<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 28, 1997 COMMISSION FILE
NUMBER: 333-42407
UNICCO SERVICE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2872501
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
FOUR COPLEY PLACE, BOSTON, MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(617) -859 - 9100
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES NO _X*__
* THE REGISTRANT HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR LESS THAN 90
DAYS.
============================================================
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UNICCO SERVICE COMPANY
FORM 10-Q
QUARTER ENDED DECEMBER 28, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I. Financial Information
ITEM 1. Financial Statements:
<S> <C>
Condensed Consolidated Statements of Operations for 3
the three months and six months ended December 28,
1997 and December 29, 1996 (unaudited)
Condensed Consolidated Balance Sheets at 4
December 28, 1997 (unaudited) and June 29, 1997
Condensed Consolidated Statements of Cash Flows for the 5
six months ended December 28, 1997 and December 29, 1996
(unaudited)
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. Other Information 19
Signatures 20
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNICCO SERVICE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
DECEMBER 28, DECEMBER 29, DECEMBER 28, DECEMBER 29,
1997 1996 1997 1996
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Service revenues ...................... $137,416 $135,262 $272,132 $263,571
Cost of service revenues .............. 123,156 121,936 244,303 237,865
-------- -------- -------- --------
Gross profit .................... 14,260 13,326 27,829 25,706
Selling, general and administrative
expenses ........................ 9,004 7,516 17,609 14,081
Amortization of intangible assets ..... 1,191 1,190 2,382 2,381
-------- -------- -------- --------
Income from operations .......... 4,065 4,620 7,838 9,244
Interest income ....................... 5 1 6 2
Interest expense ...................... (2,788) (2,939) (5,795) (5,398)
-------- -------- -------- ---------
Income before provision for
income taxes and
extraordinary loss........ 1,282 1,682 2,049 3,848
Provision for income taxes ............ 1,277 1,342 1,466 2,282
-------- -------- -------- --------
Income before extraordinary loss ...... 5 340 583 1,566
Extraordinary loss, net of tax
benefit of $66 ........................ (2,958) -- (2,958) --
-------- -------- ---------- --------
Net income (loss) ..................... $ (2,953) $ 340 $ (2,375) $ 1,566
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
UNICCO SERVICE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28,
1997 JUNE 29,
(UNAUDITED) 1997
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 1,762 $ 3,928
Accounts receivable, less reserves of $2,134 and $1,561 60,834 61,890
Unbilled receivables ................................... 26,322 27,036
Prepaid insurance ...................................... 223 248
Other current assets ................................... 2,435 3,101
-------- -------
Total current assets ............................... 91,576 96,203
-------- -------
Property and equipment, at cost .......................... 12,289 11,693
Less -- accumulated depreciation and amortization ...... 8,077 7,046
-------- -------
4,212 4,647
-------- -------
Notes receivable and accrued interest from officers ...... 511 716
Intangible assets, net of amortization ................... 53,050 55,437
Other assets, net ........................................ 6,068 4,084
-------- --------
$155,417 $161,087
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft ......................................... $ 6,779 $ 11,316
Current portion of long-term debt ...................... -- 7,000
Accounts payable ....................................... 6,895 7,550
Accrued payroll and payroll-related expenses ........... 16,616 18,514
Deferred income taxes .................................. 4,097 2,823
Other accrued expenses ................................. 4,738 3,950
-------- --------
Total current liabilities .......................... 39,125 51,153
-------- --------
Long-term liabilities:
Line of credit ......................................... 457 50,587
Long-term debt, less current portion ................... 109,519 49,278
Note payable to officer ................................ -- 282
Other long-term liabilities ............................ 268 951
-------- --------
Total long-term liabilities ........................ 110,244 101,098
-------- --------
Commitments and Contingencies
Shareholders' equity:
Common shares .......................................... 378 378
Retained earnings ...................................... 6,430 9,202
Cumulative translation adjustment....................... (21) -
-------- --------
6,787 9,580
Less:
Treasury shares at cost .................................. (502) (502)
Notes receivable from stock sales ........................ (237) (242)
-------- --------
Total shareholders' equity .......................... 6,048 8,836
-------- --------
$155,417 $161,087
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
UNICCO SERVICE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
DECEMBER 28, DECEMBER 29,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows relating to operating activities:
Net income (loss) ........................................ $ (2,375) $ 1,566
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Amortization of intangible assets .................... 2,382 2,381
Amortization of debt issue costs and discount ........ 417 543
Depreciation and amortization ........................ 1,142 1,097
Loss on disposals .................................... 14 20
Extraordinary loss ................................... 3,024 --
Deferred income taxes ................................ 1,230 1,460
Changes in assets and liabilities:
Accounts receivable .................................. 924 (48,975)
Unbilled receivables ................................. 714 (24,440)
Prepaid insurance .................................... 24 1,519
Other current assets ................................. 678 (683)
Other long-term assets ............................... 60 (742)
Cash overdraft ....................................... (4,537) 5,484
Accounts payable ..................................... (634) 4,577
Accrued expenses and other current liabilities........ (1,057) 14,186
Other long-term liabilities .......................... (683) (39)
-------- -------
Net cash provided by (used in)
operating activities............................. 1,323 (42,046)
-------- -------
Cash flows relating to investing activities:
Purchases of property and equipment ...................... (737) (971)
Payments received for notes receivable from officers ..... 205 26
-------- -------
Net cash used in investing activities ................ (532) (945)
-------- -------
Cash flows relating to financing activities:
Proceeds (repayments) from line of credit ................ (50,130) 40,379
Proceeds from debt ....................................... 104,507 3,000
Payments of debt ......................................... (52,400) --
Increase in debt issuance costs .......................... (4,317) --
Distribution to shareholders ............................. (400) (400)
Payment on note payable to related party ................. (282) --
Payment on note receivable from stock sale ............... 5 --
-------- -------
Net cash provided by (used in)
financing activities .............................. (3,017) 42,979
-------- -------
Effect of exchange rate changes on
cash and cash equivalents ................................ 60 --
-------- -------
Net decrease in cash and cash equivalents .................... (2,166) (12)
Cash and cash equivalents, beginning of period ............... 3,928 157
-------- -------
Cash and cash equivalents, end of period ..................... $ 1,762 $ 145
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
UNICCO SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1997
(1) INTERIM FINANCIAL STATEMENTS
These condensed consolidated financial statements include the accounts of UNICCO
Service Company and its wholly-owned subsidiaries for the period subsequent to
October 17, 1997. Prior to that time, the financial statements were prepared on
a combined basis as all entities within the consolidated group (the Group) had
been owned, managed and controlled by common shareholders (see Note 2). All
significant intercompany transactions have been eliminated.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments consisting only of normal recurring
accruals necessary for a fair presentation of the financial position of the
Company and its subsidiaries at December 28, 1997 and the results of their
operations for the three and six month periods ended December 28, 1997 and
December 29, 1996, respectively and their cash flows for the six month periods
ended December 28, 1997 and December 29, 1996.
