UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended February 28, 1998
Commission File number 0-l87l6
MATRIX SERVICE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 73-1352l74
(State of incorporation) (I.R.S. Employer
Identification No.)
l070l E. Ute St., Tulsa, Oklahoma 74ll6-l5l7
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(9l8) 838-8822
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section l3 or l5(d) of the Securities
Exchange Act of 1934 during the preceding l2 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 [ ]
As of April 13, 1998, there were 9,491,153 shares of the Company's
common stock, $.01 par value per share, 9,485,120 issued and
shares outstanding.
<PAGE>
PART I.- FINANCIAL INFORMATION
ITEM 1. Financial Statements
Matrix Service Company
Condensed Consolidated Statements of Income
(in thousands, except share and per share data)
[CAPTION]
Three Months Ended Nine Months Ended
(unaudited) (unaudited)
----------------------------------------------------
February 28, February 28, February 28, February 28,
1998 1997 * 1998 1997 *
----------------------------------------------------
[MULTIPLIER] 1,000
<TABLE>
<S> <C> <C> <C> <C>
Revenues $54,431 $39,202 $158,279 $119,397
Cost of revenues 49,156 35,305 143,070 106,825
--------- -------- --------- --------
Gross profit 5,275 3,897 15,209 12,572
Selling, general and
administrative expenses 3,433 2,430 9,055 6,906
Goodwill and noncompete
amortization 181 104 455 313
Mergers, acquisitions,
abandonments and
restructuring cost 6,018 0 6,018 0
--------- -------- --------- --------
Operating income (4,357) 1,363 (319) 5,353
Other income (expense):
Interest income 35 61 105 112
Interest expense (364) (117) (838) (309)
Other 207 26 212 91
--------- -------- --------- --------
Income (loss) from
continuing operations
before income tax expense (4,479) 1,333 (840) 5,247
Provision (benefit)
for federal and
state income tax expense (127) 486 1,175 2,126
--------- -------- --------- --------
Income (loss) from
continuing operations (4,352) 847 (2,015) 3,121
Loss from operations of
Midwest Industrial, less
applicable taxes of
$763, $71, $1,050,
$409 respectively (1,107) (203) (1,722) (891)
Loss from disposal of
Midwest Industrial, less
applicable taxes of
$6,262, $0, $6,262,
$0 respectively (9,198) 0 (9,198) 0
--------- -------- --------- --------
Net income (loss) ($14,657) $644 ($12,935) $2,230
========= ======== ========= ========
Earnings (loss) from
continuing operations
per share of common stock:
Basic ($0.46) $0.09 ($0.21) $0.33
Diluted ($0.46) $0.09 ($0.21) $0.33
Earnings (loss) per share
of common stock:
Basic ($1.55) $0.07 ($1.37) $0.24
Diluted ($1.55) $0.07 ($1.37) $0.23
Weighted average number
of common shares:
Basic 9,437,242 9,325,940 9,412,579 9,320,337
Diluted 9,847,812 9,658,981 9.860,619 9,587,164
<FN>
* Certain amounts have been restated as described in NOTE E and NOTE F.
See Notes to Condensed Consolidated Financial Statements
</TABLE>
[MULTIPLIER] 1,000
<TABLE>
Matrix Service Company
Condensed Consolidated Balance Sheets
(in thousands)
<CAPTION>
February 28, May 31,
1998 1997
----------- ----------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 2,862 $ 1,877
Accounts receivable 36,385 37,745
Costs and estimated earnings
in excess of billings on
uncompleted contracts 12,825 11,349
Inventories 6,315 4,989
Prepaid expenses 334 456
Deferred tax asset 1,021 1,021
Income tax receivable 7,579 317
-------- --------
Total current assets 67,321 57,754
Investment in undistributed equity
of a foreign joint venture - 174
Property, plant and equipment:
Land and buildings 16,892 15,097
Construction equipment 25,605 24,444
Transportation equipment 8,531 5,504
Furniture and fixtures 3,901 3,164
Construction in progress 640 2,614
-------- --------
55,569 50,823
Less accumulated depreciation 26,367 20,861
-------- --------
Net property, plant and equipment 29,202 29,962
Goodwill, net of accumulated
amortization 12,629 28,721
Other assets 671 261
-------- --------
Total assets $109,823 $116,872
======== ========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
[MULTIPLIER] 1,000
<TABLE>
Matrix Service Company
Condensed Consolidated Balance Sheets
(in thousands)
<CAPTION>
February 28, May 31,
1998 1997
------------ ---------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 11,022 $ 12,307
Billings on uncompleted contracts in
excess of costs and estimated earnings 7,908 6,325
Accrued expenses 5,900 9,414
Current portion of long-term debt 2,213 1,495
-------- --------
Total current liabilities 27,043 29,541
Long-term debt:
Bank credit agreement 9,750 5,000
Acquisition payable 95 407
Equipment notes payable 35 1
Term note 4,524 954
-------- --------
Total long-term debt 14,404 6,362
Deferred income taxes 4,714 4,757
Stockholders' equity:
Common stock 95 95
Capital in excess of par value 50,903 50,903
Retained earnings 12,982 26,269
Cumulative translation adjustment (183) (145)
-------- --------
Total capital and retained earnings 63,797 77,122
Less:
Treasury shares, at cost 135 910
Total stockholders' equity 63,662 76,212
-------- --------
Total liabilities and
stockholders' equity $109,823 $116,872
======== ========
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
[MULTIPLIER] 1,000
<TABLE>
Matrix Service Company
Condensed Consolidated Cash Flow Statements
(in thousands)
<CAPTION>
Nine Months Ended
(unaudited)
February 28, February 28,
1998 1997 *
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net income $(12,935) $2,230
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 4,414 3,492
Non-cash write-offs from
restructuring 4,983 -
Discontinued operations:
Loss on disposal, net of tax 9,198 0
Loss from operations, net of tax 1,722 891
Changes in current assets and
liabilities increasing
(decreasing) cash:
Accounts receivable 1,337 (123)
Costs and estimated earnings
in excess of billings on
uncompleted contracts 75 (2,005)
Inventories (302) (730)
Prepaid expenses 89 (75)
Accounts payable (4,931) (989)
Billings on uncompleted
contracts in excess of
costs and estimated earnings 530 1,073
Income taxes 600 987
Accrued liabilities (4,822) (2,393)
Gain or loss on sale of assets 16 (12)
Other 64 (12)
------- -------
Net cash provided by continuing
operations 38 2,334
Net cash provided by
discontinued operations 1,359 1,601
------- -------
Net cash provided by operating
activities 1,397 3,935
Investing activities:
Capital expenditures (1,863) (4,263)
Proceeds from sale of assets 62 117
Acquisition of subsidiary,
net of cash acquired (4,129) 47
Discontinued operations (43) -
Other, net 17 (21)
------- -------
Net cash used in
investing activities (5,956) (4,120)
<PAGE>
Matrix Service Company
Condensed Consolidated Cash Flow Statements
(in thousands)
<CAPTION>
Nine Months Ended
(unaudited)
February 28, February 28,
1998 1997 *
------------ -------------
<S> <C> <C>
Financing activities:
Repayment of acquisition payable (201) (397)
Repayment of equipment notes (23) (10)
Issuance under long-term
credit agreement 11,750 4,500
Repayments under long-term
credit agreement (6,407) (4,817)
Additional paid-in capital 1 -
Change in treasury stock 424 101
------- -------
Net cash in financing activities 5,554 (623)
Increase (decrease)in
cash and cash equivalents 985 (808)
Cash and cash equivalents at
beginning of period 1,877 1,899
------- -------
Cash and cash equivalents at
end of period $2,862 $1,091
======= =======
<FN>
* Certain amounts have been restated as described in NOTE E.
