<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 27, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-42407
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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 NUMBER)
FOUR COPLEY PLACE 02116
BOSTON, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 859-9100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
NOT APPLICABLE
(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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DOCUMENTS INCORPORATED BY REFERENCE
NOT APPLICABLE
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<PAGE> 2
UNICCO SERVICE COMPANY
FORM 10-K
FISCAL YEAR ENDED JUNE 27, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PART I PAGE
<S> <C> <C>
1. Business.............................................................................. 3
2. Properties............................................................................ 7
3. Legal Proceedings..................................................................... 7
4. Submission of Matters to a Vote of Security Holders................................... 7
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters................. 7
6. Selected Financial Data............................................................... 8
7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9
7A. Quantitative and Qualitative Disclosures About Market Risk............................ 16
8. Financial Statements and Supplementary Data........................................... 18
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 42
PART III
10. Directors and Executive Officers of the Registrant.................................... 42
11. Executive Compensation................................................................ 45
12. Security Ownership of Certain Beneficial Owners and Management........................ 46
13. Certain Relationships and Related Transactions........................................ 46
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 47
Signatures............................................................................ 50
</TABLE>
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report, particularly in Items 1, 2, 3,
7 and 7A hereof, are forward-looking and represent the Company's expectations or
beliefs concerning future events. Without limiting the foregoing, the words
"believes," "anticipates," "expects," "will" and similar expressions are
intended to identify forward-looking statements. The Company cautions that these
and similar statements are subject to risks, uncertainties and assumptions that
could cause actual results or events to differ materially from those described
in such forward-looking statements. Factors which could cause such differences
include the Company's degree of leverage, restrictions in the Company's debt
agreements, dependence on key personnel, the short-term nature of the Company's
contracts, potential environmental or other liabilities, competitive factors and
pricing pressures, wage and insurance rates, assimilation of past or future
acquisitions, general economic conditions and acts of third parties, as well as
other factors which are described in the Company's Registration Statement on
Form S-4 (File No. 333-42407) and from time to time in the Company's periodic
reports filed with the Securities and Exchange Commission.
PART I
ITEM 1. BUSINESS
BACKGROUND
UNICCO Service Company ("UNICCO" and, together with its subsidiaries on a
consolidated basis, the "Company") provides 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 cost-effectively outsourced.
Services offered by the Company include industrial and mechanical engineering,
plant operations, custodial and maintenance services and administrative
services. 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 and certain state income tax purposes.
In June 1996, the Company consummated the strategic acquisition (the "Ogden
Acquisition") of the Allied Facilities Services business of Ogden Corporation
("Ogden"). The Ogden Acquisition expanded the Company's geographic range to
cover most of the United States and Canada.
In October 1997, the Company consummated a $105 million Senior Subordinated
Notes offering (the "Notes Offering") and entered into a $45 million Amended and
Restated Revolving Credit Agreement (the "Credit Facility"). The net proceeds
from the 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 to pay certain other indebtedness, fees and expenses incurred in
connection with such financing.
Effective September 1, 1998, the Company acquired certain assets of Empire
Maintenance Industries, Inc., a Canadian janitorial services company ("Empire"),
for $4.4 million in cash. The acquisition was accounted for as a purchase and
the operations of Empire are included in the accompanying consolidated financial
statements since the effective date of the acquisition.
Effective February 1, 1998, the Company acquired 100% of the outstanding
common stock of American Building Services, Inc. ("ABS"). The acquisition was
accounted for as a purchase and the operations of ABS are included in the
accompanying consolidated financial statements since the effective date of the
acquisition. The aggregate purchase price was approximately $2.6 million in
cash.
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In the fourth quarter of fiscal 1998, the Company's management and Advisory
Board approved a plan to divest the Company's security business, which it
acquired as part of the Ogden Acquisition. Effective December 28, 1998, the
Company sold its security business for $12 million in cash.
The Company's fiscal year ends on the last Sunday in June of each year.
References herein to "fiscal 1999" refer to the Company's fiscal year ended June
27, 1999.
GENERAL
UNICCO offers a range of integrated outsourced 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, mobile facilities maintenance,
utility operations, energy management, recycling, snow removal and building
systems controls.
The Company also supplies certain facility support services and a
combination of manufacturing and administrative support functions to its
customers. The Company has partnered with a number of 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.
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.
The Company's corporate operations are headquartered in Boston,
Massachusetts. The Company's customer service functions are organized by
geographic region under a system of regional managers.
SERVICES
The Company's principal service offerings are listed by category below.
Engineering:
- - Mechanical Engineering - Energy Management
- - Planning/Scheduling - Space Planning
- - Power Generation Management - CAD Services
- - Plant Engineering - CMMS Programs
- Environmental
Commercial Services:
- - Janitorial/Housekeeping - Window Washing
- - Recycling - Pest Control
- - Relamping Services - Specialty Cleaning
- - Porter/Matron Services - Clean Rooms/High Tech
- - Snow Removal - Sterile Environment
- - Landscaping/Grounds Maintenance
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<PAGE> 5
Operations & Maintenance:
- - Facility Management/Repair - Distribution Management
- - Production Equipment Maintenance/Repair - Waste Management
- - Warehouse Services and Inventory Control - Elevator/Escalator Maintenance
- - Utility Program Operation - Fleet Maintenance
- - Shipping/Receiving Services - Roof Repair
- - Construction Project Management - Telecommunications
- - Mobile Facilities Maintenance
Administration:
- - Subcontract Administration - Audio/Visual Services
- - Materials Procurement - Secretarial/Clerical Services
- - Reprographics/Copy Center - Service Call Desk
- - Mail Distribution - Switchboard/Reception
CUSTOMERS
The Company has approximately 1,300 active customer accounts, including
several of the Fortune 500 companies, operating in a wide variety of business
sectors including commercial real estate, banking, insurance, consumer products,
retail, 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 4% of the Company's revenues in fiscal 1999. The Company services
customers in over 45 states, including Hawaii, and each of the Canadian
provinces. The Company has enjoyed a long-term relationship with many of its
largest customers.
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 structures its service contracts under three principal methods:
fixed price, cost plus fixed fee and modified cost plus. All contracts are based
upon a defined scope and frequency of services to be provided. Under fixed price
contracts, which currently account for approximately 45% 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 39% 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. Modified cost plus contracts, which currently account
for approximately 16% of the Company's revenues, primarily 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 the
contract award.
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INDUSTRY AND COMPETITION
Over the last several years, a trend towards outsourcing of non-core
business functions has transformed the traditional facility services industry.
The larger facility services companies have expanded beyond 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.
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 traditional cleaning 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 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. ABM Industries, Aramark, Building One
Services Corporation, Fluor Corp., Johnson Controls, Marriott Corporation, One
Source 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 54% are
full-time and approximately 46% are part-time. Approximately 50% of the
Company's work force is unionized under more than 180 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.
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ITEM 2. PROPERTIES
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.
NO. OF LEASE
LOCATION SQUARE FEET EXPIRATION
- -------- ------------ ----------
Arlington, Virginia...................... 4,555 2002
Boston, Massachusetts(1)................. 23,555 2001
Boston, Massachusetts.................... 12,800 2002
Bloomfield Hills, Michigan............... 3,150 2003
Chicago, Illinois........................ 7,801 2003
Fairfax, Virginia........................ 4,880 1999
Honolulu, Hawaii......................... 3,260 2004
Oklahoma City, Oklahoma.................. 14,624 2001
Toronto, Ontario......................... 7,121 2004
Pine Brook, New Jersey................... 12,850 2002
Chelsea, Massachusetts................... 10,400 2006
(1) This location serves as the Company's corporate headquarters.
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
these leases. These leases are assignable to the customer if the Company's
services are terminated.
NO. OF LEASE
LOCATION SQUARE FEET EXPIRATION
- -------- ------------ ----------
Niagara Falls, Ontario...................... 80,000 2001
Louisville, Kentucky........................ 43,000 2003
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in numerous pending legal proceedings, primarily
employment and labor relations matters, 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 condition, results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company is privately-owned and there is no public trading market for
the Company's equity securities.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the five years
in the period ended June 27, 1999 have been derived from, and are qualified by
reference to, the Consolidated Financial Statements of the Company. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company, including the notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------------------------------------
JUNE 25, JUNE 30, JUNE 29, JUNE 28, JUNE 27,
1995 1996(a) 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................... $ 88,095 $ 98,315 $471,869 $491,014 $522,363
Cost of service revenues............... 74,695 84,244 421,487 436,599 462,563
-------- -------- -------- -------- --------
Gross profit.......................... 13,400 14,071 50,382 54,415 59,800
Selling, general and administrative
expenses.............................. 10,204 11,492 31,651 35,827 40,504
Amortization of intangible assets...... 535 551 4,151 4,208 4,278
-------- -------- -------- -------- --------
Income from continuing operations..... 2,661 2,028 14,580 14,380 15,018
Interest income........................ 107 85 66 201 826
Interest expense....................... (80) (178) (11,491) (11,631) (11,914)
-------- -------- -------- -------- --------
Income from continuing operations
before income taxes................... 2,688 1,935 3,155 2,950 3,930
Provision for income taxes(b).......... 214 189 2,328 646 824
-------- -------- -------- -------- --------
Income from continuing operations...... 2,474 1,746 827 2,304 3,106
Discontinued operations:
Income from discontinued operations,
net of taxes of $11, $591 and $(12)... -- -- 356 1,070 1,143
Gain on sale of discontinued
operations, net of taxes of $0........ -- -- -- -- 4,082
-------- -------- -------- -------- --------
Income before extraordinary item....... 2,474 1,746 1,183 3,374 8,331
Extraordinary loss, net of tax benefit
of $66................................. -- -- -- (2,958) --
-------- -------- -------- -------- --------
Net income............................ $ 2,474 $ 1,746 $ 1,183 $ 416 $ 8,331
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(c).............................. $ 3,863 $ 3,398 $ 21,174 $ 20,870 $ 21,701
EBITDA margin(d)....................... 4.4% 3.5% 4.5% 4.3% 4.2%
Cash flows provided (used) by:
Operating activities.................. 1,018 5,643 (35,841) 12,821 14,821
Investing activities.................. (1,190) (52,399) (2,528) (3,683) 4,397
Financing activities.................. 172 46,792 42,140 (3,843) (3,416)
Depreciation and amortization from
continuing operations................. $ 1,202 $ 1,370 $ 6,594 $ 6,490 $ 6,683
Capital expenditures for continuing
operations............................ 949 1,227 2,484 1,513 2,308
BALANCE SHEET DATA (AT END OF PERIOD):
Cash.................................. $ 121 $ 157 $ 3,928 $ 9,151 $ 24,938
Working capital from continuing
operations........................... 4,543 (2,278) 45,050 55,741 67,643
Total assets.......................... 21,335 85,167 161,087 150,789 159,884
Total long-term debt
(including current maturities)....... 2,687 62,850 107,147 109,544 109,592
</TABLE>
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<PAGE> 9
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(a) 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.