Certain information and footnote disclosures normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted as allowed by Regulation S-X, Article
10. The accompanying, unaudited condensed consolidated financial statements
should be read in conjunction with the Company's combined financial statements
for the year ended June 29, 1997 in its Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission and declared effective on
February 6, 1998.
(2) REFINANCING
On October 17, 1997, UNICCO Service Company ("UNICCO") and certain of its
affiliates consummated a $105 million Series A Note Offering and entered into a
$45 million Amended Credit 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 Series A Note Offering matures on October 15, 2007. The
Notes are not redeemable prior to October 15, 2002. Thereafter, the Notes are
subject to redemption at any time at the option of the issuers at redemption
prices set forth in the Notes. Interest on the Notes accrues at
6
<PAGE> 7
UNICCO SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1997
(2) REFINANCING (CONTINUED)
the rate of 9 7/8% per annum and is 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 is 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 are
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. The Covenants under
the Notes and the Amended Facility include limitations on certain sales of
assets, certain payments of dividends and incurrence of debt, certain mergers
and acquisitions and certain transactions with affiliates. With respect to the
Amended Facility, the Company is required to maintain certain financial ratios,
including defined levels of tangible net worth, earnings before interest, taxes,
depreciation and amortization, and others.
During the second quarter of fiscal 1998, the Company recorded an
extraordinary loss of $3.0 million, net of state tax benefit related to the
refinancing discussed above. A total of $2.0 million of the loss was
attributable to the write-off of unamortized deferred financing costs in
connection with the refinancing of the Company's indebtedness in October 1997. A
total of $1.0 million of the extraordinary loss was attributable to the payment
of $11 million in October 1997 to settle certain indebtedness incurred in
connection with the June 1996 Ogden acquisition. The book value of such Note in
the Company's balance sheet at the settlement date (October 17, 1997) was $10.0
million.
In connection with the Series A Note Offering, the shareholders of UNICCO
contributed their ownership interests in USC, Inc. to UNICCO. As a result, all
of the operations of the Group are conducted through UNICCO and its wholly-owned
subsidiaries. This transaction was 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. Further, in connection with the contribution of ownership
interests, USC, Inc. and its subsidiaries elected to change to the cash basis of
accounting for income tax purposes, consistent with the basis followed by UNICCO
Service Company. In connection with such change, the Company recorded deferred
tax assets and liabilities of $1.3 million and $1.3 million, respectively. In
addition, based upon a review of all available evidence, management recorded a
valuation allowance associated with the deferred tax assets of $.9 million.
(3) CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
The Notes are guaranteed, fully, unconditionally and jointly and severally, by
each of UNICCO's directly and indirectly wholly-owned domestic subsidiaries.
UNICCO's wholly-owned Canadian subsidiary ("UFSCC") is not a guarantor of this
debt. Separate financial statements of the guarantor subsidiaries and of UNICCO
Finance Corp., a wholly-owned subsidiary which is the co-issuer of the Notes,
are not presented because management has determined that they would not be
material to investors. However, condensed consolidating financial information as
of June 29, 1997 and December 28, 1997 and the three and six month periods ended
December 28 1997 are presented. The following presents condensed combining
consolidating 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 Company on a consolidated basis.
