and common law relating in any manner to
contamination, pollution or protection of human health or the environment,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act, the Solid Waste Disposal Act, the Clean Air Act,
the Clean Water Act, the Toxic Substances Control Act, the Occupational Safety
and Health Act, the Emergency Planning and Community-Right-to-Know Act, the Safe
Drinking Water Act, all as amended, and similar foreign, state and local laws.
"Hazardous Materials" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum products, asbestos and asbestos-containing materials,
pollutants, contaminants and all other materials and substances, regulated
pursuant to, or that could form the basis of liability under, any Environmental
Law.
"Release" means any release, emission, discharge or disposal.
2.16. Assets. Except as disclosed in Section 2.16 of the Disclosure
Letter, Sellers and the Foreign Subsidiaries have, and upon consummation of the
transactions contemplated by this Agreement, Buyer and the Foreign Subsidiaries
will have good, valid and marketable (or indefeasible, with respect to Owned
Real Property in Texas) title to, or good, valid and
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indefeasible leasehold interest in, all of the Purchased Assets and the Foreign
Subsidiary Assets, whichever applicable, free and clear of any Encumbrance
except for Permitted Encumbrances, and none of the Purchased Assets or Foreign
Subsidiary Assets is owned jointly with any other Person.
2.17. Real Estate.
(a) Sellers and the Foreign Subsidiaries have good, marketable
and insurable, with respect to the real properties located outside of Texas, or
good, indefeasible and insurable, with respect to the real properties located in
Texas, fee simple title (both legal and beneficial) to the real properties
listed on Section 2.17(a) of the Disclosure Letter (the "Owned Real Properties")
which are the only real property owned by the Sellers or the Foreign
Subsidiaries relating to the operation of the Business. Sellers have delivered
to Buyer complete and correct copies of all existing title insurance policies
held by the Parent, Sellers and the Foreign Subsidiaries, and all surveys held
by the Parent, Sellers and the Foreign Subsidiaries with respect to the Owned
Real Properties. The Owned Real Properties are free and clear of all
Encumbrances, except: (a) Encumbrances set forth on Section 2.17(a) of the
Disclosure Letter and (b) Permitted Encumbrances. Each Seller or Foreign
Subsidiary is in actual possession of its respective Owned Real Properties.
(b) (i) Section 2.17(b) of the Disclosure Letter contains an
accurate and complete list of all leases, assignments of leases, subleases or
other rights of occupancy pursuant to which any Seller or Foreign Subsidiary
leases, subleases or otherwise occupies any real property or interest therein
relating to the operation of the Business (collectively, the "Real Property
Leases"). Each Seller or Foreign Subsidiary is, or the respective predecessor by
merger, consolidation or name change is, the named lessee under the applicable
Real Property Lease (with the applicable Seller or Subsidiary identified as such
on Section 2.17(b) of the Disclosure Letter with respect to each Real Property
Lease), and no party other than the Parent, any Subsidiary of Parent, the
Sellers or a Foreign Subsidiary has any right to possession, occupancy or use of
any of the properties demised under the Real Property Leases. A true and correct
copy of each Real Property Lease has been delivered to Buyer, together with all
amendments and modifications thereto, and all subordination, non-disturbance
and/or attornment agreements related thereto, and no changes have been made
thereto since the date of delivery. Each Real Property Lease is valid and in
full force and effect and is binding and enforceable in accordance with its
terms with respect to the applicable Seller or Foreign Subsidiary and, to
Seller's knowledge, the other party thereto, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally and to general principles of equity.
Subject to obtaining the Landlord Consents, no Seller or Foreign Subsidiary is,
and to Sellers' knowledge, no other party is, in material default under any
provision of any of the Real Property Leases, and no event has occurred which
(with or without notice, lapse of time or both) would constitute a material
default thereunder by the applicable Seller or Foreign Subsidiary or, to
Sellers' knowledge, any other party thereto.
(ii) A Seller or Foreign Subsidiary (whichever applicable)
is in actual exclusive possession of the properties demised to such Seller or
Foreign Subsidiary under the Real Property Leases. Each Seller and Foreign
Subsidiary has good, valid and indefeasible title to all the leasehold estates
conveyed to such Seller or Foreign Subsidiary under the Real Property
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Leases (the "Leased Real Estate") free and clear of all Encumbrances except for
Permitted Encumbrances and the terms and provisions of the Real Property Leases,
and are not, with respect to the properties demised under the Real Property
Leases, subject to any rights of way, building use restrictions, exceptions,
variances, reservations or limitations of any nature whatsoever except for
Permitted Encumbrances and the terms and conditions of the Real Property Leases.
(iii) All work required to be performed under the
Real Property Leases by the landlords thereunder or by Parent, the Sellers or
Foreign Subsidiaries has been performed in all material respects, and, to the
extent that Parent or any Seller or Foreign Subsidiary is responsible for
payment of such work, has been fully paid for, whether directly to the
contractor performing such work or to such landlord as reimbursement therefor,
except to the extent payment is being contested in good faith through
appropriate proceedings. The basic rent, all additional rent and all other
amounts due and payable under the Real Property Leases have been paid to date
and not more than one month in advance, except to the extent payment is being
contested in good faith through appropriate proceedings (and if being so
contested, full details are set out in Section 2.18(b) of the Disclosure
Letter). There are no brokerage fees or commissions due from Parent, any Seller
or any Foreign Subsidiary with respect to any of the Real Property Leases.
(iv) There have been no casualties, damages or
destruction which could result in the termination of any Real Property Lease or
the application of any buy-out provisions contained in any Real Property Lease
relative to such damage.
(v) Except as set forth in Section 2.17(b) of the
Disclosure Letter, neither the consent of any of the landlords under any of the
Real Property Leases, nor the consent of any person (collectively, the "Landlord
Consents") claiming by or through such landlord or any such other party, is
required by reason of any of the transactions contemplated by this Agreement,
and none of the rights of the Business will be impaired by the consummation of
the transactions contemplated by this Agreement. Subject to the terms and
provisions of the applicable Real Property Lease and the receipt of the Landlord
Consents, Buyer will be able to enforce all the rights of tenant under the Real
Property Leases after the Closing Date without the consent or agreement of any
other party, including all rights to purchase any of the parcels demised by the
Real Property Leases or to renew any of the Real Property Leases pursuant to
options to purchase or renew contained in any of the Real Property Leases
(collectively, the "Options") Neither the Sellers nor the Foreign Subsidiaries
have exercised any Options with respect to the Real Property Leases, except as
set forth in Section 2.17(b) of the Disclosure Letter.
(c) The Owned Real Properties and the premises demised under
the Real Property Leases constitute all of the real property (the "Real
Property") related to the operation of the Business. Except as set forth in
Section 2.17(c) of the Disclosure Letter, the buildings and other improvements
to the Real Property are operational and in good condition and repair, ordinary
wear and tear excepted. No portion of any of the improvements erected on the
Owned Real Properties encroaches on adjoining property or public streets. The
water, gas, electricity and other utilities serving each parcel of the Real
Property are currently adequate to service the normal operation of the Business
on each parcel of the Real Property as currently conducted.
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The use of each parcel of the Real Property by the applicable Seller or Foreign
Subsidiary is permitted under the zoning classification applicable to such
parcel or is otherwise permitted by relevant planning law or by variance, permit
or as a pre-existing nonconforming use, and none of such uses nor, with respect
to the Owned Real Property, the parcels themselves are otherwise nonconforming.
(d) Neither the Sellers nor the Foreign Subsidiaries have
received written notice of or has any actual knowledge of any (a) pending or
threatened condemnation action, eminent domain proceeding, enforcement
proceedings or other litigation, action or proceeding concerning any of the Real
Property, or (b) any pending or threatened investigation by any governmental
authority which relates to the ownership, maintenance, use or operation of any
of the Real Property.
(e) Parent and Sellers have supplied to Buyer prior to the
date of this Agreement with a true, correct and complete copy of every document
of title relating to the Owned Real Property located in the United Kingdom.
(f) Each Seller maintains a place of business in more than one
state in the United States and each Seller's chief executive office is located
in Texas.
2.18. Condition of the Assets. The Purchased Assets and the Foreign
Subsidiary Assets are suitable for the purposes for which they are presently
used and, except as set forth in Section 2.18 of the Disclosure Letter, there is
no expenditure presently required in order to maintain such condition and state
of repair or replace any such Purchased Asset or Foreign Subsidiary Asset which
individually exceeds $10,000 or in the aggregate exceeds $50,000. The Purchased
Assets, other than the Excluded Assets, and the Foreign Subsidiary Assets
represent all assets and rights that are used by Parent, the Sellers and the
Foreign Subsidiaries in the operation of the Business.
2.19. Employees.
(a) The relations of Sellers and the Foreign Subsidiaries with
the Business Employees are good. Except as disclosed in Section 2.19(a) of the
Disclosure Letter: (i) no Business Employee is represented by any union,
collective bargaining or similar labor agreement, (ii) there is no unfair labor
practice charge pending, or to Sellers' knowledge, threatened against any Seller
or Foreign Subsidiary relating to any of the Business Employees; (iii) there is
no labor strike or stoppage relating to any of the Business Employees actually
pending or, to Sellers' knowledge, threatened against or involving any Seller or
Foreign Subsidiary; (iv) no labor grievance relating to any of the Business
Employees is pending or, to the knowledge of Sellers, threatened; (v) no Seller
or Foreign Subsidiary has in the past three years experienced any work stoppage
relating to any of the Business Employees; (vi) there is no labor grievance
pending or, to the knowledge of Sellers, threatened in relation to any of the
Business Employees; (vii) no Seller or Foreign Subsidiary has any labor
negotiations in process with any labor union or other labor organization
relating to the Business; and (viii) there are no efforts in process by unions
to organize any Business Employees who are not now represented by recognized
collective bargaining agents.
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(b) Except as disclosed in Section 2.19(b) of the Disclosure
Letter, no severance payment or benefit will become due to any Business Employee
upon the execution of this Agreement, upon the Closing or upon the consummation
of the transactions contemplated hereby.
2.20. Insurance. Section 2.20 of the Disclosure Letter contains a
complete and correct list of all policies of insurance covering any of the
Purchased Assets or the Business (the "Insurance Policies), true, correct and
complete copies of which have been delivered or made available to Buyer,
indicating for each policy the carrier, the insured, type of coverage, the
amounts of coverage, deductible, premium rate, cash value if any, expiration
date and any pending claims thereunder. All such policies are in full force and
effect. The coverages provided by such policies are reasonable, in both scope
and amount, in light of the risks attendant to the Business. All premiums due on
such policies have been paid in full. There is no default with respect to any
provision contained in any such policy which could have an adverse affect upon
the ability of the insured to collect insurance proceeds under such policy, nor
has there been any failure by the insured to give any notice or present any
claim under any such policy in a timely fashion or in the manner or detail
required by the policy. Except as set forth in Section 2.20 of the Disclosure
Letter, there are no outstanding unpaid claims under such policies. No notice of
cancellation or non-renewal with respect to, or disallowance of any claim under,
any such policy has been received by any Seller or Foreign Subsidiary. Except as
set forth in Section 2.20 of the Disclosure Letter, no Seller or Foreign
Subsidiary has been refused any insurance with respect to the Business, nor has
its coverage been limited by any insurance carrier to which it has applied for
insurance with respect to the Business or with which it has carried insurance
with respect to the Business during the last three years. Except as set forth on
Section 2.20 of the Disclosure Letter, all liability policies maintained by or
for the benefit of each Seller or Foreign Subsidiary during the last five years
with respect to the Business have been "occurrence" policies and not "claims
made" policies.
2.21. Intellectual Property Rights.
(a) Section 2.21(a) of the Disclosure Letter contains a
complete and accurate list of all patents and patent applications, copyright
registrations, trademarks, service marks, trade names, and registrations and
applications for registration of trademarks, service marks, trade names and
trade dress used by the Sellers, the Foreign Subsidiaries or ITEQ IP in the
conduct of the Business or otherwise constituting any portion of the Purchased
Assets (the "Intellectual Property Rights") specifying as to each such item, as
applicable: (i) the owner of the item; (ii) the jurisdictions in which the item
is issued or registered or in which any application for issuance or registration
has been filed, including the respective issuance, registration, or application
number; (iii) the date of application and issuance or registration of trademarks
or service marks and the class or classes of goods or services on which each
such trademark or service mark is or is intended to be used.
(b) Section 2.21(b) of the Disclosure Letter contains a
complete and accurate list of all material licenses, sublicenses, consents and
other agreements (i) pertaining to any patents, trademarks, service marks, trade
names, trade dress, copyrights, trade secrets, computer software programs, or
other intellectual property used in the conduct of the Business or (ii) by which
any Seller or Foreign Subsidiary licenses or otherwise authorizes a third Person
to use
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such intellectual property. No Seller or Foreign Subsidiary is in breach of or
default under any such license or other agreement in any material respect and
each such license or other agreement is now in full force and effect.
(c) Except as set forth in Section 2.21(c) of the Disclosure
Letter, (i) Sellers, the Foreign Subsidiaries, and ITEQ IP own or license or
otherwise have the exclusive right to use, and (except with respect to
commercially available computer software) have the right to bring actions for
the infringement of, all patents, trademarks, service marks, trade names, trade
dress, copyrights, inventions, trade secrets, confidential and proprietary
information, computer software programs, and other intellectual property
necessary for the operations of the Business as it is currently conducted and
(ii) except for the Excluded Assets, no other computer software or other
electronic data transmission is required for the Sellers or Foreign Subsidiaries
to operate the Business as presently conducted. The computer hardware and
software are adequate for the conduct of the Business and the Purchased Assets
as currently conducted. All computer software is capable of consistently and
accurately processing, managing and manipulating date/time data from, into, and
between the twentieth and twenty-first centuries, and the years 1999, 2000 and
leap year calculations, including, without limitation, date/time data
recognition, calculations which involve same century and multi-century formulas
and date values, and date/time-related user interface functionalities and data
fields which reflect the century.
(d) To Sellers' knowledge, the operation of the Business does
not infringe on the patents, trademarks, service marks, trade names, trade
dress, copyrights, trade secrets or other intellectual property rights of any
third Person, and no claim has been made, notice given, or dispute arisen to
that effect.
(e) Except as set forth in Section 2.21(e) of the Disclosure
Letter, none of Parent, any Seller, any Foreign Subsidiary or ITEQ IP has any
pending claims that a third Person has violated or infringed any of Parent's,
such Seller's, such Foreign Subsidiary's or ITEQ IP's patents, trademarks,
service marks, trade names, trade dress, copyrights, trade secrets or other
proprietary rights relating to the Business and neither Parent, any Seller, any
Foreign Subsidiary or ITEQ IP has given any indemnification to any third Person
against infringement of such intellectual property rights.
(f) All of the trademarks, service marks and trade names shown
in Section 2.21(a) of the Disclosure Letter are currently being used by the
Sellers and Foreign Subsidiaries in the Business.
(g) Except as explicitly indicated in Section 2.21(g) of the
Disclosure Letter, all of the patents, trademark and service mark registrations,
and copyright registrations indicated in Section 2.21(a) of the Disclosure
Letter are valid and in full force, are held of record in Sellers' or ITEQ IP's
name free and clear of all Encumbrances (except for the security interest of
BankBoston pursuant to the Credit Agreement) and are not the subject of any
cancellation or reexamination proceeding or any other proceeding challenging
their extent or validity. Except as set forth in Section 2.21(b) of the
Disclosure Letter, either a Seller or ITEQ IP is the applicant of record in all
patent applications, and applications for trademark, service mark, trade dress,
industrial design, and copyright registration indicated in Section 2.21(a) of
the Disclosure Letter,
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and no opposition, extension of time to oppose, interference, rejection, or
refusal to register has been received in connection with any such application.
(h) No order, holding, decision or judgment has been rendered
by any Governmental Authority against Parent, ITEQ IP or any Seller or Foreign
Subsidiary, and no agreement, consent or stipulation exists to which Parent,
ITEQ IP or any Seller or Foreign Subsidiary is a party, which would limit
Parent's, ITEQ IP's or any Seller's or Foreign Subsidiary's use of any
intellectual property or any of any Seller's or Foreign Subsidiary's advertising
or promotional claim or campaign relating to the Business.
(i) Sellers have supplied Buyer with copies of all material
documents listed in Section 2.21(a) of the Disclosure Letter and documents
evidencing all material rights listed on Section 2.21(a) of the Disclosure
Letter.
(j) Except as set forth in Section 2.22(j) of the Disclosure
Letter, the Intellectual Property Rights constitute all of the intellectual
property used by Parent, Sellers and the Foreign Subsidiaries in the operation
of the Business.
2.22. Employee Benefit Plans.
(a) Set forth on Section 2.22(a) of the Disclosure Letter is a
true and complete list of each (i) "employee benefit plan," as defined in
Section 3(3) of ERISA (excluding any "multiemployer plan" as defined in Section
3(37) of ERISA), (ii) all other pension, retirement, supplemental retirement,
deferred compensation, excess benefit, profit sharing, bonus, incentive, stock
purchase, stock ownership, stock option, stock appreciation right, severance,
salary continuation, termination, change-of-control, health, life, disability,
group insurance, vacation, holiday and fringe benefit plan, program, contract,
or arrangement (whether written or unwritten, qualified or nonqualified, funded
or unfunded and including any that have been frozen) maintained, contributed to,
or required to be contributed to, by Parent or any Seller, Subsidiary or ERISA
Affiliate for the benefit of any Business Employee or Former Business Employee,
or under which Parent or any Seller, Subsidiary or ERISA Affiliate has any
liability with respect to any Business Employee or Former Business Employee,
other than the Foreign Plans (as defined below) (the "Benefit Plans"). Section
2.22(a) of the Disclosure Letter also contains a complete and correct list of
all "multiemployer plans" as defined in Section 3(37) of ERISA contributed to,
or required to be contributed to by Parent or any Seller, Subsidiary or ERISA
Affiliate for the benefit of any Business Employee or Former Business Employee
or under which Parent or any Seller, Subsidiary or ERISA Affiliate has any
liability with respect to any Business Employee or Former Business Employee (the
"Multiemployer Plans").
(b) As applicable with respect to each Benefit Plan, Sellers
have delivered to Buyer, true and complete copies of (i) each Benefit Plan,
including all amendments thereto, and in the case of an unwritten Benefit Plan,
a written description thereof, (ii) the current summary plan description and
each summary of material modifications thereto, (iii) the three most recent
annual reports (Form 5500 and all schedules thereto) filed with the Internal
Revenue Service ("IRS"), (iv) the most recent IRS determination letter, and (v)
all records, notices and filings concerning IRS or Department of Labor audits or
investigations, "prohibited transactions" within
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the meaning of Section 406 of ERISA or Section 4975 of the Code and "reportable
events" within the meaning of Section 4043 of ERISA.
(c) Except as otherwise disclosed with particularity on
Section 2.22(c) of the Disclosure Letter:
(i) Sellers, Parent, each Subsidiary and each ERISA
Affiliate are in compliance in all material respects with the provisions of
applicable law, including ERISA and the Code, applicable to the Benefit Plans
and the Multiemployer Plans. Each Benefit Plan and to the knowledge of Sellers
each Multiemployer Plan has been maintained, operated and administered in
compliance in all material respects with its terms and any related documents or
agreements and the provisions of applicable law, including ERISA and the Code.
(ii) No Benefit Plan is now or at any time has been
subject to Part 3, Subtitle B of Title I of ERISA or Title IV of ERISA.
(iii) There are no pending audits or investigations
by any governmental agency involving the Benefit Plans or to the knowledge of
Sellers the Multiemployer Plans and no pending or, to the knowledge of Sellers,
threatened claims (except for individual claims for benefits payable in the
normal operation of the Benefit Plans), suits or proceedings involving any
Benefit Plan, any fiduciary thereof or service provider thereto.
(iv) No Seller, Parent, Subsidiary or ERISA
Affiliate, and to the knowledge of Sellers, no fiduciary, trustee or
administrator of any Benefit Plan or Multiemployer Plan, has engaged in or, in
connection with the transactions contemplated by this Agreement, will engage in
any transaction with respect to any Benefit Plan or Multiemployer Plan which
would subject any such Benefit Plan, Multiemployer Plan, Seller, ERISA Affiliate
or Buyer to a tax, penalty or liability for a "prohibited transaction" under
Section 406 of ERISA or Section 4975 of the Code. None of the assets of any
Benefit Plan is invested in any property constituting "employer real property"
or an "employer security" within the meaning of Section 407 of ERISA.
(v) Any insurance premium under any insurance policy
related to a Benefit Plan for any period up to and including the Closing Date
shall have been paid, or accrued and booked on or before the Closing Date, and,
with respect to any such insurance policy or premium payment obligation, neither
Sellers, Parent, any Subsidiary, any ERISA Affiliate or Buyer shall be subject
to a retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability.
(vi) With respect to each Benefit Plan that is a
"group health plan" within the meaning of Section 607 of ERISA and that is
subject to Section 4980B of the Code, the Sellers, Parent, each Subsidiary and
each ERISA Affiliate comply in all respects with the continuation coverage
requirements of the Code and ERISA.
(vii) No Benefit Plan provides benefits, including,
without limitation, death or medical benefits, beyond termination of service or
retirement other than (A) coverage mandated by law, or (B) death or retirement
benefits under a Benefit Plan qualified under Section 401(a) of the Code.
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(viii) The execution of and performance of the
transactions contemplated by this Agreement will not constitute an event under
any Benefit Plan that will result in any payment (whether as severance pay or
otherwise), acceleration, vesting or increase in benefits with respect to any
Business Employee or Former Business Employee. No Benefit Plan provides for
"parachute payments" within the meaning of Section 280G of the Code.
(ix) All contributions to the Multiemployer Plans
which are required to be made before the Closing Date have been or will be
timely made. No Seller, Parent, Subsidiary or ERISA Affiliate has any liability
(contingent or otherwise) relating to the withdrawal or partial withdrawal from
a Multiemployer Plan that has not been fully satisfied. Except as set forth in
Section 2.22(c) of the Disclosure Letter, neither Parent nor any Seller,
Subsidiary or ERISA Affiliate would have any liability relating to a
Multiemployer Plan if such entity withdrew (in either a complete or partial
withdrawal) from such Multiemployer Plan on the Closing Date.
(d) Set forth on Section 2.22(d) of the Disclosure Letter is a
true and complete list of all pension, retirement, supplemental retirement,
deferred compensation, excess benefit, profit sharing, bonus, incentive, stock
purchase, stock ownership, stock option, stock appreciation right, severance,
salary continuation, termination, change-of-control, health, life, disability,
group insurance, vacation, holiday and fringe benefit plan, program, contract or
arrangement (whether written or unwritten, qualified or nonqualified, funded or
unfunded and including any that have been frozen) maintained, contributed to, or
required to be contributed by Parent or any Seller, Subsidiary or Affiliate for
the benefit of any Business Employee or Former Business Employee, or under which
any Seller, Parent, any Subsidiary or any Affiliate has any liability with
respect to any Business Employee or Former Business Employee outside the
jurisdiction of the United States ("Foreign Plans").
(e) As applicable with respect to each Foreign Plan, Sellers
have delivered to Buyer, true and complete copies of (i) each Foreign Plan,
including all amendments thereto, and in the case of an unwritten Foreign Plan,
a written description thereof, (ii) the current employee communication materials
and any modifications thereto, (iii) the three most recent annual governmental
filings, and (iv) all notices or filings concerning any governmental audits or
investigations.
(f) Except as otherwise disclosed with particularity on
Section 2.22(f) of the Disclosure Letter:
(i) Each of the Foreign Plans is in compliance in all
material respects with the applicable laws of each jurisdiction in which any of
the Foreign Plans is maintained.
(ii) All contributions to and payments from, the
Foreign Plans (other than payments to be made from a trust, insurance contract
or other funding medium) which are required to be made before the Closing Date
in accordance with the terms of any such Foreign Plan or any applicable law of
the jurisdiction in which such Foreign Plan is maintained, have been or will be
timely made.
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2.23. Brokerage. Neither Parent nor any of its subsidiaries (including
any Seller or Foreign Subsidiary) have made any agreement or taken any other
action which might cause anyone to become entitled to a broker's fee or
commission as a result of the transaction contemplated hereunder for which Buyer
could be liable.
2.24. Related Party Transactions. Except as disclosed in Section 2.24
of the Disclosure Letter, no Related Party, as of the date hereof: (i) has any
material contractual or other claim, express or implied, or of any kind
whatsoever relating to the Business or any of the Purchased Assets or the
Foreign Subsidiary Assets; (ii) has any interest in any of the Purchased Assets
or the Foreign Subsidiary Assets; or (iii) is engaged in any other transaction
with any Seller with respect to the Business or with any Foreign Subsidiary. As
used herein, "Related Party" means Parent, any Subsidiary, any officer or
director of Parent or any such Subsidiary, or any of their respective officers
or directors, any relative (whether by blood, adoption or marriage) or any
Affiliate of the foregoing.
2.25. Solvency. (i) The fair value of the assets of each of the Parent
(on a consolidated basis), each Seller and the Foreign Subsidiaries, at a fair
valuation, exceeds their respective debts and liabilities, subordinated,
contingent or otherwise; (ii) the present fair saleable value of the property of
the Parent, Sellers and Foreign Subsidiaries is greater than the amount that
will be required to pay the probable liability of their respective debts and
other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (iii) assuming Parent is able to
refinance its debt under the Credit Agreement on or before the maturity or
acceleration of such debt, the Parent, Sellers and Foreign Subsidiaries are able
to pay their respective debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured; and (iv)
assuming Parent is able to refinance its debt under the Credit Agreement on or
before the maturity or acceleration of such debt, the Parent, Sellers and
Foreign Subsidiaries do not have unreasonably small capital with which to
conduct the business in which they are engaged as such business is now conducted
and is proposed to be conducted.
2.26. Bank Approval. Parent has provided to Buyer a true and correct
copy of the agreement of BankBoston and the other lenders under the Credit
Agreement consenting and approving of the execution of this Agreement and the
consummation of the transactions contemplated hereby (the "Bank Approval").
2.27. Disclosure. No representation or warranty by Sellers or Parent in
this Agreement, the Disclosure Letter or certificate delivered by Sellers or
Parent to Buyer at Closing pursuant hereto, contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements or facts contained herein or therein not
misleading in light of the express language of the applicable statement being
made.