(b) 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 subsidiaries 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 8 of Notes to the Company's Consolidated Financial
Statements.
(c) EBITDA is defined as income from continuing operations 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.
(d) EBITDA margin represents EBITDA as a percentage of revenues.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed below and elsewhere herein include forward-looking
statements regarding the future performance and financial condition 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. See "Disclosure Regarding Forward-Looking
Statements" above.
GENERAL
The Company provides 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 and
administrative services.
The Company's cost of service revenues primarily consists of direct labor
costs and related benefits, insurance, supplies and equipment. For fiscal 1999
and fiscal 1998, 80.7% and 82.6%, respectively, 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. For fiscal 1999 and fiscal 1998, 51.5% and 50.5%, respectively, of
selling, general and administrative expenses consisted of employee compensation
and benefits.
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<PAGE> 10
The Company's results of operations were significantly influenced by the
Ogden Acquisition on June 28, 1996 (during the last week of fiscal 1996). 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 incurred significant amortization
expenses beginning in fiscal 1997, and will continue to do so in the future.
Interest expense also increased significantly due to the indebtedness incurred
to finance the acquisition. The original acquisition indebtedness was
subsequently refinanced through the Notes Offering during October, 1997. In
addition, historical operating profit margins were negatively impacted by the
Ogden Acquisition because Ogden's business consisted of more lower margin
contracts than the Company's prior business.
DISCONTINUED OPERATIONS
The stock of the Company's security business, which was acquired in the
Ogden Acquisition, was sold for $12.0 million in cash effective December 28,
1998. Accordingly, the accompanying financial data and financial statements and
related notes set forth herein have been classified to present the security
services operations as discontinued operations. Revenues from these operations
were $28.6 million, $58.6 million and $62.0 million in fiscal years 1999, 1998
and 1997, respectively. The Company retained net assets of $7.4 million relating
to the security services operations, comprised primarily of accounts receivable
less accounts payable and payroll-related accruals. These net assets were
transferred to UNICCO Service Company and were excluded from the determination
of the gain on sale.
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RESULTS OF OPERATIONS
The following comparisons of the Company's results of operations for fiscal
years 1999, 1998 and 1997 should be read in conjunction with the Consolidated
Financial Statements of the Company, including the notes thereto. 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 YEARS ENDED
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JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
-----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................... $ 522,363 100.0% $491,014 100.0% $ 471,869 100.0%
Cost of service revenues............... 462,563 88.6 436,599 88.9 421,487 89.3
--------- ------- -------- ------- --------- -------
Gross profit.......................... 59,800 11.4 54,415 11.1 50,382 10.7
Selling, general and administrative
expenses.............................. 40,504 7.7 35,827 7.3 31,651 6.7
Amortization of intangible assets...... 4,278 0.8 4,208 0.9 4,151 0.9
--------- ------- -------- ------- --------- -------
Income from continuing operations..... 15,018 2.9 14,380 2.9 14,580 3.1
Interest income........................ 826 0.2 201 -- 66 --
Interest expense....................... (11,914) (2.3) (11,631) (2.4) (11,491) (2.4)
--------- ------- -------- ------- --------- -------
Income from continuing operations
before income taxes................... 3,930 0.8 2,950 0.6 3,155 0.7
Provision for income taxes............. 824 0.2 646 0.1 2,328 0.5
--------- ------- -------- ------- --------- -------
Income from continuing operations.... 3,106 0.6 2,304 0.5 827 0.2
Discontinued operations:
Income from discontinued operations,
net of taxes of $(12), $591 and $11... 1,143 0.2 1,070 0.2 356 0.1
Gain on sale of discontinued
operations, net of taxes of $0........ 4,082 0.8 -- -- -- --
--------- -------- -------- ------- --------- -------
Income before extraordinary item....... 8,331 1.6 3,374 0.7 1,183 0.3
Extraordinary loss, net of tax benefit
of $66................................ -- -- (2,958) (0.6) -- --
--------- -------- -------- ------- --------- -------
Net income........................... $ 8,331 1.6% $ 416 0.1% $ 1,183 0.3%
========= ======= ======== ======= ========= =======
</TABLE>
COMPARISON OF YEARS ENDED JUNE 27, 1999 AND JUNE 28, 1998
Revenues. Revenues for fiscal 1999 were $522.4 million, an increase of
$31.4 million, or 6.4%, compared to revenues of $491.0 million for fiscal 1998.
This increase was primarily attributable to revenue increases in the Company's
Canadian Operations ($14.1 million) as a result of the September 1998
acquisition of Empire Maintenance Industries, Inc., ("Empire") and in the
Company's Midwest Region ($5.9 million) as a result of the February 1998
acquisition of American Building Services, Inc. The Company also experienced
revenue increases in the Northeast Region ($8.0 million), Southwest Region ($2.1
million), Southeast Region ($2.0 million), and Hawaiian Region ($1.0 million) as
a result of additional services performed under new and existing contracts.
These increases were offset in part by a decrease in revenue in the company's
Eastern Region ($1.7 million) due to the loss of several contracts. Management
believes the loss of such contracts is not material to the consolidated results
of operations.
Cost of Service Revenues. Cost of service revenues for fiscal 1999 was
$462.6 million, or 88.6% of revenues, compared to $436.6 million, or 88.9% of
revenues, for fiscal 1998. This improvement was primarily due to overall cost
reductions achieved through tighter management of internal and subcontracted
labor and expenditures, as well as the impact of new contracts with a lower cost
component.
Gross Profit. As a result of the foregoing, gross profit for fiscal 1999
was $59.8 million, or 11.4% of revenues, compared to $54.4 million, or 11.1% of
revenues, for fiscal 1998.
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<PAGE> 12
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1999 were $40.5 million, or 7.7% of revenues,
compared to $35.8 million, or 7.3% of revenues, for fiscal 1998. The increase of
$4.7 million was primarily due to increases in payroll related expenses, Year
2000 remediation expenses, professional fees and office and occupancy costs
throughout the Company's United States operations, as well as an increase in
expenses at the Company's Canadian subsidiary associated with the purchase of
Empire, effective September 1, 1998. Payroll related expenses for the Company
(excluding the Canadian subsidiary) increased $2.2 million as a result of
headcount increases and annual salary increases effective July 1, 1998. Year
2000 remediation costs increased $0.7 million between comparable periods.
Professional fees, primarily consisting of general business consulting services,
increased $0.3 million between comparable periods. Office and occupancy costs
increased $0.8 million, primarily as a result of increased equipment lease costs
and depreciation expense. The increase of $1.1 million at the Canadian
subsidiary was primarily the result of increased payroll related expenses due to
increased head count, increased travel and entertainment expense due to an
expanded geographic area and increased office and occupancy expense due to
increases in office locations associated with the Empire acquisition. These
increases were offset by a $0.5 million decrease in expense between the
comparable periods related to the effect of changes in the exchange rate used to
revalue the Company's receivable with its Canadian subsidiary.
Amortization of Intangible Assets. Amortization expense was $4.3 million in
fiscal 1999 as compared to $4.2 million in fiscal 1998. The increase is the
result of amortization of intangible assets acquired September 1, 1998 in
connection with the purchase of Empire and the effect of a full year of
amortization of intangible assets acquired February 1, 1998 in connection with
the purchase of ABS. (See Note 4 of Notes to Consolidated Financial Statements).
Income from Continuing Operations. As a result of the foregoing, income
from continuing operations for fiscal 1999 was $15.0 million, or 2.9% of
revenues, compared to $14.4 million, or 2.9% of revenues, for fiscal 1998.
EBITDA. EBITDA for fiscal 1999 was $21.7 million, or 4.2% of revenues,
compared to $20.9 million, or 4.3% of revenues, for fiscal 1998. EBITDA is
defined as income from continuing operations 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 1999 were $14.8 million, $4.4 million and $(3.4) million, respectively.
Cash flows from operating, investing and financing activities for fiscal 1998
were $12.8 million, $(3.7) million and $(3.8) million, respectively.
Interest Expense/Income. Interest expense for fiscal 1999 was $11.9
million, or 2.3% of revenues, compared to $11.6 million, or 2.4% of revenues,
for fiscal 1998. Interest income for fiscal 1999 was $0.8 million, compared to
$0.2 million for fiscal 1998. The increase in interest income is the result of
higher average invested cash balances resulting from the cash proceeds from the
sale of the Company's security business as well as the collection of the
retained accounts receivable relating to the security business.
Income Taxes. Provision for income taxes for fiscal 1999 was $0.8 million,
or 21.0% of income from continuing operations before provision for income taxes,
compared to $0.6 million, or 21.9% of income from continuing operations before
provision for income taxes, for fiscal 1998. The majority of the provision
relates to foreign taxes attributable to income generated by the Canadian
subsidiary. The remaining provision represents a current state tax provision
offset by a deferred state tax benefit.
Net Income. As a result of the foregoing, as well as income of $5.2 million
(net of tax) from the operations and the sale of the Company's discontinued
security business, net income for fiscal 1999 was $8.3 million, or 1.6% of
revenues, compared to $0.4 million, or 0.1% of revenues for fiscal 1998.
-12-
<PAGE> 13
COMPARISON OF YEARS ENDED JUNE 28, 1998 AND JUNE 29, 1997
Revenues. Revenues for fiscal 1998 were $491.0 million, an increase of
$19.1 million, or 4.0%, compared to revenues of $471.9 million for fiscal 1997.
This increase was primarily attributable to revenue increases in the company's
Eastern Region ($10.3 million), Midwest Region ($2.8 million), Northeast Region
($2.5 million), Southwest Region ($2.3 million), Canadian Region ($5.5 million)
and Hawaiian Region ($0.5 million). Such increases resulted from services
performed under new contracts and increased services provided to established
customers. These increases were offset by a $4.8 million revenue decrease
associated with the loss of a contract in May, 1997 which generated revenues in
all of the Company's regions, excluding Canada.
Cost of Service Revenues. Cost of service revenues for fiscal 1998 was
$436.6 million, or 88.9% of revenues, compared to $421.5 million, or 89.3% of
revenues, for fiscal 1997. This improvement was primarily due to a decrease in
direct labor as a percentage of revenues and favorable trends in insurance
costs. Direct labor as a percentage of revenues was 57.4% for fiscal 1998,
compared to 57.7% for fiscal 1997. This improvement was primarily attributable
to tighter management of labor costs.
