<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO. 333-42407
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNICCO SERVICE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 734 04-287-2501
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
FOUR COPLEY PLACE
BOSTON, MASSACHUSETTS 02116
(617) 859-9100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SEE TABLE OF ADDITIONAL REGISTRANTS
------------------------
GEORGE A. KECHES
CHIEF FINANCIAL OFFICER AND TREASURER
UNICCO SERVICE COMPANY
FOUR COPLEY PLACE
BOSTON, MASSACHUSETTS 02116
(617) 859-9100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
MICHAEL L. ANDRESINO, ESQ.
POSTERNAK, BLANKSTEIN & LUND, L.L.P.
100 CHARLES RIVER PLAZA
BOSTON, MASSACHUSETTS 02114-2723
(617) 973-6100
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
TABLE OF ADDITIONAL REGISTRANTS(1)
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL
INCORPORATION OR CLASSIFICATION
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER ORGANIZATION CODE NUMBER
- ----------------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
UNICCO Finance Corp. (Co-Issuer)............................................. Delaware 999
USC, Inc. (Guarantor)........................................................ Massachusetts 734
UNICCO Government Services, Inc. (Guarantor)................................. Delaware 734
UNICCO Security Services, Inc. (Guarantor)................................... Delaware 734
</TABLE>
- ---------------
(1) The address, including zip code, and telephone number, including area code,
of the additional Registrants' principal executive offices is Four Copley
Place, Boston, Massachusetts 02116, (617) 859-9100.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 6, 1998
PRELIMINARY PROSPECTUS
[UNICCO SERVICE CO. LOGO]
OFFER TO EXCHANGE
UP TO $105,000,000 OF
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF THE OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
OF
UNICCO SERVICE COMPANY
AND
UNICCO FINANCE CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON __________, 1998, UNLESS EXTENDED.
UNICCO Service Company, a Massachusetts business trust, and UNICCO Finance
Corp., a Delaware corporation (together, the "Issuers"), hereby offer, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal" and, together
with this Prospectus, the "Exchange Offer"), to exchange an aggregate of up to
$105,000,000 principal amount of 9 7/8% Senior Subordinated Notes due 2007,
Series B (the "Exchange Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), for an identical face amount of
the issued and outstanding 9 7/8% Senior Subordinated Notes due 2007 (referred
to individually as the "144A Notes," "IAI Notes" and "Reg S Notes"; collectively
as the "Series A Notes"; and, together with the Exchange Notes, the "Notes") of
the Issuers from the Holders (as defined herein) thereof in integral multiples
of $1,000 principal amount. As of the date of this Prospectus, there are
$105,000,000 in aggregate principal amount of the Series A Notes outstanding.
The terms of the Exchange Notes are identical in all material respects to the
Series A Notes, except that the Exchange Notes have been registered under the
Securities Act, and therefore will not bear legends restricting their transfer
described in the Registration Rights Agreement (as defined herein), the
provisions of which generally will terminate as to all of the Notes upon the
consummation of the Exchange Offer. The Exchange Notes will be obligations of
the Issuers evidencing the same indebtedness as the Series A Notes, and will be
entitled to the benefits of the same Indenture (as defined herein). UNICCO
Finance Corp. will not have any substantial operations or assets and will not
have any revenues. As a result, prospective participants in the Exchange Offer
should not expect UNICCO Finance Corp. to participate in servicing the interest
and principal obligations under the Exchange Notes. See "The Exchange Offer."
Interest on the Exchange Notes will be payable semi-annually in arrears on
April 15 and October 15 of each year, commencing on April 15, 1998. The Exchange
Notes will mature on October 15, 2007. The Exchange Notes are redeemable at any
time on or after April 1, 2002 at the option of the Issuers, in whole or in
part, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. Upon the occurrence of a
Change of Control (as defined herein), each holder of the Exchange Notes may
require the Issuers to purchase all or a portion of such holder's Exchange Notes
at a purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase. See "Description
of the Exchange Notes -- Repurchase at the Option of the Holders."
The Exchange Notes will be unsecured senior subordinated obligations of the
Issuers and, as such, will be subordinated in right of payment to all existing
and future senior indebtedness of the Issuers. The Exchange Notes will rank
equal in right of payment with all other existing and future senior subordinated
indebtedness, if any, of the Issuers, and senior in right of payment to all
existing and future subordinated indebtedness, if any, of the Issuers. The
Exchange Notes will be guaranteed, jointly and severally, on a senior
subordinated basis (the "Guarantees") by USC, Inc., UNICCO Government Services,
Inc. and UNICCO Security Services, Inc., each of which is a direct or indirect
wholly owned subsidiary of UNICCO Service Company (the "Guarantors" and,
together with the Issuers, the "Company"). The Guarantees will be unsecured
senior subordinated obligations of the Guarantors and will be subordinated to
all existing and future senior indebtedness of the Guarantors. See "Description
of the Exchange Notes -- Subsidiary Guarantees." As of September 28, 1997, on a
pro forma basis after giving effect to the Transactions (as defined herein), the
Company and the Guarantors would have had approximately $3.4 million in
aggregate principal amount of Senior Debt (as defined herein) outstanding,
consisting of outstanding borrowings under the Credit Facility (as defined
herein). In addition, the Company and the Guarantors would have had $41.6
million of additional senior borrowing capacity under the Credit Facility, and
$5.0 million of indebtedness ranking equal in right of payment with the Notes.
SEE "RISK FACTORS," BEGINNING ON PAGE 13 FOR A DISCUSSION OF MATERIAL
RISKS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
The Company will accept for exchange any and all validly tendered Series A
Notes on or prior to the Expiration Date (as defined herein). Tenders of Series
A Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date; otherwise such tenders are irrevocable. The Exchange Offer
is not conditioned upon any minimum principal amount of Series A Notes being
tendered for exchange. For certain conditions to the Exchange Offer, see "The
Exchange Offer -- Conditions."
The Series A Notes were offered and sold on October 17, 1997 in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. In general, the Series A
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act.
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement. The
Company has agreed to pay the expenses of the Exchange Offer. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to Exxon Capital Holdings
Corporation (available May 13, 1988) and Morgan Stanley and Co., Inc.,
(available June 5, 1991), the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Series A Notes may be offered for
resale, resold or otherwise transferred by any person in whose name Series A
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder (a "Holder")
thereof (other than any such Holder that is an "affiliate" of the Company within
the meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
Holder's business and such Holder does not intend to participate and has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. Holders who tender in the Exchange Offer with the
intention to participate in a distribution of the Exchange Notes may not rely
upon the Commission's no-action letters referred to above. In some cases,
certain broker-dealers may be required to deliver a prospectus in connection
with the resale of Exchange Notes.
Any beneficial owner of Series A Notes whose Series A Notes are registered
in the name of a broker, commercial bank, trust company or other nominee and who
wishes to participate in the Exchange Offer should contact such registered
Holder promptly and instruct such Holder to tender the Series A Notes on such
beneficial owner's behalf. See "The Exchange Offer -- Procedures for Tendering."
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such Series A Notes where such Series A Notes were
acquired by such broker-dealer for its own account as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company). The Company has agreed that, if requested, it will
supplement or amend this Prospectus as necessary in order to make this
Prospectus available to any broker-dealer for use in connection with any such
resale for a period of one year from the date hereof.
Prior to this Exchange Offer, there has been no public market for the
Notes. If a market for the Exchange Notes should develop, the Exchange Notes
could trade at a discount from their principal amount. The Company does not
intend to list the Exchange Notes on any securities exchange nor does the
Company intend to apply for quotation of the Exchange Notes on the NASDAQ
National Market or other quotation system. The Initial Purchaser (as defined
herein) has indicated to the Company that it intends to make a market in the
Notes, but is not obligated to do so and such market-making activities may be
discontinued at any time. As a result, no assurance can be given that an active
trading market for the Exchange Notes will develop.
The Exchange Notes issued pursuant to this Exchange Offer will be issued in
the form of a Global Exchange Note (as defined herein), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depository" or "DTC")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Exchange Note representing the Exchange Notes will be
shown on, and transfers thereof will be effected through, records maintained by
DTC and its participants. Notwithstanding the foregoing, Series A Notes held in
certificated form will be exchanged solely for Certificated Exchange
i
<PAGE> 4
Notes (as defined herein). After the initial issuance of the Global Exchange
Note, Certificated Exchange Notes will be issued in exchange for the Global
Exchange Note only on the terms set forth in the Indenture. See "Description of
the Exchange Notes -- Book-Entry, Delivery and Form."
As used in this Prospectus, the words "believes," "anticipates," "intends,"
"plans," "expects," and similar expressions are intended to identify the
Company's expectations or projections regarding future events. Various economic
and competitive factors could cause actual results or events to differ
materially from those discussed in such statements, including without
limitation, the Company's degree of leverage, the integration of recent or
future acquisitions, the Company's dependence on key personnel, competition,
potential environmental or other liabilities, the short-term nature of the
Company's contracts and the other factors discussed in this Prospectus with
respect to the Company's business, including those set forth under "Risk
Factors." Accordingly, such statements do not purport to be predictions of
future events or circumstances and may not be realized.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the
rules and regulations promulgated thereunder, covering the Exchange Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission and to which reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
For further information with respect to the Company and the Notes,
reference is made to the Registration Statement. A copy of the Registration
Statement can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Regional Officers of the Commission at
7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained from the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. The Commission maintains an Internet web site that contains
reports and other information regarding registrants that file electronically
with the Commission. The address of such site is http://www.sec.gov.
While any Series A Notes remain outstanding, the Company will make
available, upon request, to any Holder and any prospective purchaser of Series A
Notes the information required pursuant to Rule 144A(d)(4) under the Securities
Act during any period in which the Company is not subject to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any
such request should be directed to the Company at Four Copley Place, Boston,
Massachusetts 02116, Attention: Chief Financial Officer (telephone number (617)
859-9100).
Upon completion of the Exchange Offer, the Company will become subject to
the informational requirements of the Exchange Act, and in accordance therewith,
will file reports and other information with the Commission.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO
ii
<PAGE> 5
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
iii
<PAGE> 6
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. The following summary is qualified in its entirety by the more
detailed information, including "Risk Factors" and the Combined Financial
Statements and notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise requires, references herein to "UNICCO" or the "Company" are
to UNICCO Service Company and its subsidiaries after giving effect to the
Refinancing (as defined). Certain capitalized terms used herein are defined in
the section "Description of the Exchange Notes -- Certain Definitions."
References herein to a fiscal year of the Company are to the 52- or 53-week
period ended or ending on the last Sunday in June of such year.
THE COMPANY
Founded in 1949, UNICCO is a leading provider of integrated facilities
services to a broad base of industrial, commercial and institutional clients
throughout the United States and Canada. The Company offers an extensive array
of commercial, operational and administrative services to its customers,
providing a single source solution for those services that can be more
cost-effectively and efficiently outsourced. Services offered by the Company
include industrial and mechanical engineering, plant operations, custodial and
maintenance services, security services and administrative services. UNICCO has
developed a reputation for quality through nearly 50 years of service to its
customers. The Company has achieved a significant market presence and a leading
market share in many of its operating regions through a combination of internal
growth and strategic acquisitions. The Company believes that the breadth of its
services, its reputation for quality and its significant market presence
position it to provide a single source facilities management solution to local,
multi-location and national customers. The Company has over 19,000 employees
servicing approximately 900 customers, including 29 of the Fortune 100
companies, at approximately 3,000 customer locations. Throughout its history,
the Company has generated a record of growth and consistent profitability. For
the fiscal year ended June 29, 1997, the Company's net income, revenues and
EBITDA (as defined below) were $1.2 million, $533.9 million and $22.2 million,
respectively. For the three month period ended September 28, 1997, such amounts
were $578,000, $134.7 million and $5.5 million, respectively.
EBITDA is defined for purposes of this Prospectus as earnings before
provision for income taxes, interest expense, interest income and depreciation
and amortization. EBITDA as presented herein may not be comparable to similarly
titled measures used by other companies, depending upon the non-cash charges
included. When evaluating EBITDA, investors should consider that EBITDA (i)
should not be considered in isolation but together with other factors which may
influence operating and investing activities, such as changes in operating
assets and liabilities and purchases of property and equipment; (ii) is not a
measure of performance calculated in accordance with generally accepted
accounting principles; (iii) should not be construed as an alternative or
substitute for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial position
or cash flows; and (iv) should not be used as an indicator of the Company's
operating performance or as a measure of its liquidity. For the fiscal year
ended June 29, 1997 and the three months ended September 28, 1997, the Company's
cash flows from operating activities were $(35.8) million and $163,000,
respectively, cash flows from investing activities were $(2.5) million and
$(219,000), respectively, and cash flows from financing activities were $42.1
million and $(1.8) million, respectively.
<PAGE> 7
UNICCO analyzes the unique needs of each customer to develop a flexible,
integrated facilities services solution, comprised of a combination of the
following services:
<TABLE>
<CAPTION>
OPERATIONS & COMMERCIAL
ENGINEERING MAINTENANCE SERVICES
<S> <C> <C>
- - Mechanical Engineering - Facility Management/Repair - Janitorial/Housekeeping
- - Planning/Scheduling - Production Equipment - Recycling
- - Power Generation Maintenance/Repair - Snow Removal
Management - Warehouse Services and - Window Washing
- - Plant Engineering Inventory Control - Pest Control
- - Energy Management - Utility Program Management - Specialty Cleaning
- - Space Planning - Shipping/Receiving Services - Clean Rooms/
- - CAD Services - Construction Project Management High Tech
- - CMMS Programs - Waste Treatment - Sterile Environment
- - Environmental - Elevator/Escalator Maintenance - Landscaping/Grounds
- Fleet Maintenance Maintenance
- Roof Repair
- Telecommunications
</TABLE>
<TABLE>
<CAPTION>
SECURITY ADMINISTRATION
<S> <C>
- - Uniformed Guard Services - Subcontract Administration
- - Security/Protection Services - Materials Procurement
- - Access Control - Reprographics/Copy Center
- - Security Audits - Mail Distribution
- - Fire/Safety Administration - Audio/Visual Services
- - Document Control - Secretarial/Clerical Services
- - Telecommunications - Service Call Desk
- - Safety Training Programs - Switchboard/Reception
</TABLE>
2
<PAGE> 8
UNICCO has recently organized its operations around four Strategic Business
Units ("SBUs") to more effectively focus the Company's technical, sales and
marketing resources on the differing needs of its customers. The following table
provides an overview of the Company's four SBUs:
<TABLE>
<CAPTION>
EDUCATION/
HEALTHCARE/
COMMERCIAL INDUSTRIAL GOVERNMENT SECURITY
<S> <C> <C> <C>
Fiscal 1997 Revenues:
$214 Million $149 Million $110 Million $61 Million
Fiscal 1998 First Quarter Revenues:
$56 Million $35 Million $29 Million $15 Million
Types of Customer:
- - Commercial - Automotive - Schools - Industrial
Real Estate - Tire and Rubber - Universities - Commercial
- - Banking - Chemical - Hospitals - Education
- - Insurance - Pharmaceuticals - Healthcare - Healthcare
- - Retail - Aerospace/Defense Facilities - Government
- High Technology - Government Agencies
- Consumer Products
Major Customers(1):
- - Beacon - Chrysler - Harvard University - BASF Corp.
Properties/ Corporation - University of Miami - Bell Atlantic
Equity Office - Ford Motor Company - Henry Ford Health - Computer
Properties - Caterpillar System Associates
- - Hines Interests - Bridgestone/Firestone - U.S. Department of - Hartford Insurance
- - Trammell Crow - American Home Housing and - Northeastern
- - BankBoston Products Urban Development University
- - CIGNA - Bristol-Myers - U.S. General - Philadelphia
- - The Travelers Squibb Services Museum of Art
- - MITRE - Lockheed Martin Administration - United Nations
- Gillette Plaza
</TABLE>
- ---------------
(1) The Company has a diverse customer base, and the major customers listed
above are not necessarily representative of all customers.
The Company believes that opportunities for growth exist in each SBU,
particularly in the Industrial and Education/Healthcare/Government sectors, as a
result of the trend toward outsourcing non-core business functions to a single
source provider. Outsourcing frees the customer from the considerable
administrative and overhead burdens of hiring, training, compensating and
supervising a large, often unionized, labor force that is performing non-core
functions. UNICCO has responded to its customers' outsourcing strategies by
providing an expanded array of services that has evolved from traditional
custodial and building maintenance to higher value added services.
The Company has a customer base of approximately 900 accounts, with no
single customer accounting for more than 3% of revenues during fiscal 1997. The
Company's customer retention rate historically has been high. Forty-five
customers, representing approximately 75% of the Company's fiscal 1997 revenues,
have been UNICCO customers for an average of more than six years (excluding
revenues and customers resulting from the Ogden Allied Acquisition (as defined)
in June 1996). On a combined basis, the Company and Ogden (as defined) have
serviced their 20 largest customers, including the former Ogden customers, for
an average of 10 years. In addition, the Company has successfully retained over
90% of the customers acquired in the Ogden Allied Acquisition. UNICCO believes
that its strong reputation and long-term relationships with these customers is a
result of a high level of customer satisfaction. The Company also believes that
these established relationships enhance the Company's knowledge of its
customers' needs and place UNICCO in a strong competitive position to bid on and
win new business opportunities with these customers.
3
<PAGE> 9
BUSINESS STRENGTHS
UNICCO's revenues have increased through a combination of internal growth
and strategic acquisitions. The Company's growth, and its emergence as a leader
in the facilities services market in the United States and Canada, are
attributable to a number of factors, including the following:
High Customer Retention. The Company benefits from a large, stable base of
customers, including 29 of the Fortune 100 companies, 60 of the Fortune 500
companies and some of the country's most prestigious educational institutions.
The Company's customer base, together with its high customer retention rate,
have provided stable, recurring revenues and have contributed to the Company's
record of consistent profitability.
Established Reputation. The Company has established a reputation for
quality through almost 50 years of experience in providing dependable facilities
services solutions in a changing business environment. The Company believes that
its established reputation and the breadth of its services have allowed it to
further penetrate its existing customer base as well as attract new business.
The Company plans to enhance its reputation for dependability and technical
expertise by pursuing the highest levels of industry accreditation.
Singular Focus on Facilities Services. The Company is focused exclusively
on providing facilities services solutions to its customers, unlike many of its
larger competitors for whom facilities management is an adjunct to their primary
business or one of many other unrelated lines of business. The Company believes
that this exclusive focus gives it a competitive advantage in delivering
dependable, high quality services.
Established North American Presence. The Company provides services
throughout the United States and Canada from 16 regional offices to customers in
over 40 states and each of the Canadian provinces. The Company believes that it
can leverage this infrastructure to support the marketing and delivery of
services to new customers in strategic geographic areas and to obtain additional
business from major companies that seek to utilize a single source provider
nationwide.
Effective Human Resources and Labor Relations Management. UNICCO
successfully manages a large and diverse work force of over 19,000 full and
part-time employees. The Company places a major emphasis on attracting,
training, managing, motivating and retaining the human resources necessary to
meet its existing and future business needs. The Company's extensive industry
experience and sophisticated computer-based costing models allow it to
accurately assess the labor requirements of new contracts. UNICCO seeks to
efficiently integrate its customers' existing workforce, thereby minimizing the
transitional issues typically associated with contract inception. In addition,
the Company believes that its experience in managing both union and non-union
work forces has enhanced its ability to grow its business.
Experienced Management Team. The Company's senior management team has an
average of 17 years of experience in the facilities services industry. The
Company benefits from the quality and depth of its management personnel, who are
dedicated to building customer relationships and delivering quality services to
meet and exceed its customers' needs. Additionally, management has developed
sophisticated databases and costing systems to forecast expenses for individual
customers' service requirements across a variety of service lines. These
proprietary databases enhance UNICCO's ability to effectively price and compete
for customers and contracts.
Successful Acquisition History. Throughout its 50-year history, UNICCO has
benefited from several successful strategic acquisitions. The Company has
completed three acquisitions since 1990, incorporating operations with revenues
of approximately $20 million, $5 million and $389 million in 1990, 1992 and
1996, respectively. The Company believes that its successful integration of
these acquisitions has positioned it to take advantage of opportunities for
further consolidation within the facilities services industry.
4
<PAGE> 10
THE COMPANY'S STRATEGY
The Company's objective is to enhance its position as a leading provider of
facilities services solutions. The Company's strategy to meet this objective
includes the following initiatives:
Providing Integrated Facilities Solutions. UNICCO believes that an
attractive opportunity exists to expand the scope of work performed for existing
customers. Cross-selling new services to existing customers represents a
cost-effective method for the Company to achieve revenue growth. The Company
seeks to create partnerships with its customers that enable it to capitalize on
the trend toward outsourcing to single source providers. As part of this
strategy, the Company intends to focus its efforts on increasing the proportion
of its business devoted to delivering higher value added services to its
customers.
Leveraging its National Presence. UNICCO has established a significant
presence throughout the United States and Canada. The Company believes that it
can substantially increase the number of multi-location and national accounts it
serves by leveraging its existing infrastructure to support the marketing and
delivery of bundled services to new customers that operate multiple locations.
Capitalizing on Outsourcing Initiatives. The Company believes that it is
well positioned to capitalize on favorable trends in a growing number of
industries toward outsourcing of non-core business functions. Many companies
have increased the volume and types of services they outsource in order to free
their human and capital resources to better focus on their strategic business
initiatives. The Company believes that its established reputation and the
breadth of its services enhance its ability to attract this potential business.
Strategic Business Development. Through its recent organization into the
four SBUs, the Company is focused on developing specific operating and marketing
strategies targeted to the unique needs of its customers in diverse market
segments. Because of the diversity of UNICCO's existing and potential customer
base, the Company believes that it can position itself to attract higher value
added business by continuing to anticipate its customers' differing needs. The
Company believes that the SBU initiatives it has implemented will enable it to
more effectively leverage its resources to generate new clients and additional
contracts with existing clients.
Growing through Selective Acquisitions. UNICCO has successfully expanded
its business through internal growth and strategic acquisitions, including the
successful integration of the Ogden Allied Acquisition (as defined below), and
intends to seek additional opportunities to grow through selective acquisitions.
The Company may pursue acquisitions that add additional services and technical
capabilities to market to its existing customer base, or that facilitate
strategic expansion of the Company's customer base or complement its existing
geographic coverage.
THE OGDEN ALLIED ACQUISITION
On June 28, 1996, the Company consummated the strategic acquisition (the
"Ogden Allied Acquisition") of the Allied Facilities Services Business of Ogden
Corporation ("Ogden"). The Ogden Allied Acquisition expanded the Company's
geographic range to cover most of the United States and Canada. The purchase
price for the Ogden Allied Acquisition was $62 million, of which $50 million was
paid in cash and $12 million was paid in the form of a subordinated promissory
note (the "Ogden Note"). The Ogden Note was repurchased from Ogden for $11
million with a portion of the net proceeds of the Series A Notes. See "Use of
Proceeds" and "Business -- History of the Company; the Ogden Allied
Acquisition."
5
<PAGE> 11
UNICCO FINANCE
UNICCO Finance is a wholly-owned subsidiary of UNICCO that was incorporated
in Delaware in October 1997 in order to facilitate the Offering of the Series A
Notes by serving as a co-issuer of the Series A Notes. The Company believed that
certain prospective purchasers of the Series A Notes may have been restricted in
their ability to purchase debt securities of a Massachusetts business trust,
such as UNICCO, unless such debt securities were jointly issued by a
corporation. UNICCO Finance will not have any substantial operations or assets
and will not have any revenues. As a result, prospective participants in the
Exchange Offer should not expect UNICCO Finance to participate in servicing the
interest and principal obligations under the Exchange Notes. See "Description of
the Exchange Notes -- General."
THE OFFERING
The Series A Notes......... The Series A Notes were sold by the Company to the
Initial Purchaser on October 14, 1997 (the
"Offering"), and were subsequently resold to (i)
Qualified Institutional Buyers (as defined herein)
pursuant to Rule 144A under the Securities Act,
(ii) other institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act) that executed and delivered a
letter containing certain representations and
agreements or, (iii) outside the United States in
reliance on Regulation S under the Securities Act
in a manner exempt from registration under the
Securities Act.
Registration Rights
Agreement.................. In connection with the Offering, the Company
entered into the Registration Rights Agreement,
which grants Holders of the Series A Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange and
registration rights, which generally terminate upon
the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered......... $105,000,000 in aggregate principal amount of
9 7/8% Senior Subordinated Notes due 2007, Series
B.
The Exchange Offer......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of Series
A Notes. As of the date hereof, $105,000,000 in
aggregate principal amount of Series A Notes is
outstanding. The Company will issue the Exchange
Notes to Holders on or promptly after the
Expiration Date. The terms of the Exchange Notes
are substantially identical in all material
respects (including principal amount, interest rate
and maturity) to the terms of the Series A Notes
for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are
freely transferable by holders thereof (other than
as provided herein), and are not subject to any
covenant regarding registration under the
Securities Act. See "The Exchange Offer." Other
than compliance with applicable federal and state
securities laws, including the requirement that the
Registration Statement be declared effective by the
Commission, there are no material federal or state
regulatory requirements to be complied with in
connection with the Exchange Offer.
Interest Payments.......... The Exchange Notes will bear interest from October
17, 1997, the date of consummation of the issuance
of the Series A Notes, or the most recent interest
payment date to which interest on such Series A
Notes has been paid, whichever is later.
Accordingly, Holders of Series A
6
<PAGE> 12
===============================================================================
Notes that are accepted for exchange will not
receive interest on such Series A Notes that is
accrued but unpaid at the time of tender, but such
interest will be payable on the first interest
payment date after the Expiration Date.
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Series A
Notes being tendered for exchange.
Expiration Date............ 5:00 p.m., New York City time, on ,
1998 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended.
Exchange Date.............. The date of acceptance for exchange of the Series A
Notes will be the first business day following the
Expiration Date.
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date by
providing the Exchange Agent (as defined) with a
written or facsimile transmission of a notice of
withdrawal. See "The Exchange Offer -- Withdrawal
of Tenders." The Company will determine if a
withdrawal is effective. Any Series A Notes
withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer.
Properly withdrawn Series A Notes may be
retendered. See "The Exchange Offer -- Procedures
for Tendering."
Acceptance Of Series A
Notes And Delivery Of
Exchange Notes........... The Company will accept for exchange any and all
Series A Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer."
Conditions To The Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
Procedures For Tendering
Series A Notes........... To tender pursuant to the Exchange Offer, a Holder
must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, have
the signatures therein guaranteed if required by
instruction 4 of the Letter of Transmittal, or an
Agent's Message (as defined below) in the case of a
book entry transfer and mail or otherwise deliver
such Letter of Transmittal, or such facsimile,
together with the Series A Notes and any other
required documentation to the Exchange Agent at the
address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. See "The
Exchange Offer -- Procedures for Tendering" and
"Plan of Distribution." By executing the Letter of
Transmittal, each Holder will represent to the
Company that, among other things, the Holder or the
person receiving such Exchange Notes, whether or
not such person is the Holder, is acquiring the
Exchange Notes in the ordinary course of business
and that neither the Holder nor any such other
person intends to participate or has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. In lieu of physical delivery of the
certificates representing Series A Notes, tender-
===============================================================================
7
<PAGE> 13
================================================================================
ing Holders may transfer Series A Notes pursuant to
the procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering."
Special Procedures For
Beneficial Owners.......... Any beneficial owner whose Series A Notes are
registered in the name of a broker, commercial
bank, trust company or other nominee and who wishes
to tender in the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering
the Series A Notes, either make appropriate
arrangements to register ownership of the Series A
Notes in such beneficial owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Series A Notes who wish to tender their
Series A Notes and whose Series A Notes are not
immediately available or who cannot deliver their
Series A Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the requirements for book-entry transfer) prior to
the Expiration Date must tender their Series A
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Federal Income Tax
Consequences............. The issuance of the Exchange Notes to Holders
pursuant to the terms set forth in this Prospectus
will not constitute an exchange for federal income
tax purposes. Consequently, no gain or loss would
be recognized by Holders upon receipt of the
Exchange Notes. See "The Exchange Offer -- Material
Federal Income Tax Consequences of the Exchange
Offer."
Consequences of Failure to
Exchange................. Any Series A Notes that are not properly tendered
will, following the consummation of the Exchange
Offer, continue to be subject to the existing
restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer, the
registration rights under the Registration Rights
Agreement generally will terminate. Following the
Exchange Offer, the trading market, if any, for
Series A Notes may be adversely affected.
Use Of Proceeds............ There will be no proceeds to the Company from the
exchange of Series A Notes pursuant to the Exchange
Offer.
Exchange Agent............. State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in connection
with the Exchange Offer. See "The Exchange
Offer -- Exchange Agent and Information Agent."
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Series A Notes (which they replace) except that (i) the Exchange Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (ii) the holders of Exchange Notes
================================================================================
8
<PAGE> 14
================================================================================
generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt as
the Series A Notes and will be entitled to the benefits of the indenture
pursuant to which the Series A Notes were issued (the "Indenture"). See
"Description of the Exchange Notes."
Issuers.................... UNICCO Service Company, a Massachusetts business
trust, and UNICCO Finance Corp., a Delaware
corporation.
Securities Offered......... $105 million in aggregate principal amount of
9 7/8% Senior Subordinated Notes due 2007, Series
B.
Maturity................... October 15, 2007.
Interest................... The Exchange Notes will bear interest at the rate
of 9 7/8% per annum, payable semi-annually in
arrears on April 15 and October 15 of each year,
commencing on April 15, 1998.
Guarantees................. The Exchange Notes will be guaranteed by all of the
Company's existing Domestic Restricted Subsidiaries
(the "Guarantors"), and all Domestic Restricted
Subsidiaries created or acquired by the Company in
the future.
Ranking.................... The Exchange Notes will be general unsecured
obligations of the Issuers and will be subordinated
in right of payment to all existing and future
Senior Debt of the Issuers. As of September 28,
1997, after giving pro forma effect to the
Transactions, the Issuers would have had
approximately $3.4 million of Senior Debt
outstanding, consisting of outstanding borrowings
under the Credit Facility. In addition, the Issuers
would have had $41.6 million of additional
borrowings available under the Credit Facility. See
"Use of Proceeds" and "Unaudited Pro Forma
Financial Data."
Optional Redemption........ Except as set forth below, the Exchange Notes will
not be redeemable at the option of the Issuers
prior to October 15, 2002. Thereafter, the Exchange
Notes will be subject to redemption at any time at
the option of the Issuers, in whole or in part, at
the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages,
if any, thereon to the redemption date. In
addition, at any time prior to October 15, 2000,
the Issuers may redeem up to an aggregate of $33.0
million in principal amount of Exchange Notes at a
redemption price equal to 109.875% of the principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of an
initial public offering of common equity of the
Company, provided that at least $72.0 million in
principal amount of Exchange Notes remains
outstanding immediately after the occurrence of
such redemption.
Change of Control.......... In the event of a Change of Control, the Issuers
will be required to make an offer to each holder of
Exchange Notes to repurchase all or any part of
such holder's Exchange Notes at a repurchase price
equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages,
if any, thereon to the repurchase date.
Covenants.................. The Indenture contains certain covenants that,
among other things, limit the ability of the
Issuers and the Company's Restricted Subsidiaries
(as defined) to incur additional Indebtedness (as
defined), pay dividends, repurchase Equity
Interests (as defined) or make other Restricted
================================================================================
9
<PAGE> 15
================================================================================
Payments (as defined), create Liens (as defined),
enter into transactions with Affiliates (as
defined), sell assets or enter into certain mergers
and consolidations. See "Description of the
Exchange Notes."
Registration Rights........ The Registration Rights Agreement provides that if
(i) the Issuers are not required to file the
Exchange Offer Registration Statement or permitted
to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law
or Commission policy or (ii) in certain
circumstances, a Holder notifies the Company prior
to the 20th day following consummation of the
Exchange Offer (a) that it is prohibited by law or
Commission policy from participating in the
Exchange Offer, (b) it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the
prospectus contained in the Exchange Offer
Registration Statement is not appropriate or
available for such resales or (c) it is a
broker-dealer and owns Series A Notes acquired
directly from the Issuers or an affiliate of the
Issuers, the Issuers will file with the Commission
a shelf registration statement (the "Shelf
Registration Statement") to cover resales of the
Series A Notes by the Holders thereof who satisfy
certain conditions relating to the provision of
information in connection with the Shelf
Registration Statement.
The interest rate on the Notes is subject to
increase under certain circumstances if the Company
is not in compliance with its obligations under the
Registration Rights Agreement. See "Description of
the Exchange Notes -- Registration Rights;
Liquidated Damages."
Lack Of Prior Market For
The Exchange Notes......... The Exchange Notes will be new securities for which
there is currently no established trading market.
The Company does not intend to apply for listing of
the Exchange Notes on any national securities
exchange or for quotation of the Exchange Notes on
any automated dealer quotation system. The Company
has been advised by the Initial Purchasers that
they presently intend to make a market in the
Exchange Notes, although they are under no
obligation to do so and may discontinue any market-
making activities at any time without notice.
Accordingly, no assurance can be given as to the
liquidity of the trading market for the Exchange
Notes or that an active public market for the
Exchange Notes will develop. If an active trading
market for the Exchange Notes does not develop, the
market price and liquidity of the Exchange Notes
may be adversely affected. If the Exchange Notes
are traded, they may trade at a discount from their
initial offering price, depending on prevailing
interest rates, the market for similar securities,
the performance of the Company and certain other
factors. See "Risk Factors -- Absence of Public
Market for the Exchange Notes -- Lack of
Liquidity."
RISK FACTORS
Holders of the Series A Notes should carefully consider the matters set
forth under "Risk Factors," as well as the other information and financial
statements and data included in this Prospectus prior to deciding to tender
Series A Notes in the Exchange Offer.
================================================================================
10
<PAGE> 16
SUMMARY FINANCIAL DATA
The following summary financial data as of and for each of the three years
in the period ended June 29, 1997 and as of September 28, 1997 and for the three
month periods ended September 28, 1997 and September 29, 1996 have been derived
from, and are qualified by reference to, the Combined Financial Statements of
the Company included elsewhere in this Offering Memorandum. The pro forma data
as of and for the year ended June 29, 1997 give effect to the Transactions (as
defined) as if they had occurred as of July 1, 1996, in the case of the
statement of operations and other financial data, and as of June 29, 1997, in
the case of the balance sheet data. The pro forma data as of and for the
three-month period ended September 28, 1997 give effect to the Offering (as
defined) as if it had occurred as of July 1, 1996, in the case of the statement
of operations data and as of September 28, 1997 in the case of the balance sheet
data. The pro forma data do not purport to be indicative of the results that
actually would have been obtained had the Transactions been completed as of such
dates and are not intended to be a projection of the Company's future results of
operations or financial position. The following information should be read in
conjunction with "Use of Proceeds," "Capitalization," "Selected Financial Data,"
"Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Combined Financial
Statements of the Company, including the notes thereto, included elsewhere in
this Offering Memorandum.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTH PRO FORMA
---------------------------- PRO FORMA PERIOD ENDED THREE-MONTH
JUNE JUNE YEAR ENDED ----------------------------- PERIOD ENDED
25, 30, JUNE 29, JUNE 29, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 28,
1995 1996(1) 1997 1997 1996 1997 1997
------- ------- -------- ------------ ------------- ------------- -------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues......................... $88,095 $98,315 $533,882 $533,882 $ 128,310 $ 134,717 $ 134,717
Cost of revenues................. 74,695 84,244 482,526 482,526 115,929 121,147 121,147
------- ------- -------- -------- --------- --------- ---------
Gross profit................... 13,400 14,071 51,356 51,356 12,381 13,570 13,570
Selling, general and
administrative expenses........ 10,204 11,491 31,660 31,660 6,565 8,606 8,606
Amortization of intangible
assets......................... 535 551 4,749 4,749 1,191 1,191 1,191
------- ------- -------- -------- --------- --------- ---------
Income from operations......... 2,661 2,029 14,947 14,947 4,625 3,773 3,773
Interest income.................. 107 85 67 67 1 1 1
Interest expense................. (80) (178) (11,492) (11,651)(7) (2,459) (3,007) (3,326)(7)
------- ------- -------- -------- --------- --------- ---------
Income before provision for
income taxes................. 2,688 1,936 3,522 3,363 2,167 767 448
Provision for income taxes(2).... 214 189 2,339 2,069 940 189 153
------- ------- -------- -------- --------- --------- ---------
Net income..................... $ 2,474 $ 1,747 $ 1,183 $ 1,294 $ 1,227 $ 578 $ 295
======= ======= ======== ======== ========= ========= =========
OTHER FINANCIAL DATA:
EBITDA(3)........................ $ 3,863 $ 3,399 $ 22,209 $ 22,209 $ 6,357 $ 5,551 $ 5,551
EBITDA margin(4)................. 4.4% 3.5% 4.2% 4.2% 5.0% 4.1% 4.1%
Cash Flow:
Operating activities........... 1,018 5,643 (35,841) (41,537) 163
Investing activities........... (1,190) (52,399) (2,529) (355) (219)
Financing activities........... 172 46,792 42,140 41,883 (1,766)
Depreciation and amortization.... $ 1,202 $ 1,370 $ 7,262 $ 7,262 $ 1,732 $ 1,777 $ 1,777
Capital expenditures............. 949 1,227 2,578 2,578 355 249 249
Ratio of EBITDA to cash interest
expense(5)..................... 2.0x 1.9x
Ratio of net debt to EBITDA(6)... 4.9x 5.0x
Ratio of earnings to fixed
charges(8)..................... 7.5x 4.6x 1.3x 1.7x 1.2x
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 29, 1997 SEPTEMBER 28, 1997 PRO FORMA
------------------- ------------------ AS OF
HISTORICAL (UNAUDITED) SEPTEMBER 28, 1997
------------------- ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 3,928 $ 2,106 $ 2,106
Working capital........................................... 45,050 45,291 53,476
Total assets.............................................. 161,087 156,433 158,734
Total long-term debt (including current maturities)....... 107,147 106,263 112,922
</TABLE>
11
<PAGE> 17
- ---------------
(1) Fiscal 1996 was a 53-week year. As a result, the Company's results of
operations for fiscal 1996 include approximately $1.0 million of payroll and
payroll-related expenses attributable to the additional week of operations
that were not billed in the period to customers with fixed price contracts.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) For the years ended June 25, 1995 and June 30, 1996, the Company was not
subject to federal and certain state income taxes as it had elected to be
treated as a subchapter S corporation. For the year ended June 29, 1997,
certain entities of the Company were taxed as C corporations through
December 31, 1996, at which time they elected to be treated as subchapter S
corporations. See Note 7 of Notes to the Company's Combined Financial
Statements.
