Exhibit 10.1


 


[EXECUTION COPY]


 


MUELLER GROUP, INC.


500 West Eldorado Street


Decatur, IL 62522-1808


 


Dated as of February 4, 2005


 


To the Lenders party to the

Credit Agreement referred to below


 


Ladies and Gentlemen:


 


Reference is made to the Second Amended and Restated
Credit Agreement, dated as of April 23, 2004 (as amended, supplemented,
amended and restated or otherwise modified from time to time, the “Credit
Agreement”), among Mueller Group, Inc., a Delaware corporation (the “Borrower”),
the various financial institutions from time to time parties thereto as lenders
(the “Lenders”), Credit Suisse First Boston, acting through its Cayman
Islands Branch, as lead arranger and as sole book runner and as administrative
agent (in such capacity, the “Administrative Agent”) for the Lenders,
and JPMorgan Chase Bank and Deutsche Bank Securities Inc., as Syndication
Agents for the Lenders.  Unless otherwise
defined in this limited waiver request (this “Waiver Letter”) or unless
the context otherwise requires, terms used herein shall have the meanings
assigned to them in the Credit Agreement.


 


The
Borrower hereby requests that:


 


(a) the Lenders hereby agree to extend the Borrower’s
obligation to deliver quarterly financial statements with respect to the Fiscal
Quarter ended January 1, 2005 and a Compliance Certificate for such Fiscal
Quarter pursuant to clauses (a) and (c) of Section 7.1.1 of the Credit
Agreement until 5:00 p.m. (New York time) on March 31, 2005 (the “Expiration
Time”);


 


(b) the Lenders hereby (i) agree to extend the
Borrower’s obligation to deliver annual financial statements with respect to
the Fiscal Year ended September 30, 2004 (the “Annual Financial
Statements”) and a Compliance Certificate for such Fiscal Year pursuant to
clauses (b) and (c) of Section 7.1.1 of the Credit Agreement until the
Expiration Time and (ii) waive any Default under Section 8.1.4 of the
Credit Agreement arising from the failure to deliver such Annual Financial
Statements and related Compliance Certificate prior to the Expiration Time; and


 


(c)  the Lenders
hereby waive any Default arising under Sections 8.1.2 or 8.1.4 of the Credit
Agreement on account of any financial statements of the Borrower for any period
prior to the fourth quarter of the Fiscal Year ended September 30, 2004,
or any Compliance Certificate or other certificate or report relating to or
derived from any such financial statements or the Borrower’s and its
Subsidiaries’ financial performance for any such period, having failed to
comply with any requirement set forth in the Credit Agreement, or any
representation contained therein or with respect thereto not having been true
and correct, or true and correct in all material respects, in each case to the


 





















 


extent,
but only to the extent, that any such financial statements are restated as
contemplated in the Borrower’s press release attached hereto as Annex I;
provided that, as determined on the basis of such restated financial
statements, no violation of any provision of Section 7.2.4 of the Credit
Agreement shall have occurred as at, and for the period ended, June 26,
2004.


 


The Borrower hereby
agrees to pay to the Administrative Agent for the account of each Lender that
has delivered its signature page in a manner and before the time set forth
below, a waiver fee in an amount equal to 0.025% of the sum of (i) the
outstanding principal amount of Loans on the date hereof made by such Lender plus
(ii) such Lender’s Percentage of the unused portion of the Revolving Loan
Commitment Amount plus (iii) such Lender’s portion of the Letter of
Credit Outstandings on the date hereof, but payable only to each such Lender
that has delivered (including by way of facsimile) its executed signature page
to this Waiver Letter to the attention of Jason Kanner at Mayer, Brown, Rowe &
Maw, LLP, 1675 Broadway, New York, New York 10019, facsimile number:
212-262-1910, at or prior to 3:00 p.m. (New York time) on February 4, 2005
(the “Execution Date”).  The foregoing waiver fee shall be payable
only if this Waiver Letter shall have become effective on the Execution Date.


 


This Waiver Letter shall become effective as of the
date first above written upon receipt by the Administrative Agent of (x)
counterparts of this Waiver Letter duly executed by the Borrower and the
Required Lenders and (y) the foregoing waiver fee for the account of each
Lender executing this Waiver Letter on or prior to the Execution Date.