2.28. Disclaimer of Other Representations and Warranties. EXCEPT AS
EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY DOCUMENT OR AGREEMENT DELIVERED
PURSUANT HERETO, THE SELLERS AND PARENT MAKE NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF ANY OF THEIR RESPECTIVE
BUSINESS OR ASSETS (INCLUDING, WITHOUT LIMITATION, THE BUSINESS AND PURCHASED
ASSETS),
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LIABILITIES OR OPERATIONS, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO
MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, CONFORMITY TO SAMPLES OR
MODELS AND CONDITION AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY
EXPRESSLY DISCLAIMED. The parties agree that the foregoing disclaimers of
warranty are "CONSPICUOUS" disclaimers for purposes of any applicable law, rule,
regulation or order. Buyer hereby acknowledges and agrees that, except to the
extent specifically set forth in this Agreement or in any document or agreement
delivered pursuant hereto, the Buyer is purchasing the Purchased Assets on an
"as-is", where-is" basis. Without limiting the generality of the foregoing,
except as set forth in this Agreement or in any document or agreement delivered
pursuant hereto, the Sellers and Parent make no representation or warranty
regarding any assets other than the Purchased Assets or any liabilities other
than the Assumed Liabilities, and none shall be implied at law or in equity.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
As of the date of the Agreement, Buyer represents and warrants
to Sellers and Parent as follows:
3.1. Organization; Corporate Power and Authority. Buyer is a Delaware
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware. Buyer has all requisite corporate power and authority to make,
execute, deliver and perform this Agreement, the Assumption Agreement and all
other agreements, documents and instruments to which it is a party or is
otherwise obligated which are executed, delivered or performed pursuant to this
Agreement.
3.2. Authorization and Enforceability. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Buyer. This Agreement has been, and at Closing the Assumption
Agreement shall have been, duly executed and delivered by Buyer, and this
Agreement constitutes, and at the Closing, the Ancillary Agreements to which
Buyer is a party will constitute, the legal, valid and binding obligations of
Buyer, enforceable against it in accordance with their respective terms, except
as such enforcement may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights generally and general principles
of equity.
3.3. Brokerage. Buyer has not made any agreement or taken any other
action which might cause anyone to become entitled to a broker's fee or
commission as a result of the transactions contemplated hereunder for which
Parent or Sellers could be liable.
3.4. No Violations. The execution, delivery and performance of this
Agreement and the Ancillary Agreements by Buyer and the consummation of the
transactions contemplated hereby and thereby do not and will not (a) contravene
any provision of Buyer's charter or bylaws; (b) conflict with or result in a
breach of or constitute a default (or an event which might, with the passage of
time or the giving of notice or both, constitute a default) under any provision
of, result in acceleration of any obligation under, or give rise to a right by
any party to terminate
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or amend its obligations under, any indenture, mortgage, loan or credit
agreement or any other agreement or instrument to which Buyer is a party or by
which it or any of its assets may be bound or affected, or any judgment or order
of any court or governmental department, commission, board, agency or
instrumentality, domestic or foreign, or any applicable law, rule or regulation,
(c) violate any statute, rule, regulation or ordinance applicable to Buyer,
which, in the case of clauses (b) and (c), such conflict, breach, default,
acceleration or violation would adversely affect Buyer's ability to consummate
the transaction contemplated hereby.
3.5. Buyer's Capital Structure. Buyer does not, as of the date of this
Agreement, presently expect that an HSR Filing will be required pursuant to the
HSR Act in order to consummate the transactions contemplated by this Agreement.
Buyer shall promptly notify Parent in the event that, between the date hereof
and the Closing, Buyer's expectation should change such that Buyer expects that
an HSR Filing will be required pursuant to the HSR Act in order to consummate
the transactions contemplated herein. If Buyer does not so notify Parent, Buyer
shall make the following representation to Parent and Sellers on and as of the
Closing Date:
"Neither Buyer nor any Person which, directly or indirectly,
owns beneficially or of record 50% or more of the outstanding
voting securities of Buyer, or has the present right or power
to designate or elect 50% or more of the directors
constituting the board of directors of Buyer, whether by
ownership of voting or other securities of Buyer, by contract
or otherwise has, in the aggregate, total assets or net annual
sales in excess of $10,000,000, as calculated pursuant to 16
C.F.R. Section 801.11."
Nothing contained in this Section 3.5 shall in any way diminish the obligations
of the parties contained in Section 4.4 hereof.
ARTICLE IV
CERTAIN COVENANTS
4.1. Interim Conduct of the Business Sellers and Parent hereby jointly
and severally covenant to Buyer that, from the date hereof to the Closing,
Sellers will, and Parent will cause Sellers to, and ITEQ Storage and Parent will
cause the Foreign Subsidiaries to, conduct the Business only in the ordinary
course and consistent with past practice, subject to Buyer's approval of certain
transactions pursuant to Section 4.2 hereof below. Without limiting the
generality of the foregoing, Sellers and Parent hereby jointly and severally
covenant to Buyer that, solely insofar as the Business is concerned, Sellers
will, Parent will cause Sellers to, and ITEQ Storage and Parent will cause the
Foreign Subsidiaries to, use their commercially reasonable efforts to:
(a) preserve the business organization of Parent, the Sellers
and the Foreign Subsidiaries intact, keep available the services of the present
officers and directors of the Sellers and the Foreign Subsidiaries, and preserve
intact their relationships with their respective
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suppliers, customers, employees, creditors and others having business dealings
with the Business;
(b) maintain their respective books of account and records in
its usual, regular and ordinary manner, consistent with its past practice;
(c) maintain all Intellectual Property to be included as part
of the Purchased Assets in the same standing as exists on the date hereof and
continue the prosecution of all applications therefor;
(d) timely perform and comply with, in all material respects,
the provisions of all contracts, commitments or other obligations relating to or
affecting the Purchased Assets or the Business;
(e) maintain and keep the Purchased Assets and the Foreign
Subsidiary Assets in at least as good condition and repair, reasonable wear and
tear excepted, as the condition and repair of the Purchased Assets as of the
date hereof;
(f) pay when due all Taxes imposed on it or its income, profit
or assets or otherwise required to be paid by it, and pay when due any liability
or charge which, if unpaid, might become a lien or charge upon any of the
Purchased Assets or Foreign Subsidiary Assets, except to the extent any such
Tax, liability or charge is being contested in good faith through appropriate
proceedings; and
(g) maintain in full force and effect and comply with, in all
material respects, all permits, certificates, licenses, approvals and
authorizations required under all laws in connection with the Business, and
comply with all laws, rules and regulations applicable to the Business.
4.2. Buyer's Consent to Certain Transactions. Sellers and Parent hereby
covenant to Buyer that, from the date hereof to the Closing, solely insofar as
the Business is concerned, Sellers will, Parent will cause Sellers to, and
Parent and ITEQ Storage will cause the Foreign Subsidiaries to, not do any of
the following without the prior written consent of Buyer, which consent shall
not be unreasonably withheld:
(a) incur any obligation or other liability which would
constitute an Assumed Liability or a liability of a Foreign Subsidiary, except
in the ordinary course of business and consistent with past practice;
(b) purchase, sell, pledge, mortgage or dispose of any Real
Property or real property interest to be included as part of the Purchased
Assets or comprising an asset of any Foreign Subsidiary;
(c) enter into any lease of real or personal property
constituting Purchased Assets or comprising an asset of any Foreign Subsidiary,
or any renewals thereof, involving a rental obligation exceeding $5,000 per
annum in the aggregate;
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(d) except for normal merit or cost-of-living increases in
accordance with the past practices of Sellers and increases provided for in
collective bargaining agreements, increase the rate of compensation or the
benefits for any Employees or otherwise enter into or alter any employment,
consulting or managerial services agreement affecting the Business;
(e) except as provided for in collective bargaining
agreements, commence, enter into or alter any pension, retirement,
profit-sharing, employee stock option or stock purchase, bonus, deferred
compensation, incentive compensation, group insurance, severance pay, life
insurance, health insurance, fringe benefit or other employee benefit plan or
arrangement primarily affecting Employees;
(f) make any new commitment or increase any previous
commitment for capital expenditures relating to the Business in amounts
exceeding in the aggregate $100,000;
(g) accelerate or delay the sale of products of the Business
except as may be necessary in the ordinary course of business and consistent
with past practice;
(h) enter into any transaction, contract or commitment outside
of the ordinary course of business, modify any contract, knowingly waive or
knowingly permit the loss of any right of substantial value, cancel any debt or
claim except in the ordinary course of business consistent with past practice or
voluntarily suffer any extraordinary loss;
(i) sell, assign, transfer, license or convey any of the
Intellectual Property to be included as part of the Purchased Assets or any
Intellectual Property of any Foreign Subsidiary.
(j) take any action or omit to take any action that will
result in a material violation of any applicable law or that would result in a
breach or inaccuracy of any of its representations or warranties in any material
respect at, or as of any time prior to, the Closing;
(k) sell, pledge, mortgage or otherwise dispose of any of the
Purchased Assets or Foreign Subsidiary Assets, except for sales of inventory in
the ordinary course of business and consistent with past practice;
(l) incur, create, assume or suffer to exist any Encumbrance
on any of the Purchased Assets or Foreign Subsidiary Assets, except Permitted
Encumbrances;
(m) guarantee or become a co-maker or otherwise become or
remain contingently liable in connection with any liability or obligation of any
other Person; or
(n) change or issue any securities of, or rights or options to
acquire any capital stock in (A) any Seller in such a way which could adversely
affect or delay shareholder approval for the consummation of the transactions
contemplated hereby or (B) any Foreign Subsidiary.
4.3. Consents to Assignment. Sellers and Parent covenant to Buyer that,
between the date hereof and the Closing, Sellers and Parent will, and will cause
the Foreign Subsidiaries to, use commercially reasonable efforts to obtain the
Landlord Consents and any other consents or approvals (or effective waivers
thereof) of all Persons whose consents or approvals are required
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to enable Sellers, Parent or the Foreign Subsidiaries, as the case may be, to
effect the transactions contemplated hereby and required for the assignment of
the rights of Sellers, Parent and the Foreign Subsidiaries under contracts,
non-real estate leases, licenses, permits, approvals and other items
constituting part of the Purchased Assets (provided, that Sellers and Parent
shall not be obligated to obtain consents to the assignment of any purchase
orders entered into by Sellers or the Foreign Subsidiaries in the ordinary
course of business consistent with their past practice from the customers who
are a party to such purchase orders (such consent being referred to herein as
"Purchase Order Consents")).
4.4. Government Notification. Sellers and Parent hereby covenant to
Buyer, and Buyer hereby covenants to Sellers and Parent, that the parties will
proceed promptly with the preparation and filing of any required notification
and documentation under (i) Title II of the HSR Act and the rules of the Federal
Trade Commission ("FTC") thereunder ("the "HSR Filing"). From the date hereof to
the Closing, the parties will cooperate in attempting to secure the expiration
of the waiting period prescribed under the HSR Act at the earliest practicable
date. Each of Sellers, Parent and Buyer will use its reasonable efforts to
obtain any clearance required under the HSR Act for the purchase and sale of the
Purchased Assets in accordance with the terms and conditions hereof. The filing
fee required under the HSR Act and the rules of the FTC will be paid by Buyer.
Notwithstanding the foregoing, nothing contained in this Agreement will require
or obligate Buyer or its Affiliates (i) to initiate, pursue or defend any
litigation (or threatened litigation) to which any Governmental Authority
(including the Antitrust Division of the Justice Department or the FTC) is a
party; (ii) to agree or otherwise become subject to any material limitations on
(A) the right of Buyer or its Affiliates effectively to control or operate the
Business after the Closing or the business or operations of Buyer or any
Affiliate of Buyer, (B) the right of Buyer or its Affiliates to acquire or hold
the Business, or (C) the right of Buyer to exercise full rights of ownership of
the Business or all or any material portion of the Purchased Assets; or (iii) to
agree or otherwise be required to sell or otherwise dispose of, hold separate
(through the establishment of a trust or otherwise), or divest itself of all or
any portion of the business, assets or operations of Buyer, any Affiliate of
Buyer or the Business. Sellers and Parent agree that no representation, warranty
or covenant of Buyer in this Agreement shall be breached or deemed breached as a
result of the failure by Buyer to take any of the actions specified in the
preceding sentence.
4.5. [This Section intentionally left blank]
4.6. Access, Information and Documents. During the period ended five
(5) years after the Closing Date, upon reasonable advance notice, Sellers and
Parent will give to Buyer and to Buyer's counsel, accountants and other
representatives reasonable access during normal business hours to such of the
Sellers' and Parent's books, tax returns, contracts, commitments, records,
employees, officers and accountants relating to the Business or the Purchased
Assets and will furnish to Buyer access to or copies of such documents
(certified to be true copies if requested) and all information with respect to
the Business or the Purchased Assets, as Buyer may reasonably request, all at
Sellers' and Parent's expense except that Buyer shall reimburse Sellers and
Parent for reasonable out of pocket expenses incurred by them with respect to
such access. During the period ended five (5) years after the Closing Date, upon
reasonable advance notice, Buyer will give to Parent, Sellers and their
respective counsel, accountants and other representatives reasonable access
during normal business hours to such of Buyer's books, tax
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returns, contracts, commitments, records, employees, officers and accountants
relating to the Business, Foreign Subsidiaries or the Purchased Assets and will
furnish to Parent and Sellers access to or copies of such documents (certified
to be true copies if requested) and all information with respect to the
Business, Foreign Subsidiaries or the Purchased Assets, as Parent or Sellers may
reasonably request, all at Buyer's expense except that Sellers and Parent shall
reimburse Buyer for reasonable out of pocket expenses incurred by it with
respect to such access. Buyer, on the one hand, and Parent and Sellers, on the
other hand, shall provide the other party reasonable advance notice before
destroying or disposing of any books, records or information relating to the
Business, Foreign Subsidiaries or Purchased Assets and allow such other party to
take possession of or copy, at such other party's sole expense, any of such
books, records or information.
4.7. Tax Reporting and Allocation of Consideration. Buyer, Parent and
Sellers agree that the sale of the Purchased Assets hereunder is a fully taxable
sale for income tax purposes. Buyer, Parent and Sellers recognize their mutual
obligations pursuant to Section 1060 of the Code to timely file IRS Form 8594
(the "Asset Acquisition Statement") with each of their respective federal income
tax returns. Accordingly, Buyer, Parent and Sellers agree to cooperate in the
preparation of the Asset Acquisition Statement for timely filing in each of
their respective federal income tax returns in accordance with a written
statement (the "Statement of Allocation") setting forth an allocation of the
consideration paid for the Purchased Assets among such Purchased Assets in
accordance with the provisions of Section 1060 of the Code and the Treasury
Regulations thereunder. The Statement of Allocation shall be prepared by Buyer.
Buyer shall deliver an estimated Statement of Allocation to Parent at the
Closing. Buyer shall deliver to Parent a final Statement of Allocation (the
"Final Statement of Allocation") as promptly as practicable following the final
determination of the Closing Statement pursuant to Section 1.7 hereof, which
shall be subject to Parent's review and written approval, which approval shall
not be unreasonably withheld. Unless otherwise prohibited by law, all Returns of
Buyer, Parent and Sellers shall be filed consistently with the allocations made
pursuant to the Final Statement of Allocation. Sellers, Parent and Buyer
acknowledge and agree that (i) Sellers and Parent will be responsible for and
perform all Tax withholding, payment and reporting duties with respect to any
wages and other compensation paid by Sellers to any Employee in connection with
the operation of the Business prior to or on the Closing Date; and (ii) Buyer
will be responsible for and perform all Tax withholding, payment and reporting
duties with respect to any wages and other compensation paid by Buyer to any
employee, including Transferred Employees, in connection with the operation of
the Business after the Closing Date. Sellers, Parent and Buyer agree to follow
the Standard Procedure specified in Rev. Proc. 96-60, 1996-2 C.B. 399, whereby,
among other things, each will be responsible for the reporting duties with
respect to its own wages and compensation to employees in connection with the
operation of the business.
4.8. Negotiations. Between the date of this Agreement and the Closing
Date, Sellers and Parent shall not, and shall cause their respective officers,
directors, employees, agents, Affiliates or advisors not to (all such persons
and entities, together with Sellers and Parent, the "Company Group"), initiate,
solicit, encourage, entertain, negotiate, accept or discuss, directly or
indirectly, any proposal or offer (an "Acquisition Proposal") to acquire,
directly or indirectly, all or any significant part of the business and
properties, capital stock or capital stock equivalents of the Business or the
Sellers (including by means of a sale of all or a portion of ITEQ Storage but
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excluding any such acquisition not involving any Purchased Assets), whether by
merger, purchase of stock, purchase of assets or otherwise (a "Third Party
Acquisition"), or provide any non-public information to any third party in
connection with an Acquisition Proposal or enter into any agreement, arrangement
or understanding requiring it to abandon, terminate or fail to consummate the
transaction proposed hereby. Parent agrees to immediately notify Buyer if any
member of the Company Group receives any indications of interest, requests for
information or offers in respect of an Acquisition Proposal and the material
terms of and the identity of the Person making such indication, request or
offer.
4.9. Covenant Not to Compete; Nonsolicitation; Confidentiality.
(a) For a period of three years from and after the Closing
Date, neither Parent, Sellers, nor any Affiliate of any Seller (other than
officers or directors of Parent, any Seller or any Affiliate of any Seller or
shareholders of Parent) shall, unless acting as an officer or employee of, or
consultant to, Buyer, directly or indirectly, (i) own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be connected as an officer, director, employee, stockholder, partner or
otherwise with, any Competing Business (as hereinafter defined), or (ii)
solicit, employ, retain as a consultant, adversely interfere with or attempt to
entice away from Buyer or its Affiliates, any Protected Employee (as hereinafter
defined), or (iii) solicit (except with respect to the solicitation of customers
solely in connection with the Retained Business assuming compliance with Section
4.9(a)(i) hereof), adversely interfere with or attempt to entice away from Buyer
or its Affiliates, any person, firm or corporation which has been during the
two-year period ending on the Closing Date or is a customer of Buyer or Sellers
in connection with the Business. Ownership of not more than 2% of the
outstanding stock of any publicly traded company shall not be a violation of
this Section 4.9 so long as Sellers and their Affiliates do not participate in
the management of such company.
(b) As used herein, "Competing Business" shall mean any
business or other enterprise which engages in or competes with the Business
within the Territory; "Territory" shall mean worldwide; "Protected Employee"
shall mean any current or former employee of the Business or Buyer during the
period in which the covenants set forth in this Section 4.9 are in effect, but
excluding persons who have not been employed by the Business or Buyer during the
six-month period preceding the date on which a determination is made regarding
whether a person is a Protected Employee and excluding persons employed by Buyer
not in connection with the Business; and "Retained Business" shall mean any
business of Parent, Subsidiaries or Sellers other than the Business.
(c) The length of time for which this covenant not to compete
shall be in force shall not include any period of violation (as determined by a
court, arbitrator or as otherwise agreed to by the parties) or, provided that
Buyer is the prevailing party in such litigation or arbitration, any other
period required for litigation or arbitration during which Buyer seeks to
enforce this Section 4.9. In the event that the covenants contained in this
Section 4.9 shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too long a period of time or over
too large a geographical area or by reason of its being too extensive in any
other respect, it shall be interpreted to extend only over the longest period of
time for which it may be enforceable, and/or over the largest geographical area
as to which it may be enforceable and/or to the maximum extent (not to exceed
the extent specified herein) in
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all other aspects as to which it may be enforceable, all as determined by such
court in such action.
(d) Confidentiality. From and after the Closing, Sellers and
Parent shall, and shall cause their Affiliates and representatives to, keep
confidential and not disclose to any other Person, use for their own benefit in
a manner competitive with or otherwise detrimental to Buyer or the Business, or,
except for any security interest granted to Sellers' lenders pursuant to the
Credit Agreement or a refinancing thereof, sell, assign, pledge or otherwise
transfer to any other Person any trade secrets or other confidential or
proprietary information in their possession or control regarding the Business
and its operations. The obligation of Sellers and Parent under this Section
4.9(d) shall not apply to information which (i) is or becomes generally
available to the public without breach of the commitment provided for in this
Section; or (ii) is required to be disclosed by law, order or regulation of a
court or tribunal or governmental authority; provided, however, that, in any
such case, Sellers and Parent shall notify Buyer as early as reasonably
practicable prior to disclosure to allow Buyer to take appropriate measures to
preserve the confidentiality of such information.
(e) Injunctive Relief. The restrictive covenants contained in
this Section 4.9 are each covenants independent of any other provision of this
Agreement, and the existence of any claim which Parent or any Seller may allege
against any other party to this Agreement, whether based on this Agreement or
otherwise, shall not prevent the enforcement of these covenants. Sellers and
Parent acknowledge that Buyer is purchasing the goodwill of the Business, that
the covenants contained in this Section 4.9 are essential to the protection of
Buyer's investment in the Purchased Assets and the Business and that Buyer would
not purchase the Purchased Assets and the Business but for these covenants.
Sellers and Parent agree that a breach by any of the covenants of this Section
4.9 shall cause irreparable harm to Buyer and the Business and that Buyer's
remedies at law for any breach or threat of breach of the provisions of this
Section 4.9 shall be inadequate, and that Buyer shall be entitled to an
injunction or injunctions to prevent breaches of this Section 4.9 and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which Buyer may be entitled at law or in equity.
4.10. Fulfillment of Agreements. Sellers and Parent shall use their
respective commercially reasonable efforts to cause all of the conditions to the
obligations of the Buyer under Section 5.1 of this Agreement to be satisfied on
or prior to the Closing. Buyer shall use its commercially reasonable efforts to
cause all of the conditions to the obligations of the Sellers under Section 5.2
of this Agreement to be satisfied on or prior to the Closing. Sellers and Parent
will promptly notify Buyer in writing of any event or fact which represents or
is likely to cause a breach of any of their representations, warranties,
covenants or agreements. Sellers and Parent shall promptly advise Buyer in
writing of the occurrence of any condition or development (exclusive of general
economic factors affecting business in general) of a nature that is or may have
a Material Adverse Effect.
4.11. Insurance. Sellers and/or Parent shall maintain in full force and
effect the policies of insurance listed in Section 2.20 of the Disclosure Letter
in effect as of the date hereof, subject only to variations required by the
ordinary operations of its business, or else will obtain, prior to the lapse of
any such policy, substantially similar coverage with insurers of recognized
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standing. Sellers shall promptly advise the Buyer in writing of any change of
insurer or type of coverage in respect of the policies listed in Section 2.20 of
the Disclosure Letter.
4.12. Bulk Transfers. The parties hereto waive compliance with the
requirements of the Bulk Sales law of any jurisdiction in connection with the
sale of the Purchased Assets to Buyer.
4.13. Employee Matters.
(a) On the date which is ten (10) Business Days prior to the
Closing, the Sellers shall provide Buyer with a list of the names, job title and
assigned location of each Employee compensated on a salary or hourly basis and
whose terms and conditions of employment are not established pursuant to a
collective bargaining agreement (the "Non-Union Employees"). Not less than five
(5) Business Days prior to Closing, Buyer shall provide Parent with a list of
all Non-Union Employees who will [not] receive offers of employment from Buyer.
Effective as of the Closing Date, Buyer will offer employment to such Non-Union
Employees as it shall determine. All Non-Union Employees who receive and accept
an offer of employment from Buyer are herein referred to as the "Transferred
Non-Union Employees."
(b) At the Closing, Sellers shall provide Buyer with a list
(which shall be current as of a date no more than five days prior to Closing) of
the names, job title, seniority, and assigned location of each Employee whose
terms and conditions of employment are established pursuant to a collective
bargaining agreement (the "Union Employees"). Subject to Section 4.13(f) below,
effective as of the Closing Date, Buyer shall assume all of Seller's
post-closing obligations under the relevant collective bargaining agreements.
All Union Employees who become employed by Buyer are herein referred to as the
"Transferred Union Employees." Transferred Non-Union Employees and Transferred
Union Employees are collectively referred to herein as the "Transferred
Employees."
(c) Sellers shall be responsible for the payment of any
severance payment or benefits that become due to any Business Employee or Former
Business Employee as a result of the termination of such Business Employee or
Former Business Employee by any Seller or its Affiliates. Buyer and its
Affiliates shall not be obligated to continue or assume any employee benefit
plan or program of any Seller or its Affiliates (including, but not limited to
the Benefit Plans) or responsible for any obligation or liability thereunder,
except as otherwise required by applicable law, rule, regulation or order.
(d) Nothing contained in this Agreement shall confer upon any
Transferred Non-Union Employee any right with respect to employment by Buyer or
its Affiliates, nor shall anything herein interfere with the right of Buyer or
its Affiliates, following any employment of any Transferred Non-Union Employee,
to terminate the employment of any such Transferred Non-Union Employee at any
time, with or without cause, or restrict Buyer or its Affiliates in the exercise
of their independent business judgment in modifying any of the terms and
conditions of the employment of any such Transferred Non-Union Employee.
(e) No provision of this Agreement shall create any third
party beneficiary rights in any Transferred Employee, any Beneficiary or
dependents thereof with respect to the
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compensation, terms and conditions of employment and benefits that may be
provided to any Transferred Employee by Buyer or under any benefit plan which
Buyer may maintain.
(f) Sellers shall be solely responsible for any liability,
claim or expense with respect to employment, termination of employment,
compensation or employee benefits of any nature (including, but not limited to
the benefits to be provided under the Benefit Plans, Multiemployer Plans or
Foreign Plans) owed to any Business Employee or Former Business Employee of any
Seller or Foreign Subsidiary (or the Beneficiary of any such Business Employee
or Former Business Employee) whether or not such Employee or Former Business
Employee becomes a Transferred Employee, that arises out of or relates to the
employment relationship between any Seller or Foreign Subsidiary and any such
Business Employee or Former Business Employee or the termination of such
relationship and which such liability, claim or expense relates to any period on
or prior to the Closing Date (other than accrued vacation pay to the extent
reflected on the Closing Statement and other than with respect to the payment of
account balances transferred to Buyer's 401(k) Plan pursuant to Section 4.14).
(g) Buyer shall be solely responsible for any liability, claim
or expense with respect to employment, termination of employment, compensation
or employee benefits of any nature owed to any Transferred Employee that arises
out of or relates to the employment relationship between Buyer and any such
Transferred Employee or the termination of such relationship and which such
liability, claim or expense relates to any period on or after to the Closing
Date.
4.14. Benefit Plans.
(a) Effective as of the Closing Date, active participation of
Transferred Non-Union Employees in the ITEQ, Inc. 401(k) Plan (the "Seller's
401(k) Plan") shall cease and their account balances shall become 100 percent
vested.
(b) Effective as of the Closing Date, Buyer shall establish a
defined contribution retirement plan qualified under Section 401(a) of the Code
for the benefit of all Transferred Non-Union Employees (the "Buyer's 401(k)
Plan");
(c) Within sixty (60) days after the Closing Date, (i) Parent
will have corrected the qualification failures disclosed in Section 2.22(c) of
the Disclosure Letter (the "Qualification Failures") pursuant to the
Administrative Policy Regarding Self Correction ("APRSC") under the Employee
Plans Compliance Resolution System (as described in Revenue Procedure 98-22)
("EPCRS") and provided Buyer with the Correction Opinion, or (ii) Parent will
have submitted (or cause to be submitted) the Qualification Failures to the IRS
under the appropriate EPCRS program and hereby agrees to pay all applicable
sanctions and take all corrective action required by the IRS with respect to
such submission. Parent within five (5) Business Days will notify Buyer upon the
receipt of a finalized compliance statement or other appropriate closing
agreement with respect to such submission under the EPCRS. In the event that
Parent has elected to submit the Qualification Failures to the IRS in accordance
with item (ii) above, but has not received a finalized compliance statement or
other appropriate closing agreement within 180 days of the Closing Date, then at
the request of Buyer, Parent shall cause the Seller's 401(k) Plan to provide
each of the Transferred Employees (within 30 days of such
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request) an opportunity to receive a distribution of their account balances
under Seller's 401(k) Plan.