(3) EBITDA is defined as earnings before provision for income taxes, interest
expense, interest income and depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator of a leveraged
company's ability to service and/or incur indebtedness and because
management believes that EBITDA is a relevant measure of the Company's
ability to generate cash without regard to the Company's capital structure
or working capital needs. EBITDA as presented may not be comparable to
similarly titled measures used by other companies, depending upon the
non-cash charges included. When evaluating EBITDA, investors should consider
that EBITDA (i) should not be considered in isolation but together with
other factors which may influence operating and investing activities, such
as changes in operating assets and liabilities and purchases of property and
equipment; (ii) is not a measure of performance calculated in accordance
with generally accepted accounting principles; (iii) should not be construed
as an alternative or substitute for income from operations, net income or
cash flows from operating activities in analyzing the Company's operating
performance, financial position or cash flows; and (iv) should not be used
as an indicator of the Company's operating performance or as a measure of
its liquidity.
(4) EBITDA margin represents EBITDA as a percentage of revenues.
(5) Cash interest expense is defined as interest expense excluding amortization
of deferred financing costs.
(6) Net debt is defined as total long-term debt minus cash as of the end of the
period presented. EBITDA for the first quarter of fiscal 1998 has been
annualized for the purposes of calculating this ratio.
(7) Pro forma interest expense reflects (i) $438,500 of amortization of deferred
debt issuance costs related to the offering of the Series A Notes, (ii)
$49,350 of amortization of original issue discount related to the Series A
Notes, (iii) interest expense related to the Series A Notes and (iv)
interest expense related to pro forma borrowings under the Credit Facility
at an assumed interest rate of 7.63%, which is the interest rate that would
have been applicable under the Credit Facility for the year ended June 29,
1997. Pro forma interest expense for the three month period ended September
28, 1997 was calculated in a similar fashion.
(8) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before provision for income taxes, plus fixed charges.
Fixed charges consist of interest, amortization of deferred financing costs,
amortization of debt discount and that portion of rental payments on
operating leases deemed representative of the interest factor.
12
<PAGE> 18
RISK FACTORS
In addition to the other information set forth and incorporated by
reference herein, Holders of Series A Notes should carefully consider the
following information in evaluating the Company and its business before deciding
to tender the Series A Notes in the Exchange Offer. The information contained
and incorporated by reference herein contains forward-looking statements that
involve a number of risks and uncertainties. A number of factors, including
those discussed below, could cause results to differ materially from those
anticipated by such forward-looking statements. In addition, such
forward-looking statements are necessarily dependent upon assumptions, estimates
and data that may be incorrect or imprecise. Accordingly, any forward-looking
statements included or incorporated by reference herein do not purport to be
predictions of future events or circumstances and may not be realized.
RISK FROM SIGNIFICANT LEVERAGE
The Company is highly leveraged. As of September 28, 1997, after giving pro
forma effect to the Transactions, the Company would have had total consolidated
indebtedness of approximately $112.9 million and a ratio of long-term debt to
total capitalization of approximately 94.8%. See "Capitalization" and "Unaudited
Pro Forma Financial Data." The Company may incur additional indebtedness in the
future, including through available borrowings under the Credit Facility,
subject to the satisfaction of certain financial tests. See "Description of
Other Indebtedness -- Credit Facility" and "Description of the Exchange Notes --
Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock."
The degree to which the Company is leveraged could have important
consequences to the holders of the Exchange Notes, including the following: (i)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be limited or
impaired; (ii) the Company's flexibility with respect to certain matters will be
limited by covenants contained in the Indenture and the Credit Facility which
will limit the ability of the Company and its subsidiaries to incur additional
indebtedness, grant liens, pay dividends, redeem capital stock, prepay certain
subordinated indebtedness and enter into mergers and other similar transactions;
and (iii) the Company's degree of leverage may make it more vulnerable to
economic downturns, limit its ability to pursue other business opportunities and
reduce its flexibility in responding to changing business and economic
conditions. Any such consequence could have a material adverse effect on the
Company.
The Company's ability to generate cash for the repayment of debt, including
the Exchange Notes, will be dependent upon the future performance of the
Company's business, which will in turn be subject to financial, competitive,
economic and other factors affecting the operations of the Company, including
certain factors beyond its control.
SUBORDINATION OF THE EXCHANGE NOTES TO OTHER INDEBTEDNESS
The Exchange Notes will be unsecured obligations of the Issuers and will be
subordinated in right of payment to all current and future Senior Debt of the
Issuers, including all indebtedness of the Issuers under the Credit Facility. In
addition, the guarantees of the Exchange Notes will be subordinated to all
current and future Senior Debt of the Guarantors, including the Guarantors'
obligations under the Credit Facility. See "Description of the Exchange
Notes -- Subordination." As of September 28, 1997, after giving pro forma effect
to the Transactions, the Issuers would have had approximately $3.4 million of
Senior Debt outstanding, consisting of outstanding borrowings under the Credit
Facility. In addition, the Issuers would have had $41.6 million of additional
borrowings available under the Credit Facility. As a result of the subordination
provisions of the Indenture, in the event of a liquidation or insolvency
involving the Company, holders of the Exchange Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt, which may have a
material adverse effect on the value of the Exchange Notes. The Indenture will
permit the Company to incur additional Senior Debt, subject to certain financial
tests. See "Description of the Exchange Notes -- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock."
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EFFECT OF RESTRICTIONS IMPOSED ON THE COMPANY BY TERMS OF INDEBTEDNESS
The Indenture governing the terms of the Exchange Notes contains certain
covenants limiting, subject to certain exceptions, the incurrence of additional
indebtedness, the payment of dividends, the redemption of capital stock, the
making of certain investments, the issuance of capital stock of subsidiaries,
the creation of liens and other restrictions affecting the Company's
subsidiaries, the issuance of guarantees, transactions with affiliates, asset
sales and certain mergers and consolidations. A breach of any of these covenants
could result in an event of default under the Indenture. In addition, the New
Credit Facility and the instruments governing the Company's other indebtedness
contain other more restrictive covenants and require the Company to satisfy
certain financial tests. The Company's inability to comply with such covenants
and breach of any of these covenants could result in an event of default under
the New Credit Facility or such other instruments. In the event of such a
default, the lenders thereunder could elect to declare all amounts borrowed,
together with accrued interest, to be immediately due and payable, and the
lenders under the New Credit Facility could foreclose on the assets securing the
New Credit Facility or cease to provide additional loans. In addition, a default
under the Indenture could constitute a cross-default under the New Credit
Facility and any instruments governing the Company's other indebtedness. In the
event of a default under the New Credit Facility or other Senior Debt of the
Company, the subordination provisions of the Indenture may restrict payments
with respect to the Exchange Notes. Any such default would have a material
adverse effect on the value of the Exchange Notes. See "-- Subordination of the
Exchange Notes," "Description of the Exchange Notes -- Certain Covenants" and
"Description of Other Indebtedness."
COMPETITIVE RISKS
The facilities services industry is highly competitive. The Company
competes against large national and multi-national organizations, most of which
have greater financial and marketing resources than the Company. In the various
local marketplaces for core janitorial and custodial services, barriers to entry
are low, and the Company competes against numerous smaller service providers,
many of which may have more experience in and knowledge of the local market for
such services. In these same markets, the Company is also increasingly facing
large competitors that are willing to accept lower profit margins in order to
capture market share. There can be no assurance that competition will not have
an adverse effect on the Company's financial condition or results of operations
or on the value of the Exchange Notes. See "Business -- Competition."
SUCCESS DEPENDENT ON KEY PERSONNEL
The Company is a service business that is highly dependent upon the
strength of its customer relationships. Accordingly, the Company's success
depends to a large extent upon the continued services of its key managers. In
particular, the Company is dependent upon the day-to-day leadership and
experience of Steven C. Kletjian, its Chairman, Chief Executive Officer and
principal shareholder. Mr. Kletjian is not subject to an employment agreement
with the Company or any of its subsidiaries. In addition, retention of other key
personnel is important to the continued success of the Company. The loss of
other key executive personnel could have a material adverse effect on the
Company and the Value of the Exchange Notes. See "Management."
DEPENDENCE ON HOURLY WAGE AND UNION EMPLOYEES
The Company's business depends upon its ability to continue to recruit,
train and retain large numbers of hourly wage employees. Competition for such
employees, particularly in areas with strong regional economies, has led to
increased hourly wage levels and employee turnover. Inability to recruit, train
and retain such employees at competitive wage rates could have a material
adverse effect on the Company. In addition, the Company's workforce is heavily
unionized. Approximately 44% of the Company's workforce is unionized under more
than 170 different union contracts. As these union contracts expire, the Company
may be required to renegotiate them in an environment of increasing wage rates.
In addition, there can be no assurance that the Company will be able to
renegotiate union contracts on terms favorable to the Company or without
experiencing a work stoppage. Material increases in wages or union work
stoppages could have a material adverse effect on the Company. See
"Business -- Employees."
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SHORT-TERM NATURE OF CERTAIN CONTRACTS
The Company performs the majority of its work for customers under contracts
with a stated term of from one to three years, with termination clauses
permitting the customer to cancel the contract on 30 to 90 days' notice. While
the Company has maintained long-standing relationships with many of its
customers, and has experienced a low customer turnover rate, there can be no
assurance that the Company's customers will not exercise their rights to
terminate their contracts prior to expiration, or that the Company will be
successful in negotiating new contracts with customers as such contracts expire.
See "Business -- Contracts."
RISK OF CUSTOMER CONCENTRATION
While the Company maintains a diverse customer base of approximately 900
accounts, only 45 of these customers, or approximately 5% of the Company's
customer base, accounted for approximately 75% of the Company's revenues in
fiscal 1997. This concentration of the Company's major accounts could have a
material adverse impact on the Company's results of operations in the event that
a significant number of major customers were to discontinue or curtail their use
of the Company's services in the future.
RISK OF CONTROL BY PRINCIPAL SHAREHOLDERS
All of the voting common shares of beneficial ownership in the Company are
privately-held by members of the Kletjian family. The Kletjian family will have
the ability to approve or disapprove of any matter requiring action by
shareholders. See "Share Ownership." As a result, these persons are in a
position to elect the Company's Board of Trustees, and to control the
management, policies and operations of the Company. These persons do not owe
fiduciary duties to the holders of the Notes.
ENVIRONMENTAL RISKS
The nature of the Company's business necessarily involves the transport,
storage, use and disposal of cleaning solvents, lubricants, chemicals and other
hazardous materials by Company employees to, on and around the customers'
facilities or, in certain cases, facilities leased by the Company on behalf of
its customers. Such activities are subject to stringent and changing federal,
state and local regulation, and present the potential for liability of the
Company for the actions of its employees in handling such materials. In
addition, the exposure of the Company's employees to these materials may give
rise to claims by employees against the Company. As a result, there can be no
assurance that compliance with governmental regulations or liability related to
hazardous materials will not have a material adverse effect on the Company's
financial condition or results of operations. See "Business -- Facilities."
EXPOSURE TO LIABILITY CLAIMS AND SUFFICIENCY OF INSURANCE COVERAGE
The nature of the Company's services exposes it to risks of liability for
employee acts (including negligence and harassment), injuries (including
workers' compensation claims) and omissions. The Company carries insurance of
various types, including workers' compensation, employment practices, vehicle
and general liability coverage. While the Company seeks to maintain appropriate
levels of insurance, there can be no assurance that the Company will avoid
material claims or adverse publicity related thereto. There can also be no
assurance that the Company's insurance will be adequate to cover the Company's
liabilities or that such insurance coverage will remain available at acceptable
costs. A successful claim brought against the Company for which coverage is
denied or which is in excess of its insurance coverage could have a material
adverse effect on the Company's financial condition or results of operations.
RESTRICTIONS IMPOSED BY GOVERNMENTAL REGULATION
Due to the nature of the Company's business, particularly in its Security
SBU, the Company's operations are subject to a variety of federal, state, county
and municipal laws, regulations and licensing requirements, including labor,
employment, immigration, health and safety and environmental regulations and
regulations affecting private security firms. Changes in such laws, regulations
and licensing requirements may constrain the Company's ability to provide
services to customers or increase the costs of such services. In addition,
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competitive pricing conditions in the industry may constrain the Company's
ability to adjust its billing rates to reflect any such increased costs. Any
such regulatory changes could have a material adverse effect on the Company.
ACQUISITION RISKS
As part of its strategy, the Company may pursue the acquisition of other
companies, assets or business lines that complement or expand its existing
business. Acquisitions involve a number of risks that could adversely affect the
Company, including the diversion of management's attention, the unsuccessful
integration of the operations and personnel of the acquired companies and the
potential loss of key employees or customers of the acquired operations. The
Company may not have had experience with the geographic or service markets of
the acquired business and accordingly may lack the management and marketing
expertise that will be necessary to successfully operate and integrate the
business. In addition, there can be no assurance that the Company will continue
to retain acquired management and other personnel, that the market will
favorably view the Company's entry into a new geographic or service market, or
that the Company will realize any of the other anticipated benefits of an
acquisition. A failure to integrate future acquisitions by the Company may
materially and adversely affect the Company. No assurance can be given that any
such future acquisition will enhance the Company's business.
RISK OF A CHANGE OF CONTROL
In the event of a Change of Control, the Issuers will be required to make
an offer to each holder of Exchange Notes to repurchase all or any part of such
holder's Exchange Notes at a repurchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the repurchase date. The source of funds for any such repurchase
would be the Company's available cash or cash generated from operating or other
sources, including borrowings, sales of equity or funds provided by a new
controlling person. However, there can be no assurance that sufficient funds
will be available at the time of any Change of Control to make any required
purchases of the Exchange Notes tendered. In addition, the Credit Facility may
prohibit the Company from making any such required repurchases. The failure of
the Company to offer to repurchase Exchange Notes, or to repurchase Exchange
Notes tendered, following a Change of Control will result in a default under the
Indenture, which could lead to a cross-default under the Credit Facility and
under the terms of other indebtedness of the Company. In such a case, the
subordination provisions of the Indenture may limit the ability of the holders
of the Exchange Notes to receive payment in respect of their Exchange Notes. The
Company's potential inability to repurchase the Exchange Note may have a
material adverse effect on the value of the Exchange Notes. See "Description of
Other Indebtedness -- Credit Facility," "Description of the Exchange
Notes -- Subordination" and "-- Repurchase of Exchange Notes at the Option of
Holders -- Change of Control."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES - LACK OF LIQUIDITY
The Exchange Notes are being offered to the holders of the Series A Notes.
The Series A Notes were offered and sold in October 1997 (i) to "Qualified
Institutional Buyers" (as defined in Rule 144A under the Securities Act), (ii)
to other institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) and (iii) outside the United States in
reliance on Regulation S under the Securities Act and are eligible for trading
in the Private Offering, Resales and Trading through Automated Linkages
("PORTAL") market.
The Exchange Notes will be a new class of securities for which there
currently is no established trading market. Although the Exchange Notes will
generally be permitted to be resold or otherwise transferred by nonaffiliates of
the Company without compliance with the registration requirements under the
Securities Act, the Company does not intend to apply for listing of the Exchange
Notes on any national securities exchange or for quotation of the Exchange Notes
on any automated dealer quotation system. Although the Initial Purchasers have
informed the Company that they currently intend to make a market in the Exchange
Notes, the Initial Purchasers are not obligated to do so, and any such
market-making may be discounted at any time without notice. The liquidity of any
market for the Exchange Notes will depend upon the number of holders of the
Exchange Notes, the interest of securities dealers in making a market in the
Exchange Notes and other
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factors. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. If an active trading market for
the Exchange Notes does not develop, the market price and liquidity of the
Exchange Notes may be adversely affected. If the Exchange Notes are traded, they
may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the performance of
the Company and certain other factors. The liquidity of, and trading markets
for, the Exchange Notes may also be adversely affected by general declines in
the market for non-investment grade debt. Such declines may adversely affect the
liquidity of, and trading markets for, the Exchange Notes independent of the
financial performance of, or prospects for, the Company.
RESTRICTIONS ON TRANSFER
The Series A Notes were offered and sold by the Company in a private
offering exempt from registration pursuant to the Securities Act. As a result,
the Series A Notes may not be reoffered or resold by purchasers except pursuant
to an effective registration statement under the Securities Act or pursuant to
an applicable exemption from such registration, and the Series A Notes are
legended to restrict transfer as aforesaid. Each Holder (other than any Holder
who is an affiliate or promoter of the Company) who duly exchanges Series A
Notes for Exchange Notes in the Exchange Offer will receive Exchange Notes that
are freely transferable under the Securities Act. Holders who participate in the
Exchange Offer should be aware, however, that if they accept the Exchange Offer
for the purpose of engaging in a distribution, the Exchange Notes may not be
publicly reoffered or resold without complying with the registration and
prospectus delivery requirements of the Securities Act. As a result, each Holder
accepting the Exchange Offer will be deemed to have represented, by its
acceptance of the Exchange Offer, that it acquired the Exchange Notes in the
ordinary course of business and that it is not engaged in, and does not intend
to engage in, a distribution of the Exchange Notes. If existing Commission
interpretations permitting free transferability of the Exchange Notes following
the Exchange Offer are changed prior to consummation of the Exchange Offer, the
Company will use its best efforts to register the Series A Notes for resale
under the Securities Act. See "Prospectus Summary -- The Exchange Offer" and
"Description of the Exchange Notes -- Registration Rights; Liquidated Damages."
The Series A Notes currently may be sold pursuant to the restrictions set
forth in Rule 144A or Regulation S under the Securities Act or pursuant to
another available exemption under the Securities Act without registration under
the Securities Act. To the extent that Series A Notes are tendered and accepted
in the Exchange Offer, the trading market, if any, for the untendered and
tendered but unaccepted Series A Notes may be adversely affected.
INABILITY TO RELY ON UNICCO FINANCE
UNICCO Finance will not have any substantial operations or assets and will
not have any revenues. As a result, prospective participants in the Exchange
Offer should not expect UNICCO Finance to participate in servicing the interest
and principal obligations under the Exchange Notes. See "Description of the
Exchange Notes -- General."
STRINGENT EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes for Series A Notes pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of such
Series A Notes, a properly completed, duly executed Letter of Transmittal and
all other required documents. Therefore, Holders desiring to tender their Series
A Notes in exchange for Exchange Notes should allow for sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to the tenders of Series A Notes for
exchange. Any Series A Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, the registration rights under the
Registration Rights Agreement generally will terminate. In addition, any Holder
who tenders pursuant to the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received
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restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives Exchange Notes for
its own account in exchange for Series A Notes, where such Series A Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "The Exchange Offer."
RISK THAT GUARANTEES RAISE FRAUDULENT CONVEYANCE MATTERS
Under applicable provisions of federal bankruptcy law and comparable
provisions of state and federal fraudulent conveyance laws, if it were found
that any Guarantor (a) had incurred the indebtedness represented by its
guarantee of the Exchange Notes with an intent to hinder, delay or defraud
creditors or (b) received less than reasonable equivalent value or fair
consideration for incurring such indebtedness and (i) was insolvent or was
rendered insolvent by reason of such incurrence, (ii) was engaged or about to
engage in a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business or (iii) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, the obligations of such Guarantor under its guarantee of the
Exchange Notes could be avoided or claims in respect of such guarantee could be
subordinated to all other debts of such Guarantor. A legal challenge of a
guarantee of the Exchange Notes could, among other things, focus on the
benefits, if any, realized by a Guarantor as a result of the issuance by the
Issuers of the Exchange Notes. To the extent that a Guarantor's guarantee of the
Exchange Notes were held to be unenforceable as a fraudulent conveyance for any
reason, the holders of the Exchange Notes would cease to have any direct claim
in respect of such Guarantor. In the event a Guarantor's guarantee of the
Exchange Notes were held to be subordinated, the claims of the holders of the
Exchange Notes could be subordinated to claims of other creditors of such
Guarantor, including holders of Senior Debt and other holders of subordinated
indebtedness of such Guarantor.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent conveyance varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the fair saleable value of its assets at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its liabilities on its existing debts,
including contingent liabilities, as they become absolute and matured. There can
be no assurance as to what standard a court would apply in order to make such
determination.
Each of the Guarantors believes that it will receive equivalent value at
the time the indebtedness under the Exchange Notes and the guarantees is
incurred. In addition, none of the Guarantors believes that, after giving effect
to the Exchange Offer, it (i) was or will be insolvent or rendered insolvent,
(ii) was or will be engaged in a business or transaction for which its remaining
assets constitute unreasonably small capital or (iii) intends or intended to
incur, or believes or believed that it will or would incur, debts beyond its
ability to pay such debts as they mature. Since, however, the question of
whether a guarantee is a fraudulent conveyance is inherently fact-based and
fact-specific, there can be no assurance that a court passing on such questions
would agree with the Guarantors.
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THE COMPANY
UNICCO was founded as a Massachusetts corporation in 1949, and was
reorganized as a Massachusetts business trust in 1988. UNICCO is a subchapter S
company for federal income tax purposes. The Company's principal executive
offices are located at Four Copley Place, Boston, Massachusetts 02116, and its
telephone number is (617) 859-9100. UNICCO Finance, which is a co-obligor under
the Notes, is a Delaware corporation and a wholly-owned subsidiary of UNICCO.
Prior to the Offering, the operations of the Company were conducted through
UNICCO and its subsidiary, and through affiliated entities owned by the same
shareholders as UNICCO. Effective January 1, 1997, such affiliated entities
elected to be taxed as subchapter S corporations for federal income tax
purposes. In connection with the Offering, the shareholders of UNICCO
contributed their interests in such affiliated entities to UNICCO (the
"Refinancing"), as a result of which all of the operations of the Company will
be conducted through UNICCO and its subsidiaries. See "Certain Transactions."
The Combined Financial Statements of the Company and the other historical
financial and statistical data included in this Offering Memorandum include the
combined results of operations of UNICCO, its subsidiaries and such affiliated
entities.
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Series A Notes pursuant to the Purchase
Agreement, dated October 14, 1997 (the "Purchase Agreement"), between the
Company and the Initial Purchasers, the Initial Purchasers became entitled to
the benefits of the Registration Rights Agreement, dated as of October 17, 1997,
between the Company and the Initial Purchasers (the "Registration Rights
Agreement").
Under the Registration Rights Agreement, the Company agreed to (a) file a
registration statement in connection with a registered exchange offer within 45
days after October 17, 1997, the date the Series A Notes were issued (the "Issue
Date"), (b) use best efforts to cause such registration statement to become
effective under the Securities Act within 120 days of the Issue Date, (c) use
best efforts to keep such registration statement effective until the closing of
the Exchange Offer and (d) use best efforts to cause such registered Exchange
Offer to be consummated within 30 days after the effective date of such
registration statement. Within the applicable time periods, the Company will
endeavor to register under the Securities Act all of the Exchange Notes pursuant
to a registration statement under which the Company will offer each Holder of
Series A Notes the opportunity to exchange any and all of the outstanding Series
A Notes held by such Holder for Exchange Notes in an aggregate principal amount
equal to the aggregate principal amount of Series A Notes tendered for exchange
by such Holder. Subject to limited exceptions, the Exchange Offer being made
hereby, if commenced and consummated within such applicable time periods, will
satisfy those requirements under the Registration Rights Agreement. In such
event, the Series A Notes would remain outstanding and would continue to accrue
interest, but would not retain any rights under the Registration Rights
Agreement. Holders of Series A Notes seeking liquidity in their investment would
have to rely on exemptions to registration requirements under the securities
laws, including the Securities Act. A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The term "Holder" with respect to the Exchange Offer means
any person in whose name the Series A Notes are registered on the books of the
Company or any other person who has obtained a properly completed bond power
from the registered holder.
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Because the Exchange Offer is for any and all Series A Notes, the principal
amount of Series A Notes tendered and exchanged in the Exchange Offer will
reduce the principal amount of Series A Notes outstanding. Following the
consummation of the Exchange Offer, Holders who did not tender their Series A
Notes generally will not have any further registration rights under the
Registration Rights Agreement, and such Series A Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Series A Notes could be adversely affected. The Series A Notes
are currently eligible for sale pursuant to Rule 144A or Regulation S through
the PORTAL Market. Because the Company anticipates that most Holders of Series A
Notes will elect to exchange such Series A Notes for Exchange Notes due to the
absence of restrictions on the resale of Exchange Notes under the Securities
Act, the Company anticipates that the liquidity of the market for any Series A
Notes remaining after the consummation of the Exchange Offer may be
substantially limited. See "Description of the Exchange Notes -- Registration
Rights; Liquidated Damages" and "Risk Factors -- Absence of Public Market for
the Exchange Notes -- Lack of Liquidity."
TERMS OF THE EXCHANGE OFFER
Upon the terms and conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal, the Company will accept all Series A Notes
properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Series A Notes
accepted in the Exchange Offer. Holders may tender some or all of their Series A
Notes pursuant to the Exchange Offer.
The form and terms of the Exchange Notes are the same as the form and terms
of the Series A Notes except that (i) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof, and (ii) the holders of Exchange Notes generally will not be
entitled to certain rights under the Registration Rights Agreement, which rights
generally will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the Series A Notes and will be entitled to
the benefits of the Indenture.
Holders of Series A Notes do not have any appraisal or dissenters' rights
in connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Series A
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders of Series A Notes for the purpose of receiving the Exchange Notes from
the Company and delivering Exchange Notes to such Holders.
If any tendered Series A Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificate for any such unaccepted Series A Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders of Series A Notes who tender pursuant to the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Transmittal Letter, transfer taxes with respect to the
exchange of Series A Notes pursuant to the Exchange Offer. The Company will pay
all charges and expenses, other than certain applicable taxes, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer shall remain open for acceptance for a period of not
less than 20 business days (the "Exchange Period"). The Expiration Date will be
5:00 p.m., New York City time, on , 1998, unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the Expiration
Date will be the latest business day to which the Exchange Offer is extended.
Any communication regarding an extension, amendment or termination of the
Exchange Offer will be made in conformity with the requirements of Rule 14e-1
under the Exchange Act.
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In order to extend the Expiration Date, the Issuers will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record Holders an announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Such announcement may state that the Company is extending the Exchange Offer for
a specified period of time.
The Company reserves the right (i) to delay accepting any Series A Notes,
to extend the Exchange Offer or to terminate the Exchange Offer and not accept
Series A Notes not previously accepted if any of the conditions set forth under
"-- Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Issuers
to constitute a material change, the Issuers will promptly disclose such
amendment in a manner reasonably calculated to inform the Holders of such
amendment, and the Issuers will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders, if the Exchange offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which the Issuers may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Issuers shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service or other comparable service.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes is payable semi-annually on April 15 and
October 15 of each year at the rate of 9 7/8% per annum. The Exchange Notes will
bear interest from October 17, 1997, the date of issuance of the Series A Notes,
or the most recent interest payment date to which interest on such Series A
Notes has been paid, whichever is later. Accordingly, Holders of Series A Notes
that are accepted for exchange will not receive interest that is accrued but
unpaid on the Series A Notes at the time of tender, but such interest will be
payable in respect of the Exchange Notes delivered in exchange for such Series A
Notes on the first interest payment date after the Expiration Date.
PROCEDURES FOR TENDERING
Only a Holder of Series A Notes may tender such Series A Notes pursuant to
the Exchange Offer. To tender pursuant to the Exchange Offer, a Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by instruction 4 of the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal, or an
Agent's Message (as defined below) in the case of a book entry transfer or such
facsimile, together with the Series A Notes and any other required documents, to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. Delivery of the Series A Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Notes which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
The tender by a Holder of Series A Notes and the acceptance thereof by the
Company will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein in the
Letter of Transmittal.
Holders of the Series A Notes that are tendering by book-entry transfer to
the Exchange Agent's account at the Depository Trust Company ("DTC") can execute
the tender through the DTC Automated Tender Offer Program ("ATOP") for which the
transaction will be eligible. DTC participants should transmit their
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acceptance to DTC, which will verify the acceptance and execute a book-entry
delivery to the Exchange Agent's account at DTC. DTC will then send an Agent's
Message to the Exchange Agent for its acceptance. DTC participants may also
accept the Exchange Offer by submitting a notice of guaranteed delivery through
ATOP.
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT SUCH TENDER FOR SUCH HOLDERS.
Any beneficial Holder whose Series A Notes are registered in the name of
such Holder's broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on his behalf. If such beneficial
Holder wishes to tender on such beneficial Holder's behalf, such beneficial
Holder must, prior to completing and executing the Letter of Transmittal and
delivering his Series A Notes, either make appropriate arrangements to register
ownership of the Series A Notes in such Holder's name or obtain a properly
completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Series A
Notes tendered pursuant thereto are tendered (i) by a registered Holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantees must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Series A Notes listed therein, such Series A Notes must
be endorsed or accompanied by appropriate bond powers and a proxy which
authorizes such person to tender the Series A Notes on behalf of the registered
Holder, in each case signed as the name of the registered Holder or Holders
appears on the Series A Notes with the signature thereon guaranteed by an
Eligible Institution.
If the Letter of Transmittal or any Series A Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Series A Notes at the DTC for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the DTC may make book-entry delivery of the Series A Notes
by causing the DTC to transfer such Series A Notes into the Exchange Agent's
account with respect to the Series A Notes in accordance with the DTC's
procedures for such transfer. Although delivery of the Series A Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
DTC, a Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the
22
<PAGE> 28
time period provided under such procedures. Delivery of documents to the DTC
does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Series A Notes and withdrawal of the tendered
Series A Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Series A Notes not properly tendered or any Series A Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Series A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including, the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Series A Notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of Series A Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Series A Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost to such Holder by the Exchange Agent to the
tendering Holders of Series A Notes, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Notes and (i) whose Series A
Notes are not immediately available, or (ii) who cannot deliver their Series A
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent (or comply with the procedures for book-entry transfer) prior to the
Expiration Date, may effect a tender if:
a. the tender is made through an Eligible Institution;
b. prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Series A Notes, the
certificate or registration number or numbers of such Series A Notes and
the principal amount of Series A Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within five business days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificates(s) representing the Series A Notes to be
tendered in proper form for transfer (or a confirmation of book-entry
transfer of such Series A Notes into the Exchange Agent's account at the
Depository) and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
c. such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Series A Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Series A Notes into the Exchange Agent's
account at the Depository) and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Series A Notes pursuant to the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at the address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Series A Notes to be withdrawn (the
"Depositor"), (ii) identify the Series A Notes to be withdrawn (including the
certificate or registration number(s) and
23
<PAGE> 29
principal amount of such Series A Notes, or, in the case of notes transferred by
book-entry transfer, the name and number of the account at the DTC to be
credited), (iii) be signed by the Depositor in the same manner as the original
signature on the Letter of Transmittal by which such Series A Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee (as defined herein) with
respect to the Series A Notes register the transfer of such Series A Notes into
the name of the Depositor withdrawing the tender, (iv) specify the name in which
any such Series A Notes are to be registered, if different from that of the
Depositor and (v) include a statement that such Holder is withdrawing such
Holder's election to have such Series A Notes exchanged. All questions as to the
validity, form and eligibility (including time of receipt) of such withdrawal
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Series A Notes withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer, and no Exchange
Notes will be issued with respect thereto unless the Series A Notes so withdrawn
are validly retendered. Any Series A Notes which have been tendered but which
are not accepted for payment will be returned to the Holder thereof without cost
to such Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Series A Notes may be
retendered by following one of the procedures described under "-- Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Series A Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Series A Notes, if:
(i) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(ii) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Series A
Notes and return all tendered Series A Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Series A Notes tendered prior to the
expiration of the Exchange Offer subject, however, to the rights of Holders to
withdraw such Series A Notes (see "-- Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Series A Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered Holders, the Company
will extend the Exchange Offer for a period of five to ten business days if the
Exchange Offer would otherwise expire during such five to ten business-day
period.
24
<PAGE> 30
EXCHANGE AGENT AND INFORMATION AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Letters of Transmittal should be tendered to the
Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Mail By Facsimile Transmission: By Hand or Overnight
(registered or certified (617) 664-5232 Delivery:
mail recommended):
State Street Bank and
Trust Company
State Street Bank and Corporate Trust Department
Trust Company To Confirm by Telephone 4th Floor
Corporate Trust Department or for Information Call: Two International Place
P.O. Box 778 (617) 664-5314 Boston, MA 02110
Boston, MA 02102-0078
</TABLE>
Morrow & Co., Inc. has been appointed as Information Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Information Agent addressed as follows:
Morrow & Co., Inc.
909 Third Avenue
New York, NY 10022-4799
Telephone: (212) 754-8000
Facsimile: (212) 754-8300
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the Trustee, filing fees, blue sky fees and printing and
distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Series A Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Series A Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Series A Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Series A Notes, which is the aggregate principal amount of the Series A Notes,
as reflected in the Company's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized in
connection with the Exchange Offer. The cost of the Exchange Offer will be
deferred and amortized over the term of the Exchange Notes.
25
<PAGE> 31
RESALE OF THE EXCHANGE NOTES
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer by any holder of such
Exchange Notes (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 of the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes acquired pursuant to the Exchange Offer are
obtained in the ordinary course of such holder's business, and such holder does
not intend to participate, and has no arrangement or understanding to
participate, in the distribution of such Exchange Notes. Any holder who tenders
pursuant to the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes may not rely
on the position of the staff of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988) or Morgan Stanley & Co.,
Incorporated (available June 5, 1991) or similar interpretive letters, but
rather must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling security holders information
required by Item 507 of Regulation S-K of the Securities Act.
Each broker-dealer that received Exchange Notes for its own account in
exchange for Series A Notes, where such Series A Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Company has agreed, if requested, for a period of one year from the date hereof,
to make available a prospectus meeting the requirements of the Securities Act to
any such broker-dealer for use in connection with any resale of any Exchange
Notes acquired in the Exchange Offer. A broker-dealer which delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
By tendering pursuant to the Exchange Offer, each Holder will represent to
the Company, among other things, that (i) the Exchange Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of its business,
(ii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes, and (iii) the holder and any such other person acknowledge that if they
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (a) they must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such holder incurring liability
under the Securities Act for which such holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each holder that may be
deemed an "affiliate" (as defined in Rule 405 of the Securities Act) of the
Company will represent to the Company that such holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that Holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Series A Notes who do not tender their Series A Notes generally will
not have any further registration rights under the Registration Rights Agreement
or otherwise. Accordingly, any Holder that does not exchange such Holder's
Series A Notes for Exchange Notes will continue to hold the untendered Series A
Notes and will be entitled to all the rights and limitations applicable thereto
under the Indenture, except to the extent that such rights or limitations, by
their terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer.
26
<PAGE> 32
The Series A Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Series A
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the 144A Notes are eligible for resale pursuant
to Rule 144A under the Securities Act, to a Qualified Institutional Buyer in a
transaction meeting the requirements of Rule 144A, (iv) outside the United
States to a foreign person pursuant to the exemption from the registration
requirements of the Securities Act provided by Regulation S thereunder, (v)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available), or (vi) to an Accredited Investor in a
transaction exempt from the registration requirements of the Securities Act, in
each case in accordance with any applicable securities laws of any state of the
United States or other applicable jurisdiction. See "Risk
Factors -- Restrictions on Transfer."
