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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-23335
MPW INDUSTRIAL SERVICES GROUP, INC.
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(Exact name of registrant as specified in its charter)
Ohio 31-1567260
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
9711 Lancaster Road, S.E., Hebron, Ohio 43025
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(Address of principal executive offices) (Zip code)
(740) 927-8790
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
- --------------------------------------------------------------------------------
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
As of April 30, 1999, 10,784,945 shares of the issuer's common stock,
without par value, were outstanding.
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<TABLE>
MPW INDUSTRIAL SERVICES GROUP, INC.
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- -------------------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and June 30, 1998...............3
Consolidated Statements of Income for the three and nine months ended March 31,
1999 and 1998 (unaudited)....................................................................4
Consolidated Statements of Cash Flows for the nine months ended March 31, 1999
and 1998 (unaudited).........................................................................5
Notes to Consolidated Financial Statements (unaudited).......................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......10
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................15
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings...........................................................................15
Item 2. Changes in Securities and Use of Proceeds...................................................15
Item 3. Defaults Upon Senior Securities.............................................................16
Item 4. Submission of Matters to a Vote of Security Holders.........................................16
Item 5. Other Information...........................................................................16
Item 6. Exhibits and Reports on Form 8-K............................................................16
SIGNATURES ............................................................................................17
EXHIBIT INDEX .........................................................................................18
</TABLE>
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<TABLE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MPW INDUSTRIAL SERVICES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 251 $ 507
Accounts receivable, net of allowances 34,532 19,386
Inventories 8,175 4,959
Deferred income taxes 1,624 1,439
Prepaid expenses 1,427 1,178
Other current assets 1,035 351
-------- --------
47,044 27,820
Property and equipment, net 39,065 28,593
Noncurrent assets:
Intangibles 49,370 15,514
Other assets 396 440
-------- --------
Total assets $135,875 $ 72,367
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,388 $ 6,279
Accrued compensation and related taxes 4,259 3,729
Current maturities of noncurrent liabilities 694 2,615
Other accrued liabilities 8,231 3,768
-------- --------
21,572 16,391
Noncurrent liabilities:
Long-term debt 63,599 14,296
Deferred income taxes 1,624 1,192
Other 448 767
-------- --------
65,671 16,255
Minority interest 1,275 --
Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, no par value; 30,000,000 shares authorized; 10,784,945 and 10,496,647
shares issued and outstanding at March 31, 1999 and June 30, 1998, respectively 108 105
Additional paid-in capital 40,531 37,591
Retained earnings 6,718 2,025
-------- --------
47,357 39,721
======== ========
Total liabilities and shareholders' equity $135,875 $ 72,367
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
MPW INDUSTRIAL SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $38,147 $21,021 $106,398 $66,855
Costs and expenses:
Cost of services 26,161 14,759 71,808 45,267
Selling, general and administrative expenses 7,572 4,024 19,424 11,785
Depreciation and amortization 1,950 831 4,882 2,561
Deferred stock option compensation -- -- -- 3,415
------- ------- -------- -------
Total costs and expenses 35,683 19,614 96,114 63,028
------- ------- -------- -------
Income from operations 2,464 1,407 10,284 3,827
Interest expense, net 1,064 86 2,333 637
Minority earnings -- -- -- 119
------- ------- -------- -------
Income before taxes 1,400 1,321 7,951 3,071
Provision (benefit) for income taxes 574 528 3,259 (741)
------- ------- -------- -------
Net income $ 826 $ 793 $ 4,692 $ 3,812
======= ======= ======== =======
Pro forma information:
Historical income before taxes $ 1,400 $ 1,321 $ 7,951 $ 3,071
Pro forma taxes on income 574 528 3,259 1,228
------- ------- -------- -------
Pro forma net income $ 826 $ 793 $ 4,692 $ 1,843
======= ======= ======== =======
Pro forma net income per share $ 0.08 $ 0.08 $ 0.44 $ 0.23
======= ======= ======== =======
Pro forma net income per share, assuming dilution $ 0.07 $ 0.07 $ 0.41 $ 0.21
======= ======= ======== =======
Weighted average common shares outstanding 10,785 10,308 10,717 7,996
Weighted average common shares outstanding, assuming dilution 11,501 10,996 11,488 8,680
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
MPW INDUSTRIAL SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 4,692 $ 3,812
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation 3,627 2,338
Amortization 1,255 223
(Gain) loss on disposals of assets 176 (224)
Minority interest -- 119
Deferred stock option compensation -- 3,415
Change in deferred income taxes 247 (907)
Changes in operating assets and liabilities:
Accounts receivable (9,710) (1,265)
Inventories (823) 25
Prepaid expenses and other assets (2,144) 245
Accounts payable 217 (80)
Other accrued liabilities 141 (2,256)
-------- --------
Net cash provided by (used in) operating activities (2,322) 5,445
CASH FLOW USED IN INVESTING ACTIVITIES:
Purchases of property and equipment (11,021) (4,855)
Purchase of businesses, net of acquired cash (29,246) (3,077)
Proceeds from the disposal of property and equipment 257 79
-------- --------
Net cash used in investing activities (40,010) (7,853)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 62 32,109
Proceeds from revolving credit facility 96,484 17,955
Payments on revolving credit facility (38,282) (24,484)
Proceeds from notes payable 6,804 3,000
Payments on notes payable (22,901) (9,421)
Payments on AAA Notes -- (13,400)
Payments on capital lease obligations (91) (27)
Proceeds from capital contributions -- 233
Distributions to shareholders -- (1,242)
-------- --------
Net cash provided by financing activities 42,076 4,723
-------- --------
Increase (decrease) in cash and cash equivalents (256) 2,315
Cash and cash equivalents at beginning of year 507 489
======== ========
Cash and cash equivalents at end of period $ 251 $ 2,804
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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MPW INDUSTRIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS MPW Industrial
Services Group, Inc. and its subsidiaries (the "Company") provide
technically-based services, including industrial cleaning and facility
maintenance, industrial filtration management, cleanroom cleaning and related
services, industrial container cleaning and industrial process water
purification. Such services are primarily provided at customer facilities. The
Company serves customers in numerous industries including automotive, electric
power, pulp and paper, chemical, steel, transportation, semiconductor,
microelectronics and pharmaceutical. The Company provides services primarily
throughout the United States, Mexico and Canada.
From November 1998 through January 1999, the Company entered into a new
service line effective with its acquisitions of six technical cleanroom cleaning
and related services companies (see Note 2 below for further information about
the individual acquisitions). These six acquisitions were made by a
newly-created, wholly-owned subsidiary of the Company, Pentagon Technologies
Group, Inc. ("Pentagon").
The accompanying unaudited consolidated financial statements include
the accounts of the Company and all of its wholly-owned subsidiaries, including
Aquatech Environmental, Inc. ("Aquatech"), which was 70% owned by the Company
until December 5, 1997, at which time the Company purchased the remaining
minority shareholders' interests of Aquatech, and it became wholly-owned. The
minority shareholders' interests in the equity and net income of Aquatech are
presented separately in the accompanying unaudited consolidated financial
statements for the nine months ended March 31, 1998. All material intercompany
transactions and balances have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements presented
herein have been prepared by the Company and reflect all adjustments of a normal
recurring nature that are, in the opinion of management, necessary for a fair
presentation of financial results for the three and nine months ended March 31,
1999 and 1998, in accordance with generally accepted accounting principles for
interim financial reporting and pursuant to Article 10 of Regulation S-X.
Certain footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These interim consolidated
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended June 30, 1998 (the "Annual Report"). The
results of operations for the three and nine months ended March 31, 1999 and
1998 are not necessarily indicative of the results for the full year (see Note 8
for further information regarding fluctuations in quarterly results).
USE OF ESTIMATES The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
accompanying consolidated financial statements. Actual results could differ from
those estimates.
RECLASSIFICATIONS Certain amounts presented as of June 30, 1998 have
been reclassified to conform to the March 31, 1999 presentation.
NOTE 2. ACQUISITIONS
TANK MANAGEMENT Effective August 1, 1998, the Company purchased
substantially all of the assets of Tank Management, Inc. ("Tank Management") for
an aggregate consideration of $5,750,000. The consideration included the
issuance of 114,318 shares of common stock of the Company, representing an
aggregate value of $1,250,000. The purchase price may be increased upon the
achievement of certain new customer sales objectives for the Tank Management
facility over the three-year period following the date of acquisition. The
acquisition has been accounted for using the purchase method of accounting. The
accompanying financial statements include the results of operations of Tank
Management from the effective acquisition date through March 31, 1999.
GAUTHIER ENTERPRISES Effective August 1, 1998, the Company acquired all
of the outstanding stock of Gauthier Enterprises, Inc., a Michigan corporation
("Gauthier Enterprises"), for an aggregate consideration of $3,000,000. The
consideration included the issuance of 89,236 shares of common stock of the
Company, representing an aggregate value of
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$1,000,000. The purchase price may be increased by $3,000,000, or more or less,
contingent upon the achievement of certain revenue and operating objectives over
the three-year period following the date of acquisition. The acquisition has
been accounted for using the purchase method of accounting. The accompanying
financial statements include the results of operations of Gauthier Enterprises
from the effective acquisition date through March 31, 1999.