(d) If Buyer has not requested a distribution to the
Transferred Employees in accordance with Section 4.14(c), then within thirty
(30) days after receipt of the opinion of counsel or the compliance statement or
other appropriate closing agreement described in Section 4.14(c) hereof, Buyer
shall provide Parent with opinion letters of counsel acceptable to Parent that
the Buyer's 401(k) Plan satisfies the requirements for qualification under
Section 401(a) of the Code or deliver to Parent a favorable determination letter
issued by the IRS that the Buyer's 401(k) Plan satisfies the requirements for
qualification under Section 401(a) of the Code.
(e) As soon as practicable after the latest of (i) the
expiration of 60 days following the filing of Forms 5310 with the IRS, if
required and (ii) the receipt by Parent of the opinions or determination letters
prescribed in paragraph (d) above, Parent shall cause the trustee of the
Seller's 401(k) Plan to transfer to the trust forming a part of the Buyer's
401(k) Plan cash (including participant notes) equal to the aggregate vested
account balance (including loan balances) of the Transferred Non-Union Employees
as of such transfer date.
(f) Transferred Employee's active participation in the Benefit
Plans that are "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA) sponsored by the Parent, any Seller or any Subsidiary of Parent (the
"Seller's Welfare Plans") shall cease as of the Closing Date or as otherwise
provided under the terms of such Benefit Plan. Notwithstanding the preceding
sentence, Seller's Welfare Plans shall retain liability for all claims incurred
by the Transferred Employees and their dependents prior to the Closing Date
including claims which are not submitted until after the Closing Date. Buyer's
Welfare Plan (as defined below) shall be responsible for all claims incurred on
or after the Closing Date. A claim shall be deemed incurred (i) on the date of
the occurrence of death or dismemberment in the case of claims under life
insurance and accidental death and dismemberment plans and (ii) on the date on
which the service or treatment is provided in the case of claims under medical,
hospital, dental and similar plans.
(g) Effective as of the Closing Date, Buyer shall establish a
group health plan or plans (the "Buyer's Welfare Plan") that will provide
medical, dental and life insurance benefits for Transferred Non-Union Employees
and their dependents.
(h) For purposes of any employee benefit plan, program or
arrangement of the Buyer for which a Transferred Non-Union Employee otherwise
become eligible, such Transferred Non-Union Employee shall be given credit under
such plan for purposes of eligibility and vesting for all service prior to the
Closing with the Sellers.
(i) At the Closing, Sellers shall provide Buyer with a list of
each Transferred Employee that has an amount credited to his or her account
under the Seller's Flex Spending Program and the amount of such credit (the
"Flex Plan Amount"). Within five (5) Business Days after the Closing Date, the
Flex Plan Amount shall be transferred by Parent to Buyer as of Closing.
Effective as of the Closing Date, Buyer shall establish a flexible spending
account plan and will credit each of the Transferred Employees with his or her
applicable portion of the Flex
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Plan Amount. Any claims incurred by any Transferred Employee on or after the
Closing Date shall not be eligible for payment or reimbursement under the
Seller's Flex Spending Program.
4.15. Accounts Receivable. Buyer shall use commercially reasonable
efforts to collect all accounts receivable transferred to Buyer (including the
accounts receivable of the Foreign Subsidiaries) on the Closing Date (the
"Accounts Receivable") but in no event will Buyer be required to apply efforts
which are greater than the efforts applied by Sellers and the Foreign
Subsidiaries in the collection of the accounts receivable of the Business and in
no event shall Buyer be required to file a claim or pursue litigation or
arbitration against any account debtor of the Business. Upon delivery of the
Closing Statement, Buyer will deliver to Parent a statement (the "Uncollected
A/R Statement") setting forth the amount of any Accounts Receivable that remain
uncollected by Buyer as of the A/R Payment Date (the "Uncollected Accounts
Receivable") together with reasonable documentation in support thereof. The
Uncollected A/R Statement shall be prepared in accordance with the Accounting
Principles. For a period of thirty (30) days after delivery of the Uncollected
A/R Statement, Buyer shall provide Parent with reasonable access during normal
business hours to the books, records, employees and agents of Buyer related to
the Uncollected Accounts Receivable and the preparation of the Uncollected A/R
Statement. If, within thirty (30) days after the delivery of the Uncollected A/R
Statement, Parent disputes in good faith the amount of any Uncollected Account
Receivable, Parent shall deliver to Buyer within such period a written notice
(the "A/R Dispute Notice") specifying in reasonable detail all disputed items
and the basis therefor (collectively, the "A/R Disputed Items"). The failure by
Parent to provide an A/R Dispute Notice within such thirty (30) day period to
Buyer will constitute Parent's acceptance of the Uncollected A/R Statement.
Parent shall be deemed to have agreed with the amount of all Uncollected
Accounts Receivable included in the Uncollected A/R Statement except such
amounts that are specifically disputed in the A/R Dispute Notice. If Parent
provides Buyer with a timely A/R Dispute Notice, Buyer and Parent shall, within
thirty (30) days (or such longer period as mutually agreed upon by Buyer and
Parent) following the delivery of such A/R Dispute Notice to Buyer (the "A/R
Resolution Period"), negotiate in good faith to resolve the A/R Disputed Items
to their satisfaction. At the conclusion of the A/R Resolution Period, Buyer and
Parent shall refer all unresolved A/R Disputed Items to the Independent
Accountant in accordance with the provisions of Section 1.7(b) hereof. Within
five (5) Business Days after the final determination of the amount of
Uncollected Accounts Receivable, (i) Sellers shall pay to Buyer an amount equal
to the excess, if any, of the Uncollected Accounts Receivable over the allowance
for doubtful accounts shown on the Closing Statement and (ii) Buyer shall
transfer, convey and assign to Sellers the Uncollected Accounts Receivable
relating to such excess, along with any documents related to the collection of
such accounts as may be reasonably requested by Sellers. Buyer, at its election,
may decide to not transfer to Sellers any specific uncollected account and the
amount payable to Buyer by Sellers pursuant to the preceding sentence shall be
accordingly reduced. Sellers may collect the Uncollected Accounts Receivable
transferred to them in a manner consistent with the manner the Sellers have used
to collect accounts receivable in the ordinary course of business consistent
with past practice with respect to the Business. As used herein, the "A/R
Payment Date" shall mean the date which is ninety (90) days after the Closing
Date.
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4.16. Real Estate.
(a) On or prior to the Closing, Sellers shall cause lessors to
execute and deliver to Buyer estoppel certificates in connection with each of
the leases listed in Section 2.18(b) of the Disclosure Letter in a form
reasonably satisfactory to Buyer.
(b) On or prior to the Closing, Sellers shall deliver to Buyer
originals (if in their possession, otherwise copies) of all certificates of
occupancy and certificates of zoning compliance for the Owned Real Properties.
(c) Except with respect to the U.K. Site, on or prior to
Closing, Sellers shall deliver, at Buyer's sole expense, good and valid,
irrevocable ALTA or TLTA (as applicable) title insurance binders or commitments,
as appropriate (collectively, the "Title Commitments" and each a "Title
Commitment"), in final form, from Chicago Title Insurance Company's national
office in San Antonio, Texas (the "Title Company"), irrevocably committing the
Title Company (subject only to the satisfaction of any industry standard
requirements contained in the Title Commitment and reasonably acceptable to
Buyer) to issue ALTA form 1970 (amended 1984) title insurance policies (or
standard commercial TLTA policies with respect to any Owned Real Property
located in Texas) without creditors' rights exclusions and arbitration
conditions, and insuring good, valid and indefeasible fee simple title to each
parcel of the Owned Real Property located in Texas and good, valid, marketable
and indefeasible fee simple to each parcel of Owned Real Property located
outside of Texas, subject to no Encumbrances or exceptions to title other than
the Permitted Encumbrances (collectively, the "Title Policies"). Notwithstanding
the foregoing, Sellers shall either cause to be removed from a Title Policy, or
pay the premium for any and all endorsements required to address, any
Encumbrance except Permitted Encumbrances (for purposes of this sentence,
"Permitted Encumbrances" does not include Predecessor Encumbrances) that would
render title not to be good, valid or indefeasible (with respect to each parcel
of Owned Real Property located in Texas) and not to be good, valid, marketable
or indefeasible (with respect to each parcel of Owned Real Property located
outside of Texas) and with respect to any charges above customary rates (a
"Title Defect"); provided that the aggregate Cure Costs (as hereinafter defined)
shall not exceed $100,000; and provided that after Sellers have incurred
aggregate Cure Costs in excess of $100,000 and Sellers elect not to cure any
Title Defect, Buyer may terminate this Agreement. Each of the Title Commitments
shall be effective as of a date occurring not earlier than the date of this
Agreement and the effective dates of each of them shall be brought down to the
time of Closing. Each such Title Commitment shall include such endorsements
thereto as may reasonably be requested by Buyer, including, without limitation,
a form 3.1 zoning endorsement (with loading docks and parking coverages) if
available. On or prior to the Closing Date, the Sellers shall execute and
deliver, or cause to be executed and delivered, to the Title Company any
affidavits reasonably requested by the Title Company or Buyer in connection with
the issuance of the Title Commitments or the Title Policies in form and
substance as required hereunder.
(d) Except with respect to the U.K. Site, Buyer may, at
Buyer's expense, obtain prior to the Closing, a current, as-built survey of each
parcel of Owned Real Property (the "Surveys") prepared by a surveyor registered
in the applicable state, in accordance with the 1992 minimum detail requirements
for ALTA/ACSM Land Title surveys, Class A or B or Urban, and dated as of a date
after December 31, 1999 showing the applicable Owned Real Estate, all known
easements and rights granted by license thereon which can be depicted on the
Survey, all improvements (including fences and driveways), and access to and
from a dedicated and
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accepted public right-of-way, together with all rail lines serving the
applicable real estate. Each such Survey shall (i) be certified to Buyer and its
assigns, its mortgage lender, if any, the Title Insurer insuring title to that
portion of the Owned Real Property subject to such Survey, and any other person
reasonably requested by Buyer, and (ii) comply with any requirements imposed by
the Title Insurer and a condition to the removal of any survey exception from
the general exceptions in the Title Policy for the applicable real estate. In
the event that any Survey shows (i) lack of access to and from a dedicated and
accepted public right-of-way, or (ii) a matter which materially interferes with
the current use of the applicable Owned Real Property (collectively "Survey
Defects"), then Buyer shall notify Sellers and Parent of such Survey Defect
promptly upon receiving knowledge thereof, and Sellers and/or Parent shall, at
their expense, prior to the Closing, remove or correct such Survey Defect to the
reasonable satisfaction of Buyer, provided that the aggregate cost incurred by
Parent and Seller to cure all Title Defects and Survey Defects ("Cure Costs")
shall not exceed the sum of $100,000. In the event and to the extent the
aggregate Cure Costs incurred by Parent and Sellers exceed $100,000, Parent or
Sellers may (i) remove or correct such Survey Defects, (ii) cause such Survey
Defects to be insured over by the Title Insurer to Buyer's reasonable
satisfaction, or (iii) otherwise address such Survey Defects in a manner
reasonably satisfactory to Buyer; provided that if Parent and Sellers elect not
to take any action specified in clauses (i) - (iii) of this sentence, Buyer may
terminate this Agreement.
4.17. Tax Matters.
(a) Buyer and Parent shall reasonably cooperate with each
other in connection with the preparation of Tax Returns related to the Business,
the Purchased Assets, Sellers and the Foreign Subsidiaries and shall preserve,
and provide each other, upon reasonable advance notice, with reasonable access
during normal business hours, all information, returns, books, records and
documents relating to any liabilities for Taxes with respect to a taxable period
until the later of the expiration of all applicable statutes of limitation and
extensions thereof, or a final determination with respect to Taxes for such
period and shall not destroy or otherwise dispose of any record without first
providing the other Party with a reasonable opportunity to review and copy the
same.
(b) Any Foreign Subsidiary Taxes for a period of time
including both a pre-Closing period and a post-Closing period shall be
apportioned between such pre-Closing period and the post-Closing period based,
in the case of real and personal property Taxes, on a per diem basis and in the
case of other Taxes, on the actual activities, taxable income or taxable loss of
the appropriate Foreign Subsidiary during such pre-Closing period and
post-Closing period determined as if the books of the Foreign Subsidiary were
closed on the Closing Date.
(c) Sellers shall be liable for and shall pay when due a
portion of all Taxes on the value of taxable real or personal property
constituting a part of the Purchased Assets that may be levied or imposed
against Buyer or such Purchased Assets prorated for the period before the
Effective Time, and Buyer shall be liable for the prorated portion of such Taxes
for the period at and after the Effective Time. Whichever Party is liable
hereunder for the payment of a Tax shall prepare any necessary forms and
returns, and shall bear all costs incident to the determination and payment
thereof. Such Party shall further have all available rights to contest the Tax,
but shall protect, defend, indemnify and hold harmless the other Party from any
Damages in accordance with the provisions of Article VI.
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(d) If any Party receives an invoice for any Tax or other
expense which is allocable to another Party in part or in full hereunder, the
recipient shall forward a copy of the invoice promptly to the other Party. If
the other Party is fully liable for such invoice, it shall pay it in full
promptly; provided, however, that such Party may contest any tax or other
expense in good faith through appropriate proceedings to the extent that such
Tax does not result in a Lien upon any of the Purchased Assets. If any Party
receives an invoice for Taxes or other expenses that are allocable partly to it
and partly to another Party, then the Party receiving such notice shall promptly
advise the other Party that such invoice has been received and shall request the
appropriate reimbursement from that Party. The Party owing such reimbursement
shall pay such reimbursement within five (5) Business Days after receipt of an
invoice for the reimbursable amount. Notwithstanding the foregoing, whenever
time permits, each Party will make every reasonable effort to determine each
Party's appropriate allocable share of any Tax due and to pay the allocable
share to the Party responsible under this paragraph for paying the Tax in a
timely fashion in order to avoid any late payment penalty.
4.18. Intercompany Accounts. Sellers and Parent shall cause the
cancellation and/or settlement of all intercompany and intracompany accounts
involving the Business on the one hand, and Parent, any Seller or any Subsidiary
(other than the Foreign Business) on the other hand.
4.19. ITEQ Intellectual Properties, Inc. At the Closing, Parent shall
cause ITEQ Intellectual Properties, Inc., a Delaware corporation ("ITEQ IP"), to
convey, assign and transfer to Buyer (and/or, at Buyer's election, to one or
more corporations, limited partnerships or limited liability companies
controlled by Buyer) all Intellectual Property which is owned by ITEQ IP and
which constitutes, primarily relates to, is primarily used in or otherwise
necessary or material to the conduct of the Business, including the Intellectual
Property which is set forth in Section 2.21(a) of the Disclosure Letter (the
"Holding Company IP").
4.20. Use of HMT Name. Within thirty (30) days after the Closing Date,
Sellers and Parent agree to cease, and Sellers and Parent agree to cause their
respective subsidiaries or predecessors to cease use of the "HMT" name or any
name which includes reference to the "HMT" name, including by amending or
terminating any foreign state qualifications, doing-business-as filings and
state licenses under the name of "HMT" or any name which includes reference to
the "HMT" name so as to remove reference to the name "HMT" in such
qualifications, filings or licenses, except to the extent such foreign
qualification has been revoked, rescinded or suspended and such revocation,
rescission or suspension does not impair in any way Buyer's ability to use the
"HMT" name or any name which includes reference to the "HMT" name with respect
to its foreign state qualifications, doing-business-as filings and state license
applications. Parent and Sellers hereby agree to reasonably cooperate with Buyer
with respect to Buyer's efforts to file foreign state qualifications,
doing-business-as filings or state license applications under names
incorporating the "HMT" name, including executing and filing consent-to-use
forms with any state governmental authority to allow Buyer to use the "HMT"
name.
4.21. Bank Approval Maintenance. Parent shall not, and shall cause its
subsidiaries not to, agree to any amendment, modification, withdraw, revocation
or termination of the Bank Approval or the Approval Letter (as hereinafter
defined), if received, without the prior written
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consent of Buyer; provided that the parties acknowledge that the Bank Approval
(and the delivery of the Bank Releases and Financing Statements at Closing) is
subject to withdrawal by BankBoston to the extent certain conditions described
in the Bank Approval are not satisfied. Parent and Sellers agree to use their
respective reasonable commercial efforts to ensure that the conditions set forth
in the Bank Approval and Approval Letter are satisfied at and prior to Closing
Date. Within two weeks following the date hereof, Parent will use its reasonable
efforts to deliver to Buyer a letter from BankBoston that specifically approves
the terms and conditions of this Agreement (including without limitation, the
Purchase Price, the amount of the Escrow Fund, and the Termination Date), the
Disclosure Letter and the Exhibits hereto, and the consummation of the
transactions contemplated hereby, subject to the same conditions set forth in
the Bank Approval (the "Approval Letter"); provided, that in the event Parent is
unable to deliver to Buyer the Approval Letter within such two-week period,
Buyer shall have the right to terminate this Agreement within two (2) Business
Days after the expiration of such two-week period.
4.22. Financing. Buyer shall use commercially reasonable efforts to
obtain the financing described in Section 5.1(l) hereof.
4.23. Employment Agreements. Prior to the Closing Date, Parent and
Sellers shall reasonably cooperate with Buyer with respect to Buyer's efforts to
employ J. Wayne Jean, Gary E. Tesch, Scott Spence and Rusty Chandler after the
Closing Date on terms and conditions acceptable to Buyer in its sole discretion.
4.24. Product Warranty Claims. During the period following the Closing,
Buyer agrees that, with respect to the determination of whether a Product
Warranty claim by a customer is a valid claim pursuant to the terms of the
applicable product warranty, Buyer shall handle such claim in a manner that is
in all material respects consistent with the manner in which the applicable
Seller or Foreign Subsidiary handled such type of claims in the ordinary course
of the Business consistent with past practice. With respect any work performed
by Buyer relating to a Product Warranty claim, the appropriate Seller shall
promptly reimburse Buyer for such work in an amount equal to Buyer's costs
incurred in connection with such Product Warranty work plus a premium to Buyer
based upon the lowest premium then charged by Buyer to its customers for such
work; provided that no Seller shall be obligated to reimburse Buyer until the
aggregate amount of all such work performed by Buyer, as determined in
accordance with this Section 4.24, exceeds the amount of the reserve for Product
Warranty Claims set forth in the Closing Statement.
With respect to Product Warranty damage claims relating to products of
the Business manufactured and sold by any Seller or Foreign Subsidiary, the
Buyer will keep Parent advised from time to time upon the reasonable request of
Parent regarding the administration of such claims, including but not limited
to, the amount and proposed settlement with respect to such claims, the general
nature of the claims made and other material information with respect thereto,
and will consult with Parent on a reasonable basis prior to satisfying or
settling any such individual claim exceeding $10,000.
4.25. Disclosure Letter. The parties acknowledge and agree that the
Disclosure Letter is divided into Sections corresponding to the Sections of this
Agreement that reference the Disclosure Letter. While the Sellers and Parent
have attempted to list each exception or item of
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supplemental information in each Section of the Disclosure Letter for which such
exception or item is relevant, the parties agree that inclusion of such item or
exception in any one Section of the Disclosure Letter shall be deemed
incorporated into any other Section of the Disclosure Letter where the relevance
of such incorporation is reasonably apparent.
4.26. Foreign Subsidiary Board Action. Prior to Closing, Parent and
Sellers shall cause the Board of Directors of each Foreign Subsidiary to hold a
duly organized meeting (or, if allowed by applicable law, to execute written
consents) to resolve and approve of the following: (a) the Resignations; (b)
subject to any due stamping of the transfers of the shares of such Foreign
Subsidiary, the transfers of all of the shares of such Foreign Subsidiary in
favor of Buyer pursuant to the terms of this Agreement; and (c) the issuance and
delivery of new share certificates in respect of all of the shares of such
Foreign Subsidiary in the name of Buyer.
4.27. Pro Forma Statements. No later than three (3) Business Days prior
to Closing, Parent shall deliver to Buyer pro forma balance sheet as of the
Closing Date and pro forma income statements for 2000 and 2001 (the "Pro Forma
Statements") of Parent (on a consolidated basis) and each Seller, as adjusted to
reflect the pro forma operations of Parent (on a consolidated basis) and each
Seller following the Closing.
4.28. Software Licenses. Between the date hereof and the Closing,
Sellers shall obtain licenses for the Business for the number of employees set
forth in Section 4.28 of the Disclosure Letter for the software packages
described therein to the extent Sellers do not currently possess such licenses.
4.29. Tulsa Litigation. The parties hereto agree that Parent and
Sellers shall have the right to pursue any causes of action or claims for
losses, damages, costs and expenses incurred by the Business prior to Closing
relating to or arising from the Tulsa Matter (including the right to pursue
injunctive relief) ("Pre-Closing Tulsa Damages") and Sellers shall have the
right to any recoveries related thereto. The parties hereto agree that Buyer
shall have the right to pursue any causes of action or claims for losses,
damages, costs and expenses incurred by Buyer or the Business following the
Closing (including the right to pursue injunctive relief) and Buyer shall have
the right to any recoveries related thereto. As used herein, "Tulsa Matter"
shall mean the facts and circumstances relating to that certain lawsuit styled,
ITEQ, Inc. and ITEQ Storage Systems, Inc. v. Cust-O-Fab Tank Services, L.L.C.,
Case No. 1:99 CV-601, In the United States District Court for the Eastern
District of Texas, Beaumont Division, whether or not such facts and
circumstances have been alleged in said lawsuit.
4.30. Master Lease Agreements. With respect to any Master Lease
Agreement (as defined below), Parent and Sellers shall cause any individual
asset leased pursuant to such Master Lease Agreement which is not a leased asset
set forth on Schedule 2.13 (an "Excluded Lease") to be removed from such
agreement at or prior to Closing such that Buyer will have no liabilities or
obligations with respect to such Excluded Lease. As used herein, "Master Lease
Agreement" means the Master Lease agreements with Toshiba, ElectroRent, PHH,
Houston Cellular and the pager agreement set forth on Section 2.13 to the
Disclosure Letter.
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ARTICLE V
CONDITIONS TO CLOSING; TERMINATION
5.1. Conditions Precedent to Obligations of Buyer. The obligations of
Buyer to proceed with the Closing under this Agreement are subject to the
fulfillment prior to or at Closing of the following conditions (any one or more
of which may be waived in whole or in part by Buyer at Buyer's option):
(a) Bringdown of Representations and Warranties. The
representations and warranties of Sellers and Parent contained in this Agreement
that are qualified by materiality shall be true and correct and the
representations and warranties of Sellers and Parent contained in this Agreement
that are not qualified by materiality shall be true and correct in all material
respects on and as of the Closing Date, with the same force and effect as though
such representations and warranties had been made on and as of the Closing Date,
and Buyer shall have received a certificate to such effect signed by Parent and
each Seller in form and substance reasonably acceptable to Buyer.
(b) Performance and Compliance. Sellers and Parent shall have
performed in all material respects all of the covenants and complied in all
material respects with all of the provisions required by this Agreement to be
performed or complied with by each of them on or before the Closing and Buyer
shall have received a certificate to such effect signed by Parent and each
Seller in form and substance reasonably acceptable to Buyer.
(c) Opinion of Counsel. Buyer shall have received the Sellers'
Counsel Opinion.
(d) Satisfactory Instruments of Transfer. All instruments and
documents required on the Sellers' and Parent's part to effectuate and
consummate the transactions contemplated hereby, including those specified in
Section 1.10(a), shall be delivered to Buyer and shall be in form and substance
reasonably satisfactory to Buyer and its counsel.
(e) Required Consents. All statutory and regulatory consents
and approvals which are required under the laws or regulations of the United
States or any other Governmental Authority, including the HSR Act and the rules
and regulations thereunder, for the transactions contemplated hereby shall have
been obtained; and all necessary consents and approvals of third parties to the
transactions contemplated hereby (other than Purchase Order Consents) shall have
been obtained.
(f) Litigation. No order of any court or administrative agency
shall be in effect which restrains or prohibits the transactions contemplated
hereby or which would materially limit or adversely affect Buyer's ownership or
control of any of the Purchased Assets or the operation of the Business, and
there shall not have been threatened, nor shall there be pending, any action or
proceeding by or before any court or Governmental Authority or other regulatory
or administrative agency or commission challenging any of the transactions
contemplated by this Agreement or seeking monetary relief by reason of the
consummation of such transactions or which might have a Material Adverse Effect.
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(g) Debt. Buyer shall have received evidence of the
cancellation and release of all Liens in respect of the Purchased Assets and the
stock of the Foreign Subsidiaries created pursuant to the BankBoston Loan
Documents and releasing the Foreign Subsidiaries of any and all obligations
(including any guaranties) under the BankBoston Loan Documents (collectively,
the "Bank Releases"), along with evidence of the termination of any UCC-1
financing statements related thereto (the "Termination Statements"), such
evidence of cancellation and release to be acceptable to Buyer in its reasonable
discretion. As used herein, the "BankBoston Loan Documents" means the Credit
Agreement and any security, collateral or similar document securing amounts
payable thereunder.
(h) Secretary's Certificate of Seller. Each Seller shall have
delivered to Buyer a certificate, dated as of the Closing Date, in form and
substance reasonably satisfactory to Buyer, of the Secretary or an Assistant
Secretary of such Seller certifying (i) that attached thereto is a complete and
correct copy of the articles of incorporation of such Seller, as amended to
date, (ii) that attached thereto is a complete and correct copy of the Bylaws of
such Seller, as amended to date, (iii) that attached thereto is a complete and
correct copy of resolutions adopted by the board of directors and the
stockholders of such Seller, authorizing the execution, delivery and performance
of this Agreement and all other agreements executed in connection herewith by
such Seller and the transfer of the Purchased Assets to Buyer hereunder, and
that such resolutions, approvals and consents have not been amended or modified
in any respect and remain in full force and effect as of the date thereof, and
(iv) that the persons named therein are duly elected, qualified and acting
officers of such Seller and that set forth therein is a genuine signature or
true facsimile thereof for each such officer.
(i) Good Standing Certificate of Seller. Each Seller shall
have delivered to Buyer a certificate of good standing dated not more than ten
days before the Closing Date, certifying that such Seller is a corporation in
good standing in each jurisdiction set forth in Section 2.2 of the Disclosure
Letter.
(j) Escrow Agreement. Sellers and Buyer shall have entered
into the Escrow Agreement.
(k) Real Estate. (A) Seller shall have delivered Landlord
Consents and estoppel certificates with respect to each of the Real Property
Leases. (B) Buyer, in its reasonable discretion, shall have reviewed and
approved all Encumbrances except Permitted Encumbrances (for purposes of this
Section 5.1(k), Permitted Encumbrance shall not include a Predecessor
Encumbrance) listed on Schedule B to each of the Title Commitments and
determined that there are no Encumbrances which render title unmarketable (only
with respect to Owned Real Property located outside of Texas), indefeasible
(only with respect to Owned Real Property located in Texas), uninsurable at
customary rates, or which have a material adverse effect on the use or value of
the applicable Owned Real Property.