OTHER
Participation in the Exchange Offer is voluntary, and Holders should
carefully consider whether to accept. Holders are urged to consult their
financial and tax advisors in making their own decision on what action to take.
The Company may in the future seek to acquire untendered Series A Notes, to
the extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any Series A Notes that are not tendered in the
Exchange Offer or to file a registration statement to permit resales of any
untendered Series A Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit the
Exchange Offer to be made in such state.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Department regulations (the "Regulations") and existing administrative
interpretations and court decisions. There can be no assurance that the Internal
Revenue Service (the "IRS") will not take a contrary view, and no ruling from
the IRS has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conditions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences to Holders.
Certain Holders of the Series A Notes (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) may be subject
to special rules not discussed below. Each Holder of Series A Notes should
consult his, her or its own tax advisor as to the particular tax consequences of
exchanging such Holder's Series A Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Series A Notes
pursuant to the terms set forth in this Prospectus will not constitute an
exchange for United States federal income tax purposes because such exchange
does not represent a significant modification of the debt instruments.
Consequently, no gain or loss would be recognized by Holders of the Series A
Notes upon receipt of the Exchange Notes, and ownership of the Exchange Notes
will be considered a continuation of ownership of the Series A Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of the
Exchange Notes, a Holder's basis in the Exchange Notes should be the same as
such Holder's basis in the Series A Notes exchanged therefore. A Holder's
holding period for the Exchange Notes should include the Holder's holding period
for the Series A Notes exchanged therefor. The issue price, original issue
discount inclusion and other tax characteristics of the Exchange Notes should be
identical to the issue price, original issue discount inclusion and other tax
characteristics of the Series A Notes exchanged therefor.
See also "Material United States Federal Tax Considerations for Non-United
States Holders."
27
<PAGE> 33
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Series A
Notes pursuant to the Exchange Offer. The net proceeds from the Offering of
Series A Notes were approximately $100.6 million, after deducting discounts to
the Initial Purchaser and estimated offering expenses payable by the Company.
The net proceeds from the Offering, together with borrowings under the Credit
Facility, were used to repay indebtedness under the Company's existing credit
facility and certain other indebtedness of the Company, as set forth in the
table below (assuming consummation of the Offering on September 28, 1997). The
Offering, the initial borrowings under the Credit Facility, the application of
the proceeds therefrom as set forth below and the subchapter S election of the
affiliated entities that will be subsidiaries of the Company following the
Refinancing are collectively referred to herein as the "Transactions."
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Sources:
9 7/8% Senior Subordinated Notes due 2007............................ $104,507
Credit Facility(1)................................................... 3,415
---------
Total sources................................................ $107,922
=========
Uses:
Repayment of existing indebtedness:
Existing bank credit facility(2).................................. $ 88,252
Ogden Note(3)..................................................... 11,000
Notes payable to shareholders(4).................................. 3,000
Accrued interest.................................................. 1,285
Fees and expenses.................................................... 4,385
---------
Total uses................................................... $107,922
=========
</TABLE>
- ---------------
(1) The Credit Facility provides for total available borrowings of $45.0
million. See "Description of Other Indebtedness -- Credit Facility."
(2) The Company's existing bank credit facility bore interest at a blended
average rate of 8.96% per annum as of June 29, 1997 and matured in June
2001.
(3) The Ogden Note had a principal amount of $12.0 million and was issued to
Ogden in connection with the Ogden Allied Acquisition. See
"Business -- History of the Company; the Ogden Allied Acquisition." The
Ogden Note was prepaid prior to its scheduled maturity in September 2001 and
bore interest at a rate of 8% per annum.
(4) In order to finance a portion of the Ogden Allied Acquisition, the UNICCO
shareholders loaned the Company $3.0 million. The notes evidencing this loan
bore interest at a rate of 15% per annum, with interest paid in-kind until
the maturity of such notes in October 2001. See "Business -- History of the
Company; the Ogden Allied Acquisition" and "Certain Transactions."
28
<PAGE> 34
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 28, 1997, on an unaudited actual basis and as adjusted to give effect
to the Offering. See "Use of Proceeds." The following table should be read in
conjunction with the "Selected Financial Data," "Unaudited Pro Forma Financial
Data" and the Combined Financial Statements of the Company, including the notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 28, 1997
------------------------
(UNAUDITED)
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Current portion of long-term debt................................ $ 6,900 $ --
Line of credit................................................... 51,752 3,415(1)
Long-term debt, less current portion............................. 47,611 5,000(2)
9 7/8% Senior Subordinated Notes due 2007........................ -- 104,507(3)
-------- --------
Total long-term debt............................................. 106,263 112,922
Shareholder's equity............................................... 9,217 6,144(4)
-------- ---------
Total capitalization..................................... $115,480 $ 119,066
======== =========
</TABLE>
- ---------------
(1) The Credit Facility provides for total available borrowings of $45.0
million. See "Description of Other Indebtedness -- Credit Facility."
(2) Represents a $5.0 million note payable to Massachusetts Capital Resource
Company due in September 2001 that was issued to finance a portion of the
Ogden Allied Acquisition. This note ranks equal in right of payment with
the Notes. See "Description of Other Indebtedness -- MCRC Note."
(3) The Notes are shown net of original issue discount of $493,500.
(4) The decrease in shareholders' equity resulted from the repayment of
indebtedness as part of the Transactions and consists of (a) the write-off
of $2.1 million of deferred financing costs and (b) the $1.0 million
premium paid over the carrying value of the Ogden Note.
29
<PAGE> 35
SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the five years
in the period ended June 29, 1997 and as of September 28, 1997 and for the
three-month periods ended September 28, 1997 and September 29, 1996 have been
derived from, and are qualified by reference to, the Combined Financial
Statements of the Company, which, in the case of the Combined Financial
Statements as of June 30, 1996 and June 29, 1997 and for each of the three years
in the period ended June 29, 1997, and as of September 28, 1997 and for the
three-month periods ended September 28, 1997 and September 29, 1996 are included
elsewhere in this Prospectus. The following information should be read in
conjunction with "Unaudited Pro Forma Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Combined
Financial Statements of the Company, including the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTH PERIOD ENDED
--------------------------------------------------------- ----------------------------------
JUNE 27, JUNE 26, JUNE 25, JUNE 30, JUNE 29, SEPTEMBER 29, SEPTEMBER 28,
1993 1994 1995 1996(1) 1997 1996 1997
-------- -------- -------- --------- -------- ------------- -------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues....................... $73,559 $77,797 $88,095 $98,315 $533,882 $ 128,310 $ 134,717
Cost of revenues............... 61,685 64,866 74,695 84,244 482,526 115,929 121,147
------- ------- ------- ------- -------- --------- ---------
Gross profit................. 11,874 12,931 13,400 14,071 51,356 12,381 13,570
Selling, general and
administrative expenses...... 9,130 9,918 10,204 11,491 31,660 6,565 8,606
Amortization of intangible
assets....................... 879 558 535 551 4,749 1,191 1,191
------- ------- ------- ------- -------- --------- ---------
Income from operations....... 1,865 2,455 2,661 2,029 14,947 4,625 3,773
Interest income................ 80 68 107 85 67 1 1
Interest expense............... (144) (110) (80) (178) (11,492) (2,459) (3,007)
------- ------- ------- ------- -------- --------- ---------
Income before provision for
income taxes............... 1,801 2,413 2,688 1,936 3,522 2,167 767
Provision for income
taxes(2)..................... 150 205 214 189 2,339 940 189
------- ------- ------- ------- -------- --------- ---------
Net income................... $ 1,651 $ 2,208 $ 2,474 $ 1,747 $ 1,183 $ 1,227 $ 578
======= ======= ======= ======= ======== ========= =========
OTHER FINANCIAL DATA:
EBITDA(3)...................... $ 3,237 $ 3,683 $ 3,863 $ 3,399 $ 22,209 $ 6,357 $ 5,551
EBITDA margin(4)............... 4.4 % 4.7 % 4.4 % 3.5% 4.2% 5.0% 4.1%
Cash Flow:
Operating activities......... 2,164 1,250 1,018 5,643 (35,841) (41,537) 163
Investing activities......... (564) (797) (1,190) (52,399) (2,529) (355) (219)
Financing activities......... (1,629) (935) 172 46,792 42,140 41,883 (1,766)
Ratio of earnings to fixed
charges(5)................... 5.2x 7.0x 7.5x 4.6x 1.3x 1.7x 1.2x
Depreciation and
amortization................. $ 1,372 $ 1,228 $ 1,202 $ 1,370 $ 7,262 $ 1,732 $ 1,777
Capital expenditures........... 592 649 949 1,227 2,578 355 249
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash......................... $ 603 $ 121 $ 121 $ 157 $ 3,928 $ 147 $ 2,106
Working capital.............. 813 3,000 4,543 (2,278) 45,050 40,090 45,291
Total assets................. 16,327 17,117 21,335 85,167 161,087 153,062 156,433
Total long-term debt
(including current
maturities)................ 2,017 1,532 2,687 62,850 107,147 104,783 106,263
</TABLE>
- ---------------
(1) Fiscal 1996 was a 53-week year. As a result, the Company's results of
operations for fiscal 1996 include approximately $1.0 million of payroll and
payroll-related expenses attributable to the additional week of operations
that were not billed in the period to customers with fixed price contracts.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) For the years ended June 25, 1995 and June 30, 1996, the Company was not
subject to federal and certain state income taxes as it had elected to be
treated as a subchapter S corporation. For the year ended June 29, 1997,
certain entities of the Company were
30
<PAGE> 36
taxed as C corporations through December 31, 1996, at which time they
elected to be treated as subchapter S corporations. See Note 7 of Notes to
the Company's Combined Financial Statements.
(3) EBITDA is defined as earnings before provision for income taxes, interest
expense, interest income and depreciation and amortization. EBITDA is
presented because it is a widely accepted financial indicator of a leveraged
company's ability to service and/or incur indebtedness and because
management believes that EBITDA is a relevant measure of the Company's
ability to generate cash without regard to the Company's capital structure
or working capital needs. EBITDA as presented may not be comparable to
similarly titled measures used by other companies, depending upon the
non-cash charges included. When evaluating EBITDA, investors should consider
that EBITDA (i) should not be considered in isolation but together with
other factors which may influence operating and investing activities, such
as changes in operating assets and liabilities and purchases of property and
equipment; (ii) is not a measure of performance calculated in accordance
with generally accepted accounting principles; (iii) should not be construed
as an alternative or substitute for income from operations, net income or
cash flows from operating activities in analyzing the Company's operating
performance, financial position or cash flows; and (iv) should not be used
as an indicator of the Company's operating performance or as a measure of
its liquidity.
(4) EBITDA margin represents EBITDA as a percentage of revenues.
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before provision for income taxes, plus fixed charges.
Fixed charges consist of interest, amortization of deferred financing costs,
amortization of debt discount and that portion of rental payments on
operating leases deemed representative of the interest factor.
31
<PAGE> 37
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data (the "Unaudited Pro Forma
Financial Data") have been derived from the historical Combined Financial
Statements of the Company included elsewhere in this Prospectus, and have been
prepared on a pro forma basis giving effect to the Transactions as if they had
occurred on July 1, 1996, in the case of the Unaudited Pro Forma Statement of
Operations, and on September 28, 1997, in the case of the Unaudited Pro Forma
Balance Sheet. The Unaudited Pro Forma Financial Data and accompanying notes
should be read in conjunction with the Combined Financial Statements of the
Company, including the notes thereto, included elsewhere in this Offering
Memorandum. The Unaudited Pro Forma Financial Data are not intended to be
indicative of future results of operations or financial position, or the results
of operations or financial position of the Company that might have been achieved
had the Transactions actually occurred on the dates specified.
32
<PAGE> 38
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 28, 1997
----------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 2,106 $ 104,507(a) $ 2,106
(100,122)(b)
(4,385)(c)
Accounts receivable, less reserves...................... 88,253 88,253
Other current assets.................................... 2,436 2,436
-------- --------
Total current assets.......................... 92,795 92,795
Property and Equipment:
Transportation equipment................................ 1,382 1,382
Machinery and equipment................................. 6,261 6,261
Furniture and fixtures.................................. 3,921 3,921
Leasehold improvements.................................. 329 329
-------- --------
11,893 11,893
Less: accumulated depreciation and amortization......... (7,596) (7,596)
-------- --------
Net property and equipment.................... 4,297 4,297
Other Assets:
Notes receivable from officers.......................... 686 686
Intangible assets, net of amortization.................. 54,245 54,245
Other assets, net....................................... 4,410 4,385(c) 6,711
(2,084)(d)
-------- --------
Total assets.................................. $156,433 $ 158,734
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities............................... $ 47,504 $ (8,185)(b) $ 39,319
Long-term liabilities:
Line of credit.......................................... 51,752 (48,337)(b) 3,415
Long-term debt, less current portion.................... 47,611 104,507(a) 109,507
(43,600)(b)
989(e)
Other long-term liabilities............................. 349 349
-------- --------
Total liabilities............................. 147,216 152,590
Shareholders' Equity:
Common shares........................................... 378 378
Retained earnings....................................... 9,581 (2,084)(d) 6,508
(989)(e)
Less notes receivable from stock sales.................. (240) (240)
Less treasury shares at cost............................ (502) (502)
-------- --------
Total shareholders' equity.................... 9,217 6,144
-------- --------
Total liabilities and shareholders' equity.... $156,433 $ 158,734
======== ========
</TABLE>
33
<PAGE> 39
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED JUNE 29, 1997 THREE-MONTH PERIOD
------------------------------------ ENDED
ACTUAL ADJUSTMENTS PRO FORMA SEPTEMBER 28, 1997
-------- ----------- --------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................... $533,882 $ 533,882 $ 134,717
Cost of revenues....................... 482,526 482,526 121,147
-------- -------- --------
Gross profit................. 51,356 51,356 13,570
Selling, general and administrative
expenses............................. 31,660 31,660 8,606
Amortization of intangible assets...... 4,749 4,749 1,191
-------- -------- --------
Income from operations....... 14,947 14,947 3,773
Interest income........................ 67 67 1
Interest expense....................... (11,492) $ (159)(f) (11,651) (3,326)
-------- -------- -------- --------
Income before provision for
income taxes............... 3,522 3,363 448
Provision for income taxes............. 2,339 (270)(g) 2,069 153
-------- -------- --------
Net income................... $ 1,183 $ 1,294 $ 295
======== ======== ========
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
<TABLE>
<S> <C>
(a) Reflects the issuance of the Notes, net of discount of $493,500.
(b) Reflects the repayment of indebtedness with the net proceeds of the Notes, as follows
(in thousands):
Bank debt:
Current portion of long-term debt............................ $ 6,900
Long-term debt, net of current portion....................... 29,600
Line of credit............................................... 48,337
Other debt:
Notes payable -- Ogden Corporation........................... 11,000
Notes payable -- Shareholders................................ 3,000
Accrued interest............................................. 1,285
----------
Total................................................... $100,122
==========
(c) Reflects debt issuance costs associated with the Offering of the Series A Notes,
including discounts to the Initial Purchaser and estimated offering expenses.
(d) Reflects the write-off of deferred debt issuance costs resulting from the repayment of
indebtedness as part of the Transactions.
(e) Reflects a charge associated with the difference between the prepayment price of the
Ogden Note and its carrying value of $9,878,400 at June 29, 1997.
(f) Pro forma interest expense reflects (i) $438,500 of amortization of deferred debt
issuance costs related to the offering of the Series A Notes, (ii) $49,350 of
amortization of original issue discount related to the Series A Notes, (iii) interest
expense related to the Series A Notes and (iv) interest expense related to pro forma
borrowings under the Credit Facility at an assumed interest rate of 7.63%, which is the
interest rate that would have been applicable under the Credit Facility for the year
ended June 29, 1997.
(g) Reflects the tax effects of the pro forma adjustments, including the pro forma effect of
subchapter S elections of certain entities of the Company, assuming such elections
occurred on July 1, 1996.
</TABLE>
34
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The matters discussed below and elsewhere herein contain forward-looking
statements regarding the future performance of the Company and other anticipated
future events. These matters involve risks and uncertainties that could cause
actual results to differ materially from the statements contained herein. In
addition to the matters discussed below, see "Risk Factors" for information
relating to such risks and uncertainties.
GENERAL
The Company is a leading provider of integrated facilities services to a
broad base of industrial, commercial and institutional clients throughout the
United States and Canada. Services offered by the Company include industrial and
mechanical engineering, plant operations, custodial and maintenance services,
security services and administrative services.
The Company recently organized its operations around four Strategic
Business Units. The fiscal 1997 revenues for each SBU are as follows:
Commercial: $214 million; Industrial: $149 million;
Education/Healthcare/Government: $110 million; and Security: $61 million.
The Company structures its service contracts under three principal methods:
fixed price, cost plus fixed fee and hourly billing. These types of contracts
currently account for approximately 25%, 63% and 12%, respectively, of the
Company's revenues. Cost of service revenues primarily consists of direct labor
costs and related benefits, insurance, supplies and equipment. In fiscal 1997,
81.7% of the cost of service revenues consisted of direct labor costs and
related benefits. Selling, general and administrative expenses include employee
compensation and benefits, travel, insurance, rent, recruiting and training,
professional fees and bad debt expense. In fiscal 1997, 52.5% of selling,
general and administrative expenses consisted of employee compensation and
benefits.
The Company's fiscal 1997 results of operations were significantly impacted
by the Ogden Allied Acquisition on June 28, 1996. See "Business -- History of
the Company; the Ogden Allied Acquisition." The Company accounted for this
transaction under the purchase method of accounting. A significant portion of
the purchase price of $62 million was allocated to intangible assets.
Accordingly, the Company has incurred significant amortization expenses in
fiscal 1997. Interest expense also increased significantly due to the
indebtedness incurred to finance the acquisition. In addition, operating profit
margins were negatively impacted by the Ogden Allied Acquisition because Ogden's
business consisted of more lower margin contracts than the Company's.
35
<PAGE> 41
RESULTS OF OPERATIONS
The following comparisons of the Company's results of operations for fiscal
years 1995, 1996 and 1997, and the first quarter of fiscal 1998 should be read
in conjunction with the Combined Financial Statements of the Company, including
the notes thereto, included elsewhere in this Prospectus.
The following table sets forth, for the periods indicated, certain
operating data expressed both in dollars and as a percentage of revenues for the
period.
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED
FOR THE YEARS ENDED --------------------------------------
---------------------------------------------------------
SEPTEMBER 29, SEPTEMBER 28,
JUNE 25, 1995 JUNE 30, 1996 JUNE 29, 1997 1996 1997
---------------- ---------------- ----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $88,095 100.0% $98,315 100.0% $533,882 100.0% $128,310 100.0% $134,717 100.0%
Cost of revenues........... 74,695 84.8 84,244 85.7 482,526 90.4 115,929 90.4 121,147 89.9
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Gross profit............. 13,400 15.2 14,071 14.3 51,356 9.6 12,381 9.6 13,570 10.1
Selling, general and
administrative
expenses................. 10,204 11.6 11,491 11.7 31,660 5.9 6,565 5.1 8,606 6.4
Amortization of intangible
assets................... 535 0.6 551 0.6 4,749 0.9 1,191 0.9 1,191 .9
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Income from operations... 2,661 3.0 2,029 2.1 14,947 2.8 4,625 3.6 3,773 2.8
Interest income............ 107 0.1 85 0.1 67 -- 1 -- 1 --
Interest expense........... (80) (0.1) (178) (0.2) (11,492) (2.2) (2,459) (1.9) (3,007) (2.2)
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Income before provision
for income taxes....... 2,688 3.1 1,936 2.0 3,522 0.7 2,167 1.7 767 .6
Provision for income
taxes.................... 214 0.2 189 0.2 2,339 0.4 940 0.7 189 .2
------- ----- ------- ----- -------- ----- -------- ----- -------- -----
Net income............... $ 2,474 2.8% $ 1,747 1.8% $ 1,183 0.2% $ 1,227 1.0 $ 578 .4%
======= ===== ======= ===== ======== ===== ======== ===== ======== =====
</TABLE>
COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29,
1996.
Revenues. Revenues for the first quarter of fiscal 1998 were $134.7
million compared to $128.3 million for the first quarter of fiscal 1997, an
increase of $6.4 million or 5.0%. This increase is primarily attributable to
revenue increases in the Company's Commercial SBU of $5.9 million. This increase
resulted from services performed under new contracts and the impact of a full
year's revenue from contracts acquired in the prior year. Revenues in the
Company's Canadian Division increased by $1.6 million between the comparable
quarters, primarily as a result of a new contract which commenced in the last
quarter of fiscal 1997. This increase was partially offset by a revenue decrease
of $1.0 million in the Company's Security SBU, primarily resulting from revenues
associated with non-recurring services performed for a customer in the first
quarter of fiscal 1997. Revenues attributable to this customer decreased
$524,000 between the comparable quarterly periods.
Cost of Revenues. Cost of revenues for the first quarter of fiscal 1998
were $121.1 million, or 89.9% of revenues, compared to $115.9 million, or 90.4%
of revenues, for the first quarter of fiscal 1997. The decrease as a percentage
of revenues was primarily due to a decrease in direct labor as a percentage of
revenues. Direct labor as a percentage of revenues was 57.5% in the 1998 period,
compared to 58.8% in the comparable quarter in fiscal 1997.
Gross Profit. As a result of the foregoing, gross profit for the first
quarter of fiscal 1998 was $13.6 million, or 10.1% of revenues, compared to
$12.4 million, or 9.6% of revenues, for the comparable period in fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the first quarter of fiscal 1998 were $8.6 million,
or 6.4% of revenues, compared to $6.6 million, or 5.1% of revenues, for the
first quarter of fiscal 1997. The increase of $2.0 million was primarily
attributable to incremental costs associated with the assimilation of the Ogden
Allied Acquisition. The majority of these incremental costs were incurred after
the second quarter of fiscal 1997. Salaries and wages increased $1.0 million as
a result of additional headcount required to support the acquired Ogden business
as well as the impact of annual
36
<PAGE> 42
salary adjustments effective July 1, 1997. Additionally, office and occupancy
costs increased $724,000 between the comparable periods, primarily as a result
of increased computer lease costs, depreciation expense, temporary help,
relocation expense and recruiting expenses. Professional fees increased $211,000
between the comparable periods primarily as a result of third party systems
programming costs related to the integration of the Ogden business. Travel and
entertainment expenses increased $222,000 between the comparable periods as a
result of increased air travel and travel-related expenses primarily associated
with the Company's reorganization into Strategic Business Units, effective July
1, 1997.
Amortization of Intangible Assets. Amortization expense was $1.2 million
in each of the first quarters of fiscal 1998 and fiscal 1997.
Income from Operations. As a result of the foregoing, income from
operations for the first quarter of fiscal 1998 was $3.8 million or 2.8% of
revenues, compared to $4.6 million, or 3.6% of revenues for the first quarter of
fiscal 1997.
EBITDA. As a result of the foregoing, EBITDA for the first quarter of
fiscal 1998 was $5.5 million, or 4.1% of revenues, compared to $6.4 million, or
5.0% of revenues, for the first quarter of fiscal 1997. EBITDA is defined as
earnings before provision for income taxes, interest expense, interest income
and depreciation and amortization. EBITDA as presented may not be comparable to
similarly titled measures used by other companies, depending upon the non-cash
charges included. When evaluating EBITDA, investors should consider that EBITDA
(i) should not be considered in isolation but together with other factors which
may influence operating and investing activities, such as changes in operating
assets and liabilities and purchases of property and equipment; (ii) is not a
measure of performance calculated in accordance with generally accepted
accounting principles; (iii) should not be construed as an alternative or
substitute for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial position
or cash flows; and (iv) should not be used as an indicator of the Company's
operating performance or as a measure of its liquidity.
Cash flows from operating, investing and financing activities for the first
quarter of fiscal 1998 were $163,000, $(219,000) and $(1.8) million,
respectively. Cash flows from operating, investing and financing activities for
the first quarter of fiscal 1997 were $(41.5) million, $(355,000) and $41.9
million, respectively.
Interest Expense. Interest expense for the first quarter of fiscal 1998
was $3.0 million, or 2.2% of revenues, compared to $2.5 million, or 1.9% of
revenues, for the first quarter of fiscal 1997. The increase resulted from
higher borrowings under the Company's revolving credit facilities during the
first quarter of fiscal 1998. Average monthly borrowings under these facilities
were $51.0 million for the first quarter of 1998, as compared to $20.5 million
for the comparable 1997 period.
Net Income. Net income for the first quarter of fiscal 1998 was $578,000,
or 0.4% of revenue, compared to $1.2 million, or 1.0% of revenue, for the first
quarter of fiscal 1997.
COMPARISON OF YEARS ENDED JUNE 29, 1997 AND JUNE 30, 1996
Revenues. Revenues for fiscal 1997 were $533.9 million, an increase of
$435.6 million, compared to revenues of $98.3 million for fiscal 1996. This
increase was primarily attributable to the Ogden Allied Acquisition. Revenues of
the acquired business were approximately $389.0 million for the fiscal year
preceding the acquisition. The balance of the revenue increase of approximately
$46.6 million was attributable to new customer contracts, increases in services
to existing customers and the impact of a full year's revenue from contracts
acquired in the prior year.
Cost of Revenues. Cost of revenues for fiscal 1997 was $482.5 million, or
90.4% of revenues, compared to $84.2 million, or 85.7% of revenues, for fiscal
1996. The increase as a percentage of revenues was primarily due to a higher
labor component associated with the acquired Ogden business. The higher labor
component is primarily associated with contracts related to certain commercial
and security services and the regional infrastructure necessary to support the
Company's national scope of operations following the Ogden Allied Acquisition.
37
<PAGE> 43
Gross Profit. As a result of foregoing, gross profit for fiscal 1997 was
$51.4 million, or 9.6% of revenues, compared to $14.1 million, or 14.3% of
revenues, for fiscal 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1997 were $31.7 million, or 5.9% of revenues,
compared to $11.5 million, or 11.7% of revenues, for fiscal 1996. The increase
of $20.2 million was primarily attributable to the absorption of overhead costs
associated with the acquired Ogden business. A total of $2.3 million of the
increase in expense represented non-salary related incremental costs in the
accounting, information systems, payroll and human resources departments
attributable to the Ogden Allied Acquisition, including information systems
conversion costs, programming costs, computer lease costs, temporary help and
systems training. The Company also increased headcount in its accounting,
payroll and human resources and information systems departments in order to
develop the infrastructure necessary to support the acquired Ogden business.
Payroll costs and benefits associated with the increased headcount were
approximately $450,000 during fiscal 1997. On an annualized basis, such costs
are expected to be approximately $900,000. Selling, general and administrative
expenses in 1997 also include $500,000 of non-recurring charges related to an
accounting services agreement between Ogden and the Company which ended on June
29, 1997.
Amortization of Intangible Assets. Amortization of intangible assets for
fiscal 1997 was $4.7 million, compared to $551,000 for fiscal 1996.
Approximately $59 million of the $62 million purchase price for the Ogden
business was allocated to intangible assets, which are being amortized over
various lives ranging from seven to 15 years.
Income from Operations. As a result of the foregoing, income from
operations for fiscal 1997 was $14.9 million, or 2.8% of revenue, compared to
$2.0 million, or 2.1% of revenue, for fiscal 1996.
EBITDA. As a result of the foregoing, EBITDA for fiscal 1997 was $22.2
million, or 4.2% of revenues, compared to $3.4 million, or 3.5% of revenues for
fiscal 1996. EBITDA is defined as earnings before provision for income taxes,
interest expense, interest income and depreciation and amortization. EBITDA as
presented may not be comparable to similarly titled measures used by other
companies, depending upon the non-cash charges included. When evaluating EBITDA,
investors should consider that EBITDA (i) should not be considered in isolation
but together with other factors which may influence operating and investing
activities, such as changes in operating assets and liabilities and purchases of
property and equipment; (ii) is not a measure of performance calculated in
accordance with generally accepted accounting principles; (iii) should not be
construed as an alternative or substitute for income from operations, net income
or cash flows from operating activities in analyzing the Company's operating
performance, financial position or cash flows; and (iv) should not be used as an
indicator of the Company's operating performance or as a measure of its
liquidity.
Cash flows from operating, investing and financing activities for fiscal
1997 were $(35.8) million, $(2.5) million and $42.1 million, respectively. Cash
flows from operating, investing and financing activities for fiscal 1996 were
$5.6 million, $(52.4) million and $46.8 million, respectively.
Interest Expense. Interest expense for the year ended June 29, 1997 was
$11.5 million, or 2.2% of revenue, compared to $178,000, or 0.2% of revenue for
fiscal 1996. This substantial increase was attributable to indebtedness incurred
in connection with the Ogden Allied Acquisition and the increased working
capital requirements associated therewith. This indebtedness included a $90
million bank credit facility and $20 million of other subordinated debt. The
blended average interest rate on the bank credit facility was 8.96% as of June
29, 1997.
Net Income. Net income for fiscal 1997 was $1.2 million, or 0.2% of
revenue, compared to $1.7 million, or 1.8% of revenue, for fiscal 1996.
COMPARISON OF YEARS ENDED JUNE 30, 1996 AND JUNE 25, 1995
Revenues. Revenues for fiscal 1996 were $98.3 million compared to $88.1
million for fiscal 1995, an increase of $10.2 million or 11.6%. The increase was
primarily attributable to a $4.1 million increase in revenues in the Company's
then-existing Schools and College Division (now part of the Company's
38
<PAGE> 44
Education/Healthcare/Government SBU) and $2.9 million and $2.2 million increases
in revenues from the Company's then-existing Mid-Atlantic and New England
Divisions, respectively.
Cost of Revenues. Cost of revenues for fiscal 1996 was $84.2 million, or
85.7% of revenues, compared to $74.7 million, or 84.8% of revenues, for fiscal
1995. The increase in cost of revenues as a percentage of revenues was primarily
due to (i) $1.0 million of payroll and payroll-related expenses attributable to
an additional week of operations in fiscal 1996, a 53-week period, that were not
billed in the period to customers who have fixed price contracts, (ii) a $1.4
million increase in workers' compensation and liability insurance premiums
resulting from the transition to a reinsurance program from the Company's
self-insurance arrangement (see "Certain Transactions") and (iii) a $1.0 million
increase in expenses primarily resulting from the increased use of
subcontractors to service several new large customers. These increased costs
were offset in part by $2.1 million in refunds and reversals of reserves
resulting from the Company's favorable insurance claims experience. See Note 5
of Notes to the Company's Combined Financial Statements.
Gross Profit. As a result of the foregoing, gross profit for fiscal 1996
was $14.1 million, or 14.3% of revenues, compared to $13.4 million, or 15.2% of
revenues, for fiscal 1995. The increase in gross profit was attributable to the
increased revenues, offset in part by the higher payroll expenses in fiscal
1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1996 were $11.5 million, or 11.7% of
revenues, compared to $10.2 million, or 11.6% of revenues, for fiscal 1995.
Selling, general and administrative expenses in fiscal 1996 included a $403,000
charge related to the cost of settlement of litigation with a former officer of
the Company, and approximately $124,000 of payroll and payroll-related expenses
related to the extra week of operations described above.
Amortization of Intangible Assets. Amortization of intangible assets for
fiscal 1996 was $551,000, compared to $535,000 in fiscal 1995. Amortization of
intangible assets in fiscal 1996 included $134,000 related to amortization of a
non-compete agreement signed in January 1996 by a former officer and shareholder
of the Company. This increase was partially offset by the full amortization of a
non-compete agreement associated with a 1992 acquisition.
Income from Operations. As a result of the foregoing, income from
operations for fiscal 1996 was $2.0 million, or 2.1% of revenues, compared to
$2.7 million, or 3.0% of revenues, for fiscal 1995.
EBITDA. As a result of the foregoing, EBITDA for fiscal 1996 was $3.4
million, or 3.5% of revenues,compared to $3.9 million, or 4.4% of revenues, for
fiscal 1995. EBITDA is defined as earnings before provision for income taxes,
interest expense, interest income and depreciation and amortization. EBITDA as
presented may not be comparable to similarly titled measures used by other
companies, depending upon the non-cash charges included. When evaluating EBITDA,
investors should consider that EBITDA (i) should not be considered in isolation
but together with other factors which may influence operating and investing
activities, such as changes in operating assets and liabilities and purchases of
property and equipment; (ii) is not a measure of performance calculated in
accordance with generally accepted accounting principles; (iii) should not be
construed as an alternative or substitute for income from operations, net income
or cash flows from operating activities in analyzing the Company's operating
performance, financial position or cash flows; and (iv) should not be used as an
indicator of the Company's operating performance or as a measure of its
liquidity.
Cash flows from operating, investing and financing activities for fiscal
1996 were $5.6 million, $(52.4) million and $46.8 million, respectively. Cash
flows from operating, investing and financing activities for fiscal 1995 were
$1.0 million, $(1.2) million and $172,000, respectively.
Interest Expense. Interest expense for fiscal 1996 was $178,000, or 0.2%
of revenue, compared to $80,000 or 0.1% of revenue for fiscal 1995. The increase
was attributable to a higher level of borrowings under the Company's revolving
credit facility during fiscal 1996.
39
<PAGE> 45
Net Income. Net income for fiscal 1996 was $1.7 million, or 1.8% of
revenues, compared to $2.5 million, or 2.8% of revenues, for fiscal 1995. The
decrease was primarily attributable to the impact of incremental direct labor
expense associated with the 53rd week of operations as described above.
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter of fiscal 1998, the Company's cash decreased by $1.8
million. The decrease is primarily attributable to $1.9 million of repayments of
term debt during the period. Net cash used for operating and investing
activities was $56,000.
For the first quarter of fiscal 1997, $41.9 million was used for operating
activities and investing activities which consisted of $41.5 million of net cash
used for operating activities and $0.4 million used for investing activities.
Net cash provided by financing activities during the period was $41.9 million,
which primarily represented borrowings under the Company's $48 million line of
credit to fund the working capital requirements related to the Ogden Allied
Acquisition, which occurred on June 28, 1996.
For fiscal 1997, $38.4 million was used for operating and investing
activities which consisted of $36.4 million of net cash used for operating
activities and $2.0 million used for investing activities. For fiscal 1996, the
Company used $46.8 million for operating and investing activities which
consisted of $5.5 million of net cash provided by operating activities and $52.3
million used in investing activities ($51.0 million of which was used for the
Ogden Allied Acquisition). Net cash provided by financing activities in fiscal
1996 was $46.8 million, primarily resulting from bank indebtedness related to
the Ogden Allied Acquisition.
Capital expenditures were $2.6 million in fiscal 1997. The Company's
operations do not generally require material investment in capital assets. The
Company expects that its capital expenditure requirements will not increase
materially in 1998. The Company's business generally is not seasonal.
On October 17, 1997 the Company consummated the Series A Notes Offering and
entered into the Credit Facility. The net proceeds from the Series A Notes
Offering and the Credit Facility were used to repay approximately $84.8 million
of indebtedness under the Company's existing credit facilities and $19.7 million
of certain other indebtedness, fees and expenses incurred in connection with
such financing.
The Exchange Notes will mature on October 15, 2007. The Notes will not be
redeemable at the issuers' option prior to October 15, 2002. Thereafter, the
Notes will be subject to redemption at any time at the option of the issuers at
redemption prices set forth herein. Interest on the Exchange Notes will accrue
at the rate of 9 7/8% per annum and will be payable semi-annually in arrears on
April 5 and October 15 of each year, commencing on April 15, 1998, in an annual
amount equal to approximately $10.4 million. The payment of principal and
interest on the Exchange Notes will be subordinated in right to the prior
payment of all Senior Debt of the Company.
The Company's long-term indebtedness consists of borrowings under the
Credit Facility, the Notes and $5.0 million of subordinated indebtedness (which
will rank equal in right of payment with the Notes). Under the Credit Facility,
the Company has the ability to borrow up to $45.0 million for working capital
and general corporate purposes, subject to certain conditions. The Credit
Facility, the Indenture and the terms of the Company's other subordinated
indebtedness include certain financial and operating covenants which, among
other things, restrict the ability of the Company to incur additional
indebtedness, make investments and take other actions. See "Description of Other
Indebtedness" and "Description of the Exchange Notes." The ability of the
Company to meet its debt service obligations will be dependent upon the future
performance of the Company, which will be impacted by general economic
conditions and other factors. See "Risk Factors."
The Company's principal capital requirements are to service the Company's
indebtedness, for working capital and, to a lesser extent, to fund capital
expenditures. The Company believes that its cash flow from operations, together
with its borrowing capacity under the Credit Facility, will be sufficient to
meet such requirements.
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<PAGE> 46
YEAR 2000 COMPLIANCE
The Company's computer software systems are licensed from outside vendors.