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
MATRIX SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All
significant inter-company balances and transactions have been eliminated in
consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Rule 10-0l of Regulation S-X for interim
financial statements required to be filed with the Securities and Exchange
Commission and do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, the information furnished reflects all adjustments, consisting
only of normal recurring adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods.
The accompanying financial statements should be read in conjunction with
the audited financial statements for the year ended May 3l, 1997, included
in the Company's Annual Report on Form 10-K for the year then ended. The
Company's business is seasonal; therefore, results for any interim period
may not necessarily be indicative of future operating results.
NOTE B - BUSINESS ACQUISITIONS
On June 17, 1997, the Company acquired all of the outstanding common stock
of General Service Corporation and its affiliated companies, Maintenance
Services, Inc., Allentech, Inc., and Environmental Protection Services
(collectively "GSC") for up to $7.8 million, subject to certain
adjustments. The purchase price consisted of $4.75 million in cash and a
$250 thousand, prime rate (currently 8.25%) promissory note payable in 12
equal quarterly installments. In addition, the stockholders of GSC are
entitled to receive in the future up to an additional $2.75 million in cash
if GSC satisfies certain earnings requirements. Under the provision of the
contract the stockholders have the right to elect 70% of the earnout amount
upon change of control of the Company. The transaction was accounted for as
a purchase and created approximately $3.0 million of goodwill and non-
competition covenants.
NOTE C - RECENT EVENT
On December 16, 1997, the Company and ITEQ, Inc. ("ITEQ") entered into a
Plan and Agreement of Merger whereby ITEQ agreed to acquire the Company.
On January 19, 1998 the Company and ITEQ mutually agreed to terminate the
Plan and Purchase Agreement of Merger, due to unanticipated difficulties in
connection with the expected integration of personnel from divergent
corporate cultures.
NOTE D - MERGERS, ACQUISITIONS, ABANDONMENTS AND RESTRUCTURING
During the third quarter of fiscal year 1998, the Company adopted a plan
for restructuring of operations to reduce costs, eliminate duplication of
facilities and improve efficiencies. The plan included closing fabrication
shops in Newark, Delaware and Rancocas, New Jersey and moving these
operations to a more efficient and geographically centered facility in
Bristol, Pennsylvania. Additionally, the Company closed a fabrication shop
at Elkston, Maryland. The production from the Maryland facility, which was
principally elevated water tanks, will be provided by the Company's Newnan,
Georgia plant. (The facilities located in Delaware, New Jersey,
Pennsylvania and Maryland were all leased facilities.) The Company is
selling real estate that is not being utilized in Mississauga, Canada, and
the Company is also discontinuing certain product lines that are no longer
profitable. As a result of these restructuring activities, the Company
recorded a non-recurring charge of $6.0 million. Included in this amount
are:, 1) costs for combining operations, eliminating duplications, and
abandonment and disposal of non-producing assets of $5.2 million, 2)
severance, relocation and other benefit costs of $604 thousand, 3)
integration and business reorganization costs of $64 thousand, 4) costs
related to the terminated merger agreement with ITEQ, Inc. including
investment banking fees, legal and accounting fees of $167 thousand.
Approximately $5.0 million of the asset write-down was non-cash.
NOTE E - DISCONTINUED OPERATIONS
During the third quarter of fiscal year 1998 the board of directors
approved a plan whereby the Company would discontinue the operations of
Midwest Industrial Contractors, Inc. ("Midwest"). The Company will in an
orderly manner discontinue to operate in the markets that Midwest has
historically participated. The tools, equipment and real estate of $1.4
million will be sold or utilized by other operating units of the Company.
On February 12, 1998, the Company entered into an agreement to sell certain
assets of Midwest Industrial Contractors, Inc. to a group of Midwest
employees. The Company is in the process of completing all open contracts
and disposing of all assets. The Company will abandon this business
entirely. The cost to terminate Midwest operations will result in a charge
of approximately $15.5 million before income taxes including $14.6 million
of goodwill. The operating results for the current periods are reported as
discontinued operations. All prior period financial information has been
restated to reflect the discontinued operations of Midwest.
Loss from discontinued operations per share of common stock:
Three Months Ended Nine Months Ended
--------------------------------------------------------------------------
February 28,1998 February 28, 1997 February 28, 1998 February 28, 1997
--------------------------------------------------------------------------
Basic ($1.09) ($ .02) ($1.16) ($ .09)
Diluted ($1.09) ($ .02) ($1.16) ($ .10)
NOTE F - EARNINGS PER SHARE OF COMMON STOCK
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement 128 requirements.
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Three Months Ended February 28, 1998 Compared With The Three Months Ended
February 28, 1997
General Service Corporation ("GSC") was acquired by Matrix Service Company
(the "Company") on June 17, 1997. Accordingly, the results of operations
of GSC for the quarter are included for the current period, but none of
GSC's operations are included in the prior year period.
Revenues for the quarter ended February 28, 1998 were $54.4 million as
compared to revenues of $39.2 million for the quarter ended February 28,
1997, representing an increase as compared with the same period in 1997 of
$15.2 million or 39%. The increase is due to the inclusion of GSC revenues
and increased revenues from capital projects in the Northwest from the
refinery division.