(l) Financing Contingency. Buyer shall have received the
proceeds of all financing necessary to consummate the transactions contemplated
hereby and provide for the ongoing working capital needs of Buyer on terms and
conditions satisfactory to Buyer in an amount not less than $42,500,000 plus (A)
the amount of Net Working Capital in excess of $7,993,190 and (B) a $5,000,000
credit revolver commitment.
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(m) Material Adverse Effect. Between the date hereof and the
Closing, there shall have occurred no event, circumstances or development that
would have a Material Adverse Effect.
(n) FIRPTA Affidavit. Buyer shall have received a certificate
from the Sellers, made under penalties of perjury, stating that none of the
Sellers is a foreign corporation, foreign partnership, foreign trust or foreign
estate and listing both the U.S. Employer Identification Number and principal
business office address of each of the Sellers.
(o) Tax Clearance Certificates. Sellers shall have received
and delivered to Buyer state tax clearance certificates from each state listed
on Section 5.1(o) of the Disclosure Letter, sufficient to establish that Buyer
shall have no obligation to withhold any consideration payable to Sellers
hereunder.
(p) Pro Forma Statements. Parent shall have delivered to Buyer
the Pro Forma Statements in accordance with Section 4.27 hereof, which such
statements shall demonstrate to Buyer to its reasonable satisfaction that Parent
and each Seller is solvent.
(q) Transition Services Agreement. Parent, Ohmstede, Inc.,
ITEQ Storage and G.L.M. Tanks & Equipment Ltd. shall have duly executed and
delivered to Buyer a Transition Services Agreement substantially in the form of
Exhibit F hereto (the "Transition Services Agreement").
(r) U.K. Opinion. Buyer shall have received an opinion from
Evans Dodd, reasonably satisfactory to Buyer.
(s) Minnesota Counsel Opinion. Buyer shall have received an
opinion of Leonard, Street & Deinard reasonably satisfactory to Buyer.
5.2. Conditions Precedent to the Obligations of Sellers. The
obligations of Sellers to proceed with the Closing hereunder are subject to the
fulfillment prior to or at Closing of the following conditions (any one or more
of which may be waived in whole or in part by Sellers at Sellers' option):
(a) Bringdown of Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement (subject to
the provisions of Section 3.5 hereof) shall be true and correct in all material
respects on and as of the Closing Date, with the same force and effect as though
such representations and warranties had been made on, as of and with reference
to Closing Date and Buyer shall have delivered to Parent a certificate, to such
effect signed by Buyer in form and substance reasonably acceptable to Sellers.
(b) Performance and Compliance. Buyer shall have performed all
of the covenants and complied with all the provisions required by this Agreement
to be performed or complied with by it on or before the Closing in all material
respects and Buyer shall have delivered to Sellers a certificate to such effect
in form and substance reasonably acceptable to Sellers.
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(c) Opinion of Counsel. Parent shall have received the Buyer's
Counsel Opinion.
(d) Satisfactory Instruments. All instruments and documents
required on the Buyer's part to effectuate and consummate the transactions
contemplated hereby, including those specified in Section 1.10(b), shall be
delivered by Buyer and shall be in form and substance reasonably satisfactory to
Parent and its counsel.
(e) Litigation. No order of any court or administrative agency
shall be in effect which restrains or prohibits the transactions contemplated
hereby and there shall not have been threatened, nor shall there be pending, any
action or proceeding by or before any court or Governmental Authority or other
regulatory or administrative agency or commission, challenging any of the
transactions contemplated by this Agreement or seeking monetary relief by reason
of the consummation of such transactions.
(f) Required Consents. All statutory and regulatory consents
and approvals which are required under the laws or regulations of the United
States or any other Governmental Authority, including the HSR Act and the rules
and regulations thereunder, for the transactions contemplated hereby and all
necessary consents and approvals by the lenders under the Credit Agreement shall
have been obtained and not withdrawn.
(g) Secretary's Certificate of Buyer. Buyer shall have
delivered to the Sellers a certificate, dated as of the Closing Date, in form
and substance satisfactory to Sellers, of the Secretary or an Assistant
Secretary of Buyer certifying (i) that attached thereto is a complete and
correct copy of the articles of incorporation of Buyer, as amended to date, (ii)
that attached thereto is a complete and correct copy of the Bylaws of Buyer, as
amended to date, (iii) that attached thereto is a complete and correct copy of
resolutions adopted by the board of directors and, if necessary, the
stockholders of Buyer, authorizing the execution, delivery and performance of
this Agreement and all other agreements executed in connection herewith by
Buyer, and that such resolutions, approvals and consents have not been amended
or modified in any respect and remain in full force and effect as of the date
thereof, and (iv) that the persons named therein are duly elected, qualified and
acting officers of Buyer and that set forth therein is a genuine signature or
true facsimile thereof for each such officer.
(h) Good Standing Certificate of Buyer. Buyer shall have
delivered to Sellers a certificate of the Secretary of State of the State of
Delaware dated not more than ten days before the Closing Date, certifying that
Buyer is a corporation in good standing in such state.
(i) Inventory Resale Certificates. Buyer shall have received
inventory resale certificates for each of the states listed on Section 5.2(i) of
the Disclosure Letter sufficient to establish that no sales or other transfer
tax will be due as a result of the sale to Buyer of any Seller's inventory in
such state.
(j) Transition Services Agreement. Buyer shall have executed
and delivered to Sellers the Transition Services Agreement.
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5.3. Termination.
(a) When Agreement May Be Terminated. This Agreement may be
terminated at any time prior to Closing:
(i) By mutual consent of Buyer, Parent and Sellers;
(ii) By Buyer if there has been a material breach by
Parent or any Seller of any of their respective representations, warranties or
covenants, or if any of the conditions specified in Section 5.1 hereof shall not
have been fulfilled by the time required and shall not have been waived by
Buyer;
(iii) By Parent and Sellers if there has been a
material breach by Buyer of any of its warranties or covenants, or if any of the
conditions specified in Section 5.2 hereof shall not have been fulfilled by the
time required and shall not have been waived by Parent;
(iv) By Buyer, on the one hand, or Parent and Sellers
on the other hand, if Closing shall not have occurred prior to March 13, 2000
(the "Termination Date"), provided, that Buyer or Parent may terminate this
Agreement pursuant to this subparagraph (iv) only if Closing shall not have
occurred by such date for a reason other than a breach by such party of any of
the provisions hereunder.
(b) Effect of Termination. In the event of termination of this
Agreement by Sellers or Buyer, as provided above, this Agreement shall forthwith
terminate and there shall be no liability on the part of Parent, Sellers or
Buyer or their respective officers or directors, except for liabilities arising
from a breach of this Agreement prior to such termination; provided, however,
that the obligations of the parties set forth in Sections 5.3(b), 4.9(d) and
(e), and Articles VI and VII hereof shall survive such termination.
ARTICLE VI
INDEMNIFICATION
6.1. Indemnification By Sellers and Parent. The Sellers and Parent,
jointly and severally, agree to indemnify, defend and hold harmless Buyer and
its officers, directors, employees, agents, stockholders and affiliates
(collectively, "Buyer Indemnitees") from and against and to reimburse such Buyer
Indemnitees with respect to any and all Damages arising out of or resulting from
any one or more of the following:
(a) any breach of representation or warranty of Parent or any
Seller contained in this Agreement, the Disclosure Letter or in any exhibit
hereto, or in any other statement, certificate or document furnished or to be
furnished to Buyer pursuant hereto or in connection with the transactions
contemplated hereby (it being understood and agreed that under this Article VI,
for purposes of determining whether there has been any breach of any
representation or warranty and for purposes of calculating the amount of Damages
arising therefrom, the representations and warranties of Parent and any Seller
shall be deemed not to be qualified by any concept of "material," "materiality,"
"Material Adverse Effect" or similar qualification);
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(b) any breach of any covenant or obligation of Sellers or
Parent in this Agreement;
(c) any liabilities or obligations (except those relating to
Environmental Claims, Environmental Laws or Hazardous Substances, which are the
subject of Section 6.1(e)) of Sellers, Parent or the Foreign Subsidiaries of any
nature, whether due or to become due, whether accrued, absolute, contingent or
otherwise, existing on the Closing Date, or arising out of any transactions
entered into or any state of facts existing, or the use, ownership, possession
or operation of the Purchased Assets or the conduct of the Business, on or prior
to the Closing Date, including the Excluded Liabilities, excepting only the
Assumed Liabilities;
(d) subject to the assumption by the Buyer of the Assumed
Liabilities, the failure of the Sellers to comply with applicable bulk sales
laws (in consideration of which indemnification obligation Buyer hereby waives
compliance by the Sellers with any applicable bulk sales laws);
(e) (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing): (i) Environmental Claims relating to activities, facts or
circumstances first existing prior to the Closing Date; (ii) the off-site
transportation, storage, treatment, recycling or disposal of Hazardous
Substances generated by the Parent, any Subsidiary or any of their predecessors
in interest relating to the Business or in connection with their businesses
prior to Closing at any property now or previously owned, operated or leased by
the Parent, any Subsidiaries or any of their predecessors ; (iii) any violation
of any applicable Environmental Law by the Parent, any Subsidiaries or any of
their predecessors in interest relating to the Business prior to Closing ; or
(iv) for those matters identified in Section 2.15 of the Disclosure Letter (the
environmental disclosure); provided, however, that Sellers and Parent shall not
be obligated to indemnify Buyer or any Buyer Indemnitees for any Damages to the
extent related to any condition exacerbated by Buyer, any Buyer Subsidiary,
their respective Affiliates or any successors thereto.
Any reimbursement obligation arising out of the foregoing indemnity shall be
paid as and when it becomes an obligation of the Indemnitor pursuant to Section
6.3 hereof. Buyer may withhold any amounts due to Sellers or Parent under this
Agreement or any other agreement between Buyer and Sellers, whether now or
hereafter existing, including the Escrow Fund or otherwise, to satisfy any
amounts due from any Seller or Parent to any of the Buyer Indemnitees pursuant
to the provisions of this Section 6.1.
6.2. Indemnification by Buyer. Buyer agrees to indemnify, defend and
hold Sellers, Parent and their respective officers, directors, employees, agents
and Affiliates (collectively, the "Seller Indemnitees") harmless from and
against and to reimburse Seller Indemnitees for any and all Damages arising out
of or resulting from any one or more of the following:
(a) any breach of representation or warranty of Buyer
contained in this Agreement, the Disclosure Letter or in any exhibit hereto, or
in any other statement, certificate or document furnished or to be furnished to
Sellers pursuant hereto or in connection with the transactions contemplated
hereby (it being understood and agreed that under this Article VI, for purposes
of determining whether there has been any breach of any representation or
warranty
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and for purposes of calculating the amount of Damages arising therefrom, the
representations and warranties of Buyer shall be deemed not to be qualified by
any concept of "material," "materiality," "Material Adverse Effect" or similar
qualification);
(b) any breach of any covenant or obligation of Buyer in this
Agreement;
(c) the Assumed Liabilities;
(d) any and all liabilities or obligations (except those
relating to Environmental Claims, Environmental Laws or Hazardous Substances,
which are the subject of Section 6.2(e)) of Buyer, any Buyer Subsidiary or their
respective successors of any nature, whether due or to become due, whether
accrued, absolute, contingent or otherwise, to the extent arising out of any
transactions entered into, or the use, ownership, possession or operation of the
Purchased Assets or the conduct of the Business by Buyer, any Buyer Subsidiary
or any successor thereto, after the Closing Date;
(e) (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) (i) Environmental Claims relating to activities, facts or
circumstances first existing after the Closing Date; (ii) the off-site
transportation, storage, treatment, recycling or disposal of Hazardous
Substances generated after Closing by Buyer or any Buyer Subsidiary related to
the Business or in connection with their businesses after the Closing at any
property owned, operated or leased after the Closing by Buyer or any Buyer
Subsidiary relating to the Business or in connection with their businesses;
(iii) any violation of any applicable Environmental Law by Buyer or any Buyer
Subsidiary relating to the Business after Closing (except for violations for
which Buyer Indemnitees are entitled under Section 6.1(e) for such time period
as it reasonably takes to correct after Closing); and (iv) any Damages relating
to Environmental Claims arising out of any condition, fact or circumstance
existing on or prior to the Closing Date to the extent such condition, fact or
circumstance was exacerbated by any act or negligent omission by the Buyer, any
Buyer Subsidiary, or their respective Affiliates.
(f) any and all Damages related to or arising from (A)
personal injuries to Buyer's officers, directors, employees or agents arising
from such Persons' inspection of or presence at the Business' facilities or (B)
damage or destruction to any tangible personal property of Parent or any Seller
arising from any of Buyer's officers, directors, employees or agents inspection
of or presence at any of the Business' facilities, except, with respect to
clauses (A) and (B), to the extent related to or arising from the negligence or
misconduct of Parent, Sellers, the Subsidiaries or any of their respective
officers, directors, employees or agents.
Any reimbursement obligation arising out of the foregoing
indemnity shall be paid as and when it becomes an obligation of the Indemnitor
pursuant to Section 6.3(a). Parent or any Seller may withhold any amounts due to
Buyer under this Agreement or any other agreement between Buyer and Parent or
such Seller, whether now or hereafter existing, to satisfy any amounts due from
Buyer to Parent or any Seller Indemnitee pursuant to the provisions of this
Section 6.2.
6.3. General Indemnification Procedures.
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(a) In the event that any Buyer Indemnitee or Seller
Indemnitee incurs or suffers any Damages with respect to which indemnification
may be sought by such Buyer Indemnitee or Seller Indemnitee pursuant to this
Article VI, the party seeking indemnification (the "Indemnitee") must assert the
claim by giving written notice (a "Claim Notice") to the party from whom
indemnification is sought (the "Indemnitor"). The Claim Notice must state the
nature and basis of the claim in reasonable detail based on the information
available to the Indemnitee and, if the Claim Notice is being given with respect
to a third Person claim, must be accompanied by a copy of any written notice
received by the Indemnitee from the third Person claimant. If the Claim Notice
is being given by reason of any third Person claim, it shall be given within 30
days after the filing or other written assertion of any such claim against the
Indemnitee, but the failure of the Indemnitee to give the Claim Notice with
respect to any claim other than a third person claim, or to give the Claim
Notice within such time period with respect to a third Person claim, shall not
relieve the Indemnitor of any liability for indemnification under this Article
VI, except to the extent that the Indemnitor is actually prejudiced thereby.
Each Indemnitor to whom a Claim Notice is given shall respond to any Indemnitee
that has given a Claim Notice (a "Claim Response") within 10 Business Days (the
"Response Period") after the date that the Claim Notice is given. Any Claim
Response shall specify whether or not the Indemnitor given the Claim Response
disputes the claim described in the Claim Notice. If any Indemnitor fails to
give a Claim Response within the Response Period, such Indemnitor shall be
deemed not to dispute the claim described in the related Claim Notice. If any
Indemnitor elects not to dispute a claim described in a Claim Notice, whether by
failing to give a timely Claim Response or otherwise, then the amount of such
claim shall be conclusively deemed to be an obligation of such Indemnitor. If
any Indemnitor shall be obligated to indemnify an Indemnitee hereunder, such
Indemnitor shall pay to such Indemnitee within 30 days after (i) the last day of
the applicable Response Period the amount to which such Indemnitee shall be
entitled or, or (ii) if the Claim Notice relates to Damages that have not been
liquidated as of the date of the Claim Notice, the date on which all or any part
of such damages become liquidated and determined (but only with respect to the
portion that has become liquidated and determined).
(b) If there shall be a dispute as to the amount or manner of
indemnification under this Agreement, the Indemnitor and the Indemnitee shall
seek to resolve such dispute through negotiations and, if such dispute is not
resolved within 20 days, the Indemnitee may pursue whatever legal remedies may
be available for the recovery of the Damages claimed from any Indemnitor. If any
Indemnitor fails to pay all or any part of any indemnification obligation on or
before the later to occur of (x) 30 days after the last day of the applicable
Response Period, and (y) if the Claim Notice relates to Damages that have not
been liquidated as of the date of the Claim Notice, 30 days after the date on
which all or any part of such Damages shall have become liquidated and
determined (but only with respect to the portion that has become liquidated and
determined), then the Indemnitor shall also be obligated to pay to the
Indemnitee interest on the unpaid amount for each day during which the
obligation remains unpaid at an annual rate of ten percent.
(c) The Indemnitee shall provide to the Indemnitor on request
all information and documentation reasonably necessary to support and verify any
Damages that the Indemnitee believes give rise to the claim for indemnification
hereunder and shall give the Indemnitor reasonable access to all books, records
and personnel in the possession or under the control of the Indemnitee that
would have bearing on such claim.
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(d) Except as hereinafter provided, in the case of third
Person claims for which indemnification is sought, the Indemnitor shall have the
option: (i) to conduct any proceedings or negotiations in connection therewith,
(ii) to take all other steps to settle or defend any such claim (provided that
the Indemnitor shall not settle any such claim without the consent of the
Indemnitee (which consent shall not be unreasonably withheld, it being
understood that it shall not be unreasonable for the Indemnitee to withhold its
consent from any settlement which (1) commits the Indemnitee to take, or to
forbear to take, any action, or (2) does not provide for a complete release of
the Indemnitee by such third Person)), and (iii) to employ counsel to contest
any such claim or liability in the name of the Indemnitee or otherwise. In any
event, the Indemnitee shall be entitled to participate at its own expense and by
its own counsel (a "Voluntary Participation") in any proceedings relating to any
third Person claim. The Indemnitor shall, within 45 days of receipt of the Claim
Notice, notify the Indemnitee of its intention to assume the defense of the
claim (a "Defense Notice"). Until the Indemnitee has received the Defense
Notice, the Indemnitee shall take reasonable steps to defend (but may not
settle) the claim. If the Indemnitor declines to assume the defense of any such
claim or fails to give a Defense Notice within 45 days after receipt of the
Claim Notice, the Indemnitee shall defend against the claim but shall not settle
such claim without the consent of the Indemnitor (which consent shall not be
unreasonably withheld). The expenses of all proceedings, contests or lawsuits
(other than those incurred in a Voluntary Participation) with respect to claims
as to which a party is entitled to indemnification under this Article VI shall
represent indemnifiable Damages under this Agreement. If the Indemnitor assumes
the defense of a third Person claim, the Indemnitor shall not be liable to any
Indemnitees for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnitees in connection with the defense
thereof, except that if the Indemnitor elects not to assume such defense, or
counsel for the Indemnitees advises that there are bona fide issues that raise
conflicts of interest between the Indemnitor and Indemnitees, the Indemnitees
may retain one counsel satisfactory to them, and Indemnitor shall pay all
reasonable fees and expenses of such counsel for the Indemnitees promptly as
statements therefor are received. If such indemnity is not available with
respect to any Indemnitee, then the Indemnitor and the Indemnitee shall
contribute to the amount payable in such proportion as is appropriate to reflect
relative faults. So long as the Indemnitor is defending in good faith such third
party Damage, the Indemnitee shall not settle or compromise such third party
claim without the Indemnitor's prior written consent (which consent shall not be
unreasonably withheld). Regardless of which party shall assume the defense of
the claim, the parties shall cooperate fully with one another in connection
therewith. Notwithstanding the foregoing, the Indemnitor shall not be entitled
(except with the consent of the Indemnitee) to take any of the actions referred
to in clauses (i), (ii) or (iii) of the first sentence of this subparagraph
unless: (x) the third Person claim involves solely monetary damages; (y) the
Indemnitor shall have expressly agreed in writing that, as between the
Indemnitor and the Indemnitee, the Indemnitor shall be solely obligated to
satisfy and discharge such third Person claim; and (z) if reasonably requested
to do so by the Indemnitee, the Indemnitor shall have made reasonably adequate
provision to ensure the Indemnitee of the financial ability of the Indemnitor to
satisfy the full amount of any adverse monetary judgment that may result from
such third Person claim.
6.4. Termination of Indemnification. The obligations to indemnify and
hold harmless an Indemnified Party (i) pursuant to Sections 6.1(a) and 6.2(a)
shall terminate on April 30, 2001 (the "General Survival Period"), provided,
however, that (x) the obligations to indemnify and hold harmless an Indemnified
Party for Damages relating to a breach of a representations
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contained in Sections 2.1, 2.2, 2.3, 2.4, 2.17, 3.1 and 3.2 shall survive
indefinitely, (y) the obligations to indemnify and hold harmless an Indemnified
Party for Damages relating to a breach of the representations contained in
Sections 2.9, 2.22 and 3.5 may be asserted until 60 days after the running of
the applicable statute of limitations with respect to the matters the subject of
such claims and (z) such obligations to indemnify and hold harmless shall not
terminate with respect to any item as to which the Indemnified Party shall have,
before the expiration of the applicable period, previously made a claim by
delivering a Claim Notice to the Indemnifying Party, and (ii) pursuant to the
other clauses of Sections 6.1 and 6.2 shall not terminate.
6.5. Limitation on Indemnification Obligations of the Sellers, Parent
and Buyer. Subject to the terms of this Agreement, Sellers and Parent shall not
be liable to the Buyer Indemnitees under Section 6.1(a) for Damages unless the
cumulative total of Damages under Section 6.1(a) exceeds an aggregate of
$400,000 whereupon, the Buyer Indemnitees shall be entitled to receive, subject
to the following sentence, all amounts without regard to this dollar limitation.
Notwithstanding anything to the contrary contained herein, the aggregate
liability of the Sellers and Parent under Section 6.1(a) shall be limited to
$4,000,000. Subject to the terms of this Agreement, Buyer shall not be liable to
the Seller Indemnitees under Section 6.2(a) for Damages unless the cumulative
total of Damages under Section 6.2(a) exceeds an aggregate of $400,000
whereupon, the Seller Indemnitees shall be entitled to receive, subject to the
following sentence, all amounts without regard to this dollar limitation.
Notwithstanding anything to the contrary contained herein, the aggregate
liability of the Buyer under Section 6.2(a) shall be limited to $4,000,000.
6.6. No Indemnitor shall have indemnification obligations for Damages
incurred by an Indemnitee pursuant to Sections 6.1 or 6.2:
(a) to the extent of any tax savings actually realized by such
Indemnitee with respect to such Damages (net of the effect of any tax upon the
receipt by such Indemnitee of any amounts from the Indemnitor pursuant to this
Article VI); or
(b) for punitive damages, except to the extent that any of
such damages have been recovered by a third Person against such Indemnitee.
(c) for consequential damages, except to the extent that any
of such damages have been recovered by a third Person against such Indemnitee;
provided that this Section 6.6(c) shall not prohibit Buyer from recovering as
Damages pursuant to this Article VI any consequential damages arising from or
relating to any breach by Parent and Seller of any covenant contained in this
Agreement.
6.7. Fraud. Notwithstanding the foregoing, the limitations of liability
set forth in Sections 6.4, 6.5, 6.6 and 6.8 shall not apply to any claim for
fraud or intentional or knowing breach of any representation or warranty of
Parent, any Seller or Buyer or to any claim relating to the gross negligence or
willful misconduct of Parent, any Seller or Buyer.
6.8. Indemnification Exclusive Remedy. Indemnification pursuant to the
provisions of this Agreement (including the rights of Buyer pursuant to the
Escrow Agreement) shall be the
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exclusive remedy of the parties for any breach of this Agreement or any closing
document executed and delivered pursuant to the provisions hereof or pursuant to
this Agreement and for any Damage arising out of the transactions contemplated
hereby; provided, however, that nothing stated in this Section 6.8 shall in any
way limit or foreclose the availability to the parties of specific performance
or other equitable remedies.
ARTICLE VII
MISCELLANEOUS
7.1. Survival. The representations, warranties, covenants and
agreements of Buyer, Parent and Sellers contained in this Agreement or any
exhibit or the Disclosure Letter or any certificate or other document delivered
pursuant to this Agreement shall survive the Closing and shall remain in full
force and effect in accordance with Section 6.4, regardless of any investigation
made or information or knowledge obtained by or on behalf of Buyer, Parent and
Sellers, as applicable, at any time.
7.2. Notices. All notices and other communications hereunder shall be
in writing and shall be mailed by certified or registered mail, return receipt
requested, (ii) sent by Federal Express or other nationally recognized overnight
express carrier, if sent for overnight delivery with fee prepaid, (iii) if sent
via facsimile with transmission confirmed, or (iv) upon receipt if delivered
personally, addressed as follows:
If to Parent or Sellers, to:
ITEQ, Inc.
2727 Allen Parkway, Suite 760
Houston, Texas 77019
Attention: President
Telephone: 713-285-2700
Fax No.: 713-522-1759
With a copy to:
Porter & Hedges, L.L.P.
700 Louisiana, Suite 3500
Houston, Texas 77002
Attention: T. William Porter, Esq.
Telephone: 713-226-0600
Fax No.: 713-228-1331
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If to Buyer, to:
HMT Inc.
c/o Nassau Point Investors L.L.C.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
Attention: Member
Telephone: 203-622-3921
Fax No. 203-622-7698
With a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attn: Carmen J. Romano, Esq.
Telephone: 215-994-4000
Fax No.: 215-994-2222
Any notice, request, demand, claim, or other communication
hereunder sent to the intended recipient at the address set forth above shall be
deemed given when received, provided that notice shall be deemed to have been
duly given if delivery of the notice is refused or if the notice is properly
addressed and delivery is attempted but unable to be made. Any party may change
the address to which notices, requests, demands, claims or other communications
hereunder are to be delivered by giving the other party notice in the manner
herein set forth.
7.3. Expenses. Except as otherwise provided in this Agreement, each
party to this Agreement will bear all the fees, costs and expenses which are
incurred by it in connection with the transactions contemplated hereby, whether
or not such transactions are consummated, and Sellers and Parent joint and
severally on the one hand and Buyer on the other hand shall split equally all
Taxes (including any stamp duties or similar transfer takes with respect to the
transfer of the shares of any Foreign Subsidiary), recording and filing fees
that may be imposed by reason of the sale, transfer, assignment or delivery of
the Purchased Assets.
7.4. Entire Agreement. The agreement of the parties, which is comprised
of this Agreement and the Disclosure Letter and the documents referred to
herein, sets forth the entire agreement and understanding between the parties
and supersedes any prior agreement or understanding, written or oral, relating
to the subject matter of this Agreement.
7.5. Assignment; Binding Effect; Severability. This Agreement may not
be assigned by any party hereto without the written consent of the other party,
except that no consent of Sellers or Parent shall be required for any assignment
by Buyer to any of its Affiliates, provided that notwithstanding such
assignment, Buyer shall remain fully liable for all of its obligations hereunder
and Buyer shall guarantee the timely, full and complete performance by such
Affiliates of any liabilities or obligations so assigned to such Affiliates.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the successors, legal representatives and permitted assigns of
each party hereto. The provisions of this Agreement are severable, and in the
event that any one or more provisions are deemed illegal or unenforceable the
remaining provisions shall remain in full force and effect unless the deletion
of such provision shall cause this Agreement to be materially adverse to any
party, in which event the parties shall use commercially reasonable efforts to
arrive at an accommodation which best preserves for the parties the benefits and
obligations of the offending provision.