The Company's principal outside vendor has released an upgrade of its software
which the vendor represents is "Year 2000 compliant." Once this software upgrade
is installed, the Company believes that its computer systems will be Year 2000
compliant. The Company believes that the costs of such compliance will not be
material to the Company's results of operations or financial condition. The
Company also has relationships with customers, vendors and other third parties
that have computer software systems that may not be Year 2000 compliant. As
these systems are outside of the Company's control, there can be no assurance
that potential systems interruptions or compliance costs would not have a
material adverse effect on the Company.
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<PAGE> 47
BUSINESS
Founded in 1949, UNICCO is a leading provider of integrated facilities
services to a broad base of industrial, commercial and institutional clients
throughout the United States and Canada. The Company offers an extensive array
of commercial, operational and administrative services to its customers,
providing a single source solution for those services that can be more
cost-effectively and efficiently outsourced. Services offered by the Company
include industrial and mechanical engineering, plant operations, custodial and
maintenance services, security services and administrative services. UNICCO has
developed a reputation for quality through nearly 50 years of service to its
customers. The Company has achieved a significant market presence and a leading
market share in many of its operating regions through a combination of internal
growth and strategic acquisitions. The Company believes that the breadth of its
services, its reputation for quality and its significant market presence
position it to provide a single source facilities management solution to local,
multi-location and national customers. The Company has over 19,000 employees
servicing approximately 900 customers, including 29 of the Fortune 100
companies, at approximately 3,000 customer locations. Throughout its history,
the Company has generated a record of growth and consistent profitability. For
the fiscal year ended June 29, 1997, the Company's net income, revenues and
EBITDA were $1.2 million, $533.9 million and $22.2 million, respectively. For
the three month period ended September 28, 1997, such amounts were $578,000,
$134.7 million and $5.5 million, respectively.
EBITDA is defined for purposes of this Prospectus as earnings before
provision for income taxes, interest expense, interest income and depreciation
and amortization. EBITDA as presented herein may not be comparable to similarly
titled measures used by other companies, depending upon the non-cash charges
included. When evaluating EBITDA, investors should consider that EBITDA (i)
should not be considered in isolation but together with other factors which may
influence operating and investing activities, such as changes in operating
assets and liabilities and purchases of property and equipment; (ii) is not a
measure of performance calculated in accordance with generally accepted
accounting principles; (iii) should not be construed as an alternative or
substitute for income from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance, financial position
or cash flows; and (iv) should not be used as an indicator of the Company's
operating performance or as a measure of its liquidity. For the fiscal year
ended June 29, 1997 and the three months ended September 28, 1997 the Company's
cash flows from operating activities were $(35.8) million and $163,000,
respectively, cash flows from investing activities were $(2.5) million and
$(219,000), respectively, and cash flows from financing activities were $42.1
million and $(1.8) million, respectively.
UNICCO analyzes the unique needs of each customer to develop a flexible,
integrated facilities services solution, comprised of a combination of the
following services:
<TABLE>
<CAPTION>
ENGINEERING OPERATIONS & MAINTENANCE COMMERCIAL SERVICES
<S> <C> <C>
- - Mechanical Engineering - Facility Management/Repair - Janitorial/Housekeeping
- - Planning/Scheduling - Production Equipment - Recycling
- - Power Generation Maintenance/Repair - Snow Removal
Management - Warehouse Services and - Window Washing
- - Plant Engineering Inventory Control - Pest Control
- - Energy Management - Utility Program Management - Specialty Cleaning
- - Space Planning - Shipping/Receiving Services - Clean Rooms/
- - CAD Services - Construction Project Management High Tech
- - CMMS Programs - Waste Treatment - Sterile Environment
- - Environmental - Elevator/Escalator Maintenance - Landscaping/Grounds
- Fleet Maintenance Maintenance
- Roof Repair
- Telecommunications
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
SECURITY ADMINISTRATION
<S> <C>
- - Uniformed Guard Services - Subcontract Administration
- - Security/Protection Services - Materials Procurement
- - Access Control - Reprographics/Copy Center
- - Security Audits - Mail Distribution
- - Fire/Safety Administration - Audio/Visual Services
- - Document Control - Secretarial/Clerical Services
- - Telecommunications - Service Call Desk
- - Safety Training Programs - Switchboard/Reception
</TABLE>
UNICCO has recently organized its operations around four Strategic Business
Units ("SBUs") to more effectively focus the Company's technical, sales and
marketing resources on the differing needs of its customers. The following table
provides an overview of the Company's four SBUs:
<TABLE>
<CAPTION>
EDUCATION/
HEALTHCARE/
COMMERCIAL INDUSTRIAL GOVERNMENT SECURITY
<S> <C> <C> <C>
Fiscal 1997 Revenues:
$214 Million $149 Million $110 Million $61 Million
Fiscal 1998 First Quarter Revenues:
$56 Million $35 Million $29 Million $15 Million
Types of Customer:
- - Commercial - Automotive - Schools - Industrial
Real Estate - Tire and Rubber - Universities - Commercial
- - Banking - Chemical - Hospitals - Education
- - Insurance - Pharmaceuticals - Healthcare - Healthcare
Facilities
- - Retail - Aerospace/Defense - Government Agencies - Government
- High Technology
- Consumer Products
Major Customers(1):
- - Beacon Properties/ - Chrysler - Harvard University - BASF Corp.
Equity Office Corporation - University of Miami - Bell Atlantic
Properties - Ford Motor Company - Henry Ford Health - Computer
- - Hines Interests - Caterpillar System Associates
- - Trammell Crow - Bridgestone/Firestone - U.S. Department of - Hartford
- - BankBoston - American Home Housing and Urban Insurance
- - CIGNA Products Development - Northeastern
- - The Travelers - Bristol-Myers - U.S. General University
- - MITRE Squibb Services - Philadelphia
- Lockheed Martin Administration Museum of Art
- Gillette - United Nations
Plaza
</TABLE>
- ---------------
(1) The Company has a diverse customer base, and the major customers listed
above are not necessarily representative of all customers.
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<PAGE> 49
The Company believes that opportunities for growth exist in each SBU,
particularly in the Industrial and Education/Healthcare/Government sectors, as a
result of the trend toward outsourcing non-core business functions to a single
source provider. Outsourcing frees the customer from the considerable
administrative and overhead burdens of hiring, training, compensating and
supervising a large, often unionized, labor force that is performing non-core
functions. UNICCO has responded to its customers' outsourcing strategies by
providing an expanded array of services that has evolved from traditional
custodial and building maintenance to higher value added services.
The Company has a customer base of approximately 900 accounts, with no
single customer accounting for more than 3% of revenues during fiscal 1997. The
Company's customer retention rate historically has been high. Forty-five
customers, representing approximately 75% of the Company's fiscal 1997 revenues,
have been UNICCO customers for an average of more than six years (excluding
revenues and customers resulting from the Ogden Allied Acquisition in June
1996). On a combined basis, the Company and Ogden have serviced their 20 largest
customers, including the former Ogden customers, for an average of 10 years. In
addition, the Company has successfully retained over 90% of the customers
acquired in the Ogden Allied Acquisition. UNICCO believes that its strong
reputation and long-term relationships with these customers is a result of a
high level of customer satisfaction. The Company also believes that these
established relationships enhance the Company's knowledge of its customers'
needs and place UNICCO in a strong competitive position to bid on and win new
business opportunities with these customers.
BUSINESS STRENGTHS
UNICCO's revenues have increased through a combination of internal growth
and strategic acquisitions. The Company's growth, and its emergence as a leader
in the facilities services market in the United States and Canada, are
attributable to a number of factors, including the following:
High Customer Retention. The Company benefits from a large, stable base of
customers, including 29 of the Fortune 100 companies, 60 of the Fortune 500
companies and some of the country's most prestigious educational institutions.
The Company's customer base, together with its high customer retention rate,
have provided stable, recurring revenues and have contributed to the Company's
record of consistent profitability.
Established Reputation. The Company has established a reputation for
quality through almost 50 years of experience in providing dependable facilities
services solutions in a changing business environment. The Company believes that
its established reputation and the breadth of its services have allowed it to
further penetrate its existing customer base as well as attract new business.
The Company plans to enhance its reputation for dependability and technical
expertise by pursuing the highest levels of industry accreditation.
Singular Focus on Facilities Services. The Company is focused exclusively
on providing facilities services solutions to its customers, unlike many of its
larger competitors for whom facilities services is an adjunct to their primary
business or one of many other unrelated lines of business. The Company believes
that this exclusive focus gives it a competitive advantage in delivering
dependable, high quality services.
Established North American Presence. The Company provides services
throughout the United States and Canada from 16 regional offices to customers in
over 40 states and each of the Canadian provinces. The Company believes that it
can leverage this infrastructure to support the marketing and delivery of
services to new customers in strategic geographic areas and to obtain additional
business from major companies that seek to utilize a single source provider
nationwide.
Effective Human Resources and Labor Relations Management. UNICCO
successfully manages a large and diverse work force of over 19,000 full and
part-time employees. The Company places a major emphasis on attracting,
training, managing, motivating and retaining the human resources necessary to
meet its existing and future business needs. The Company's extensive industry
experience and sophisticated computer-based costing models allow it to
accurately assess the labor requirements of new contracts. UNICCO seeks to
efficiently integrate its customers' existing work force, thereby minimizing the
traditional issues typically associated with contract inception. In addition,
the Company believes that its experience in managing both union and non-union
work forces has enhanced its ability to grow its business.
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<PAGE> 50
Experienced Management Team. The Company's senior management team has an
average of 17 years of experience in the facilities services industry. The
Company benefits from the quality and depth of its management personnel, who are
dedicated to building customer relationships and delivering quality services to
meet and exceed its customers' needs. Additionally, management has developed
sophisticated databases and costing systems to forecast expenses for individual
customers' service requirements across a variety of service lines. These
proprietary databases enhance UNICCO's ability to effectively price and compete
for customers and contracts.
Successful Acquisition History. Throughout its 50-year history, UNICCO has
benefited from several successful strategic acquisitions. The Company has
completed three acquisitions since 1990, incorporating operations with revenues
of approximately $20 million, $5 million and $389 million in 1990, 1992 and
1996, respectively. The Company believes that its successful integration of
these acquisitions has positioned it to take advantage of opportunities for
further consolidation within the facilities services industry.
THE COMPANY'S STRATEGY
The Company's objective is to enhance its position as a leading provider of
facility management solutions. The Company's strategy to meet this objective
includes the following initiatives:
Providing Integrated Facilities Solutions. UNICCO believes that an
attractive opportunity exists to expand the scope of work performed for existing
customers. Cross-selling new services to existing customers represents a
cost-effective method for the Company to achieve revenue growth. The Company
seeks to create partnerships with its customers that enable it to capitalize on
the trend toward outsourcing to single source providers. As part of this
strategy, the Company intends to focus its efforts on increasing the proportion
of its business devoted to delivering higher value added services to its
customers.
Leveraging its National Presence. UNICCO has established a significant
presence throughout the United States and Canada. The Company believes that it
can substantially increase the number of multi-location and national accounts it
serves by leveraging its existing infrastructure to support the marketing and
delivery of bundled services to new customers that operate multiple locations.
Capitalizing on Outsourcing Initiatives. The Company believes that it is
well positioned to capitalize on favorable trends in a growing number of
industries toward outsourcing of non-core business functions. Many companies
have increased the volume and types of services they outsource in order to free
their human and capital resources to better focus on their strategic business
initiatives. The Company believes that its established reputation and the
breadth of its services enhance its ability to attract this potential business.
Strategic Business Development. Through its recent organization into the
four SBUs, the Company is focused on developing specific operating and marketing
strategies targeted to the unique needs of its customers in diverse market
segments. Because of the diversity of UNICCO's existing and potential customer
base, the Company believes that it can position itself to attract higher value
added business by continuing to anticipate its customers' differing needs. The
Company believes that the SBU initiatives it has implemented will enable it to
more effectively leverage its resources to generate new clients and additional
contracts with existing clients.
Growing through Selective Acquisitions. UNICCO has successfully expanded
its business through internal growth and strategic acquisitions, including the
successful integration of the Ogden Allied Acquisition, and intends to seek
additional opportunities to grow through selective acquisitions. The Company may
pursue acquisitions that add additional services and technical capabilities to
market to its existing customer base, or that facilitate strategic expansion of
the Company's customer base or complement its existing geographic coverage.
HISTORY OF THE COMPANY; THE OGDEN ALLIED ACQUISITION
The Company was founded by the Kletjian family in 1949 and, through early
1996, had grown to become a leading provider of facilities services in the New
England and Mid-Atlantic regions. The Company's expansion resulted from a
combination of internal growth and two strategic acquisitions from Ogden
45
<PAGE> 51
Corporation. In 1990, the Company acquired a portion of Ogden's New England
facility services operations representing revenues of approximately $20 million.
In 1992, the Company acquired Ogden's Pittsburgh-area facility services
operations, with revenues of approximately $5 million.
In June 1996, the Company consummated the acquisition of substantially all
of the remaining portion of Ogden's facilities services business, excluding most
New York City operations. The Company acquired the majority of Ogden's North
American facilities management, custodial, plant operation and mechanical
maintenance business, along with the majority of Ogden's North American security
business, as a going concern. As part of the Ogden Allied Acquisition, all of
the senior operating managers of Ogden associated with the acquired operations
became employees of the Company. The Ogden Allied Acquisition more than
quadrupled the amount of the Company's revenues and number of employees and
increased the Company's geographic range to cover most of the United States and
Canada.
The purchase price for the Ogden Allied Acquisition was $62 million, of
which $50 million was paid in cash and $12 million was paid in the form of the
Ogden Note. In addition, Ogden agreed not to compete with the Company in the
facilities services business for a period of ten years. The Ogden Allied
Acquisition was accounted for as a purchase. Certain audited financial
statements of the acquired operations are included in this Prospectus under the
caption "Allied Facility Services Business."
The Company believes that the Ogden Allied Acquisition has positioned the
Company among the leading United States-based facilities services firms and
established the Company as a full-service provider capable of delivering
services to a wide customer base throughout the United States and Canada.
Notable Ogden customers obtained from the acquisition include
Bridgestone/Firestone, Chrysler Corporation, AT&T, American Home Products,
CIGNA, Bell Canada and Lockheed Martin. The Company has retained over 90% of the
customers acquired in the Ogden Allied Acquisition.
INDUSTRY
Over the last several years, trends toward outsourcing have transformed the
traditional facilities services industry. As companies began to realize the
benefits of outsourcing non-core business functions to single source vendors,
the opportunities for companies such as UNICCO to expand into new industries and
obtain new customers have increased. Facilities services companies have expanded
their businesses from providing traditional cleaning services for commercial
property managers and large corporations to performing higher value added
services for companies in the industrial, manufacturing, education and
healthcare sectors. Outsourcing allows companies to:
- focus on their core competencies to create competitive advantages;
- re-focus both human and capital resources toward their core business;
- reduce operating expenses;
- share risk and management responsibility;
- improve quality; and
- access technical expertise not available internally.
According to The Outsourcing Institute, approximately 80% of U.S. companies
outsource some aspect of their business support services. According to The
Outsourcing Institute, in 1996, U.S. companies spent approximately $100 billion
on outsourcing, reflecting a 100% increase from 1992. Of the $100 billion spent
on outsourcing, an estimated 40% was spent for information technology services,
15% was spent for logistics services, 30% was spent for administrative, human
resources, customer service, transportation, sales and marketing services, and
15% was spent for real estate and physical plant services. These favorable
trends are expected to continue. The Outsourcing Institute estimates that the
U.S. market for outsourcing services will grow to approximately $320 billion by
the year 2001, and that the facilities management segment will grow from
approximately $9.3 billion to approximately $23.0 billion, a compound annual
growth rate of approxi-
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<PAGE> 52
mately 20%. With UNICCO's geographic coverage and extensive array of product
offerings, the Company believes it is well positioned to capitalize on these
trends.
SERVICES
The Company offers a range of integrated facilities management and support
services relating to the operation and maintenance of buildings and plants.
These services are designed to optimize the facility's operating efficiency
while relieving the Company's customers from the management and personnel
burdens associated with non-core functions.
The Company's building operation and maintenance services include
traditional custodial functions such as janitorial and housekeeping services,
and mechanical and plant maintenance, which are provided to customers across the
Company's various market sectors. In connection with the Company's total
facility management concept, the Company provides additional contract building
services in the areas of grounds maintenance, life safety systems, utility
operations, energy management, security, recycling, snow removal and building
systems controls.
In addition to providing services which are directly related to the
operation, safety and maintenance of the facility, the Company also supplies
certain facility support services and a combination of manufacturing and
administrative support functions to its customers. In response to both
outsourcing initiatives instituted by certain of its customers and the Company's
efforts to provide customers with cost effective solutions for non-core
functions, the Company has partnered with many organizations in supplying
process management and staffing in the areas of production support, warehousing,
distribution, shipping and receiving, preventive and predictive maintenance of
manufacturing equipment, vehicle maintenance, waste water treatment and chemical
distribution systems maintenance, and reprographic and mailroom operations
support.
In order to supply seamless integrated services to a broad base of
customers and facilities, the Company also selects, manages and integrates
services provided by third parties into the Company's overall portfolio of
services. For example, the Company is able to provide sub-contracted services in
areas such as facility renovation, facility planning, space design and office
relocation to relieve its customers of individually searching for and
contracting with suppliers of these services.
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<PAGE> 53
The Company's principal service offerings are listed below.
Engineering:
- - Mechanical Engineering
- - Planning/Scheduling
- - Power Generation Management
- - Plant Engineering
- - Energy Management
- - Space Planning
- - CAD Services
- - CMMS Programs
- - Environmental
Commercial Services:
- - Janitorial/Housekeeping
- - Recycling
- - Relamping Services
- - Porter/Matron Services
- - Snow Removal
- - Window Washing
- - Pest Control
- - Specialty Cleaning
- - Clean Rooms/High Tech
- - Sterile Environment
- - Landscaping/Grounds
Maintenance
Operations & Maintenance:
- - Facility Management/Repair
- - Production Equipment Maintenance/Repair
- - Warehouse Services and Inventory Control
- - Utility Program Operation
- - Shipping/Receiving Services
- - Construction Project Management
- - Distribution Management
- - Waste Management
- - Elevator/Escalator Maintenance
- - Fleet Maintenance
- - Roof Repair
- - Telecommunications
Security:
- - Uniformed Guard Services
- - Security/Protection Services
- - Access Control
- - Security Audits
- - Fire/Safety Administration
- - Document Control
- - Telecommunications
- - Safety Training Programs
Administration:
- - Subcontract Administration
- - Materials Procurement
- - Reprographics/Copy Center
- - Mail Distribution
- - Audio/Visual Services
- - Secretarial/Clerical Services
- - Service Call Desk
- - Switchboard/Reception
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<PAGE> 54
CUSTOMERS
The Company's customer base is diverse in its geographic coverage, industry
sector representation, category of facility and type of service provided. The
Company has approximately 900 active customer accounts, including 29 of the
Fortune 100 and 60 of the Fortune 500 companies, operating in a wide variety of
business sectors including commercial real estate, banking, insurance, consumer
products, automotive and heavy equipment manufacturing, pharmaceuticals,
telecommunications, high technology, aerospace, defense contracting and chemical
manufacturing. In addition, the Company provides services to government
agencies, colleges and universities and other organizations and institutions
such as museums and sports facilities.
The Company's revenue stream is diverse, with no single customer accounting
for more than 3% of the Company's revenues in fiscal 1997. Management does not
believe that the loss of any single customer would have a material adverse
effect on the Company. The Company services customers in over 40 states,
including Hawaii, and each of the Canadian provinces. A listing of some of the
Company's major customers is as follows:
Manufacturing:
- - Bridgestone/Firestone
- - Bristol-Myers Squibb
- - Caterpillar
- - Chrysler Corporation
- - Consolidated Diesel
- - Ford Motor Company
- - The Gillette Company
- - Goodyear Tire & Rubber
- - Ingersoll-Rand Company
- - Lockheed Martin
- - Polaroid Corporation
- - Raytheon Electronics Systems
Commercial Real Estate:
- - Beacon Properties/Equity Office Properties
- - CB Commercial Real Estate
- - Hines Interests
- - Koll Management Services
- - Charles E. Smith
- - Trammell Crow
Financial Services:
- - BankBoston
- - Bank of Hawaii
- - Fidelity Investments
- - Fleet National Bank
- - Putnam
- - Royal Bank of Canada
Technology:
- - Computer Associates
- - Computervision
- - The MITRE Corporation
Telecommunications:
- - AmeriTech
- - AT&T
- - Lucent Technologies
- - Bell Atlantic
Insurance:
- - CIGNA
- - Hartford Insurance
- - Liberty Mutual
- - The Travelers
Education:
- - American University
- - Chicago Public School System
- - Drexel University
- - Harvard University
- - Northeastern University
- - University of Miami
Government:
- - United States Government Accounting Office
- - United States General Services Administration
- - United States Department of Housing and Urban Development
- - United States Marshall Service
Other Customers:
- - New Jersey Meadowlands
Entertainment Complex
- - World Bank
- - United Nations Plaza
- - Philadelphia Museum of Art
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<PAGE> 55
CONTRACTS
The Company's business is generally conducted under written contracts with
its customers. Contracts vary in type and duration, with a majority having a
term of one to three years, often with automatic renewal clauses unless either
party elects to terminate. Most of the Company's contracts are subject to
termination without penalty at the option of the customer, or by either the
Company or the customer, upon 30 to 90 days' notice. The Company's experience,
as evidenced by its history of long-standing customer relationships, is that
while contractual elements may be re-negotiated, termination clauses are rarely
exercised. On those occasions when the Company has lost a customer, it is most
commonly as a result of the contract being re-bid upon expiration rather than
the exercise of a termination clause. The Company does not view its business
prospects as being particularly dependent on its written contracts, but rather
on the strength of its customer relationships and the consistency and quality of
service delivered.
The Company structures its service contracts under three principal methods:
fixed price, cost plus fixed fee and hourly billing. All contracts are based
upon a defined scope and frequency of services to be provided. Under fixed price
contracts, which currently account for approximately 25% of the Company's
revenues, the customer agrees to a fixed dollar amount for all labor and
non-labor costs. Cost plus fixed fee contracts, which currently account for
approximately 63% of the Company's revenues, provide for the customer to be
billed for labor and non-labor costs, allocated overhead and a negotiated fee
based upon these costs. Hourly billing rate contracts, which currently account
for approximately 12% of the Company's revenues, are used primarily in providing
security services and provide for actual hours worked to be billed at
pre-determined hourly rates. In certain instances, modifications to the cost
plus fixed fee contracts are structured to include an incentive fee or shared
cost savings based upon operating efficiencies obtained.
Certain of the Company's contracts, particularly government contracts,
require the Company to post a performance bond and/or payment bond as a
condition of contract award. Total performance and/or payment bonds outstanding
at August 30, 1997 were $6.3 million. The Company has never had a claim made
under any performance or payment bond.
SALES AND MARKETING
The Company's marketing efforts are designed to create a cohesive,
company-wide image and strategy as well as to provide individual focus to each
of the Company's SBUs. Company-wide marketing efforts are coordinated by a
marketing department under the direction of the Company's recently established
position of Executive Vice President -- Sales and Marketing who is also
responsible for sales process management, tactical marketing and strategic
planning and development.
As a result of the Company's emergence as a leader in the industry and its
reputation for delivering quality services, the Company is frequently invited to
bid on new major facility service contracts in the United States and Canada. The
Company is able to respond to these requests as a result of its ability to
coordinate sales, technical and financial resources to develop comprehensive
proposals addressing and delivering all aspects of customers' service
requirements at a competitive price. The Company's marketing and planning group
has implemented initiatives to sell additional higher margin services to
UNICCO's existing customers, targeting industries and geographic areas which the
Company believes have the highest propensity to outsource services and which
involve large, complex, multi-site operations.
COMPETITION
The facility services industry is characterized by a combination of a small
number of large national organizations, none of which has a dominant market
share, as well as numerous smaller companies providing a narrow range of
services in a limited geographic area. While the Company operates throughout the
United States and Canada, its services are delivered at the local level and as a
result it competes with both national organizations as well as the smaller
contractors. There are many firms that provide core janitorial, custodial or
housekeeping services, principally in the Company's commercial market sector, on
either a regional basis or limited to a small number of geographically proximate
cities or contiguous states. In addition, the Company
50
<PAGE> 56
faces competition from large national firms that have branch offices or
operating locations in major cities established to service the local business
community.
In the broader market for providing bundled facility management services to
customers or for multi-site/multi-function contracts, as well as outsourced
manufacturing and administrative support services, the Company competes
primarily against large national firms. The Company believes there are a limited
number of companies that offer the range of services to both local and national
accounts as are being provided by the Company. ABM Industries, Aramark, Fluor
Corp., ISS-International Service Systems, Johnson Controls, Marriott
Corporation, Pinkerton and Service Master, among others, all supply similar
services to customers in the Company's principal market sectors. These
organizations generally have substantially greater financial and marketing
resources than the Company.
The Company believes that the principal competitive factors in the market
segments in which it operates are quality of service, cost, capability to
provide a broad range of fully integrated services, geographic scale of
operations and the ability to establish and maintain long-term customer
relationships. The Company believes that it competes favorably with respect to
each of these factors.
EMPLOYEES
The Company employs over 19,000 employees of which approximately 58% are
full time and approximately 42% are part-time. Approximately 44% of the
Company's work force is unionized under more than 170 different union contracts.
The Company has not experienced any strikes or work stoppages, and management
generally considers its relationships with its employees and its unions to be
satisfactory.
FACILITIES
The following table sets forth the Company's principal office facilities
throughout North America. The Company also has a number of smaller offices in
other cities, all of which are leased. The majority of the Company's employees
are engaged in providing services directly to customers at the customers'
facilities. Accordingly, the Company does not consider any of these locations to
be material to its operations as a whole.
<TABLE>
<CAPTION>
NO. OF LEASE
LOCATION SQUARE FEET EXPIRATION
------------------------------------------------------ ----------- ----------
<S> <C> <C>
Arlington, Virginia................................... 4,555 1999
Boston, Massachusetts(1).............................. 23,555 2001
Boston, Massachusetts................................. 12,800 2002
Chicago, Illinois..................................... 7,801 2003
Fairfax, Virginia..................................... 4,880 1999
Farmingdale, New York................................. 7,800 (2)
Farmington Hills, Michigan............................ 6,165 1997
Honolulu, Hawaii...................................... 3,500 2005
Oklahoma City, Oklahoma............................... 11,034 1998
Pine Brook, New Jersey................................ 6,642 1997
Somerville, Massachusetts............................. 3,521 2001
Toronto, Ontario...................................... 7,121 1999
</TABLE>
- ---------------
(1) This location serves as the Company's corporate headquarters.
(2) This location is occupied under a month-to-month tenancy.
51
<PAGE> 57
The following locations are leased by the Company on behalf of a customer.
The Company is fully reimbursed by the customer for all rental expenses under
the lease. The lease is assignable to the customer if the Company's services are
terminated.
<TABLE>
<CAPTION>
NO. OF LEASE
LOCATION SQUARE FEET EXPIRATION
------------------------------------------------------ ----------- ----------
<S> <C> <C>
Niagara Falls, Ontario................................ 80,000 2001
Terre Haute, Indiana.................................. 129,600 2002
</TABLE>
LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than
those arising in the ordinary course of the Company's business. Management
believes that the resolution of these matters will not materially affect the
Company's financial position or results of operations.
52
<PAGE> 58
MANAGEMENT
UNICCO is a Massachusetts business trust and, as such, has a Board of
Trustees that serves a function similar to that of the board of directors of a
corporation. The Trustees serve for an indefinite term. The names and positions
of the Company's Trustees, executive officers and operating managers are as
follows:
TRUSTEES AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME POSITION
- ----------------------- ------------------------------------------------------------
<S> <C>
Steven C. Kletjian Chief Executive Officer and Chairman of the Board of
Trustees
Richard J. Kletjian Vice Chairman of the Board of Trustees
Robert P. Kletjian Vice President and Vice Chairman of the Board of Trustees
Sharkay Kletjian Trustee
Robert J. Scoble Executive Vice President of Operations and
President -- Industrial Division
George A. Keches Executive Vice President -- Finance and Administration,
Chief Financial Officer and Treasurer
James Biere Marceau Executive Vice President -- Sales and Marketing
Scott T. Moy Vice President -- Corporate Controller
</TABLE>
OPERATING MANAGERS
<TABLE>
<CAPTION>
NAME POSITION
- ----------------------- ------------------------------------------------------------
<S> <C>
John C. Feitor Senior Vice President -- Operations
Bruce L. Charboneau President -- Commercial Division
John H. Barrett President -- Education and Government Division
Bruce H. Simon President -- Security Division
Jim E. Walters President -- Hawaiian Division
Brian Struthers President -- Canadian Division
</TABLE>
ADVISORY BOARD
The Company recently established an Advisory Board made up of non-employee
and non-shareholder independent advisors with whom senior management will
consult on a periodic basis. The members of the Advisory Board are as follows:
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------------------ -----------------------------------------------
<S> <C>
Dr. Gregory Adamian Former President, Bentley College
Anton Bernard (Ton) Funke Kupper Former President, HODON-GROUP
Leonard Lynch Retired Partner, Arthur Andersen LLP
Mitchell Reese Managing Director, Venture at The Carlyle Group
Harvey Wagner Chief Financial Officer, Scientific Atlanta
Corporation
</TABLE>
BIOGRAPHICAL INFORMATION
Set forth below is additional biographical information regarding each of
the persons listed in the tables above.
TRUSTEES AND EXECUTIVE OFFICERS
STEVEN C. KLETJIAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER Steven Kletjian,
53, has been Chairman and Chief Executive Officer of the Company since 1969. He
has over 30 years of service with the Company. He has served as a Trustee since
the Company's reorganization as a business trust in 1988, and had served as a
director of the Company's corporate predecessor.
53
<PAGE> 59
RICHARD J. KLETJIAN, VICE CHAIRMAN Richard Kletjian, 50, has been Vice
Chairman of the Company since 1993 and served as President for six years prior
to 1993. From 1992 to 1993, he was also general manager of the Mid-Atlantic
Division, and was general manager of the Commercial Division from 1990 to 1992.
He has over 27 years of service with the Company. He has served as a Trustee
since 1988, and had served as a director of the Company's corporate predecessor.
ROBERT P. KLETJIAN, VICE PRESIDENT AND VICE CHAIRMAN Robert Kletjian, 47,
has been Vice Chairman of the Company since 1993 and was Vice President and
general manager of the Corporate and Education Division from 1990 to 1993. Prior
to 1990, Mr. Kletjian managed the Company's Hartford operations. He has over 24
years of service with the Company. He has served as a Trustee since 1988, and
had served as a director of the Company's corporate predecessor.
SHARKAY KLETJIAN, TRUSTEE Ms. Kletjian, 78, co-founded the Company in
1949. She served as a director of the Company's corporate predecessor, and has
served as a Trustee since 1988. Until 1997, she also served as Treasurer of the
Company.
ROBERT J. SCOBLE, EXECUTIVE VICE PRESIDENT OF OPERATIONS AND
PRESIDENT -- INDUSTRIAL DIVISION Mr. Scoble, 46, joined the Company in June 1996
as a result of the Ogden Allied Acquisition. He served in Ogden's facilities
services and food service operations businesses since 1981 and as a Vice
President at Ogden since 1989.
GEORGE A. KECHES, EXECUTIVE VICE PRESIDENT -- FINANCE AND ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND TREASURER Mr. Keches, 40, joined the Company in
1991 having previously held management positions at The Westwood Group, Inc. and
Arthur Andersen & Co. Mr. Keches is a Certified Public Accountant, and serves as
the Company's principal financial officer.
JAMES BIERE MARCEAU, EXECUTIVE VICE PRESIDENT -- SALES AND MARKETING Mr.
Marceau, 34, joined the Company in May, 1997. He is responsible for the
Company's overall marketing efforts. From 1993 to 1997, Mr. Marceau served as
Director of International Sales and Marketing of Ryder System, Inc., an
international transportation and logistics company. Prior to that, he was
Assistant Vice President of Atlantic Gulf Corporation.
SCOTT T. MOY, VICE PRESIDENT -- CORPORATE CONTROLLER Mr. Moy, 36, joined
the Company in 1991 having previously held a management position at Digital
Equipment Corporation. Prior to that, Mr. Moy was an accountant at Arthur
Andersen & Co. Mr. Moy is a Certified Public Accountant.
OPERATING MANAGERS
JOHN C. FEITOR, SENIOR VICE PRESIDENT -- OPERATIONS Mr. Feitor, 52, joined
the Company in 1970. He has held various positions within the Company including
Area Manager and Vice President of Operations. In 1996, he was promoted to
Senior Vice President -- Operations.
BRUCE L. CHARBONEAU, PRESIDENT -- COMMERCIAL DIVISION Mr. Charboneau, 55,
joined the Company in 1994. Prior to joining the Company, Mr. Charboneau served
as President of the Eastern Region of National Cleaning, Inc., another
facilities services firm. He has over 25 years of experience in the facilities
services industry.
JOHN H. BARRETT, PRESIDENT -- EDUCATION AND GOVERNMENT DIVISION Mr.
Barrett, 38, joined the Company in June 1996 as a result of the Ogden Allied
Acquisition. He joined Ogden in 1989, having previously served in various
marketing positions with Xerox Corporation.
BRUCE H. SIMON, PRESIDENT -- SECURITY DIVISION Mr. Simon, 38, joined the
Company in June 1996 as a result of the Ogden Allied Acquisition. He had served
in various positions of increasing responsibility in Ogden's sales and
operations areas, having joined Ogden in 1983 as a supervisor in the facility
services group.
JIM E. WALTERS, PRESIDENT -- HAWAIIAN DIVISION Mr. Walters, 46, joined the
Company in June 1996 as a result of the Ogden Allied Acquisition. He served as a
regional Vice President of Ogden from 1995, after beginning his career with
Ogden in 1991 as director of operations in Oklahoma. As a result of geographic
and other factors, the Company operates its Hawaiian business as a separate
division.
54
<PAGE> 60
BRIAN STRUTHERS, PRESIDENT -- CANADIAN DIVISION Mr. Struthers, 43, joined
the Company in June 1996 as a result of the Ogden Allied Acquisition. He joined
Ogden in 1988. Prior to joining Ogden, Mr. Struthers served in sales, marketing
and business development positions with Commonwealth Holiday Inns, McLean-Hunter
and Empire Maintenance Industries, Inc. As a result of geographic and other
factors, the Company operates its Canadian business as a separate division.
ADVISORY BOARD
GREGORY ADAMIAN, J.D., PH.D. (HON.) Dr. Adamian, 71, currently serves as
Chancellor and President Emeritus of Bentley College in Waltham, Massachusetts,
having previously served as its President. Dr. Adamian also serves on the boards
of Hesser College, Liberty Mutual Life Insurance Company and the West End House,
an affiliate of the Boys Club of America.
ANTON BERNARD (TON) FUNKE KUPPER Mr. Funke Kupper, 68, is the past
President and Chief Executive Officer of HODON-GROUP (currently known as ABILIS
International), a facility services company operating in the Netherlands,
Belgium and France, where he worked from 1949 to 1989. Mr. Funke Kupper has also
served as a board member of the U.S.A. Building Service Contractors Association
from 1985 to 1989, President of the World Federation of Building Contractors
from 1980 to 1982 and President of the Dutch Association of Contractors from
1970 to 1983.
LEONARD LYNCH Mr. Lynch, 61, is a retired partner of Arthur Andersen LLP
where he served as the Director of the Audit Practice and head of the Audit and
Business Advisory Practice in the Boston and Southern California offices. He
currently serves as a consultant to the firm. Mr. Lynch has also served as a
past trustee of the New England Aquarium, member of the Advisory Board of the
Heritage Plantation and a member of Town Hall of Los Angeles.
MITCHELL REESE Mr. Reese, 38, is Managing Director, Venture at The Carlyle
Group where he is responsible for the operations of Carlyle Venture Partners,
L.P., a $250 million fund established to pursue venture-oriented investments.
Prior to joining The Carlyle Group, Mr. Reese was employed for seven years by
Morgan Keegan Inc., an investment banking firm, as President of its venture
capital division and co-head of its investment banking group. Prior thereto, Mr.
Reese was Vice President in the mergers and acquisitions department of Alex.
Brown & Sons Incorporated.
HARVEY WAGNER Mr. Wagner, 56, is the Chief Financial Officer and Treasurer
of Scientific-Atlanta Corporation. From 1989 to 1994 Mr. Wagner was Vice
President, Finance and Chief Financial Officer at Computervision Corporation
(formerly Prime Computer). Mr. Wagner is a member of the Financial Executives
Institute, the Institute of Management Accountants and the American Electronics
Association. He sits on the President's Council at the University of Miami, the
Executive Advisory Board of the Wharton School of the University of Pennsylvania
and is a founding Board Member and Executive Vice President of The Wellness
Community-Atlanta.