Gross profit increased to $5.3 million for the quarterly period ended
February 28, 1998 from gross profit of $3.9 million for the quarterly
period ended February 28, 1997, an increase of approximately $1.4 million
or 35%. Gross profit as a percentage of revenues decreased to 9.7% for the
1998 period from 9.9% for the 1997 period. The decrease in gross profit as
a percentage of revenue for the current period as compared with the prior
period is due to pricing pressure on new construction contracts for above
ground tanks, principally in the Southeast part of the United States.
Selling, general and administrative expenses increased to $3.4 million for
the quarterly period ended February 28, 1998 as compared to $2.4 million
for the quarterly period ended February 28, 1997, an increase of $1.0
thousand or 41%. Selling, general and administrative expenses as a
percentage of revenues increased to 6.3% for the current period as compared
to 6.2% for the prior period. The increase in selling, general and
administrative expenses for the period is due mainly to the inclusion of
GSC.
For the quarterly period ended February 28, 1998, the Company recorded a
non-recurring charge of $6.0 million. This charge resulted from a plan
adopted by the Company for restructuring of operations to reduce costs,
eliminate duplications of facilities and improve efficiencies - See NOTE D
to the financial statements.
Operating income decreased to a $4.4 million loss for the quarterly period
ended February 28, 1998 from income of $1.4 million for the quarterly
period ended February 28, 1997. Operating income for the quarterly period
ending February 28, 1998 increased by $298 thousand over the same period
for the prior year, when the non-recurring charge of $6.0 million is not
considered for the current period. This increase is due to increased gross
profit, offset by increases in selling, general and administrative
expenses.
Interest expense increased $247 thousand, or 211%, to $364 thousand for the
quarterly period ended February 28, 1998 from $117 thousand of interest
expense for the quarterly period ended February 28, 1997. The increase
resulted from an increased level of borrowing under the Company's credit
facility as a result of borrowings for the acquisition of GSC, and
increased advances under the revolving credit facility.
Income (loss) from continuing operations resulted in a $4.4 million loss
for the quarterly period ending February 28, 1998 as compared to income
from continuing operations $847 thousand for the period ending February 28,
1997. The decrease resulted from non-recurring costs of $6.0 million - See
NOTE D to the financial statements and losses resulting from the
discontinuance of "Midwest" - See NOTE E to the financial statements.
During the quarter ending February 28, 1998 the directors of the Company
approved a plan whereby the Company would discontinue the operations of
"Midwest" - See NOTE E to the financial statements.
Net loss for the quarterly period ending February 28, 1998 was $14.7
million as compared to net income of $644 thousand for the same period
ending February 28, 1997. This decrease resulted from non-recurring costs
of $6.0 million reduced by $816 thousand tax benefit - See NOTE D to the
financial statements and losses from discontinued operations of $10.3
million net of income tax - See NOTE E to the financial statements.
Nine Months Ended February 28, 1998 Compared With The Nine Months Ended
February 28, 1997
General Service Corporation ("GSC") was acquired by Matrix Service Company
(the "Company") on June 17, 1997. Accordingly, the results of operations
of GSC for eight and one-half months are included for the current period,
but none of GSC's operations are included in the prior year nine month
period.
Revenues for the nine months ended February 28, 1998 were $158.3 million as
compared to revenues of $119.4 million for the nine months ended February
28, 1997, representing an increase of approximately $38.9 million or 33%.
The increase is due to the inclusion of GSC revenues and increased revenues
from capital projects in the Northwest from the refinery division.
Gross profit increased to $15.2 million for the nine months ended February
28, 1998 from gross profit of $12.6 million for the nine months ended
February 28, 1997. Gross profit as a percentage of revenues decreased to
9.6% for the 1998 period from 10.5% for the 1997 period. The decrease in
gross profit as a percentage of revenues for the current period as compared
with the prior period is due to pricing pressure on new construction
contracts for above ground tanks, principally in the Southeast part of the
United States.
Selling, general and administrative expenses increased to $9.1 million for
the nine months ended February 28, 1998 compared to $6.9 million for the
nine months ended February 28, 1997, an increase of $2.1 million or
approximately 31%. Selling, general and administrative expenses as a
percentage of revenues decreased to 5.7% for the current period as compared
with 5.8% for the 1997 period.
Included in the nine month period ended February 28, 1998, the Company
recorded a non-recurring charge of $6.0 million. This charge resulted from
a plan adopted by the Company for restructuring of operations to reduce
costs, eliminate duplications of facilities and improve efficiencies - See
NOTE D to the financial statements.
Operating income decreased to a $319 thousand loss for the nine month
period ended February 28, 1998 from income of $5.4 million for the nine
month period ended February 28, 1997. Operating income for the quarterly
nine month ending February 28, 1998 increased by $346 thousand over the
same period for the prior year, when the non-recurring charge of $6.0
million is not considered for the current period. This increase is due to
increased gross profit, offset in part by increases in selling, general and
administrative expenses.
Interest expense increased $529 thousand, or 171%, to $838 thousand for the
nine month period ended February 28, 1998 from $309 thousand of interest
expense for the nine month period ended February 28, 1997. The increase
resulted from an increased level of borrowing under the Company's credit
facility as a result of borrowings for the acquisition of GSC, and
increased advances under the revolving credit facility.
Income (loss) from continuing operations resulted in a $2.0 million loss
for the nine month period ending February 28, 1998 as compared to income
from continuing operations of $3.1 million for the nine month period ending
February 28, 1997. The decrease resulted from non-recurring costs of $6.0
million.
Loss from discontinued operations. During the nine month period ending
February 28, 1998 the directors of the Company approved a plan whereby the
Company would discontinue the operations of "Midwest" - See NOTE E to the
financial statements.
Net income (loss) for the nine month period ending February 28, 1998 was
$12.9 million as compared to net income of $2.2 million for the nine month
period ending February 28, 1997. This decrease resulted from non-recurring
costs of $6.0 million reduced by $816 thousand tax benefit - See NOTE D to
the financial statements and losses from discontinued operations of $10.9
million net of income tax - See NOTE E to the financial statements.
Liquidity and Capital Resources
The Company has financed its operations recently with cash generated by
operations and advances under the Company's credit facility. Until amended
as described in the following paragraph, the Company had a credit facility
with a commercial bank under which the Company could borrow a total of
$25.0 million. The Company could have borrowed up to $15.0 million under a
revolving credit facility agreement based on the level of the Company's
eligible receivables. The agreement provided for interest at the Prime
Rate minus three quarters of one percent (3/4 of 1%), or a LIBOR based
option of LIBOR plus one and one quarter percent (1 and 1/4%), and matures
on October 31, 1999. At February 28, 1998, the interest rate was 7.125%
and the outstanding advances under the revolving credit facility totaled
$9.75 million. The credit facility also provided for two term loans of up
to $5.0 million each. On October 5, 1994 and June 19, 1997 term loans of
$4.9 million and $5.0 million, respectively, were made to the Company. The
1994 term loan was to be due on August 31, 1999 and was to be repaid in 54
equal payments beginning in March 1995 at an interest rate based upon the
Prime Rate or a LIBOR option. The 1997 term loan is due January 23, 2002
and was to be repaid in 54 equal payments beginning January 7, 1998 at an
interest rate based upon the prime rate or a LIBOR option. At February 28,
1998, the interest rate on the term loans was 7.625%, and the outstanding
balances were $1.7 million and $4.9 million, respectively.