 


This Waiver Letter is a Loan Document executed
pursuant to the Credit Agreement and shall be construed, administered and
applied in accordance with all of the terms and provisions of the Credit
Agreement.


 


The Borrower acknowledges and agrees that (a) except
as expressly modified by this Waiver Letter, the Credit Agreement and each
other Loan Document shall remain unchanged and shall continue in full force and
effect in accordance with their terms, and this Waiver Letter shall be limited
to the express provisions modified hereby and to this occasion alone and (b) no
waiver or approval by any Lender hereunder shall (i) be applicable to subsequent
transactions or (ii) require any other waiver (whether similar or dissimilar to
the waivers granted by this Waiver Letter). 
This Waiver Letter may be executed in separate counterparts, each of
which shall be deemed to be an original and all of which shall constitute
together but one and the same Waiver Letter. 
Delivery of an
executed counterpart of a signature page to this Waiver Letter by facsimile
shall be effective as delivery of a manually executed counterpart of this
Waiver Letter.


 


Please return an executed copy of this Waiver Letter
to the Administrative Agent to evidence your approval to the limited waivers
and amendments described above.


 


	
   

  	
  MUELLER
  GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/

  	
   

  
	
   

  	
   

  	
   

  	
  Dale B. Smith

  	
   

  
	
   

  	
   

  	
  Title:

  	
   President and Chief
 Executive Officer

  	
   

  



 


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  THE UNDERSIGNED
  LENDER HEREBY

  AGREES TO THE TERMS ABOVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [INSERT NAME OF
  LENDER]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  



 


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ANNEX I


 


MUELLER WATER
PRODUCTS, INC.


500 West Eldorado Street,
Decatur, Illinois 62522


FOR IMMEDIATE RELEASE


 


CONTACT:                               Walt Smith, Treasurer


wsmith@muellerflo.com


(217) 425-7320


 


Mueller Water
Products, Inc. Announces Preliminary Financial Highlights for 2004 Fiscal

Year, Further Update on Accounting Investigation, Restatement of Prior Period
Financials

Management Change and Proposed Waiver under Credit Facility


 


Decatur, Illinois, January 28, 2005 / —Mueller Water Products,
Inc. (the “Company”) today announced preliminary financial highlights for
fiscal 2004 and an update on its accounting investigation, including a
restatement of prior period financials and management changes, and its intent
to seek a waiver under its credit facility.


 


Preliminary Financial Highlights for Fiscal
Year 2004


 


The Company reported the following preliminary and unaudited financial
highlights for the fiscal year ended September 30, 2004, which reflect the
currently expected impact of the restatements described below.  Investors should note that the information
presented is estimated and is subject to adjustment in connection with the
completion of the Company’s financial statements and related audit.


 


Net sales for the fiscal year ended September 30, 2004 are
estimated to be approximately $1,040 million, an increase of over $100 million
compared to net sales for the fiscal year ended September 30,
2003.   The increase in net sales
was driven primarily by continued strength and stability in the U.S.
residential construction market and increased spending by municipalities on
water infrastructure, replacement, repairs and upgrades for our water and
infrastructure products segment, and by improved economic conditions in the
U.S. non-residential construction market for our piping components segment.


 


Our EBITDA for the fiscal year ended September 30, 2004 is
estimated to be approximately $200 million. 
A reconciliation of EBITDA to net income determined in accordance with
GAAP is set forth in a table below.  This
increase of approximately $35 million compared to 2003 restated EBITDA was
driven primarily by increases in sales volumes and prices across our various
product lines and, for our piping components segment, by the Star acquisition,
and was partially offset by increases in raw materials prices.


 


Our operating income for the fiscal year ended September 30, 2004
is estimated to be approximately $115 million, an increase of approximately $20
million compared to our restated operating income for the fiscal year ended September 30,
2003.  This increase was driven


 


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primarily by increases in sales volumes and prices across our various
product lines and, for our piping components segment, by the Star acquisition,
and was partially offset by increases in raw materials prices and a stock
compensation charge of approximately $20 million incurred in connection with
the April recapitalization.


 


Net income for the fiscal year ended September 30, 2004 is
estimated to be relatively flat at approximately $35 million, and includes a
pre-tax stock compensation charge of approximately $20 million incurred in 2004
and higher interest expense principally as a result of the April recapitalization.