7
<PAGE> 8
UNICCO SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - (IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 28, 1997 (UNAUDITED)
-------------------------------------------------------
NONGUARANTOR COMBINED
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------ ---------- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Service revenues ....................... $ 104,396 $ 23,930 $ 9,090 $ -- $ 137,416
Cost of service revenues ............... 92,379 22,451 8,326 -- 123,156
--------- -------- ------- ---- ---------
Gross profit ......................... 12,017 1,479 764 -- 14,260
Selling, general and administrative
expenses ........................... 8,033 494 477 -- 9,004
Amortization of intangible assets ...... 911 247 33 -- 1,191
--------- -------- ------- ---- ---------
Income from operations ............... 3,073 738 254 -- 4,065
Interest income ........................ 5 -- -- -- 5
Interest expense ....................... (2,037) (640) (111) -- (2,788)
--------- -------- ------- ---- ---------
Income before provision for
income taxes ....................... 1,041 98 143 -- 1,282
Provision for income taxes ............. 181 970 126 -- 1,277
--------- -------- ------- ---- ---------
Income (Loss) before equity in net
earnings of subsidiaries and
extraordinary items................... 860 (872) 17 -- 5
Equity in net earnings
of subsidiaries ...................... (855) 3 -- 852 --
--------- -------- ------- ---- ---------
Income (Loss) before extraordinary
loss ................................. 5 (869) 17 852 5
Extraordinary loss, net of tax benefit.. (2,958) -- -- -- (2,958)
--------- -------- ------- ----- ---------
Net income (loss) ...................... $ (2,953) $ (869) $ 17 $ 852 $ (2,953)
========= ======== ======= ==== =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 28, 1997 (UNAUDITED)
-----------------------------------------------------
NONGUARANTOR COMBINED
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------ ---------- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Service revenues ............................ $ 207,344 $ 47,931 $ 16,857 $ -- $ 272,132
Cost of service revenues .................... 184,347 44,712 15,244 -- 244,303
--------- -------- -------- ---- ---------
Gross profit .............................. 22,997 3,219 1,613 -- 27,829
Selling, general and
administrative expenses .................. 15,509 1,038 1,062 -- 17,609
Amortization of intangible assets ........... 1,823 493 66 -- 2,382
--------- -------- -------- ---- ---------
Income from operations .................... 5,665 1,688 485 -- 7,838
Interest income ............................. 6 -- -- -- 6
Interest expense ............................ (4,201) (1,371) (223) -- (5,795)
--------- -------- -------- ---- ---------
Income before provision for income taxes .. 1,470 317 262 -- 2,049
Provision for income taxes .................. 221 1,002 243 -- 1,466
--------- -------- -------- ---- ---------
Income (Loss) before equity in net earnings
of subsidiaries and extraordinary items ... 1,249 (685) 19 -- 583
Equity in net earnings of subsidiaries ...... (666) 4 -- 662 --
--------- -------- -------- ---- ---------
Income (Loss) before extraordinary loss ..... 583 (681) 19 662 583
Extraordinary loss, net of tax benefit ...... (2,958) -- -- -- (2,958)
--------- -------- -------- ---- ---------
Net income (loss) ........................... $ (2,375) $ (681) $ 19 $ 662 $ (2,375)
========= ======== ======== ===== =========
</TABLE>
8
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UNICCO SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 29, 1997
-------------
NONGUARANTOR COMBINED
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------ ---------- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ..................... $ 1,998 $ 621 $ 1,309 $ -- $ 3,928
Accounts receivable, less reserve of
approximately $1,561 ........................ 40,510 17,916 3,464 -- 61,890
Unbilled receivables .......................... 22,710 4,326 -- -- 27,036
Intercompany receivable (payable) ............. 19,520 (17,420) (2,100) -- --
Prepaid insurance ............................. 237 11 -- -- 248
Other current assets .......................... 2,634 427 40 -- 3,101
-------- -------- -------- --------- --------
Total current assets ................. 87,609 5,881 2,713 -- 96,203
-------- -------- -------- --------- --------
Property and equipment, at cost ............... 10,675 408 610 -- 11,693
Less -accumulated depreciation and amortization 6,784 134 128 -- 7,046
-------- -------- -------- --------- --------
3,891 274 482 -- 4,647
-------- -------- -------- --------- --------
Due from (to) affiliates ...................... 14,459 (570) -- (13,889) --
Investment in subsidiary ...................... 2,054 546 -- (2,600) --
Notes receivable and accrued interest from
officers, net of current portion .............. 716 -- -- -- 716
Intangible assets, net of amortization ........ 40,881 12,645 1,911 -- 55,437
Other assets, net ............................. 4,056 7 21 -- 4,084
-------- -------- -------- --------- --------
62,166 12,628 1,932 (16,489) 60,237
-------- -------- -------- --------- --------
$153,666 $ 18,783 $ 5,127 $ (16,489) $161,087
======== ======== ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, 1997
NONGUARANTOR COMBINED
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------ ---------- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft .................................. $ 10,840 $ 476 $ -- $ -- $ 11,316
Current portion of long-term debt ............... 7,000 -- -- -- 7,000
Accounts payable ................................ 5,178 1,585 787 -- 7,550
Accrued payroll and payroll-related expenses .... 14,507 2,379 1,628 -- 18,514
Deferred income taxes ........................... 2,823 -- -- -- 2,823
Other accrued expenses .......................... 3,593 240 117 -- 3,950
--------- ------- -------- --------- ---------
Total current liabilities .............. 43,941 4,680 2,532 -- 51,153
--------- ------- -------- --------- ---------
Long-term liabilities:
Line of credit .................................. 50,587 -- -- -- 50,587