On March 1, 1998, the Company and the commercial bank entered into an
amendment to the credit agreement, whereby the Company may borrow a total
of $30.0 million. The amended agreement provides for a $20.0 million
revolving credit facility based on the level of the Company's eligible
receivables. The agreement provides for an interest rate based on a prime
or a LIBOR option and matures October 31, 1999. The credit facility also
provides for a $10.0 million term loan, due February 28, 2003. On March 1,
1998, the Company rolled the balance from the two existing term loans of
$1.7 million and $4.9 million respectively, plus $3.4 million from the
revolving line of credit into this facility. In conjunction with this term
note on March 1, 1998, the Company entered into an Interest Rate Swap
Agreement with a commercial bank, effectively providing a fixed interest
rate of 7.5% for the five year period of the term loan.
Operations of the Company provided $1.4 million of cash for the nine months
ended February 28, 1998 as compared with providing cash of $3.9 million for
the nine months ending February 28, 1997, representing a decrease of
approximately $2.5 million. The decrease was primarily a result of
operating losses of $12.9 million offset by a net change of $15.8 million
of non-cash expenses of amortization and depreciation, write-offs from
restructuring and discontinued operations, net of tax benefits, a decrease
in accounts payable of $3.9 million, and a decrease in other accrued
liabilities of $2.4 million, offset by a change in accounts receivable of
$1.5 million, a change in inventory of $428 thousand and a change in costs
and earnings in excess of billings of $2.1 million.
Capital expenditures during the nine month period ended February 28, 1998
totaled approximately $1.9 million. Of this amount approximately $875
thousand was used to purchase welding and construction equipment and $360
thousand was used to purchase transportation equipment for field
operations. In the same period the Company invested approximately $621
thousand for office expansion for support of field operations. In
addition, the Company has currently budgeted approximately $1.7 million for
additional capital expenditures, primarily to be used to purchase
construction equipment, during the remainder of fiscal year 1998. The
Company expects to be able to finance any such expenditures with available
working capital.
The Company believes that its existing funds, amounts available for
borrowing under its credit facility, and cash generated by operations will
be sufficient to meet the Company's working capital needs at least through
fiscal 1998 and possibly thereafter unless significant expansions of
operations not now planned are undertaken, in which case the Company
anticipates it would arrange additional financing as a part of any such
expansion.
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K:
A. Exhibit 10.1 - Third Amendment to Credit Agreement
B. Exhibit 10.2 - Interest Rate Swap
C. Exhibit 11 - Computation of earnings per share.
D. Reports on Form 8-K:
1. The Company filed a Form 8-K, dated December 16, 1997, reporting that
on December 16, 1997 the Company entered into a Plan and Agreement
of Merger by and among the Company, ITEQ Sub. Corp. and ITEQ, Inc.
2. The Company filed a Form 8-K dated January 19, 1998, reporting that
on January 19, 1998 the Company and ITEQ, Inc. entered into an
agreement whereby the companies have mutually agreed to terminate
the Plan and Agreement of Merger Agreement dated December 16, 1997.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATRIX SERVICE COMPANY
Date: April 14, 1998
By: /s/C. William Lee
------------------
C. William Lee
Vice President-Finance
Chief Financial Officer
Signing on behalf of the registrant and
as the registrant's chief financial officer.
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Amendment") is made and entered
into effective as of the 1st day of March, 1998 (the "Effective Date"), by
and among MATRIX SERVICE COMPANY, a Delaware corporation (hereinafter
referred to as "Matrix"), MATRIX SERVICE, INC., an Oklahoma corporation
(hereinafter to as "MSI"), MIDWEST INDUSTRIAL CONTRACTORS, INC., a Delaware
corporation (hereinafter referred to as "MIC"), MATRIX SERVICE MID-
CONTINENT, INC., an Oklahoma corporation (hereinafter referred to as
"MSM"), PETROTANK EQUIPMENT, INC., an Oklahoma corporation (hereinafter
referred to as "PEI"), TANK SUPPLY INC., an Oklahoma corporation
(hereinafter referred to as "TSI"), SAN LUIS TANK PIPING CONSTRUCTION CO.,
INC., a Delaware corporation (hereinafter referred to as "SLT"), COLT
CONSTRUCTION CO., INC., a Delaware corporation (hereinafter referred to as
"CCC"), MIDWEST INTERNATIONAL, INC., a Delaware corporation (hereinafter
referred to as "MII"), GEORGIA STEEL ACQUISITION CORPORATION, an Oklahoma
corporation (hereinafter referred to as "GSAC"), GEORGIA STEEL FABRICATORS,
INC., a Georgia corporation (hereinafter referred to as "GSF"), BROWN STEEL
CONTRACTORS, INC., a Georgia corporation (hereinafter referred to as
"BSC"), WEST COAST INDUSTRIAL COATINGS, INC., a California corporation
(hereinafter referred to as "WCI"), MIDWEST SERVICE COMPANY, a Delaware
corporation (hereinafter referred to as "MSC"), HEATH ENGINEERING, LTD., an
Ontario corporation (hereinafter referred to as "HEL"), HEATH (TANK
MAINTENANCE) ENGINEERING, LTD., a United Kingdom corporation (hereinafter
referred to as "HTM"), MAYFLOWER VAPOR SEAL CORPORATION, an Oklahoma
corporation (hereinafter referred to as ("MVS"), GENERAL SERVICE
CORPORATION, a Delaware corporation (hereinafter referred to as "GSC"),
MAINSERVE-ALLENTECH, INC., a Delaware corporation (hereinafter referred to
as "MA"), MAINTENANCE SERVICES, INC., a Delaware corporation (hereinafter
referred to as "MSERV"), and BANK ONE, OKLAHOMA, N.A., successor in
interest to LIBERTY BANK AND TRUST COMPANY OF TULSA, NATIONAL ASSOCIATION
(hereinafter referred to as the "Bank"). Matrix, MSI, MIC, MSM, PEI, TSI,
SLT, CCC, MII, GSAC, GSF, BSC, WCI, MSC, HEL, HTM, MVS, GSC, MA and MSERV
are hereinafter collectively referred to as the "Borrowers" and
individually as a "Borrower."