 


Consolidated net cash provided by operating activities, as measured
under GAAP, for the fiscal year ended September 30, 2004 is estimated to
be approximately $80 million, an increase of approximately $15 million from the
fiscal year ended September 30, 2003.


 


Investigation Update


 


As previously announced, on January 10, 2005, an independent
investigation of alleged accounting improprieties at Mueller Water Products,
Inc. (the “Company”) was concluded and a report was made to the Audit Committee
by the independent law firm retained by the Committee to conduct the
investigation.  The Company made the
following announcements today concerning the investigation and related events.


 


The report identified several areas requiring financial review by the
Company principally concerning the excess and obsolete (E&O) inventory
reserve matters discussed below, the capitalization of costs relating to a
project that should have been expensed in prior periods, the accrual of
reserves for this project without identifying support for such accruals and the
timing of recognition of revenue with regard to full truckload shipments that
were not immediately dispatched to customers by certain freight carriers used
by the Company.  The Company also has
identified some additional annual and interim out-of-period items in the course
of finalizing the 2004 financial statements. 
In addition, the Company determined that the value it assigned to stock
compensation in connection with the April 2004 recapitalization should be
revised.  The Company’s management and
Audit Committee determined yesterday that the Company’s financial statements
for fiscal years 2002 and 2003 and interim 
periods of fiscal year 2004 should no longer be relied upon.  This determination has been discussed with
the Company’s independent registered public accounting firm.  The Company will present its restated
financial statements for fiscal years 2002 and 2003 as part of its Annual
Report on Form 10-K for 2004.  The
Company will also restate its interim periods for fiscal years 2004 and 2003
to, among other things, reflect a higher non-cash stock compensation charge in
the third quarter of fiscal year 2004. 
Based upon current information, the Company preliminarily estimates that
the impact of the restatements will be to reduce operating income and pretax income
in 2002 by approximately $2.0 million, and in 2003 by approximately $3.0
million, and to increase operating income and pretax income in 2004 by
approximately $5.0 million.


 


The investigation report did not identify any fraud or intentional
misconduct by the Company or any of its employees.  However, the report identified: deficiencies
in the Company’s internal


 


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controls; a failure to establish, document or properly train personnel
with respect to certain accounting policies; a lack of understanding and proper
application of certain accounting policies by Company personnel; a lack of
sufficient technical expertise and understanding of SEC and accounting rules by
financial reporting personnel; an approach by personnel at the Company’s Henry Pratt
Company subsidiary to establishing E&O inventory reserves that was at least
negligent; and a failure by the Company’s senior financial management to
exercise proper diligence over and supervise the Henry Pratt E&O matters,
including a lack of appreciation of the impact of such issues on management
certifications and management representation letters (or the significance of
such certifications and letters) or the need to promptly inform the Company’s
independent registered public accounting firm of such issues.  The Company’s
Board of Directors has adopted the recommendations of the investigation report,
which are designed to remedy these deficiencies.  The Company’s independent registered public
accounting firm has advised the Company that certain of the Company’s control
deficiencies represent reportable conditions that collectively are considered
material weaknesses.


 


As part of the Company’s response to the report, Tom Fish, who has
served since August 1999 as the President of Anvil International, Inc.,
the Company’s piping systems product segment, has been appointed interim Chief
Financial Officer of the Company.  Prior
to that position, Mr. Fish had been Vice President of Finance and
Administration for a predecessor of the Company from 1992 to 1996.  Mr. Fish replaces Darrell Jean, who is
currently engaged in discussions with the Company about alternative management
positions at the Company.


 


The Company expects that completion of the financial statements and
annual reports by the Company and Mueller Group will continue to be delayed to
permit Mr. Fish to review and approve the Company’s work to-date and be in a
position to certify the financial statements as required by the Sarbanes-Oxley
Act.  The Company anticipates that it
will be in a position to file the annual reports within the next 30-60 days,
but there can be no assurances that the financial statements will be completed
during such time.