Gross Profit. As a result of the foregoing, gross profit for fiscal 1998
was $54.4 million, or 11.1% of revenues, compared to $50.4 million, or 10.7% of
revenues, for fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1998 were $35.8 million, or 7.3% of revenues,
compared to $31.7 million, or 6.7% of revenues, for fiscal 1997. The increase of
$4.1 million was primarily attributable to incremental costs associated with the
assimilation of the facility services business acquired from Ogden in June,
1996. Salaries and wages and payroll-related costs increased $1.8 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 $2.9 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 $1.2 million between the comparable period as a result
of the completion of the systems integration of the acquired Ogden business
during the last quarter of fiscal 1997. Vehicle expenses increased $0.5 million
as a result of the general expansion of the Company's business. Travel and
entertainment expenses increased by $0.1 million primarily due to greater air
travel by corporate personnel to support the regional operations of the Company.
Amortization of Intangible Assets. Amortization expense was $4.2 million in
fiscal years 1998 and 1997.
Income from Continuing Operations. As a result of the foregoing, income
from continuing operations for fiscal 1998 was $14.4 million, or 2.9% of
revenues, compared to $14.6 million, or 3.1% of revenues, for fiscal 1997.
EBITDA. EBITDA for fiscal 1998 was $20.9 million, or 4.3% of revenues,
compared to $21.2 million, or 4.5% of revenues, for fiscal 1997. EBITDA is
defined as income from continuing operations before provision for income taxes,
interest expense, interest income and depreciation and amortization. Cash flows
from operating, investing and financing activities for fiscal 1998 were $12.8
million, $(3.7) million and $(3.8) million, respectively. Cash flows from
operating, investing and financing activities for fiscal 1997 were $(35.8)
million, $(2.5) million and $42.1 million, respectively.
Interest Expense. Interest expense for fiscal 1998 was $11.6 million, or
2.4% of revenues, compared to $11.5 million, or 2.4% of revenues, for fiscal
1997.
Income Taxes. Provision for income taxes for fiscal 1998 was $0.6 million,
or 21.9% of income from continuing operations before provision for income taxes,
compared to $2.3 million, or 73.8% of income from continuing operations before
provision for income taxes, for fiscal 1997. The fiscal 1997 provision for
income taxes included the recognition of a valuation allowance recorded in
connection with operating losses generated by the Company as a result of its
prior election to be treated as a cash basis taxpayer and the significant
increase in working capital associated with the Ogden Acquisition.
-13-
<PAGE> 14
Net Income. As a result of the foregoing, as well as income of $1.1 million
from the Company's discontinued security business, and an extraordinary loss
(both net of related tax consequences) of $3.0 million due to the write-off of
deferred financing costs and the repayment of certain indebtedness in connection
with the Notes Offering, net income for fiscal 1998 was $0.4 million, or 0.1% of
revenues, compared to $1.2 million, or 0.3% of revenues for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
For fiscal 1999, the Company's cash balance increased by $15.8 million. The
increase was primarily attributable to cash provided by operations of $14.8
million and cash provided by investing activities of $4.4 million offset by cash
used in financing activities of $3.4 million. Cash provided by operations was
primarily the result of $4.2 million of net income (excluding the gain on the
sale of discontinued operations), a decrease in accounts receivable and unbilled
receivables of $2.3 million, an increase in other current assets of $2.3 million
and an increase in accounts payable of $3.2 million. The reduction in accounts
receivable was the result of the collection of the receivables associated with
the sale of the Company's security business, which was sold on December 28,
1998. The increase in other current assets was primarily the result of an
increase in prepaid insurance. The increase in accounts payable was primarily
the result of additional trade payables associated with the Empire acquisition
as well as the timing of disbursements to vendors and overall growth in the
Company's operations. Cash provided by investing activities was primarily the
result of proceeds from the sale of the Company's security business for $12.0
million, offset by decreases related to the purchase of Empire for $4.4 million
and capital expenditures of $2.3 million. Cash used for financing activities
represented distributions to shareholders of $3.4 million. Such distributions
include a non-recurring distribution of $2.0 million made in February 1999.
Under the terms of the Indenture governing the Notes, the net proceeds from
the sale of the security business of $12 million may be used to repay senior
debt, make capital expenditures, acquire long-term assets or acquire a
controlling interest in another business. As of December 23, 1999, any remaining
net proceeds must be offered to the holders of the Notes at a price equal to
100% of the principal amount of the Notes plus accrued interest. To date, the
Company has used a portion of the proceeds for capital expenditures and has
invested the remaining funds in a money market mutual fund.
For fiscal 1998, the Company's cash balance increased by $5.2 million. The
increase was primarily attributable to cash provided by operating activities
resulting from a $12.8 million reduction in accounts receivable, partially
offset by $7.5 million of net cash used for investing and financing activities.
Net cash of $3.7 million used for investing activities included cash used of
$2.3 million for an acquisition in February, 1998. Net cash used for financing
activities during fiscal 1998 was $3.8 million. For fiscal 1997, $38.3 million
of net cash was used for operating and investing activities which consisted of
$35.8 million of net cash used for operating activities and $2.5 million used
for investing activities.
Capital expenditures were $2.3 million in fiscal 1999 and $1.8 million in
fiscal 1998. 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 fiscal 2000.
The Company's business generally is not seasonal. However, gross margin as
a percentage of revenue historically declines in the Company's third and fourth
quarters due to the impact of higher federal and state unemployment tax expense
beginning January 1.
In October 1997, the Company consummated the $105 million Notes Offering
and entered into the Credit Facility. The net proceeds from the 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. In March 1998, the Company exchanged all $105 million in principal
amount of the privately-placed Senior Subordinated Notes issued in the Notes
Offering for a like amount of publicly traded Senior Subordinated Notes (the
"Notes").
The Notes will mature on October 15, 2007. The Notes will not be redeemable
at the Company's option prior to October 15, 2002. Thereafter, the Notes will be
subject to redemption at any time at the option of the issuers at fixed
redemption prices. Interest on the Notes accrues at the rate of 9 7/8% per annum
and is payable in arrears on April 15 and October 15 of each year, in an annual
amount equal to approximately $10.4 million. The payment of principal and
interest
-14-
<PAGE> 15
on the Notes is subordinated in right to the prior payment of all senior debt of
the Company, including borrowings under the Credit Facility.
The Company's long-term indebtedness consists of borrowings under the
Credit Facility (if any), the Notes and $5.0 million of subordinated
indebtedness (which ranks 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.
At June 27, 1999, the Company had no cash borrowings outstanding under the
Credit Facility. Available credit, after deducting letters of credit, was $43.7
million at June 27, 1999. The Credit Facility, the Indenture governing the Notes
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. During fiscal 1999 and at the fiscal 1999 year end, the
Company was in compliance with such covenants. 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 cash on hand and its borrowing capacity under the Credit Facility, will be
sufficient to meet such requirements during fiscal 2000.
YEAR 2000 COMPLIANCE
Status of Year 2000 Preparations. The Company's information technology
systems are licensed from outside vendors. The Company's principal outside
vendor has released an upgrade of the primary software used by the Company to
perform its accounting, payroll, accounts payable, invoicing and financial
reporting functions. The vendor has represented to the Company that this upgrade
is Year 2000 compliant. The Company implemented the software upgrade in March
1999. The Company successfully completed its compliance testing of the upgrade
in September of 1999. The Company believes that its primary information
technology systems in the United States are Year 2000 compliant. The Company's
primary systems at its Canadian subsidiary are not yet Year 2000 compliant.
However, the Company expects to be compliant by December 31, 1999.
With respect to non-information technology systems, such as embedded
microprocessors in telephones, building systems and Company owned equipment, the
Company has completed its review of its potential Year 2000 exposure from these
systems. In April 1999, the Company completed its data gathering, identification
and risk assessment of business critical issues, and the development of a
remediation plan to address business critical issues. A high-level remediation
plan has been completed. Detail remediation plans have been completed for
specific functions, including information systems, risk management and
purchasing. The Company expects to complete the remaining portion of the
remediation plan in November 1999.
Costs of Year 2000 Remediation. The Company's Year 2000 remediation costs
of approximately $807,000 and $65,000 in fiscal 1999 and fiscal 1998,
respectively, include costs of acquiring Year 2000 compliant software, hardware
and non-information technology equipment (other than replacements that would
have been purchased regardless of the Year 2000 issue), and hiring or
outsourcing Year 2000 solution providers. The Company's most recent assessment
of its total expenditures related to Year 2000 remediation of its primary
information technology systems is approximately $960,000. The expensed and
projected costs do not include internal costs as the Company does not separately
track the internal costs of the Year 2000 project. Such costs are principally
the related payroll costs for the Company's information systems group. Such
estimate is subject to change, particularly as a result of uncertainties
resulting from the factors described below.
Year 2000 Risks. The Company does not believe at this time that Year 2000
issues will have a material adverse effect on its financial condition or results
of operations. However, there can be no assurance given, as most of the
Company's Year 2000 risk is in the hands of third parties. The Company is
relying on its principal outside software vendor for remediation of the
Company's own systems. In addition, the Company may face exposure to Year 2000
compliance issues affecting its customers, suppliers and other third parties.
These parties may not be able to process invoices or
-15-
<PAGE> 16
purchase orders immediately following January 1, 2000. As part of the Company's
Year 2000 risk assessment process, the Company is using questionnaires to
systematically survey vendors' operations, to identify the status of their Year
2000 compliance and their criticality to the Company's business operations.
Approximately 69% of the 3,300 vendors surveyed have completed the
questionnaires. Additionally, the Company has sent letters to survey its
customers' Year 2000 readiness. These responses have provided limited assurances
regarding Year 2000 matters. The Company cannot control its customers or
vendors, and there can be no guarantee that a Year 2000 problem that may
originate with a customer or vendor will not materially adversely affect the
Company.
The Company, in the normal course of its business, maintains, services and
operates its customers' equipment and building management systems such as energy
management, HVAC, access control, elevators and escalators. This equipment and
systems may include date-sensitive microprocessors. While management does not
believe that Year 2000 remediation of such equipment and systems is the
Company's responsibility, there can be no assurance that a customer or building
occupant will not attempt to assess liability for the Year 2000 failures against
the Company.
Contingency Plans. The Company expects to complete detailed contingency
plans by the end of October 1999. The Company believes that it can secure
additional external resources to minimize the likelihood of long-term, material
adverse effects in the event that its own and third-party systems experience
widespread Year 2000 failures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposures are in the areas of interest rate
risk and foreign currency exchange rate risk.