RECITALS
A. The Bank and the Borrowers are parties to that certain Credit Agreement
dated August 30, 1994, as amended by that certain First Amendment to Credit
Agreement dated June 19, 1997 (the "First Amendment"), as further amended
by that certain Second Amendment to Credit Agreement dated September 15,
1997 (the same as further amended, supplemented or otherwise modified from
time to time, being hereinafter referred to as the "Credit Agreement"),
pursuant to which the Bank has established in favor of the Borrowers, on
the terms and conditions set forth therein, (i) a revolving credit facility
in the principal amount not to exceed $15,000,000.00, (ii) a term loan
facility in the original principal amount not to exceed $5,000,000.00, and
(iii) a term acquisition facility in the original principal amount not to
exceed $5,000,000.00.
B. The Borrowers have requested that the Bank: (i) continue the Revolving
Credit Facility in the increased principal amount of $20,000,000.00, reduce
the rate of interest applicable to outstanding Advances thereunder, and
limit the maximum amount of the Bank's obligation to issue Letters of
Credit under the Revolving Credit Facility, (ii) rearrange, consolidate,
extend and increase the Term Loan Facility and the Acquisition Loan
Facility under a single term loan facility, as hereinafter described, (iii)
modify the definition of the term "Eligible Accounts," and (iv) modify
certain financial covenants regarding minimum tangible net worth and
minimum net working capital.
C. The Bank has agreed to the foregoing, subject to the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and subject to the terms and conditions set forth herein, the
parties agree to amend the Credit Agreement, effective as of the date
hereof, as follows:
1. TERMS DEFINED IN THE CREDIT AGREEMENT.
A. Definitions Incorporated by Reference. Capitalized terms used herein
and not otherwise defined have the respective meanings assigned to them in
the Credit Agreement.
B. Definitions Used Only in This Amendment. For purposes of this Amendment
only, the following terms have the meanings indicated below:
Replacement Revolving Note. "Replacement Revolving Note" shall mean the
promissory note to be executed and delivered by the Borrowers, in
substantially the form attached hereto as Exhibit "A-2."
Replacement Term Note. "Replacement Term Note" shall mean the promissory
note to be executed and delivered by the Borrowers, in substantially the
form attached hereto as Exhibit "B-2."
The parties agree that, from and after the Effective Date, unless the
context otherwise requires: (i) all references to the "Revolving Note" and
the "Term Note" appearing in the Credit Agreement or any other Loan
Documents shall mean and refer to the Replacement Revolving Note and the
Replacement Term Note, respectively, together with any and all renewals,
extensions or replacements thereof, amendments or modifications thereto or
substitutions therefore, and (ii) the term "Loan Documents" shall include
the Replacement Revolving Note and the Replacement Term Note.
C. New Definition. As of the Effective Date, the following definition of
the term "Bonded Account" is hereby added to Subsection 1.2 of the Credit
Agreement:
Bonded Account. "Bonded Account" shall mean any Account that is subject
to, arises under or earned pursuant to a bonded construction contract, and
is thereby subject to a bonded lien.
D. Amended Definitions. The definitions of the following terms appearing
in Subsection 1.2 of the Credit Agreement are hereby amended, as of the
Effective Date, to read as follows:
Credit Facilities. "Credit Facilities" shall mean, collectively, the
Revolving Credit Facility and the Term Loan Facility, and "Credit Facility"
shall mean either one of the Credit Facilities.
Eligible Accounts. The definition of the term "Eligible Accounts" is
hereby amended by adding the following provision to the end of that
definition:
(xiii) The amount by which all Bonded Accounts exceed eighteen percent
(18%) of the net Eligible Accounts.
Notes. "Notes" shall mean collectively, the Revolving Note and the Term
Note, and "Note" shall mean either one of the Notes.
Revolving Commitment. "Revolving Commitment" shall mean, as of any
determination date, the lesser of (i) Twenty Million and No/100 Dollars
($20,000,000.00), and (ii) the Borrowing Base in effect on such
determination date.
E. Deleted Definitions. As of the Effective Date, the definitions of the
terms "Acquisition Loan Facility" and "Acquisition Note" are hereby deleted
from paragraph 1.2 of the Credit Agreement.
2. AMENDMENTS TO THE REVOLVING LOAN FACILITY. The Bank agrees, as of the
Effective Date, to increase the maximum aggregate amount available under
the Revolving Loan Facility from Fifteen Million and No/100 Dollars
($15,000,000.00) to Twenty Million and No/100 Dollars ($20,000,000.00), and
in that regard has amended the definition of the term "Revolving
Commitment". The Bank further agrees to reduce the rate of interest
applicable to the unpaid principal amount of all Advances from time to time
outstanding under the Revolving Note and limit the maximum amount of the
Bank's obligation to issue Letters of Credit under the Revolving Credit
Facility. In order to effectuate the reduction in the applicable interest
rate, Subsections 2.7.1(a) and 2.7.1(b) of the Credit Agreement, governing
interest rates under the Revolving Note, are hereby deleted and replaced in
their entirety by the following:
2.7.1(a) Advances included within the Prime Tranche shall bear interest at
a fluctuating rate per annum equal to the Prime Rate minus one and one-
quarter percent (1-1/4%).
2.7.1(b) Advances included within each LIBOR Tranche shall bear interest at
a rate per annum equal to the sum of the LIBOR Rate applicable to such
LIBOR Tranche plus one and one-eighth percent (1-1/8%).
In order to limit the maximum amount of the Bank's obligation to issue
Letters of Credit under the Revolving Credit Facility, the following
Subsection 2.4.7 is hereby added to the Credit Agreement:
2.4.7 Maximum Amount of Outstanding Letters of Credit. Notwithstanding any
provision of this Agreement, the maximum aggregate amount outstanding at
any time under all Letters of Credit issued by the Bank hereunder shall not
exceed Seven Million Five Hundred Thousand and No/100 Dollars
($7,500,000.00).