SUPPORT SYSTEMS Effective November 1, 1998, the Company acquired all of
the outstanding stock of Support Systems, Inc., a New York corporation ("Support
Systems"), for an aggregate consideration of $6,011,000. The consideration
included the issuance of preferred stock of Pentagon, representing 2% of the
equity of Pentagon. The purchase price may be increased by $3,000,000, or more
or less, contingent upon the achievement of certain revenue and operating
objectives over the three-year period following the date of acquisition. The
acquisition has been accounted for using the purchase method of accounting. The
accompanying financial statements include the results of operations of Support
Systems from the effective acquisition date through March 31, 1999.
ENVIROSAFE Effective November 1, 1998, the Company acquired all of the
outstanding stock of Envirosafe Technical Cleaning, Inc., an Arizona corporation
("Envirosafe"), for an aggregate consideration of $2,500,000. The consideration
included the issuance of 57,266 shares of common stock of the Company,
representing an aggregate value of $500,000. The acquisition has been accounted
for using the purchase method of accounting. The accompanying financial
statements include the results of operations of Envirosafe from the effective
acquisition date through March 31, 1999.
TEC INTERNATIONAL Effective November 1, 1998, the Company purchased
substantially all of the assets of Technological Environment Cleaning
International Company ("TEC International") for an aggregate consideration of
$6,000,000. The consideration included the issuance of preferred stock of
Pentagon, representing 8% of the equity of Pentagon. The acquisition has been
accounted for using the purchase method of accounting. The accompanying
financial statements include the results of operations of TEC International from
the effective acquisition date through March 31, 1999.
SURESCO Effective November 1, 1998, the Company purchased substantially
all of the assets of Suresco, Inc. ("Suresco") for an aggregate consideration of
$1,375,000. The consideration included the issuance of 11,478 shares of common
stock of the Company, representing an aggregate value of $100,000. The
consideration also included the issuance of preferred stock of Pentagon,
representing 2% of the equity of Pentagon. The acquisition has been accounted
for using the purchase method of accounting. The accompanying financial
statements include the results of operations of Suresco from the effective
acquisition date through March 31, 1999.
DRYDEN ENGINEERING Effective December 31, 1998, the Company acquired
all of the outstanding stock of Dryden Engineering, Inc., a California
corporation ("Dryden Engineering"), for an aggregate consideration of
$3,325,000. The consideration included the issuance of preferred stock of
Pentagon, representing 4% of the equity of Pentagon. The purchase price may be
increased by $250,000 contingent upon the achievement of certain operating
objectives over the six-month period following the date of acquisition. The
acquisition has been accounted for using the purchase method of accounting. The
accompanying financial statements include the results of operations of Dryden
Engineering from the effective acquisition date through March 31, 1999.
WTW SYSTEMS Effective December 31, 1998, the Company purchased
substantially all of the assets of WTW Systems, Inc. ("WTW Systems") for an
aggregate consideration of $1,283,000. The acquisition has been accounted for
using the purchase method of accounting. The accompanying financial statements
include the results of operations of WTW Systems from the effective acquisition
date through March 31, 1999.
BIOCON Effective January 1, 1999, the Company purchased substantially
all of the assets of Biocon, a division of Performance Solutions-Biocon, LLC for
an aggregate consideration of $2,366,000. The consideration included the
issuance of preferred stock of Pentagon, representing 1% of the equity of
Pentagon. The acquisition has been accounted for using the purchase method of
accounting. The accompanying financial statements include the results of
operations of Biocon from the effective acquisition date through March 31, 1999.
MID-OHIO INDUSTRIAL Effective February 1, 1999, the Company purchased
substantially all of the assets of Mid-Ohio Industrial Services, Inc. ("Mid-Ohio
Industrial") for an aggregate cash consideration of $2,550,000. The acquisition
has been accounted for using the purchase method of accounting. The accompanying
financial statements include the results of operations of Mid-Ohio Industrial
from the effective acquisition date through March 31, 1999.
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The terms of certain of the Company's other acquisition agreements also
provide for additional consideration to be paid based on the achievement of
certain objectives. Such additional consideration will be paid in cash, common
stock of the Company, or a combination thereof, and is capitalized as goodwill
or an other intangible asset. During the nine months ended March 31, 1999, the
Company paid additional consideration of $408,000 and did not issue any of its
common stock.
NOTE 3. INTANGIBLES
Intangibles are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
--------- --------
(in thousands)
<S> <C> <C>
Goodwill $40,582 $15,115
Customer lists 7,073 --
Patents 1,299 --
Non-compete agreements 416 399
------- -------
$49,370 $15,514
======= =======
</TABLE>
Accumulated amortization of intangibles as of March 31, 1999 and June
30, 1998 was $1,835,000 and $580,000, respectively.
NOTE 4. LONG-TERM DEBT
Effective November 2, 1998, the Company entered into a new credit
agreement with its principal banks (the "Credit Facility") to replace its
previous credit agreement (the "Previous Credit Agreement"). The Previous Credit
Agreement, as amended, provided the Company with $50,000,000 of available
credit, of which $35,000,000 was available in the form of term notes. The Credit
Facility provides the Company with $75,000,000 of revolving credit availability
for a three-year period, subject to extension by the banks each year on the
anniversary of the agreement. Under the terms of the Credit Facility, the entire
$75,000,000 is available for general corporate purposes, including working
capital, capital expenditures and acquisitions. Borrowing under the Credit
Facility is at rates, based on the prime or Eurodollar rate, that the Company
believes to be very favorable. The interest rate is subject to change based on
interest rate formulas tied to the ratio of consolidated funded debt to earnings
before interest, taxes, depreciation and amortization. Availability of borrowing
is subject to the maintenance of a minimum level of net worth, certain levels of
interest coverage and maintenance of a certain ratio of funded debt to earnings
before interest, taxes, depreciation and amortization. As of March 31, 1999,
$62,579,000 had been drawn against the Credit Facility. The Company also pays a
commitment fee for unused portions of the Credit Facility of 0.35%.
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NOTE 5. EARNINGS PER SHARE
The following table sets forth the computation of pro forma basic and
diluted earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator for basic earnings per share - pro
forma net income $ 826 $ 793 $ 4,692 $ 1,843
Effect of assumed exercise of equity
interest in Pentagon (Note 6) -- -- -- --
------- ------- ------- -------
Numerator for diluted earnings per share -
pro forma net income after assumed
conversions $ 826 $ 793 $ 4,692 $ 1,843
======= ======= ======= =======
Denominator for basic earnings per share -
weighted average common shares 10,785 10,308 10,717 7,996
Effect of dilutive securities:
Dilutive employee stock options 673 688 675 684
Preferred stock of Pentagon (Note 6) 43 -- 96 --
------- ------- ------- -------
Dilutive potential common shares 716 688 771 684
Denominator for diluted earnings per share -
adjusted weighted average common shares and
assumed conversions 11,501 10,996 11,488 8,680
======= ======= ======= =======
Pro forma net income per share $ 0.08 $ 0.08 $ 0.44 $ 0.23
======= ======= ======= =======
Pro forma net income per share, assuming
dilution $ 0.07 $ 0.07 $ 0.41 $ 0.21
======= ======= ======= =======
</TABLE>
NOTE 6. EQUITY INTERESTS IN PENTAGON
Preferred stock of Pentagon was issued in connection with certain of
the Company's recent acquisitions. The Pentagon Series A Preferred Stock pays
dividends only when and if declared by the Board of Directors of Pentagon and is
convertible into shares of Common Stock of Pentagon immediately prior to an
initial public offering of, or sale of all or substantially all the stock or
assets of, Pentagon. The shares of preferred stock may be sold or transferred to
a third party only subject to a right of first refusal on the part of Pentagon.
The holders of preferred stock have the right, commencing three years after
issuance of the preferred stock, to sell shares of preferred stock to Pentagon
or the Company at a purchase price equal to Pentagon's earnings before interest,
taxes, depreciation and amortization times a multiple based on certain trading
multiples of the Company or an assumed multiple of Pentagon. The amount of
preferred stock of Pentagon to be purchased by the Company or Pentagon will be
determined by the Board of Directors annually. The purchase price will be paid
in common stock of the Company, or at the option of the Company, in cash.
In addition to preferred stock, Pentagon has issued a common stock
option to its Chief Executive Officer representing a 9% equity interest in
Pentagon upon exercise.
NOTE 7. SUBSEQUENT EVENTS
In May 1999, the Company amended the Credit Facility with its principal
banks to make available an additional $10,000,000 of revolving credit, for a
total of $85,000,000. The additional $10,000,000 is subject to a grant to the
banks, by the Company, of a security interest. This additional amount and
interest thereon is subject to substantially the same terms and conditions as
the original $75,000,000 as noted in Note 4 above.
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NOTE 8. FLUCTUATIONS IN QUARTERLY RESULTS
The Company's revenues and results of operations tend to vary
seasonally as a result of a number of factors over which the Company has no
control, including its customers' budgetary constraints, the timing and duration
of its customers' planned maintenance activities and shutdowns, changes in its
competitors' pricing policies and general economic conditions. Also, certain
operating and fixed costs remain relatively constant throughout the fiscal year,
which when offset by differing levels of revenues may result in fluctuations in
quarterly operating results. Because of these factors, the Company typically
generates the least amount of revenues in the third quarter, higher revenues in
the second quarter and the greatest amount of revenues in the first and fourth
quarters. Although the Company believes that the historical trend in quarterly
revenue for the first and fourth quarters are generally higher than the second
and third quarters, there can be no assurance that this will occur in future
periods. Accordingly, quarterly or other interim results should not be
considered indicative of results to be expected for any quarter or for the full
year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Except for historical information, certain statements in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") are forward looking. These forward looking statements are
based on current expectations that are subject to a number of uncertainties and
risks, and actual results may differ materially. The uncertainties and risks
include, but are not limited to, competitive and other market factors, customer
purchasing behavior, general economic conditions and other facets of the
Company's business operations as well as other risk factors identified in
"Investment Considerations" in the Company's Annual Report. The Company
undertakes no obligation and does not intend to update, revise or otherwise
publicly release the result of any revisions to these forward looking statements
that may be made to reflect future events or circumstances.
