-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GdfdqhUZdbzGdRAgn43eSlp+U0+fltAdLBlW3KBLwsqDo+o5D1zlSfQtrm2LyzXx 32e+cNpaLDDHSJ//6fVJ7A== 0000950129-00-001859.txt : 20000417 0000950129-00-001859.hdr.sgml : 20000417 ACCESSION NUMBER: 0000950129-00-001859 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ITEQ INC CENTRAL INDEX KEY: 0000868755 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFYING EQUIP [3564] IRS NUMBER: 411667001 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10668 FILM NUMBER: 602500 BUSINESS ADDRESS: STREET 1: 2727 ALLEN PKWY STE 760 CITY: HOUSTON STATE: TX ZIP: 77019 BUSINESS PHONE: 7132852700 MAIL ADDRESS: STREET 1: 2727 ALLEN PKWY SUITE 760 CITY: HOUSTON STATE: TX ZIP: 77019 FORMER COMPANY: FORMER CONFORMED NAME: AIR CURE TECHNOLOGIES INC /DE DATE OF NAME CHANGE: 19951024 FORMER COMPANY: FORMER CONFORMED NAME: AIR CURE ENVIRONMENTAL INC DATE OF NAME CHANGE: 19930328 10-K 1 ITEQ, INC. - DATED 12/31/99 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:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ---------------------- Common Stock, $.001 par value Nasdaq National Market Preferred Stock Purchase Rights Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by nonaffiliates of the registrant as of 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. 2 TABLE OF CONTENTS
PAGE ---- 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
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. 1 4 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:
DATE PRINCIPAL ACQUIRED COMPANY ACQUIRED PRODUCTS INDUSTRY SERVED ---------------- -------- --------- --------------- 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
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DATE PRINCIPAL ACQUIRED COMPANY ACQUIRED PRODUCTS INDUSTRY SERVED ---------------- -------- --------- --------------- 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
(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 3 6 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:
Effective Date Description Proceeds 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
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.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- (IN THOUSANDS) 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 ======== ======== ======== ======== ========
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. 4 7 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 5 8 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. 6 9 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 7 10 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:
Approximate Building Space Location Status (Square Feet) Description -------- ------ -------------- ----------- 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
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Approximate Building Space Location Status (Square Feet) Description -------- ------ -------------- ----------- 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
* 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:
HIGH LOW ------- --------- 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
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 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.
YEAR ENDED DECEMBER 31, 1995 1996 1997 1998 1999 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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 ========= ========= ========= ========= =========
10 13
DECEMBER 31, ------------------------------------------------------------------ 1995 1996 1997 1998 1999 --------- --------- --------- --------- --------- (IN THOUSANDS) 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
- -------------------------------------------------------------------------------- (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 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 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 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 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 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 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 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 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 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
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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).
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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).
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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.
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- *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.
* 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 26 INDEX TO FINANCIAL STATEMENTS
Page ---- 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
F-1 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 28 ITEQ, INC. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1998 1999 --------- --------- 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 ========= =========
See Notes to Consolidated Financial Statements F-3 29 ITEQ, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1998 1999 --------- --------- --------- 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 ========= ========= =========
See Notes to Consolidated Financial Statements F-4 30 ITEQ, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS)
COMMON ADDITIONAL RETAINED ACCUMULATED TOTAL STOCK TREASURY PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT STOCK CAPITAL (DEFICIT) INCOME (LOSS) (a) EQUITY ---------- --------- ---------- ---------- --------- ----------------- ------------- 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 ====== ========= ========= ========= ========= ========= =============
(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:
1997 1998 1999 -------- -------- -------- Net Loss $ (6,001) $ (182) $(77,069) Foreign Currency Translation Adjustment (943) (1,037) 1,247 -------- -------- -------- Comprehensive Loss $ (6,944) $ (1,219) $(75,822) ======== ======== ========
See Notes to Consolidated Financial Statements F-5 31 ITEQ, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (IN THOUSANDS)
1997 1998 1999 -------- -------- -------- 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) ======== ======== ========
See Notes to Consolidated Financial Statements F-6 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 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 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:
1998 1999 ---- ---- 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 ======== ========
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:
1998 1999 -------- -------- 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 ======== ========
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 35
Estimated Useful Lives 1998 1999 --------------------- -------- -------- 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 ======== ========
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:
1998 1999 -------- -------- 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 ======== ========
F-10 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 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: 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
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 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:
Pretax Sales Gain (Loss) Description Period Proceeds on Sale ----------- ------ -------- ----------- Texoma Tank Company March 1999 $ 13,956 $ 4,156 Clinton October/December 1999 3,600 (1,876) Provo November 1999 1,778 (384)
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 39 The results of operations for businesses held for sale included in the accompanying Consolidated Statements of Operations are as follows:
Year ended December 31, ---------------------------- 1998 1999 -------- -------- Revenues $164,119 $137,412 Cost of Revenues 131,875 130,561 Operating Profit (Loss) (before impairment) 7,236 (15,129)
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 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:
EARNINGS FROM CONTINUING NET REVENUES OPERATIONS EARNINGS ---------- ------------- -------- 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 ========== ========= ========
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: Working capital........................................... $ 1,424 Property and equipment.................................... 1,422 Excess of costs over net assets acquired.................. 5,242 --------- Total purchase price............................ $ 8,088 =========
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 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: 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 ========
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 42
1998 1999 --------- --------- 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 ========= =========
The preceding is included in the accompanying consolidated balance sheets as follows:
1998 1999 --------- --------- 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 ========= =========
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 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:
Year ending December 31, ------------------------ 2000................................................. $ 959 2001................................................. 811 2002................................................. 719 2003................................................. 699 2004................................................. 654 Thereafter........................................... 630 ------- Total................................................ $ 4,472 =======