3. AMENDMENTS TO TERM LOAN FACILITY. The Bank agrees to rearrange and
consolidate the Term Loan Facility and the Acquisition Loan Facility by:
(i) increasing the original principal amount available under the Term Loan
Facility from Five Million and No/100 Dollars ($5,000,000.00) to Ten
Million and No/100 Dollars ($10,000,000.00), (ii) reducing the rate of
interest applicable to the unpaid principal amount from time to time
outstanding under the Term Note, (iii) extending the final maturity of the
Term Note from August 31, 1999, to February 28, 2003, (iv) consolidating
the Advances currently outstanding under the Acquisition Note into the Term
Note, and (v) canceling the Acquisition Note and terminating the
Acquisition Loan Facility. In order to implement the foregoing, the Loan
Agreement is amended from and after the Effective Date as follows:
A. Modifications to Subsection 2.1.2. Subsection 2.1.2 of the Credit
Agreement, describing the Term Loan Facility, is hereby deleted and
replaced in its entirety by the following:
2.1.2 Term Loan Facility. The Bank agrees, at the Closing, to continue
that term loan facility designated as the "Term Loan Facility," and to
increase the maximum aggregate principal amount from Five Million and
No/100 Dollars ($5,000,000.00) to Ten Million and No/100 Dollars
($10,000,000.00). As of the Effective Date, the existing indebtedness
under the Term Loan Facility shall include all outstanding balances under
the Term Loan Facility and the Acquisition Loan Facility, as the same
existed immediately prior to the Effective Date, and the remaining
availability, if any, under the Term Loan Facility will be available to
reduce the outstanding balance under the Revolving Credit Facility. The
making of principal payments, including prepayments, on the Term Loan
Facility shall not restore the amount available for borrowing.
B. Modifications to Subsection 2.2.2. Subsection 2.2.2 of the Credit
Agreement, describing the use of Advances under the Term Loan Facility, is
hereby deleted and replaced in its entirety by the following:
2.2.2 Term Loan Facility. Advances under the Term Loan Facility shall be
used by the Borrowers to refinance existing indebtedness of the Borrowers
as well as to fund general corporate purposes.
C. Modifications to Subsections 2.7.2(d)(i) and 2.7.2(d)(ii). Subsections
2.7.2(d)(i) and 2.7.2(d)(ii) of the Credit Agreement, governing interest
rates under the variable rate option of the Term Note, are hereby deleted
and replaced in their entirety, respectively, by the following:
2.7.2(d)(i) Advances included within the Prime Tranche shall bear interest
at a fluctuating rate per annum equal to the Prime Rate minus one-half of
one percent (1/2 of 1%), adjusted as of the date of each change therein.
2.7.2(d)(ii) Advances included within a LIBOR Tranche shall bear interest
at a rate per annum equal to the sum of the LIBOR Rate applicable to such
LIBOR Tranche plus one and one-half percent (1-1/2%).
D. Modifications to Subsections 2.9.2(b)(i) and 2.9.2(b)(ii). By prior
amendment to the Credit Agreement Subsection 2.9.2(b)(i) should have been
deleted to remove the fixed rate repayment option from the Term Note. To
correct that omission, Subsection 2.9.2(b)(i) is hereby deleted in its
entirety. Subsection 2.9.2(b)(ii) of the Credit Agreement, governing the
variable rate repayment option under the Term Note, is hereby deleted,
renumbered as Subsection 2.9.2(b) and replaced in its entirety by the
following:
2.9.2(b) Repayment. Prior to maturity and on the first Business Day of each
month beginning April 1, 1998, the principal amount of the Term Note shall
be due and payable in sixty (60) consecutive monthly installments of One
Hundred Sixty-Six Thousand Six Hundred Sixty-Six and 67/100 Dollars
($166,666.67), together with all unpaid interest thereon calculated at the
variable rate of interest applicable from time to time under the Term Note.
E. Modifications to Subsection 2.9.2(c). Subsection 2.9.2(c) of the Credit
Agreement is hereby modified by deleting the phrase "August 31, 1999" and
replacing it with the phrase "February 28, 2003."
F. Modifications to Terminate the Acquisition Loan Facility. The parties
mutually agree as of the Effective Date to consolidate the Advances
currently outstanding under the Acquisition Note into the Term Note and
thereafter to cancel the Acquisition Note and terminate the Acquisition
Loan Facility. In order to implement the foregoing, and in addition to the
amendments to the Credit Agreement detailed above, the Credit Agreement is
further amended from and after the Effective Date as follows:
(i) Paragraph Deletions. The following paragraphs of the Credit Agreement
are deleted in their entirety: 2.1.3, 2.2.3, 2.6.4 (errantly referred to as
Subsection 2.3.4 in the First Amendment), 2.7.6, 2.8.4 and 2.9.3.
(ii) Reference Deletions. In addition to deleting the above listed
paragraphs, all references to the terms "Acquisition Loan Facility" and
"Acquisition Note" are deleted from any provision of the Credit Agreement
in which they appear, without otherwise modifying or amending such
provisions.
4. AMENDMENTS TO FINANCIAL COVENANTS.
A. Modifications to Subsection 7.11.1. As of the Effective Date,
Subsection 7.11.1 of the Credit Agreement is hereby deleted in its entirety
and replaced with the following:
7.11.1 Tangible Net Worth. The Borrowers will not permit their
consolidated tangible net worth (determined in accordance with GAAP) to be
less than an amount equal to the sum of $42,500,000.00 plus fifty percent
(50%) of the Borrowers' cumulative net income after tax (beginning with the
fiscal year ending May 31, 1998), exclusive of the Borrowers losses and/or
one hundred percent (100%) of the proceeds of any public offering of the
stock of any of the Borrowers.
B. Modifications to Subsection 7.11.2. As of the Effective Date,
Subsection 7.11.2 is hereby modified and amended to delete the dollar
amount state as "$18,000,000.00" and replace that dollar amount with the
dollar amount stated as "$20,000,000.00."
5. CONDITIONS. The amendments to the Credit Agreement set forth in this
Amendment shall be effective from and after the Effective Date, but subject
to the Borrowers satisfaction of each of the following conditions
precedent:
A. Amendment and Notes. The Borrowers shall have duly and validly
authorized, executed and delivered to the Bank: (i) this Amendment, (ii)
the Replacement Revolving Note and (iii) the Replacement Term Note.
B. Resolutions. With respect to each of the Borrowers, the Bank shall
have received a true and correct copy of the resolutions adopted by its
Board of Directors duly authorizing the borrowings contemplated hereunder
and the execution, delivery and performance of this Amendment.
C. Other Matters. The Borrowers shall have provided the Bank with such
reports, information, financial statements, and other documents as the Bank
has reasonably requested to evidence the Borrowers' compliance with the
terms and conditions of this Amendment and the Credit Agreement.
D. Legal Matters. All legal matters incident to this Amendment and the
Credit Facilities shall be satisfactory to the Bank and its counsel.
E. No Defaults. There shall not have occurred and be continuing any
Default or Event of Default.