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7.6. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws (as opposed to the conflicts
of laws provisions) of the State of New York.
7.7. Execution in Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if the signatures thereto were
upon one instrument.
7.8. Public Announcement. No party hereto shall, without the approval
of the other parties hereto, make any press release or other public announcement
concerning the terms of the transactions contemplated by this Agreement, except
as and to the extent that any such party shall be so obligated by law or
regulatory process, in which case the other parties shall be advised and the
parties shall use their commercially reasonable efforts to cause a mutually
agreeable release or announcement to be issued; provided that the foregoing
shall not preclude communications or disclosures necessary to implement the
provisions of this Agreement.
7.9. No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended to or shall (i) confer on any Person other than the
parties hereto and their respective successors or permitted assigns any rights
(including third party beneficiary rights), remedies, obligations or liabilities
under or by reason of this Agreement, or (ii) constitute the parties hereto as
partners or as participants in a joint venture. This Agreement shall not provide
third parties with any remedy, claim, liability, reimbursement, cause of action
or other right in excess of those existing without reference to the terms of
this Agreement. The obligations and liabilities of the parties hereunder shall
be without recourse to any shareholder, director, officer or employee of such
party (unless such person is a party hereto) and no such person shall be deemed
to have made any representation, warranty or covenant under or pursuant to this
Agreement (unless such person is a party hereto).
7.10. Headings. The headings preceding the text of the sections and
subsections hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
7.11. Further Assurances. Each Party shall cooperate and take such
action as may be reasonably requested by other Party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby. Buyer shall deliver to Parent any amounts received in the Lock Box
Account after the Closing which do not relate to the Business or the Purchased
Assets promptly after identifying that such amounts do not relate to the
Business or the Purchased Assets. Parent shall deliver to Buyer any amounts
received by Parent or its Subsidiaries after the Closing which relate to the
Business or the Purchased Assets.
7.12. Amendment and Waiver. The Parties may by mutual agreement amend
this Agreement in any respect, and any Party, as to such Party, may (a) extend
the time for the performance of any of the obligations of any other party, (b)
waive any inaccuracies in representations by any other Party, (c) waive
compliance by any other Party with any of the agreements contained herein and
performance of any obligations by such other Party, and (d) waive the
fulfillment of any condition that is precedent to the performance by such Party
of any of its obligations under this Agreement. To be effective, any such
amendment or waiver must be in writing and be signed by the Party against whom
enforcement of the same is sought.
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7.13. Gender and Certain References. Unless otherwise specified, all
references herein to days, weeks, months or years shall be calendar days, weeks,
months or years. Whenever the context requires, the gender of all words used
herein shall include the masculine, feminine and neuter, and the number of all
words shall include the singular and plural. References to Articles or Sections
shall be to Articles and Sections of this Agreement unless otherwise specified.
The words "hereof", "herein" or "hereunder" shall refer to this Agreement as a
whole and not to any particular Article, Section or Paragraph. The words
"including" or "include" are used herein in an illustrative sense and not to
limit a more general statement. When computing time periods described by a
number of days before or after a stated date or event, the stated date or date
on which the specified event occurs shall not be counted and the last day of the
period shall be counted. Unless otherwise specified herein any obligation
otherwise due on a non-Business Day shall not be due until the next Business
Day.
7.14. Time is of the Essence. Time is of the essence in the performance
of this Agreement.
7.15. Parent's Authority. Notwithstanding any provision herein to the
contrary, the parties acknowledge and agree that Parent may act on behalf of the
Sellers for all purposes and with respect to all matters under this Agreement.
ARTICLE VIII
DEFINITIONS
"1960 Facility" means the Sellers location at FM 1960 West in
Houston, Texas.
"Affiliate" of a Person means any Person controlling,
controlled by, or under common control with, such Person; provided that an
Affiliate of Parent shall not include the shareholders of Parent. For purposes
of this definition, "control" means the power to direct the management and
policies of a Person, whether through the ownership of voting securities, by
agreement or otherwise.
"Agreement" shall have the meaning set forth in the
Introduction.
"Ancillary Agreements" means the Bill of Sale, the Assumption
Agreement, the Escrow Agreement, the Deeds, the Intangibles Assignment and the
Other Instruments.
"Asset Acquisition Statement" shall have the meaning set forth
in Section 4.7.
"Assignment of Leases" shall mean the Assignment of Leases
between Sellers and Buyer, dated as of the Closing Date, substantially in the
form of Exhibit H hereto.
"Assumed Contracts" means the contracts assumed by Buyer
pursuant to Section 1.1(g).
"Assumed Liabilities" means the liabilities and obligations of
Sellers assumed by Buyer pursuant to the Assumption Agreement and Section
1.3(a).
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"Assumption Agreement" shall have the meaning set forth in
Section 1.3(a).
"BankBoston" means BankBoston, N.A.
"Beneficiary" shall mean the person(s) or entity designated by
an Employee, Former Employee, by operation of law or otherwise as the party
entitled to compensation, benefits, insurance coverage, payments,
indemnification or any other goods or services as a result of any liability or
claim under any Benefit Plan or under any other employee benefit plan, program
or policy.
"Benefit Plan" shall have the meaning set forth in Section
2.22.
"Bill of Sale" shall have the meaning set forth in Section
1.10(a)(i).
"Business Days" shall mean any day other than a Saturday,
Sunday or any other day on which the commercial banks in Houston, Texas are
authorized or required to close.
"Business Employees" shall mean the Non-Union Employees and
the Union Employees.
"Business Records" shall have the meaning set forth in Section
1.1(f).
"Buyer" shall have the meaning set forth in the Introduction.
"Buyer Environmental Liabilities" means any loss, liability,
claim, obligation, damage or deficiency arising out of, resulting from or
pertaining to environmental conditions or violations (including violations of
Environmental Laws) first occurring, existing, or arising after the Closing,
including, without limitation, (i) the presence, release, or threat of release
of Hazardous Materials at, on, about, under or from the Real Estate included in
the Purchased Assets or any other property currently or hereafter owned,
operated or leased by the Buyer, any Buyer Subsidiary, any of their respective
Affiliates or any successors thereof (on- or off-site); (ii) arising from the
off-site management, recycling, transportation, release or threat of release of
Hazardous Materials generated by or on behalf of the Buyer, any Buyer
Subsidiary, any of their respective Affiliates or any successors thereof; or
(iii) the violation by Buyer, any Buyer Subsidiary, any of their Affiliates or
any successors thereto of any Environmental Law any common law liability with
respect to the foregoing.
"Cash Purchase Price" shall have the meaning set forth in
Section 1.4.
"Claim Notice" shall have the meaning set forth in Section
6.3(a).
"Claim Response" shall have the meaning set forth in Section
6.3(a).
"Closing" means the closing of the transaction under this
Agreement.
"Closing Date" means the date of the Closing as determined
pursuant to Section 1.8.
"Closing Net Working Capital" shall have the meaning set forth
in Section 1.7.
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"Closing Statement" shall have the meaning set forth in
Section 1.7.
"Code" means the Internal Revenue Code of 1986, as amended.
"commercially reasonable efforts" shall mean diligently,
promptly and in good faith taking all actions which are reasonable, necessary
and appropriate to accomplish the objective requiring the use of commercially
reasonable efforts, but shall not include any obligation (a) to make any
payment, incur any costs, commit available resources, or forego the receipt of
any payment, which in any case is material in amount in light of the required
objective, (b) to initiate any lawsuit or other proceeding to achieve the
required objective, or (c) to take any action which is unlawful.
"Correction Opinion" shall mean an opinion as to the matters
set forth on Exhibit G hereto with such reasonable assumptions, qualifications
and exclusions as Buyer and Parent may reasonably agree.
"Credit Agreement" means that certain Revolving Credit
Agreement, dated as of October 28, 1997, among Parent, the guarantors named
therein, the lending institutions party thereto, Deutsche Bank AG, as
Documentation Agent, and BankBoston, as Agent, as amended.
"Current Assets" means assets of the character that would be
reflected as current assets on a balance sheet prepared on a basis consistent
with the Accounting Principles.
"Current Liabilities" means liabilities of the character that
would be reflected as current liabilities on a balance sheet prepared on a basis
consistent with the Accounting Principles, excluding the current portion of any
long-term liabilities.
"Damages" mean any and all losses, liabilities, damages,
penalties, obligations, awards, fines, deficiencies, interest, claims (including
third Person claims, whether or not meritorious), causes of action, suits,
proceedings, costs and expenses whatsoever (including reasonable attorneys',
consultants' and other professional fees and disbursements of every kind, nature
and description) resulting from, arising out of or incident to (x) any matter
for which indemnification is provided under this Agreement, or (y) the
enforcement by an indemnified party of its rights to indemnification under this
Agreement.
"Defense Notice" shall have the meaning set forth in Section
6.3(d).
"Disclosure Letter" means the disclosure letter delivered by
Parent and Sellers to Buyer on the date of this Agreement pursuant to the terms
of this Agreement.
"Disputed Items" shall have the meaning set forth in Section
1.7.
"Dispute Notice" shall have the meaning set forth in Section
1.7.
"EEOC" means the Equal Employment Opportunity Commission.
"Employees" shall mean all salaried and hourly paid
individuals with whom any Seller or any Foreign Subsidiary maintains on the
specified date an employer-employee
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relationship whose primary responsibility relate to the Business or who are
employed in the conduct of the Business.
"Encumbrance" shall mean any encumbrance of any kind
whatsoever and includes any security interest, mortgage, deed of trust, lien,
judgment, tax lien, sewer rent, assessment, mechanics or materialmens liens,
hypothecation, pledge, assignment, easement, servitude, right of way,
restriction, tenancy, right of first refusal, encroachment or burden or any
other right or claim of others affecting the Purchased Assets and any
restrictive covenant or other agreement, restriction or limitation on the use of
the Purchased Assets.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean (i) any corporation included with
Sellers in a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) any trade or business (whether or not incorporated)
which is under common control with Sellers within the meaning of Section 414(c)
of the Code; (iii) any member of an affiliated service group of which any Seller
is a member within the meaning of Section 414(m) of the Code; or (iv) any other
person or entity treated as an affiliate of any Seller under Section 414(o) of
the Code.
"Escrow Agent" shall mean the person appointed as escrow agent
pursuant to the Escrow Agreement, which such escrow agent shall be reasonably
acceptable to Buyer and Parent.
"Escrow Fund" shall have the meaning set forth in Section 1.6.
"Estimated Net Working Capital" shall have the meaning set
forth in Section 1.5.
"Excluded Assets" means the properties and assets of the
Sellers expressly excluded from the Purchased Assets by Section 1.2.
"Excluded Liabilities" means the liabilities and obligations
of the Sellers which are not assumed expressly by Buyer as provided in Section
1.3(b).
"Financial Statements" shall have the meaning set forth in
Section 2.6.
"Foreign Subsidiary Assets" means all of the assets and
properties of the Foreign Subsidiaries.
"Foreign Subsidiaries" shall mean Australasian HMT Pty. Ltd.,
an Australian corporation, HMT Canada, Ltd., a Canadian corporation, HMT
Rubbaglas, Ltd., HMT Tank Systems B.V., a Netherlands corporation, and English
corporation and HMT Singapore Pte. Ltd., a Singapore corporation.
"Former Employees" shall mean all salaried and hourly paid
individuals previously employed by Sellers or any of their Affiliates but who
are no longer so employed on the Closing Date, including any such individuals on
long-term disability.
"GAAP" means United States generally accepted accounting
principles.
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"Governmental Authority" means the government of the United
States or any other country or any state, municipality, local or other political
or administrative subdivision thereof or therein, or any court, tribunal,
agency, department, board, instrumentality, authority or commission (including
regulatory and administrative bodies) of any of the foregoing.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"HSR Filing" shall have the meaning set forth in Section 4.4
hereof.
"including" or any variation thereof means "including without
limitation" and the term "including" or any variation thereof shall not be
construed to limit any general statement which it follows to the specific or
similar items or matters immediately following it.
"Indemnitee" shall have the meaning set forth in Section
6.3(a).
"Indemnitor" shall have the meaning set forth in Section
6.3(a).
"Independent Accountant" shall have the meaning set forth in
Section 1.7(b).
"IRS" means the U.S. Internal Revenue Service.
"knowledge of Sellers," "to Seller's knowledge" and similar
phrases means the knowledge of William Reid, Mark Johnson, Blaine Kennedy,
Kee-Nian Ho, Anthony G. Henderson, Rusty Chandler, Wayne Jean, Gary Tesch, Sam
Johnston, Charlotte Wichard and Andrew East, after reasonable investigation.
"Lock-Box Account" means the lock-box account of HMT, Inc. at
Bank One Texas, N.A., account
number 1560184788.
"Manage" or "Managed", when used with respect to Hazardous
Materials, has the meaning set forth in Section 2.15.
"Material Adverse Effect" means any change or effect (or
series of related changes or effects) which has or is reasonably likely to have
a material adverse change in or effect upon the condition (financial or
otherwise), results of operations, liabilities, assets, earnings, competitive or
financial position, business of any Seller, any Foreign Subsidiary, the Business
or the use of the Purchased Assets.
"Net Working Capital" means all Current Assets included in the
Purchased Assets (including all Current Assets of the Foreign Subsidiaries) as
of the Closing Date, less all Current Liabilities included in the Assumed
Liabilities (including all Current Liabilities of the Foreign Subsidiaries) as
of the Closing Date, calculated in accordance with the Accounting Principles.
"Non-Union Employees" shall have the meaning set forth in
Section 4.13(b).
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"November 1999 Net Working Capital Statement" means a
statement of the calculation of Net Working Capital as of the end of business of
November 30, 1999, as prepared by Parent, which such statement is included in
Section 1.5 of the Disclosure Letter.
"Owned Real Properties" shall have the meaning set forth in
Section 2.17(a).
"Party" shall mean Sellers and Parent on the one hand and
Buyer on the other hand; and "Parties" shall mean Parent, each Seller and Buyer
collectively.
"Permitted Encumbrances" means (i) any liens for taxes and
assessments not yet delinquent; (ii) any obligations or duties to any
municipality or public authority not yet due and payable with respect to any
franchise, grant, certificate, license or permit, and all applicable laws,
rules, regulations and orders; (iii) any easements, rights of way, servitudes,
permits and other similar rights for pipelines, power lines, water and sewer
lines, telephone lines, streets, roadways, passage ways, alleys and other
similar easements, rights of way and encroachments on, over or in respect of the
Real Property which do not materially adversely affect the use or value (in
respect of its current use) of any of the Owned Real Property or take priority
over the possessory rights under the Real Property Leases or otherwise
materially adversely affect the use or value (in respect of its current use) of
any Real Property Lease; (iv) materialmens, mechanics, repairmens, employees,
contractors, operators, tax and other similar statutory liens or charges arising
in the ordinary course of business incidental to construction, maintenance or
operation of any facilities of any Seller on the Real Property (A) if they have
not been filed pursuant to applicable law, (B) if filed, if they have not yet
become due and payable or payment is being withheld as provided by law [or (C)
if their validity is being contested in good faith in the ordinary course of
business by appropriate action]; (v) any other liens, charges, encumbrances,
contracts, agreements, instruments, obligations, defects or irregularities of
any kind whatsoever affecting the Real Property that individually or in the
aggregate are not such as to materially adversely affect the use or value (in
respect of its current use) of any of the Owned Real Properties or Leased Real
Properties; (vi) the terms and conditions of all conveyance documents executed
pursuant hereto at Closing and all leases relating to the Leased Real Property;
(vii) all liens, charges, encumbrances, contracts, agreements, instruments,
obligations, defects and irregularities of any kind whatsoever affecting the
Real Property and arising out of the acts of any predecessors in title to any
Seller who are unrelated to any Seller or any Affiliate of any Seller; and
(viii) the matters described in Section 2.17 of the Disclosure Letter.
"Person" means and includes any individual, corporation,
partnership, firm, association, joint venture, joint stock company, trust or
other entity, or any government or regulatory administrative or political
subdivision or agency, department or instrumentality thereof.
"Predecessor Encumbrances" means any matter described in
clause (vii) of the definition of "Permitted Encumbrances."
"Purchase Orders" shall mean purchase orders entered into by
any Seller in the ordinary course of business consistent with the past practice
of the Business.
"Purchase Order Consent" means the consent of the appropriate
customer with respect to the assignment of a Purchase Order to Buyer.
"Purchase Price" shall have the meaning set forth in Section
1.4.
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"Purchased Assets" shall have the meaning set forth in Section
1.1.
"Release" shall have the meaning set forth in Section 2.15.
"Remediation" means investigation, cleanup, remedial action or
other response action.
"Resignations" means any resignations of officers and
directors of Foreign Subsidiaries requested by Buyer prior to Closing.
"Resolution Period" shall have the meaning set forth in
Section 1.7(b).
"Response Period" shall have the meaning set forth in Section
6.3(a).
"Returns" means all returns, declarations, reports, claims for
refunds, information returns or statements and other documents required under a
Tax Law either (A) to be filed with a Governmental Authority in respect of Taxes
or (B) to be provided to a person other than a Governmental Authority (and
"Return" means any one of the foregoing Returns).
"Rubbaglas Earnout" shall mean any earn-out amounts payable to
the Former Shareholders of HMT Rubbaglas, Ltd., pursuant to the Sale and
Purchase Agreement, dated November 19, 1993, among Anthony Norman Taylor,
Patrick Gerald Hynds, Michael John, Vincent Guillem, Michael Raymond and HTM,
Inc.
"Seller Environmental Liabilities" means whether or not
disclosed in any environmental reports or identified in connection with Buyer's
due diligence any loss, liability, claim, obligation, damage or deficiency
arising out of, resulting from or pertaining to environmental conditions or
violations (including violations of Environmental Laws) first occurring,
existing, or arising prior to the Closing, including, without limitation, (i)
the presence, Release, or threat of Release of Hazardous Materials at, on,
about, under or from any property now or previously owned, operated or leased by
the Business or in connection with its businesses of Sellers or the Foreign
Subsidiaries (on- or off-site); (ii) arising from the off-site management,
recycling, transportation, Release or threat of Release of Hazardous Materials
generated by or on behalf of the Sellers or Foreign Subsidiaries; (iii) the
violation of any Environmental Law and any common law liability with respect to
the foregoing; or (iv) relating to the wastewater lagoon located at the Kelton,
Pennsylvania facility of Sellers.
"Sellers" shall have the meanings set forth in the
Introduction.
"Solvent" means, with respect to Parent and each Seller: (i)
The fair value of the assets of each of the Parent (on a consolidated basis),
each Seller and the Foreign Subsidiaries, at a fair valuation, exceeds their
respective debts and liabilities, subordinated, contingent or otherwise; (ii)
the present fair saleable value of the property of the Parent, Sellers and
Foreign Subsidiaries is greater than the amount that will be required to pay the
probable liability of their respective debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (iii) assuming Parent is able to refinance its debt
under the Credit Agreement on or before the maturity or acceleration of such
debt, the Parent, Sellers and Foreign Subsidiaries are able to pay their
respective debts and liabilities,
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subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (iv) assuming Parent is able to refinance its debt
under the Credit Agreement on or before the maturity or acceleration of such
debt, the Parent, Sellers and Foreign Subsidiaries do not have unreasonably
small capital with which to conduct the business in which they are engaged as
such business is now conducted and is proposed to be conducted.
"Statement of Allocation" shall have the meaning set forth in
Section 4.7.
"Subsidiary" means any subsidiary of Parent, including Sellers
and the Foreign Subsidiaries.
"subsidiary" means as to any Person, a corporation or other
entity of which shares of stock or other equity ownership interests having
ordinary voting power to elect a majority of the board of directors or other
managers of such corporation or other entity are at the time owned, directly or
indirectly, through one or more intermediaries, or both, by such Person.
"Taxes" means all federal, state, local, foreign and other net
income, gross income, gross receipts, sales, use, bulk sales, ad valorem,
transfer, franchise, profits, license, lease, service, add on or alternative
minimum tax, occupancy, withholding, social security, payroll, employment,
excise, severance, stamp, value added, occupation, premium, property (including,
without limitation, real property taxes and any assessments, special or
otherwise), windfall profits, capital stock, customs, duties or other taxes,
fees, assessments or charges of any kind whatever, together with any interest
and any penalties, additions to tax or additional amounts with respect thereto
(and "Tax" means any one of the foregoing Taxes).
"Tax Law" means a statute, regulation, administrative rule,
judicial opinion or similar authority addressing or related to Taxes.
"Title Commitments" as defined in Section 4.16(c).
"Title Company" as defined in Section 4.16(c).
"Title Policies" as defined in Section 4.16(c).
"Transaction Documents" shall mean this Agreement, the Escrow
Agreement, the Bill of Sale, the Assumption Agreement, the Assignment of Leases,
the Intangibles Assignment and the Deeds.
"Transferred Employees" shall have the meaning set forth in
Section 4.13(b).
"Transferred Non-Union Employees" shall have the meaning set
forth in Section 4.13.
"Transferred Union Employees" shall have meaning set forth in
Section 4.13(b).
"U.K. Site" means the real property owned by HMT Rubbaglas,
Ltd., located on Consort Rd, London, England.
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"Uncollected A/R Statement" shall have the meaning set forth
in Section 4.15.
"Union Employees" shall have the meaning set forth in Section
4.13(b).
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IN WITNESS WHEREOF, Buyer, Parent and each Seller has caused
this Agreement to be duly executed on its behalf by its duly authorized officer
as of the day and year first written above.
HMT INC.
By: /s/ Jonathan P. Wendell
Jonathan P. Wendell
President
ITEQ, INC.
By: /s/ William P. Reid
William P. Reid
President
ITEQ STORAGE SYSTEMS, INC.
By: /s/ William P. Reid
William P. Reid
President
ITEQ CONSTRUCTION SERVICES, INC.
By: /s/ William P. Reid
William P. Reid
President
ITEQ TANK SERVICES, INC.
By: /s/ William P. Reid
William P. Reid
President
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<PAGE> 74
EXHIBIT A
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement"), dated as of
_________, 2000, is by and between HMT Inc., a Delaware corporation ("Buyer"),
and ITEQ, Inc., a Delaware corporation, ITEQ Storage Systems, Inc., a Minnesota
corporation, ITEQ Construction Services, Inc., a Delaware corporation, and ITEQ
Tank Services, Inc., a Delaware corporation ("Sellers").
W I T N E S S E T H
WHEREAS, Buyer, Sellers and ITEQ, Inc. have entered into a certain
Asset Purchase Agreement (the "Asset Purchase Agreement") dated as of
_____________, 2000.
WHEREAS, the Asset Purchase Agreement provides for Sellers to transfer
and sell certain assets and rights of Sellers, all as more fully described in
the Asset Purchase Agreement and as defined therein as the "Purchased Assets,"
for the consideration and upon the terms and conditions set forth in the Asset
Purchase Agreement; and
WHEREAS, the Asset Purchase Agreement further provides for the
assumption by Buyer of certain liabilities and obligations of Sellers, all as
more fully described in the Asset Purchase Agreement and as defined therein as
the "Assumed Liabilities," for the consideration and upon the terms and
conditions set forth in the Asset Purchase Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto promise and
agree as follows:
1. Sellers hereby sell, assign, convey, transfer and deliver to Buyer
all of Sellers' rights, title and interest in and to the Purchased Assets,
including without limitation, the Assumed Contracts.
2. The Buyer hereby accepts the foregoing assignment and assumes and
agrees to perform, pay or discharge, when due, all of the Assumed Liabilities
specifically excluding the Excluded Liabilities.
3. Each party hereby covenants from time to time after delivery of this
instrument to do, execute, authorize and deliver or to cause to be done,
executed and delivered such further acts, instruments, notices, documents and
assurances as the other party may deem reasonably necessary for the effective
confirmation and consummation of the assignment of the Assumed Contracts and the
assumption of the Assumed Liabilities.
<PAGE> 75
4. This Agreement shall be binding upon and inure to the benefit of
Buyer and Sellers and their respective successors and assigns.
5. This Agreement may be executed in any number of counterparts with
the same effect as if the signatures thereto were upon one instrument.
6. None of the provisions in this Agreement may be waived, changed or
altered except in a writing signed by all of the parties hereto.
7. This Agreement shall be governed by and construed and enforced in
accordance with the internal laws (as opposed to the conflicts of laws
provisions) of the State of New York.
8. Capitalized terms used herein without definition shall have the
respective meanings set forth in the Asset Purchase Agreement.
9. EXCEPT AS EXPRESSLY SET FORTH IN THE ASSET PURCHASE AGREEMENT OR IN
ANY OTHER DOCUMENT OR AGREEMENT DELIVERED PURSUANT THERETO, THE SELLERS MAKE NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT
OF ANY OF THE PURCHASED ASSETS, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO
MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, CONFORMITY TO SAMPLES OR
MODELS AND CONDITION AND ANY SUCH OTHER REPRESENTATIONS OR WARRANTIES ARE HEREBY
EXPRESSLY DISCLAIMED. Except as expressly set forth in the Asset Purchase
Agreement or in any other document or agreement delivered pursuant thereto, any
covenants or warranties implied by the use of the word "convey" or words of
similar import are hereby expressly waived, disclaimed and negated. The parties
agree that the foregoing disclaimers of warranty are "CONSPICUOUS" disclaimers
for purposes of any applicable law, rule, regulation or order. Buyer hereby
acknowledges and agrees that, except to the extent specifically set forth in the
Asset Purchase Agreement or in any other document or agreement delivered
pursuant thereto, the Purchased Assets are hereby conveyed on an "as-is,"
"where-is" basis.
10. In the event of a conflict between the terms and conditions of this
Agreement and the terms and conditions of the Asset Purchase Agreement, the
terms and conditions of the Asset Purchase Agreement shall govern, supersede and
prevail.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day, month and year first above written.
HMT INC.
---------------------------------------
Name:
Title:
ITEQ, INC.
---------------------------------------
Name:
Title:
ITEQ STORAGE SYSTEMS, INC.
---------------------------------------
Name:
Title:
ITEQ CONSTRUCTION SERVICES, INC.
---------------------------------------
Name:
Title:
ITEQ TANK SERVICES, INC.
---------------------------------------
Name:
Title:
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<PAGE> 77
EXHIBIT B
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") is made as of this 17th day
of March, 2000 by and among by and among HMT Inc., a Delaware corporation
("Buyer"), ITEQ Storage Systems, Inc., a Minnesota corporation ("ITEQ Storage"),
ITEQ Construction Services, Inc., a Delaware corporation ("ITEQ Construction"),
ITEQ Tank Services, Inc., a Delaware corporation ("ITEQ Tank"), and Compass
Bank, a bank organized under the laws of the State of Alabama ("Escrow Agent").
As used herein, ITEQ Storage, ITEQ Construction and ITEQ Tank are hereinafter
sometimes referred to individually as a "Seller" and collectively as the
"Sellers".