The following information should be read in conjunction with the
Unaudited Consolidated Financial Statements and Notes included herein. The
following information should also be read in conjunction with the Audited
Consolidated Financial Statements and Notes and MD&A for the year ended June 30,
1998 as contained in the Company's Annual Report.
OVERVIEW
Since the end of our fiscal year on June 30, 1996, several events have
occurred that affect the comparability of our results of operations from period
to period. These event include:
ACQUISITIONS Since October 1997, we have acquired fourteen businesses
that represent an aggregate increase in our revenues of approximately $73.0
million. We agreed to pay an aggregate consideration for these businesses of
approximately $62.0 million, which included cash, common stock, preferred stock
of one of our subsidiaries and contingent consideration for future performance.
We accounted for each of these acquisitions using the purchase method of
accounting and each are included in our results of operations only from the date
of acquisition.
In fiscal 1999, we completed the acquisitions of ten companies, Tank
Management, Gauthier Enterprises, Support Systems, Envirosafe, TEC
International, Suresco, Dryden Engineering, WTW Systems, Biocon and Mid-Ohio
Industrial. See Note 2 to the Consolidated Financial Statements. In fiscal 1998,
we completed the acquisitions of four companies, ESI International, the Vinewood
Companies, Straightline Optical Service and Maintenance Concepts.
As a result of these acquisitions, we do not believe that our results
of operations are necessarily comparable on a period to period basis. Our
discussion of results of operations below should be read in conjunction with our
Consolidated Financial Statements and related notes where each of these
acquisitions has been described in more detail.
INITIAL PUBLIC OFFERING On December 2, 1997, we completed our initial
public offering. We issued 3,987,500 shares of our common stock in this
offering, including the over-allotment option, at $9.00 per share. The net
proceeds to us were $32.1 million. During the period in fiscal 1998 leading up
to the offering and at the time of the offering, numerous events occurred and we
recorded certain transactions directly related to the offering.
Our discussion of results of operations below utilizes adjusted pro
forma information in order to make each of the periods more comparable. Adjusted
pro forma information eliminates the non-recurring events and gives
consideration to
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other events related to our initial public offering. Adjusted pro forma
information for each of the quarters in fiscal 1998 is described in our Annual
Report for the year ended June 30, 1998 and in our Prospectus filed in
connection with our initial public offering.
UNUSUAL EVENTS IN FISCAL 1999 In late June 1998 and through July 1998,
General Motors experienced a strike. The strike affected our operations
primarily at our industrial filtration management and our industrial container
cleaning service lines. The lost revenues and related loss of operating profit
at these two service lines affected earnings per share by approximately $0.03.
In March 1999, we experienced a fire at our Austin, Texas facility.
This facility provided parts cleaning within the cleanroom services service
line. The fire caused the facility, and most equipment within the facility, to
be unusable. Much of the business from this facility has been temporarily
transferred to our Hopewell Junction, New York facility. We have obtained a new
site for the Austin facility and have begun construction on the facility and the
procurement of equipment lost in the fire. In the three months ended March 31,
1999, we accrued $300,000 to cover the estimated expenses of the fire that are
not covered by insurance. In addition, the lost revenues and related loss of
operating profit at this facility affected earnings per share by approximately
$0.01 in the three months ended March 31, 1999. We anticipate that the lost
operating profit will continue to affect earnings per share by approximately
$0.01 per month until the new facility is fully functional. We currently
estimate that the new facility will become operational near the end of June
1999.
GENERAL
We primarily derive our revenues from services under time and
materials, fixed price and unit price contracts. We recognize revenues from time
and materials type contracts based on performance and efforts expended. We
record revenues from non-contract activities as we perform services or sell
goods.
Cost of services includes all direct labor, materials, subcontractor
and other costs related to the performance of our services. Cost of services
also includes all costs associated with our operating equipment, excluding
depreciation and amortization.
Selling, general and administrative expenses include management
salaries, clerical and administrative overhead, professional services, costs
associated with marketing and sales efforts and costs associated with our
information systems.
Depreciation and amortization consists of depreciation of operating
equipment and amortization of capital leases and goodwill. Depreciation is
calculated using the straight-line method over the estimated useful lives of
property and equipment. We amortize capital leases on a straight-line basis over
the lease term and goodwill and other intangibles on a straight-line basis over
periods not exceeding 25 years.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, consolidated
statement of income data as a percentage of revenues for actual results for the
three and nine months ended March 31, 1999 and the three months ended March 31,
1998 as well as adjusted pro forma results for the nine months ended March 31,
1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of services 68.6 70.2 67.5 67.7
Selling, general and administrative expenses 19.8 19.1 18.3 17.7
Depreciation and amortization 5.1 4.0 4.6 3.8
----- ----- ----- -----
Total costs and expenses 93.5 93.3 90.3 89.2
----- ----- ----- -----
Income from operations 6.5 6.7 9.7 10.8
Interest expense, net 2.8 0.4 2.2 0.1
----- ----- ----- -----
Income before taxes 3.7 6.3 7.5 10.7
Provision for income taxes 1.5 2.5 3.1 4.2
----- ----- ----- -----
Net income 2.2% 3.8% 4.4% 6.4%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Basis of Presentation. Management's analysis of the three months ended
March 31, 1999 ("fiscal 1999 quarter") compared to the three months ended March
31, 1998 ("fiscal 1998 quarter") utilizes actual, as reported information.
Revenues. Revenues increased by $17.1 million, or 81.5%, to $38.1
million for the fiscal 1999 quarter from $21.0 million for the fiscal 1998
quarter. This increase was primarily the result of thirteen acquisitions that
were completed since April 1, 1998, which contributed an aggregate of $13.7
million of revenues. The internal rate of growth in revenues in the fiscal 1999
quarter was 16.5%. Internal growth in revenues in our industrial filtration
management service line for the fiscal 1999 quarter was 24.0%.
Cost of Services. Cost of services increased by $11.4 million, or
77.3%, to $26.2 million for the fiscal 1999 quarter from $14.8 million for the
fiscal 1998 quarter. Cost of services as a percentage of revenues decreased to
68.6% for the fiscal 1999 quarter from 70.2% for the fiscal 1998 quarter. The
decrease in cost of services as a percentage of revenues is primarily due to
improved operating efficiency in our filtration management and container
cleaning service lines offset by the costs and loss of revenues related to the
fire at our Austin, Texas facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $3.5 million, or 88.2%, to $7.6 million for
the fiscal 1999 quarter from $4.0 million for the fiscal 1998 quarter. Selling,
general and administrative expenses increased as a percentage of revenues to
19.8% for the fiscal 1999 quarter from 19.1% for the fiscal 1998 quarter. The
increase in selling, general and administrative expenses is primarily due to the
overhead costs assumed in the acquisitions noted above, costs associated with
our status as a public company and investments we have made in our
infrastructure to support overall growth.
Depreciation and Amortization. Depreciation and amortization increased
by $1.1 million, or 134.7%, to $2.0 million for the fiscal 1999 quarter from
$831,000 for the fiscal 1998 quarter. Depreciation and amortization increased as
a percentage of revenues to 5.1% for the fiscal 1999 quarter from 4.0% for the
fiscal 1998 quarter. This increase is a result of additional capital
expenditures related to our growth and the amortization of goodwill and other
intangible assets arising out of the acquisitions noted above.
Income from Operations. Income from operations increased $1.1 million,
or 75.1%, to $2.5 million for the fiscal 1999 quarter from $1.4 million for the
fiscal 1998 quarter. Income from operations decreased as a percentage of
revenues to
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<PAGE> 13
6.5% for the fiscal 1999 quarter from 6.7% for the fiscal 1998 quarter. The
increase in income from operations and decrease in operating margin are due to
the factors discussed above.
Interest Expense, net. Interest expense is the result of new borrowings
subsequent to our initial public offering, primarily resulting from the
acquisitions noted above.
Provision for Income Taxes. The provision for income taxes reflects an
effective rate of 41% for the fiscal 1999 quarter and an effective tax rate of
40% for the fiscal 1998 quarter.
Net Income and Net Income per Share. Net income increased $33,000, or
4.2%, to $826,000 for the fiscal 1999 quarter from $793,000 for the fiscal 1998
quarter. Assuming dilution, net income per share was $0.07 for the fiscal 1999
quarter and $0.07 for the fiscal 1998 quarter. This increase in net income is
due to the factors discussed above; however, the expenses incurred and the lost
revenues and related loss of operating profit associated with the fire at our
Austin facility affected earnings per share by approximately $0.03 in the fiscal
1999 quarter.
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
Basis of Presentation. Management's analysis of the nine months ended
March 31, 1999 ("nine month fiscal 1999 period") compared to the nine months
ended March 31, 1998 ("nine month fiscal 1998 period") utilizes adjusted pro
forma information for the nine month fiscal 1998 period.