55
<PAGE> 61
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information concerning
the compensation paid or accrued by the Company with respect to the Company's
Chief Executive Officer and the other four most highly compensated executive
officers for the fiscal year ended June 29, 1997.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ---------------------------
---------------------------------------- SHARES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
- ------------------------------ -------- ------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Steven C. Kletjian............ $615,122 -- $24,562 -- $104,299(2)
Chief Executive Officer and
Chairman
Richard J. Kletjian........... 346,696 -- 23,169 -- 57,234(2)
Vice Chairman
Robert P. Kletjian............ 342,379 -- 22,277 -- 64,997(2)
Vice President and Vice
Chairman
John P. McGillicuddy.......... 316,650 -- 8,400 -- 1,125(3)
Chief Operating Officer(4)
Robert L. Trow................ 190,275 $20,000 13,885 -- 2,800(3)
Vice President --
Human Resources(5)
</TABLE>
- ---------------
(1) Includes automobile allowance paid by the Company to or on behalf of the
designated officer.
(2) Includes premiums paid by the Company for life insurance for the designated
officer.
(3) Includes matching contributions by the Company to the executive's 401(k)
plan.
(4) Mr. McGillicuddy resigned from the position of Chief Operating Officer in
January 1998 but continues to be employed by the Company.
(5) Mr. Trow resigned from the Company in July 1997.
TRUSTEE COMPENSATION
Steven C. Kletjian, Richard J. Kletjian and Robert P. Kletjian receive no
additional compensation for serving as Trustees of the Company. Sharkay
Kletjian, a Trustee of the Company, received aggregate compensation of $172,566
during fiscal 1997 in her capacity as an employee of the Company.
EMPLOYMENT AGREEMENTS
In connection with the Ogden Allied Acquisition in June 1996, the Company
entered into employment agreements with former Ogden managers of the acquired
operations, including Messrs. McGillicuddy, Scoble, Barrett, Simon, Walters and
Struthers, each for a term of three years. The employment agreements provide for
a base salary and an annual bonus based on the Company's operating income before
debt service, as well as benefits commensurate with those provided to the
Company's other senior managers. These agreements may be terminated by the
Company for cause, as defined therein. Each agreement contains a confidentiality
clause that survives for two years beyond termination of employment.
STOCK OPTION PLAN
The Company is in the process of implementing a stock option plan pursuant
to which employees, trustees, directors and other key persons at the Company may
be granted options to purchase non-voting shares of UNICCO.
56
<PAGE> 62
SHARE OWNERSHIP
Under UNICCO's Declaration of Trust, UNICCO may issue an unlimited number
of shares of beneficial interest. The Trustees may determine the classes and
series of such shares and may designate the relative designations, preferences,
privileges, voting powers and restrictions applicable to the shares of each such
class and series. As of the date hereof, the outstanding securities of UNICCO
consist of an aggregate of 1,054 common shares of beneficial interest,
consisting of 1,000 voting common shares and 54 non-voting common shares.
The following table sets forth the beneficial and record ownership of
UNICCO's voting and non-voting common shares of beneficial ownership, taken
together as a single class.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHAREHOLDER NUMBER OF SHARES PERCENTAGE OF CLASS VOTING POWER
--------------------------------------- ---------------- ------------------- --------------
<S> <C> <C> <C>
Steven C. Kletjian..................... 510 48.4% 51.0%
Richard J. Kletjian.................... 245 23.2 24.5
Robert P. Kletjian..................... 245 23.2 24.5
John C. Feitor......................... 27(1) 2.6 --
George A. Keches....................... 27(1) 2.6 --
----- ----- -----
1,054 100.0% 100.0%
===== ===== =====
</TABLE>
- ---------------
(1) Non-voting shares.
The Company has entered into a Share Purchase Agreement with holders of
non-voting shares pursuant to which the Company may, at its option, redeem the
shares at the then-current book value of the shares (as defined therein) in the
event that the shareholder ceases to be employed by the Company. See "Certain
Transactions." The Indenture would generally permit such redemptions up to an
aggregate of $500,000 in any twelve-month period. See "Description of
Notes -- Certain Covenants -- Restricted Payments."
57
<PAGE> 63
CERTAIN TRANSACTIONS
In connection with the Ogden Allied Acquisition in June 1996, the
shareholders of UNICCO organized a sister corporation known as USC, Inc., which
acquired all of the outstanding capital stock of the two Ogden subsidiaries that
conducted Ogden's government and security business, and a portion of the capital
stock of Ogden's Canadian subsidiary. The purpose of this transaction was to
facilitate the acquisition of Ogden's government contracts and security permits
and licenses. A sister company rather than a subsidiary of UNICCO was utilized
because, as a subchapter S company under the Internal Revenue Code (the "Code")
as then in effect, UNICCO could not have any subsidiaries. As of January 1,
1997, the Code has been amended to permit "subchapter S" companies to have
subsidiaries. Accordingly, in connection with the Offering, the shareholders of
the Company contributed their interests in USC, Inc. to UNICCO, as a result of
which all of the operations of the Company will be conducted through UNICCO and
its subsidiaries.
A component of the Company's operating expenses consists of insurance
premiums for workers' compensation and general liability insurance. In May 1995,
the Company's shareholders organized Ashmont Insurance Company, Limited, a
Bermuda corporation ("Ashmont"), as a captive insurance company. Premiums for
workers' compensation and general liability insurance are paid by the Company to
Liberty Mutual Insurance Company and one of its subsidiaries, the fronting
carrier ("Liberty"). After deducting pre-determined fees for administration,
claims processing and taxes, Liberty remits the net premiums to Ashmont pursuant
to a re-insurance agreement. Ashmont, as re-insurer, then reimburses Liberty for
insurance losses paid on a monthly basis. Net insurance premiums received by
Ashmont pursuant to this arrangement aggregated $2.9 million, $2.5 million and
$5.6 million for fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
Workers' compensation insurance premiums are based on statutory rates within the
states that the Company operates, adjusted for the Company's claims experience;
accordingly, management believes that these insurance premiums are consistent
with the premiums that would be paid for comparable insurance coverage obtained
on an arm's-length basis.
In connection with the Ogden Allied Acquisition in June 1996, the Company
borrowed $3 million from the Company's shareholders. The notes bore interest at
15%, which was payable in-kind until the notes were to mature in October 2001.
The Company used a portion of the net proceeds of the Offering to repay such
notes, including accrued interest. In addition, upon the repayment of the Ogden
Note, Steven C. Kletjian, the Company's Chief Executive Officer and principal
shareholder, was released from a limited recourse guarantee of the Ogden Note
and the pledge of Mr. Kletjian's shares of Ashmont which secured such guarantee.
See "Use of Proceeds."
The Company was indebted under a note payable to Sharkay Kletjian, a
Trustee of the Company, in the aggregate principal amount of approximately
$282,000 at June 29, 1997. Interest on this Note was payable at a rate of 20%
per annum. The Note was repaid on September 3, 1997.
The Company holds notes receivable aggregating approximately $646,000 from
five of its shareholders consisting primarily of demand notes that bear interest
at an average Applicable Federal Rate (5.68% at June 29, 1997). The Company
earned interest income of approximately $83,000, $77,000 and $56,000 related to
these loans during fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
Interest receivables related to those notes were approximately $312,000 at June
29, 1997.
On June 24, 1996, the Company loaned one of its shareholders approximately
$217,000 to purchase 27 non-voting common shares of beneficial interest. This
loan bears interest at the applicable federal rate and matures on July 1, 2001.
58
<PAGE> 64
DESCRIPTION OF OTHER INDEBTEDNESS
CREDIT FACILITY
In connection with the Transactions, the Company and BankBoston, N.A.
("BankBoston") entered into a $45 million senior secured revolving credit
facility (the "Credit Facility") documented in the form of an amendment to the
Company's existing credit facility. Subject to compliance with certain financial
covenants and the satisfaction of customary borrowing conditions, UNICCO and its
subsidiaries, as co-borrowers, will be permitted to borrow up to an aggregate of
$45 million of revolving credit loans and up to a sublimit of $2.5 million in
letters of credit under the Credit Facility. The Company's borrowing capacity
under the Credit Facility is limited to a borrowing base of up to 80% of the
Company's eligible accounts receivable (as defined in the Credit Facility),
which as of June 29, 1997 was in excess of the maximum amount of borrowings
available under the Credit Facility. The Credit Facility is secured by
substantially all of the Company's assets. Borrowings under the Credit Facility
will represent Senior Debt under the Indenture. Moreover, a default under the
Indenture will result in a cross-default under the Credit Facility.
The ability of the Company to borrow under the Credit Facility will be
subject to, among other things, compliance with covenants and financial ratios
contained in the Credit Facility. Borrowings under the Credit Facility will
mature and be payable in October 2002.
The Credit Facility will bear interest, at the Company's option, at the
Alternate Base Rate (as defined below) or a Eurodollar rate, plus specified
margins based on the ratio of the Company's Total Funded Debt to EBITDA (each as
defined therein). The Alternate Base Rate will be the greater of BankBoston's
base rate as announced from time to time and the federal funds effective rate
plus 0.50%. The applicable margins were initially set at the Alternate Base Rate
plus 0.50% or the Eurodollar rate plus 2.00%.
The Credit Facility contains covenants and provisions that restrict, among
other things, the Company's and its subsidiaries' ability to (i) incur
additional indebtedness; (ii) incur liens on their property; (iii) redeem
subordinated debt, including the Notes; (iv) make capital expenditures; (v)
engage in certain sales of assets; and (vi) engage in acquisitions that do not
meet specified criteria. A covenant in the Credit Facility generally restricts
the Company and its subsidiaries from engaging in transactions with affiliates
unless such transactions are on an arms-length basis and on terms no less
favorable than would be obtained from a third party. The Credit Facility also
requires the Company to maintain certain financial ratios which become more
stringent over the life of the facility, including (i) minimum fixed charge
coverage ratios, (ii) minimum interest coverage ratios and (iii) maximum ratios
of total debt to EBITDA.
MCRC NOTE
In order to finance a portion of the Ogden Allied Acquisition in June 1996,
the Company issued a $5 million note payable to Massachusetts Capital Resource
Company ("MCRC"). This note (the "MCRC Note") bears interest at the rate of 14%
per annum and is due in September 2001. The MCRC Note is expressly subordinated
to the Company's indebtedness under the Credit Facility, and will rank equal in
right of payment with the Notes.
The MCRC Note requires quarterly payments of interest only. Prepayment of
the principal amount of the MCRC Note is not permitted prior to July 1999.
Thereafter, the Company may redeem up to $250,000 in principal amount of the
MCRC Note on a quarterly basis, without premium, and may redeem additional
principal amounts upon payment of a premium equal to 10% of the additional
principal amount so redeemed.
59
<PAGE> 65
The MCRC Note was issued under a Note Purchase Agreement containing
representations, warranties and covenants customary for subordinated debt
financings of this type. In connection with the Transactions, the MCRC Note
Purchase Agreement was amended to eliminate the covenants requiring the Company
to maintain certain financial ratios, and to conform certain other covenants,
including those limiting restricted payments and the incurrence of additional
indebtedness, to those contained in the Indenture. In connection with this
amendment, MCRC released Steven C. Kletjian, the Company's Chief Executive
Officer and principal shareholder, from a limited recourse guarantee of the MCRC
Note and released a pledge of Mr. Kletjian's shares of Ashmont which secured
such guarantee.
60
<PAGE> 66
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture among the
Issuers, the Guarantors and State Street Bank and Trust Company, as trustee (the
"Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Upon the
effectiveness of the Registration Statement of which this Prospectus forms a
part, the Indenture will be subject to and governed by the Trust Indenture Act.
The Notes are subject to all such terms, and Holders of Notes are referred to
the Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
Indenture and Registration Rights Agreement will be made available as set forth
under "-- Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." For
purposes of this "Description of the Exchange Notes," the term "Company" refers
only to UNICCO Service Company and not to any of its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Issuers and
will be subordinated in right of payment to all existing and future Senior Debt
of the Issuers. As of September 28, 1997, after giving pro forma effect to the
offering of the Series A Notes and the use of proceeds therefrom, the Issuers
would have had approximately $3.4 million of Senior Debt outstanding, consisting
of outstanding borrowings under the Credit Facility. In addition, the Issuers
would have had $41.6 million of additional borrowings available under the Credit
Facility. The Indenture permits the Issuers to incur additional indebtedness,
including additional Senior Debt, subject to certain restrictions. See "--
Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock."
UNICCO Finance is a wholly owned subsidiary of the Company that was
incorporated in Delaware for the purpose of serving as a co-issuer of the Series
A Notes and the Exchange Notes in order to facilitate the Offering. The Company
believes that certain prospective purchasers of the Series A Notes might have
been restricted in their ability to purchase debt securities of business trusts,
such as the Company, unless such debt securities are jointly issued by a
corporation. UNICCO Finance will not have any substantial operations or assets
and will not have any revenues. As a result, prospective purchasers of the
Exchange Notes should not expect UNICCO Finance to participate in servicing the
interest and principal obligations on the Exchange Notes.
All of the Company's Subsidiaries (other than UNICCO Finance) are
Restricted Subsidiaries. However, under certain circumstances, the Company is
able to designate current or future Subsidiaries (other than UNICCO Finance) as
Unrestricted Subsidiaries. Unrestricted Subsidiaries are not subject to many of
the restrictive covenants set forth in the Indenture. The Issuers' payment
obligations under the Exchange Notes will be guaranteed, on a senior
subordinated basis, by all of the Company's Domestic Restricted Subsidiaries.
See "-- Subsidiary Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $150.0
million and will mature on October 15, 2007. Interest on the Exchange Notes will
accrue at the rate of 9 7/8% per annum and will be payable semi-annually in
arrears on April 15 and October 15 of each year, commencing on April 15, 1998,
to Holders of record on the immediately preceding April 1 and October 1.
Interest on the Exchange Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal of and premium, interest and
Liquidated Damages, if any, on the Exchange Notes will be payable at the office
or agency of the Issuers maintained for such purpose or, at the option of the
Issuers, payment of interest and Liquidated Damages may be made by check mailed
to the Holders of the Exchange Notes at their respective addresses set forth in
the register of Holders of Exchange Notes; provided that all payments of
principal, premium, interest and Liquidated Damages with respect to Exchange
Notes the Holders of which have given wire transfer instructions in writing to
the Trustee will be required to be made by
61
<PAGE> 67
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Issuers, the Issuers' office
or agency will be the office of the Trustee maintained for such purpose. The
Exchange Notes will be issued in denominations of $1,000 and integral multiples
thereof.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the Exchange Notes will be subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full in cash or Cash Equivalents
of all Senior Debt of the Issuers.
Upon any distribution to creditors of either Issuer in a liquidation or
dissolution of such Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Issuer or its property, an
assignment for the benefit of creditors or any marshalling of either Issuer's
assets and liabilities, the holders of Senior Debt of such Issuer will be
entitled to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the documents
governing the applicable Senior Debt) before the Holders of Exchange Notes will
be entitled to receive any payment with respect to the Exchange Notes, and until
all Obligations with respect to Senior Debt are paid in full in cash or Cash
Equivalents, any distribution to which the Holders of Exchange Notes would be
entitled shall be made to the holders of Senior Debt (except that Holders of
Exchange Notes may receive Permitted Junior Securities and payments made from
the trust described under "-- Legal Defeasance and Covenant Defeasance").
The Issuers also may not make any payment upon or in respect of the
Exchange Notes (except in Permitted Junior Securities or from the trust
described under "-- Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of or premium, or interest on any Designated
Senior Debt occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to any Designated
Senior Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice of
such default (a "Payment Blockage Notice") from the Company or the holders of
such Designated Senior Debt. Payments on the Exchange Notes may and shall be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived pursuant to the terms of such Designated Senior Debt
and (b) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived pursuant to the terms of such Designated
Senior Debt or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage may be commenced unless and until
360 days have elapsed since the effectiveness of the immediately prior Payment
Blockage Notice. No nonpayment default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
The Indenture further requires that the Issuers promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Issuers who are holders of Senior Debt, and may
not recover any amounts owed to them in respect of the Exchange Notes. As of
September 28, 1997, after giving pro forma effect to the offering of the Series
A Notes and the use of proceeds therefrom, the Issuers would have had
approximately $3.4 million of Senior Debt outstanding, consisting of outstanding
borrowings under the Credit Facility. In addition, the Issuers would have had
$41.6 million of additional borrowings available under the Credit Facility. The
Issuers will be able to incur additional Senior Debt in the future, subject to
certain limitations. See "Risk Factors -- Subordination of the Exchange Notes to
Other Indebtedness" and "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Issuers' payment obligations under the Exchange Notes will be
guaranteed by all of the Company's existing Domestic Restricted Subsidiaries.
The Guarantee of each Domestic Restricted Subsidiary will be
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subordinated in right of payment to all existing and future Senior Debt of such
Domestic Restricted Subsidiary to the same extent as the Exchange Notes are
subordinated to Senior Debt of the Issuers. See "-- Subordination." As of
September 28, 1997, after giving effect to the offering of the Series A Notes
and the use of proceeds therefrom, the Company's Restricted Subsidiaries had
approximately $3.4 million of Senior Debt outstanding, consisting of guarantees
of borrowings under the Credit Facility. The Indenture permits the Company's
Subsidiaries to incur additional indebtedness, including additional Senior Debt,
subject, in the case of the Company's Restricted Subsidiaries, to certain
restrictions. See "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Domestic Restricted Subsidiary, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Domestic Restricted Subsidiary (other than to the Company or
another Domestic Restricted Subsidiary), or in the case the Company designates a
Domestic Restricted Subsidiary to be an Unrestricted Subsidiary in accordance
with the Indenture, then such Domestic Restricted Subsidiary will be released
and relieved of any obligations under its guarantee; provided that the Net
Proceeds of any such sale or other disposition are applied in accordance with
the applicable provisions of the Indenture. See "-- Repurchase at Option of
Holders -- Asset Sales."
OPTIONAL REDEMPTION
The Exchange Notes will not be redeemable at the Issuers' option prior to
October 15, 2002. Thereafter, the Exchange Notes will be subject to redemption
at any time at the option of the Issuers, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on October 15, of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
--------------------------------------------------------------- ----------
<S> <C>
2002........................................................... 104.94%
2003........................................................... 103.29
2004........................................................... 101.65
2005 and thereafter............................................ 100.00
</TABLE>
Notwithstanding the foregoing, prior to October 15, 2000, the Issuers may
redeem up to an aggregate of $33.0 million in principal amount of Exchange Notes
at a redemption price of 109.875% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the redemption
date, with the net cash proceeds of an initial public offering of common equity
of the Company; provided that (i) at least $72.0 million in principal amount of
the Exchange Notes remains outstanding immediately after the occurrence of such
redemption and (ii) notice of such redemption shall be given within 90 days of
the date of the consummation of such initial public offering.
SELECTION AND NOTICE
If less than all of the Exchange Notes are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed, or, if the Exchange Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no Exchange Notes of $1,000 or
less shall be redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each Holder of Exchange Notes to be redeemed at its registered address. Notices
of redemption may not be conditional. If any Exchange Note is to be redeemed in
part only, the notice of redemption that relates to such Exchange Note shall
state the portion of the principal amount thereof to be redeemed. A new Exchange
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Exchange
Note. Exchange Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
Exchange Notes or portions of them called for redemption.
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MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Issuers are not required to make mandatory redemption or sinking fund
payments with respect to the Exchange Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Issuers will be obligated
to make an offer (a "Change of Control Offer") to each Holder of Exchange Notes
to repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of such Holder's Exchange Notes at an offer price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following a Change of Control, the Issuers will mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase Exchange Notes on the date
specified in such notice, which date shall be no earlier than 30-days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Issuers will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Exchange Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Exchange Notes
or portions thereof so tendered and (iii) deliver or cause to be delivered to
the Trustee the Exchange Notes so accepted together with an officers'
certificate stating the aggregate principal amount of Exchange Notes or portions
thereof being purchased by the Issuers. The Paying Agent will promptly mail to
each Holder of Exchange Notes so tendered the Change of Control Payment for such
Exchange Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Exchange Note equal in
principal amount to any unpurchased portion of the Exchange Notes surrendered,
if any; provided that each such new Exchange Note will be in a principal amount
of $1,000 or an integral multiple thereof. The Indenture will provide that,
prior to complying with the provisions of this covenant, but in any event within
90 days following a Change of Control, the Issuers will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of
Exchange Notes required by this covenant. The Issuers will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Exchange Notes to require that the
Issuers repurchase or redeem the Exchange Notes in the event of a takeover,
recapitalization or similar transaction.
The Credit Facility prohibits, and future credit agreements or other
agreements relating to Senior Debt to which the Issuers become a party may
prohibit, the Issuers from purchasing any Exchange Notes following a Change of
Control and/or provide that certain change of control events with respect to the
Company would constitute a default thereunder. In the event a Change of Control
occurs at a time when the Issuers are prohibited from purchasing Exchange Notes,
the Issuers could seek the consent of their lenders to the purchase of Exchange
Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Issuers do not obtain such a consent or repay such
borrowings, the Issuers will remain prohibited from purchasing Exchange Notes.
The Issuers' failure to purchase tendered Exchange Notes following a Change of
Control would constitute an Event of Default under the Indenture which would, in
turn, constitute as default under the Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the Holders of Exchange Notes. See "-- Subordination."
The Issuers will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with
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the requirements set forth in the Indenture applicable to a Change of Control
Offer made by the Issuers and purchases all Exchange Notes validly tendered and
not withdrawn under such Change of Control Offer.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
officers' certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (a) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or such Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any Guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Restricted
Subsidiary from further liability and (b) any securities, notes or other
obligations received by the Company or such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) shall be deemed to be
cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (i) to repay Senior Debt
(and to correspondingly reduce commitments with respect thereto in the case of
revolving borrowings) or (ii) to the acquisition of a controlling interest in
another business, the making of a capital expenditure or the acquisition of
other long-term assets. Pending the final application of any such Net Proceeds,
the Company may temporarily reduce Senior Debt or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $5.0 million, the Issuers will
be required to make an offer to all Holders of Exchange Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Exchange Notes that may be
purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Exchange Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Exchange Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Exchange Notes to be purchased on a pro rata basis.
Upon completion of an Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to any
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions (a) payable in Equity Interests
(other than Disqualified Stock) of the Company or (b) to the Company or any
Wholly Owned Restricted Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company (other
than any such Equity Interests owned by the Company or any Wholly Owned
Restricted Subsidiary of the Company); (iii) make any payment on or with respect
to, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness of the Company or any Restricted Subsidiary that is subordinated to
the Exchange Notes or any Guarantee thereof, except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and
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other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Closing Date (excluding Restricted Payments
permitted by clause (ii) through (v) of the next succeeding paragraph), is
less than the sum of (i) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the Closing Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii)
50% of any dividends received by the Company or a Wholly Owned Restricted
Subsidiary after the date of the Indenture from an Unrestricted Subsidiary
of the Company, to the extent that such dividends were not otherwise
included in Consolidated Net Income of the Company for such period.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Restricted Subsidiary in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) for any period that the Company is treated as an
"S corporation" or a partnership for federal income tax purposes, distributions
to shareholders of the Company in an amount not to exceed the Tax Amount for
such period; (v) the redemption, retirement or defeasance of indebtedness with
the net proceeds of this Offering as contemplated under "Use of Proceeds;" and
(vi) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of the Company or any Restricted Subsidiary of the Company
held by any member of the Company's (or any of its Restricted Subsidiaries')
management or Board of Directors pursuant to any management equity subscription
agreement, shareholders' agreement, equity incentive plan, stock option
agreement or other similar agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests under this
clause (vi) shall not exceed the sum of (a) $500,000 in any twelve-month period
plus (b) the aggregate net proceeds received by the Company from the issuance
after the Closing Date of Equity Interests of the Company to members of
management or the Board of Directors of the Company or any of its Restricted
Subsidiaries (provided that such net proceeds shall be excluded from clause
(c)(ii) of the preceding paragraph), and, in each case, no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction.
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The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an officers' certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments" were
computed.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (i) the net book value of such Investments at the time of such
designation, (ii) the fair market value of such Investments at the time of such
designation and (iii) the original fair market value of such Investments at the
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the board resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock," the Issuers shall be in default of such covenant).
The Board of Directors may at any time designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided that such designation shall be deemed to be
an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence following such
designation.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not permit any
of its Restricted Subsidiaries to issue any shares of preferred stock (other
than to the Company or to another Restricted Subsidiary); provided, however,
that the Company and its Restricted Subsidiaries may incur Indebtedness
(including Acquired Debt) and the Company's Restricted Subsidiaries may issue
preferred stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such preferred stock is issued would have been at
least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the preferred stock had been issued at the beginning of
such four-quarter period.
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The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under the Credit Facility; in an aggregate amount not to
exceed at any time outstanding the greater of (a) $45.0 million, less the
aggregate amount of all Net Proceeds of Asset Sales applied to repay any
such Indebtedness pursuant to clause (i) of the second paragraph of the
covenant described above under the caption "-- Asset Sales," and (b) 60% of
the Company's and its Restricted Subsidiaries' accounts receivable (net of
reserves), as shown on the Company's most recent consolidated balance
sheet;
(ii) the incurrence by the Company of Indebtedness represented by the
Exchange Notes and the Indenture;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted to be incurred by the first paragraph, or by clauses
(ii) through (ix) of the second paragraph of this covenant;
(v) the incurrence of Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
(a) if the Company is the obligor on such Indebtedness, such Indebtedness
is expressly subordinated to the prior payment in full of all Obligations
with respect to the Exchange Notes and (b) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary, and any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted
Subsidiary, shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate amount not to
exceed $10.0 million at any time outstanding;
(viii) the guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness that was permitted to be incurred by another
provision of this covenant; and
(ix) Indebtedness of a Receivables Subsidiary that is not recourse to
the Company or any of its Restricted Subsidiaries (other than Standard
Securitization Undertakings) incurred in connection with a Qualified
Receivables Transaction.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (ix) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the Closing Date, (b) the Credit Facility as in
effect as of the Closing Date, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the Credit Facility as in effect on the Closing Date, (c) the
Indenture and the Exchange Notes, (d) applicable law, (e) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred, (f) by reason of customary non-assignment provisions
in leases entered into in the ordinary course of business, (g) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, or (i) any Purchase Money Note, or other
Indebtedness or contractual requirements incurred with respect to a Qualified
Receivables Transaction relating to a Receivables Subsidiary.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that neither the Company, nor UNICCO Finance, nor
any Guarantor may consolidate or merge with or into (whether or not the Company,
UNICCO Finance or such Guarantor, as the case may be, is the surviving entity),
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) the Company,
UNICCO Finance or such Guarantor, as the case may be, is the surviving entity,
or the entity or the Person formed by or surviving any such consolidation or
merger (if other than the Company, UNICCO Finance or such Guarantor) or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made is a corporation, business trust or limited liability company
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company, UNICCO Finance or such
Guarantor) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company, UNICCO Finance or such Guarantor, as the case may
be, under the Exchange Notes or such Guarantor's Guarantee thereof and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company or a
Guarantor with or into the Company or another Guarantor, the Company, such
Guarantor or the entity or Person formed by or surviving any such consolidation
or merger (if other than the Company or such Guarantor), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made will, at the time of such transaction and after giving pro forma effect
thereto (including pro forma expense and cost reductions) as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of
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the covenant described above under the caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $0.5 million, a
resolution of the Board of Directors set forth in an officers' certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors, if any, and (b) with respect to
any Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $4.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing.
The foregoing provisions will not prohibit: (i) any employment agreement or
other employment or compensation agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business; (ii)
transactions between or among the Company and/or its Restricted Subsidiaries
and/or UNICCO Finance; (iii) direct or indirect transactions between the Company
or any of its Restricted Subsidiaries, on the one hand, and Ashmont Insurance
Company Limited or any of its subsidiaries, on the other hand, on terms that are
not materially less favorable to the Company or the applicable Restricted
Subsidiary than those that could have been obtained from an unaffiliated third
party; (iv) the transactions contemplated under "Use of Proceeds;" (v) notes
payable to or receivable from, and leases of real property from, Affiliates (and
payments thereunder) as in effect on the Closing Date, as the same may be
amended, modified, renewed or extended in a manner no less favorable to the
Company and its Restricted Subsidiaries; (vi) any Restricted Payment that is
permitted by the provisions of the Indenture described above under the caption
"-- Restricted Payments;" and (vii) sales of accounts receivable and other
related assets customarily transferred in an asset securitization transaction
involving accounts receivable to a Receivables Subsidiary in a Qualified
Receivables Transaction.
LIMITATION ON OTHER SENIOR SUBORDINATED DEBT
The Indenture provides that neither the Company nor any Restricted
Subsidiary will incur any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of the Company or such Restricted Subsidiary, as the
case may be, and senior in any respect in right of payment to the Exchange Notes
or such Restricted Subsidiary's Guarantee thereof.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Domestic
Restricted Subsidiaries shall acquire or create another Domestic Restricted
Subsidiary after the date of the Indenture, or any Unrestricted Subsidiary shall
cease to be an Unrestricted Subsidiary and shall become a Domestic Restricted
Subsidiary, then such Subsidiary shall execute a guarantee of the Exchange Notes
and deliver an opinion of counsel unless such Subsidiary shall have been
designated a Receivables Subsidiary in accordance with the terms of the
Indenture.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor UNICCO Finance nor any
of the Company's Restricted Subsidiaries will, directly or indirectly, pay or
cause to be paid any consideration, whether by way of
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interest, fee or otherwise, to any Holder of any Exchange Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Exchange Notes unless such consideration is offered to
be paid or is paid to all Holders of the Exchange Notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Issuers will furnish to the Holders of Exchange Notes, within 15 days after
the required filing date, (i) all quarterly and annual financial information
(excluding the exhibits and financial schedules) that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuers
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Issuers and their
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto, the financial condition
and results of operations of the Company, UNICCO Finance and the Company's
Restricted Subsidiaries separate from the financial information and results of
operations of the Unrestricted Subsidiaries of the Company) and, with respect to
the annual information only, a report thereon by the Issuers' certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Issuers were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, the Issuers will file a copy of all such information and
reports with the Commission for public availability (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Issuers and
the Company's Restricted Subsidiaries will agree that, for so long as any Notes
remain outstanding, they will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Act.
ACTIVITIES OF UNICCO FINANCE
The Indenture provides that UNICCO Finance may not hold any material
assets, become liable for any material obligations or engage in any significant
business activities; provided, however, that UNICCO Finance may be a co-obligor
or guarantor with respect to, and may pledge its assets to secure, Indebtedness
of which the Company is an obligor.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Exchange Notes (whether or not
prohibited by the subordination provisions of the Indenture), (ii) default in
payment when due of the principal of or premium, if any, on the Exchange Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(iii) failure by the Issuers to comply with the provisions described under the
captions "-- Change of Control," "-- Asset Sales," "-- Restricted Payments,"
"-- Incurrence of Indebtedness and Issuance of Preferred Stock" or "-- Merger,
Consolidation or Sale of Assets;" (iv) failure by the Issuers for 60 days after
written notice by the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Exchange Notes to comply with any of their other
agreements in the Indenture or the Exchange Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company, UNICCO Finance or any of the Company's Restricted Subsidiaries (or the
payment of which is guaranteed by the Company, UNICCO Finance or any of the
Company's Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists or is created after the Closing Date, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there
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has been a Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or more; (vi) failure by the Company, UNICCO Finance or
any of the Company's Restricted Subsidiaries to pay final judgments aggregating
in excess of $2.0 million and either (a) any creditor commences enforcement
proceedings upon any such judgment or (b) such judgments are not paid,
discharged or stayed for a period of 45 days; (vii) except as permitted by the
Indenture, any guarantee of the Exchange Notes shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Restricted Subsidiary, or any Person acting on
behalf of any Restricted Subsidiary, shall deny or disaffirm its obligations
under its guarantee; (viii) the Refinancing shall not have been consummated by
11:59 p.m., New York City time, on the Closing Date; and (ix) certain events of
bankruptcy or insolvency with respect to the Company, UNICCO Finance or any of
the Company's Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Exchange
Notes may declare all the Exchange Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, UNICCO
Finance, any Significant Subsidiary or any group of Restricted Subsidiaries of
the Company that, taken together, would constitute a Significant Subsidiary, all
outstanding Exchange Notes will become due and payable without further action or
notice. Holders of the Exchange Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding Exchange Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Exchange Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have had
to pay if the Issuers then had elected to redeem the Exchange Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Exchange Notes. If an Event of Default occurs prior
to October 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Issuers with the intention of avoiding the
prohibition on redemption of the Exchange Notes prior to such date, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Exchange Notes.
The Holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Exchange Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Exchange Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, TRUSTEES, INCORPORATORS
AND SHAREHOLDERS
No director, officer, employee, trustee, incorporator or shareholder of
either Issuer or any of the Company's Subsidiaries, as such, shall have any
liability for any obligations of the Issuers or such Subsidiary under the
Exchange Notes, any Guarantee thereof, the Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each Holder
of Exchange Notes by accepting a Exchange Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Exchange Notes. Such waiver may not be effective to waive liabilities under
the federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of
their obligations discharged with respect to the outstanding Exchange Notes
("Legal Defeasance") except for (i) the rights of Holders of outstanding
Exchange Notes to receive payments in respect of the principal of and premium,
interest and Liquidated Damages, if any, on the Exchange Notes when such
payments are due from the trust referred to below, (ii) the Issuers' obligations
with respect to the Exchange Notes concerning issuing temporary Exchange Notes,
registration of Exchange Notes, mutilated, destroyed, lost or stolen Notes and
the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee, and the Issuers' obligations in connection therewith and (iv)
the Legal Defeasance provisions of the Indenture. In addition, the Issuers may,
at their option and at any time, elect to have the obligations of the Issuers
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Exchange Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Exchange Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium, interest and Liquidated
Damages, if any, on the outstanding Exchange Notes on the stated maturity or on
the applicable redemption date, as the case may be, and the Issuers must specify
whether the Exchange Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Issuers shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (a) the Issuers have received from, or
there has been published by, the Internal Revenue Service a ruling or (b) since
the Closing Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Exchange Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Issuers shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Exchange Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Issuers shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Issuers shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Issuers with the intent
of preferring the Holders of Exchange Notes over the other creditors of the
Issuers with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and (viii) the Issuers shall have delivered
to the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Exchange Notes in accordance with and
subject to the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Issuers may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Issuers are not required to transfer or
exchange any Exchange Note selected for redemption. Also, the Issuers are not
required to transfer or exchange any Exchange Note for a period of 15 days
before a selection of Exchange Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Exchange Notes and the Guarantees thereof may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Exchange Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Exchange Notes), and any existing default or compliance with any provision
of the Indenture, the Exchange Notes or the Guarantees thereof may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Exchange Notes (including consents obtained in connection with a
tender offer or exchange offer for Exchange Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a non-consenting Holder): (i) reduce
the principal amount of Exchange Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to the
redemption of the Exchange Notes (other than provisions relating to the
covenants described above under the caption "-- Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, interest or Liquidated Damages, if any, on the Exchange
Notes (except a rescission of acceleration of the Exchange Notes by the Holders
of at least a majority in aggregate principal amount of the Notes and a waiver
of the payment default that resulted from such acceleration), (v) make any
Exchange Note payable in money other than that stated in the Exchange Notes,
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of Exchange Notes to receive payments of
principal of or premium, interest or Liquidated Damages, if any, on the Exchange
Notes, (vii) waive a redemption payment with respect to any Exchange Note (other
than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (ix) release any Restricted
Subsidiary from its Guarantee of the Exchange Notes except as provided in the
Indenture or (ix) make any change in the foregoing amendment and waiver
provisions. In addition, any amendment to the provisions of Article 10 of the
Indenture (which relate to subordination) (a) will require the consent of all
holders of Senior Debt if such amendment would adversely affect the rights of
holders of Senior Debt and (b) will require the consent of the Holders of at
least 75% in aggregate principal amount of the Exchange Notes then outstanding
if such amendment would adversely affect the rights of Holders of Exchange
Notes.
Notwithstanding the foregoing, without the consent of any Holder of
Exchange Notes, the Issuers, the Company's Restricted Subsidiaries and the
Trustee may amend or supplement the Indenture, the Exchange Notes or any
Guarantee thereof to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Exchange Notes in addition to or in place of certificated
Exchange Notes, to provide for the assumption of the Company's, UNICCO Finance's
or any Restricted Subsidiary's obligations to Holders of Exchange Notes in the
case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Exchange Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Exchange Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of form of the
Indenture and Registration Rights Agreement without charge by writing to UNICCO
Service Company, Four Copley Place, Boston, Massachusetts 02116, Attention:
George A. Keches, Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described in the next paragraph, the Exchange Notes
initially will be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (the "Global Exchange
Note") and will be deposited with the Trustee as custodian for DTC and
registered in the name of Cede & Co. or such other nominee as DTC may designate.