Long-term debt, less current portion ............ 49,278 -- -- -- 49,278
Note payable to officer ......................... 282 -- -- -- 282
Other long-term liabilities ..................... 951 -- -- -- 951
------- ------- -------- --------- ---------
Total long-term liabilities ............ 101,098 -- -- -- 101,098
--------- ------- -------- --------- ---------
Commitments and Contingencies
Shareholders' equity ............................ 9,371 14,103 2,595 (16,489) 9,580
--------- ------- -------- --------- ---------
Less treasury shares at cost .................... (502) -- -- -- (502)
Less notes receivable from
stock sales ................................... (242) -- -- -- (242)
--------- ------- -------- --------- ---------
Total shareholders' equity ............. 8,627 14,103 2,595 (16,489) 8,836
--------- ------- -------- --------- ---------
$ 153,666 $18,783 $ 5,127 $ (16,489) $ 161,087
========= ======= ======== ========= =========
</TABLE>
9
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UNICCO SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, 1997 (UNAUDITED)
----------------------------
NONGUARANTOR COMBINED
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------ ---------- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ..................... $ 1,740 $ 6 $ 16 $ -- $ 1,762
Accounts receivable, less reserve of
approximately $2,134 ........................ 42,533 14,254 4,047 -- 60,834
Unbilled receivables .......................... 20,999 5,323 -- -- 26,322
Intercompany receivable (payable) ............. 14,988 (12,872) (2,116) -- --
Prepaid insurance ............................. 212 11 -- -- 223
Other current assets .......................... 2,162 167 106 -- 2,435
--------- -------- ------- --------- ---------
Total current assets ................. 82,634 6,889 2,053 -- 91,576
--------- -------- ------- --------- ---------
Property and equipment, at cost ............... 11,075 567 647 -- 12,289
Less -accumulated depreciation and amortization 7,685 216 176 -- 8,077
--------- -------- ------- --------- ---------
3,390 351 471 -- 4,212
--------- -------- ------- --------- ---------
Due from (to) affiliates ...................... 14,484 (595) -- (13,889) --
Investment in subsidiary ...................... 1,388 550 -- (1,938) --
Notes receivable and accrued interest from
officers, net of amortization ............... 511 -- -- -- 511
Intangible assets, net of amortization ........ 39,048 12,151 1,851 -- 53,050
Other assets, net ............................. 5,598 450 20 -- 6,068
--------- -------- ------- --------- ---------
61,029 12,556 1,871 (15,827) 59,629
--------- -------- ------- --------- ---------
$ 147,053 $ 19,796 $ 4,395 $ (15,827) $ 155,417
========= ======== ======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 28, 1997 (UNAUDITED)
----------------------------
NONGUARANTOR COMBINED
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------ ---------- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft ............................. $ 5,908 $ 871 $ -- $ -- $ 6,779
Accounts payable ........................... 4,995 1,453 447 -- 6,895
Accrued payroll and payroll-related
expenses.................................. 13,018 2,293 1,305 -- 16,616
Deferred income taxes ...................... 2,801 1,296 -- -- 4,097
Other accrued expenses ..................... 4,231 460 47 -- 4,738
--------- -------- -------- --------- ---------
Total current liabilities ......... 30,953 6,373 1,799 -- 39,125
--------- -------- -------- --------- ---------
Long-term liabilities:
Line of credit ............................. 457 -- -- -- 457
Long-term debt, less current portion ....... 109,519 -- -- -- 109,519
Other long-term liabilities ................ 268 -- -- -- 268
--------- -------- -------- --------- ---------
Total long-term liabilities ....... 110,244 -- -- -- 110,244
--------- -------- -------- --------- ---------
Commitments and Contingencies
Shareholders' equity ....................... 6,595 13,423 2,596 (15,827) 6,787
--------- -------- -------- --------- ---------
Less treasury shares at cost ............... (502) -- -- -- (502)
Less notes receivable from stock sales ..... (237) -- -- -- (237)
--------- -------- -------- --------- ---------
Total shareholders' equity ........ 5,856 13,423 2,596 (15,827) 6,048
--------- -------- -------- --------- ---------
$ 147,053 $ 19,796 $ 4,395 $ (15,827) $ 155,417
========= ======== ======== ========= =========
</TABLE>
10
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UNICCO SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 28, 1997 (UNAUDITED)
---------------------------------------------
NONGUARANTOR COMBINED
GUARANTOR SUBSIDIARY- CONSOLIDATED
UNICCO AFFILIATES UFSCC ELIMINATIONS TOTAL
------ ---------- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income (loss) ............................... (2,375) (681) 19 662 (2,375)
Net earnings from equity investment ............. 666 (4) -- 662 --
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization of intangible assets ............ 1,822 493 67 -- 2,382
Amortization of debt issue costs and
discount ..................................... 417 -- -- -- 417
Depreciation and amortization ................ 1,011 77 54 -- 1,142
Loss on disposals ............................ (2) 16 -- -- 14
Extraordinary loss ........................... 3,024 -- -- -- 3,024
Deferred income taxes ........................ (67) 1,297 -- -- 1,230
Changes in assets and liabilities:
Accounts receivable ........................ (2,023) 3,663 (716) -- 924
Unbilled receivables ....................... 1,711 (997) -- -- 714
Prepaid insurance .......................... 24 -- -- -- 24
Intercompany receivable (payable) .......... 4,551 (4,560) 89 (80) --
Other current assets ....................... 486 260 (68) -- 678
Other long-term assets ..................... 503 (443) 0 -- 60
Cash overdraft ............................. (4,932) 395 -- -- (4,537)
Accounts payable ........................... (183) (132) (319) -- (634)
Accrued expenses and other
current liabilities ...................... (852) 135 (340) -- (1,057)