6. REPRESENTATIONS AND WARRANTIES. All representations and warranties of
the Borrowers contained in Section 5 of the Credit Agreement are hereby
remade and restated as the date hereof and shall survive the execution and
delivery of this Amendment. The Borrowers further represent and warrant to
the Bank that:
A. Authority. The Borrowers have all corporate power and authority and
have been duly authorized to execute, deliver and perform its obligations
under this Amendment and the Credit Agreement.
B. Binding Obligations; Enforceability. This Amendment, the Credit
Agreement (as amended by this Amendment), and each of the Notes are valid
and legally binding obligations of the Borrowers, enforceable in accordance
with their respective terms, except as limited by applicable bankruptcy,
insolvency or other laws affecting the enforcement of creditors rights
generally.
C. No Conflicts. The execution, delivery and performance of this
Amendment and the Credit Agreement (as amended by this Amendment) by the
Borrowers do not and will not (a) conflict with, result in a breach of the
terms, conditions or provisions of, constitute a default under, or result
in any violation of the Borrowers Certificates of Incorporation, as
amended, or Bylaws, or any agreement, instrument, undertaking, judgment,
decree, order, writ, injunction, statute, law, rule or regulation to which
any of the Borrowers is subject or by which the assets of any of the
Borrowers are bound or affected, (b) result in the creation or imposition
of any lien, charge or encumbrance on, or security interest in, any
property now or hereafter owned by the Borrowers, pursuant to the
provisions of any mortgage, indenture, security agreement, contract,
undertaking or other agreement to which any of the Borrowers is a party,
other than the obligations of the Borrowers in favor of the Bank created by
the Loan Documents, or (c) require any authorization, consent, license,
approval or authorization of, or other action by, notice or declaration to,
registration with, any court or any administrative or governmental body
(domestic or foreign), or, to the extent any such consent or other action
may be required, it has been validly procured or duly taken.
7. MISCELLANEOUS.
A. Effect of Amendment. Except as expressly modified and amended by this
Amendment, all other terms of the Credit Agreement shall continue in full
force and effect in accordance with their original stated terms and are
hereby reaffirmed in every respect as of the date hereof. To the extent
that the terms of this Amendment are inconsistent with the terms of the
Credit Agreement, this Amendment shall control and the Credit Agreement
shall be amended, modified or supplemented so as to give full effect to the
transactions contemplated by this Amendment.
B. Descriptive Headings. The descriptive headings of the several
paragraphs of this Amendment are inserted for convenience only and shall
not be used in the construction or the content of this Amendment.
C. Reimbursement of Expenses. The Borrowers agree to pay all reasonable
out-of-pocket expenses, exclusive of attorneys fees, incurred by the Bank
in connection with the preparation of this Amendment.
D. Reaffirmation of Security Agreements. By signing below, the Borrowers
hereby ratify and reaffirm the Security Agreements and agree that the
Security Agreements shall continue in full force and effect in accordance
with their terms as security for payment and performance of all
Indebtedness arising under or in connection with the Credit Agreement (as
amended hereby). All references to the term "Indebtedness" contained in
the Credit Agreement, the Security Agreements and other Loan Documents
shall hereafter be deemed to include all liabilities, obligations and
indebtedness of the Borrowers to the Bank arising out of or relating to
this Amendment, and shall also secure any amounts now or hereafter due and
payable by Matrix to the Bank under that certain ISDA Master Agreement
dated as of February 1, 1998 between Matrix and the Bank, or otherwise.
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Agreement
to be duly executed in multiple counterparts, each of which shall be
considered an original, effective the date and year first above written.
MATRIX SERVICE COMPANY,
a Delaware corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
_________________________
Title: Secretary
MATRIX SERVICE, INC.,
an Oklahoma corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
_________________________
Title: Secretary
MIDWEST INDUSTRIAL CONTRACTORS, INC.,
a Delaware corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
MATRIX SERVICE MID-CONTINENT, INC.,
an Oklahoma corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
PETROTANK EQUIPMENT, INC.,
an Oklahoma corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
TANK SUPPLY, INC.,
an Oklahoma corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
SAN LUIS TANK PIPING CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
COLT CONSTRUCTION CO., INC.,
a Delaware corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
MIDWEST INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
GEORGIA STEEL ACQUISITION CORPORATION,
an Oklahoma corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
GEORGIA STEEL FABRICATORS, INC.,
a Georgia corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
BROWN STEEL CONTRACTORS, INC.,
a Georgia corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
WEST COAST INDUSTRIAL COATINGS, INC.,
a California corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
MIDWEST SERVICE COMPANY,
a Delaware corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
HEATH ENGINEERING, LTD.,
an Ontario corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
HEATH (TANK MAINTENANCE) ENGINEERING, LTD.,
an United Kingdom corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
MAYFLOWER VAPOR SEAL CORPORATION,
an Oklahoma corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
GENERAL SERVICE CORPORATION,
a Delaware corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
MAINSERVE-ALLENTECH, INC.,
a Delaware corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
MAINTENANCE SERVICES, INC.,
a Delaware corporation
By: /s/ C. William Lee
_________________________
Name: C. William Lee
Title: Secretary
BANK ONE, OKLAHOMA, N.A.
By: /s/ Mark A. Poole
________________________________
Name: Mark A. Poole
Title: Senior Vice President
EXHIBITS
Exhibit "A-2" - Form of Replacement Revolving Note
Exhibit "B-2"- Form of Replacement Term Note
February 26, 1998
Mr. C. William Lee
Matrix Service Company
10701 East Ute Street
Tulsa, Oklahoma 74116-1517
Dear Mr. Lee:
This confirmation sets out the terms and conditions of the Interest Rate
Swap entered into between us on the Trade Date specified below. This
constitutes a Confirmation as referred to in the ISDA Master Agreement
dated as of February 1, 1998 (the "Agreement") between Matrix Service
Company, ("Matrix Service") and Bank One, Oklahoma, N.A. ("Bank One").
This facsimile transmission will be the only written communication
regarding this Swap Transaction exchanged between us and will be deemed for
all purposes an original document, unless you require that we sign hard
copy versions of this Confirmation. Please contact the individual
indicated in the last paragraph of this letter to receive such copies.
1. The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swap Dealers Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency
between those definitions and provisions and this Confirmation, this
Confirmation will govern. This confirmation shall supplement, form part
of, and be subject to the Agreement.