INTEREST RATE RISK
The Company's exposure to market risk associated with changes in interest rates
relates to variable-rate and fixed-rate debt arrangements. The table below
summarizes the Company's market risks associated with debt obligations as of
June 27, 1999. The $45 million Credit Facility is the Company's only
variable-rate debt arrangement, and the Company's Senior Subordinated Notes and
Subordinated Promissory Note bear a fixed rate of interest. The Company had no
cash borrowings outstanding under the Credit Facility at June 27, 1999. As the
Company's existing outstanding debt is at a fixed rate, the Company has not
entered into any interest-rate protection agreements.
<TABLE>
<CAPTION>
EXPECTED FISCAL YEAR OF MATURITY
----------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Senior Subordinated
notes -- -- -- -- -- $105,000,000
Interest rate -- -- -- -- -- 9.875%
Fixed-Rate Subordinated
promissory Note -- -- $5,000,000 -- -- --
Interest rate -- -- 14.00% -- -- --
</TABLE>
The estimated fair values of the Senior Subordinated Notes and the Subordinated
Promissory Note at June 27, 1999 are presented below (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------------- ---------------
<S> <C> <C>
Fixed-Rate Senior Subordinated Notes $ 104,592 $ 101,588
Fixed-Rate Subordinated Promissory Note 5,000 5,745
</TABLE>
-16-
<PAGE> 17
FOREIGN CURRENCY RISK
The Company also has exposure to foreign currency exchange rate fluctuations for
the cash flows received from its foreign affiliate. The U.S. operations bear the
risk of exchange rate fluctuations as the loan with the Canadian subsidiary is
repaid in Canadian dollars. This risk is mitigated by the fact that the
operations of its only foreign subsidiary, which is located in Canada, are
conducted in the local currency. Currently, the Company does not engage in
foreign currency hedging activities as it does not believe that its foreign
currency exchange rate risk is material.
-17-
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
UNICCO SERVICE COMPANY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent Accountants................................................... 19
Consolidated Statement of Income for the years ended June 27, 1999, June 28, 1998 and June 29, 1997............. 20
Consolidated Balance Sheet at June 27, 1999 and June 28, 1998................................................... 21
Consolidated Statement of Shareholders' Equity for the period from June 30, 1996 to June 27, 1999............... 22
Consolidated Statement of Cash Flows for the years ended June 27, 1999, June 28, 1998 and June 29, 1997......... 23
Notes to Consolidated Financial Statements...................................................................... 24
</TABLE>
-18-
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of UNICCO Service Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of UNICCO Service Company and its subsidiaries (the "Company") at June
27, 1999 and June 28, 1998, and the results of their operations and their cash
flows for each of the three years in the period ended June 27, 1999 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules listed in the index appearing under
Item 14(a)(2) on page 47 present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 20, 1999
-19-
<PAGE> 20
UNICCO SERVICE COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------
JUNE 27, JUNE 28, JUNE 29,
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Service revenues................................ $ 522,363 $ 491,014 $ 471,869
Cost of service revenues........................ 462,563 436,599 421,487
--------- --------- ---------
Gross profit................................. 59,800 54,415 50,382
Selling, general and administrative expenses.... 40,504 35,827 31,651
Amortization of intangible assets............... 4,278 4,208 4,151
--------- --------- ---------
Income from continuing operations............ 15,018 14,380 14,580
Interest income................................. 826 201 66
Interest expense................................ (11,914) (11,631) (11,491)
--------- --------- ---------
Income from continuing operations before
income taxes................................. 3,930 2,950 3,155
Provision for income taxes...................... 824 646 2,328
--------- --------- ---------
Income from continuing operations............... 3,106 2,304 827
Discontinued operations:
Income from discontinued operations, net of tax
of $(12), $591 and $11.......................... 1,143 1,070 356
Gain on sale of discontinued operations, net of
tax of $0....................................... 4,082 -- --
--------- --------- ---------
Income before extraordinary item................ 8,331 3,374 1,183
Extraordinary loss, net of tax benefit of $66... -- (2,958) --
--------- --------- ---------
Net income...................................... $ 8,331 $ 416 $ 1,183
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-20-
<PAGE> 21
UNICCO SERVICE COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 24,938 $ 9,151
Accounts receivable, less reserves of $2,467 and $2,010 at
June 27, 1999 and June 28, 1998, respectively ......... 48,781 48,789
Unbilled receivables ..................................... 25,158 27,361
Other current assets ..................................... 5,139 2,394
--------- ---------
Total current assets ................................. 104,016 87,695
--------- ---------
Property and equipment, at cost:
Transportation equipment ................................ 1,327 1,455
Machinery and equipment ................................. 10,054 7,167
Computer equipment and software ......................... 3,771 3,096
Furniture and fixtures .................................. 1,422 1,364
Leasehold improvements .................................. 447 544
--------- ---------
17,021 13,626
Less - accumulated depreciation and amortization ......... 11,607 9,692
--------- ---------
5,414 3,934
--------- ---------
Notes receivable and accrued interest from officers ........ 1,210 475
Intangible assets, net of amortization ..................... 43,596 45,258
Other assets, net .......................................... 5,648 6,046
Net assets of discontinued operations ...................... -- 7,381
--------- ---------
50,454 59,160
--------- ---------
$ 159,884 $ 150,789
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... 8,372 5,114
Accrued payroll and payroll-related expenses ............. 18,840 17,835
Deferred income taxes .................................... 2,214 2,628
Other accrued expenses ................................... 6,947 6,377
--------- ---------
Total current liabilities ............................ 36,373 31,954
--------- ---------
Long-term liabilities:
Long-term debt ........................................... 109,592 109,544
Other long-term liabilities .............................. 160 401
--------- ---------
Total long-term liabilities .......................... 109,752 109,945
--------- ---------
Commitments and Contingencies (Note 7)
Shareholders' equity:
Common shares ............................................ 378 378
Retained earnings ........................................ 14,121 9,222
Accumulated other comprehensive income ................... (166) (48)
--------- ---------
14,333 9,552
Less treasury shares at cost (66 shares) ................. (502) (502)
Less notes receivable from stock sales ................... (72) (160)
--------- ---------
Total shareholders' equity ............................ 13,759 8,890
--------- ---------
$ 159,884 $ 150,789
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-21-
<PAGE> 22
UNICCO SERVICE COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED NOTES
TOTAL OTHER RECEIVABLE TREASURY
SHAREHOLDERS' COMMON STOCK RETAINED COMPREHENSIVE FROM STOCK
EQUITY SHARES AMOUNT EARNINGS INCOME STOCK SALES AMOUNT
------------- ------ ------ -------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
UNICCO SERVICE COMPANY
- ----------------------
Balance, June 30, 1996 ............... 9,284 1,120 378 9,660 -- (252) (502)
Components of comprehensive income:
Net income ........................ 1,971 -- -- 1,971 -- -- --
Foreign currency translation ...... (4) -- -- -- (4) -- --
--------
Total comprehensive income ...... 1,967
--------
Repayment of note receivable ......... 10 -- -- -- -- 10 --
Distributions to shareholders ........ (1,637) -- -- (1,637) -- -- --
-------- ----- ----- ------- ------ ------ ----
Balance, June 29, 1997 ............... 9,624 1,120 378 9,994 (4) (242) (502)
-------- ----- ----- ------- ------ ------ ----
USC, INC
- --------
Balance, June 30, 1996 ............... -- 1,054 -- -- -- -- --
Net loss ............................. (788) -- -- (788) -- -- --
-------- ----- ----- ------- ------ ------ ----
Balance, June 29, 1997 ............... (788) 1,054 -- (788) -- -- --
-------- ----- ----- ------- ------ ------ ----
Consolidated balance, June 29, 1997... 8,836 2,174 378 9,206 (4) (242) (502)
======== ===== ===== ======= ====== ====== ====
UNICCO SERVICE COMPANY
- ----------------------
Balance, June 29, 1997 ............... 9,624 1,120 378 9,994 (4) (242) (502)
USC, Inc. contribution (Note 9) ...... (788) -- -- (788) -- -- --
Components of comprehensive income:
Net income ........................ 416 -- -- 416 -- -- --
Foreign currency translation ...... (44) -- -- -- (44) -- --
--------
Total comprehensive income ..... 372
--------
Repayment of note receivable ......... 10 -- -- -- -- 10 --
Forgiveness of note receivable ....... 72 -- -- -- -- 72 --
Distributions to shareholders ........ (400) -- -- (400) -- -- --
-------- ----- ----- ------- ------ ------ ----
Consolidated balance, June 28, 1998... $ 8,890 1,120 $ 378 $ 9,222 $ (48) $ (160) (502)
======== ===== ===== ======= ====== ====== ====
UNICCO SERVICE COMPANY
- ----------------------
Consolidated balance, June 28, 1998 8,890 1,120 378 9,222 (48) (160) (502)
Components of comprehensive income:
Net income ........................ 8,331 -- -- 8,331 -- -- --
Foreign currency translation ...... (118) -- -- -- (118) -- --
--------
Total comprehensive income ..... 8,213
--------
Repayment of note receivable ......... 16 -- -- -- -- 16 --
Forgiveness of note receivable ....... 72 -- -- -- -- 72 --
Distributions to shareholders ........ (3,432) -- -- (3,432) -- -- --
-------- ----- ----- ------- ------ ------ ----
Consolidated balance, June 27, 1999... $ 13,759 1,120 $ 378 $14,121 $ (166) $ (72) (502)
======== ===== ===== ======= ====== ====== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
<PAGE> 23
UNICCO SERVICE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------
JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows relating to operating activities:
Net income .................................................................... $ 8,331 $ 416 $ 1,183
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets .......................................... 4,577 4,806 4,749
Amortization of debt issue costs and discount .............................. 500 676 1,087
Depreciation and amortization .............................................. 2,460 2,394 2,513
(Gain) loss on disposals ................................................... (10) (82) 61
Extraordinary loss ......................................................... -- 3,024 --
Gain on sale of discontinued operations .................................... (4,082) -- --
Deferred income taxes ...................................................... (298) 618 1,798
Forgiveness of notes receivable and accrued interest from officers ......... 72 84 497
Changes in assets and liabilities:
Accounts receivable ...................................................... 86 12,732 (53,998)
Unbilled receivables ..................................................... 2,202 572 (23,467)
Other current assets ..................................................... (2,316) 1,147 106
Other long-term assets ................................................... (115) 137 (272)
Cash overdraft ........................................................... -- (11,316) 9,274
Accounts payable ......................................................... 3,169 (2,447) 4,847
Accrued expenses and other current liabilities ........................... 572 505 15,854
Other long-term liabilities .............................................. (194) (550) (73)
Other .................................................................... (133) 105 --
--------- --------- ---------
Net cash provided by (used in) operating activities .................. 14,821 12,821 (35,841)
--------- --------- ---------
Cash flows relating to investing activities:
Acquisition, including working capital of $233, net of acquired cash of $380... -- (2,257) --
Acquisition, including working capital of $308 ................................ (4,437) -- --
Proceeds from sale of discontinued operations ................................. 12,000 -- --
Purchases of property and equipment, net ...................................... (2,310) (1,780) (2,578)
Proceeds from sale of property and equipment .................................. 84 125 --
Increases in notes receivable and accrued interest from officers .............. (735) -- (56)
Payments received for notes receivable from officers .......................... -- 229 106
Increase in cash surrender value of officers' life insurance .................. (205) -- --
--------- --------- ---------
Net cash provided by (used in) investing activities ................. 4,397 (3,683) (2,528)
--------- --------- ---------
Cash flows relating to financing activities:
Net (payments) proceeds from line of credit ................................... -- (50,587) 44,367
Proceeds from debt ............................................................ -- 104,507 3,000
Payments on debt .............................................................. -- (52,400) (3,600)
Increase in debt issuance costs ............................................... -- (4,691) --
Distributions to shareholders ................................................. (3,432) (400) (1,637)
Payments on note receivable from stock sales .................................. 16 10 10
Payment on note payable to related party ...................................... -- (282) --
--------- --------- ---------
Net cash provided by (used in) financing activities ................. (3,416) (3,843) 42,140
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents ..................... (15) (72) --
--------- --------- ---------
Net increase in cash and cash equivalents ........................................ 15,787 5,223 3,771
Cash and cash equivalents, beginning of year ..................................... 9,151 3,928 157
--------- --------- ---------
Cash and cash equivalents, end of year ........................................... $ 24,938 $ 9,151 $ 3,928
========= ========= =========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest ..................................................................... $ 11,069 $ 10,219 $ 8,637
========= ========= =========
Income taxes ................................................................. $ 807 $ 577 $ 760
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
<PAGE> 24
UNICCO SERVICE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
These consolidated financial statements include the accounts of UNICCO
Service Company ("UNICCO" or the "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 9). The Company provides integrated facilities
services, including industrial and mechanical engineering, plant operations,
custodial and maintenance services and administrative services. The Company's
customers include commercial, industrial and financial institutions, retail,
educational and healthcare facilities and state and federal government agencies.