Other long-term liabilities ................ (683) -- -- -- (683)
-------- ------ ------ --- --------
Net cash provided by (used in)
operating activities ....................... 3,098 (481) (1,214) (80) 1,323
-------- ------ ------ --- --------
Cash relating to investing activities:
Due to/from affiliates .......................... (25) 25 -- -- --
Purchases of property and equipment ............. (519) (159) (59) -- (737)
Payments received for notes receivable
from officers ................................ 205 -- -- -- 205
-------- ------ ------ --- --------
Net cash used in investing activities ........ (339) (134) (59) -- (532)
-------- ------ ------ --- --------
Cash flows relating to financing activities:
Net repayment of line of credit ................. (50,130) -- -- -- (50,130)
Proceeds from debt .............................. 104,507 -- -- -- 104,507
Payments of debt ................................ (52,400) -- -- -- (52,400)
Increase in debt issuance costs ................. (4,317) -- -- -- (4,317)
Distribution to shareholders .................... (400) -- -- -- (400)
Payment on note payable to related party ........ (282) -- -- -- (282)
Payment on note receivable from stock sale ...... 5 -- -- -- 5
-------- ------ ------ --- --------
Net cash provided by financing activities .... (3,017) -- -- -- (3,017)
-------- ------ ------ --- --------
Effect of exchange rate changes on cash and
cash equivalents ............................... -- -- (20) 80 60
-------- ------ ------ --- --------
Net decrease in cash and cash equivalents .......... (258) (615) (1,293) -- (2,166)
Cash and cash equivalents, beginning of period ..... 1,998 621 1,309 -- 3,928
-------- ------ ------ --- --------
Cash and cash equivalents, end of period ........... 1,740 6 16 -- 1,762
======== ====== ====== === ========
</TABLE>
11
<PAGE> 12
UNICCO SERVICE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) LITIGATION
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.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTH PERIODS ENDED DECEMBER 28, 1997 AND
DECEMBER 29, 1996
Revenues. Revenues for the second quarter of fiscal 1998, which ended
December 28, 1997, were $137.4 million compared to $135.2 million for the second
quarter of fiscal 1997, which ended December 29, 1996, an increase of $2.2
million or 1.6%. This increase is primarily attributable to revenue increases in
the Company's Commercial Strategic Business Unit ("SBU") of $4.9 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 $1.7 million between the comparable
quarters, primarily as a result of a new contract which commenced in the last
quarter of fiscal 1997. Revenues in the Company's Industrial SBU decreased $3.0
million. Revenues in the Company's Education/Government SBU decreased $.9
million. Revenues in the Company's Security SBU decreased $.5 million between
the comparable periods.
Cost of Revenues. Cost of revenues for the second quarter of fiscal 1998
were $123.2 million, or 89.7% of revenues, compared to $121.7 million, or 89.9%
of revenues, for the second 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 56.9% in the 1998 period,
compared to 58.5% in the comparable quarter in fiscal 1997. This decrease is
primarily attributable to tighter management of labor costs.
Gross Profit. As a result of the foregoing, gross profit for the second
quarter of fiscal 1998 was $14.2 million, or 10.3% of revenues, compared to
$13.6 million, or 10.0% of revenues, for the comparable period in fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the second quarter of fiscal 1998 were $9.0 million,
or 6.6% of revenues, compared to $7.8 million, or 5.7% of revenues, for the
second quarter of fiscal 1997. The increase of $1.2 million was primarily
attributable to incremental costs associated with the assimilation of the
facility services business acquired from the Ogden Corporation in June 1996. The
majority of these incremental costs were incurred after the second quarter of
fiscal 1997. Salaries and wages increased $1.1 million as a result of the
additional headcount required to support the acquired Ogden business as well as
the impact of annual salary adjustments effective July 1, 1997. Additionally,
office and occupancy costs increased $.4 million between the comparable periods,
primarily as a result of increased computer lease costs, depreciation expense,
temporary help, relocation expense and recruiting expenses. Professional fees,
primarily consisting of external programming related costs, decreased $.3
million between the comparable periods as a result of the completion of the
systems integration of the acquired Ogden business during the last quarter of
fiscal 1997.
13
<PAGE> 14
Amortization of Intangible Assets. Amortization expense was $1.2 million in
each of the second quarters of fiscal 1998 and fiscal 1997.
Income from Operations. As a result of the foregoing, income from
operations for the second quarter of fiscal 1998 was $4.1 million, or 2.9% of
revenues, compared to $4.6 million, or 3.4% of revenues for the second quarter
of fiscal 1997.
EBITDA. As a result of the foregoing, EBITDA for the second quarter of
fiscal 1998 was $5.8 million, or 4.2% of revenues, compared to $6.4 million, or
4.7% of revenues, for the second 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.
Interest Expense. Interest expense for the second quarter of fiscal 1998
was $2.8 million, or 2.0% of revenues, compared to $2.9 million, or 2.2% of
revenues, for the second quarter of fiscal 1997. The decrease resulted from
lower borrowings under the Company's revolving credit facilities during the
second quarter of fiscal 1998.
Income Taxes. USC, Inc. and its subsidiaries elected to change to the cash
basis of accounting for income tax purposes, consistent with the basis followed
by UNICCO Service Company. As a result, the Company recorded deferred tax assets
and liabilities of $1.3 million and $1.3 million, respectively. In addition,
based upon a review of all available evidence, management recorded a valuation
allowance associated with the deferred tax assets of $.9 million.