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed that:
ARTICLE I
DEFINITIONS
Capitalized terms not otherwise defined herein shall be defined as in
the Asset Purchase Agreement, dated as of January 28, 2000 (as the same may be
amended from time to time in accordance with the terms thereof, together with
the Exhibits attached thereto and the Disclosure Letter described therein, the
"Asset Purchase Agreement") by and among Buyer, Sellers and ITEQ, Inc.
ARTICLE II
THE ESCROW
2.1. Background and Intention of Parties. Pursuant to Article VI of
the Asset Purchase Agreement, the Sellers have agreed to indemnify Buyer and its
officers, directors, employees, agents, stockholders and affiliates (the
"Indemnitees") against certain Damages arising out of or resulting from events
or states of facts specified in Article VI of the Asset Purchase Agreement
("Indemnity Matters"). The purpose of this Escrow Agreement is to provide for
the deposit with the Escrow Agent of funds that will be held and disbursed, as
hereinafter provided, to make payments with respect to Indemnity Matters and
other matters and (to the extent of any remaining funds) to make payments to the
Sellers. Sellers acknowledge and agree that ITEQ, Inc. has authority to act on
behalf of the Sellers on all matters under this Escrow Agreement.
2.2. Establishment of Escrow.
(a) Buyer hereby agrees to deposit with the Escrow Agent in
accordance with Section 1.6(ii) of the Asset Purchase Agreement $2,000,000 in
immediately available funds (such amount, together with any interest, dividends
and other income earned thereon being, the "Escrow Funds"). The Escrow Funds
shall not be subject to lien or attachment by any creditor of any party hereto
(except to the extent and at such time as delivery of any Escrow Funds to
Sellers is required hereunder and the amount of such funds are ultimately
determined pursuant hereto) and shall be used solely for the purposes set forth
in this Escrow Agreement.
(b) Escrow Agent hereby acknowledges receipt of the Escrow Funds,
as trustee on behalf of the Indemnitees and Sellers, as their interests may
appear in accordance with the terms and conditions hereinafter set forth, and
agrees to hold and delivery the Escrow Funds
<PAGE> 78
in accordance with the terms and provisions hereof. The Escrow Funds shall be
held by the Escrow Agent in a separate account (the "Escrow Account") for the
benefit of the Indemnitees and the Sellers as provided in this Escrow Agreement.
2.3. Claim Procedure.
(a) In the event and to the extent any Indemnitee determines that
it is entitled to indemnification pursuant to Article VI of the Asset Purchase
Agreement, such Indemnitee may issue, or cause to be issued, a notice (an
"Indemnity Claim Notice") to Escrow Agent, with a copy to Sellers, which sets
forth: (i) the fact that an Indemnity Matter has occurred; (ii) the fact that
Indemnified Damages (as defined below) have been incurred or are expected to be
incurred; (iii) a specification of the amount of the Indemnified Damages; (iv) a
brief description of the facts, to the extent known, which gave rise to the
Indemnity Matter; and (v) a request that the Escrow Agent deliver to such
Indemnitee from the Escrow Funds an Indemnity Payment (as hereinafter defined)
equal to the amount of the Indemnified Damages. For the purpose of this Escrow
Agreement, "Indemnity Damages" shall mean Damages for which an Indemnitee is
entitled to indemnification as a result of an Indemnity Matter, in accordance
with Article VI of the Asset Purchase Agreement; and "Indemnity Payment" shall
mean a payment out of the Escrow Funds in respect of any Indemnified Damages.
(b) On the date which is fifteen (15) calendar days after Sellers
and the Escrow Agent have received an Indemnity Claim Notice, the Escrow Agent
shall deliver to the applicable Indemnitee that portion of the Escrow Funds
described in, and in accordance with the terms of, the Indemnity Claim Notice
delivered by such party, unless within the 15-calendar day period after Escrow
Agent has received the Indemnity Claim Notice, the Escrow Agent and the
applicable Indemnitee have received an Objection Notice (as defined below). An
"Objection Notice" shall mean a notice from the Sellers to the Escrow Agent and
the applicable Indemnitee that sets forth: (i) an objection to delivery of all
or any portion of the Escrow Funds in accordance with the terms of an Indemnity
Claim Notice; and (ii) a brief description of the facts which constitute the
basis for the objection. Upon receipt of an Objection Notice in accordance with
this Section 2.3(b), the Escrow Agent shall not make the delivery of that
portion of a requested Indemnity Payment objected to therein except in
accordance with either: (x) a notice from, and executed by, Buyer and Sellers to
the Escrow Agent (a "Joint Direction") or (y) an order, judgment or decree of a
court of competent jurisdiction directing the Escrow Agent to make such
delivery.
(c) The parties hereto agree that all distributions of Escrow
Funds to the Indemnitees hereunder shall be treated as adjustments to the cash
consideration to be paid pursuant to the Asset Purchase Agreement, that are
neither deductible by the Sellers nor includable in the Indemnitees' income for
any federal, state, local or foreign income or franchise tax purpose.
2.4. Joint Direction. Notwithstanding any other provision of this
Escrow Agreement, the Escrow Agent shall promptly deliver all or any part of the
Escrow Funds in accordance with the terms of a Joint Direction, unless an order
of a court of competent jurisdiction prohibits the Escrow Agent from complying
with the terms thereof.
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2.5. Termination of Escrow.
(a) The Escrow Funds shall be distributed to the Sellers as
follows:
(i) On the Purchase Price Adjustment Date (as defined
below), a Joint Direction will be given to the Escrow Agent who shall be
instructed to distribute (A) to Buyer any amount due Buyer pursuant to Section
1.7(c)(ii) and (iii) of the Asset Purchase Agreement (the "Working Capital
Payment") and (B) to the Sellers in accordance with the allocation percentages
set forth on Schedule A (the "Allocations") an amount equal to $500,000 less the
amount of any Working Capital Payment made to Buyer. In the event that the
Working Capital Payment due to Buyer equals or exceeds $500,000, then no
distribution shall be made to Sellers pursuant to this Section 2.5(a)(i) and
Buyer may, at its option, make an Indemnity Claim Notice with respect to such
excess as to any remaining Escrow Funds.
(ii) On April 30, 2001, a Joint Direction will be given to
the Escrow Agent who shall be instructed to distribute to the Sellers in
accordance with the Allocations a specified amount such that the remaining
Escrow Funds after such distribution shall equal the lesser of (A) the sum of
all Pending Claim Amounts or (B) the amount of the remaining Escrow Funds prior
to such distribution.
(b) On the Termination Date (as defined below), this Escrow
Agreement shall terminate and a Joint Direction shall be given to the Escrow
Agent instructing it to distribute to the Sellers in accordance with the
Allocations the then remaining balance, if any, of the Escrow Funds. For
purposes of this Escrow Agreement, "Termination Date" shall mean the earlier of:
(i) the first day on which there are no Escrow Funds remaining in the Escrow
Account or (ii) the later of: (x) April 30, 2001, or (y) if any portion of the
Escrow Funds is the subject of one or more pending Indemnity Claim Notices, the
subsequent date on which there has been a final disposition of all such
Indemnity Claim Notices pursuant to Sections 2.3 or 2.4 of this Escrow
Agreement.
(c) As used herein, "Purchase Price Adjustment Date" means the
date upon which the Closing Net Working Capital is finally determined pursuant
to Section 1.7 of the Asset Purchase Agreement; and "Pending Claim Amounts"
means the aggregate dollar amount of the Escrow Funds, if any, which is the
subject of one or more pending Indemnity Claim Notices.
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ARTICLE III
THE ESCROW AGENT
3.1. Liability of Agent. The Escrow Agent shall be obligated to
perform only the duties described in this Escrow Agreement. The Escrow Agent may
rely on any instrument or signature believed by it to be genuine and to have
been signed or presented by the proper party or parties duly authorized to do
so. The Escrow Agent shall not be liable for any action taken or omitted by it
in good faith and believed by it to be authorized, nor for any action taken or
omitted by it in accordance with advice of counsel, and shall not be liable for
any mistake of fact or error of judgment or for any acts or omissions of any
kind unless caused by its willful misconduct or gross negligence. Each party
agrees to indemnify the Escrow Agent and to hold it harmless against any and all
liabilities, including reasonable attorneys' fees, incurred by it as a
consequence of that party's action, and the parties agree jointly to indemnify
the Escrow Agent and to hold it harmless against any and all liabilities,
including reasonable attorneys' fees, incurred by it which are not a consequence
of any party's action, except in either case for the Escrow Agent's own willful
misconduct or gross negligence.
3.2. Advice of Counsel. The Escrow Agent shall be entitled to consult
with competent and responsible counsel of its choice with respect to the
interpretation of the provisions hereof, and any other legal matters relating
hereto, and shall be fully protected in taking any action or omitting to take
any action in good faith in accordance with the advice of such counsel.
3.3. Fees of Escrow Agent. The Escrow Agent shall serve hereunder in
consideration of the fees described on Schedule B attached hereto (the "Escrow
Agent Fees"), which is hereby incorporated herein, and the reimbursement of any
expenses and other charges reasonably incurred by the Escrow Agent in
connection with the performance of its duties hereunder (the "Escrow Agent
Expenses"). All Escrow Agent Fees and Escrow Agent Expenses shall be split
equally between the Buyer, on the one hand, and Sellers, on the other hand.
Escrow Agent shall send on an annual basis a bill to the Buyer and Sellers
specifying such party's portion of the Escrow Agent Fees and Escrow Agent
Expenses for such period. In the event that the Escrow Agent is not paid the
invoiced amount within 30 days of receipt of such bill, the Escrow Agent may
deduct such amounts from the Escrow Funds upon 10 days' advance notice to the
Buyer and Sellers; provided, that any such deduction shall not relieve any
party of its reimbursement obligation under this Section 3.3.
3.4. Investment of Escrow Funds.
(a) Upon the receipt of a Joint Instruction, Escrow Agent shall,
pending disbursement, invest the Escrow Funds in accordance with such
instructions but only in the Permitted Investments (as hereinafter defined). All
interest and other income earned on the Escrow Funds shall be invested in
Permitted Investments. For purposes of this Escrow Agreement, "Permitted
Investments" shall mean (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States of
America; (ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof, having the first and second highest rating obtainable
from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service,
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<PAGE> 81
Inc. ("Moody's"); (iii) commercial paper having, at the time of acquisition, a
rating of A-1 or P-1 or better from either S&P or Moody's; (iv) certificates of
deposit or bankers' acceptances issued by any commercial bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia having combined capital and surplus of not less than $50,000,000,
provided that if such commercial bank is not organized under the laws of the
United States of America, it must be a member of the Federal Deposit Insurance
Corporation; and (v) money market mutual funds registered under the Investment
Company Act of 1940 that invest exclusively in investments described in clauses
(i), (ii) and (iii) above. Any such investments shall be held by or under the
control of Escrow Agent and shall be deemed at all times a part of the Escrow
Funds, and the interest accruing thereon and any profit realized from such
investment shall be credited to and held in and any loss shall be charged to the
Escrow Funds. In the event that Escrow Agent shall not have received a direction
for investment for any of the Escrow Funds, Escrow Agent may deposit such moneys
into a money market fund, substantially all of which is invested in the
foregoing investment categories, including a money market fund managed by the
Escrow Agent or any of its affiliates; provided that all such investments shall
mature, and the funds invested immediately available, on each one month
anniversary of the date of each such deposit.
(b) As and when any amount is needed for a payment under this
Escrow Agreement, the Escrow Agent shall cause a sufficient amount of the
Permitted Investments to be converted into cash. Buyer and Sellers shall be
consulted to select the investments or types of investments to be converted.
Neither the Escrow Agent nor any party hereto shall be liable for any loss of
principal or income due to the choice of Permitted Investments sold or converted
pursuant to this Section 3.4(b).
3.5. Statements. The Escrow Agent shall mail to Buyer and Sellers a
written accounting of all transactions relating to the Escrow Funds not less
frequently than quarterly.
3.6. Successor. The Escrow Agent may resign at any time or be removed
without cause, pursuant to a Joint Direction, in either case, upon 30 days
written notice to each of the parties hereto. If the Escrow Agent at any time
resigns, refuses to act or is removed pursuant to a Joint Direction, then a
successor Escrow Agent shall be jointly selected by Buyer and Sellers, or if
Buyer and Sellers cannot agree, the successor Escrow Agent shall be selected by
the existing Escrow Agent. Any successor Escrow Agent shall be a national
banking association with its principal place of business located in the State of
New York.
3.7. Sellers Directions. Escrow Agent agrees that, upon written
instructions from the appropriate Seller, Escrow Agent will pay any Escrow Funds
payable to such Seller pursuant to this Agreement to Bank Boston, N.A., as agent
for the various lenders under the Credit Agreement (as defined in the Asset
Purchase Agreement).
ARTICLE IV
TAXES AND REPORTS
4.1. By Sellers. All obligations imposed now or hereafter by any
applicable tax law with respect to any payments from the Escrow Funds to the
Sellers under this Escrow Agreement
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shall be governed by the terms of the Asset Purchase Agreement, and undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with any such payments. The Escrow Agent shall be under no obligation to take
any action with respect to the matters set forth in this Section 4.1 except as
instructed by Buyer and the Sellers in accordance with the preceding sentence.
4.2. By Indemnitees. All obligations imposed now or hereafter by any
applicable tax law with respect to any payments from the Escrow Funds to such
Indemnitee, under this Escrow Agreement, shall be governed by the terms of the
Asset Purchase Agreement, and Buyer undertakes, and shall cause each other
Indemnitee to undertake, to instruct the Escrow Agent in writing with respect to
the Escrow Agent's responsibility for withholding and any other taxes,
assessments or other governmental charges, certifications and governmental
reporting in connection with any such payments. The Escrow Agent shall be under
no obligation to take any action with respect to the matters set forth in this
Section 4.2 except as instructed by an Indemnitee in accordance with the
preceding sentence.
4.3. Taxation of Earnings/Distributions of Earnings. Solely for tax
purposes, to the extent allowed by applicable law, the Escrow Funds shall be the
property of Buyer and all interest, dividends and other income earned on the
Escrow Funds shall be the property of Buyer, and all parties hereto shall file
all tax returns consistent with such treatment. On the April 30, 2001
distribution under Section 2.5(a)(ii) a Joint Instruction shall be given to the
Escrow Agent to distribute to Buyer an amount equal to any taxes paid by Buyer
on the interest, dividends or other income earned on the Escrow Funds.
ARTICLE V
MISCELLANEOUS
5.1. Assignability; Successors. None of the rights and liabilities of
the Indemnitees, the Parent or the Sellers under this Escrow Agreement are
assignable or delegable, in whole or in part, without the prior written consent
of the Buyer and the Sellers; except that no consent of Sellers shall be
required for any assignment by Buyer to any of its Affiliates, provided that
notwithstanding such assignment, Buyer shall remain fully liable for all of its
obligations hereunder and Buyer shall guarantee the timely, full and complete
payment and performance by such Affiliates of any liabilities or obligations so
assigned to such Affiliates.
5.2. Survival. All agreements, representations and warranties made in
this Escrow Agreement or in any document delivered pursuant to this Escrow
Agreement shall survive the execution and delivery of this Escrow Agreement and
the delivery of any such documents; provided that such agreements,
representations and warranties (other than those agreements, representations and
warranties contained in Articles III, IV and V) shall terminate on the
Termination Date.
5.3. Governing Law. This Escrow Agreement and the documents issued
pursuant hereto shall be construed in accordance with and governed by the laws
of the State of New York.
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5.4. Counterparts; Headings. This Escrow Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same agreement. The
Article and Section headings in this Escrow Agreement are inserted for
convenience of reference only and shall not constitute a part of this Escrow
Agreement.
5.5. Entire Agreement. This Escrow Agreement, the Asset Purchase
Agreement and the Disclosure Letter and documents referred to herein and therein
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior negotiations, agreements and undertakings
among the parties with respect to such subject matter. There are no
restrictions, promises, warranties, covenants or undertakings other than those
expressly set forth herein and therein.
5.6. Notices. Any notice, request, instruction, or other document to
be given by any party hereto to any other party shall be in writing and shall be
given (and will be deemed to have been duly given upon receipt; provided that
notice shall be deemed to have been given if delivery of the notice is refused
or, if such notice is properly addressed, delivery is attempted but unable to be
made) by delivery in person, by electronic facsimile transmission, or other
standard forms of written telecommunications, by overnight courier or by
registered or certified mail, postage prepaid,
If to Sellers, to:
ITEQ Storage Systems, Inc., ITEQ Construction Services,
Inc. and ITEQ Tank Services, Inc.
c/o ITEQ, Inc.
2727 Allen Parkway, Suite 760
Houston, Texas 77019
Attention: President
Telephone: (713) 284-2700
Fax No.: 713-552-1759
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<PAGE> 84
With a copy to:
Porter & Hedges, L.L.P.
700 Louisiana, Suite 3500
Houston, Texas 77002
Attention: T. William Porter, Esq.
Telephone: 713-226-0600
Fax No.: 713-228-1331
If to Buyer, to:
HMT Inc.
4422 FM 1960 West, Suite 350
Houston, Texas 77068
Attention: President
Telephone: (281) 893-9150
Fax No.: (281) 893-6014
With a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attn: Carmen J. Romano, Esq.
Telephone: 215-994-4000
Fax No.: 215-994-2222
If to the Escrow Agent:
Compass Bank
2001 Kirby Drive
Houston, Texas 77019
Attn: Tom Collins
Telephone: (713) 831-5582
Fax No. (713) 831-5746
or at such other address for a party as shall be specified by like notice.
5.7. Amendment. No amendment of this Escrow Agreement shall be
effective unless in writing and signed by Buyer and Sellers.
5.8. Severability. Any provision of this Escrow Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Escrow Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
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5.9. Interpretation. Unless the context requires otherwise, all words
used in this Escrow Agreement in the singular number shall extend to and include
the plural number, all words in the plural number shall extend to and include
the singular number and all words in any gender shall extend to and include all
genders.
5.10. Waiver of Offset Rights. The Escrow Agent hereby waives any and
all rights to offset that it may have against the Escrow Funds including,
without limitation, claims arising as a result of any claims, amounts,
liabilities, costs, expenses, damages or other losses that the Escrow Agent may
be otherwise entitled to collect from any party to this Escrow Agreement, except
as expressly set forth in Section 3.4 hereof.
5.11. Time is of the Essence. Time is of the essence in the performance
of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as
of the day and year first above written.
HMT INC.
By: Millard H. Jones, Jr.
Title: President & Chief Executive Officer
ITEQ, INC.
By: William P. Reid
Title: President and Chief Executive Officer
ITEQ STORAGE SYSTEMS, INC.
By: William P. Reid
Title: President
ITEQ CONSTRUCTION SERVICES, INC.
By: William P. Reid
Title: President
ITEQ TANK SERVICES, INC.
By: William P. Reid
Title: Chief Executive Officer
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COMPASS BANK
------------------------------
By:
---------------------------
Title:
------------------------
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<PAGE> 88
SCHEDULE A
Allocations
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SCHEDULE B
Escrow Agent Fees
[$ ] per year
-13-
<PAGE> 90
Exhibit C
BILL OF SALE
This BILL OF SALE dated as of ______, 2000 (the "Bill of
Sale") is entered into by ITEQ Storage Systems, Inc., a Minnesota corporation,
ITEQ Construction Services, Inc., a Delaware corporation, and ITEQ Tank
Services, Inc., a Delaware corporation ("Sellers"), in favor of HMT Inc., a
Delaware corporation ("Buyer").
WHEREAS, the Buyer, the Sellers and ITEQ, Inc. have entered
into an Asset Purchase Agreement dated as of ___________, 2000 (the "Agreement")
pursuant to which the Sellers have agreed to sell, transfer, convey and assign
to Buyer, and Buyer has agreed to purchase from Sellers all right, title and
interest of the Sellers in, to and under the Purchased Assets. Capitalized terms
used herein without definition shall have the respective meanings set forth in
the Agreement.
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the Sellers agree as
follows:
1. Subject to the terms of the Agreement, Sellers hereby sell,
transfer, convey and assign to Buyer all of Sellers' rights, title and interest
in and to all of the Purchased Assets, free and clear of all Encumbrances of
every kind, nature and description, except Permitted Encumbrances, to have and
to hold unto [Buyer and/or Buyer Subsidiaries], its successors and assigns, to
and for its use forever. Sellers agree to execute and deliver all such further
transfers, assignments and conveyances and assurances as may reasonably be
requested by the Buyer in order to effect the full assignment and transfer of
the Purchased Assets to the Buyer and to fully vest in the Buyer title to the
Purchased Assets as contemplated in the Agreement and herein.
2. This Bill of Sale shall inure to the benefit of the parties
hereto and their respective successors and assigns.
3. This Bill of Sale shall be governed by and construed and
enforced in accordance with the internal laws (as opposed to the conflicts of
laws provisions) of the State of New York.
4. None of the provisions of this Bill of Sale may be waived,
changed or altered except in a signed writing by the party against whom
enforcement of the same is sought.
5. In the event of a conflict between the terms and conditions
of this Bill of Sale and the terms and conditions of the Agreement, the terms
and conditions of the Agreement shall govern, supersede and prevail.
Notwithstanding anything to the contrary, nothing herein is
<PAGE> 91
intended to, nor shall it, extend, amplify or otherwise alter the
representations, warranties, covenants and obligations of the parties contained
in the Agreement or the survival thereof.
6. This Bill of Sale may be executed in any number of
counterparts with the same effect as if the signatures thereto were upon one
instrument.
7. EXCEPT AS EXPRESSLY SET FORTH IN THE ASSET PURCHASE
AGREEMENT OR IN ANY OTHER DOCUMENT OR AGREEMENT DELIVERED PURSUANT THERETO, THE
SELLERS MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN
EQUITY, IN RESPECT OF ANY OF THE PURCHASED ASSETS, INCLUDING, WITHOUT
LIMITATION, WITH RESPECT TO MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE,
CONFORMITY TO SAMPLES OR MODELS AND CONDITION AND ANY SUCH OTHER REPRESENTATIONS
OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. Except as expressly set forth in
the Asset Purchase Agreement or in any other document or agreement delivered
pursuant thereto, any covenants or warranties implied by the use of the word
"convey" or words of similar import are hereby expressly waived, disclaimed and
negated. The parties agree that the foregoing disclaimers of warranty are
"CONSPICUOUS" disclaimers for purposes of any applicable law, rule, regulation
or order. Buyer hereby acknowledges and agrees that, except to the extent
specifically set forth in the Asset Purchase Agreement or in any other document
or agreement delivered pursuant thereto, the Purchased Assets are hereby
conveyed on an "as-is," "where-is" basis.
-2-
<PAGE> 92
IN WITNESS WHEREOF, Sellers have caused, and Buyer has
acknowledged, this Bill of Sale to be executed as of the day and year first
written above.
ITEQ STORAGE SYSTEMS,INC.
-------------------------------
Name:
Title:
ITEQ CONSTRUCTION SERVICES, INC.
-------------------------------
Name:
Title:
ITEQ TANK SERVICES, INC.
-------------------------------
Name:
Title:
HMT INC.
-------------------------------
Name:
Title:
-3-
<PAGE> 93
[PORTER & HEDGES LETTERHEAD]
Exhibit D
January __, 2000
HMT Inc.
- ------------------
- ------------------
- ------------------
Re: Asset Purchase Agreement, dated January __, 2000, among HMT
Inc., ITEQ, Inc. ("Parent"), ITEQ Storage Systems, Inc.
("ISS"), ITEQ Construction Services, Inc. ("ICS") and ITEQ
Tank Services, Inc. ("ITS") (the "Asset Purchase Agreement").
Ladies and Gentlemen:
In connection with the Asset Purchase Agreement, we have acted as
counsel to Parent, ISS, ICS and ITS (ISS, ICS and ITS collectively, the
"Sellers"). This opinion letter is being delivered to you pursuant to Section
1.10(a)(ix) of the Asset Purchase Agreement. Except for terms expressly defined
in this opinion letter, or unless otherwise designated, all capitalized terms
used in this opinion letter have the meanings given to them in the Asset
Purchase Agreement.
In arriving at the opinions expressed below we have examined executed
originals (or copies certified or otherwise identified to our satisfaction) of
each of the following (except for the Asset Purchase Agreement, each dated as of
__________, 2000 (collectively, the "TRANSACTION AGREEMENTS")):
A. The Asset Purchase Agreement.
B. The Bill of Sale.
C. The Assumption Agreement.
D. The Assignment of Leases.
E. The Escrow Agreement.
F. The Deeds.
<PAGE> 94
HMT Inc.
___________, 2000
Page 2
G. The Intangibles Assignment.
We have examined the Certificate of Incorporation and Bylaws of Parent,
ICS and ISS, and such certificates of public officials and certificates of
representatives of each of Parent, ICS and ISS, as we have deemed necessary for
purposes of this opinion, and have made no further inquiry.
Our opinions set forth herein are based on our consideration of only
those statutes, rules, regulations and judicial decisions which, in our
experience, are normally applicable to or normally relevant in connection with a
transaction of the type contemplated in the Transaction Agreements. In rendering
our opinions with respect to Parent and each Seller, we have not conducted an
investigation into the specific types of business and activities in which Parent
or any Seller engages or the manner in which each conducts its business as would
enable us to render an opinion (and, accordingly, we express no opinion) as to
the applicability of any law or regulation of the United States or the State of
Texas not of general applicability to business corporations.
As used in this opinion letter, the phrase "to our knowledge" means
that nothing to the contrary has come to the attention of the attorneys of our
firm who have worked on the transactions contemplated by the Transaction
Agreements, but that we have not conducted any independent investigation with
respect to the opinion given.
Based upon and subject to the foregoing and to the qualifications,
assumptions, and exceptions hereinafter contained, we are of the opinion that:
1. Parent, ICS and ITS are corporations duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation, which jurisdictions are set forth in Section 2.1 of the
Disclosure Letter.
2. Parent, ICS and ITS have all requisite corporate power and corporate
authority to execute, deliver and perform the Transaction Agreements.
3. The execution, delivery and performance of the Transaction
Agreements and the consummation of the transactions contemplated thereby have
been duly authorized by all necessary corporate action on the part of Parent,
ICS and ITS (including shareholder approval, if necessary); and the Transaction
Agreements have been duly executed and delivered by Sellers and Parent, and
constitute the legal, valid and binding obligations of Sellers and Parent (to
the extent such Seller or Parent is a party thereto), enforceable against each
of them in accordance with their respective terms.
<PAGE> 95
HMT Inc.
___________, 2000
Page 3
4. Except as set forth in Section 2.5(a) of the Disclosure Letter, the
execution, delivery and performance of the Transaction Agreements by Parent or
any Seller and the sale of the Purchased Assets contemplated thereby do not and
will not (a) contravene any provision of Parent's or any Seller's charter or
bylaws; (b) conflict with or result in a breach of or constitute a default (or
an event which might, with the passage of time or the giving of notice or both,
constitute a default) under any provision of, result in acceleration of any
obligation under, or give rise to a right by any party to terminate or amend its
obligations under, any loan, credit or other similar agreement to which Parent
or any Seller is a party or by which it or any of its assets may be bound and
which is known to us, or any judgment or order known to us of any court or
governmental department, commission, board, agency or instrumentality, and
which, in any such event, would materially affect the ability of Parent or any
Seller to consummate the transaction contemplated thereby, (c) violate any
statute, rule, regulation or ordinance applicable to Parent or any Seller and
which, in any such event, would materially affect the ability of Parent or any
Seller, to consummate the transaction contemplated thereby, or (d) result in the
creation or imposition of any lien, charge or encumbrance upon any of the
Purchased Assets under any such loan, credit or other similar agreement.