Revenues. Revenues increased by $39.5 million, or 59.1%, to $106.4
million for the nine month fiscal 1999 period from $66.9 million for the nine
month fiscal 1998 period. This increase was primarily the result of the fourteen
acquisitions that were completed since October 1, 1997, which contributed an
aggregate of $31.0 million of revenues. Despite the impact of the General Motors
strike, the internal rate of growth in revenues in the nine month fiscal 1999
period was 12.8%.
Cost of Services. Cost of services increased by $26.5 million, or
58.6%, to $71.8 million for the nine month fiscal 1999 period from $45.3 million
for the nine month fiscal 1998 period. Cost of services as a percentage of
revenues decreased to 67.5% for the nine month fiscal 1999 period from 67.7% for
the nine month fiscal 1998 period. The decrease in cost of services as a
percentage of revenues is the result of the improved operating efficiencies at
our filtration management and container cleaning service lines offset by the
loss of revenues related to the General Motors strike and the costs and loss of
revenues related to the fire at our Austin, Texas facility.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $7.6 million, or 64.0%, to $19.4 million
for the nine month fiscal 1999 period from $11.8 million for the nine month
fiscal 1998 period. Selling, general and administrative expenses increased as a
percentage of revenues to 18.3% for the nine month fiscal 1999 period from 17.7%
for the nine month fiscal 1998 period. The increase in selling, general and
administrative expenses is primarily due to the overhead costs assumed in the
acquisitions noted above, costs associated with our status as a public company
and investments we have made in our infrastructure to support overall growth.
Depreciation and Amortization. Depreciation and amortization increased
by $2.4 million, or 93.1%, to $4.9 million for the nine month fiscal 1999 period
from $2.5 million for the nine month fiscal 1998 period. Depreciation and
amortization increased as a percentage of revenues to 4.6% for the nine month
fiscal 1999 period from 3.8% for the nine month fiscal 1998 period. This
increase is a result of additional capital expenditures related to our growth
and additional goodwill and other intangible assets arising out of the
acquisitions noted above.
Income from Operations. Income from operations increased $3.1 million,
or 42.5%, to $10.3 million for the nine month fiscal 1999 period from $7.2
million for the nine month fiscal 1998 period. Income from operations decreased
as a percentage of revenues to 9.7% for the nine month fiscal 1999 period from
10.8% for the nine month fiscal 1998 period. The increase in income from
operations and the decrease in operating margin are due to the factors discussed
above.
Interest Expense, net. Immediately following our initial public
offering, we had no borrowings under our previous credit facility with our
banks. For this reason, interest expense has been eliminated in the adjusted pro
forma information for the nine month fiscal 1998 period to give effect as if the
repayment of our debt obligations from the proceeds of our initial public
offering had occurred as of the beginning of the period. Reported interest
expense in the nine month fiscal 1999 period is the result of new borrowings
subsequent to our initial public offering, primarily resulting from the
acquisitions noted above.
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<PAGE> 14
Provision for Income Taxes. Prior to October 31, 1997, MPW Industrial
Services, Inc. was an S Corporation for income tax purposes and did not record a
provision for federal and certain state income taxes. The provision for income
taxes in the adjusted pro forma information for the nine month fiscal 1998
period reflects an effective rate of 40%. The provision for income taxes for the
nine month fiscal 1999 period reflects an effective rate of 41%.
Net Income and Net Income per Share. Net income increased $398,000, or
9.3%, to $4.7 million for the nine month fiscal 1999 period from $4.3 million
for the nine month fiscal 1998 period. Assuming dilution, net income per share
increased to $0.41 for the nine month fiscal 1999 period from $0.40 for the nine
month fiscal 1998 period. These increases are due to the factors discussed
above; however, the expenses incurred and the lost revenues and related loss of
operating profit associated with the fire at our Austin facility and the lost
revenues and related loss of operating profit associated with the General Motors
strike affected earnings per share by approximately $0.06 in the nine month
fiscal 1999 period. Weighted average common shares outstanding used in the
calculation of net income per share for the nine month fiscal 1998 period
assumes that our initial public offering and repurchase of minority interests
had occurred at the beginning of the period.
QUARTERLY RESULTS AND SEASONALITY
Our results of operations tend to vary seasonally, with the least
amount of revenues generated in the third quarter, higher revenues in the second
quarter and the greatest amount of revenues in the first and fourth quarters.
Our quarterly results of operations may fluctuate significantly as a result of a
number of factors over which we have no control, including our customers'
budgetary constraints, the timing and duration of our customers' planned
maintenance activities and shutdowns, changes in our competitors' pricing
policies and general economic conditions. Also, some operating and fixed costs
remain relatively constant throughout the fiscal year that, when offset by
differing levels of revenues, may result in fluctuations in quarterly results.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, we had cash and cash equivalents of $251,000 and
working capital of $25.5 million. During the nine month fiscal 1999 period, we
used $2.3 million in operating activities and made net capital investments of
$10.8 million.
During the period following our initial public offering through June
30, 1998, we borrowed $15.9 million primarily for the four acquisitions
completed in fiscal 1998 and for working capital needs. In the nine months ended
March 31, 1999, we completed ten acquisitions that required an aggregate of
$29.2 million in cash and the issuance of 272,298 shares of our common stock.
The borrowings under our revolving credit facility reached $62.6 million as of
March 31, 1999.
Subsequent to our initial public offering, we initially operated under
our previous credit facility with our principal banks, which, as amended,
provided us with $50.0 million of credit availability. Effective November 2,
1998, we entered into our existing credit facility to replace our previous
credit facility. The current credit facility provides us with $75.0 million of
revolving credit availability for a three-year period, subject to extension by
the banks each year on the anniversary of the agreement. Under the terms of our
current credit facility, the entire $75.0 million is available for general
corporate purposes, including working capital, capital expenditures and
acquisitions. Borrowing under our current credit facility is at rates, based on
the prime or Eurodollar rate, that we believe to be very favorable. Availability
of borrowing is subject to the maintenance of a minimum level of net worth,
specific levels of interest coverage and maintenance of a specific ratio of
funded debt to earnings before interest, taxes, depreciation and amortization
that we believe will not affect the availability of borrowings under our current
credit facility. In May 1999, we amended our current credit facility with our
principal banks to make available an additional $10.0 million of revolving
credit, for a total of $85.0 million. The additional $10.0 million is subject to
a grant to the banks, by us, of a security interest. This additional amount and
interest thereon is subject to substantially the same terms and conditions as
the original $75.0 million as noted above.
We intend to continue our strategy of supplementing our internal growth
and expanding our service offerings through acquisitions. Although we continue
to explore acquisition opportunities, we currently have no agreements in
principle to purchase any other companies that may require the utilization of
borrowings under our current credit facility.
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<PAGE> 15
We believe that cash on hand as of March 31, 1999, cash flow from
operations and available borrowings under our new credit facility will be
sufficient to fund our currently planned capital projects, potential
acquisitions and operations for the foreseeable future. If sufficient
acquisition opportunities of significant size develop that would extend our
borrowings beyond the capacity of our new credit facility we may be required to
obtain additional financing.
YEAR 2000 ISSUE
Many computer systems in use today were designed and developed using
two digits, rather than four, to specify the year. As a result, such systems
will recognize a date using "00" as the year 1900 rather than the year 2000.
This could cause many computer applications to fail completely or to create
erroneous results unless corrective measures are taken.
We recognize the need to ensure that year 2000 software failures will
not adversely impact our operations. Our main information technology (IT)
operating and financial system became year 2000 compliant effective with a
normal software upgrade completed in December 1997. We have identified major
areas of potential business impact from other IT systems and non-IT devices and
initial conversions through normal upgrades and replacements are underway and
expected to be completed by September 30, 1999. Non-IT devices include our
machinery and equipment used to deliver our services. These are not materially
reliant on embedded technology potentially impacted by the year 2000 issue. We
expect the cost of achieving year 2000 compliance for the remaining IT systems
and non-IT devices to be less than $100,000 over the cost of normal software
upgrades and replacements.
We are not materially reliant on third party systems (e.g. electronic
data interchange) to conduct business. In addition, we have initiated
communications with significant vendors, customers and other third parties to
confirm their plans to become year 2000 ready and assess any possible risk to,
or effects on, our operations. The responses from these third parties are being
evaluated and incorporated into the current detailed assessment scheduled to be
completed by September 30, 1999. We intend to develop contingency plans for
significant third parties determined to be at high risk of noncompliance or
business disruption as well as continue to monitor during 1999 the progress of
those third parties that could materially affect our operations. There can be no
assurance that we will correctly anticipate the level, impact or duration of
noncompliance by third parties, or that our contingency plan will be sufficient
to mitigate the impact.
INFLATION
The effects of inflation on our operations were not significant during
the periods presented in the Consolidated Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's exposures to market risk are not material.
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Various legal actions arising in the ordinary course of business are
pending against the Company. None of the litigation pending against the
Company, individually or collectively, is expected to have a material
adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not Applicable.
(b) Not Applicable.
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<PAGE> 16
(c) In connection with, and as partial consideration for, the
acquisitions of Dryden Engineering and Biocon, Pentagon issued an
aggregate of 125 shares of preferred stock on January 4, 1999 and
January 5, 1999, respectively, to shareholders of such companies.
The issuance of shares of preferred stock was pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
(d) Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3(a) Amended and Restated Articles of
Incorporation of the Company effective October 30, 1997
(filed as Exhibit 3(a) to the Company's Registration
Statement on Form S-1 (File No. 333-36887), and
incorporated herein by reference).