2. DISCONTINUED OPERATIONS
The Company sold its security business for $12.0 million effective December
28, 1998. The Company recorded a gain of approximately $4.1 million in
connection with this sale. The Company did not provide for any state income
taxes as a result of the gain on the sale due to the utilization of state net
operating loss carryforwards. The gain and the operating results of the security
services operations are reported as discontinued operations in the accompanying
consolidated financial statements. The Company retained net assets of $7.4
million relating to the discontinued security operations, comprised primarily of
accounts receivable less accounts payable and payroll-related accruals. These
retained net assets were transferred to UNICCO Service Company and were excluded
from the determination of the gain on sale.
Operating results of discontinued operations are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
IN THOUSANDS IN THOUSANDS IN THOUSANDS
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................................. $ 28,569 $ 58,568 $ 62,013
Income before income taxes........................... $ 1,131 $ 1,661 $ 367
Income taxes......................................... (12) 591 11
------------ ------------ ------------
Net income........................................... $ 1,143 $ 1,070 $ 356
============ ============ ============
</TABLE>
The components of the net assets of discontinued operations were as follows at
June 28, 1998:
<TABLE>
<CAPTION>
1998
IN THOUSANDS
------------
<S> <C>
Property and equipment............................... $ 293
Acquired contract rights, net........................ 7,067
Deposits............................................. 21
------------
$ 7,381
============
</TABLE>
From June 29, 1998 to December 28, 1998, the security business provided cash
flows from operating activities of $2.0 million, which was used to pay down
intercompany debt. During fiscal 1998, the security business used cash flows in
its operating and investing activities of $346,000 and $268,000, respectively.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Significant intercompany transactions have been eliminated in
consolidation.
-24-
<PAGE> 25
Fiscal Year
The Company is on a 52/53 week fiscal year ending on the close of business
on the last Sunday of June. All fiscal years presented are 52 week years.
Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents. The Company's cash equivalents of $24,938,000 at June 27, 1999
consist of an investment in a money market mutual fund. The Company's cash
equivalents of $9,151,000 at June 28, 1998 consist of an overnight time deposit.
At June 27, 1999 and June 28, 1998, cash equivalents were carried at cost which
approximated fair value.
Depreciation and Amortization
The Company 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
Computer equipment and software 3-5 years
Furniture and fixtures 5-10 years
Leasehold improvements Shorter of estimated
useful life or life of lease
</TABLE>
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 7 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 3 years, representing the contractual noncompete
period. Goodwill is amortized on a straight-line basis over an estimated life of
15 years. Intangible assets consist of the following at June 27, 1999 and June
28, 1998:
<TABLE>
<CAPTION>
1999 1998
IN THOUSANDS IN THOUSANDS
------------ ------------
<S> <C> <C>
Acquired contract rights............................. $ 44,693 $ 42,077
Favorable leases..................................... 271 271
Noncompete agreements................................ 803 803
Goodwill............................................. 13,068 13,068
------------ ------------
58,835 56,219
Less-- Accumulated amortization...................... (15,239) (10,961)
------------ ------------
$ 43,596 $ 45,258
============ ============
</TABLE>
Impairment
The Company 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 Company 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.
-25-
<PAGE> 26
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 modified cost plus 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 modified cost plus
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 Company's financial instruments consist of cash, cash equivalents,
receivables, accounts payable and debt instruments. The estimated fair values of
the Company's cash, cash equivalents, receivables, and accounts payable
approximate their carrying values.
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 consequences of temporary differences between the carrying amounts and tax
bases of the Company'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, the Company's
Canadian subsidiary, 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 Company's customer base, thus spreading trade credit risk.
In addition, the Company performs ongoing evaluations of customers' financial
position. The Company does not require collateral and maintains reserves for
potential uncollectible amounts that, in the aggregate, have not exceeded
management expectations.
Reclassifications
Certain prior year amounts have been reclassified within the financial
statements to conform to the current year presentation.
-26-
<PAGE> 27
4. ACQUISITIONS
Effective September 1, 1998, the Company acquired certain assets of Empire
Maintenance Industries, Inc., a Canadian janitorial services company ("Empire"),
for $4.4 million in cash. The acquisition was accounted for as a purchase and
the operations of Empire are included in the accompanying consolidated financial
statements since the effective date of the acquisition.
Effective February 1, 1998, the Company acquired 100% of the outstanding
common stock of American Building Services, Inc. ("ABS"). The acquisition was
accounted for as a purchase and the operations of ABS, which was liquidated in
June 1999, are included in the accompanying consolidated financial statements
since the effective date of the acquisition. The aggregate purchase price was
approximately $2.6 million in cash.
These acquisitions are not considered material to the Company's operations.
5. DEBT
Notes Offering
On October 17, 1997, the Company consummated a $105 million Senior
Subordinated Notes Offering (the "Notes Offering") and entered into a $45
million Amended and Restated Revolving Credit Facility (the "Credit Facility").
The net proceeds from the 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. In addition, the Company
recorded $4.7 million of new deferred financing costs.
The 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 in the Notes. Interest on the Notes accrues at the rate of 9
7/8% per annum and is payable semi-annually in arrears on April 15 and October
15 of each year. 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 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 Credit Facility include limitations on certain sales of
assets, certain payments of dividends and incurrence of debt, and limitations on
certain mergers and transactions with affiliates.
In connection with the Notes Offering, the Company recorded an
extraordinary loss of approximately $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. 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 indebtedness in the Company's balance
sheet at the settlement date (October 17, 1997) was $10.0 million.
Credit Facility
The Credit Facility described above is available for working capital
requirements and acquisition financing. Base Rate loans bear interest at the
Base Rate plus the Applicable Base Rate Margin, as defined (9.25% at June 27,
1999 and 9.25% at June 28, 1998). Eurodollar loans bear interest at the Adjusted
Eurodollar Rate plus the Applicable Eurodollar Margin, as defined (8.18% at June
27, 1999 and 7.91% at June 28, 1998). There were no cash borrowings outstanding
under the Credit Facility at June 27, 1999 or June 28, 1998. The Credit Facility
matures on October 14, 2002. Availability under the Credit Facility is reduced
by outstanding letters of credit (see Note 7). The Credit Facility requires the
Company to
-27-
<PAGE> 28
remain in compliance with certain financial ratios as well as other restrictive
covenants. During fiscal 1999 and at the fiscal 1999 year end, the Company was
in compliance with such covenants.
Subordinated Promissory Note
On June 28, 1996, the Company 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 certain restrictive covenants. During fiscal 1999 and at the fiscal
1999 year end, the Company was in compliance with such covenants. The Company
paid $250,000 of principal on the indebtedness subsequent to June 27, 1999.
Minimum future principal payments of long-term debt at June 27, 1999 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- IN THOUSANDS
------------
<S> <C>
2000...................................................................... $ 0
2001...................................................................... 0
2002...................................................................... 5,000
2003...................................................................... 0
2004...................................................................... 0
------------
$ 5,000
============
</TABLE>
The estimated fair values of the Senior Subordinated Notes and the Subordinated
Promissory Note at June 27, 1999 are presented below (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------------- ------------
<S> <C> <C>
Fixed-Rate Senior Subordinated Notes $ 104,592 $ 101,588
Subordinated Promissory Note 5,000 5,745
</TABLE>
6. 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
(5.00% at June 27, 1999 and 5.88% at June 28, 1998). All notes receivable are
classified as long-term as the Company does not expect to collect the majority
of these notes within the next year. Interest receivable related to these notes
was approximately $241,000 and $271,000 at June 27, 1999 and June 28, 1998,
respectively.
On June 24, 1996, UNICCO loaned an officer of the Company approximately
$217,000 to purchase 27 shares of nonvoting common stock. This loan bears
interest at an average of the applicable federal rate. A portion of the note and
related accrued interest was forgiven in fiscal 1999 and 1998. The remaining
balance ($72,000) will be forgiven at the end of the next fiscal year provided
continued employment of the officer. The remaining balance is classified as a
deduction from shareholders' equity.
Lease Agreements With Affiliates
The Company 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 were
$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 7.
-28-
<PAGE> 29
On September 30, 1998, the Company entered into an agreement to lease
certain equipment from an affiliate. The monthly payments are $90,000 and the
lease expires in September 2002. Total payments made by the Company under this
lease were $810,000 for fiscal 1999. The Company is responsible for all costs
and expenses of owning, operating and maintaining the equipment. These lease
payments are included in Note 7.