The Global Exchange Note (and any Exchange Notes issued in exchange therefor)
will be subject to certain restrictions on transfer set forth therein and in the
Indenture and will bear the respective legends regarding such restrictions.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form a certificated Exchange Note ("Certificate Exchange Note"). Upon
the transfer of any Certificated Exchange Note initially issued to a Non-Global
Holder, such Certificated Exchange Note will, unless the transferee requests
otherwise or the Global Exchange Note has previously been exchanged in whole for
Certificated Exchange Notes, be exchanged for an interest in the Global Exchange
Note.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Issuers expect that, pursuant to procedures established by the
Depositary, (i) upon deposit of the Global Exchange Notes, the Depositary will
credit the accounts of Participants designated by the Initial Purchaser with
portions of the principal amount of the Global Exchange Notes and (ii) ownership
of the Exchange Notes evidenced by the Global Exchange Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants.
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Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Exchange Notes evidenced by the
Global Exchange Notes will be limited to such extent. For certain other
restrictions on the transferability of the Exchange Notes, see "Notice to
Investors."
So long as the Global Exchange Note Holder is the registered owner of any
Notes, the Global Exchange Note Holder will be considered the sole Holder under
the Indenture of any Exchange Notes evidenced by the Global Exchange Notes.
Beneficial owners of Notes evidenced by the Global Exchange Notes will not be
considered the owners or Holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. Neither the Issuers nor the Trustee will
have any responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any records of the
Depositary relating to the Exchange Notes.
Payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on any Exchange Notes registered in the name of the
Global Exchange Note Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Exchange Note Holder in its
capacity as the registered Holder under the Indenture. Under the terms of the
Indenture, the Issuers and the Trustee may treat the persons in whose names
Exchange Notes, including the Global Exchange Notes, are registered as the
owners thereof for the purpose of receiving such payments. Consequently, neither
the Issuers nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Exchange Notes. The Issuers
believe, however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with such payments,
in amounts proportionate to their respective holdings of beneficial interests in
the relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
ADDITIONAL INFORMATION CONCERNING EUROCLEAR AND CEDEL BANK
Euroclear and Cedel Bank hold securities for participating organizations
and facilitate the clearance and settlement of securities transactions between
their respective participants through electronic book-entry changes in accounts
of such participants. Euroclear and Cedel Bank provide to their participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Euroclear and Cedel Bank interface with domestic securities markets.
Euroclear and Cedel Bank participants are financial institutions such as
underwriters, securities brokers and dealers, banks, trust companies and certain
other organizations. Indirect access to Euroclear and Cedel Bank is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodian relationship with a Euroclear or Cedel
Bank participant, either directly or indirectly. The Issuers will have no direct
control over the clearance and settlement of transactions through Euroclear or
Cedel Bank.
When beneficial interests are to be transferred from the account of a
Participant (other than Morgan Guaranty Trust Company of New York and Citibank,
N.A., as depositaries for Euroclear and Cedel Bank, respectively) to the account
of a Euroclear participant or a Cedel Bank participant, the purchaser must send
instructions to Euroclear or Cedel Bank through a participant at least one
business day prior to settlement. Euroclear or Cedel Bank, as the case may be,
will instruct Morgan Guaranty Trust Company of New York or Citibank, N.A. to
receive the beneficial interests against payment. Payment will include interest
attributable to the beneficial interest from and including the last payment date
to and excluding the settlement date, on the basis of a calendar year consisting
of twelve 30-day calendar months. For transactions settling on the 31st day of
the month, payment will include interest accrued to and excluding the first day
of the following month. Payment will then be made by Morgan Guaranty Trust
Company of New York or Citibank, N.A., as the case may be, to the Participant's
account against delivery of the beneficial interests. After settlement has been
completed, the beneficial interests will be credited to the respective clearing
systems and by the clearing system, in accordance with its usual procedures, to
the Euroclear participants' or Cedel Bank participants' account. Credit for the
beneficial interests will appear on the next business day (European time) and
the cash debit will be back-valued to, and interest attributable to the
beneficial interests will accrue from, the value
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date (which would be the preceding business day when settlement occurs in New
York). If settlement is not completed on the intended value date (i.e., the
trade fails), the Euroclear or Cedel Bank cash debit will instead be valued as
of the actual settlement date.
Euroclear participants and Cedel Bank participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Euroclear or Cedel Bank. Under
this approach, they may take on credit exposure to Euroclear or Cedel Bank until
the beneficial interests are credited to their accounts one day later. Finally,
day traders that use Euroclear or Cedel Bank and that purchase beneficial
interests from Participants for credit to Euroclear participants or Cedel Bank
participants should note that these trades would automatically fall on the sale
side unless affirmative action were taken to avoid these potential problems.
Due to time zone differences in their favor, Euroclear participants and
Cedel Bank participants may employ their customary procedures for transactions
in which beneficial interests are to be transferred by the respective clearing
system, through Morgan Guaranty Trust Company of New York or Citibank, N.A., to
another Participant. The seller must send instructions to Euroclear or Cedel
Bank through a participant at least one business day prior to settlement. In
these cases, Euroclear or Cedel Bank will instruct Morgan Guaranty Trust Company
of New York or Citibank, N.A., as the case may be, to credit the beneficial
interests to the Participant's account against payment. Payment will include
interest attributable to the beneficial interest from and including the last
payment date to and excluding the settlement date on the basis of a calendar
year consisting of twelve 30-day calendar months. For transactions settling on
the 31st day of the month, payment will include interest accrued to and
excluding the first day of the following month. The payment will then be
reflected in the account of the Euroclear participant or Cedel Bank participant
the following business day, and receipt of the cash proceeds in the Euroclear or
Cedel Bank participant's account will be back-valued to the value date (which
would be the preceding business day, when settlement occurs in New York). If the
Euroclear participant or Cedel Bank participant has a line of credit with its
representative clearing system and elects to draw on such line of credit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
may substantially reduce or offset any overdraft charges incurred over that one-
day period. If settlement is not completed on the intended value date (i.e., if
trade fails), receipt of the cash proceeds in the Euroclear or Cedel Bank
participant's account would instead be valued as of the actual settlement date.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in a
Global Exchange Note may, upon request, exchange such beneficial interest for
Exchange Notes in the form of Certificated Securities. Upon any such issuance,
the Trustee is required to register such Certificated Securities in the name of,
and cause the same to be delivered to, such person or persons (or the nominee of
any thereof). All such certificated Exchange Notes would be subject to the
legend requirements described herein under "Notice to Investors." In addition,
if (i) the Issuers notify the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Issuers are unable to
locate a qualified successor within 90 days or (ii) the Issuers, at their
option, notify the Trustee in writing that they elect to cause the issuance of
Exchange Notes in the form of Certificated Securities under the Indenture, then,
upon surrender by the Global Exchange Note Holder of the Global Exchange Notes,
Exchange Notes in such form will be issued to each person that the Global
Exchange Note Holder and the Depositary identify as being the beneficial owner
of the related Exchange Notes.
Neither the Issuers nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depositary in identifying the beneficial
owners of Exchange Notes and the Issuers and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depositary for all purposes.
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SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Exchange Notes
represented by the Global Exchange Notes (including principal, premium, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Exchange Note Holder.
With respect to Certificated Securities, the Issuers will make all payments of
principal, premium, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address.
The Exchange Notes represented by the Global Exchange Notes are expected to
be eligible to trade in the PORTAL market and to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Exchange Notes will, therefore, be required by the Depositary
to be settled in immediately available funds. The Issuers expect that secondary
trading in the Certificated Securities will also be settled in immediately
available funds, although such settlement will not be within the Issuers'
control.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Issuers, the Company's Restricted Subsidiaries and the Initial
Purchaser entered into the Registration Rights Agreement on the Closing Date.
Pursuant to the Registration Rights Agreement, the Issuers agreed to file with
the Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the Exchange Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Issuers will
offer to the Holders of Transfer Restricted Securities pursuant to the Exchange
Offer who are able to make certain representations the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes. If (i) the Issuers are
not required to file the Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any Holder of Transfer Restricted
Securities notifies the Company prior to the 20th day following consummation of
the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (b) that it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (c) that it is a
broker-dealer and owns Series A Notes acquired directly from the Issuers or an
affiliate of the Issuers, the Issuers will file with the Commission a Shelf
Registration Statement to cover resales of the Series A Notes by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Issuers will use their
reasonable best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Securities" means each Series A Note until
(i) the date on which such Series A Note has been exchanged by a person other
than a broker-dealer for an Exchange Note in the Exchange Offer, (ii) following
the exchange by a broker-dealer in the Exchange Offer of a Series A Note for an
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Series A Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Series A Note is resold to the public
pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Issuers will file
an Exchange Offer Registration Statement with the Commission on or prior to 45
days after the Closing Date, (ii) the Issuers will use their best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 120 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Issuers will commence the Exchange Offer and use their best efforts to
issue, on or prior to 30 business days after the date on which the Exchange
Offer Registration Statement was declared effective by the Commission, Exchange
Notes in exchange for all Series A Notes tendered prior thereto in the Exchange
Offer and (iv) if obligated to file the Shelf Registration Statement, the
Issuers will use their best efforts to file the Shelf Registration Statement
with the Commission on or prior to 45 days after
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such filing obligation arises and to cause the Shelf Registration to be declared
effective by the Commission on or prior to 120 days after such obligation
arises. If (a) the Issuers fail to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified for such
effectiveness, (c) the Issuers fail to consummate the Exchange Offer within 30
business days of the effective date of the Exchange Offer Registration Statement
or (d) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective or usable
in connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Issuers will
pay Liquidated Damages to each Holder of Notes affected thereby, with respect to
the first 90-day period immediately following the occurrence of the first
Registration Default, in an amount equal to $.05 per week per $1,000 principal
amount of Series A Notes held by such Holder. The amount of the Liquidated
Damages will increase by an additional $.05 per week per $1,000 principal amount
of Series A Notes with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.50 per week per $1,000 principal amount of Series A Notes. All
accrued Liquidated Damages will be paid by the Issuers on each Damages Payment
Date to the Global Note Holder by wire transfer of immediately available funds
or by federal funds check and to Holders of Certificated Securities by wire
transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Series A Notes will be required to make certain representations
to the Issuers (as described herein) in order to participate in the Exchange
Offer and will be required to deliver information to be used in connection with
the Shelf Registration Statement and to provide comments on the Shelf
Registration Statement within the time periods set forth in the Registration
Rights Agreement in order to have their Series A Notes included in the Shelf
Registration Statement and benefit from the provisions regarding Liquidated
Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), excluding sales of services and ancillary products in the ordinary
course of business consistent with past practices (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption "-- Change
of Control" and/or the provisions described above under the caption "Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the
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Company or any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii)
an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, (iii) a Restricted
Payment that is permitted by the covenant described above under the caption "--
Restricted Payments" and (iv) the sale of accounts receivable and related assets
customarily transferred in an asset securitization transaction involving
accounts receivable to a Receivables Subsidiary or by a Receivables Subsidiary
in connection with a Qualified Receivables Transaction will not be deemed to be
Asset Sales.
"Board of Directors" means (i) at any time the Company is a business trust,
the board of trustees of the Company, (ii) at any time the Company is a
corporation, the board of directors of the Company or any authorized committee
thereof, and (iii) at any time the Company is neither a business trust nor a
corporation, the board or committee of the Company serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500.0 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above and (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
taken as a whole, other than to the Principals; (ii) the adoption of a plan for
the liquidation or dissolution of the Company; (iii) prior to the consummation
of an Initial Public Offering, the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that the
Principals fail to be the "beneficial owners" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of at
least 51% of the aggregate voting power of the outstanding Voting Stock of the
Company; (iv) following the consummation of an Initial Public Offering, the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" or "group" (as such
terms are used in Section 13(d)(3) of the Exchange Act), other than the
Principals, becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of (a)
more than 35% of the aggregate voting power of the outstanding Voting Stock of
the Company or (b) more of the voting power of the outstanding Voting Stock of
the Company than the aggregate of that beneficially owned by the Principals; or
(v) the first day on which more than a majority of the members of the Board of
Directors are not Continuing Directors.
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"Closing Date" means the date of the closing of the sale of the Notes.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset Sale,
(ii) provision for taxes based on income or profits and, without duplication,
the Tax Amount for such period, (iii) consolidated interest expense whether paid
or accrued and whether or not capitalized (including, without limitation,
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations),
excluding, however, amortization or write off of debt issuance costs, (iv)
depreciation and amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and (v) any non-cash compensation expense resulting from
compensation paid in Equity Interests of the Company, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Restricted Subsidiary of a Person shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in the same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended by such Restricted Subsidiary without prior
approval (that has not been obtained) pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income (but not loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board of Directors at the time of such nomination or
election.
"Credit Facility" means the Amended and Restated Revolving Credit Agreement
of the Company and certain of its subsidiaries, dated the Closing Date,
including any guarantees and security therefor, as amended, restated, extended,
modified, renewed, refunded, replaced, substituted, restructured or refinanced
in whole or in part from time to time (including, without limitation, any
successive amendments, restatements, extensions, modifications, renewals,
refundings, replacements, substitutions, restructurings or refinancings of the
fore-
going), whether with the Company or with one or more of its Subsidiaries, and
whether with the present lenders or any other lenders.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
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"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Facility and (ii) any other Senior Debt permitted under the Indenture the
principal amount of which is $10.0 million or more and that has been designated
by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Exchange Notes mature.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary that is
organized pursuant to the laws of any state or other jurisdiction in the United
States.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Notes" means the Company's 9 7/8% Senior Subordinated Notes due
2007, Series B.
"Existing Indebtedness" means Indebtedness in existence on the date of the
Indenture, until such Indebtedness is repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), excluding, however, amortization or write off of debt issuance
costs, (ii) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period, (iii) any interest expense
on Indebtedness of another Person that is Guaranteed by such Person or one of
its Restricted Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called
upon) and (iv) the product of (a) all dividend payments, whether or not in cash,
on any series of preferred equity of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company or to the Company or any Restricted Subsidiary,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person (or, in the case of the Company for so long as it is treated
as an "S corporation" or a partnership for federal income tax purposes, the
combined federal, state and local statutory tax rate used to calculate the Tax
Amount), expressed as a decimal, in each case, on a consolidated basis and in
accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, Guarantees, repays or redeems any Indebtedness (other than
revolving credit borrowings) or issues or redeems preferred equity subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment or redemption of
Indebtedness, or such issuance or redemption of preferred equity, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period (giving effect to any pro forma expense and cost reductions) and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, (ii)
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the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means USC, Inc., UNICCO Government Services, Inc. and UNICCO
Security Services, Inc. and any other company that may become a guarantor
pursuant to the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means any person in whose name the Notes are registered on the
books of the Company or any other person who has obtained a properly completed
bond power from the registered holder.
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (ii) all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) up to the value of the collateral and (iii) to the
extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person. Notwithstanding the foregoing, Indebtedness shall not
include payment, performance or surety bonds or standby letters of credit issued
in the ordinary course of business.
"Initial Public Offering" means one or more underwritten public offerings
of the common equity of the Company registered under the Securities Act that
generate aggregate gross proceeds of at least $25.0 million.
"Initial Purchaser" means BancBoston Securities Inc.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the third paragraph of the covenant described
above under the caption "Certain Covenants -- Restricted Payments."
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"Issuers" means UNICCO Service Company, a Massachusetts business trust and
UNICCO Finance Corp., a Delaware Corporation.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, (i) the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of dividends on preferred equity, excluding, however, (a) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (1) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (2) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (b) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss), minus (ii) in the case of the Company for
so long as it is treated as an "S corporation" or a partnership for federal
income tax purposes, the Tax Amount for such period, excluding, however, any Tax
Amount attributable to any gain referred to in clause (i)(a) or (b), above.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any severance,
termination, closing or relocation or similar expenses incurred as a result
thereof, taxes or Tax Distributions paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the Exchange
Notes being offered hereby) of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity; and (iii) as to which
the lenders have been notified in writing that they will not have any recourse
to the stock or assets of the Company or any of its Restricted Subsidiaries.
"Notes" means the Exchange Notes and the Series A Notes.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (a) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary of the Company; (iv) any
Restricted Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made
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pursuant to and in compliance with the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales;" (v) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; (vi) advances to employees in
the ordinary course of business; (vii) other Investments in any Person (measured
on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (vii) that are at the time outstanding, not to
exceed $10.0 million; and (viii) Investments by the Company or a Restricted
Subsidiary of the Company in a Receivables Subsidiary or any Investment by a
Receivables Subsidiary in any other Person or assets in connection with a
Qualified Receivables Transaction; provided that any Investment in any such
Person is in the form of a Purchase Money Note, an equity interest or interests
in accounts receivable generated by the Company or a Subsidiary of the Company
and transferred to any Person in connection with a Qualified Receivables
Transaction or any such Person owning such accounts receivable.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Exchange Notes are subordinated to Senior Debt pursuant
to Article 10 of the Indenture.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company and
its Restricted Subsidiaries that was permitted by the terms of the Indenture to
be incurred; (ii) Liens in favor of the Company or any of its Restricted
Subsidiaries; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens existing on the date of the Indenture;
(vii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefore; (viii) Liens incurred in the ordinary
course of business of the Company or any Restricted Subsidiary of the Company
with respect to obligations that do not exceed $2.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary; and (ix)
Liens on assets of a Receivables Subsidiary securing Indebtedness incurred in
connection with a Qualified Receivables Transaction, provided that such
Indebtedness was incurred in connection with such Qualified Receivables
Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity no shorter
than the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by
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the Restricted Subsidiary that is an obligor on or guarantor of the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Steven C. Kletjian, Richard J. Kletjian and Robert P.
Kletjian, their respective spouses and lineal descendants, and any Affiliate of,
trust or partnership for the benefit of, or direct, indirect, remainder or
contingent beneficiary of any such trust or partnership for the benefit of, any
of the foregoing.
"Purchase Money Note" means a promissory note evidencing a line of credit,
which may be irrevocable, from, or evidencing other Indebtedness owed to, the
Company or any Subsidiary of the Company in connection with a Qualified
Receivables Transaction.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any Subsidiary of the
Company pursuant to which the Company or any Subsidiary of the Company may sell,
convey or otherwise transfer to (i) a Receivables Subsidiary (in the case of a
transfer by the Company or any Subsidiary of the Company) and (ii) any other
person (in the case of a transfer by a Receivables Subsidiary), or may grant a
security interest in, any accounts receivable (whether now existing or arising
in the future) of the Company or any Subsidiary of the Company, and any assets
related thereto including, without limitation, all collateral securing such
accounts receivable, all contracts and all guarantees or other obligations in
respect of such accounts receivable, proceeds of such accounts receivable and
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of the
Company, which engages in no activities other than in connection with the
financing of accounts receivable and which is designated by the Board of
Directors of the Company (as provided below) as a Receivables Subsidiary (i) no
portion of the Indebtedness or any other Obligations of which (a) is guaranteed
by the Company or any other Restricted Subsidiary of the Company (excluding
guarantees of Obligations (other than the principal of, and interest on,
Indebtedness)) pursuant to Standard Securitization Undertakings, (b) is recourse
to or obligates the Company or any other Restricted Subsidiary of the Company in
any way other than pursuant to Standard Securitization Undertakings or (c)
subjects any property or asset of the Company or any other Restricted Subsidiary
of the Company, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (ii) with which neither the Company nor any other Restricted
Subsidiary of the Company has any material contract, agreement, arrangement or
understanding (except in connection with a Purchase Money Note or Qualified
Receivables Transaction) other than on terms no less favorable to the Company or
such other Restricted Subsidiary of the Company than those that might be
obtained at the time from persons that are not Affiliates of the Company, other
than fees payable in the ordinary course of business in connection with
servicing accounts receivable, and (iii) to which neither the Company nor any
other Restricted Subsidiary of the Company has any obligation to maintain or
preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Board of Directors of the
Company giving effect to such designation and an Officers' Certificate
certifying, to the best of such officers' knowledge and belief after consulting
with counsel, that such designation complied with the foregoing conditions.
"Registration Rights Agreement" means the agreement dated October 17, 1997
by and among UNICCO Service Company, UNICCO Finance Corp., the Guarantors listed
on the signature pages thereto and BancBoston Securities Inc. which grants
Holders of the Series A Notes certain exchange and registration rights.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person, other than UNICCO Finance, that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
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"Senior Debt" of a Person means (i) all Indebtedness of such Person
outstanding under the Credit Facility and all Hedging Obligations with respect
thereto, (ii) any other Indebtedness of such Person permitted to be incurred
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in right of
payment to any Senior Debt of such Person and (iii) all Obligations of such
Person with respect to the foregoing. Notwithstanding anything to the contrary
in the foregoing, Senior Debt of a Person will not include (a) any liability for
federal, state, local or other taxes owed or owing by such Person, (b) any
Indebtedness of such Person to any of its Subsidiaries or other Affiliates, (c)
any trade payables or (d) any Indebtedness that is incurred in violation of the
Indenture.
"Series A Notes" means the Company's issued and outstanding 9 7/8 Senior
Subordinated Notes due 2007, Series A.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in an accounts receivable transaction.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be redeemed or paid in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Tax Amount" means the combined federal, state and local income taxes
payable by the shareholders of the Company, assuming the highest marginal rates
applicable to any of them, with respect to the taxable income of the Company
solely as a result of the taxation of the Company as an "S corporation" or a
partnership for federal income tax purposes.
"Tax Distribution" means a distribution in respect of taxes to the
shareholders of the Company pursuant to clause (iv) of the second full paragraph
of the covenant described under the caption "Restricted Payments."
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests or (2) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries.
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"Voting Stock" means Capital Stock that is at the time entitled to vote in
the election of the Board of Directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Series A Notes where such Series A Notes were acquired
as a result of market-making activities or other trading activities. The Company
has agreed that it will make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale, and Participating Broker-Dealers shall be authorized to deliver this
Prospectus in connection with the sale or transfer of the Exchange Notes. In
addition, until , 1998 (90 days after the date of this Prospectus),
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Issuers will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time, in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account pursuant
to the Exchange Offer. Any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that is an
"underwriter" within the meaning of the Securities Act.
The Issuers will promptly send additional copies of this Prospectus and any
amendment or supplement of this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
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MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain material United States
federal income and estate tax consequences of the acquisition, ownership and
disposition of Notes by an initial beneficial owner of Notes that, for United
States federal income tax purposes, is not a "United States person" (a
"Non-United States Holder"). This discussion is based upon the United States
federal tax law now in effect, which is subject to change, possibly
retroactively. For purposes of this discussion, a "United States person" means a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in the United States or under the laws of the United
States or of any political subdivision thereof, an estate whose income is
includible in gross income for United States federal income tax purposes
regardless of its source or a trust, if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust. The tax
treatment of the holders of the Notes may vary depending upon their particular
situations. U.S. persons acquiring the Notes are subject to different rules than
those discussed below. In addition, certain other holders (including insurance
companies, tax exempt organizations, financial institutions and broker-dealers)
may be subject to special rules not discussed below. Prospective investors are
urged to consult their tax advisors regarding the United States federal tax
consequences of acquiring, holding and disposing of Notes, as well as any tax
consequences that may arise under the laws of any foreign, state, local or other
taxing jurisdiction. New final regulations dealing with withholding tax on
income paid to foreign persons and related matters (the "New Withholding
Regulations") were recently issued by the Treasury Department. In general, the
New Withholding Regulations do not significantly alter the substantive
withholding and information reporting requirements, but unify current
certification procedures and forms and clarify reliance standards. The New
Withholding Regulations will generally be effective for payments made after
December 31, 1998, subject to certain transition rules. Accordingly, payments
made on or before December 31, 1998 will continue to be subject to the
regulations that existed before the New Withholding Regulations were issued. THE
NEW WITHHOLDING REGULATIONS ARE QUITE COMPLEX. THE NON-UNITED STATES HOLDERS ARE
STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE NEW
WITHHOLDING REGULATIONS.
INTEREST
Interest paid by the Company to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and such Non-United States Holder
(i) does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company; (ii) is not a controlled
foreign corporation with respect to which the Company is a "related person"
within the meaning of the United States Internal Revenue Code of 1986, as
amended (the "Code"), and (iii) certifies, under penalties of perjury, that such
holder is not a United States person and provides such holder's name and
address. Under the New Withholding Regulations, the statement is required to be
made on Form W-8 and provided prior to payment. For a Non-United States Holder
who is claiming the benefits of a tax treaty, the New Withholding Regulations
may require such holder to obtain a U.S. taxpayer identification number and to
provide certain documentary evidence issued by foreign governmental authorities
to prove residence in the foreign country. Certain special procedures are
provided in the New Withholding Regulations for payments through qualified
intermediaries.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption or other disposition
of a Note unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-United States Holder or
(ii) in the case of a Non-United States Holder who is a nonresident alien
individual and holds the Note as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year and certain other
requirements are met.
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FEDERAL ESTATE TAXES
If interest on the Notes is exempt from withholding of United States
federal income tax under the rules described above, the Notes will not be
included in the estate of a deceased Non-United States Holder for United States
federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For payments made on or before December 31, 1998, the Company will, where
required, report to the holders of Notes and the Internal Revenue Service the
amount of any interest paid on the Notes in each calendar year and the amounts
of tax withheld, if any, with respect to such payments.
In the case of payments of interest to Non-United States Holders, temporary
Treasury regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established; provided that neither the Company nor
its payment agent has actual knowledge that the holder is a United States person
or that the conditions of any other exemption are not in fact satisfied. Under
temporary Treasury regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
Non-United States Holder on the disposition of the Notes by or through a United
States office of a United States or foreign broker, unless the holder certifies
to the broker under penalties of perjury as to its name, address and status as a
foreign person or the holder otherwise establishes an exemption. Information
reporting requirements, but not backup withholding, will also apply to a payment
of the proceeds of a disposition of the Notes by or through a foreign office of
a United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the holder of the Notes is not a United States person, and such broker has no
actual knowledge to the contrary, or the holder establishes an exception.
Neither information reporting nor backup withholding generally will apply to a
payment of the proceeds of a disposition of the Notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
For payments made after December 31, 1998, the New Withholding Regulations
provide that to the extent a Non-United States Holder certifies on Form W-8 (or
a permitted substitute form) as to such holder's status as a foreign person, the
backup withholding provisions and the information reporting provisions will
generally not apply. If a Non-United States Holder fails to provide such
certification, such holder may be subject to certain information reporting and
the 31% backup withholding tax.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
For a discussion of material federal income tax consequences of the
Exchange Offer, see "The Exchange Offer--Material Federal Income Tax
Consequences of the Exchange Offer."
LEGAL MATTERS
Certain legal matters will be passed upon on behalf of the Company by
Posternak, Blankstein & Lund, L.L.P., Boston, Massachusetts.
EXPERTS
The financial statements of the Company as of June 29, 1997 and June 30,
1996 and for each of the two years then ended and the statements of income and
of cash flows of the Allied Facility Services Business for the years ended June
28, 1996 and June 30, 1995 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
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The statements of income, stockholders' equity and cash flows of the
Company for the year ended June 25, 1995 included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
On March 14, 1997, the Company's management retained Price Waterhouse LLP
as its independent accountants. The reports of the Company's former accountants
on the Company's financial statements did not contain any adverse opinion or
disclaimer of opinion and were not modified as to uncertainty, audit scope or
accounting principles. There were no disagreements with the former accountants
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure with respect to the Company's
financial statements, which, if not resolved to the former accountants'
satisfaction, would have caused them to make reference to the subject matter of
the disagreement in connection with their reports. Prior to retaining Price
Waterhouse LLP, the Company had not consulted with such firm regarding
accounting principles or practices.
92
<PAGE> 98
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
UNICCO SERVICE COMPANY
Report of Price Waterhouse LLP, Independent Accountants.............................. F-2
Report of Arthur Andersen LLP, Independent Accountants............................... F-3
Combined Balance Sheet at June 29, 1997, June 30, 1996 and September 28, 1997
(unaudited)........................................................................ F-4
Combined Statement of Income for the years ended June 29, 1997, June 30, 1996 and
June 25, 1995 and for the three month periods ended September 28, 1997 and
September 29, 1996 (unaudited)..................................................... F-5
Combined Statement of Shareholders' Equity for the period from June 26, 1994 to June
29, 1997 and to September 28, 1997 (unaudited)..................................... F-6
Combined Statement of Cash Flows for the years ended June 29, 1997, June 30, 1996 and
June 25, 1995 and for the three month periods ended September 28, 1997 and
September 29, 1996 (unaudited)..................................................... F-7
Notes to Combined Financial Statements............................................... F-8
ALLIED FACILITY SERVICES BUSINESS
Report of Price Waterhouse LLP, Independent Accountants.............................. F-25
Combined Statements of Income for the years ended June 28, 1996 and June 30, 1995.... F-26
Combined Statements of Cash Flows at June 28, 1996 and June 30, 1995................. F-27
Notes to Combined Financial Statements............................................... F-28
</TABLE>
F-1
<PAGE> 99
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and the Board of Directors
and Shareholders of UNICCO Service Company and
USC, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of income, of shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of UNICCO Service
Company and USC, Inc. and their subsidiaries (the "Company") at June 29, 1997
and June 30, 1996, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 25, 1997
F-2
<PAGE> 100
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UNICCO Service Company:
We have audited the accompanying statements of income, shareholders' equity
and cash flows of UNICCO Service Company (a Massachusetts business trust) for
the year ended June 25, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of UNICCO Service Company as of
June 25, 1995, and the results of its operations and cash flows for the year
ended June 25, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 11, 1995
F-3
<PAGE> 101
UNICCO SERVICE COMPANY
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 29, JUNE 30, SEPTEMBER 28,
1997 1996 1997
------------ ----------- ------------
(UNAUDITED)
(s) <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 3,928,310 $ 157,169 $ 2,106,195
Accounts receivable, less reserves of approximately
$1,561,000, $239,000 and $1,838,000 at 1997, 1996
and September 28, 1997 (unaudited),
respectively..................................... 61,890,192 7,892,087 59,230,321
Unbilled receivables................................ 27,036,284 3,569,177 29,022,933
Notes receivable from officers, current portion..... -- 160,000 --
Prepaid insurance................................... 247,530 2,208,272 223,939
Other current assets................................ 3,100,824 1,245,348 2,211,600
------------ ----------- ------------
Total current assets............................. 96,203,140 15,232,053 92,794,988
------------ ----------- ------------
Property and equipment, at cost:
Transportation equipment............................ 1,416,402 1,232,434 1,381,654
Machinery and equipment............................. 6,144,958 4,750,120 6,261,594
Furniture and fixtures.............................. 3,813,701 2,712,273 3,920,598
Leasehold improvements.............................. 318,257 348,754 329,282
------------ ----------- ------------
11,693,318 9,043,581 11,893,128
Less -- accumulated depreciation and amortization... 7,045,884 4,400,360 7,596,005
------------ ----------- ------------
4,647,434 4,643,221 4,297,123
------------ ----------- ------------
Notes receivable and accrued interest from officers,
net of current portion.............................. 716,125 1,103,211 686,125
Intangible assets, net of amortization................ 55,436,560 60,185,501 54,245,113
Other assets, net..................................... 4,083,615 4,002,552 4,410,094
------------ ----------- ------------
60,236,300 65,291,264 59,341,332
------------ ----------- ------------
$161,086,874 $85,166,538 156,433,443
============ =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft...................................... $ 11,315,853 $ 2,041,535 $ 9,014,812
Current portion of long-term debt................... 7,000,000 5,500,000 6,900,000
Accounts payable.................................... 7,549,534 2,702,820 5,450,731
Accrued payroll and payroll-related expenses........ 18,513,851 5,676,799 18,786,675
Deferred income taxes............................... 2,823,247 655,216 2,823,247
Other accrued expenses.............................. 3,950,550 933,306 4,529,258
------------ ----------- ------------
Total current liabilities........................ 51,153,035 17,509,676 47,504,723
------------ ----------- ------------
Long-term liabilities:
Line of credit...................................... 50,587,111 6,220,153 51,751,857
Long-term debt, less current portion................ 49,278,403 50,848,000 47,611,003
Note payable to officer............................. 281,675 281,675 --
Other long-term liabilities......................... 950,982 1,023,613 348,829
------------ ----------- ------------
Total long-term liabilities...................... 101,098,171 58,373,441 99,711,689
------------ ----------- ------------
Commitments and Contingencies (Note 6)
Shareholders' equity:
Common shares (Note 8).............................. 377,733 377,733 377,733
Retained earnings................................... 9,202,003 9,660,003 9,580,804
------------ ----------- ------------
9,579,736 10,037,736 9,958,537
Less treasury shares at cost........................ (501,825) (501,825) (501,825)
Less notes receivable from stock sales.............. (242,243) (252,490) (239,681)
------------ ----------- ------------
Total shareholders' equity....................... 8,835,668 9,283,421 9,217,031
------------ ----------- ------------
$161,086,874 $85,166,538 $156,433,443
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE> 102
UNICCO SERVICE COMPANY
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTH PERIODS ENDED
------------------------------------------ ------------------------------
JUNE 29, JUNE 30, JUNE 25, SEPTEMBER 28, SEPTEMBER 29,
1997 1996 1995 1997 1996
------------ ------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service revenues......... $533,881,735 $ 98,314,682 $ 88,094,714 $ 134,716,796 $ 128,309,463
Cost of service
revenues............... 482,525,702 84,244,087 74,695,338 121,146,468 115,928,533
------------ ----------- ----------- ----------- -----------
Gross profit........... 51,356,033 14,070,595 13,399,376 13,570,328 12,380,930
Selling, general and
administrative
expenses............... 31,660,453 11,491,303 10,204,328 8,605,463 6,565,109
Amortization of
intangible assets...... 4,748,941 550,822 535,164 1,191,447 1,191,436
------------ ----------- ----------- ----------- -----------
Income from
operations.......... 14,946,639 2,028,470 2,659,884 3,773,418 4,624,385
Interest income.......... 66,693 84,589 107,142 702 1,161
Interest expense......... (11,491,474) (178,447) (79,798) (3,007,166) (2,458,528)
------------ ----------- ----------- ----------- -----------
Income before provision
for income taxes.... 3,521,858 1,934,612 2,687,228 766,954 2,167,018
Provision for income
taxes.................. 2,338,858 188,541 213,509 189,153 939,726
------------ ----------- ----------- ----------- -----------
Net income............. $ 1,183,000 $ 1,746,071 $ 2,473,719 $ 577,801 $ 1,227,292
============ =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE> 103
UNICCO SERVICE COMPANY
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHARES NOTES TREASURY STOCK TOTAL
----------------- RETAINED RECEIVABLE FROM ------------------ SHAREHOLDERS'
SHARES AMOUNT EARNINGS STOCK SALES SHARES AMOUNT EQUITY
------ -------- ----------- --------------- ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
UNICCO Service Company
- -----------------------------------------
Balance, June 26, 1994................... 1,093 $160,683 $ 7,032,213 $ (45,794) 11 $ (57,554) $ 7,089,548
Net income............................. -- -- 2,473,719 -- -- -- 2,473,719
Repayment of notes receivable -- -- -- 10,249 -- -- 10,249
Distributions to shareholders.......... -- -- (792,000) -- -- -- (792,000)
----- -------- ----------- --------- -- --------- -----------
Balance June 25, 1995.................... 1,093 160,683 8,713,932 (35,545) 11 (57,554) 8,781,516
----- -------- ----------- --------- -- --------- -----------
UNICCO Service Company
- -----------------------------------------
Balance, June 25, 1995................... 1,093 160,683 8,713,932 (35,545) 11 (57,554) 8,781,516
Issuance of shares..................... 27 216,945 -- (216,945) -- -- --
Repurchase of shares................... -- -- -- -- 55 (444,271) (444,271)
Net income............................. -- -- 1,746,071 -- -- 1,746,071
Distributions to shareholders.......... -- -- (800,000) -- -- -- (800,000)
----- -------- ----------- --------- --------- -----------
Balance, June 30, 1996................... 1,120 377,628 9,660,003 (252,490) 66 (501,825) 9,283,316
----- -------- ----------- --------- -- --------- -----------
USC, Inc.
- -----------------------------------------
Balance, June 25, 1995................... -- -- -- -- -- -- --
Initial issuance of shares............. 1,054 105 -- -- -- -- 105
----- -------- ----------- --------- -- --------- -----------
Balance, June 30, 1996................... 1,054 105 -- -- -- -- 105
----- -------- ----------- --------- -- --------- -----------
Combined balances, June 30, 1996......... 2,174 $377,733 $ 9,660,003 $(252,490) 66 $(501,825) $ 9,283,421
===== ======== =========== ========= == ========= ===========
UNICCO Service Company
- -----------------------------------------
Balance, June 30, 1996................... 1,120 $377,628 $ 9,660,003 $(252,490) 66 $(501,825) $ 9,283,316
Net income............................. -- -- 1,971,149 -- -- -- 1,971,149
Cumulative foreign currency
translation.......................... -- -- (4,000) -- -- -- (4,000)
Repayment of notes receivable.......... -- -- -- 10,247 -- -- 10,247
Distributions to shareholders.......... -- -- (1,637,000) -- -- -- (1,637,000)
----- -------- ----------- --------- -- --------- -----------
Balance, June 29, 1997................... 1,120 377,628 9,990,152 (242,243) 66 (501,825) 9,623,712
----- -------- ----------- --------- -- --------- -----------
USC, Inc.