3(b) Amended and Restated Code of Regulations of
the Company effective October 30, 1997 (filed as
Exhibit 3(b) to the Company's Registration Statement on
Form S-1 (File No. 333-36887), and incorporated herein
by reference).
4(a) Revolving Credit Loan Agreement, dated as of
November 2, 1998, among the Company and its
subsidiaries and affiliates, Bank One, NA and National
City Bank of Columbus (filed as Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, and incorporated herein by
reference).
4(b) First Amendment to Revolving Credit Loan
Agreement, dated as of May 13, 1999, among the Company
and its subsidiaries and affiliates, Bank One, NA and
National City Bank of Columbus.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the period.
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<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
MPW INDUSTRIAL SERVICES GROUP, INC.,
an Ohio corporation
Dated: May 14, 1999 By: /s/ Daniel P. Buettin
------------------- ------------------------------------------
Daniel P. Buettin
Vice President and Chief Financial Officer
(on behalf of the Registrant and as
Principal Financial Officer)
Page 17
<PAGE> 18
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
3(a) Amended and Restated Articles of Incorporation of the Company
effective October 30, 1997 (filed as Exhibit 3(a) to the
Company's Registration Statement on Form S-1 (File No.
333-36887), and incorporated herein by reference).
3(b) Amended and Restated Code of Regulations of the Company
effective October 30, 1997 (filed as Exhibit 3(b) to the
Company's Registration Statement on Form S-1 (File No.
333-36887), and incorporated herein by reference).
4(a) Revolving Credit Loan Agreement, dated as of November 2, 1998,
among the Company and its subsidiaries and affiliates, Bank
One, NA and National City Bank of Columbus (filed as Exhibit 4
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, and incorporated herein by
reference).
4(b) First Amendment to Revolving Credit Loan Agreement, dated as
of May 13, 1999, among the Company and its subsidiaries and
affiliates, Bank One, NA and National City Bank of Columbus.
27 Financial Data Schedule.
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<PAGE> 1
Exhibit 4(b)
- ------------
FIRST AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT (the
"Amendment"), dated as of May 13, 1999, is made and entered into by and among
MPW Industrial Services Group, Inc. ("MPW Group"), Aquatech Environmental, Inc.
("Aquatech"), each of the other subsidiaries of MPW Group listed on Schedule I
hereto, Bank One, NA, a national banking association ("Bank One"), National City
Bank, a national banking association ("NCB"), and Bank One, NA, as Agent, acting
in the manner and to the extent described in the Agreement described herein.
BACKGROUND INFORMATION
----------------------
A. The Borrowers, the Banks and the Agent entered into a certain
Revolving Credit Loan Agreement dated as of November 2, 1998 (such agreement, as
supplemented, being referred to herein as the "Agreement").
B. The Banks and the Borrowers desire to increase the Aggregate
Commitment from $75 million to $85 million and to amend certain provisions of
the Agreement, upon the terms and conditions set forth herein.
PROVISIONS
----------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements hereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrowers, the
Banks and the Agent hereby agree as follows:
SECTION 1. Capitalized Terms. Except as otherwise provided for herein,
the capitalized terms used herein shall have the same meanings as set forth in
the Agreement.
SECTION 2. Amendment to Agreement.
(a) The following definitions set forth in Section 1.1 of the
Agreement shall be amended in their entireties to provide as follows:
"Commitment" shall mean (x) as to Bank One, the
commitment of Bank One to make Loans to the Borrowers and issue,
provide and fund Standby L/Cs on behalf of the Borrowers up to the
maximum aggregate amount of $50 million, and (y) as to NCB, the
commitment of NCB to make Loans to the Borrowers and fund Standby L/Cs
on behalf of the Borrowers up to the maximum aggregate amount of $35
million, in both cases subject to the terms and conditions of this
Agreement and subject to being increased and reduced in accordance with
the terms and conditions of this Agreement.
<PAGE> 2
"Commitment Period" shall mean the period of time
from the date hereof through and including May 13, 2002, as such date
may be extended as provided in Section 2.1(e).
"Facility Documents" shall mean this Agreement, the
Notes, the Standby L/Cs, the Standby L/C Applications, the Security
Agreement, the UCC Statements, the Landlord Waivers and any and all
other documents evidencing, securing or relating to the Loans, as such
documents may be amended, modified, supplemented, extended, restated or
replaced from time to time.
"Required Property Insurance Coverage" shall mean at
any time workers' compensation insurance, flood insurance if required
by the Required Banks or by law, and insurance insuring all property of
the Borrowers against loss or damage by fire, lightening, vandalism and
malicious mischief and all other perils covered by standard "extended
coverage" or "all-risk" insurance in amounts reasonably satisfactory to
the Required Banks, with deductibles from the loss payable for any
casualty not to exceed the amounts set forth on Schedule A, or as
otherwise may be reasonably required by the Required Banks at any time
and from time to time. If any insurance policies with respect to
Required Property Insurance Coverage is written on a co-insurance
basis, such policy must contain an agreed amount endorsement as
evidence that the coverage is in an amount sufficient to insure the
full amount of such property.
"Uniform Commercial Code" shall mean means the
Uniform Commercial Code as adopted and in effect from time to time in
each State of the United States, including without limitation Chapters
1301 through 1309, inclusive, Ohio Revised Code, as from time to time
amended.
(b) The second definition of "Aggregate Commitment" set forth
in Section 1.1 of the Agreement shall be deleted in its entirety and the
remaining definition of "Aggregate Commitment" shall be amended in its entirety
to provide as follows:
"Aggregate Commitment" shall mean the collective, but
several, Commitment of the Banks to make Loans to the Borrowers and
issue, provide and fund Standby L/Cs up to the maximum aggregate amount
of $85 million, subject to the terms and conditions of this Agreement.
(c) The following new definitions shall be added to Section
1.1 of the Agreement in alphabetical order:
"Collateral" shall mean all property, as described in
detail in the Security Agreement, in which the Borrowers have agreed to
grant a security interest in favor of the Agent, for the benefit of the
Banks, to secure its obligations under the Facility Documents.
-2-
<PAGE> 3
"Landlord Waivers" shall mean agreements now or
hereafter entered into between the Agent, for the benefit of the Banks,
and landlords of office, warehouse or other facilities leased to a
Borrower where Collateral is located which, in the opinion of the
Banks, warrant such a waiver, and shall include without limitation,
agreements with (i) Monte R. Black and his Affiliates with respect to
any office, warehouse or other facilities owned by Mr. Black and/or his
Affiliates which are leased to a Borrower, and (ii) if requested by the
Agent, the landlords of the two primary warehouse facilities which the
Borrowers lease, being located in the metropolitan Detroit, Michigan
area and San Jose, California.
"Security Agreement" shall mean the Continuing
Security Agreement to be entered into by and among the Borrowers and
the Agent, for the ratable benefit of the Banks, in accordance with the
terms of the First Amendment to Revolving Credit Loan Agreement among
the Borrowers, the Banks and the Agent, dated as of May 13, 1999, as
the such security agreement may be amended, modified, supplemented,
extended, renewed, restated or replaced from time to time.
"UCC Financing Statements" shall mean financing
statements under the UCC in connection with perfecting security
interests in Collateral to be granted by the Borrowers pursuant to the
Security Agreement.
(d) The "Applicable Margin" matrix set forth in Section 2.7
(a) of the Agreement shall be amended in its entirety to provide as set forth in
Schedule 2.7 attached hereto, and shall be effective as of May 13, 1999 for all
purposes, including without limitation, calculating (x) interest on all Loans
outstanding on such date and made after such date, and (y) the commitment fee on
the Aggregate Commitment in the amount of $85 million.
(e) Section 2.11 of the Agreement shall be amended in its
entirety to provide as follows:
SECTION 2.11 Use of Proceeds. The Borrowers represent
and agree that the proceeds of the Loans made hereunder shall be used
by the Borrowers only for (i) working capital and general corporate
purposes, including with respect to Standby L/Cs, (ii) to fund capital
expenditures permitted by this Agreement, and (iii) acquisitions if the
prior consent of the Required Banks is obtained.
(f) Section 5.15 of the Agreement shall be amended by adding
the following sentence at the end of such Section:
The grant by the Borrowers of the security interest
in the Collateral pursuant to the Security Agreement to secure the
Loans, the Standby L/Cs and all other obligations of the Borrowers
under the Facility Documents constitutes fair consideration and
reasonably equivalent value because of the receipt of the proceeds of
such Loans.
-3-
<PAGE> 4
(g) A new Section 5.21 shall be added to the Agreement, which
shall provide as follows:
SECTION 5.21 Flood Hazards. No portion of any Real
Property where any Collateral is located is in an area identified by
the Federal Emergency Management Agency as an area having special flood
hazards, or if such area does have such special flood hazards, flood
insurance has been obtained in the maximum limit of coverage available
with respect to the Collateral located in such area.
(h) Section 7.6(d) of the Agreement shall be amended in its
entirety to provide as follows:
(d) Consolidated Capital Expenditures. Exclusive of
acquisitions permitted by the terms of this Agreement, permit
Consolidated Capital Expenditures of the Borrowers to exceed $15
million in any Fiscal Year.
(i) The reference to "collateral" set forth in Sections 12.2
of the Agreement shall be deemed to refer to the Collateral.