Insurance Agreement With An Affiliate
Prior to the end of fiscal 1995, the Company 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 Company 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 Company's obligations with respect to workers'
compensation and general liability claims are limited to the premiums paid for
such insurance. The Company's insurance premiums are actuarially determined
based on its historical loss experience. The amount charged to expense related
to the arrangement was approximately $10,793,000, $8,061,000 and $10,129,000 in
fiscal 1999, 1998 and 1997, respectively. Based on an audit conducted by the
commercial insurance carrier during fiscal 1999, an additional premium payment
of $1.6 million was required to be made during fiscal 1999. This payment was
made and charged to operations in fiscal 1999. Current assets at June 27, 1999
include prepaid insurance premiums of $1.5 million related to this program.
There was no such prepaid at June 28, 1998 related to this program.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain equipment and facilities under noncancelable
operating leases through October 31, 2006. Rent expense under these leases was
approximately $4,892,000, $3,348,000 and $3,207,000 for the years ended June 27,
1999, June 28, 1998 and June 29, 1997, respectively. The approximate future
minimum payments under these leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- IN THOUSANDS
------------
<S> <C>
2000.......................................................... $ 5,117
2001.......................................................... 4,144
2002.......................................................... 3,199
2003.......................................................... 1,322
2004.......................................................... 450
Thereafter.................................................... 226
------------
$ 14,458
============
</TABLE>
The Company 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 warehouses at annual costs of
approximately $202,000 in fiscal 2000 and 2001, which are fully reimbursed by a
customer.
Letters of Credit
The Company was contingently liable under certain letters of credit, in the
aggregate amounts of approximately $1,324,000 and $1,634,000 as of June 27, 1999
and June 28, 1998, respectively. The letters of credit were primarily issued in
connection with the Company'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 9) may be redeemed by the Company, at
its option, at the then book value of the shares, as defined, in the event that
the shareholders cease employment with the Company.
-29-
<PAGE> 30
Litigation
In July 1998, the Company settled a lawsuit with a former employee
regarding certain employment-related matters. The settlement amount of $345,000
is included in selling, general and administrative expenses in the accompanying
consolidated statement of income for fiscal 1998.
In the ordinary course of business, the Company is party to various types
of litigation. The Company believes it has meritorious defenses to these claims,
and, in its opinion, all litigation currently pending or threatened will not
have a material adverse effect on the Company's financial condition or results
of operations.
8. 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 results from states that do not
recognize its S corporation status for state income tax purposes and its
business trust status in Massachusetts. UNICCO is on the cash basis of
accounting for income tax reporting purposes.
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 from continuing operations before provision for income taxes was
taxed under the following jurisdictions:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
IN THOUSANDS
---------------------------------
JUNE 27, JUNE 28, JUNE 29,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic........................................ $ 2,680 $ 2,223 $ 2,956
Foreign......................................... 1,250 727 199
-------- -------- --------
$ 3,930 $ 2,950 $ 3,155
======== ======== ========
</TABLE>
The provision (benefit) for income taxes related to income from continuing
operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
IN THOUSANDS
---------------------------------
JUNE 27, JUNE 28, JUNE 29,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................... $ -- $ -- $ 309
State...................................... 316 35 133
Foreign.................................... 806 584 99
Deferred:
Federal.................................... -- -- --
State...................................... (298) 27 1,787
-------- -------- --------
$ 824 $ 646 $ 2,328
======== ======== ========
</TABLE>
Deferred taxes arise primarily from book (accrual basis) and tax (cash
basis) differences in recording revenues and expenses. A portion of the state
tax deferred benefit recorded in fiscal 1999 relates to a reduction in the
Company's overall effective state tax rate resulting from changes in
apportionment factors and certain state tax planning strategies.
-30-
<PAGE> 31
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1999 1998
IN THOUSANDS IN THOUSANDS
------------ ------------
<S> <C> <C>
Receivables........................................ $ (3,214) $ (3,558)
Other assets....................................... (217) (112)
----------- -----------
Gross deferred tax liabilities..................... (3,431) (3,670)
----------- -----------
Accounts payable................................... 324 183
Accrued payroll.................................... 662 614
Other accruals and reserves........................ 232 245
State net operating loss carryforwards............. 425 1,069
----------- -----------
Gross deferred tax assets.......................... 1,643 2,111
Valuation allowance................................ (285) (812)
----------- -----------
Net deferred tax assets............................ 1,358 1,299
----------- -----------
Net deferred tax liabilities....................... $ (2,073) $ (2,371)
=========== ===========
</TABLE>
The deferred tax amounts relating to discontinued operations result
primarily from differences in the financial reporting and income tax basis of
the working capital associated with such operations. As previously discussed,
working capital associated with the discontinued operations was retained by the
Company. Accordingly, the above table includes deferred tax amounts relating to
both continuing and discontinued operations.
State net operating loss carryforwards are limited to those states which do
not recognize UNICCO's subchapter S status and 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 $140,000 of the tax
benefit associated with the operating loss described above. This belief is based
upon a review of available evidence, including historical operating results,
projections of future taxable income, recognizing the limitations described
above, and tax planning strategies. The Company has recorded a valuation
allowance against the remaining portion of the deferred tax asset related to
the above referenced state net operating loss carryforwards.
The effective income tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------
JUNE 27, JUNE 28, JUNE 29,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate.................................... 34.0% 34.0% 34.0%
Income from S corporations not taxable for corporate
income tax purposes..................................... (34.0) (34.0) (25.8)
State income taxes, net of federal benefit (1997 only).... 4.2 6.0 13.1
Rate difference - foreign taxes........................... 20.5 19.8 3.1
Valuation allowance....................................... 1.5 (4.6) 49.4
Other..................................................... (5.2) 0.7 --
------ ------ ------
21.0% 21.9% 73.8%
====== ====== ======
</TABLE>
The "Other" reconciling item relates primarily to the transfer of temporary
differences of the discontinued security business. These temporary differences
were transferred to a tax paying entity with a lower effective state income tax
rate.
-31-
<PAGE> 32
9. SHAREHOLDERS' EQUITY
Common shares of UNICCO consist of the following:
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1999 1998
IN THOUSANDS IN THOUSANDS
------------ ------------
<S> <C> <C>
Common shares of beneficial interest, voting, no par
value --
Issued and outstanding-- 1,000 shares.............................. $ 10 $ 10
Common shares of beneficial interest, nonvoting, no par
value --
Issued-120 shares (includes 66 shares in treasury) ................ 368 368
--------- ---------
$ 378 $ 378
========= =========
</TABLE>
The accompanying consolidated financial statements include the accounts of
UNICCO and USC, Inc., which were owned, managed and controlled by common
shareholders. In connection with the October 1997 Notes Offering, the
shareholders of UNICCO contributed their ownership interests in USC, Inc. (1,000
no par voting and 54 no par nonvoting common shares) to UNICCO. As a result, all
of the operations of the Company are now 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.
Fiscal year 1999 shareholder distributions of $3.4 million include a
non-recurring distribution of $2.0 million made in February 1999.
10. EMPLOYEE BENEFIT PLANS
Multiemployer Pension Plans
Certain employees under collective bargaining agreements are covered by
union-sponsored, multi-employer pension plans. Company contributions, generally
based on hours worked, are in accordance with negotiated labor contracts. The
Company recorded expenses of approximately $4,150,000, $4,274,000 and $5,398,000
in fiscal 1999, 1998 and 1997, respectively, related to the plans. Information
is not readily available for the Company to determine its share of unfunded
vested benefits, if any, under the plans.
401(k) Investment Savings Plans
UNICCO maintains 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. The Company matches 50% of the employees' contribution up to 3%
of base salary. UNICCO made contributions of approximately $1,260,000,
$1,177,000 and $1,017,000 in fiscal 1999, 1998 and 1997, respectively.
Deferred Compensation Plan
Effective fiscal 2000, the Company established a deferred compensation plan
for certain employees of the Company as designated by the Compensation Committee
of the Advisory Board. Eligible employees may defer up to 13% of their annual
base salary. The Company matches the employee contribution dollar-for-dollar up
to 3% of the employee's base salary. The investments of the plan will be held in
a Rabbi trust. The assets held by the trust are considered general, unrestricted
assets of the Company and are always subject to the claims of the Company's
creditors.
-32-
<PAGE> 33
Long-Term Incentive Plan
Effective fiscal 2000, the Company established a long-term incentive plan
for certain key employees. At each fiscal year end beginning with fiscal 1999
(the base year), a valuation of the Company will be performed. After each annual
valuation, up to 10% of the increase in the value of the Company will be
contributed at the Company's discretion on behalf of the employees covered by
the plan. The investments of the plan will be held in a Rabbi trust. The assets
held by the trust are considered general, unrestricted assets of the Company and
are always subject to the claims of the Company's creditors. The first
contribution for the long-term incentive plan will be made after the fiscal 2000
valuation.
11. RESIGNATION OF OFFICERS
During fiscal 1999, one of UNICCO's officers resigned. In connection
therewith, the Company entered into a settlement agreement and made a lump sum
payment of $193,000 in September 1999. The settlement amount was recorded in the
accompanying consolidated financial statements.
12. SEGMENT INFORMATION
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company operates in one segment, that is, as a provider of
integrated facility services. Although management reviews and operates the
business on a regional basis, the economic characteristics of the regions'
services and client bases are similar. Therefore, the Company's regions are
aggregated as one business segment. The table below contains certain financial
information by geographic region (in thousands):
<TABLE>
<CAPTION>
NET REVENUE FROM
CONTINUING OPERATIONS LONG-LIVED ASSETS
-------------------------------------------------- --------------------------------------------
1999 1998 1997 1999 1998 1997
-------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
By Geographic Area
United States $ 474,219 $ 456,946 $ 443,330 $ 46,331 $ 49,968 $ 58,305
Canada 48,144 34,068 28,539 4,123 1,811 1,932
Reconciling Item:
Discontinued operations -- -- -- -- 7,381 --
---------- ---------- ---------- --------- --------- ---------
Consolidated $ 522,363 $ 491,014 $ 471,869 $ 50,454 $ 59,160 $ 60,237
========== ========== ========== ========= ========= =========
</TABLE>
13. CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES
The Notes are guaranteed by each of UNICCO's domestic subsidiaries. Each
guarantor subsidiary of UNICCO is under common management, is directly or
indirectly wholly-owned and the guarantees related to the Notes 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, consolidating financial information as of
June 27, 1999 and June 28, 1998 and for the years then ended, are presented. The
following presents 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 (see Note 9). The guarantor subsidiaries' income statement
and balance sheet for and as of June 27, 1999 and June 28, 1998 reflect the
discontinued operations of the security business.