Each party hereto represents and warrants to the other party hereto that,
in connection with the Transaction, (i) it has and will continue to consult
with its own legal, regulatory, tax, business, investment, financial and
accounting advisors to the extent it deems necessary, and it has and will
continue to make its own investment, hedging and trading decisions
(including without limitations decisions regarding the appropriateness
and/or suitability of the Transaction) based upon its own judgement and
upon any advice from such advisors as it deems necessary, and not in
reliance upon the other party hereto or any of its branches, subsidiaries
or affiliates or any of their respective officers, directors or employees,
or any view expressed by any of them, (ii) it has evaluated and it fully
understands all the terms, conditions and risks of the Transaction, and it
is willing to assume (financially and otherwise) all such risks, (iii) it
has and will continue to act as principal, and not agent of any person, and
the other party hereto and its branches, subsidiaries and affiliates have
not and will not be acting as a fiduciary or financial, investment,
commodity trading or other advisor to it and (iv) it is entering in the
Transaction for purposes of hedging its assets or liabilities or in
connection with a line of business, and not for the purpose of speculation.
2. The terms of this particular transaction to which this Confirmation
relates are as follows:
Notional Amount: USD 10,000,000 (See Exhibit "A")
Trade Date: March 2, 1998
Termination Date: February 28, 2003
Fixed Amounts:
- -------------
Fixed Rate Payer: Matrix Service
Fixed Rate Payer
Payment Dates:
The first of each month of each year, commencing on April 1, 1998, up to
and including the Termination Date, subject to adjustment in
accordance with the Modified Following Business Day Convention. *
Fixed Rate: 7.50%
Fixed Rate Day
Count Fraction: Actual/360
Fixed Rate Period
End Dates:
The first of each month of each year, commencing on April 1, 1998, up to
and including the Termination Date, subject to adjustment in accordance
with the Modified Following Business Day Convention. *
Floating Amounts:
- ----------------
Floating Rate Payer: Bank One
Floating Rate Payer
Payment Dates:
The first of each month of each year, commencing on April 1, 1998, up to
and including the Termination Date, subject to adjustment in accordance
with the Modified Following Business Day Convention. *
Floating Rate Option: USD-LIBOR-BBA
Floating Rate
Designated Maturity: One (1) Month
Floating Rate Spread: Plus 150 Basis Points
Floating Rate Reset Dates: The first day of each Calculation Period.
Floating Rate Day Count Fraction: Actual/260
Floating Rate Period End Dates:
The first of each month of each year, commencing on April 1, 1998, up to
and including the Termination Date, subject to adjustment in accordance
with the Modified Following Business Day Convention. *
Floating Initial Rate: 5.67288%
Method of Averaging: Not Applicable
Compounding: Not Applicable
Business Days: New York and London
Calculation Agent: Bank One
Governing Law: Laws of New York
3. Account Details:
Payments to Matrix Service:
Bank One, Oklahoma, N.A.
Account # 028004046
ABA # 103000648
Payments to Bank One:
Wire Transfer to:
Bank One, N.A.
ABA # 044-0000-37
Account #151010-0630
Atten: Swap Operations
4. Offices:
(a) The Office of Bank One, Oklahoma, N.A. for this transaction is 150
E. Gay Street, 17th Floor, Columbus, Ohio 43271-0103.
(b) The Office of Matrix Service Company for this transaction is 10701
East Ute Street, Tulsa, Oklahoma 74116-1517.
Please confirm that the foregoing correctly sets out the terms and
conditions of our agreement by responding within one (1) business day by
returning via facsimile an executed copy of this Confirmation on (614) 248-
1241, Attention: Tonya Melsop, telephone: (614) 248-2982. Failure to
respond within such period shall not affect the validity or enforceability
of this transaction, and shall be deemed to be an affirmation of the terms
and conditions contained herein, absent manifest error.
Banc One Corporation For on behalf of
behalf of Bank One, Oklahoma, N.A. Matrix Service Company
/s/ Shannon M. Goldrick /s/ C. William Lee
- ------------------------------ ------------------------------
Shannon M. Goldrick Name: C. William Lee
Authorized Agent Title: Vice President-Finance
Date: February 26, 1998 Date: February 27, 1998
Banc One Corporation signing on
behalf of Bank One, Oklahoma, N.A.
/s/ David R. King
- -----------------------------------
David R. King
Vice President
Date: February 26, 1998
* Modified Following is specified, that date will be the first following
day that is a Business Day unless that day falls in the next calendar
month, in which case that date will be the first preceding day that is a
Business Day.
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] May-31-1998
[PERIOD-START] Dec-01-1997
[PERIOD-END] Feb-28-1998
[COMMON] 9,437
[NET-INCOME] (14,657)
[EPS-PRIMARY] (1.55)
[COMMON] 9,848
[NET-INCOME] (14,657)
[EPS-DILUTED] (1.55)
[FISCAL-YEAR-END] May-31-1997
[PERIOD-START] Dec-01-1996
[PERIOD-END] Feb-28-1997
[COMMON] 9,326
[NET-INCOME] 644
[EPS-PRIMARY] 0.07
[COMMON] 9,659
[NET-INCOME] 644
[EPS-DILUTED] 0.07
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] May-31-1998
[PERIOD-START] Jun-01-1997
[PERIOD-END] Feb-28-1998
[COMMON] 9,412
[NET-INCOME] (12,935)
[EPS-PRIMARY] (1.37)
[COMMON] 9,861
[NET-INCOME] (12,935)
[EPS-DILUTED] (1.37)
[FISCAL-YEAR-END] May-31-1997
[PERIOD-START] Jun-01-1996
[PERIOD-END] Feb-28-1997
[COMMON] 9,320
[NET-INCOME] 2,230
[EPS-PRIMARY] 0.24
[COMMON] 9,587
[NET-INCOME] 2,230
[EPS-DILUTED] 0.23
</TABLE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> May-31-1998
<PERIOD-END> Feb-28-1998
<CASH> 2,862
<SECURITIES> 0
<RECEIVABLES> 36,385
<ALLOWANCES> 0
<INVENTORY> 6,315
<CURRENT-ASSETS> 67,321
<PP&E> 55,569
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<TOTAL-ASSETS> 109,823
<CURRENT-LIABILITIES> 27,043
<BONDS> 0
<COMMON> 95
0
0
<OTHER-SE> 63,567
<TOTAL-LIABILITY-AND-EQUITY> 109,823
<SALES> 158,279
<TOTAL-REVENUES> 158,279
<CGS> 143,070
<TOTAL-COSTS> 143,070
<OTHER-EXPENSES> 9,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 838
<INCOME-PRETAX> (840)
<INCOME-TAX> (1,175)
<INCOME-CONTINUING> (2,015)
<DISCONTINUED> (10,920)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,935)
<EPS-PRIMARY> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