5. To our knowledge, except for the consents disclosed in Section
2.5(b) of the Disclosure Letter, no consent, approval, or authorization of, any
Person is required by Parent or any Seller in connection with the execution and
delivery of the Transaction Agreements or the sale of the Purchased Assets
contemplated thereby.
6. To our knowledge, except as set forth in Section 2.12 of the
Disclosure Letter, there are no actions, suits, investigations, proceedings or
claims pending or threatened by or against or affecting the Business or the
Purchased Assets, at law or in equity, by or before any court or governmental
department, agency or instrumentality.
The foregoing opinions are predicated upon, and qualified in their
entirety by, the following:
(a) We express no opinion as to (i) the enforceability of any
indemnification or contribution provision of any Transaction Document as these
provisions may not be enforceable under applicable securities laws or because
Texas is an express negligence state, (ii) the enforceability, validity or
effect of any provision of the Transaction Agreements purporting to (1)
establish any evidentiary standard, (2) waive the effect of applicable laws or
fundamental rights (such as the right to trial by jury), which provisions may be
unenforceable or limited by federal or state laws or public policy, (3) waive
either illegality as a defense to the performance of contract obligations or any
other defense to such performance which cannot, as a matter of law, be
effectively waived, or (4) provide or imply the granting or waiver of subject
matter jurisdiction (as compared with personal jurisdiction) to any court over
any issue, matter or dispute, since the subject matter jurisdiction of any court
is governed by applicable law and may not be created, imposed or conferred
<PAGE> 96
HMT Inc.
___________, 2000
Page 4
by stipulation or other agreement among parties, (iii) the availability of
specific performance or other equitable remedies for noncompliance with any
other provisions contained in the Transaction Agreements, (iv) the
enforceability of the governing law provision, (v) the enforceability, validity
or effect of Section 4.9(a) of the Asset Purchase Agreement or (vi) whether the
transactions contemplated by the Transaction Agreements require compliance with
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or
regulations promulgated thereunder. To the extent our opinion in paragraph 4(a)
above relates to ISS, we have reviewed the articles of incorporation and bylaws,
as amended to date, of ISS, but we are not licensed to practice law in the State
of Minnesota, and no opinion is expressed or implied with respect to Minnesota
law.
(b) We have assumed with your permission, without independent
investigation or inquiry, (i) the authenticity of all documents submitted to us
as originals, (ii) the genuineness of all signatures on all documents that we
examined (except those of Parent and Sellers), (iii) the conformity to authentic
originals of documents submitted to us as certificated, conformed or photostatic
copies, (iv) the due authorization, execution, and delivery of all documents by
all parties (other than Parent, ICS and ITS) and the validity and binding effect
thereof, (v) the corporate power and authority and the legal right of all
Persons (other than Parent, ICS and ITS) to execute, deliver and perform the
Transaction Agreements to which they are parties, (vi) the legal capacity of all
individuals to execute all documents in their individual capacities, (vii) the
correctness and accuracy of all facts set forth in all certificates, reports and
discussions identified in this opinion, (viii) there has not been any mutual
mistake or fact or misunderstanding, fraud, duress, or undue influence, (ix) the
parties to the Transaction Agreements (other than Parent and Sellers) will act
in accordance with, and will refrain from taking any action that is forbidden
by, the terms and conditions of the Transaction Agreements, and (x) the conduct
of the parties to the Transaction Agreements (other than Parent and Sellers) has
complied with any requirement of good faith, fair dealing and conscionability.
(c) We have not been requested to render and, with your
permission, we express no opinion as to the applicability to the obligations of
the Parent and Sellers of any statute or common law doctrine relating to
fraudulent transfers.
(d) The opinion expressed in paragraph 3 of this opinion
letter is qualified to the extent the validity, binding nature and
enforceability of the Transaction Agreements are limited or otherwise affected
by:
(A) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at
law), including, without limitation, the availability of specific
performance, the appointment of a receiver, concepts of materiality,
reasonableness, good faith and fair dealing or any other equitable
remedy; and
<PAGE> 97
HMT Inc.
___________, 2000
Page 5
(B) bankruptcy, insolvency, reorganization,
rearrangement, moratorium, fraudulent or other conveyance laws, and
similar laws generally affecting creditors' rights at the time in
effect.
(e) As to factual matters, we have relied upon certificates
of, discussions with and representations of officers and representatives of the
Parent and Sellers.
We are members of the bar of the State of Texas, and we express no
opinion as to the laws of any jurisdiction other than the laws of the State of
Texas, the General Corporation Law of the State of Delaware and the federal law
of the United States of America. With respect to Transaction Agreements which
purport to be governed by the laws of any jurisdiction other than the State of
Texas, we have assumed, for purposes of this opinion, that the laws of that
other jurisdiction are the same as the laws of the State of Texas. This opinion
is dated and effective as of the date hereof, and we undertake no responsibility
to modify or update the opinion with respect to any change of law or other event
which occurs after the date hereof.
This opinion is for your sole benefit and is not to be quoted in whole
or in part or otherwise referred to or relied upon, nor is it to be filed with
or disclosed to any governmental agency or other person without our prior
written consent.
Very truly yours,
PORTER & HEDGES, L.L.P.
<PAGE> 98
[DECHERT PRICE & RHOADS LETTERHEAD]
_____________, 2000
ITEQ, Inc.
2727 Allen Parkway
Suite 760
Houston, TX 77019
Re: Asset Purchase Agreement dated as of January __, 2000
(the "Purchase Agreement") by and among HMT Inc.
("HMT"), ITEQ, Inc. ("Parent"), ITEQ Storage Systems,
Inc. ("ITEQ Storage"), ITEQ Construction Services,
Inc. ("ITEQ Construction") and ITEQ Tank Services,
Inc. ("ITEQ Tank")
Ladies and Gentlemen:
We have acted as special counsel to HMT Inc., a
Delaware corporation ("HMT"), in connection with the negotiation, preparation,
authorization, execution and delivery of, and the consummation of the
transactions contemplated by, the Purchase Agreement, the Assumption Agreement
dated as of the date hereof (the "Assumption Agreement") by and among HMT,
Parent, ITEQ Storage, ITEQ Construction and ITEQ Tank, and the Escrow Agreement
dated as of the date hereof (the "Escrow Agreement") by and among HMT, Parent,
ITEQ Storage, ITEQ Construction, ITEQ Tank and ______________, as escrow agent.
The Purchase Agreement, the Assumption Agreement and the Escrow Agreement are
referred to herein as the "Transaction Agreements." Please be advised that we
act as counsel to HMT only on select matters and do not act as general counsel
to HMT or its affiliates. Capitalized terms used herein which are not otherwise
defined herein shall have the meanings ascribed to them in the Purchase
Agreement. This opinion is delivered to you pursuant to Section 5.2(c) of the
Purchase Agreement solely for the purposes contemplated thereby.
In connection with the delivery of this opinion we
have examined originals or copies of (i) the organizational documents of HMT and
(ii) such records, agreements, instruments, certificates and other documents of
public officials, HMT and its representatives and have made such inquiries of
HMT and its representatives, as we have deemed necessary or
<PAGE> 99
ITEQ, Inc.
_____________, 2000
Page 2
appropriate in connection with the opinions set forth herein. In making such
examination and rendering the opinions set forth below, we have assumed without
verification the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the authenticity of the originals of
such documents submitted to us as certified copies, the conformity to originals
of all documents submitted to us as copies, the authenticity of the originals of
such latter documents, and that all documents submitted to us as certified
copies are true and correct copies of such originals.
In rendering the opinions set forth below, we have
also assumed that (a) each of the corporate parties to the Transaction
Agreements, other than HMT, is duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its organization and has the
requisite corporate power and corporate authority and has taken the corporate
action necessary to execute and deliver each of the Transaction Agreements and
to consummate the transactions contemplated thereby; and (b) each of the
Transaction Agreements constitutes the legal, valid and binding obligation of
each party thereto other than HMT, enforceable against such other party in
accordance with their respective terms.
As to matters of fact material to our opinions, we
have relied upon representations of HMT in the Transaction Agreements, and on
certificates of officers of HMT and of public officials, and we have made no
independent inquiry into the accuracy of such representations.
Our opinions set forth herein are based on our
consideration of only those statutes, rules, regulations and judicial decisions
which, in our experience, are normally applicable to or normally relevant in
connection with a transaction of the type contemplated in the Transaction
Agreements. In rendering our opinions with respect to HMT, we have not conducted
an investigation into the specific types of business and activities in which HMT
engages or the manner in which it conducts its business as would enable us to
render an opinion (and, accordingly, we express no opinion) as to the
applicability of any law or regulation of the United States or the State of New
York not of general applicability to business corporations. Whenever our opinion
with respect to the existence or absence of facts is indicated to be based on
our knowledge or awareness, we are referring to the current actual knowledge of
the Dechert Price & Rhoads attorneys who have rendered legal services to HMT in
connection with the transactions contemplated by the Transaction Agreements,
which knowledge has been obtained by such attorneys in their capacity as such.
Except as expressly set forth herein, we have not undertaken any independent
investigation to determine the existence or absence of such facts and no
inference as to our knowledge concerning such facts should be drawn from the
fact that such representation has been undertaken by us.
Based on the foregoing and subject to the assumptions
and qualifications set forth above and herein, we are of the opinion that:
<PAGE> 100
ITEQ, Inc.
_____________, 2000
Page 3
1. HMT is a corporation, validly existing and in good standing
under the laws of the State of Delaware, and has all requisite corporate power
and corporate authority to execute, deliver and perform the Transaction
Agreements.
2. The execution, delivery and performance of the Transaction
Agreements and the consummation of the transactions contemplated thereby have
been duly authorized by all necessary corporate action on the part of HMT; and
the Transaction Agreements have been duly executed and delivered by HMT, and
constitute the legal, valid and binding obligations of HMT, enforceable against
it in accordance with their respective terms.
3. The execution, delivery and performance of the Transaction
Agreements by HMT and the consummation of the transactions contemplated thereby
do not and will not (a) contravene any provision of HMT's charter or bylaws; (b)
conflict with or result in a breach of or constitute a default (or an event
which might, with the passage of time or the giving of notice or both,
constitute a default) under any provision of, result in acceleration of any
obligation under, or give rise to a right by any party to terminate or amend its
obligations under, any indenture, mortgage, loan or credit agreement or any
other material agreement or instrument to which HMT presently is a party or by
which it or any of its assets is bound or affected and which is known to us, or
any judgment or order of any court or governmental department, commission,
board, agency or instrumentality, domestic or foreign, binding upon HMT which is
known to us, which would materially adversely affect HMT's ability to consummate
the transactions contemplated thereby; or (c) violate any statute, rule,
regulation or ordinance applicable to HMT which would materially adversely
affect HMT's ability to consummate the transactions contemplated thereby.
The foregoing opinions are subject to the following additional
qualifications:
(a) The opinions expressed herein do not reflect the effect of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other laws or decisions now or hereafter in effect relating to or affecting
debtors' obligations or creditors' rights generally and general equitable
principles.
(b) Without limiting the generality of the foregoing, we
express no opinion with respect to: (i) the availability of specific performance
or other equitable remedies for noncompliance with any other provisions
contained in the Transactions Agreements; (ii) the enforceability of provisions
in the Transaction Agreements relating to the effects of laws which may be
enacted in the future; (iii) the enforceability of provisions in the Transaction
Agreements purporting to waive the effect of applicable laws, which provisions
may be unenforceable or limited by federal or state laws or public policy, or
(iv) the enforceability of the governing law provisions in the Transaction
Agreements.
<PAGE> 101
ITEQ, Inc.
_____________, 2000
Page 4
The opinions expressed herein are limited to the federal laws
of the United States of America and the laws of the State of New York, and we
express no opinion concerning the laws of any other jurisdiction.
This opinion speaks only as of the date hereof. We have no
obligation to advise you (or any other third party) of any changes in the law or
facts that may occur after the date of this opinion.
Our opinions expressed herein are solely for the benefit of
ITEQ, Inc., and, without our express written consent, neither our opinions nor
this opinion letter may be provided to or relied upon by any other person.
Very truly yours
<PAGE> 102
EXHIBIT F
This TRANSITION SERVICES AGREEMENT (this "Agreement") entered into as
of _______, 2000 by and between HMT Inc., a Delaware corporation ("HMT"), HMT
Canada, Ltd., a Canadian Corporation ("HMT Canada"), ITEQ, Inc., a Delaware
corporation ("ITEQ"), ITEQ Storage Systems, Inc., a Minnesota corporation
("ISS") and _____________, a _____________ ("GLM").
RECITALS:
A. HMT, ISS, ITEQ and certain of its subsidiaries entered into an
Asset Purchase Agreement dated as of January ______, 2000 (the "Purchase
Agreement") providing for the acquisition by HMT of substantially all of the
assets of the Business (as defined in the Purchase Agreement); and
B. ISS is interested in purchasing certain administrative services
related to the Retained Business (as defined in the Purchase Agreement) from
HMT, and HMT is willing to provide such services during a transition period
after the date hereof. HMT, Canada, Ltd., a subsidiary of HMT, is interested in
purchasing certain administrative services from GLM Canada ___________ ("GLM"),
and GLM is willing to provide such services during a transition period after the
date hereof.
C. ITEQ is interested in causing [GLM] to provide certain
administrative services to HMT Canada and HMT Canada is interested in receiving
such services during a transition period from the date hereof.
D. HMT, ITEQ, and ISS are interested in providing to each other
certain rights of occupancy with respect to certain of their respective
facilities during a transition period from the date hereof. Except as otherwise
defined in this Agreement, all terms, the first letters of which are capitalized
and are not otherwise defined herein, shall have the meanings assigned to them
in the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants and representations contained herein, the Parties,
intending to be legally bound, agree as follows:
ARTICLE 1
PROVISION OF SERVICES
Group A
1.1 Provision of Services. HMT shall provide to ISS the Group A
Services (as defined below) in exchange for the Group A fee (the "Monthly Fee")
set forth for such Service on Exhibit A attached hereto. As used herein, the
"Group A Services" shall mean the services described on Exhibit A hereto. All of
the Group A Services shall be provided, in each case, in accordance with the
respective terms, limitations and conditions set forth herein and on Exhibit A.
<PAGE> 103
1.2 Access. ISS shall make available on a timely basis to HMT all
information and materials reasonably requested by HMT to enable it to provide
Group A Services. During regular business hours and at such other times as are
reasonably required, ISS shall give HMT reasonable access, for the purposes of
providing Group A Services, to the premises on which ISS conducts the business
that relates to the Services.
1.3 Services to be Provided.
(a) Unless otherwise agreed by the parties hereto, the Group A
Services shall be performed by HMT for ISS in substantially the same manner as
such Group A Services were generally performed for ISS's Retained Business by
the Named Employees (as defined below) during 1999 (during which period such
Named Employees were employees of ISS) and ISS shall use such Group A Services
for substantially the same purposes and in substantially the same manner as ISS
had used such Group A Services prior to the date hereof. As used herein, the
"Named Employees" shall mean Charlotte Wishard, Deborah Stauffer, Rebecca
Newhouse, Julie Conlin, Maureen Byington and Mark Adams.
(b) HMT shall not be obligated to perform any Group A Services
(A) in a volume or quantity which exceeds the historical volumes or quantities
of services performed for ISS's Retained Business by the Named Employees during
1999 (during which period the Named Employees were employees of ISS), (B) if to
do so would unreasonably interfere with the conduct of HMT's other businesses or
operations, or (C) if to do so would be in violation or cause a breach of any
law, rule or regulation to which HMT is subject or any agreement to which HMT is
a party. In the event of such non-performance, the parties agree to work
together in good faith to arrange for an alternative means by which ISS may
obtain, at ISS's sole cost, the Group A Services so affected.
1.4 Term for Services. The provision of Group A Services shall
commence on the date hereof (the "Closing Date" and, with respect to each Group
A Service, shall terminate on the date which is thirty (30) days following the
Closing Date (the "Initial Term"); provided that ISS may, at its option, extend
the Initial Term for one additional period of thirty (30) days by providing five
(5) days advance written notice to HMT (the "Renewal Term") .
1.5 Payment for Services. ISS and/or ITEQ shall pay to HMT on the
first Business Day following the Closing Date the Monthly Fee (as defined on
Exhibit A hereto). ISS and/or ITEQ shall pay to HMT on the first Business Day of
the Renewal Period, if any, the Monthly Fee.
1.6 Independent Contractor. Without limiting the provisions of this
Agreement, it is expressly understood that HMT and its employees and agents
shall be deemed to be independent contractors with respect to the provision of
Group A Services or other duties hereunder, and that neither HMT nor its
employees or agents shall be
Page 2
<PAGE> 104
considered employees of ISS or any of its Subsidiaries. Neither HMT nor any of
its employees or agents shall have, nor shall HMT represent that it, has, and
HMT shall cause its employees and agents not to represent that they have or HMT
has, any authority to commit ISS or ITEQ or any other subsidiaries of ITEQ, by
negotiation or otherwise, to any contract, agreement or other legal commitment
in the name or otherwise binding on ISS, ITEQ or any such other subsidiary or to
pledge or extend any credit on their behalf.
ARTICLE 2
PROVISION OF GROUP B SERVICES
1.1 Provision of Services. HMT shall provide to ISS the Group A
Services (as defined below) in exchange for the Group A fee (the "Monthly Fee")
set forth for such Service on Exhibit A attached hereto. As used herein, the
"Group A Services" shall mean the services described on Exhibit A hereto. All of
the Group A Services shall be provided, in each case, in accordance with the
respective terms, limitations and conditions set forth herein and on Exhibit A.
1.2 Access. ISS shall make available on a timely basis to HMT all
information and materials reasonably requested by HMT to enable it to provide
Group A Services. During regular business hours and at such other times as are
reasonably required, ISS shall give HMT reasonable access, for the purposes of
providing Group A Services, to the premises on which ISS conducts business.
1.3 Services to be Provided.
(a) Unless otherwise agreed by the parties hereto, the Group A
Services shall be performed by HMT for ISS in substantially the same manner as
such Group A Services were generally performed for ISS's Retained Business by
the Named Employees (as defined below) during 1999 (during which period such
Named Employees were employees of ISS) and ISS shall use such Group A Services
for substantially the same purposes and in substantially the same manner as ISS
had used such Group A Services prior to the date hereof. As used herein, the
"Named Employees" shall mean Charlotte Wishard, Deborah Stauffer, Rebecca
Newhouse, Julie Conlin, Maureen Byington and Mark Adams.
(b) HMT shall not be obligated to perform any Group A Services
(A) in a volume or quantity which exceeds the historical volumes or quantities
of services performed for ISS's Retained Business by the Named Employees during
1999 (during which period the Named Employees were employees of ISS), (B) if to
do so would unreasonably interfere with the conduct of HMT's other businesses or
operations, or (C) if to do so would be in violation or cause a breach of any
law, rule or regulation to which HMT is subject or any agreement to which HMT is
a party. In the event of such non-performance, the parties agree to work
together in good faith to arrange for an alternative means by which ISS may
obtain, at ISS's sole cost, the Group A Services so affected.
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1.4 Term for Services. The provision of Group A Services shall
commence on the date hereof and, with respect to each Group A Service, shall
terminate on the date which is thirty (30) days following the Closing Date (the
"Initial Term"); provided that ISS may, at its option, extend the Initial Term
for one additional period of thirty (30) days by providing five (5) days advance
written notice to HMT (the "Renewal Term") .
1.5 Payment for Services. ISS and/or ITEQ shall pay to HMT on the
first Business Day following the Closing Date the Monthly Fee. ISS and/or ITEQ
shall pay to HMT on the first Business Day of the Renewal Period, if any, the
Monthly Fee.
1.6 Independent Contractor. Without limiting the provisions of this
Agreement, it is expressly understood that HMT and its employees and agents
shall be deemed to be independent contractors with respect to the provision of
Group A Services or other duties hereunder, and that neither HMT nor its
employees or agents shall be considered employees of ISS or any of its
Subsidiaries.
ARTICLE 2
SHARED ASSETS
2.1 Shared Facilities. ITEQ, ISS and HMT agree as follows:
(a) Clinton Drive. For the period beginning on the Closing Date
and ending on March 1, 2000, ISS will provide to HMT a right to occupy certain
[office and storage] space (the "Clinton Space") at [_______'] leased [office]
space at 2828 Clinton Drive, Houston, Texas ("Clinton Facility"). The Clinton
Space shall be the same or substantially equivalent in size and accommodations
as the space that the Business (as operated by ISS) currently occupies at the
Clinton Facility and HMT shall be permitted to perform the same or substantially
the same activities and operations at the Clinton Facility as ISS has performed
at such facility during the past 12 months with respect to the Business. In
consideration of the rights provided to HMT in this Section 4.5(a), HMT shall
pay to ISS $5,200 per month (as prorated for any partial month) in advance on or
before the first day of each calendar month during HMT's occupancy of the
Clinton Space. ITEQ and ISS hereby represent and warrant to HMT that [______'s]
lease agreement for the Clinton Facility with [Brown & Root] (the "Clinton
Lease") does not expire prior to March 1, 2000.
(b) St. Gabriel. For the period beginning on the Closing Date and
ending on April 30, 2000, [ITEQ shall cause Ohmstede, Inc. ("Ohmstede") to]
provide to HMT a right to occupy certain [office] space (the "St. Gabriel
Space") at Ohmestede's owned [office] space at 4250 Highway 30, St. Gabriel,
Louisiana (the "St. Gabriel Facility"). The St. Gabriel Space shall be the same
or substantially equivalent in size and accommodations to the space that
Ohmstede currently occupies at the St. Gabriel Facility and HMT shall be
permitted to perform the same or substantially the same activities and
operations at the St. Gabriel Facility as Ohmstede has performed at such
facility during
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the past twelve (12) months with respect to the Business. There will be no
separate monthly charge to HMT for the rights provided to HMT pursuant to this
Section 2.1(b). The parties acknowledge and agree that the value of the rights
provided in this subsection shall be part of and included with the 1960 Net
Amount (as defined below). [ITEQ and ISS hereby represent and warrant that is
owned by Ohmstede.
(c) Corpus Christi. For the period beginning on the Closing Date
and ending on April 30, 2000, [ITEQ will cause Ohmstede to] provided to HMT a
right to occupy certain [office] space (the "Corpus Christi Space") at [____ 's]
[owned/leased] [office] space at 410 Flato Road, Corpus Christi, Texas (the
"Corpus Christi Facility"). The Christi Space shall be the same or substantially
equivalent in size and accommodations to the space that Ohmstede currently
occupies at the Corpus Christi Facility and HMT shall be permitted to perform
the same or substantially the same activities and operations at the Corpus
Christi Facility as [ISS] has performed at such facility during the past twelve
(12) months with respect to the Business. There will be no separate monthly
charge to HMT for the rights provided to HMT pursuant to this Section 4.5(c).
The parties acknowledge and agree that the value of the rights provided to HMT
in this subsection shall be part of and included with the 1960 Net Amount (as
defined below). [ITEQ and ISS hereby represent and warrant that the Corpus
Christi Facility is owned by Ohmstede
(d) 1960 West. During the period beginning on the Closing Date
and ending April 30, 2000, HMT shall provide to ISS a right to occupy certain
office space (the "1960 Space") at the HMT's leased facility at 4422 FM 1960
West, Suite 350, Houston, Texas (the "1960 Space"). The 1960 Space will contain
office space for up to nine (9) ISS employees performing accounting and
information technology work for ISS (the "ISS Employees"). The 1960 Space shall
be the same or substantially equivalent in size and accommodations to the space
that the ISS Employees currently occupy at the 1960 Facility, and the ISS
Employees shall be permitted to perform the same or substantially the same
activities and operations at the 1960 Facility as they performed at such
facility during the past twelve (12) months with respect to the Retained
Business. In addition, for a period of thirty (30) days following Closing, HMT
shall permit ISS to retain its property in the fourth floor storage space which
is leased by the Business at 4422 FM 1960 West, Houston, Texas; provided that
ISS shall remove such property from said storage space within thirty (30) days
after the Closing Date. ISS shall remove all of its property from such storage
space on or before the date which is thirty (30) days Following Closing. In
consideration for the rights granted to ISS in this Section 2.1(d) and the
rights granted to HMT in Sections 2.1(b) and 2.1(c) hereof, ISS and/or ITEQ
shall pay to HMT an amount equal to $3,850 per month (the "1960 Net Amount"),
payable in advance. The 1960 Net Amount has been calculated by the parties to
include (within the $3,850 monthly amount) a credit for the value of the rights
granted to HMT pursuant to Sections 2.1(b) and 2.1(c) above. The parties agree
that there shall be no adjustments made to the 1960 Net Amount as a result of
either ISS or HMT vacating any of the spaces referenced in Sections 2.1(b)-(d)
in advance of April 30, 2000. HMT's obligations to grant to ISS the rights
specified in this subsection (d) are conditioned on ITEQ and ISS
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obtaining prior to Closing (i) any applicable landlord consent required to
assign the lease agreement for the 1960 Facility (the 1960 Lease") to HMT and
(ii) any consent of the landlord required pursuant to the 1960 Lease in order
for HMT to grant to ISS the rights described in this Section 2.1(d).
(e) The parties hereto acknowledge that (i) HMT is not assuming
any liabilities or obligations under or pursuant to the Clinton Lease as a
result of it being provided the rights described in Sections 2.1(a) and (ii) ISS
is not assuming any liabilities or obligations under or pursuant to the 1960
Lease as a result of it being provided the rights described in Section 2.1(d).
The parties further acknowledge that the Clinton Fee and the 1960 Net Amount are
gross payments which include allocations for utilities and other costs and
expenses with respect to the facilities.
(f) The rights of occupancy referred to in this Section 2.1 (the
"Occupancy Rights") shall include the right of undisturbed, uninterrupted
possession of the applicable space. Each Facility Provider (as defined below)
hereby agrees to pay all rent, utilities, and other expenses relating to the
property on a timely basis. Each Facility Provider shall, at such Facility
Provider's expense, obtain and keep in force during the time periods referred to
in Sections 2.1(a)-(d) policies of insurance covering loss or damage to the
applicable space and general liability insurance covering loss, damage or injury
arising out of the ownership, use, occupancy or maintenance of the applicable
space and all areas appurtenant thereto. Each facility User (as hereinafter
defined), at such Facility User's expense, obtain and keep in force during the
time periods referred to in Sections 2.1(a) - (d) policies of general liability
insurance covering losses, damages and injuries for which such Facility User is
obligated in indemnify the applicable Facility Provider pursuant to Section
__________ hereof. All such policies of insurance shall be of such types in such
coverage amounts as are customary in the Business' industry. The insuring party
shall, upon obtaining the policies of insurance required hereunder, give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Agreement. As used herein, "Facility Provider"
means [ISS], with respect to Sections 2.1(a)-(c), and HMT, with respect to
Section 2.1(d); and "Facility User" means HMT, with respect to Sections
2.1(a)-(c), and ISS, with respect to 2.1(d). Each of HMT and ISS (each a
"Responsible Party") will use their respective best efforts to effect a
separation of the other party's software, files and other information contained
on the Responsible Party's computer servers and related computer equipment
located at the 1960 Facility within 30 days after the Closing Date. The
separation shall be accomplished substantially in accordance with the steps and
procedures set forth on Exhibit _________ hereto.