 


Waiver under Credit Facility


 


Mueller Group will seek a waiver until March 31, 2005 under its
credit facility with regard to the delay in providing its lenders with Mueller
Group’s 2004 audited financial statements and the restatement.  In addition, because Mueller Group will be
unable to file quarterly reports until it has completed its annual report on
Form 10-K, Mueller Group also will seek a waiver so that its quarterly
financials for the quarter ended January 1, 2005 may be provided and filed
at the same time as the 2004 annual financials or shortly thereafter.  Failure to file the Annual Reports on Form 10-K
by January 13, 2005 constituted defaults under the Company’s indenture and
Mueller Group’s indentures.  The Company
is not seeking waivers from its bondholders at this time.  The Company and Mueller Group will endeavor
to remedy any defaults by filing the Forms 10-K and subsequent Forms 10-Q
within the applicable grace periods under these debt instruments.


 


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Use of Non-GAAP Financial Information/EBITDA


 


EBITDA is defined as net income (loss) plus income tax expense,
interest expense and early debt repayment costs (not net of interest income),
depreciation and amortization expense and stock compensation charges that were
non-cash or incurred in connection with our April recapitalization. We
present EBITDA because we consider it an important supplemental measure of our
performance since it measures our operating performance before interest expense
and early debt repayment costs (which are subject to significant variation in
prior years due to changes in our capital structure). A tabular reconciliation
of EBITDA to net income for the year ended September 30, 2004 is set forth
below.  The non-GAAP financial
information should be considered in addition to, and not as a substitute for,
the financial information provided and presented in accordance with GAAP.  Other companies in our industry may calculate
EBITDA differently than we do, limiting its usefulness as a comparative
measure. EBITDA has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our results as
reported under GAAP.


 


RECONCILIATION
OF PRELIMINARY ESTIMATED EBITDA TO U.S. GAAP NET INCOME


(In
millions, unaudited)


 


	
   

  	
   

  	
  Year ended

  	
   

  
	
   

  	
   

  	
  September 30,

  	
   

  
	
   

  	
   

  	
  2004

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  GAAP Net Income

  	
   

  	
  $

  	
  35

  	
   

  
	
  Income Taxes

  	
   

  	
  15

  	
   

  
	
  Interest and Early Debt Repayment

  	
   

  	
  65

  	
   

  
	
  Depreciation and Amortization

  	
   

  	
  65

  	
   

  
	
  Stock Compensation

  	
   

  	
  20

  	
   

  
	
  EBITDA

  	
   

  	
  $

  	
  200

  	
   

  



 


About Mueller Water Products, Inc.


 


Mueller
Water Products, Inc. is a leading North American manufacturer of a broad range
of flow control products for use in water distribution, water and wastewater
treatment facilities, gas distribution systems and piping systems and maintains
a large installed base of products, including approximately three million
fire hydrants and eight million iron gate valves in the United States. We
operate through two business units: our water infrastructure products segment,
a leading manufacturer of hydrants, valves and other products for use in water
and gas distribution systems; and our piping systems products segment, a
leading manufacturer of fittings, pipe hangers and other products for use in
piping systems applications.  Our
products are sold to a wide variety of end-users, including municipalities,
publicly and privately owned water and wastewater utilities, gas utilities and
construction contractors.


 


Forward-Looking Statements


 


The
statements made in this press release that are not statements of historical
fact are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E 


 


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of
the Securities Exchange Act of 1934.  A forward-looking statement is
usually identified by our use of certain terminology including “believes,” “expects,
“may,” “will,” “should,” “seeks,” “anticipates” or “intends” or by discussions
of strategy or intentions.  A number of
factors could cause our actual results, performance, achievements or industry
results to be very different from the results, performance or achievements
expressed or implied by those forward-looking statements. These factors
include, but are not limited to: the competitive environment in our industry in
general and in the sectors of the flow control product industry in which we
compete; economic conditions in general and in the sectors of the flow control
product industry in which we compete; changes in, or our failure to comply
with, federal, state, local or foreign laws and government regulations;
liability and other claims asserted against our company; changes in operating
strategy or development plans; the ability to attract and retain qualified
personnel; our significant indebtedness; changes in our acquisition and capital
expenditure plans; technology shifts away from our technological strengths; and
unforeseen interruptions with our largest customers.


 


In
addition, forward-looking statements depend upon assumptions, estimates and
dates that may not be correct or precise and involve known and unknown risks,
uncertainties and other factors. Given these uncertainties, you are warned not
to rely on the forward-looking statements. We are not undertaking any
obligation to update these factors or to publicly announce the results of any
changes to our forward-looking statements due to future events or developments.


 


 


For investor inquiries, please call Walt Smith, Treasurer
(217-425-7320).


 


*   *   *


 


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