- -----------------------------------------
Balance, June 30, 1996................... 1,054 105 -- -- -- -- 105
Net loss............................... -- -- (788,149) -- -- -- (788,149)
----- -------- ----------- --------- -- --------- -----------
Balance, June 29, 1997................... 1,054 105 (788,149) -- -- -- (788,044)
----- -------- ----------- --------- -- --------- -----------
Combined balances, June 29, 1997......... 2,174 $377,733 $ 9,202,003 $(242,243) 66 $(501,825) $ 8,835,668
===== ======== =========== ========= == ========= ===========
UNICCO Service Company
- -----------------------------------------
Balance, June 29, 1997................... 1,120 $377,628 $ 9,990,152 $(242,243) 66 $(501,825) $ 9,623,712
Net income (unaudited)................. -- -- 389,984 -- -- -- 389,984
Cumulative foreign currency translation
(unaudited).......................... -- -- 1,000 -- -- -- 1,000
Repayment of notes receivable
(unaudited).......................... -- -- 2,562 -- 2,562
Distributions to shareholders
(unaudited).......................... -- -- (200,000) -- -- -- (200,000)
----- -------- ----------- --------- -- --------- -----------
Balance, September 28, 1997
(unaudited)............................ 1,120 377,628 10,181,136 (239,681) 66 (501,825) 9,817,258
----- -------- ----------- --------- -- --------- -----------
USC, Inc.
- -----------------------------------------
Balance, June 29, 1997................... 1,054 105 $ (788,149) -- -- -- $ (788,044)
Net income (unaudited)................. -- -- 187,817 -- -- -- 187,817
----- -------- ----------- --------- -- --------- -----------
Balance, September 28, 1997
(unaudited)............................ -- 105 (600,332) -- -- (600,227)
----- -------- ----------- --------- -- --------- -----------
Combined balances, September 28, 1997
(unaudited)............................ 2,174 $377,733 $ 9,580,804 $(239,681) 66 $(501,825) $ 9,217,031
===== ======== =========== ========= == ========= ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE> 104
UNICCO SERVICE COMPANY
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTH PERIODS
----------------------------------------- ENDED
--------------------------------
JUNE 29, JUNE 30, JUNE 25, SEPTEMBER 28, SEPTEMBER 29,
1997 1996 1995 1997 1996
------------ ------------ ----------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income................................. $ 1,183,000 $ 1,746,071 $ 2,473,719 577,801 1,227,292
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Amortization of intangible assets........ 4,748,941 550,822 535,164 1,191,447 1,191,436
Amortization of debt issue costs and
discount............................... 1,087,393 -- -- 271,555 271,555
Depreciation and amortization............ 2,513,476 818,294 666,676 585,239 540,496
Loss on disposals........................ 60,628 43,131 -- 14,376 20,318
Deferred income taxes.................... 1,797,611 31,000 177,000 -- 176,638
Forgiveness of notes receivable and
accrued interest from officers......... 497,306 107,785 -- -- --
Changes in assets and liabilities:
Accounts receivable.................... (53,998,105) 1,016,368 (2,375,498) 2,659,871 (46,599,654)
Unbilled receivables................... (23,467,107) (501,846) -- (1,986,649) (23,270,048)
Prepaid insurance...................... 1,960,742 418,549 -- 23,591 759,753
Other current assets................... (1,855,476) (1,012,446) (1,663,165) 889,224 (156,596)
Other long-term assets................. (271,636) 56,400 -- 87,234 (174,499)
Cash overdraft......................... 9,274,318 411,489 149,879 (2,301,041) 8,870,836
Accounts payable....................... 4,846,714 1,393,632 809,357 (2,098,803) 5,710,570
Accrued expenses and other current
liabilities.......................... 15,854,296 2,004,523 (54,204) 851,532 10,271,402
Other long-term liabilities............ (72,631) (1,440,986) 299,500 (602,153) (376,987)
------------ ------------ ----------- ----------- ------------
Net cash provided by (used in)
operating activities............... (35,840,530) 5,642,786 1,018,428 163,224 (41,537,488)
------------ ------------ ----------- ----------- ------------
Cash flows relating to investing activities:
Acquisition................................ -- (51,004,351) -- -- --
Purchases of property and equipment........ (2,578,317) (1,226,724) (949,191) (249,304) (355,230)
Increases in notes receivable and accrued
interest from officers................... (56,414) (295,755) (241,249) -- --
Payments received for notes receivable from
officers................................. 106,194 128,321 -- 30,000 --
------------ ------------ ----------- ----------- ------------
Net cash used in investing
activities......................... (2,528,537) (52,398,509) (1,190,440) (219,304) (355,230)
------------ ------------ ----------- ----------- ------------
Cash flows relating to financing activities:
Net proceeds from line of credit........... 44,366,958 3,815,153 1,405,000 1,164,746 39,082,847
Proceeds from debt......................... 3,000,003 47,000,000 -- -- 3,000,003
Payments on debt........................... (3,600,000) -- (250,000) (1,900,000) --
Increase in debt issuance costs............ -- (2,779,097) (190,655) (551,668) --
Issuance of common stock................... -- 105 -- -- --
Purchase of treasury stock................. -- (444,271) -- -- --
Distribution to shareholders............... (1,637,000) (800,000) (792,000) (200,000) (200,000)
Payment on note receivable from stock
sale..................................... 10,247 -- -- 2,562 --
Payment on note payable to related party... -- -- -- (281,675) --
------------ ------------ ----------- ----------- ------------
Net cash provided by (used in)
financing activities............... 42,140,208 46,791,890 172,345 (1,766,035) 41,882,850
------------ ------------ ----------- ----------- ------------
Net increase/(decrease) in cash and cash
equivalents................................ 3,771,141 36,167 333 (1,822,115) (9,868)
Cash and cash equivalents, beginning of
year....................................... 157,169 121,002 120,669 3,928,310 157,169
------------ ------------ ----------- ----------- ------------
Cash and cash equivalents, end of year....... $ 3,928,310 $ 157,169 $ 121,002 $ 2,106,195 $ 147,301
============ ============ =========== =========== ============
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest................................. $ 8,636,561 $ 178,448 $ 79,798 $ 3,490,771 $ 291,823
============ ============ =========== =========== ============
Income taxes............................. $ 760,200 $ 3,607 $ 5,951 $ 17,215 $ 63,590
============ ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-7
<PAGE> 105
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. OPERATIONS
These combined financial statements include the accounts of UNICCO Service
Company and subsidiary ("UNICCO"), and USC, Inc. and subsidiaries ("USC"),
hereafter referred to collectively as the "Group", which are owned, managed and
controlled by common shareholders. One individual has voting control in the
amount of 51% of each of the combining entities. Each entity is managed as a
single operating company by the same functional and administrative corporate
services personnel. USC owns all of the outstanding common stock of UNICCO
Government Services, Inc. and UNICCO Security Services, Inc. and 21% of the
outstanding common stock of UNICCO Facility Services Canada Company ("UFSCC").
UNICCO owns the remaining 79% of the outstanding common stock of UFSCC. The
Group provides integrated facilities services, including industrial and
mechanical engineering, plant operations, custodial and maintenance services,
administrative services and security. The Group's customers include commercial,
industrial and financial institutions, educational and healthcare facilities,
and state and federal government agencies.
2. ACQUISITION
On June 28, 1996: (1) UNICCO acquired certain assets and the business, as
defined, of certain Allied Facility Services ("AFS") operations engaged in
janitorial, office, facility management and mechanical maintenance services,
primarily in the United States; (2) USC acquired all of the common stock and the
business of certain AFS operations engaged primarily in (a) building security
and (b) facility services to agencies of the federal government; and (3) UFSCC
acquired the assets and the business of certain AFS operations engaged in
janitorial, office facility management and mechanical maintenance services in
Canada. The aggregate purchase price of approximately $62 million was financed
in part by senior bank debt, subordinated debt and a $12 million note payable to
the seller (see Note 4). The acquisition was accounted for as a purchase, and
accordingly, the operations of the acquired businesses are included in the
accompanying financial statements from the date of acquisition. The operations
of the acquired businesses did not have a material effect on the Group's
combined statement of income for the year ended June 30, 1996.
The allocation of the purchase price of the acquired businesses, including
acquisition related costs of approximately $946,000, is as follows:
<TABLE>
<S> <C>
Property and equipment...................................... $ 2,850,000
Acquired contract rights.................................... 42,324,000
Favorable leasing........................................... 320,000
Favorable financing......................................... 2,652,000
Goodwill.................................................... 14,858,000
-----------
$63,004,000
===========
</TABLE>
The following unaudited pro forma amounts summarize the effect of the
businesses acquired as if the Acquisition had occurred on June 26, 1995. This
pro forma information is presented for informational purposes only. It is
derived from historical information and does not purport to represent the actual
results that may have occurred, nor is it necessarily indicative of future
results of operations of the combined enterprises.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1996
(Unaudited)
in thousands
------------
<S> <C>
Pro forma service revenues.................................. $487,415
Pro forma net income........................................ $ 6,342
</TABLE>
F-8
<PAGE> 106
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The interim financial data as of September 28, 1997 and for the three month
periods ended September 28, 1997 and September 29, 1996 is unaudited; however,
in the opinion of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the financial position and the results of operations as of and for the
interim periods.
Principles of Combination
The accompanying combined financial statements include the accounts of the
entities referred to in Note 1. All significant transactions between the
entities in the Group have been eliminated in combination.
Accounting Records
UNICCO is on the cash basis of accounting for tax reporting purposes. USC,
Inc. and subsidiaries are on the accrual basis of accounting for tax reporting
purposes. All adjustments have been made to the financial statements to reflect
the accrual basis of accounting.
Fiscal Year
The Group is on a 52/53 week fiscal year ending on the close of business on
the last Sunday of June. The fiscal year end 1996 was a fifty-three week year.
Cash and Cash Equivalents
The Group considers all highly liquid investments with remaining maturities
of three months or less at the time of acquisition to be cash equivalents.
Depreciation and Amortization
The Group provides for depreciation and amortization by charges to
operations in amounts that allocate the cost of property and equipment and
leasehold improvements over their estimated useful lives using the declining
balance and straight-line methods as follows:
<TABLE>
<CAPTION>
ESTIMATED
DESCRIPTION USEFUL LIFE
------------------------------------------------ ------------------------------
<S> <C>
Transportation equipment 3-5 years
Machinery and equipment 5-10 years
Furniture and fixtures 5-10 years
Shorter of estimated
Leasehold improvements useful life or life of lease
</TABLE>
F-9
<PAGE> 107
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets
Intangible assets consist primarily of acquired contract rights, favorable
lease arrangements, noncompete agreements and goodwill, representing the excess
of the purchase price over the fair value of the net assets acquired in each
acquisition accounted for as purchase. Acquired contract rights are amortized on
a straight-line basis over the estimated remaining lives of the customer
relationships, which range from seven to 15 years. These lives represent the
estimated remaining average lives of the contracts acquired which exceed the
actual contract lives and are based generally on the historical experience of
the individual businesses and contracts acquired. Capitalized noncompete
agreements are amortized over three years, representing the contractual
noncompete period. Goodwill is amortized on a straight-line basis over an
estimated life of 15 years. Intangible assets (rounded to the nearest thousand)
consist of the following at June 29, 1997 and June 30, 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Acquired contract rights...................... $46,799,000 $46,799,000
Favorable leases.............................. 320,000 320,000
Noncompete agreements......................... 803,000 803,000
Goodwill...................................... 14,858,000 14,858,000
----------- -----------
62,780,000 62,780,000
Less -- Accumulated amortization.............. (7,344,000) (2,595,000)
----------- -----------
$55,436,000 $60,185,000
=========== ===========
</TABLE>
Impairment
The Group has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." In accordance with this Statement, the Group reviews long-lived
assets and related goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amounts of such assets may not be fully
recoverable.
Other Assets
Other assets consist principally of deferred financing costs, which are
amortized over the repayment term of the respective debt.
Revenue Recognition
Service revenues are generated primarily by efforts expended on cost-plus
fixed-fee, fixed price and time and material contracts. Revenue from cost-plus
fixed-fee contracts is recognized on the basis of direct and indirect expenses
incurred plus the allocable portion of the fixed fee. Revenues on fixed price
contracts are recognized based on the monthly amount as stipulated in the
contract and the performance of services. Revenues under time and material
contracts are recorded at the contracted rates as labor efforts are expended and
other direct costs are incurred. Losses, if any, are provided for at the time
that management determines that costs, including estimated costs to complete,
exceed contract revenue.
Financial Instruments
The Group's financial instruments consist of cash, cash equivalents,
receivables, accounts payable and debt instruments. The estimated fair values of
the Group's cash, cash equivalents, receivables, accounts payable and fixed-rate
debt instruments approximate their carrying value.
Income Taxes
Income taxes for financial reporting purposes are recorded in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109). The asset and liability approach underlying FAS 109 requires
the recognition of deferred tax liabilities and assets for the expected future
tax
F-10
<PAGE> 108
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
consequences of temporary differences between the carrying amounts and tax bases
of the Group's assets and liabilities.
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," the financial statements of UFSCC are translated
into U.S. dollars as follows: assets and liabilities at year-end exchange rates;
income, expenses and cash flows at average exchange rates; and shareholders'
equity at historical exchange rates. The resulting translation adjustment is
recorded as a component of shareholders' equity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts and disclosures reported in the accompanying
combined financial statements. Actual amounts could differ from those estimates.
Concentration of Credit Risk
Concentrations of credit risk with respect to accounts receivable and
unbilled receivables are limited because a large number of North American
customers make up the Group's customer base, thus spreading trade credit risk.
In addition, the Group performs ongoing evaluations of customers' financial
position. The Group does not require collateral and maintains reserves for
potential uncollectible amounts which, in the aggregate, have not exceeded
management expectations.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year's presentation.
4. DEBT
Subsequent to September 28, 1997 the Company consummated a refinancing
transaction in which it paid in full all amounts outstanding (including accrued
interest) under the revolving credit facility, the demand line of credit, Term
Loans A and B, the Seller Senior Subordinated promissory note and the Junior
Subordinated promissory notes (see Note 12).
Line of Credit
On June 28, 1996, the Group entered into a revolving credit and term loan
agreement (the Agreement) with a syndicated bank group for a $48 million
revolving line of credit (see Acquisition Financing below for discussion of term
loans). The maximum amount available to borrow is limited, as the total of all
revolving loans plus letters of credit outstanding cannot exceed the lesser of
the total line committed or 80% of net accounts receivable, as defined. This
credit agreement terminates on June 30, 2001. The Group may designate borrowings
as either Base Rate Loans or Eurodollar Loans, as defined. For Base Rate Loans,
interest on borrowings is payable quarterly in arrears beginning October 1, 1996
at an annual rate equal to the base rate plus applicable base rate margin, as
defined (10.0% at June 29, 1997 and 8.5% at June 30, 1996). For Eurodollar
Loans, interest is payable at the end of each interest period, as defined, at an
annual rate equal to the adjusted Eurodollar rate plus the applicable Eurodollar
margin, as defined (8.8% at June 29, 1997 and 8.4% at June 30, 1996). Borrowings
outstanding under this line of credit were $46,424,112 at June 29, 1997 and
$6,220,153 at June 30, 1996. The provisions of the Agreement permit the Group to
obtain letters of credit up to a maximum amount, as defined (see Note 6).
F-11
<PAGE> 109
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Agreement provides for certain covenants, including maintenance of
defined levels of tangible net worth, earnings before interest, taxes,
depreciation and amortization, and certain other financial ratios. The Group was
not in compliance with certain of these covenants at December 1996, March 1997
and June 1997. Subsequently, the bank waived the Group's defaults of these
covenants and financial provisions and amended the covenants and financial
provisions through the end of fiscal 1998 which brings the Group into
compliance. Borrowings under the Agreement are collateralized by substantially
all assets of the Group. The Agreement also provides for limited recourse
guarantees and pledge agreements from certain shareholders, an affiliated
company and UFSCC.
On September 23, 1996, UNICCO entered into a demand line of credit
agreement with a bank. The agreement allows UNICCO to borrow up to $5,000,000 at
the bank's discretion, for working capital purposes. The terms and conditions of
the agreement are substantially the same as those contained in the $48 million
revolving line of credit and term loan agreement described above. The agreement
has been extended to expire on December 31, 1997. Borrowings outstanding under
this line of credit were $4,162,999 at June 29, 1997.
In 1995 and until the date of the AFS acquisition described in Note 2,
UNICCO had a loan agreement with a bank providing UNICCO with a $6,500,000
annually renewable line of credit, inclusive of a $3,500,000 limit for letters
of credit and a $56,000,000 revolving facility for acquisition financing. This
agreement was terminated in June, 1996.
Acquisition Financing
Amounts outstanding at June 29, 1997 and June 30, 1996 related to debt
agreements entered into in connection with the AFS acquisition were:
<TABLE>
<CAPTION>
JUNE 29, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Term Loan A............................. $28,400,000 $32,000,000
Term Loan B............................. 10,000,000 10,000,000
Senior subordinated promissory note..... 5,000,000 5,000,000
Seller senior subordinated promissory
note.................................. 9,878,400 9,348,000
Junior subordinated promissory notes.... 3,000,003 --
----------- -----------
Total debt......................... 56,278,403 56,348,000
Less:
Current portion......................... 7,000,000 5,500,000
----------- -----------
Long-term portion.................. $49,278,403 $50,848,000
=========== ===========
</TABLE>
Term Loan A requires payments of principal in varying quarterly
installments ranging from $1,500,000 to $1,800,000, expiring on June 30, 2001.
Term Loan B requires annual principal payments of $100,000 through June 30, 2000
and a balloon payment of $9,600,000 on June 30, 2001. The Group may designate
borrowings under both Term Loan A and Term Loan B as either Base Rate Loans or
Eurodollar Loans. Interest on borrowings of Term Loan A is payable quarterly in
arrears for Base Rate Loans, at an annual rate equal to the base rate plus
applicable base rate margin, as defined (10.0% at June 29, 1997 and 8.25% at
June 30, 1996). For Eurodollar Loans, interest is payable at the end of each
interest period, as defined, at an annual rate equal to the adjusted Eurodollar
rate plus applicable Eurodollar margin, as defined (8.8% at June 29, 1997 and
8.4% at June 30, 1996). Interest on borrowings of Term Loan B is payable
quarterly in arrears for Base Rate Loans, at a base rate plus 2%, (10.5% at June
29, 1997 and 8.25% at June 30, 1996). For Eurodollar Loans, interest is payable
at the end of each interest period, as defined, at the Eurodollar rate plus 3.5%
(9.3% at June 29, 1997 and 8.9% at June 30, 1996). The Agreement provides for
mandatory principal repayments of Term Loan A and Term Loan B in the event of
asset sales and excess cash flow, as defined.
F-12
<PAGE> 110
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On June 28, 1996, the Group entered into a $5,000,000 subordinated
promissory note agreement with Massachusetts Capital Resource Company ("MCRC").
The promissory note is due on September 30, 2001 and provides for quarterly
interest payments based on an annual interest rate of 14%. The agreement
provides for maintenance of certain financial ratio covenants. The agreement
includes a limited recourse guarantee from a principal shareholder and UFSCC, as
well as a pledge agreement from such shareholder.
In connection with the AFS acquisition (Note 2), UNICCO entered into a
$12,000,000 subordinated promissory note agreement with the seller. The
promissory note is subordinated to the line of credit, Term Loans A and B, and
the MCRC loan described above, and is due on September 30, 2001. The agreement
provides for quarterly interest payments based on an annual interest rate of 8%
and includes a limited recourse guarantee from a key shareholder and UFSCC, as
well as a pledge agreement from a key shareholder. The approximate fair value of
this note at June 29, 1997 and June 30, 1996 was $9,878,400 and $9,348,000,
respectively. As more fully described in Notes 2 and 3, the favorable financing
associated with this note has been considered in the Group's purchase accounting
for the acquisition resulting in a $2,652,000 debt discount which is being
amortized over the five-year term of the note.
Junior subordinated promissory note agreements were issued in July 1997 to
certain shareholders of the Group for approximately $3 million. The promissory
notes are due on October 1, 2001 and provide for annual interest payments at
15%.
Minimum future payments of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
------------------------------------------------------------ -----------
<S> <C>
1998........................................................ $ 7,000,000
1999........................................................ 6,300,000
2000........................................................ 6,700,000
2001........................................................ 7,050,000
2002........................................................ 29,228,403
-----------
$56,278,403
===========
</TABLE>
5. TRANSACTIONS WITH RELATED PARTIES
Notes Receivable From Officers
Notes receivable from officers consist primarily of demand notes receivable
from officers/shareholders bearing interest at the applicable federal rate. The
long-term portion of the notes receivable represents the portion the Group will
not collect within the next year, in accordance with the repayment terms.
Interest income of approximately $56,000, $77,000 and $83,000 related to these
loans are included in the accompanying combined statements of income during
1997, 1996 and 1995, respectively. Interest receivable related to these notes
was approximately $312,000 and $367,000 at June 29, 1997 and June 30, 1996,
respectively.
On June 24, 1996, UNICCO loaned an officer of the Group approximately
$217,000 to purchase 27 shares of nonvoting common stock. This loan bears
interest at an average of the Applicable Federal Rate (5.68% at June 29, 1997
and 5.8% at June 30, 1996), is due on July 1, 2001 and is classified as a
deduction from shareholders' equity in the accompanying combined consolidated
balance sheet.
In connection with the loan agreements discussed in Note 4, certain notes
receivable from officers and shareholders have been assigned to the lenders
under such loan agreements.
Demand Note Payable To An Officer
The demand note payable to an officer of approximately $282,000, included
in the accompanying combined balance sheet, bears interest at the prime rate or
20%, whichever is greater. This note was paid in full, including accrued
interest, on September 3, 1997.
F-13
<PAGE> 111
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Junior Subordinated Promissory Notes
In connection with the AFS acquisition (see Note 2), certain shareholders
loaned the Companies $3,000,003 (see Note 4).
Lease Agreement With An Affiliate
The Group leases certain office space from an affiliated company. The
agreement commenced on July 1, 1995 and will be effective for a term of five
years and five months. Approximate future minimum payments under this lease are
$51,800 per year from July 1996 through June 1998, and $57,000 per year from
July 1998 through November 2000. Such amounts are included in Note 6.
Insurance Agreement With An Affiliate
Prior to the end of fiscal 1995, the Group insured its workers'
compensation and general liability risks through a combination of a
self-insurance program and indemnity coverage obtained from a third-party
carrier. At the end of fiscal 1995, the Group entered into an agreement with a
commercial insurance carrier whereby its workers' compensation and general
liability insurance risks are reinsured with an affiliated company. Under the
terms of this arrangement, the Group's obligations with respect to workers'
compensation and general liability claims are limited to the premiums paid for
such insurance. The Group's insurance premiums are actuarially determined based
on its historical loss experience. The amount charged to expense related to the
arrangement was approximately $10,129,000, $3,501,000 and $1,244,000 in fiscal
1997, fiscal 1996 and fiscal 1995, respectively. Included in prepaid insurance
as of June 29, 1997 and June 30, 1996 are amounts of $0 and approximately
$2,026,000, respectively, related to this agreement. The affiliated company's
outstanding common stock has been pledged by the shareholder as collateral for
the Agreement described in Note 4.
Included in the Group's combined consolidated results of operations for the
year ended June 30, 1996 is approximately $929,000 in income representing
refunds received in fiscal 1996 from a third-party insurance carrier as a result
of the Group's ultimate favorable claims experience from accident years prior to
fiscal 1996. Additionally, in fiscal 1996, as a result of the Company's
sustained favorable experience with respect to its self insurance program and,
as discussed above, the establishment of the reinsurance arrangement at the end
of fiscal 1995, the Company reevaluated its reserve requirements and reversed
approximately $1,148,000 of workers' compensation and general liability
insurance reserves.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Group leases certain equipment and facilities under noncancelable
operating leases through June 30, 2005. Rent expense under these leases was
approximately $3,207,000, $1,095,000 and $999,000 for the years ended June 29,
1997, June 30, 1996 and June 25, 1995, respectively. The approximate future
minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
---------------------------------------------------------- -----------
<S> <C>
1998...................................................... $ 3,347,665
1999...................................................... 2,950,897
2000...................................................... 2,503,787
2001...................................................... 1,503,505
2002...................................................... 717,526
Thereafter................................................ 107,000
-----------
$11,130,380
===========
</TABLE>
F-14
<PAGE> 112
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Group leases certain facilities under tenancy-at-will agreements, which
are not included in the future minimum lease payments above. Future payments
above do not include the lease of a warehouse at an annual cost of approximately
$222,000 through 2001, which is fully reimbursed by a customer.
Letters of Credit
As of June 29, 1997, the Group was contingently liable under certain
letters of credit, in the aggregate amount of approximately $1,556,000,
primarily issued in connection with the Group's surety bonding arrangements. The
letters of credit expire on various dates through June 30, 2000.
Stock Repurchase Agreement
All nonvoting common shares (see Note 8) must be redeemed by the Group at
the then book value of the shares, as defined, in the event that the
shareholders cease employment with the Group.
Litigation
UNICCO was a party to a lawsuit filed in May 1994 by a former employee who
alleged breach of contract and misrepresentation in connection with his
employment. In 1996, the parties to the lawsuit reached agreement to settle the
litigation pursuant to a court-ordered mediation of the claims. The settlement
amount (approximately $400,000) is included in selling, general and
administrative expenses in the accompanying statement of income for fiscal 1996.
In the ordinary course of business, the Group is party to various types of
litigation. The Group believes it has meritorious defenses to all claims, and,
in its opinion, all litigation currently pending or threatened will not have a
material adverse effect on the Group's financial position or results of
operations.
7. INCOME TAXES
UNICCO has elected to be taxed as an S corporation for federal and certain
state income tax purposes and is a business trust for Massachusetts state tax
purposes. UNICCO's provision for income taxes in 1997 and 1996 results from
states that do not recognize its S corporation status for state income tax
purposes and its business trust status in Massachusetts.
Effective January 1, 1997, USC elected to be taxed as an S corporation for
federal and certain state income tax purposes. Prior to January 1, 1997, USC was
a C corporation and was subject to federal and state income taxes at the
corporate level.
Income before income tax expense was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
JUNE 29, JUNE 30, JUNE 25,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Domestic............................... $3,322,953 $1,934,612 $2,687,228
Foreign................................ 198,905 -- --
---------- ---------- ----------
$3,521,858 $1,934,612 $2,687,228
========== ========== ==========
</TABLE>
F-15
<PAGE> 113
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
JUNE 29, JUNE 30, JUNE 25,
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Current...................................
Federal................................. $ 309,187 $ -- $ --
State................................... 133,060 157,541 36,509
Foreign................................. 99,000 -- --
Deferred..................................
Federal................................. -- -- --
State................................... 1,797,611 31,000 177,000
---------- -------- --------
$2,338,858 $188,541 $213,509
========== ======== ========
</TABLE>
Deferred taxes arise primarily from book (accrual basis) and tax (cash
basis) differences in recording revenues and expenses.
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 29, JUNE 30, JUNE 25,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Receivables.................................. $(4,065,404) $ (772,233) $ (730,051)
Prepaid insurance............................ -- (145,746) (157,609)
Other assets................................. (113,249) (117,557) (173,508)
----------- ----------- -----------
Gross deferred tax liabilities............... (4,178,653) (1,035,536) (1,061,168)
----------- ----------- -----------
Accounts payable............................. 313,741 133,943 78,551
Accrued payroll.............................. 687,220 148,667 147,170
Accrued insurance............................ -- -- 165,270
Other accruals and reserves.................. 354,445 97,710 45,961
State net operating loss carryforwards....... 2,040,040 -- --
----------- ----------- -----------
Gross deferred tax assets.................... 3,395,446 380,320 436,952
Valuation allowance.......................... (1,669,620) -- --
----------- ----------- -----------
Net deferred tax assets...................... 1,725,826 380,320 436,952
----------- ----------- -----------
Net deferred tax liabilities................. $(2,452,827) $ (655,216) $ (624,216)
=========== =========== ===========
</TABLE>
As a cash basis tax payer, UNICCO generated an operating loss of
approximately $29,350,000 for income tax purposes in fiscal 1997, primarily as a
result of the increase in working capital from its June 28, 1996 acquisition of
AFS (Note 2). Such operating losses, which are limited to those states which do
not recognize UNICCO's subchapter S status, are further limited to the
carryforward period for each respective state in which such loss was generated,
generally ranging from three to fifteen years. Management believes that it is
more likely than not that it will realize approximately $370,000 of the tax
benefit associated with the operating loss described above. This belief is based
upon a review of all available evidence, including historical operating results,
projections of future taxable income, recognizing the limitations described
above, and tax planning strategies. The Group has recorded a valuation allowance
against the remaining portion of the tax benefit related to the above referenced
operating losses.
F-16
<PAGE> 114
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------
JUNE 29, JUNE 28, JUNE 25,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate.................................. 34.0% 34.0% 34.0%
Income from S corporations not taxable for corporate
income tax purposes................................... (22.5) (34.0) (34.0)
State income taxes, net of federal benefit (1997
only)................................................. 4.9 9.7 7.9
Valuation allowance..................................... 47.0 -- --
Other................................................... 3.0 -- --
----- ----- -----
66.4% 9.7% 7.9%
===== ===== =====
</TABLE>
8. COMMON SHARES
Common shares consist of the following:
<TABLE>
<CAPTION>
JUNE 29, JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
UNICCO --
Common shares of beneficial interest, voting, no par value -
Issued and outstanding -- 1,000 shares.................... $ 10,333 $ 10,333
Common shares of beneficial interest, nonvoting, no par
value -
Issued-120 shares (includes 66 shares in treasury) at June
29, 1997 and June 30, 1996, respectively................ 367,295 367,295
-------- --------
377,628 377,628
-------- --------
USC --
Common shares, voting, no par value -
Issued and outstanding -- 1,000 shares.................... 100 100
Common shares, nonvoting, no par value -
Issued and outstanding -- 54 shares....................... 5 5
-------- --------
105 105
-------- --------
Combined............................................. $377,733 $377,733
======== ========
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Multi-employer Pension Plans
Certain employees under collective bargaining agreements are covered by
union-sponsored, multi-employer pension plans. Group contributions, generally
based on hours worked, are in accordance with negotiated labor contracts. The
Group recorded expenses of approximately $5,398,000, $703,000 and $561,000 in
fiscal 1997, 1996 and 1995, respectively, related to the plans. Information is
not readily available for the Group to determine its share of unfunded vested
benefits, if any, under the plans.
401(k) Investment Savings Plans
UNICCO maintains two 401(k) retirement plans (the "Plans") covering all
employees who have completed one year of service, as defined, and are not
subject to a collective bargaining agreement. The Plans allow eligible employees
to make salary-deferred contributions for not less than 1% nor more than 20% of
their compensation for the contribution period, as defined, subject to certain
IRS limitations. UNICCO may contribute to the Plans in any year at its
discretion. UNICCO made contributions of approximately $1,017,000, $32,000 and
$33,000 in fiscal 1997, 1996 and 1995, respectively.
F-17
<PAGE> 115
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. RESIGNATION OF OFFICERS
On January 3, 1996, one of UNICCO's officers and shareholders resigned.
UNICCO repurchased the officer's 55 nonvoting outstanding shares for
approximately $444,000. The former officer also signed a noncompete agreement
with UNICCO for approximately $800,000, which UNICCO has capitalized and is
amortizing over the life of the noncompete agreement. The provisions of the
agreement require monthly payments of approximately $23,000, commencing on
January 1, 1996 through December 31, 1998, subject to the former officer not
competing with the Group. Further, the agreement provides for such payments to
cease and reimbursement of all payments previously made under the terms of the
arrangement if the former officer violates the agreement. Amortization expense
on the noncompete agreement was approximately $267,500 and $134,000 for the
years ended June 29, 1997 and June 30, 1996, respectively.
Unaudited
In July 1997 one of UNICCO's officers resigned. The severance agreement
with the officer provides for periodic payments totalling approximately
$370,000. Such amount is included in the accompanying condensed combining
financial statements.
11. CONDENSED COMBINING CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR
SUBSIDIARIES
Each guarantor subsidiary of UNICCO is under common management, is directly
or indirectly wholly-owned and the guarantees related to the Series A Note
Offering are full, unconditional and joint and several. UFSCC is indirectly
wholly-owned and is not a guarantor of this debt. Separate financial statements
of the guarantor subsidiaries are not presented because management has
determined that they would not be material to investors. However, condensed
combining financial information as of June 29, 1997 and for the year then ended,
and as of September 28, 1997 and for the three months then ended (unaudited) are
presented. The following presents condensed combining financial information
(rounded to the nearest thousand) for (i) UNICCO only, (ii) the guarantor
subsidiaries on a combined basis, (iii) the nonguarantor subsidiary -- UFSCC and
(iv) the Group on a combined basis (see Note 12).