-33-
<PAGE> 34
CONDENSED CONSOLIDATING STATEMENT OF INCOME - (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 27, 1999
-------------------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues ..................... $ 442,472 $ 31,747 $ 48,144 $ -- $ 522,363
Cost of service revenues ............. 392,844 26,687 43,032 -- 462,563
--------- --------- --------- --------- ---------
Gross profit ....................... 49,628 5,060 5,112 -- 59,800
Selling, general and administrative
expenses ............................. 35,907 1,491 3,106 -- 40,504
Amortization of intangible assets .... 3,619 389 270 -- 4,278
--------- --------- --------- --------- ---------
Income from operations ............. 10,102 3,180 1,736 -- 15,018
Interest income ...................... 771 -- 55 -- 826
Interest expense ..................... (10,802) (571) (541) -- (11,914)
--------- --------- --------- --------- ---------
Income from continuing operations
before income taxes .................. 71 2,609 1,250 -- 3,930
Provision for income taxes ........... (52) 70 806 -- 824
--------- --------- --------- --------- ---------
Income from continuing operations
before equity in net earnings of
subsidiaries and extraordinary items 123 2,539 444 -- 3,106
Equity in net earnings of subsidiaries 8,208 93 -- (8,301) --
--------- --------- --------- --------- ---------
Income from continuing operations .... 8,331 2,632 444 (8,301) 3,106
Discontinued operations:
Income from discontinued operations,
net of tax $(12) .................. -- 1,143 -- -- 1,143
Gain on sale of discontinued
operations, net of tax of $0 ...... -- 4,082 -- -- 4,082
--------- --------- --------- --------- ---------
Net income ........................... 8,331 7,857 444 (8,301) 8,331
========= ========= ========= ========= =========
</TABLE>
-34-
<PAGE> 35
CONDENSED CONSOLIDATING STATEMENT OF INCOME - (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 28, 1998
-------------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues ....................... $ 415,397 $ 41,549 $ 34,068 $ -- $ 491,014
Cost of service revenues ............... 369,512 36,313 30,774 -- 436,599
--------- --------- --------- --------- ---------
Gross profit ......................... 45,885 5,236 3,294 -- 54,415
Selling, general and administrative
expenses ............................... 32,685 1,105 2,037 -- 35,827
Amortization of intangible assets ...... 3,652 435 121 -- 4,208
--------- --------- --------- --------- ---------
Income from operations ............... 9,548 3,696 1,136 -- 14,380
Interest income ........................ 169 1 31 -- 201
Interest expense ....................... (8,437) (2,754) (440) -- (11,631)
--------- --------- --------- --------- ---------
Income from continuing operations before
income taxes .......................... 1,280 943 727 -- 2,950
Provision for income taxes ............. (168) 230 584 -- 646
--------- --------- --------- --------- ---------
Income from continuing operations
before equity in net earnings of
subsidiaries and extraordinary items .. 1,448 713 143 -- 2,304
Equity in net earnings of subsidiaries . 1,926 30 -- (1,956) --
--------- --------- --------- --------- ---------
Income from continuing operations ...... 3,374 743 143 (1,956) 2,304
Discontinued operations:
Income from discontinued operations,
net of tax $591 ...................... -- 1,070 -- -- 1,070
--------- --------- --------- --------- ---------
Income before extraordinary items ...... 3,374 1,813 143 (1,956) 3,374
Extraordinary loss, net of tax benefit . (2,958) -- -- -- (2,958)
--------- --------- --------- --------- ---------
Net income ............................. $ 416 $ 1,813 $ 143 $ (1,956) $ 416
========= ========= ========= ========= =========
</TABLE>
-35-
<PAGE> 36
CONDENSED CONSOLIDATING STATEMENT OF INCOME - (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 29, 1997
---------------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues ....................... $ 403,154 $ 40,176 $ 28,539 $ -- $ 471,869
Cost of service revenues ............... 358,929 36,766 25,792 -- 421,487
--------- --------- --------- --------- ---------
Gross profit ......................... 44,225 3,410 2,747 -- 50,382
Selling, general and administrative
expenses .............................. 28,621 767 2,263 -- 31,651
Amortization of intangible assets ...... 3,626 389 136 -- 4,151
--------- --------- --------- --------- ---------
Income from operations ............... 11,978 2,254 348 -- 14,580
Interest income ........................ 97 -- -- (31) 66
Interest expense ....................... (10,468) (905) (149) 31 (11,491)
--------- --------- --------- --------- ---------
Income from continuing operations
before income taxes .................... 1,607 1,349 199 -- 3,155
Provision for income taxes ............. 1,804 425 99 -- 2,328
--------- --------- --------- --------- ---------
Income from continuing operations
before equity in net earnings of
subsidiaries and extraordinary items .. (197) 924 100 -- 827
Equity in net earnings of subsidiaries . 79 21 -- (100) --
--------- --------- --------- --------- ---------
Income from continuing operations ...... (118) 945 100 (100) 827
Discontinued operations:
Income from discontinued operations,
net of tax $11 ....................... -- 356 -- -- 356
--------- --------- --------- --------- ---------
Income (loss) before extraordinary items (118) 1,301 100 (100) 1,183
Extraordinary loss, net of tax benefit . -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) ...................... $ (118) $ 1,301 $ 100 $ (100) $ 1,183
========= ========= ========= ========= =========
</TABLE>
-36-
<PAGE> 37
CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 27, 1999
----------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY - CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................... $ 24,002 $ 13 $ 1,205 $ (282) $ 24,938
Accounts receivable, less reserve of $2,467. 39,294 3,777 5,710 -- 48,781
Unbilled receivables........................ 23,253 1,783 122 -- 25,158
Intercompany receivable (payable)........... 2,694 3,483 (6,177) -- --
Other current assets........................ 4,252 61 826 -- 5,139
-------- -------- ------- -------- ---------
Total current assets............... 93,495 9,117 1,686 (282) 104,016
-------- -------- ------- --------- ---------
Property and equipment, at cost............. 14,224 278 2,519 -- 17,021
Less -accumulated depreciation and
amortization............................... 10,714 180 713 -- 11,607
-------- -------- ------- -------- ---------
Net property and equipment............. 3,510 98 1,806 -- 5,414
-------- -------- ------- -------- ---------
Due from (to) affiliates.................... 14,509 (620) -- (13,889) --
Investment in subsidiary.................... 14,788 669 -- (15,457) --
Notes receivable and accrued interest from
officers.................................. 1,210 -- -- -- 1,210
Intangible assets, net of amortization...... 35,311 4,202 4,083 -- 43,596
Other assets, net........................... 5,608 -- 40 -- 5,648
-------- -------- ------- -------- ---------
71,426 4,251 4,123 (29,346) 50,454
-------- -------- ------- --------- ---------
$168,431 $ 13,466 $ 7,615 $(29,628) $ 159,884
======== ======== ======= ======== =========
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft.............................. $ -- $ 282 $ -- $ (282) $ --
Accounts payable............................ 5,886 1,060 1,426 -- 8,372
Accrued payroll and payroll-related expenses 15,936 579 2,325 -- 18,840
Deferred income taxes....................... 2,059 155 -- -- 2,214
Other accrued expenses...................... 6,016 87 844 -- 6,947
-------- -------- ------- -------- ---------
Total current liabilities.......... 29,897 2,163 4,595 (282) 36,373
-------- -------- ------- --------- ---------
Long-term liabilities:
Long-term debt.............................. 109,592 -- -- -- 109,592
Other long-term liabilities................. 160 -- -- -- 160
-------- -------- ------- -------- ---------
Total long-term liabilities........ 109,752 -- -- -- 109,752
-------- -------- ------- -------- ---------
Commitments and Contingencies
Shareholders' equity........................ 29,356 11,303 3,020 (29,346) 14,333
Less treasury shares at cost................ (502) -- -- -- (502)
Less notes receivable from stock sales...... (72) -- -- -- (72)
-------- -------- ------- -------- ---------
Total shareholders' equity......... 28,782 11,303 3,020 (29,346) 13,759
-------- -------- ------- --------- ---------
$168,431 $ 13,466 $ 7,615 $(29,628) $ 159,884
======== ======== ======= ======== =========
</TABLE>
-37-
<PAGE> 38
CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 28, 1998
-----------------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY - CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents....................... $ 9,089 $ 300 $ 1,007 $ (1,245) $ 9,151
Accounts receivable, less reserve of $2,010..... 33,519 12,013 3,257 -- 48,789
Unbilled receivables............................ 20,178 7,003 180 -- 27,361
Intercompany receivable (payable)............... 10,837 (8,934) (1,903) --
Other current assets............................ 1,995 278 121 -- 2,394
-------- -------- ------- -------- ---------
Total current assets................... 75,618 10,660 2,662 (1,245) 87,695
-------- -------- ------- --------- ---------
Property and equipment, at cost................. 11,835 1,133 658 -- 13,626
Less -accumulated depreciation and
amortization................................... 8,628 820 244 -- 9,692
-------- -------- ------- -------- ---------
Net property and equipment................. 3,207 313 414 -- 3,934
-------- -------- ------- -------- ---------
Due from (to) affiliates........................ 14,509 (620) -- (13,889) --
Investment in subsidiary........................ 6,581 575 -- (7,156) --
Notes receivable and accrued interest from
officers, net of amortization................. 475 -- -- -- 475
Intangible assets, net of amortization.......... 37,229 6,239 1,790 -- 45,258
Other assets, net............................... 5,887 138 21 -- 6,046
Net assets of discontinued operations........... -- 7,381 -- -- 7,381
-------- -------- ------- -------- ---------
64,681 13,713 1,811 (21,045) 59,160
-------- -------- ------- --------- ---------
$143,506 $ 24,686 $ 4,887 $(22,290) $ 150,789
======== ======== ======= ======== =========
Liabilities and Shareholders' Equity
Current liabilities:
Cash overdraft.................................. $ -- $ 1,245 $ -- $ (1,245) $ --
Accounts payable................................ 3,452 1,235 427 -- 5,114
Accrued payroll and payroll-related expenses... 14,056 2,380 1,399 -- 17,835
Deferred income taxes........................... 1,771 857 -- -- 2,628
Other accrued expenses.......................... 5,557 453 367 -- 6,377
-------- -------- ------- -------- ---------
Total current liabilities.............. 24,836 6,170 2,193 (1,245) 31,954
-------- -------- ------- --------- ---------
Long-term liabilities:
Line of credit.................................. -- -- -- -- --
Long-term debt, less current portion............ 109,544 -- -- -- 109,544
Other long-term liabilities..................... 401 -- -- 401
-------- -------- ------- -------- ---------
Total long-term liabilities............ 109,945 -- -- -- 109,945
-------- -------- ------- -------- ---------
Commitments and Contingencies
Shareholders' equity............................ 9,387 18,516 2,694 (21,045) 9,552
Less treasury shares at cost.................... (502) -- -- -- (502)
Less notes receivable from stock sales.......... (160) -- -- -- (160)
-------- -------- ------- -------- ---------
Total shareholders' equity............. 8,725 18,516 2,694 (21,045) 8,890
-------- -------- ------- --------- ---------
$143,506 $ 24,686 $ 4,887 $(22,290) $ 150,789
======== ======== ======= ======== =========
</TABLE>
-38-
<PAGE> 39
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 27, 1999
