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                                                                    EXHIBIT 10.8

January 29, 1999


Mr. William P. Reid
23 Misty Grove Circle
The Woodlands, TX  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.


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         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 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 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

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not less frequently than monthly, subject only to such payroll and withholding
deductions as may be required by law or the terms of Plans in which you are a
participant. For periods subsequent to December 31, 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

            (h) may be terminated prior to the Expiration Date at your
discretion for Good Reason at or after a Change of Control.


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         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 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

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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.

         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.


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         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.

         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

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and binding for all purposes, and judgment on any Arbitration award may be
entered and enforced in any court having jurisdiction.

         The Company and you irrevocably agree that in the event the
arbitrator(s) shall determine (after hearing) that any matter presented in
Arbitration is one which under Texas law is not susceptible to arbitration, in
such event (and only in such event), (i) exclusive jurisdiction over the
non-arbitrable issue shall be in the lowest Texas state court of general
jurisdiction sitting in Harris County, Texas, (ii) we are each at the time
present in Texas for the purpose of conferring personal jurisdiction; (iii) any
such action may be brought in such courts, and any objection that the Company or
you may now or hereafter have to the venue of such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
court is waived, and we each agree not to plead or claim the same, (iv) service
of process in any such proceeding or action may be effected by mailing a copy
thereof by registered or certified mail, return receipt requested (or any
substantially similar form of mail), postage prepaid, to such party at the
address provided in Section 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

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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.

         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

             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 2, 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.


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         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 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