SECTION 3. Truth of Representations and Warranties; No Defaults. The
Borrowers hereby represent and warrant that the following are true and correct
as of the date of this Amendment:
(a) The representations and warranties of the Borrowers
contained in Article V of the Agreement are true and correct on and as
of the date of this Amendment as if made on and as of such date unless
stated to relate to a specific earlier date;
(b) No Default nor Event of Default has occurred; and
(c) All financial information heretofore provided to the Banks
and the Agent is true, accurate and complete in all material respects.
SECTION 4. Reaffirmation of Liability; Furnishing of Information. The
Borrowers hereby reaffirm their liability to the Banks and Agent under the
Agreement and all other Facility Documents. In addition, (i) the Borrowers agree
that the Banks and the Agent have performed all of their respective obligations
under the Facility Documents and that neither Bank nor the Agent is in default
under any obligation any of them has or ever did have to the Borrowers under the
Facility Documents or any other agreement; and (ii) the Banks and the Agent have
received all information and documentation required to be delivered to them by
the Borrowers pursuant to the Facility Documents.
-4-
<PAGE> 5
SECTION 5. Effectiveness of Amendment. All of the terms, covenants and
conditions of, and the obligations of the Borrowers and the Banks under, the
Agreement and the Facility Documents shall remain in full force and effect as
amended hereby.
SECTION 6. Conditions to Banks' Obligations.
(a) Subject to the terms of subsection (e) of this Section 6,
the obligations of the Banks to enter into this Amendment and be bound by the
terms (x) hereof, and (y) the Agreement as amended hereby, are subject to the
satisfaction of the following conditions precedent:
(i) Delivery of Documents. The Agent shall have
received, for the benefit of the Banks, the following, each in form and
substance satisfactory to the Agent and its counsel:
(A) First Amended and Restated Promissory
Notes. First Amended and Restated Revolving Credit Promissory Notes in
the form of Exhibit A attached hereto and incorporated herein by
reference, duly executed and delivered by the Borrowers;
(B) Opinion Letter. Opinion letter(s) of the
Borrowers' legal counsel, in form and substance acceptable to the
Agent;
(C) Corporate Resolutions. A copy of the
resolutions (in form and substance satisfactory to the Agent) of the
board of directors (or other governing Person) of each Borrower
authorizing (i) the execution, delivery and performance of this
Amendment, the First Amended and Restated Revolving Credit Promissory
Notes, the Security Agreement and the other Facility Documents, as
applicable, (ii) the consummation of the transactions contemplated
hereby and thereby, and (iii) the borrowing and other financial
transactions provided for herein and in the Agreement as amended
hereby, certified by the secretary or an assistant secretary (or other
appropriate representative) of Borrower. Each such certificate shall
state that the resolutions set forth therein have not been amended,
modified, revoked or rescinded as of the date hereof;
(D) Financial Statements. A copy of the
unaudited consolidated balance sheet of the Borrowers as at the end of
the Fiscal Quarter ended March 31, 1999, and the related unaudited
consolidated statements of income and changes in shareholders' equity
and cash flows for such Fiscal Quarter and for the portion of the
Borrowers' Fiscal Year ended at the end of such Fiscal Quarter, setting
forth in each case in comparative form the figures for the
corresponding Fiscal Quarter and corresponding portion of the
Borrowers' previous Fiscal Year, all certified (subject to normal
year-end adjustments and the omission of footnotes) as to fairness of
presentation, GAAP and consistency by an Authorized Officer; and
-5-
<PAGE> 6
(E) Other Requirements. Such other
certificates, documents and other items as the Banks or the Agent, in
their reasonable discretion, deem necessary or desirable.
(b) Incumbency. The Borrowers shall confirm that the officers
listed in all incumbency certificates previously furnished to the Agent and/or
the Banks still hold such offices or, if not, the Agent shall be provided with
revised incumbency certificates to reflect the current officers.
(c) Representations and Warranties. The representations and
warranties made by the Borrowers in this Amendment shall be true and correct in
all material respects as of the date of this Amendment.
(d) Fees. The Borrowers shall have paid to the Agent, for the
ratable benefit of the Banks, (x) an origination fee in the amount of $15,000
(15 basis points on the $10 million increase in the Aggregate Commitment), and
(y) an extension fee of $56,250 (7.5 basis points on the remaining $75 million
of the Aggregate Commitment).
(e) Interim Period. Notwithstanding anything to the contrary
in this Amendment, the Agreement as amended by this Amendment, or any other
Facility Document, the increase in the Aggregate Commitment from $75 million to
$85 million shall not be available to the Borrowers, and the Borrowers shall not
have the right to request, and the Banks shall have no obligation to make, Loans
to the Borrower pursuant to the Facility Documents in excess of $75 million
until receipt by the Agent of (i) the Security Agreement, duly executed and
delivered by the Borrowers; (ii) appropriate UCC security interest searches
which name each Borrower (and any recent predecessor name of any such Borrower),
as a "debtor", which searches shall show no Liens on the Collateral (except
Liens in favor of the Banks or Liens permitted by the Facility Documents); (iii)
UCC Financing Statements, duly executed and delivered by the Borrowers, in form
acceptable for filing in each jurisdiction and governmental office where
necessary to perfect the security interest in the Collateral granted pursuant to
the Security Agreement; (iv) all filing receipts, acknowledgments or other
evidence satisfactory to it evidencing (x) the recording and filing of such UCC
Financing Statements and (y) any recordation or filing necessary to release all
Liens with respect to the Collateral (except Liens in favor of the Banks or
Liens permitted by the Facility Documents); and (v) the Landlord Waivers, duly
executed and delivered by the landlords. The items set forth in subparts (i)
through (v) of the previous sentence shall be provided to the Agent no later
than August 13, 1999.
SECTION 7. Applicable Law. This Amendment shall be deemed to be a
contract made under the laws of the State of Ohio and for all purposes shall be
construed in accordance with the laws of such state.
SECTION 8. Severability. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the
-6-
<PAGE> 7
extent of such prohibition or unenforceability, without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 9. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 10. Headings. The headings of the sections of this Amendment
are for convenience only and shall not affect the construction of this
Amendment.
SECTION 11. Expenses. The Borrowers agree to pay all out-of-pocket
expenses (including reasonable fees and expenses of counsel) of the Agent and
the Banks incurred in connection with this Amendment.
SECTION 12. Interpretation. This Amendment is to be deemed to have been
prepared jointly by the parties hereto, and any uncertainty or ambiguity
existing herein shall not be interpreted against any party but shall be
interpreted according to the rules for the interpretation of arm's length
agreements.
SECTION 13. WAIVER OF JURY TRIAL. THE BANKS, THE AGENT AND THE
BORROWERS HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED
UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE BANKS, THE AGENT AND THE
BORROWERS ARISING OUT OF OR IN ANY WAY RELATED TO THIS AMENDMENT, THE AGREEMENT,
THE NOTES, ANY OTHER FACILITY DOCUMENT, OR ANY RELATIONSHIP BETWEEN THE BANKS,
THE AGENT AND THE BORROWERS. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE
BANKS TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER FACILITY
DOCUMENTS.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written above.
BANKS:
Bank One, NA,
a national banking association
By: /s/ Thomas E. Redmond
--------------------------------------
Thomas E. Redmond, Vice President
National City Bank,
a national banking association
By: /s/ Brian T. Strayton
--------------------------------------
Brian T. Strayton, Vice President
AGENT:
Bank One, NA, as Agent,
a national banking association
By: /s/ Thomas E. Redmond
--------------------------------------
Thomas E. Redmond, Vice President
-8-
<PAGE> 9
BORROWERS:
MPW Industrial Services Group, Inc.
By: /s/ Daniel P. Buettin
--------------------------------------
Daniel P. Buettin, Vice President and
Chief Financial Officer
Aquatech Environmental Services, Inc.
By: /s/ Peter G. Schumacher
--------------------------------------
Peter G. Schumacher, Vice President
and Treasurer
Each of the Subsidiaries Listed on
Schedule I Hereto
By: /s/ Daniel P. Buettin
--------------------------------------
Daniel P. Buettin, Vice President and
Chief Financial Officer
-9-
<PAGE> 10
SCHEDULE I
Subsidiaries
------------
MPW Industrial Services, Inc.
MPW Industrial Services, Ltd.
MPW Management Services Corp.
MPW Filtration Management Services Corp. (fka Weston Engineering, Inc.)
ESI International, Inc.
ESI-North Limited
MPW Container Management Corp.
Maintenance Concepts, Inc.
MPW Container Management Corp. of Michigan
Gauthier Enterprises, Inc.
Pentagon Technologies, Inc. (fka Clean Room Management Services, Inc.)
MPW Industrial Water Services, Inc.