Extraordinary Loss. During the second quarter of fiscal 1998, the Company
recorded an extraordinary loss of $3.0 million, net of state tax benefit. A
total of $2.0 million of the loss was attributable to the write off of
unamortized deferred financing costs in connection with the refinancing of the
Company's indebtedness in October 1997 (see Note 2 to the accompanying Condensed
Consolidated Financial Statements). A total of $1.0 million of the extraordinary
loss was attributable to the payment of $11 million in October 1997 to settle
certain indebtedness incurred in connection with the June 1996 Ogden
acquisition. The book value of such Note in the Company's balance sheet at the
settlement date (October 17, 1997) was $10.0 million.
14
<PAGE> 15
Net Income (Loss). As a result of the foregoing, the net loss for the
second quarter of fiscal 1998 was ($3.0) million, or (2.1)% of revenues,
compared to income of $.9 million, or 7% of revenues, for the second quarter of
fiscal 1997.
15
<PAGE> 16
COMPARISON OF SIX MONTH PERIODS ENDED DECEMBER 28, 1997 AND
DECEMBER 29, 1996
Revenues. Revenues for the six months ended December 1997 were $272.1
million compared to $263.6 million for the comparable period, an increase of
$8.5 million, or 3.2%. This increase is primarily attributable to an increase of
$10.7 million of revenues in the Company's Commercial SBU. 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 $3.2 million between the comparable
periods, primarily as a result of a new contract which commenced in the last
quarter of fiscal 1997. Revenue in the Company's Industrial SBU decreased $3.2
million. Revenues in the Company's Education/Government SBU decreased $1.1
million. Revenues in the Company's Security SBU decreased $1.1 million. This
decrease was primarily due to $524,000 of revenues associated with
non-recurring services performed for a customer in the first quarter of fiscal
1997.
Cost of Revenues. Cost of revenues for the six months ended December 1997
were $244.4 million, or 89.8% of revenues, compared to $237.9 million, or 90.2%
of revenues, for the comparable period. The decrease is primarily due to a
decrease in direct labor as a percentage of revenues. Direct labor as a
percentage of revenues was 57.2% in the 1998 period, compared to 58.7% in the
comparable 1997 period. This decrease is primarily attributable to tighter
management of direct labor costs.
Gross Profit. As a result of the foregoing, gross profit for the six months
ended December 1997 was $27.8 million, or 10.2% of revenues, compared to $25.7
million, or 9.8% of revenues, for the comparable period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended December 1997 were $17.6
million, or 6.5% of revenues, compared to $14.1 million, or 5.3% of revenues for
the comparable period. The increase of $3.5 million was primarily attributable
to incremental costs associated with the Ogden acquisition. The majority of
these incremental costs were incurred after the second quarter of Fiscal 1997.
Salaries and wages increased $1.9 million as a result of the additional
headcount required to support the acquired Ogden business as well as the impact
of annual salary adjustments effective July 1, 1997. Additionally, office and
occupancy costs increased $1.1 million between the comparable periods, primarily
as a result of increased computer lease costs, depreciation expense, temporary
help, relocation expense and recruiting expenses.
Amortization of Intangible Assets. Amortization expense was $2.4 million in
each of the six month periods of fiscal 1998 and 1997.
Income from Operations. As a result of the foregoing, income from
operations for the six months ended December 1997 was $7.8 million, or 2.9% of
revenues, compared to $9.2 million, or 3.5% of revenues, for the comparable
period.
EBITDA. As a result of the foregoing, EBITDA for the six months ended
December 1997 was $11.4 million, or 4.2% of revenues, compared to $12.7 million,
or 4.8% of revenues, for the six months ended December 1996.
16
<PAGE> 17
Interest Expense. Interest expense for the six months ended December 1997
was $5.8 million, or 2.1% of revenues, compared to $5.4 million, or 2.1% of
revenues, for the six months ended December 1996. The increase resulted from
higher borrowings under the Company's revolving credit facilities during the
first quarter of fiscal 1998 as compared to the first quarter of Fiscal 1997.
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.
Income Taxes. USC, Inc. and its subsidiaries elected to change to the cash
basis of accounting for income tax purposes, consistent with the basis followed
by UNICCO Service Company. As a result, the Company recorded deferred tax assets
and liabilities of $1.3 million and $1.3 million, respectively. In addition,
based upon a review of all available evidence, management recorded a valuation
allowance associated with the deferred tax assets of $.9 million.
Extraordinary Loss. See "Comparison of Three Month Periods Ended December
28, 1997 and December 29, 1996"
Net Income (Loss). As a result of the foregoing, net loss for the six
months ended December 1997 was $(2.4) million, or (.9)% of revenue, compared to
$2.2 million or .8% of revenue, for the comparable period.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended December 28, 1997, the Company's cash decreased by
$2.2 million. A total of $0.8 million of cash was provided by operating
activities and investing activities which consisted of $1.3 million of net cash
provided by operating activities and $.5 million used for investing activities.
Net cash used for financing activities during the period was $3.0 million. In
October 1997, the Company consummated an offering of $105 million of 9 7/8%.
Senior Subordinated Notes Due 2007. Proceeds from the offering, net of bond
discount and expenses, were $101.2 million. Proceeds were used to repay
long-term debt of $52.4 million and outstanding borrowings under the Company's
prior revolving credit facilities of $48.8 million.
For the six months ended December 1996, $43.0 million of cash was used in
operating and investing activities which consisted of $42.0 million of cash used
in operating activities and $1.0 million used in investing activities. The cash
used in operating activities was primarily to fund the working capital
requirements related to the Ogden acquisition, which occurred on June 28, 1996.