F-18
<PAGE> 116
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed Combining Balance Sheet
<TABLE>
<CAPTION>
JUNE 29, 1997
-------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- COMBINED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 1,997,853 $ 621,457 $ 1,309,000 $ -- $ 3,928,310
Accounts receivable, less reserves of approximately
$1,561,000....................................... 40,509,844 17,916,348 3,464,000 -- 61,890,192
Unbilled receivable................................ 22,710,479 4,325,805 -- -- 27,036,284
Intercompany receivable (payable).................. 19,520,368 (17,420,273) (2,100,095) -- --
Prepaid insurance.................................. 236,470 11,060 -- -- 247,530
Other current assets............................... 2,633,650 427,174 40,000 -- 3,100,824
------------ ------------ ----------- ----------- ------------
Total current assets............................. 87,608,664 5,881,571 2,712,905 -- 96,203,140
------------ ------------ ----------- ----------- ------------
Property and equipment, at cost:..................... 10,675,587 407,731 610,000 -- 11,693,318
Less -- accumulated depreciation and
amortization..................................... 6,783,424 134,460 128,000 -- 7,045,884
------------ ------------ ----------- ----------- ------------
3,892,163 273,271 482,000 -- 4,647,434
------------ ------------ ----------- ----------- ------------
Due from (to) affiliates............................. 14,458,555 (569,910) -- (13,888,645) --
Investment in subsidiary............................. 2,053,925 545,980 -- (2,599,905) --
Notes receivable and accrued interest from officers,
net of current portion............................. 716,125 -- -- -- 716,125
Intangible assets, net of amortization............... 40,880,753 12,644,807 1,911,000 -- 55,436,560
Other assets, net.................................... 4,055,562 7,053 21,000 -- 4,083,615
------------ ------------ ----------- ----------- ------------
62,164,920 12,627,930 1,932,000 (16,488,550) 60,236,300
------------ ------------ ----------- ----------- ------------
$153,665,747 $ 18,782,772 $ 5,126,905 $(16,488,550) $161,086,874
============ ============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, 1997
-------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- COMBINED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft..................................... $ 10,839,753 $ 476,100 $ -- $ -- $ 11,315,853
Current portion of long-term debt.................. 7,000,000 -- -- -- 7,000,000
Accounts payable................................... 5,177,237 1,585,297 787,000 -- 7,549,534
Accrued payroll and payroll-related expenses....... 14,507,393 2,378,458 1,628,000 -- 18,513,851
Deferred income taxes.............................. 2,823,450 (203) -- -- 2,823,247
Other accrued expenses............................. 3,593,540 240,010 117,000 -- 3,950,550
------------ ------------ ----------- ----------- ------------
Total current liabilities........................ 43,941,373 4,679,662 2,532,000 -- 51,153,035
------------ ------------ ----------- ----------- ------------
Long-term liabilities:
Line of credit..................................... 50,587,111 -- -- -- 50,587,111
Long-term debt, less current portion............... 49,278,403 -- -- -- 49,278,403
Note payable to officer............................ 281,675 -- -- -- 281,675
Other long-term liabilities........................ 950,982 -- -- -- 950,982
------------ ------------ ----------- ----------- ------------
Total long-term liabilities...................... 101,098,171 -- -- -- 101,098,171
------------ ------------ ----------- ----------- ------------
Commitments and Contingencies (Note 6)
Shareholders' equity............................... 9,370,271 14,103,110 2,594,905 (16,488,550) 9,579,736
------------ ------------ ----------- ----------- ------------
Less treasury shares at cost....................... (501,825) -- -- -- (501,825)
Less notes receivable from stock sales............. (242,243) -- -- -- (242,243)
------------ ------------ ----------- ----------- ------------
Total shareholders' equity....................... 8,626,203 14,103,110 2,594,905 (16,488,550) 8,835,668
------------ ------------ ----------- ----------- ------------
$153,665,747 $ 18,782,772 $ 5,126,905 $(16,488,550) $161,086,874
============ ============ =========== =========== ============
</TABLE>
F-19
<PAGE> 117
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed Combining Balance Sheet
<TABLE>
<CAPTION>
SEPTEMBER 28, 1997 (UNAUDITED)
-------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- COMBINED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 2,016,738 $ 6,457 $ 83,000 $ -- $ 2,106,195
Accounts receivable, less reserves of
approximately $1,838,000 (unaudited)........ 38,751,749 16,495,572 3,983,000 -- 59,230,321
Unbilled receivables.......................... 24,440,329 4,582,604 -- -- 29,022,933
Intercompany receivable (payable)............. 16,399,633 (14,321,949) (2,077,684) -- --
Prepaid insurance............................. 212,879 11,060 -- -- 223,939
Other current assets.......................... 1,643,486 423,114 145,000 -- 2,211,600
------------ ------------ ----------- ----------- ------------
Total current assets................... 83,464,814 7,196,858 2,133,316 -- 92,794,988
------------ ------------ ----------- ----------- ------------
Property and equipment, at cost:................ 10,854,893 417,235 621,000 -- 11,893,128
Less -- accumulated depreciation and
amortization................................ (7,259,677) (183,328) (153,000) -- (7,596,005)
------------ ------------ ----------- ----------- ------------
3,595,216 233,907 468,000 -- 4,297,123
------------ ------------ ----------- ----------- ------------
Due from (to) affiliates........................ 14,469,782 (581,137) (13,888,645) --
Investment in subsidiary........................ 2,055,040 546,276 -- (2,601,316) --
Notes receivable and accrued interest from
officers, net of current portion.............. 686,125 -- -- -- 686,125
Intangible assets, net of amortization.......... 39,971,026 12,398,087 1,876,000 -- 54,245,113
Other assets, net............................... 4,366,099 22,995 21,000 -- 4,410,094
------------ ------------ ----------- ----------- ------------
61,548,072 12,386,221 1,897,000 (16,489,961) 59,341,332
------------ ------------ ----------- ----------- ------------
$148,608,102 $ 19,816,986 $ 4,498,316 $(16,489,961) $156,433,443
============ ============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 28, 1997 (UNAUDITED)
-------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- COMBINED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft................................ $ 7,369,659 $ 1,323,153 $ 322,000 $ -- $ 9,014,812
Current portion of long-term debt............. 6,900,000 -- 6,900,000
Accounts payable.............................. 3,775,967 1,309,764 365,000 -- 5,450,731
Accrued payroll and payroll-related
expenses.................................... 14,989,354 2,673,321 1,124,000 -- 18,786,675
Deferred income taxes......................... 2,823,450 (203) -- 2,823,247
Other accrued expenses........................ 4,231,406 207,852 90,000 -- 4,529,258
------------ ------------ ----------- ----------- ------------
Total current liabilities................... 40,089,836 5,513,887 1,901,000 -- 47,504,723
------------ ------------ ----------- ----------- ------------
Long-term liabilities:
Line of credit................................ 51,751,857 -- -- -- 51,751,857
Long-term debt, less current portion.......... 47,611,003 -- -- -- 47,611,003
Note payable to officer....................... -- -- -- -- --
Other long-term liabilities................... 348,829 -- -- -- 348,829
------------ ------------ ----------- ----------- ------------
Total long-term liabilities................. 99,711,689 -- -- -- 99,711,689
------------ ------------ ----------- ----------- ------------
Commitments and Contingencies (Note 6)
Shareholders' equity.......................... 9,548,083 14,303,099 2,597,316 (16,489,961) 9,958,537
------------ ------------ ----------- ----------- ------------
Less treasury shares at cost.................. (501,825) -- -- -- (501,825)
Less notes receivable from stock sales........ (239,681) -- -- -- (239,681)
------------ ------------ ----------- ----------- ------------
Total shareholders' equity.................. 8,806,577 14,303,099 2,597,316 (16,489,961) 9,217,031
------------ ------------ ----------- ----------- ------------
$148,608,102 $ 19,816,986 $ 4,498,316 $(16,489,961) $156,433,443
============ ============ =========== =========== ============
</TABLE>
F-20
<PAGE> 118
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed Combining Statement of Income
<TABLE>
<CAPTION>
YEAR ENDED JUNE 29, 1997
-------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- COMBINED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues........................ $403,153,669 $102,189,066 $28,539,000 $ -- $533,881,735
Cost of service revenues................ 358,928,696 96,835,170 25,792,000 969,836 482,525,702
------------ ------------ ----------- ----------- ------------
Gross profit.......................... 44,224,973 5,353,896 2,747,000 (969,836) 51,356,033
Selling, general and administrative
expenses.............................. 28,620,927 1,746,268 2,263,094 (969,836) 31,660,453
Amortization of intangible
assets................................ 3,626,060 986,881 136,000 -- 4,748,941
------------ ------------ ----------- ----------- ------------
Income from operations................ 11,977,986 2,620,747 347,906 -- 14,946,639
Interest income......................... 97,693 -- -- (31,000) 66,693
Interest expense........................ (9,381,721) (1,991,752) (149,001) 31,000 (11,491,474)
------------ ------------ ----------- ----------- ------------
Income before provision for income
taxes.............................. 2,693,958 628,995 198,905 -- 3,521,858
Provision for income taxes.............. 1,804,243 435,615 99,000 -- 2,338,858
------------ ------------ ----------- ----------- ------------
Income before equity in net earnings of
subsidiaries.......................... 889,715 193,380 99,905 -- 1,183,000
Equity in net earnings of
subsidiaries.......................... 78,925 20,980 -- (99,905) --
------------ ------------ ----------- ----------- ------------
Net income......................... $ 968,640 $ 214,360 $ 99,905 $ (99,905) $ 1,183,000
============ ============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
SEPTEMBER 28, 1997 (UNAUDITED)
-------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- COMBINED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues......................... $102,948,629 $ 24,001,167 $ 7,767,000 $ -- $134,716,796
Cost of service revenues................. 91,967,660 22,260,808 6,918,000 -- 121,146,468
------------ ------------ ----------- ----------- ------------
Gross profit........................... 10,980,969 1,740,359 849,000 -- 13,570,328
Selling, general and administrative
expenses............................... 7,476,414 544,049 585,000 -- 8,605,463
Amortization of intangible
assets................................. 911,727 246,720 33,000 -- 1,191,447
------------ ------------ ----------- ----------- ------------
Income from operations................. 2,592,828 949,590 231,000 -- 3,773,418
Interest income.......................... 702 702
Interest expense......................... (2,164,406) (730,171) (112,589) -- (3,007,166)
------------ ------------ ----------- ----------- ------------
Income before provision for income
taxes............................... 429,124 219,419 118,411 -- 766,954
Provision for income taxes............... 40,255 31,898 117,000 -- 189,153
------------ ------------ ----------- ----------- ------------
Income before equity in net earnings of
subsidiaries........................... 388,869 187,521 1,411 -- 577,801
Equity in net earnings of subsidiaries... 1,115 296 -- (1,411) --
------------ ------------ ----------- ----------- ------------
Net income.......................... $ 389,984 $ 187,817 $ 1,411 $ (1,411) $ 577,801
============ ============ =========== =========== ============
</TABLE>
F-21
<PAGE> 119
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed Combining Statement of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 29, 1997
-------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- COMBINED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income..................................... $ 968,640 $ 214,360 $ 99,905 $(99,905) $ 1,183,000
Net earnings from equity investment............ (78,925) (20,980) -- 99,905 --
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets............ 3,615,060 986,881 147,000 -- 4,748,941
Amortization of debt issue costs and
discount................................... 1,087,393 -- -- -- 1,087,393
Depreciation and amortization................ 2,251,016 134,460 128,000 -- 2,513,476
Loss on disposals............................ 60,628 -- -- -- 60,628
Deferred income taxes........................ 1,797,814 (203) -- -- 1,797,611
Forgiveness of notes receivable and accrued
interest from officers..................... 497,306 -- -- -- 497,306
Changes in assets and liabilities:
Accounts receivable........................ (32,617,757) (17,916,348) (3,464,000) -- (53,998,105)
Unbilled receivables....................... (19,141,302) (4,325,805) -- -- (23,467,107)
Intercompany receivable (payable).......... (19,520,368) 17,420,273 2,100,095 -- --
Other current assets....................... 583,395 (438,129) (40,000) -- 105,266
Other long-term assets..................... (238,583) (7,053) (26,000) -- (271,636)
Cash overdraft............................. 8,798,218 476,100 -- -- 9,274,318
Accounts payable........................... 2,474,417 1,585,297 787,000 -- 4,846,714
Accrued expenses and other current
liabilities............................. 11,490,828 2,618,468 1,745,000 -- 15,854,296
Other long-term liabilities................ (72,631) -- -- -- (72,631)
------------ ------------ ----------- -------- ------------
Net cash provided by (used in) operating
activities................................. (38,044,851) 727,321 1,477,000 -- (35,840,530)
------------ ------------ ----------- -------- ------------
Cash relating to investing activities:
Due to/from affiliates......................... (44,910) 44,910 -- -- --
Purchases of property and equipment............ (2,259,543) (150,774) (168,000) -- (2,578,317)
Increases in notes receivable and accrued
interest from officers....................... (56,414) -- -- -- (56,414)
Payments received for notes receivable from
officers..................................... 106,194 -- -- -- 106,194
------------ ------------ ----------- -------- ------------
Net cash used in investing activities........ (2,254,673) (105,864) (168,000) -- (2,528,537)
------------ ------------ ----------- -------- ------------
Cash flows relating to financing activities:
Net proceeds from line of credit............... 44,366,958 -- -- -- 44,366,958
Proceeds from debt............................. 3,000,003 -- -- -- 3,000,003
Payments on debt............................... (3,600,000) -- -- -- (3,600,000)
Distribution to shareholders................... (1,637,000) -- -- -- (1,637,000)
Payment on note receivable from stock sale..... 10,247 -- -- -- 10,247
------------ ------------ ----------- -------- ------------
Net cash provided by financing activities.... 42,140,208 -- -- -- 42,140,208
------------ ------------ ----------- -------- ------------
Net increase in cash and cash equivalents........ 1,840,684 621,457 1,309,000 -- 3,771,141
Cash and cash equivalents, beginning of year..... 157,169 -- -- -- 157,169
------------ ------------ ----------- -------- ------------
Cash and cash equivalents, end of year........... $ 1,997,853 $ 621,457 $ 1,309,000 $ -- $ 3,928,310
============ ============ =========== ======== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest..................................... $ 8,636,561 $ -- $ -- $ -- $ 8,636,561
============ ============ =========== ======== ============
Income taxes................................. $ 760,200 $ -- $ -- $ -- $ 760,200
============ ============ =========== ======== ============
</TABLE>
F-22
<PAGE> 120
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed Combining Statement of Cash Flows
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
SEPTEMBER 28, 1997 (UNAUDITED)
---------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY- COMBINED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income......................................... $ 389,984 $ 187,817 $ 1,411 $ (1411) $ 577,801
Net earnings from equity investments............... (1,115) (296) -- 1,411 --
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets................ 909,727 246,720 35,000 -- 1,191,447
Amortization of debt issue costs and discount.... 271,555 -- -- -- 271,555
Depreciation and amortization.................... 517,222 43,017 25,000 -- 585,239
Loss on disposals................................ (1,779) 16,155 -- -- 14,376
Deferred income taxes............................ -- -- -- -- --
Change in assets and liabilities:
Accounts receivable............................ 1,758,095 1,420,776 (519,000) -- 2,659,871
Unbilled receivables........................... (1,729,850) (256,799) -- -- (1,986,649)
Intercompany receivable (payable).............. 3,120,735 (3,098,324) (22,411) -- --
Other current assets........................... 1,013,755 4,060 (105,000) -- 912,815
Other long-term assets......................... 102,176 (15,942) 1,000 -- 87,234
Cash overdraft................................. (3,470,094) 847,053 322,000 -- (2,301,041)
Accounts payable............................... (1,401,270) (275,533) (422,000) -- (2,098,803)
Accrued expenses and other current
liabilities................................. 1,119,827 262,705 (531,000) -- 851,532
Other long-term liabilities.................... (602,153) -- -- -- (602,153)
----------- ----------- ----------- ------- -----------
Net cash provided by (used in) operating
activities..................................... 1,996,815 (618,591) (1,215,000) -- 163,224
----------- ----------- ----------- ------- -----------
Cash flows relating to investing activities:
Due to/from affiliates............................. (11,227) 11,227 -- -- --
Purchases of property and equipment................ (230,668) (7,636) (11,000) -- (249,304)
Increases in notes receivable and accrued interest
from officers....................................
Payments received on notes receivable from
officers......................................... 30,000 -- -- -- 30,000
----------- ----------- ----------- ------- -----------
Net cash provided by (used in) investing
activities..................................... (211,895) 3,591 (11,000) -- (219,304)
----------- ----------- ----------- ------- -----------
Cash flows relating to financing activities:
Net proceeds from line of credit................... 1,164,746 -- -- -- 1,164,746
Payments on debt................................... (1,900,000) -- -- -- (1,900,000)
Increase in debt issuance costs.................... (551,668) -- -- -- (551,668)
Distribution to shareholders....................... (200,000) -- -- -- (200,000)
Payment on note receivable from stock sale......... 2,562 -- -- -- 2,562
Payment on note payable to related party........... (281,675) -- -- -- (281,675)
----------- ----------- ----------- ------- -----------
Net cash provided by financing activities........ (1,766,035) -- -- -- (1,766,035)
----------- ----------- ----------- ------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 18,885 (615,000) (1,226,000) -- (1,822,115)
Cash and cash equivalents, beginning of year......... 1,997,853 621,457 1,309,000 -- 3,928,310
----------- ----------- ----------- ------- -----------
Cash and cash equivalents, end of year............... $ 2,016,738 $ 6,457 $ 83,000 $ -- $ 2,106,195
=========== =========== =========== ======= ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 3,490,771 $ -- $ -- $ -- $ 3,490,771
=========== =========== =========== ======= ===========
Income taxes..................................... $ 17,215 $ -- $ -- $ -- $ 17,215
=========== =========== =========== ======= ===========
</TABLE>
F-23
<PAGE> 121
UNICCO SERVICE COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENT (UNAUDITED)
On October 17, 1997 the Group consummated the Series A Note Offering and
entered into the Amended Facility. The net proceeds from the Series A Note
Offering and the Amended Facility were used to repay approximately $84.8 million
of indebtedness under the Group's existing credit facilities and $19.7 million
of certain other indebtedness, fees and expenses incurred in connection with
such financing. The Group recorded a $3.0 million extraordinary charge related
to such repayments in the second quarter of fiscal 1998.
The Series A Note Offering will mature on October 15, 2007. The Notes will
not be redeemable at the issuers' option prior to October 15, 2002. Thereafter,
the Notes will be subject to redemption at any time at the option of the issuers
at redemption prices set forth in the Notes. Interest on the Notes will accrue
at the rate of 9 7/8% per annum and will be payable semi-annually in arrears on
April 15 and October 15 of each year, commencing on April 15, 1998. The payment
of principal and interest on the Notes will be subordinated in right to the
prior payment of all Senior Debt, as defined.
Upon the occurrence of a change in control, as defined, the issuers will be
obligated to make an offer to each holder of the Notes to repurchase all or any
part of such holders' Notes at an offer price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest. Restrictions under
the Notes and the Amended Facility include certain sales of assets, certain
payments of dividends and incurrence of debt, and limitations on certain mergers
and transactions with affiliates. With respect to the Amended Facility, the
Company will be required to maintain certain financial ratios and covenants
which are similar to the credit facility in existence on September 28, 1997.
As previously discussed, the accompanying combined financial statements
include the accounts of UNICCO and USC, Inc., which are owned, managed and
controlled by common shareholders. In connection with the Offering, the
shareholders of UNICCO contributed their ownership interests in USC, Inc. to
UNICCO. As a result, all of the operations of the Group will be conducted
through UNICCO and its wholly-owned subsidiaries. This transaction will be
accounted for in a manner similar to that in pooling of interests accounting
with the assets and liabilities being recorded at their historical cost due to
the exchange of stock occurring between entities under common control.
F-24
<PAGE> 122
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
UNICCO Service Company and the
Board of Directors and Shareholders of USC, Inc.
In our opinion, the accompanying combined statements of income and of cash
flows present fairly, in all material respects, the results of operations and
cash flows of the Allied Facility Services Business ("Services Business") for
the years ended June 28, 1996 and June 30, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Services Business' management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 23, 1997
F-25
<PAGE> 123
ALLIED FACILITY SERVICES BUSINESS
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
---------------------------
JUNE 28, JUNE 30,
1996 1995
------------ ------------
<S> <C> <C>
Service revenues.................................................. $389,100,108 $354,568,402
Cost of service revenues.......................................... 350,069,709 315,855,811
------------ ------------
Gross profit.................................................... 39,030,399 38,712,591
Selling, general and administrative expenses...................... 28,758,874 25,256,200
------------ ------------
Income from operations before provision for income taxes........ 10,271,525 13,456,391
Provision for income taxes........................................ 4,577,385 5,782,306
------------ ------------
Net income...................................................... $ 5,694,140 $ 7,674,085
============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE> 124
ALLIED FACILITY SERVICES BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------
JUNE 28, JUNE 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows relating to operating activities:
Net income........................................................ $ 5,694,140 $ 7,674,085
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 1,275,152 1,101,568
Deferred income taxes.......................................... (645,611) (613,517)
Changes in assets and liabilities:
Accounts receivable............................................ 923,829 (7,392,366)
Unbilled receivables........................................... (391,356) (2,239,061)
Allowance for doubtful accounts................................ 972,892 244,606
Other current assets........................................... 222,915 (62,263)
Other long term assets......................................... (225,224) (54,539)
Accounts payable............................................... (229,999) 1,781,894
Accrued expenses and other current liabilities................. (899,715) (1,187,008)
Accrued insurance.............................................. 807,817 766,416
Accrued income taxes........................................... (1,172,827) 35,524
----------- -----------
Net cash provided by operating activities................. 6,332,013 55,339
Cash flows relating to investing activities:
Purchases of property and equipment............................... (1,280,111) (1,470,734)
Cash flows relating to financing activities:
Net change in parent company investment........................... (5,262,232) 1,108,526
----------- -----------
Net decrease in cash................................................ (210,330) (306,869)
Cash, beginning of year............................................. 1,104,821 1,411,690
----------- -----------
Cash, end of year................................................... $ 894,491 $ 1,104,821
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE> 125
ALLIED FACILITY SERVICES BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Business
On June 28, 1996, UNICCO Service Company, ("UNICCO"), USC, Inc. ("USC") and
UNICCO Facility Services Canada Company ("UFSCC"), collectively "the Group",
affiliated and consolidated companies with common shareholders, acquired the
Allied Facility Services Business ("Services Business"), exclusive of the
operations in and surrounding the metropolitan New York City area (the "Excluded
Operations"), from the Services Business' parent in accordance with the Purchase
Agreement (the "Agreement") dated May 3, 1996. Under the terms of the Agreement,
the Group acquired i) certain assets, liabilities and operations of the facility
services business, exclusive of the Excluded Operations and ii) the stock of the
government and security businesses. The Services Business provides the following
services to its customers in the United States and Canada: janitorial services;
facility management services; mechanical maintenance; building security and
office services. Customers of the Services Business include corporate
headquarters, colleges and universities, financial institutions, governmental
agencies, healthcare facilities, industrial plants, tourism and convention
centers, retail malls and property management companies.
Basis of Presentation
The combined financial statements have been prepared by combining the
operating results and cash flows of the Services Business and reflecting the
allocation of certain overhead expenses (see Note 2).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Insurance Costs
Included in the accompanying combined financial statements are workers'
compensation and general liability insurance premiums and claims costs, handled
under a parent company insurance program. These amounts are actuarially
determined based upon the loss experience of the Services Business and amounted
to $12,021,000 and $10,648,000 in fiscal 1996 and 1995, respectively. These
costs are included in cost of service revenues. For the Services Business'
foreign operations, the insurance costs are incurred directly under government
directed programs.
Revenue Recognition
Service revenues are generated primarily by efforts expended on cost-plus
fixed-fee, fixed price and time and material contracts. Revenue from cost-plus
fixed-fee contracts is recognized on the basis of direct and indirect expenses
incurred plus the allocable portion of the fixed fee. Revenues on fixed price
contracts are recognized based on the monthly amount as stipulated in the
contract and the performance of services. Revenues under time and material
contracts are recorded at the contracted rates as labor efforts are expended and
other direct costs are incurred. Losses, if any, are provided for at the time
that management determines that costs, including estimated costs to complete,
exceed contract revenue.
Concentration of Credit Risk
Financial instruments which potentially expose the Services Business to
concentrations of credit risk consist primarily of trade accounts receivable. To
minimize this risk, ongoing credit evaluations of customers' financial condition
are performed, although collateral is not required. In addition, the Services
Business
F-28
<PAGE> 126
ALLIED FACILITY SERVICES BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
maintains allowances for potential uncollectible amounts and such amounts, in
the aggregate, have not exceeded management's expectations.
Depreciation and Amortization
The Services Business provides for depreciation and amortization by charges
to operations in amounts that allocate the cost of property, equipment and
leasehold improvements over their estimated useful lives using the straight-line
method as follows:
<TABLE>
<CAPTION>
ESTIMATED
DESCRIPTION USEFUL LIFE
------------------------------------------------ ------------------------------
<S> <C>
Transportation equipment 3-5 years
Machinery and equipment 5-10 years
Furniture and fixtures 5-10 years
Leasehold improvements shorter of estimated
useful life or life of lease
</TABLE>
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards No. 52,
Foreign Currency Translation, the statements of income and of cash flows of the
Services Business' Canadian operations included in the combined financial
statements have been translated at average exchange rates for the respective
reporting periods. The impact of such translation is not significant in the
years ended June 28, 1996 and June 30, 1995.
Income Taxes
Historically, the results of the Services Business' operations have been
included in the consolidated income tax returns of its parent. The provision for
income taxes included in these financial statements have been calculated as if
the Services Business were a stand-alone taxpayer.
The provisions of Statement of Financial Accounting Standards No.109 ("FAS
109") have been applied to these financial statements. FAS 109 is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future consequences of events that have been
recognized in the financial statements or tax returns. In estimating future tax
consequences, FAS 109 generally considers all expected future events other than
anticipated changes in the tax laws or rates.
2. RELATED PARTY TRANSACTIONS
Corporate Administrative Services
Historically, the Services Business was not allocated or charged its
portion of corporate expenses. For purposes of these financial statements, such
expenses have been allocated, including executive management and corporate
overhead; employee benefit administration; information systems services; risk
management/insurance administration; tax and treasury/cash management services;
litigation administration services and other corporate support functions.
All of the allocations and charges described above are included in selling,
general and administrative expenses in the accompanying combined financial
statements. Such allocations and charges are based on either a direct cost pass
through or a percentage of total costs for the services provided based on
factors such as headcount, management time or the specific level of activity
directly related to such costs (i.e., checks processed, etc.). Such allocations
and charges totaled approximately $3,943,000 and $3,365,000 for the years ended
June 28, 1996 and June 30, 1995, respectively. Management believes that the
basis of allocation is reasonable, however, such allocated expenses may differ
from those that the Services Business would incur if it operated as stand-alone
entity. Management does not believe it is practicable to quantify these expenses
as if the Services Business operated as a stand-alone entity.
F-29
<PAGE> 127
ALLIED FACILITY SERVICES BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES
Income from operations before provision for income taxes was taxed under
the following jurisdictions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------
JUNE 28, JUNE 30,
1996 1995
----------- -----------
<S> <C> <C>
Domestic........................................ $ 8,488,048 $11,801,067
Foreign......................................... 1,783,477 1,655,324
----------- -----------
$10,271,525 $13,456,391
=========== ===========
</TABLE>
Provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------
JUNE 28, JUNE 30,
1996 1995
---------- ----------
<S> <C> <C>
Current:
Federal........................................... $3,534,378 $4,543,713
State............................................. 796,878 1,024,448
Foreign........................................... 891,740 827,662
---------- ----------
5,222,996 6,395,823
---------- ----------
Deferred:
Federal........................................... (568,378) (540,124)
State............................................. (77,233) (73,393)
---------- ----------
(645,611) (613,517)
---------- ----------
$4,577,385 $5,782,306
========== ==========
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------
JUNE 28, JUNE 30,
1996 1995
----------- -----------
<S> <C> <C>
Workers compensation and general liability
insurance..................................... $ 8,520,710 $ 8,197,145
Reserves........................................ 1,853,214 1,531,168
----------- -----------
Gross deferred tax assets....................... 10,373,924 9,728,313
Valuation allowance............................. -- --
----------- -----------
Net deferred tax assets......................... $10,373,924 $ 9,728,313
=========== ===========
</TABLE>
No valuation allowance has been provided for the deferred tax assets as it
is believed that it is more likely than not that the associated tax benefits
will be realized.
The effective income tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------
JUNE 28, JUNE 30,
1996 1995
-------- --------
<S> <C> <C>
Federal statutory rate.................................. 34% 34%
State income taxes, net of federal benefit.............. 5% 5%
Foreign rate differential............................... 1% 1%
Nondeductible items..................................... 5% 3%
-------- -- -- --
-- -- --
45% 43%
========== ==========
</TABLE>
F-30
<PAGE> 128
ALLIED FACILITY SERVICES BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. GEOGRAPHIC SEGMENT AND MAJOR CUSTOMER INFORMATION
The Services Business operates solely in the facility services market
segment as more fully described in Note 1. Revenues by geographic segments
approximated the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------
JUNE 28, JUNE 30,
1996 1995
------------ ------------
<S> <C> <C>
United States............................. $364,035,000 $331,375,000
Canada.................................... 25,065,000 23,193,000
------------ ------------
$389,100,000 $354,568,000
============ ============
</TABLE>
No single customer's revenues exceeded 10% of net revenues for any of the
years presented.
5. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Services Business leases certain equipment and facilities under
noncancelable operating leases expiring on various dates through June, 2005.
Rent expense under these leases was approximately $1,511,301 and $1,032,528 for
the years ended June 28, 1996 and June 30, 1995, respectively. The approximate
future minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
------------------------------------------------------------- ----------
<S> <C>
1997......................................................... $1,371,000
1998......................................................... 906,000
1999......................................................... 506,000
2000......................................................... 363,000
2001......................................................... 357,000
Thereafter................................................... 312,000
----------
$3,815,000
==========
</TABLE>
Litigation
The Services Business was a defendant to a class action lawsuit resulting
from the release of certain contaminants into the groundwater and air from a
facility owned by one of its customers (the Customer). The Services Business
provided various maintenance services at such facility from 1982 through 1993.
In January 1995, the Services Business entered into a settlement agreement with
the Customer whereby the Services Business' parent agreed to pay a total of $10
million to the Customer on behalf of the Services Business as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, AMOUNT
----------------------------------------------------- ---------------------
<S> <C>
1995................................................. $3,000,000
1996-2002............................................ $1,000,000 each year
</TABLE>
In the ordinary course of business, the Services Business is party to
various lawsuits other than those pertaining to workers compensation and general
liability (see Note 1). In connection with the purchase of the Services Business
(see Note 6), the Group has been indemnified as to any obligation, contingent or
otherwise, relating to or arising from events occurring or accruing at the
Services Business prior to June 28, 1996, subject to a claim being asserted for
such obligation prior to June 30, 1998. Management of the Group is of the
opinion that all litigation of the Services Business currently pending or
threatened will not have a material adverse effect on the financial position or
results of operations of the Services Business.
6. SIGNIFICANT EVENT
On June 28, 1996, the parent sold the Services Business to the Group for a
total purchase price of approximately $62 million, of which $12 million was
financed by the parent.
F-31
<PAGE> 129
============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS OR THE INITIAL PURCHASER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, OTHER THAN THE SECURITIES TO
WHICH IT RELATES, OR ANY OFFER TO BUY THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION
IN SUCH JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 13
The Company................................ 19
The Exchange Offer......................... 19
Use of Proceeds............................ 28
Capitalization............................. 29
Selected Financial Data.................... 30
Unaudited Pro Forma Financial Data......... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 35
Business................................... 42
Management................................. 53
Share Ownership............................ 57
Certain Transactions....................... 58
Description of Other Indebtedness.......... 59
Description of the Exchange Notes.......... 61
Plan of Distribution....................... 89
Material United States Federal Tax
Considerations for Non-United States
Holders.................................. 90
Legal Matters.............................. 91
Experts.................................... 91
Index to Combined Financial Statements..... F-1
</TABLE>
============================================================
============================================================
[UNICCO Service Co. LOGO]
UNICCO SERVICE
COMPANY
UNICCO FINANCE CORP.
OFFER TO EXCHANGE
$105,000,000
9 7/8% SENIOR SUBORDINATED
NOTES DUE 2007, SERIES B
FOR
9 7/8% SENIOR SUBORDINATED
NOTES DUE 2007
------------------------
PRELIMINARY PROSPECTUS
------------------------
, 1998
============================================================
<PAGE> 130
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII of the Company's Declaration of Trust provides that the
Trustees are entitled to reimbursement and exoneration out of the trust estate
for any liability incurred by the Trust or Trustees, except for the Trustees'
own acts, negligence and defaults in bad faith. Article 3 of the Company's
by-laws provides for indemnification of Trustees and officers and duly appointed
agents of Company against liabilities in connection with the defense of any
action, suit or proceeding to which such persons are made a party by reason of
being a Trustee, officer or duly appointed agent of the Company, except in
relation to matters as to which such persons are adjudged liable for negligence
or misconduct in the performance of their duties.
The Company maintains directors' and officers' liability insurance which
may cover liabilities under the Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits (All exhibits have been previously filed, except as noted.)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement dated October 14, 1997 among the Issuers and BancBoston
Securities Inc.
3.1 Amended Declaration of Trust of UNICCO Service Company
3.2 Certificate of Incorporation of UNICCO Finance Corp.
3.3 By-laws of UNICCO Service Company
3.4 By-laws of UNICCO Finance Corp.
3.5 Articles of Organization of USC, Inc.
3.6 Certificate of Incorporation of UNICCO Government Services, Inc.
3.7 Certificate of Incorporation of UNICCO Security Services, Inc.
3.8 By-laws of USC, Inc.
3.9 By-laws of UNICCO Government Services, Inc.
3.10 By-laws of UNICCO Security Services, Inc.
4.1 Indenture dated October 17, 1997 among the Issuers, the Guarantors and State Street
Bank and Trust Company
4.2 Form of Notes (included in Exhibit 4.1)
4.3 Form of Guaranty (included in Exhibit 4.1)
4.4 Registration Rights Agreement dated October 17, 1997 among the Issuers, the
Guarantors and BancBoston Securities Inc.
5.1 Opinion of Posternak, Blankstein & Lund, L.L.P.
10.1 Amended and Restated Revolving Credit Agreement dated as of October 17, 1997 by and
among BankBoston, N.A. and other banks which may become parties thereto, and UNICCO
Service Company, USC, Inc., UNICCO Finance Corp., UNICCO Security Services, Inc. and
UNICCO Government Services, Inc.
10.2 Employment Agreement with John P. McGillicuddy dated June 25, 1996
10.3 Severance Agreement with Robert L. Trow dated July 31, 1997
10.4 Share Purchase Agreement with George A. Keches dated June 20, 1996 and Amendment No.
1 to Share Purchase Agreement dated February 2, 1998
10.5 Share Purchase Agreement with John C. Feitor dated July 1, 1989 and Amendment No. 1
to Share Purchase Agreement dated February 2, 1998
10.6 Amendment to Employment Agreement with John P. McGillicuddy dated January 13, 1998.
10.7 Non-Competition Agreement with John P. McGillicuddy dated January 13, 1998.
</TABLE>
II-1
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
*10.8 Note Purchase Agreement dated June 28, 1996 by and among Massachusetts Capital
Resource Company and UNICCO Service Company, USC, Inc., UNICCO Security Services,
Inc. and UNICCO Government Services, Inc., as amended by First Amendment to Note
Purchase Agreement dated October 17, 1997.
12.1 Statements re Computation of Ratios
16.1 Letter re change in certifying accountant
21.1 Subsidiaries of the Registrant
*23.1 Consent of Independent Accountants -- Price Waterhouse LLP
23.2 Consent of Independent Public Accountants -- Arthur Andersen LLP
23.3 Consent of Posternak, Blankstein & Lund, L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature pages)
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of State
Street Bank and Trust Company
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* -- Filed herewith.
(b) Financial Statement Schedules.
None
ITEM 22. UNDERTAKINGS.
Each undersigned Registrant hereby undertakes:
(a)(l) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE> 132
(b) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10 (b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-3
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this amendment to be signed on its behalf
by the undersigned, hereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on February 6, 1998.
UNICCO SERVICE COMPANY
By: /s/ GEORGE A. KECHES
----------------------------------
George A. Keches
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------- ------------------
<S> <C> <C>
* Chief Executive Officer and February 6, 1998
- ------------------------------------------ Chairman of Board of Trustees
Steven C. Kletjian (Principal Executive Officer)
/s/ GEORGE A. KECHES Vice President -- Finance and February 6, 1998
- ------------------------------------------ Administration, Chief Financial
George A. Keches Officer and Treasurer
(Principal Financial
and Accounting Officer)
* Vice Chairman of the Board of February 6, 1998
- ------------------------------------------ Trustees
Richard J. Kletjian
* Vice President and Vice Chairman February 6, 1998
- ------------------------------------------ of Board of Trustees
Robert P. Kletjian
* Trustee February 6, 1998
- ------------------------------------------
Sharkay Kletjian
</TABLE>
*By: /s/ GEORGE A. KECHES
-------------------------------------
George A. Keches, Attorney-in-Fact
II-4
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this amendment to be signed on its behalf
by the undersigned, hereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on February 6, 1998.
UNICCO FINANCE COMPANY
By: /s/ GEORGE A. KECHES
----------------------------------
George A. Keches
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- ------------------
<S> <C> <C>
* President and Director February 6, 1998
- ------------------------------------------ (Principal Executive Officer)
Steven C. Kletjian
/s/ GEORGE A. KECHES Treasurer February 6, 1998
- ------------------------------------------ (Principal Financial and
George A. Keches Accounting Officer)
*By: /s/ GEORGE A. KECHES
----------------------------
George A. Keches, Attorney-in-Fact
</TABLE>
II-5
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this amendment to be signed on its behalf
by the undersigned, hereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on February 6, 1998.
USC, INC.
By: /s/ GEORGE A. KECHES
----------------------------------
George A. Keches
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ------------------
<S> <C> <C>
* President and Director February 6, 1998
- ------------------------------------------ (Principal Executive Officer)
Steven C. Kletjian
/s/ GEORGE A. KECHES Treasurer (Principal February 6, 1998
- ------------------------------------------ Financial and Accounting
George A. Keches Officer)
* Director February 6, 1998
- ------------------------------------------
Richard J. Kletjian
* Director February 6, 1998
- ------------------------------------------
Robert P. Kletjian
* Director February 6, 1998
- ------------------------------------------
Sharkay Kletjian
*By: /s/ GEORGE A. KECHES
-------------------------------------
George A. Keches, Attorney-in-Fact
</TABLE>
II-6
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this amendment to be signed on its behalf
by the undersigned, hereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on February 6, 1998.
UNICCO GOVERNMENT SERVICES, INC.
By: /s/ GEORGE A. KECHES
-----------------------------------
George A. Keches
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<S> <C> <C>
* President and Director February 6, 1998
- ------------------------------------------ (Principal Executive Officer)
Steven C. Kletjian
/s/ GEORGE A. KECHES Treasurer (Principal Financial February 6, 1998
- ------------------------------------------ and Accounting Officer)
George A. Keches
*By: /s/ GEORGE A. KECHES
--------------------------------------
George A. Keches, Attorney-in-Fact
</TABLE>
II-7
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrant has duly caused this amendment to be signed on its behalf
by the undersigned, hereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on February 6, 1998.
UNICCO SECURITY SERVICES, INC.
By: /s/ GEORGE A. KECHES
----------------------------------
George A. Keches
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<S> <C> <C>
* President and Director February 6, 1998
- ------------------------------------------ (Principal Executive Officer)
Michael F. Dunn
/s/ GEORGE A. KECHES Principal Accounting Officer February 6, 1998
- ------------------------------------------ (Principal Financial and
George A. Keches Accounting Officer)
*By: /s/ GEORGE A. KECHES
--------------------------------
George A. Keches,
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Amended
Registration Statement on Form S-4 of UNICCO Service Company and UNICCO Finance
Corp. of our reports dated September 25, 1997, relating to the combined
financial statements of UNICCO Service Company and September 23, 1997 relating
to the combined statements of income and of cash flows of the Allied Facility
Services Business, respectively, which appear in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
Price Waterhouse L.L.P.
Boston, MA
February 5, 1998