-10-
<PAGE> 11
SCHEDULE 2.7
<TABLE>
Applicable Margin Matrix
------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
APPLICABLE MARGIN
---------------------------------------------------------------------------------------------
CONSOLIDATED FUNDED BASE RATE EURODOLLAR COMMITMENT L/C FEE
DEBT TO EBITDA RATIO LOANS RATE LOANS FEE
FOR THE BORROWERS
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LESS THAN 1.0:1.0 -25 BASIS POINTS +100 BASIS POINTS 25 BASIS POINTS +100 BASIS POINTS
- -------------------------------------------------------------------------------------------------------------------------
EQUAL TO OR GREATER THAN -15 BASIS POINTS +112.5 BASIS POINTS 30 BASIS POINTS +112.5 BASIS POINTS
1.0:1.0 BUT LESS THAN
1.5:1.0
- -------------------------------------------------------------------------------------------------------------------------
EQUAL TO OR GREATER THAN +/- 0 BASIS POINTS +137.5 BASIS POINTS 30 BASIS POINTS +137.5 BASIS POINTS
1.5:1.0 BUT LESS THAN
2.0:1.0
- -------------------------------------------------------------------------------------------------------------------------
EQUAL TO OR GREATER THAN +/- 0 BASIS POINTS +162.5 BASIS POINTS 35 BASIS POINTS +162.5 BASIS POINTS
2.0:1.0 BUT LESS THAN
2.5:1.0
- -------------------------------------------------------------------------------------------------------------------------
EQUAL TO OR GREATER THAN +25 BASIS POINTS +187.5 BASIS POINTS 40 BASIS POINTS +187.5 BASIS POINTS
2.5:1.0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
EXHIBIT A
FORM OF FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN NOTES
--------------------------------------------------------------
<PAGE> 13
FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN NOTE
$50,000,000.00 Columbus, Ohio May 13, 1999
Promise to Pay. Not later than May 13, 2002, for value received, MPW
Industrial Services Group, Inc. ("MPW Group"), Aquatech Environmental, Inc. and
each other Subsidiary of MPW listed on Schedule I attached hereto or made a
party hereto in accordance with the terms hereof (collectively, the
"Borrowers"), jointly and severally, hereby promise to pay to the order of Bank
One, NA (the "Bank") or its assigns, as further provided herein, the principal
amount of Fifty Million Dollars ($50,000,000) or, if such principal is less, the
aggregate unpaid principal amount of all Loans made by the Bank to the Borrowers
pursuant to the Revolving Credit Loan Agreement referred to below, together with
interest on the unpaid principal balance from time to time outstanding hereunder
until paid in full at the rates of interest determined in accordance with such
Revolving Credit Loan Agreement. Such interest shall be due and payable on the
dates set forth in such Revolving Credit Loan Agreement. Both principal and
interest are payable in federal funds or other immediately available money of
the United States of America at the main office of the Agent (defined below)
located at 100 East Broad Street, Columbus, Ohio 43215, or such other address as
the Agent may hereafter designate by notice to the Borrowers.
Loan Agreement. This First Amended and Restated Revolving Credit Loan
Note amends and restates in its entirety the Revolving Credit Loan Note, dated
November 2, 1998, in the original principal amount of $45,000,000, executed by
the Borrowers and payable to the order of the Bank, and is one of the Notes
referred to in the Revolving Credit Loan Agreement among the Borrowers, the
Bank, National City Bank and Bank One, NA, as Agent (the "Agent"), dated as of
November 2, 1998, as the same may be amended, modified, supplemented, renewed,
extended, restated or replaced from time to time (the "Agreement"), which
Agreement, as so amended, is incorporated by reference herein. This First
Amended and Restated Revolving Credit Loan Note evidences the continuing
indebtedness of the Borrowers under the Agreement and hereunder and is not to be
construed as a satisfaction or refinancing of such indebtedness. All capitalized
terms used herein shall have the same meanings as are assigned to such terms in
the Agreement. This First Amended and Restated Revolving Credit Loan Note is
entitled to the benefits of and is subject to the terms, conditions and
provisions of the Agreement. The Agreement, among other things, contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events, and also for repayments and reborrowings on account of the
principal hereof prior to maturity upon the terms, conditions and provisions
specified therein. The Borrowers and each endorser and any other party liable on
this First Amended and Restated Revolving Credit Loan Note severally waive
demand, presentment, notice of dishonor and protest, and consent to any
extension or postponement of time of its payment without limit as to the number
or period, to any substitution, exchange or release of all or part of any
Collateral securing this First Amended and Restated Revolving Credit Loan Note,
to the addition of any party, and to the release or discharge of, or
<PAGE> 14
suspension of any rights and remedies against, any person who may be liable for
the payment of this First Amended and Restated Revolving Credit Loan Note.
Setoff. Any and all moneys now or at any time hereafter owing to the
Borrowers from the holder hereof are hereby pledged for the security of this and
all other Debt from the Borrowers to the holder hereof, and may, upon the
occurrence and during the continuation of any Event of Default, be paid and
applied thereon whether such Debt be then due or is to become due, except for
(a) funds necessary to cover checks for the payment of taxes or employee
contributions in which the Borrowers have no beneficial interest issued to third
parties prior to the date any setoff is claimed by the Bank and (b) accounts
maintained, but not substantially overfunded, for the payment of taxes or
employee contributions in which the Borrowers have no beneficial interest.
Arbitration. The Bank, the Agent and Borrowers agree that upon the
written demand of any party, whether made before or after the institution of any
legal proceedings, but prior to the rendering of any judgment in that
proceeding, all disputes, claims and controversies between them, whether
individual, joint, or class in nature, arising from this First Amended and
Restated Revolving Credit Loan Note, the Agreement, any other Facility Document
or otherwise, including without limitation contract disputes and tort claims,
shall be resolved by binding arbitration pursuant to the Commercial Rules of the
American Arbitration Association ("AAA"). Any arbitration proceeding held
pursuant to this arbitration provision shall be conducted in the city nearest
MPW Group's address having an AAA regional office, or at any other place
selected by mutual agreement of the parties. This arbitration provision shall
not limit the right of any party during any dispute, claim or controversy to
seek, use, and employ ancillary, or preliminary rights and/or remedies, judicial
or otherwise, for the purposes of realizing upon, preserving, protecting,
foreclosing upon or proceeding under forcible entry and detainer for possession
of, any real or personal property, and any such action shall not be deemed an
election of remedies. Such remedies include, without limitation, obtaining
injunctive relief or a temporary restraining order, invoking a power of sale
under any deed of trust or mortgage, obtaining a writ of attachment or
imposition of a receivership, or exercising any rights relating to personal
property, including taking or disposing of such property with or without
judicial process pursuant to Article 9 of the Uniform Commercial Code or when
applicable, a judgment by confession of judgment. Any disputes, claims or
controversies concerning the lawfulness or reasonableness of an act, or exercise
of any right or remedy concerning any property, including any claim to rescind,
reform or otherwise modify any agreement relating to any property, shall also be
arbitrated; provided, however that no arbitrator shall have the right or the
power to enjoin or restrain any act of either party. Judgement upon any award
rendered by any arbitrator may be entered in any court having jurisdiction.
Nothing in this arbitration provision shall preclude either party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes. The
Page 2 of 5
<PAGE> 15
Federal Arbitration Act (Title 9 of the United States Code) shall apply to the
construction, interpretation, and enforcement of this arbitration provision.
WAIVER OF JURY TRIAL. THE BORROWERS AND THE BANK (BY ITS ACCEPTANCE
HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE BANK, THE AGENT AND THE
BORROWERS ARISING OUT OF OR IN ANY WAY RELATED TO THE AGREEMENT, THIS FIRST
AMENDED AND RESTATED REVOLVING CREDIT LOAN NOTE, ANY OTHER FACILITY DOCUMENT, OR
ANY RELATIONSHIP BETWEEN THE BANK AND THE BORROWERS. THIS PROVISION IS A
MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN
THE OTHER FACILITY DOCUMENTS.
[Balance of Page Intentionally Left Blank]
Page 3 of 5
<PAGE> 16
Additional Borrowers. Each Person which becomes a Subsidiary after the
Closing Date shall be required to become a party to the Agreement and this First
Amended and Restated Revolving Credit Loan Note by the execution and delivery by
such a Subsidiary and the Agent of the Supplement in the form of Exhibit B
attached to the Agreement. Upon such execution and delivery, each such
Subsidiary shall become a Borrower under the Agreement and this First Amended
and Restated Revolving Credit Loan Note with the same force and effect as if
originally named a Borrower under the Agreement and this First Amended and
Restated Revolving Credit Loan Note. The execution of and delivery of any such
Supplements shall not require the consent of any Borrower. The rights and
obligations of each Borrower under the Agreement and this First Amended and
Restated Revolving Credit Loan Note shall remain in full force and effect
notwithstanding the addition of any new Borrower to the Agreement and this First
Amended and Restated Revolving Credit Loan Note. Each such Supplement, or a
photocopy thereof (which shall be as effective as a manually signed counterpart
of the Supplement) shall be attached to this First Amended and Restated
Revolving Credit Loan Note as an allonge.
BORROWERS:
MPW Industrial Services Group, Inc.
By:
--------------------------------------
Daniel P. Buettin, Vice President and
Chief Financial Officer
Aquatech Environmental Services, Inc.
By:
--------------------------------------
Peter G. Schumacher, Vice President
and Treasurer
Each of the Subsidiaries Listed on
Schedule I Hereto
By:
--------------------------------------
Daniel P. Buettin, Vice President and
Chief Financial Officer
Page 4 of 5
<PAGE> 17
SCHEDULE I
Subsidiaries
------------
MPW Industrial Services, Inc.
MPW Industrial Services, Ltd.
MPW Management Services Corp.
MPW Filtration Management Services Corp. (fka Weston Engineering, Inc.)
ESI International, Inc.
ESI-North Limited
MPW Container Management Corp.
Maintenance Concepts, Inc.
MPW Container Management Corp. of Michigan
Gauthier Enterprises, Inc.
Pentagon Technologies, Inc. (fka Clean Room Management Services, Inc.)
MPW Industrial Water Services, Inc.