2.2 Information Technology.
2.3 Solomon IV Software. HMT shall sublicense to ISS the right to use
the software provided to HMT pursuant to the [Solomon License Agreement] (the
"Solomon Software") for use by up to ten (10) employees of ISS for a period of
one (1) year following the date hereof. In exchange for the provision of the
Solomon Software to ISS,
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ISS shall reimburse HMT for the cost of such software sublicensed to ISS in
accordance with the [Fee] payable by HMT for such software pursuant to the
Solomon License Agreement, in other words, in the event that [give example of
fee calculation]. ISS shall reimburse HMT for such amount on a monthly basis [is
fee payable in advance or arrears under the Agreement] within five (5) business
days of receipt of a bill from HMT. ISS shall comply with the terms of the
Solomon License Agreement with respect to its use of the Solomon Software.
ARTICLE 3
FORCE MAJEURE
No Party shall be liable for any interruption of Service, delay or
failure to perform under this Agreement when such interruption, delay or failure
results from causes beyond its reasonable control, including but not limited to
any strikes, lock-outs or other labor difficulties, acts of any government,
riot, insurrection or other hostilities, embargo, fuel or energy shortage, fire,
flood, acts of God, wrecks or transportation delays, or inability to obtain
necessary labor, materials or utilities (each a "Force Majeure Event"). Such
Party will promptly notify the other Party, either orally or in writing, upon
learning of the occurrence of any Force Majeure Event. Upon the cessation of
such Force Majeure Event, such party will use its good faith efforts to resume
its performance pursuant to this Agreement.
ARTICLE 4
LIABILITIES
4.1 Disclaimer of Warranty and Condition of Property. ANY SERVICES
AND GOODS TO BE PROVIDED AND PURCHASED UNDER THIS AGREEMENT ARE FURNISHED AS IS,
WHERE IS, WITH ALL FAULTS AND WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE,
OR CONFORMITY TO MODELS. The parties agree that the foregoing waivers are
"CONSPICUOUS" waivers for purposes of applicable law. ISS, with respect to the
Clinton Facility, the St. Gabriel Facility and the Corpus Christi Facility, and
HMT, with respect to the 1960 Space, each hereby disclaims any representation or
warranty, whether express, implied, statutory, at common law or otherwise, as to
the condition or habitability of such property or any buildings, fixtures or
improvements thereon or attached thereto.
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4.2 Consequential and Other Damages. No Service Provider shall be
liable, whether in contract, in tort (including negligence and strict
liability), or otherwise, for any special, indirect, incidental or consequential
damages whatsoever, which in any way arise out of, relate to, or are a
consequence of, its performance or nonperformance hereunder, or the provision of
or failure to provide any Service hereunder, including but not limited to, loss
of profits, business interruptions and claims of customers.
4.3 Release. Subject tot he indemnity provisions of Section ________,
With respect to the provision of any Service, no Service Provider, Facility
Provider, nor any their respective employees, agents, officers and directors
(collectively, the "Service Provider Group", and individually, each being a
"member of the Service Provider Group"), shall be liable to the party receiving
the applicable service (the "Recipient") or their respective Affiliates (or any
of their respective employees, agents, officers and directors) (collectively,
the "Recipient Group") for, and the applicable Recipient releases and discharges
(and such Recipient will cause each other member of the Recipient Group to so
release and discharge), each member of the applicable Service Provider Group
from, any and all claims (including, without limitation, wages, benefits, all
health, dental, life, disability and other insurance claims (and all similar
benefit claims, workers' compensation claims, discrimination claims, and claims
under the Occupational Safety and Health Act and the Fair Labor Standards Act,
and the Employee Retirement Income Security Act of 1974, as amended), losses,
damages, liabilities, actions, suits, proceedings, judgments, orders, fines,
penalties, injuries, direct or liquidated damages, costs (including costs of
defense and investigation) and expenses, including special, incidental
consequential, exemplary, indirect or punitive damages (collectively, "Losses"),
to, or suffered by, or incurred by, any member of the Recipient Group arising
out of or connected with (i) any act or omission, negligent or otherwise, of any
member of the Service Provider Group with respect to the applicable Services,
including the termination the applicable Services pursuant to the terms of this
Agreement (ii) the receipt, delivery, use, possession, consumption, supply or
performance of the applicable Services, (iii) the supply of the applicable
Service by any third party not related to any member of the Service Provider
Group, or (iv) any failure of any member of applicable Service Provider Group to
supply or perform the applicable Services to the extent such failure is
permitted by the terms of this Agreement; provided, however, the foregoing
release and discharge shall not apply to any Losses to the extent caused by the
Service Provider Group's willful misconduct or actions in bad faith with respect
to this Agreement. It is the express intention of the parties hereto that the
release provided for in this subsection is to include, but not be limited to, a
release by the applicable Recipient Group of each member of the applicable
Service Provider Group from the consequences of any member of such Service
Provider Group's own negligence, to the extent that such negligence is either
the sole, concurring or joint cause of the Losses. For purposes of this Section
4.3 and Section 4.4, the term "Services" shall include the rights granted
pursuant to Section 2.1 hereof; "Service Provider" means HMT with respect to the
services provided by it pursuant to Section 1.1, or GLM, with respect to the
services provided by it pursuant to Section ________________; and "Facility
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Provider" means the applicable provider of (defined above) occupancy rights
pursuant to Section 2.1.
4.4 Indemnities. HMT shall protect, defend, indemnify and hold
harmless ISS and Ohmstede and their respective officers, directors,
shareholders, agents and employees form and Damages, related to injury to any
person or damage to any property, arising out of or in any way attributable to
HMT's use of, presence at or occupancy of the Clinton Space, the St. Gabriel
Space or the Corpus Christi Space after the Closing Date. ISS shall protect,
defend, indemnify and hold harmless HMT and its officers, directors,
shareholders, agents and employees from any Damages, related to injury to any
person or damage to any property, arising out of or in any way attributable to
ISS's use of, presence at or occupancy of the 1960 Space after the Closing Date.
Notwithstanding any provision herein to the contrary, no indemnifying party
shall have any indemnity obligation to any indemnified party under this
Agreement to the extent that any Damage arises out of or relates to the
negligence, gross negligence or willful misconduct of such indemnified party.
ARTICLE 5
TERMINATION
5.1 Termination. This Agreement shall terminate on the date on which
the provision of all Services and Occupancy Rights have terminated pursuant to
Section 2.
5.2 Effect of Termination. Sections 1.4, 1.6, 2.1, 2.2, 4.1-4.4, 5.2
and Article 6 shall survive any termination of this Agreement.
ARTICLE 6
MISCELLANEOUS
6.1 Licensed Software and Other Services. ISS understands that
performance by HMT of certain computer Services hereunder may require that ISS
obtain from third parties a license or additional authorization for use of
certain software or hardware. HMT will assist ISS in obtaining such license or
additional authorization, but in each case ISS, at its sole expense, shall be
responsible for timely securing the license or appropriate authorization from
each such third party. Under no circumstances will HMT be required to perform
the Services hereunder using software or hardware owned by third parties or
provide any Services which infringe on the rights of third parties without a
license or written authorization from the owner or licensor thereof.
6.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given (i) three Business Days
after mailing if mailed by certified or registered mail, return receipt
requested, (ii) one Business Day after delivery to Federal Express or other
nationally recognized overnight express carrier, if sent for overnight delivery
with fee prepaid, (iii) upon receipt if sent via facsimile with transmission
confirmed, or (iv) upon receipt if delivered personally,
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addressed as follows or to such other address or addresses of which the
respective party shall have notified the other:
If to ITEQ or ISS, to:
-----------------------------
-----------------------------
-----------------------------
Attention: [______]
Telephone:
Fax No.:_______________
With a copy to:
Porter & Hedges, L.L.P.
700 Louisiana, Suite 3500
Houston, Texas 77002
Attention: T. William Porter, Esq.
Telephone: 713-226-0600
Fax No.: 713-228-1331
If to HMT, to:
HMT Inc.
-----------------------------
-----------------------------
-----------------------------
Attention: President
Fax No.:_______________
With a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attn: Carmen J. Romano, Esq.
Telephone: 215-994-4000
Fax No.: 215-994-2222
Any party may change the address to which notices, requests,
demands, claims or other communications hereunder are to be delivered by giving
the other party notice in the manner herein set forth.
6.3 Headings. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
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6.4 Entire Agreement. This Agreement (together with all Exhibits and
Schedules attached hereto) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof.
6.5 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
6.6 Applicable Law. This Agreement and the legal relations among the
parties hereto will be governed by and construed in accordance with the
substantive laws of the State of New York, without giving effect to the
principles of conflict of laws thereof.
6.7 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
6.8 Assignment and Delegation. Except as otherwise provided in this
Section, and without limiting the terms of Section 6.9 below, this Agreement
shall not be assignable, conveyed or otherwise transferred by either party
hereto without the prior written consent of the other party hereto, which shall
not be unreasonably withheld or delayed; provided that HMT may assign this
agreement to any of its Affiliates without the consent of ISS, provided that
notwithstanding such assignment, HMT shall remain fully liable for its
obligations hereunder and HMT shall guarantee the timely, full and complete
performance by such Affiliates of any liabilities or obligations so assigned to
such Affiliates. Notwithstanding the foregoing, nothing herein shall prohibit
HMT from utilizing the services of any third parties customarily utilized in
connection with the provisions of the Services or otherwise used by HMT in the
ordinary course of business for performance of similar functions. In the event
of such utilization by HMT, neither HMT nor any other service provider shall be
responsible or liable for the provisions of the Services by such third parties
except to the extent of liabilities and damages caused by HMT's or any other
service provider's willful misconduct or actions in bad faith with respect to
this Agreement. In addition, notwithstanding the first sentence of this Section
6.8, each other service provider, and their respective successors and permitted
assigns, shall be entitled to enforce the rights and remedies of HMT under this
Agreement.
6.9 No Third Party Beneficiaries. Except as expressly contemplated in
Section 6.8 above, no Person other than ISS and HMT and each such party's
respective successors and permitted assigns shall have any rights under this
Agreement.
6.10 Amendment; Waivers, etc. No amendment, modification or discharge
of this Agreement, and no waiver hereunder, shall be of any force or effect
unless in writing and executed by each of the parties hereto. Any such waiver
shall constitute a waiver only with respect to the specific matter described in
such writing and shall in no
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way impair the rights of the party granting such waiver in any other respect or
at any other time.
6.11 Severability. In the event any portion of this Agreement shall be
found by a court of competent jurisdiction to be unenforceable, that portion of
this Agreement will be null and void, but the remainder of this Agreement will
be binding on the parties as if the unenforceable provisions had never been
contained herein.
6.12 Title to Data; Confidentiality.
(a) Each of the parties acknowledges that any information of the
other Party received in the course of performance under this Agreement shall be
kept confidential by such Party and such Party shall not use any such
information except to the extent necessary to perform its obligations hereunder.
The obligation of the parties hereto under this Section 6.12(a) shall not apply
to information which (i) is or becomes generally available to the public without
breach of the commitment provided for in this Section; or (ii) is required to be
disclosed by law, order or regulation of a court or tribunal or governmental
authority; provided, however, that, in any such case, the party disclosing such
information shall notify the other party hereto as early as reasonably
practicable prior to disclosure to allow such party to take appropriate measures
to preserve the confidentiality of such information.
(b) ISS acknowledges that it will acquire no right, title or
interest (including any license rights or rights of use) in any software, and
the licenses therefor which are owned by HMT, by reason of HMT's provision of
the Services provided hereunder.
6.13 Definitions. Capitalized terms used but not otherwise defined
herein shall the meanings ascribed to such terms in the Purchase Agreement.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
HMT Inc.
---------------------------
By:
Title:
ITEQ Storage Systems, Inc.
---------------------------
By:
Title:
ITEQ, Inc.
---------------------------
By:
Title:
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Exhibit A
Group A Services
Payroll, benefits and other administrative services and other administrative
services provided by named Empl; routinely provided [Other administrative
services] - [need to describe]
routinely provided for ISS's Retained Business by the Named Employees during
1999 (during which period the Named Employees were employees of ISS) (the "1999
Services"). The Services shall be comparable in volume and quality to the 1999
Services. On a monthly basis, the amount of time which the Named Employees will
spend upon the Services will be no more than the amount of time spent by the
Named Employees in performing the Former Services during 1999.
Monthly Fee
The Monthly Fee for the Services shall be the $32,000 multiplied by the Employee
Factor (as defined below). The "Employee Factor" shall equal the number of
employees of ISS divided by the sum of (i) the number of employees of HMT and
(ii) the number of employees of ISS. For purposes of calculating the Fee payable
for the Initial Term, the calculation of the Employee Factor will be made as of
the Closing Date. For purposes of calculating the Monthly Fee payable for the
Renewal Term, if any, the calculation of the Employee Factor will be made on the
first Business Day of the Renewal Term. For example, if ISS and HMT have 200 and
300 employees respectively as of the Closing Date, then the Monthly Fee payable
for the Initial Term shall equal $12,800 (which is $32,000 multiplied by 200
divided by 500). For avoidance of any doubt, there will not be any adjustments
made to the Monthly Fee payable for the Initial Term or the Renewal Term due to
the fact that the number of employees at ISS or HMT change during the course of
any applicable term in relation to the numbers calculated on the first Business
Days of such terms.
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EXHIBIT G
Based upon our examination and review of (i) the ITEQ, Inc. 401(k) Plan
document, (ii) the terms and conditions required of a plan sponsor to avail
itself of the APRSC under the EPCRS and (iii) the evidence and documentation
presented to us by the Seller, it is our opinion that the Seller is permitted to
correct the Qualification Failures under the APRSC and the EPCRS and has taken
all of the actions necessary to do so.
<PAGE> 117
EXHIBIT H
ASSIGNMENT AND ASSUMPTION OF LEASES
THIS ASSIGNMENT AND ASSUMPTION OF LEASES (this "Assignment"), dated as of
______________, 2000, is by and between HMT Inc., a Delaware corporation
("Assignee"), and ITEQ Storage Systems, Inc., a Minnesota corporation, ITEQ
Construction Services, Inc., a Delaware corporation, and ITEQ Tank Services,
Inc., a Delaware corporation (collectively, "Assignor").
W I T N E S S E T H
WHEREAS, Assignee, Assignor and ITEQ, Inc. have entered into a certain
Asset Purchase Agreement (the "Asset Purchase Agreement") dated as of January
___, 2000.
WHEREAS, the Asset Purchase Agreement provides for Assignor to transfer and
sell certain assets and rights of Assignor, all as more fully described in the
Asset Purchase Agreement and as defined therein as "Purchased Assets," which
includes, without limitation, all of the Assignor's right, title and interest as
lessee to the real property leases described on Exhibit A attached hereto (the
"Assigned Leases"), for the consideration and upon the terms and conditions set
forth in the Asset Purchase Agreement; and
WHEREAS, the Asset Purchase Agreement further provides for the assumption
by Assignee of certain liabilities and obligations of Assignor, all as more
fully described in the Asset Purchase Agreement and as defined therein as the
"Assumed Liabilities," which includes, without limitation, all of Assignor's
liabilities and obligations as lessee under the Assigned Leases, for the
consideration and upon the terms and conditions set forth in the Asset Purchase
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto promise and
agree as follows:
1. Assignor hereby sells, assigns, conveys, transfers, delivers and sets
over to Assignee all of Assignor's right, title and interest as lessee in, to
and under the Assigned Leases, all with the representations, warranties and
covenants provided for under the Asset Purchase Agreement, from and after the
date hereof.
2. Assignee hereby accepts the foregoing assignment and hereby assumes the
Assigned Leases and the rights, duties and liabilities of Assignor as lessee
arising thereunder from and after the date hereof.
<PAGE> 118
3. Assignee and Assignor hereby covenant from time to time after delivery
of this instrument to do, execute, authorize and deliver or to cause to be done,
executed and delivered such further acts, instruments, notices, documents and
assurances as the other party may deem reasonably necessary for the effective
confirmation and consummation of the assignment and assumption of the Assigned
Leases.
4. This Assignment shall be binding upon and inure to the benefit of
Assignee and Assignor and their respective successors and assigns.
5. This Assignment may be executed in any number of counterparts with the
same effect as if the signatures thereto were upon one instrument.
6. None of the provisions in this Assignment may be waived, changed or
altered except in a writing signed by all of the parties hereto.
7. This Assignment shall be governed by and construed and enforced in
accordance with the internal laws (as opposed to the conflicts of laws
provisions) of the State of New York.
8. Capitalized terms used herein without definition shall have the
respective meanings set forth in the Asset Purchase Agreement.
9. In the event of a conflict between the terms and conditions of this
Assignment and the terms and conditions of the Asset Purchase Agreement, the
terms and conditions of the Asset Purchase Agreement shall govern, supersede and
prevail.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties have caused this Assignment to be duly
executed as of the day, month and year first above written.
HMT INC.
---------------------------------------
Name:
Title:
ITEQ STORAGE SYSTEMS, INC.
---------------------------------------
Name:
Title:
ITEQ CONSTRUCTION SERVICES, INC.
---------------------------------------
Name:
Title:
ITEQ TANK SERVICES, INC.
---------------------------------------
Name:
Title:
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<PAGE> 120
EXHIBIT A
Assigned Leases
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LESSOR'S CONSENT TO ASSIGNMENT OF LEASE
The undersigned, ________________________, a/an _______________________
("Lessor"), the lessor under that certain Lease, dated _______________ (the
"Lease"), between Lessor and [ITEQ Storage Systems, Inc., a Minnesota
corporation / ITEQ Construction Services, Inc., a Delaware corporation / ITEQ
Tank Services, Inc., a Delaware corporation] ("Lessee"), as lessee, with respect
to certain [office / warehouse / manufacturing / assembly] space located in that
certain building having an address of __________________________________ (the
"Premises"), hereby consents to the assignment by Lessee of all of Lessee's
right, title and interest in, to and under the Lease to HMT Inc., a Delaware
corporation ("Assignee").
Notwithstanding anything contained in the Lease or otherwise to the
contrary, Lessor hereby acknowledges and agrees that Lessee shall be
automatically released and discharged from any and all liabilities and
obligations under the Lease arising after the date of the assignment of the
Lease to Assignee (except to the extent the liabilities result from Seller's
actions prior to the assignment and assumption) and the assumption by Assignee
of Lessee's rights, duties and liabilities thereunder arising after the date of
such assignment.
LESSOR:
[LESSOR]
By:
----------------------------------
Name:
Title:
Date:
-----------------------
-5-
<PAGE> 122
LENDER'S CONSENT TO ASSIGNMENT OF LEASE
________________________, a/an _______________________ ("Lessor"), as
lessor and [ITEQ Storage Systems, Inc., a Minnesota corporation / ITEQ
Construction Services, Inc., a Delaware corporation / ITEQ Tank Services, Inc.,
a Delaware corporation] ("Lessee"), as lessee, entered into that certain Lease,
dated ______________ (the "Lease"), with respect to certain [office / warehouse
/ manufacturing / assembly] space located in that certain building having an
address of __________________________________ (the "Premises")
The undersigned, __________________________ ("Lender"), made a loan to
Lessor that is secured by a Mortgage or Deed of Trust on the above-referenced
property of which the Premises is a part. [Pursuant to that certain letter
("Letter") dated ________________ from Lessee to Lender, Lessee certified
certain matters to Lender in regard to the Lease.] Lender hereby consents to the
assignment by Lessee of all of Lessee's right, title and interest in, to and
under the Lease to HMT Inc., a Delaware corporation ("Assignee").
Notwithstanding anything contained in the Lease, [the Letter,] or otherwise
to the contrary, Lender hereby acknowledges and agrees that Lessee shall be
automatically released and discharged from any and all liabilities and
obligations under the Lease arising after the date of the assignment of the
Lease to Assignee (except to the extent the liabilities result from Seller's
actions prior to the assignment and assumption) and the assumption by Assignee
of Lessee's rights, duties and liabilities thereunder arising after the date of
such assignment.
LENDER:
[LENDER]
By:
----------------------------------
Name:
Title:
Date:
---------------------------------
-6-
<PAGE> 1
EXHIBIT 10.24
Amendment to Asset Purchase Agreement
This First Amendment to the Asset Purchase Agreement (this
"Amendment") is entered into on this 13th day of March, 2000, by and among HMT
Inc., a Delaware corporation ("Buyer"), ITEQ, Inc., a Delaware corporation
("Parent"), ITEQ Storage Systems, Inc., a Minnesota corporation ("ITEQ
Storage"), ITEQ Construction Services, Inc., a Delaware corporation ("ITEQ
Construction") and ITEQ Tank Services, Inc., a Delaware corporation ("ITEQ
Tank"), pursuant to that certain Asset Purchase Agreement (the "Agreement"),
dated as of January 28, 2000. As used herein, ITEQ Storage, ITEQ Construction
and ITEQ Tank are hereinafter sometimes referred to individually as a "Seller"
and collectively as the "Sellers".
Background
1. Pursuant to Section 5.3(iv) of the Agreement, subject to
the other terms and conditions therein, the Buyer, on the one hand, or Parent
and Sellers on the other hand, may terminate the Agreement in the event that
Closing shall not have occurred prior to March 13, 2000 (the "Termination
Date").
2. Buyer, Parent and Sellers agree that an extension of the
Termination Date is to the mutual benefit of both parties and that an extension
of the Closing is warranted.
3. All capitalized terms used and not otherwise defined herein
shall have their respective meaning provided in the Agreement
Terms
In consideration of the mutual covenants contained herein and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Section 5.1(i) of the Agreement shall be amended in its
entirety as follows:
(i) Good Standing Certificate of Sellers. Each Seller shall
have delivered to Buyer a certificate of good standing dated not earlier than
March 3, 2000, certifying that such Seller is a corporation in good standing in
each jurisdiction set forth in Section 2.2 of the Disclosure Letter.
2. Section 5.3(a)(iv) of the Agreement shall be amended in its
entirety as follows:
(iv) By Buyer, on the one hand or Parent and Sellers, on the
other hand, if Closing shall not have occurred on or prior to March 17, 2000
(the "Termination Date"), provided, that Buyer or Parent may terminate this
Agreement pursuant to this subparagraph (iv) only if Closing shall not have
occurred by such date for a reason other than a material breach by such party of
any of the provisions hereunder.
<PAGE> 2
3. This Amendment shall be governed by and construed and
enforced in accordance with the internal laws (as opposed to the conflicts of
laws provisions) of the State of New York. This Amendment may be executed in any
number of counterparts with the same effect as if the signatures thereto were
upon one instrument. Except as amended hereby, the Parties acknowledge and agree
that the Agreement shall remain in full force and effect, and the Parties hereby
ratify, confirm and adopt the Agreement, as amended hereby.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Amendment as of the date first written above.
HMT INC.
/s/ Jonathan P. Wendell
--------------------------------------------
Jonathan P. Wendell,
President
ITEQ, INC.
/s/ William P. Reid
--------------------------------------------
William P. Reid,
President and Chief Executive Officer
ITEQ STORAGE SYSTEMS, INC.
/s/ William P. Reid
--------------------------------------------
William P. Reid,
President
ITEQ CONSTRUCTION SERVICES, INC.
/s/ William P. Reid
--------------------------------------------
William P. Reid,
President
ITEQ TANK SERVICES, INC.
/s/ William P. Reid
--------------------------------------------
William P. Reid,
President
<PAGE> 1
EXHIBIT 21.1
ITEQ, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY NAME INCORPORATED
------------ ------------
<S> <C>
Air-Cure (Canada) Technologies, Ltd. Ontario, Canada
Air-Cure Dynamics, Inc. Delaware
Air-Cure Environmental GmbH Germany
Air-Cure (Singapore) Pte. Ltd. Singapore
Allied Industries, Inc. Texas
Amerex Industries, Inc. Delaware
Australasian HMT Pty. Ltd. Australia
Ceilcote Air-Cure Ltd. England
Exell, Inc. Delaware
G.L.M. Acquisition, L.L.C. Delaware
G.L.M. Tanks and Equipment Ltd. Canada
Graver Manufacturing Co., Inc. Delaware
HMT Canada, Inc. Alberta, Canada
HMT Rubbaglas, Ltd. England
HMT Singapore Pte. Ltd. Singapore
HMT Tank Systems B.V. Netherlands
Interel Environmental Technologies, Inc. Delaware
ITEQ (Australia), Inc. Delaware
ITEQ Aviation, Inc. Delaware
ITEQ Construction Services, Inc. Delaware
ITEQ Export, Inc. Barbados
ITEQ Intellectual Properties, Inc. Delaware
ITEQ Investments, Inc. Delaware
ITEQ Management Company Delaware
ITEQ Storage Systems, Inc. Minnesota
ITEQ Tank Services, Inc. Delaware
Ohmstede, Inc. Texas
Reliable Steel, Inc. Delaware
Texoma Tank Company, Inc. Texas
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of ITEQ, Inc.
As independent public accountants, we hereby consent to the
incorporation of our report dated April 3, 2000 related to the consolidated
financial statements of ITEQ, Inc. and subsidiaries included in this Form 10-K,
into ITEQ's previously filed Registration Statements on Form S-8 (Files No.
333-09051, 33-68516, 33-68518, 33-68636, 333-50187, 333-85397) and into ITEQ's
previously filed Registration Statements File No. 333-39367 and 333-58611 on
Form S-3.
ARTHUR ANDERSEN LLP
Houston, TX
April 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 5,287 5,784
<SECURITIES> 0 0
<RECEIVABLES> 25,072 33,240
<ALLOWANCES> 0 0
<INVENTORY> 12,425 20,855
<CURRENT-ASSETS> 110,524 191,230
<PP&E> 21,890 22,136
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 180,130 286,654
<CURRENT-LIABILITIES> 154,968 66,254
<BONDS> 0 119,603
0 0
0 0
<COMMON> 28 28
<OTHER-SE> 25,134 100,769
<TOTAL-LIABILITY-AND-EQUITY> 180,130 286,654
<SALES> 280,417 342,794
<TOTAL-REVENUES> 280,417 342,794
<CGS> 255,948 275,569
<TOTAL-COSTS> 255,948 275,569
<OTHER-EXPENSES> 88,576 58,634
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (9,353) (7,821)
<INCOME-PRETAX> (72,696) 1,172
<INCOME-TAX> 4,373 431
<INCOME-CONTINUING> (77,069) 741
<DISCONTINUED> 0 (923)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (77,069) (182)
<EPS-BASIC> (2.73) (0.01)
<EPS-DILUTED> (2.73) (0.01)
</TABLE>