Net cash provided by financing activities during the period was $42.9 million,
which primarily represented borrowings under the Company's $48 million line of
credit reserve.
Capital expenditures were $.7 million and $1.0 million, respectively, for
the six month periods ended December 1997 and l996. 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.
17
<PAGE> 18
The Company is party to an amended revolving credit facility (the "Credit
Facility") under which the Company may borrow up to $45.0 million for working
capital and general corporate purposes, subject to certain conditions. The
Credit Facility, the Indenture governing the Company's Senior Subordinated Notes
due 2007 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. 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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NOT APPLICABLE.
GENERAL
Certain statements contained in this report are forward-looking and
represent the Company's expectations or beliefs concerning future events. The
Company cautions that these and similar statements involve risks, uncertainties
and assumptions relating to the operations and results of operations of the
Company, competitive factors and pricing pressures, assimilation of past or
future acquisitions, general economic conditions, and the acts of third parties,
as well as other factors which are detailed, from time to time, in the Company's
Registration Statements and periodic reports filed with the Securities and
Exchange Commission.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. 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.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Effective March 12, 1998, the Company exchanged $105 million aggregate
principal amount of its Series B Senior Subordinated Notes due 2007
for an equal principal amount of Series A Senior Subordinated Notes
due 2007. The Series B Notes were issued on the same terms as the
Series A Notes, except that the Series B Notes were registered under
the Securities Act of 1933 as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits: 4.1 First Supplemental Indenture and Guarantee
27.1 Financial Data Schedule
b. Reports on Form 8-K:
None.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNICCO SERVICE COMPANY
------------------------------------------------
Registrant
March 25, 1998 By: /s/ Steven C. Kletjian
--------------------------------------------
Steven C. Kletjian, President,
Chief Executive Officer
(Principal Executive Officer)
March 25, 1998 By: /s/ George A. Keches
--------------------------------------------
George A. Keches, Vice President -
Finance, Chief Financial Officer, Treasurer
(Principal Financial and Accounting Officer)
20
<PAGE> 1
Exhibit 4.1
FIRST SUPPLEMENTAL INDENTURE AND GUARANTEE
FIRST SUPPLEMENTAL INDENTURE AND GUARANTEE (this "Supplemental
Indenture"), dated as of February 27, 1998, among American Building Services,
Inc., UNICCO Service of N.J., Inc. (American Building Services, Inc. and UNICCO
Service of N.J., Inc. shall collectively be referred to herein as the
"Guaranteeing Restricted Subsidiaries"), each a Domestic Restricted Subsidiary
of UNICCO Service Company, a Massachusetts business trust (the "Company"),
UNICCO Finance Corp., a Delaware corporation ("Finance" and, together with the
Company, the "Issuers"), the other Guarantors (as defined in the Indenture
referred to herein) and State Street Bank and Trust Company, as trustee under
the indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Issuers have heretofore executed and delivered to the
Trustee an Indenture (the "Indenture"), dated as of October 17, 1997 providing
for the issuance of an aggregate principal amount of up to $150.0 million of 9
7/8% Senior Subordinated Notes due 2007 (the "Notes");
WHEREAS, the Guaranteeing Restricted Subsidiaries have been acquired or
created by the Company as provided in Sections 4.18 and 11.04 of the Indenture;
WHEREAS, the Indenture provides that under certain circumstances each
Guaranteeing Restricted Subsidiary shall execute and deliver to the Trustee a
supplemental indenture pursuant to which such Guaranteeing Restricted Subsidiary
shall unconditionally guarantee all of the Issuers' Obligations under the Notes
and the Indenture on the terms and conditions set forth herein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Restricted Subsidiaries and the Trustee mutually covenant and agree
for the equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Restricted Subsidiaries
hereby agree as follows:
<PAGE> 2
(a) Along with all the Guarantors named in the Indenture, to
jointly and severally Guarantee to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity
and enforceability of the Indenture, the Notes or the
obligations of the Issuers hereunder or thereunder, that:
(i) the principal of and premium, interest and Liquidated
Damages, if any, on the Notes will be promptly paid
in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest
on the overdue principal of, premium, interest and
Liquidated Damages, if any, on the Notes, if any, if
lawful, and all other obligations of the Issuers to
the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or
renewal of any Notes or any of such other
Obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity,
by acceleration or otherwise. Failing payment when
due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Guarantors shall
be jointly and severally obligated to pay the same
immediately.
(b) The obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceability of the Notes or
the Indenture, the absence of any action to enforce the same,
any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any
judgment against either of the Issuers, any action to enforce
the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a
Guarantor.
(c) The following is hereby waived: diligence, presentment, demand
of payment, filing of claims with a court in the event of
insolvency or bankruptcy of either of the Issuers, any right
to require a proceeding first against the Issuers, protest,
notice and all demands whatsoever.
(d) This Note Guarantee shall not be discharged except by complete
performance of the Obligations contained in the Notes and the
Indenture.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Issuers, the Guarantors, or any
custodian, trustee, liquidator or other similar official
acting in relation to either the Issuers or the Guarantors,
any amount paid by either to the Trustee or such Holder, this
Note
2
<PAGE> 3
Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect.
(f) The Guaranteeing Restricted Subsidiaries shall not be entitled
to any right of subrogation in relation to the Holders in
respect of any obligations guaranteed hereby until payment in
full of all Obligations guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided
in Article 6 of the Indenture for the purposes of this Note
Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such Obligations as provided in
Article 6 of the Indenture, such Obligations (whether or not
due and payable) shall forthwith become due and payable by the
Guarantors for the purpose of this Note Guarantee.