Page 5 of 5
<PAGE> 18
FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN NOTE
$35,000,000.00 Columbus, Ohio May 13, 1999
Promise to Pay. Not later than May 13, 2002, for value received, MPW
Industrial Services Group, Inc. ("MPW Group"), Aquatech Environmental, Inc. and
each other Subsidiary of MPW listed on Schedule I attached hereto or made a
party hereto in accordance with the terms hereof (collectively, the
"Borrowers"), jointly and severally, hereby promise to pay to the order of
National City Bank (the "Bank") or its assigns, as further provided herein, the
principal amount of Thirty-five Million Dollars ($35,000,000) or, if such
principal is less, the aggregate unpaid principal amount of all Loans made by
the Bank to the Borrowers pursuant to the Revolving Credit Loan Agreement
referred to below, together with interest on the unpaid principal balance from
time to time outstanding hereunder until paid in full at the rates of interest
determined in accordance with such Revolving Credit Loan Agreement. Such
interest shall be due and payable on the dates set forth in such Revolving
Credit Loan Agreement. Both principal and interest are payable in federal funds
or other immediately available money of the United States of America at the main
office of the Agent (defined below) located at 100 East Broad Street, Columbus,
Ohio 43215, or such other address as the Agent may hereafter designate by notice
to the Borrowers.
Loan Agreement. This First Amended and Restated Revolving Credit Loan
Note amends and restates in its entirety the Revolving Credit Loan Note, dated
November 2, 1998, in the original principal amount of $30,000,000, executed by
the Borrowers and payable to the order of the Bank, and is one of the Notes
referred to in the Revolving Credit Loan Agreement among the Borrowers, the
Bank, Bank One, NA and Bank One, NA, as Agent (the "Agent"), dated as of
November 2, 1998, as the same may be amended, modified, supplemented, renewed,
extended, restated or replaced from time to time (the "Agreement"), which
Agreement, as so amended, is incorporated by reference herein. This First
Amended and Restated Revolving Credit Loan Note evidences the continuing
indebtedness of the Borrowers under the Agreement and hereunder and is not to be
construed as a satisfaction or refinancing of such indebtedness. All capitalized
terms used herein shall have the same meanings as are assigned to such terms in
the Agreement. This First Amended and Restated Revolving Credit Loan Note is
entitled to the benefits of and is subject to the terms, conditions and
provisions of the Agreement. The Agreement, among other things, contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events, and also for repayments and reborrowings on account of the
principal hereof prior to maturity upon the terms, conditions and provisions
specified therein. The Borrowers and each endorser and any other party liable on
this First Amended and Restated Revolving Credit Loan Note severally waive
demand, presentment, notice of dishonor and protest, and consent to any
extension or postponement of time of its payment without limit as to the number
or period, to any substitution, exchange or release of all or part of any
Collateral securing this First Amended and Restated Revolving Credit Loan Note,
to the addition of any party, and to the release or discharge of, or
<PAGE> 19
suspension of any rights and remedies against, any person who may be liable for
the payment of this First Amended and Restated Revolving Credit Loan Note.
Setoff. Any and all moneys now or at any time hereafter owing to the
Borrowers from the holder hereof are hereby pledged for the security of this and
all other Debt from the Borrowers to the holder hereof, and may, upon the
occurrence and during the continuation of any Event of Default, be paid and
applied thereon whether such Debt be then due or is to become due, except for
(a) funds necessary to cover checks for the payment of taxes or employee
contributions in which the Borrowers have no beneficial interest issued to third
parties prior to the date any setoff is claimed by the Bank and (b) accounts
maintained, but not substantially overfunded, for the payment of taxes or
employee contributions in which the Borrowers have no beneficial interest.
Arbitration. The Bank, the Agent and Borrowers agree that upon the
written demand of any party, whether made before or after the institution of any
legal proceedings, but prior to the rendering of any judgment in that
proceeding, all disputes, claims and controversies between them, whether
individual, joint, or class in nature, arising from this First Amended and
Restated Revolving Credit Loan Note, the Agreement, any other Facility Document
or otherwise, including without limitation contract disputes and tort claims,
shall be resolved by binding arbitration pursuant to the Commercial Rules of the
American Arbitration Association ("AAA"). Any arbitration proceeding held
pursuant to this arbitration provision shall be conducted in the city nearest
MPW Group's address having an AAA regional office, or at any other place
selected by mutual agreement of the parties. This arbitration provision shall
not limit the right of any party during any dispute, claim or controversy to
seek, use, and employ ancillary, or preliminary rights and/or remedies, judicial
or otherwise, for the purposes of realizing upon, preserving, protecting,
foreclosing upon or proceeding under forcible entry and detainer for possession
of, any real or personal property, and any such action shall not be deemed an
election of remedies. Such remedies include, without limitation, obtaining
injunctive relief or a temporary restraining order, invoking a power of sale
under any deed of trust or mortgage, obtaining a writ of attachment or
imposition of a receivership, or exercising any rights relating to personal
property, including taking or disposing of such property with or without
judicial process pursuant to Article 9 of the Uniform Commercial Code or when
applicable, a judgment by confession of judgment. Any disputes, claims or
controversies concerning the lawfulness or reasonableness of an act, or exercise
of any right or remedy concerning any property, including any claim to rescind,
reform or otherwise modify any agreement relating to any property, shall also be
arbitrated; provided, however that no arbitrator shall have the right or the
power to enjoin or restrain any act of either party. Judgement upon any award
rendered by any arbitrator may be entered in any court having jurisdiction.
Nothing in this arbitration provision shall preclude either party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes. The
Page 2 of 5
<PAGE> 20
Federal Arbitration Act (Title 9 of the United States Code) shall apply to the
construction, interpretation, and enforcement of this arbitration provision.
WAIVER OF JURY TRIAL. THE BORROWERS AND THE BANK (BY ITS ACCEPTANCE
HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE BANK, THE AGENT AND THE
BORROWERS ARISING OUT OF OR IN ANY WAY RELATED TO THE AGREEMENT, THIS FIRST
AMENDED AND RESTATED REVOLVING CREDIT LOAN NOTE, ANY OTHER FACILITY DOCUMENT, OR
ANY RELATIONSHIP BETWEEN THE BANK AND THE BORROWERS. THIS PROVISION IS A
MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN
THE OTHER FACILITY DOCUMENTS.
[Balance of Page Intentionally Left Blank]
Page 3 of 5
<PAGE> 21
Additional Borrowers. Each Person which becomes a Subsidiary after the
Closing Date shall be required to become a party to the Agreement and this First
Amended and Restated Revolving Credit Loan Note by the execution and delivery by
such a Subsidiary and the Agent of the Supplement in the form of Exhibit B
attached to the Agreement. Upon such execution and delivery, each such
Subsidiary shall become a Borrower under the Agreement and this First Amended
and Restated Revolving Credit Loan Note with the same force and effect as if
originally named a Borrower under the Agreement and this First Amended and
Restated Revolving Credit Loan Note. The execution of and delivery of any such
Supplements shall not require the consent of any Borrower. The rights and
obligations of each Borrower under the Agreement and this First Amended and
Restated Revolving Credit Loan Note shall remain in full force and effect
notwithstanding the addition of any new Borrower to the Agreement and this First
Amended and Restated Revolving Credit Loan Note. Each such Supplement, or a
photocopy thereof (which shall be as effective as a manually signed counterpart
of the Supplement) shall be attached to this First Amended and Restated
Revolving Credit Loan Note as an allonge.
BORROWERS:
MPW Industrial Services Group, Inc.
By:
--------------------------------------
Daniel P. Buettin, Vice President and
Chief Financial Officer
Aquatech Environmental Services, Inc.
By:
--------------------------------------
Peter G. Schumacher, Vice President
and Treasurer
Each of the Subsidiaries Listed on
Schedule I Hereto
By:
--------------------------------------
Daniel P. Buettin, Vice President and
Chief Financial Officer
Page 4 of 5
<PAGE> 22
SCHEDULE I
Subsidiaries
------------
MPW Industrial Services, Inc.
MPW Industrial Services, Ltd.
MPW Management Services Corp.
MPW Filtration Management Services Corp. (fka Weston Engineering, Inc.)
ESI International, Inc.
ESI-North Limited
MPW Container Management Corp.
Maintenance Concepts, Inc.
MPW Container Management Corp. of Michigan
Gauthier Enterprises, Inc.
Pentagon Technologies, Inc. (fka Clean Room Management Services, Inc.)
MPW Industrial Water Services, Inc.
Page 5 of 5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MPW
INDUSTRIAL SERVICES GROUP, INC. FORM 10-Q FOR THE THREE AND NINE MONTH PERIOD
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 251
<SECURITIES> 0
<RECEIVABLES> 36,133
<ALLOWANCES> 1,601
<INVENTORY> 8,175
<CURRENT-ASSETS> 47,044
<PP&E> 71,362
<DEPRECIATION> 32,297
<TOTAL-ASSETS> 135,875
<CURRENT-LIABILITIES> 21,572
<BONDS> 63,599
0
0
<COMMON> 108
<OTHER-SE> 47,249
<TOTAL-LIABILITY-AND-EQUITY> 135,875
<SALES> 106,398
<TOTAL-REVENUES> 106,398
<CGS> 71,808
<TOTAL-COSTS> 96,114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,333
<INCOME-PRETAX> 7,951
<INCOME-TAX> 3,259
<INCOME-CONTINUING> 4,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,692
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.41
</TABLE>