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:
YEAR ENDED DECEMBER 31, ----------------------------- 1997 1998 1999 ------- ------- ------- 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 ======= ======= =======
F-18 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:
DECEMBER 31, ------------------------------ 1998 1999 -------- -------- 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) ======== ========
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:
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1998 1999 -------- -------- -------- 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 ======== ======== ========
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 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 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:
YEAR ENDED DECEMBER 31, --------------------------------- 1997 1998 1999 -------- -------- -------- 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)
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:
1997 GRANTS 1998 GRANTS 1999 GRANTS ----------------------- ----------------------- ----------------------- 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
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:
1997 1998 1999 --------------------- --------------------- --------------------- WTD AVG WTD AVG WTD AVG SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE -------- ---------- -------- ---------- -------- ---------- 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 ===== ===== =====
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 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
1997 1998 1999 --------- --------- --------- 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) ========= ========= =========
F-22 48 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 ========== ========= =========
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:
1997 1998 1999 --------- --------- --------- 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 ========= ========= =========
International sales accounted for approximately 8%, 4%, and 7% of total revenue in 1999, 1998 and 1997, respectively. NOTE 18--UNAUDITED QUARTERLY FINANCIAL DATA
First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- 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)
F-23 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 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.
Signature Title - --------- ----- - ---------------------------- 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
51 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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).
52
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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).
53
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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.
54
EXHIBIT NUMBER DESCRIPTION - ------- ----------- *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.
- --------------- * Filed herewith. EX-4.17 2 LIMITED WAIVER FOR REVOLVING DISPOSITION OF ASSETS 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: 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 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. 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 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 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 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 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 9 Annex A SPECIFIED GOODS 10 November 9, 1999 PAGE: 1 UNION ASSET LISTING Accumulated Depreciation Thru: 10/31/99
Co. asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ------------ 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 ========== ========== ==========
11 November 9, 1999 PAGE: 1 NORTH/SOUTH ASSET LISTING Accumulated Depreciation Thru: 10/31/99
Co. asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Description Current NBV - ---------- ------------------------------ -------------- ---- -------- -------- ----------- ----------- 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
12 November 9, 1999 PAGE: 2 NORTH/SOUTH ASSET LISTING Accumulated Depreciation Thru: 10/31/99
Co. asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ----------- 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
13 November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 3 Accumulated Depreciation Thru: 10/31/99
Co asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ------------ 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
14 November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 4 Accumulated Depreciation Thru:
Co aset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ----------- 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
15 November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 5 Accumulated Depreciation Thru:
Co asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ----------- 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
16 November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 6 Accumulated Depreciation Thru:
Co. asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ----------- 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
17 November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 7 Accumulated Depreciation Thru: 10/31/99
Co. asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ----------- 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
18 November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 8 Accumulated Depreciation Thru: 10/31/99
Co asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ----------- 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
19 November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 9 Accumulated Depreciation Thru: 10/31/99
Co. asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ----------- 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
20 November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 10 Accumulated Depreciation Thru: 10/31/99
Co asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ----------- 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
21 November 9, 1999 NORTH/SOUTH ASSET LISTING Page: 11 Accumulated Depreciation Thru: 10/31/99
Co asset Act. Acquired Acquired Accumulated no Description Serial Number Code Date Value Depreciation Current NBV - --------- ---------------------------------- --------------- ------- --------- ---------- ------------- ----------- 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 ============ ========== ============
EX-4.18 3 LIMITED WAIVER FOR REVOLVING CREDIT AGREEMENT 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 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. 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 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 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 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 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 EX-4.19 4 LIMITED WAIVER - COVENANTS & DISPOSITION OF ASSETS 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, 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 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. 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. 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:
----------------------------- ------------------------------------ -------------------------------- NET CASH PROCEEDS TO BE RECEIVED SUBJECT SALES AT CLOSING COMPLETION DATE ----------------------------- ------------------------------------ -------------------------------- 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
(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, 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 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. 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. 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. 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 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 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 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 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 EX-4.20 5 LIMITED WAIVER & 8TH AMENDMENT TO REVOLVING CREDIT 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: 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:
------------------------------------------------- TWO - MONTH PERIOD MINIMUM EBITDA ------------------------------------------------- February and March 2000 $455,000 ------------------------------------------------- March and April 2000 $438,000 ------------------------------------------------- April and May 2000 $746,000 -------------------------------------------------