(h) The Guarantors shall have the right to seek contribution from
any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Note
Guarantee.
(i) Pursuant to Section 11.03 of the Indenture, after giving
effect to any maximum amount and any other contingent and
fixed liabilities that are relevant under any applicable
Bankruptcy or fraudulent conveyance laws, and after giving
effect to any collections from, rights to receive contribution
from or payments made by or on behalf of any other Guarantor
in respect of the Obligations of such other Guarantor under
Article 11 of the Indenture the Obligations of the Guarantors
shall be limited to the maximum amount as shall result in the
Obligations of such Guarantor under its Note Guarantee not
constituting a fraudulent transfer or conveyance.
3. EXECUTION AND DELIVERY. Each Guaranteeing Restricted Subsidiary
agrees that the Note Guarantees shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such Note
Guarantee.
4. GUARANTEEING RESTRICTED SUBSIDIARIES MAY CONSOLIDATE, ETC. ON
CERTAIN TERMS.
(a) The Guaranteeing Restricted Subsidiaries may not consolidate
with or merge with or into (whether or not such Guarantor is
the surviving Person) another corporation, Person or entity
whether or not affiliated with such Guarantor unless:
3
<PAGE> 4
(i) subject to Section 11.05 of the Indenture, the Person
formed by or surviving any such consolidation or
merger (if other than a Guarantor or the Issuers)
unconditionally assumes all the obligations of such
Guarantor, pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Note
Guarantee on the terms set forth herein or therein;
and
(ii) immediately after giving effect to such transaction,
no Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee
and satisfactory in form to the Trustee, of the Note Guarantee
endorsed upon the Notes and the due and punctual performance
of all of the covenants and conditions of the Indenture to be
performed by the Guarantor, such successor corporation shall
succeed to and be substituted for the Guarantor with the same
effect as if it had been named herein as a Guarantor. Such
successor corporation thereupon may cause to be signed any or
all of the Note Guarantees to be endorsed upon all of the
Notes issuable hereunder which theretofore shall not have been
signed by the Issuers and delivered to the Trustee. All the
Note Guarantees so issued shall in all respects have the same
legal rank and benefit under the Indenture as the Note
Guarantees theretofore and thereafter issued in accordance
with the terms of the Indenture as though all of such Note
Guarantees had been issued at the date of the execution
hereof.
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained
in the Indenture or in any of the Notes shall prevent any
consolidation or merger of a Guarantor with or into the
Issuers or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or
substantially as an entirety to the Issuers or another
Guarantor.
5. RELEASES.
(a) In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the
capital stock of any Guarantor (other than to the Company or
another Guarantor), or in the case the Company designates a
Domestic Restricted Subsidiary to be an Unrestricted
Subsidiary in accordance with the Indenture, then such
Guarantor (in the event of a sale
4
<PAGE> 5
or other disposition, by way of merger, consolidation or
otherwise, of all of the capital stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale
or other disposition of all or substantially all of the assets
of such Guarantor) shall be released and relieved of any
obligations under its Note Guarantee; provided that the Net
Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture,
including without limitation Section 4.10 of the Indenture.
Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such
sale or other disposition was made by the Company in
accordance with the provisions of the Indenture, including
without limitation Section 4.10 of the Indenture, the Trustee
shall execute any documents reasonably required in order to
evidence the release of any Guarantor from its obligations
under its Note Guarantee.
(b) Any Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal
of and interest on the Notes and for the other obligations of
any Guarantor under the Indenture as provided in Article 10 of
the Indenture.
6. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, trustee, incorporator, shareholder or agent of the
Guaranteeing Restricted Subsidiaries, as such, shall have any liability for any
obligations of the Issuers or any Guaranteeing Restricted Subsidiary under the
Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of the Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the 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.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENT INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
8. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
5
<PAGE> 6
10. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Restricted Subsidiaries and the
Issuers.
SIGNATURES
Dated as of the date first set forth above.
AMERICAN BUILDING SERVICES, INC.
By: /s/ George A. Keches
--------------------------
Name: George A. Keches
Title: Treasurer
UNICCO SERVICE OF N.J., INC.
By: /s/ George A. Keches
--------------------------
Name: George A. Keches
Title: Treasurer
UNICCO SERVICE COMPANY
By: /s/ George A. Keches
--------------------------
Name: George A. Keches
Title: Vice President - Finance and
Administration
UNICCO FINANCE CORP.
By: /s/ George A. Keches
--------------------------
Name: George A. Keches
Title: Treasurer
6
<PAGE> 7
USC, INC.
By: /s/ George A. Keches
--------------------------
Name: George A. Keches
Title: Treasurer
UNICCO GOVERNMENT SERVICES,
INC.
By: /s/ George A. Keches
--------------------------
Name: George A. Keches
Title: Treasurer
UNICCO SECURITY SERVICES, INC.
By: /s/ George A. Keches
--------------------------
Name: George A. Keches
Title: Assistant Treasurer
STATE STREET BANK AND TRUST
COMPANY, AS TRUSTEE
By: /s/ Andrew M. Sinasky
-------------------------------
Name: Andrew M. Sinasky
Title: Assistant Vice President
7
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<S> <C>
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<FISCAL-YEAR-END> JUN-28-1998
<PERIOD-END> DEC-28-1997
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0
0
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