(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. 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)." 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 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: 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 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: 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: 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: 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 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, 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 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. 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 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 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 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 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 EX-10.8 6 AGREEMENT - ITEQ, INC. & WILLIAM P. REID 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 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 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 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 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. 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. 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 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 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. 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 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 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 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 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 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 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 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 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 EX-10.9 7 EMPLOYMENT AGREEMENT - WILLIAM P. REID 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". 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 EX-10.23 8 ASSET PURCHASE AGREEMENT 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 2 TABLE OF CONTENTS
Page 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
-i- 3 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
-ii- 4 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
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- 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, 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; -2- 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 -3- 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- 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; -5- 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 -6- 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 -7- 12 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 -8- 13 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): -9- 14 (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 -10- 15 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. -11- 16 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 -12- 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. -13- 18 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 -14- 19 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 -15- 20 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 -16- 21 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 -17- 22 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: -18- 23 (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). -19- 24 (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 -20- 25 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 -21- 26 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. -22- 27 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. -23- 28 (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 -24- 29 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, -25- 30 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 -26- 31 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. -27- 32 (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. -28- 33 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), -29- 34 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 -30- 35 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 -31- 36 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; -32- 37 (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 -33- 38 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 -34- 39 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 -35- 40 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 -36- 41 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 -37- 42 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 -38- 43 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 -39- 44 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 -40- 45 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. -41- 46 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 -42- 47 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. -43- 48 (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 -44- 49 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 -45- 50 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. -46- 51 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. -47- 52 (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. -48- 53 (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. -49- 54 (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. -50- 55 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); -51- 56 (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 -52- 57 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. -53- 58 (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. -54- 59 (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 -55- 60 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 -56- 61 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 -57- 62 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. -58- 63 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. -59- 64 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). -60- 65 "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. -61- 66 "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 -62- 67 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. -63- 68 "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). -64- 69 "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. -65- 70 "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, -66- 71 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. -67- 72 "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). -68- 73 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 -69- 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. 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. -2- 76 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: -3- 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 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. -2- 79 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. -3- 80 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, -4- 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 -5- 82 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. -6- 83 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 -7- 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. -8- 85 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. -9- 86 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 -10- 87 COMPASS BANK ------------------------------ By: --------------------------- Title: ------------------------ -11- 88 SCHEDULE A Allocations -12- 89 SCHEDULE B Escrow Agent Fees [$ ] per year -13- 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 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- 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- 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. 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. 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 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 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. 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 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: 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. 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 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. 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 2 104 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. Page 3 105 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 Page 4 106 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 Page 5 107 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, Page 6 108 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. Page 7 109 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 Page 8 110 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, Page 9 111 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. Page 10 112 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 Page 11 113 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. Page 12 114 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: Page 13 115 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. Page 14 116 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. 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. 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 -2- 119 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: -3- 120 EXHIBIT A Assigned Leases -4- 121 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- 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- EX-10.24 9 FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT 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. 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. 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 EX-21.1 10 LIST OF SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 ITEQ, INC. LIST OF SUBSIDIARIES
COMPANY NAME INCORPORATED ------------ ------------ 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
EX-23.1 11 CONSENT OF ARTHUR ANDERSEN LLP 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 EX-27 12 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS 12-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 DEC-31-1999 DEC-31-1998 5,287 5,784 0 0 25,072 33,240 0 0 12,425 20,855 110,524 191,230 21,890 22,136 0 0 180,130 286,654 154,968 66,254 0 119,603 0 0 0 0 28 28 25,134 100,769 180,130 286,654 280,417 342,794 280,417 342,794 255,948 275,569 255,948 275,569 88,576 58,634 0 0 (9,353) (7,821) (72,696) 1,172 4,373 431 (77,069) 741 0 (923) 0 0 0 0 (77,069) (182) (2.73) (0.01) (2.73) (0.01)
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