-------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY - CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income ............................................. $ 8,331 $ 7,857 $ 444 $ (8,301) $ 8,331
Net earnings from equity investment .................... (8,208) (93) -- 8,301 --
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets .................... 3,619 688 270 -- 4,577
Amortization of debt issue costs and discount ........ 500 -- -- -- 500
Depreciation and amortization ........................ 1,879 114 467 -- 2,460
Gain on disposals .................................... (9) -- (1) -- (10)
Gain on sale of discontinued operations .............. -- (4,082) -- -- (4,082)
Deferred income taxes ................................ (223) (75) -- -- (298)
Forgiveness of notes receivable from officer ......... 72 -- -- -- 72
Changes in assets and liabilities:
Accounts receivable .................................. 1,037 1,422 (2,373) -- 86
Unbilled receivables ................................. 1,517 629 56 -- 2,202
Intercompany receivable (payable) ................... 1,974 (6,249) 4,142 133 --
Other current assets ................................. (2,154) 90 (252) -- (2,316)
Other long-term assets ............................... (97) -- (18) -- (115)
Cash overdraft ....................................... (671) (292) -- 963 --
Accounts payable ..................................... 2,203 55 911 -- 3,169
Accrued expenses and other current liabilities ....... (703) 10 1,265 -- 572
Other long-term liabilities .......................... (194) -- -- -- (194)
Other ................................................ 287 (287) -- (133) (133)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities.......................................... 9,160 (213) 4,911 963 14,821
-------- -------- -------- -------- --------
Cash flows relating to investing activities:
Acquisition, including working capital of $308 ......... 89 -- (4,526) -- (4,437)
Proceeds from sale of discontinued operations .......... 12,000 -- -- -- 12,000
Purchases of property and equipment, net ............... (2,059) (74) (177) -- (2,310)
Proceeds from sale of property and equipment ........... 79 -- 5 -- 84
Increase in notes receivable and accrued interest
from officers ......................................... (735) -- -- -- (735)
Increase in cash surrender value of officers' life
insurance ............................................. (205) -- -- -- (205)
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities.. 9,169 (74) (4,698) -- 4,397
-------- -------- -------- -------- --------
Cash flows relating to financing activities:
Distributions to shareholders .......................... (3,432) -- -- -- (3,432)
Payments received for notes receivable from stock
sales ................................................. 16 -- -- -- 16
-------- -------- -------- -------- --------
Net cash used in financing activities ............... (3,416) -- -- -- (3,416)
-------- -------- -------- -------- --------
Effect of exchange rate charges on cash and cash
equivalents ............................................ -- -- (15) -- (15)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents .... 14,913 (287) 198 963 15,787
Cash and cash equivalents, beginning of period .......... 9,089 300 1,007 (1,245) 9,151
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period ................ $ 24,002 $ 13 $ 1,205 $ (282) $ 24,938
======== ======== ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest .............................................. $ 11,069 $ -- $ -- $ -- $ 11,069
======== ======== ======== ======== ========
Income taxes .......................................... $ 280 $ 173 $ 354 $ -- $ 807
======== ======== ======== ======== ========
</TABLE>
-39-
<PAGE> 40
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 28, 1998
------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY - CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income ........................................... $ 416 $ 1,813 $ 143 $ (1,956) $ 416
Net earnings from equity investment .................. (1,926) (30) -- 1,956 --
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets .................. 3,652 1,033 121 -- 4,806
Amortization of debt issue costs and discount ...... 676 -- -- -- 676
Depreciation and amortization ...................... 2,049 223 122 -- 2,394
Gain on disposals .................................. (69) (13) -- -- (82)
Extraordinary loss ................................. 3,024 -- -- -- 3,024
Deferred income taxes .............................. (198) 816 -- -- 618
Forgiveness of notes receivable and accrued
interest from officers ............................ 84 -- -- -- 84
Changes in assets and liabilities:
Accounts receivable ................................ 6,991 5,741 -- -- 12,732
Unbilled receivables ............................... 2,532 (1,775) (185) -- 572
Intercompany receivable (payable) ................. 8,696 (8,497) (94) (105) --
Other current assets ............................... 876 358 (87) -- 1,147
Other long-term assets ............................. 163 (25) (1) -- 137
Cash overdraft ..................................... (10,840) 769 -- (1,245) (11,316)
Accounts payable ................................... (1,726) (403) (318) -- (2,447)
Accrued expenses and other current liabilities ..... 812 (440) 133 -- 505
Other long-term liabilities ........................ (550) -- -- -- (550)
Other .............................................. -- -- -- 105 105
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities ...................................... 14,662 (430) (166) (1,245) 12,821
--------- --------- --------- --------- ---------
Cash flows relating to investing activities:
Due to/from affiliates ............................... (51) 51 -- -- --
Acquisition, including cash acquired ................. (2,600) 343 -- -- (2,257)
Purchases of property and equipment, net ............. (1,411) (305) (64) -- (1,780)
Proceeds from sale of property and equipment ......... 105 20 -- -- 125
Payments received for notes receivable from officers . 229 -- -- -- 229
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities ...................................... (3,728) 109 (64) -- (3,683)
--------- --------- --------- --------- ---------
Cash flows relating to financing activities:
Repayments from line of credit ....................... (50,587) -- -- -- (50,587)
Proceeds from debt ................................... 104,507 -- -- -- 104,507
Payments of debt ..................................... (52,400) -- -- -- (52,400)
Increase in debt issuance costs ...................... (4,691) -- -- -- (4,691)
Distributions to shareholders ........................ (400) -- -- -- (400)
Payments received for notes receivable from stock
sales ............................................... 10 -- -- -- 10
Payment on notes payable to related party ............ (282) -- -- -- (282)
--------- --------- --------- --------- ---------
Net cash used in financing activities ............ (3,843) -- -- -- (3,843)
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents........................................... -- -- (72) -- (72)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents .. 7,091 (321) (302) (1,245) 5,223
Cash and cash equivalents, beginning of period ........ 1,998 621 1,309 -- 3,928
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period .............. $ 9,089 $ 300 $ 1,007 $ (1,245) $ 9,151
========= ========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ............................................ $ 10,219 $ -- $ -- $ -- $ 10,219
========= ========= ========= ========= =========
Income taxes ........................................ $ 253 $ -- $ 324 $ -- $ 577
========= ========= ========= ========= =========
</TABLE>
-40-
<PAGE> 41
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 29, 1997
--------------------------------------------------------------------------
NONGUARANTOR
GUARANTOR SUBSIDIARY - CONSOLIDATED
UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows relating to operating activities:
Net income ............................................ $ 969 $ 214 $ 100 $ (100) $ 1,183
Net earnings from equity investment ................... (79) (21) -- 100 --
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of intangible assets .................. 3,615 987 147 -- 4,749
Amortization of debt issue costs and discount ...... 1,087 -- -- -- 1,087
Depreciation and amortization ...................... 2,251 134 128 -- 2,513
Loss on disposals .................................. 61 -- -- -- 61
Deferred income taxes .............................. 1,798 -- -- -- 1,798
Forgiveness of notes receivable and accrued
interest from officers ............................ 497 -- -- -- 497
Changes in assets and liabilities:
Accounts receivable ................................ (32,618) (17,916) (3,464) -- (53,998)
Unbilled receivables ............................... (19,141) (4,326) -- -- (23,467)
Intercompany receivable (payable) ................. (19,520) 17,420 2,100 -- --
Other current assets ............................... 584 (438) (40) -- 106
Other long-term assets ............................. (239) (7) (26) -- (272)
Cash overdraft ..................................... 8,798 476 -- -- 9,274
Accounts payable ................................... 2,474 1,586 787 -- 4,847
Accrued expenses and other current liabilities ..... 11,491 2,618 1,745 -- 15,854
Other long-term liabilities ........................ (73) -- -- -- (73)
-------- -------- -------- --------- --------
Net cash provided by (used in) operating
activities ...................................... (38,045) 727 1,477 -- (35,841)
-------- -------- -------- --------- --------
Cash flows relating to investing activities:
Due to/from affiliates ................................ (45) 45 -- -- --
Purchases of property and equipment, net .............. (2,259) (151) (168) -- (2,578)
Increase in notes receivable and accrued interest
from Officers ........................................ (56) -- -- -- (56)
Payments received for notes receivable from officers... 106 -- -- -- 106
-------- -------- -------- --------- --------
Net cash used in investing activities ............ (2,254) (106) (168) -- (2,528)
-------- -------- -------- --------- --------
Cash flows relating to financing activities:
Proceeds from line of credit .......................... 44,367 -- -- -- 44,367
Proceeds from debt .................................... 3,000 -- -- -- 3,000
Payments of debt ...................................... (3,600) -- -- -- (3,600)
Increase in debt issuance costs ....................... -- -- -- -- --
Distributions to shareholders ......................... (1,637) -- -- -- (1,637)
Payments received for notes receivable from stock
sales ................................................ 10 -- -- -- 10
-------- -------- -------- --------- --------
Net cash provided by financing activities ........ 42,140 -- -- -- 42,140
-------- -------- -------- --------- --------
Net increase in cash and cash equivalents .............. 1,841 621 1,309 -- 3,771
Cash and cash equivalents, beginning of period ......... 157 -- -- -- 157
-------- -------- -------- --------- --------
Cash and cash equivalents, end of period ............... $ 1,998 $ 621 $ 1,309 $ -- $ 3,928
======== ======== ======== ========= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest .............................................. $ 8,637 $ -- $ -- $ -- $ 8,637
======== ======== ======== ========= ========
Income taxes .......................................... $ 760 $ -- $ -- $ -- $ 760
======== ======== ======== ========= ========
</TABLE>
-41-
<PAGE> 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF TRUSTEES
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 Company's Trustees
and executive officers 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 Chairman, Operating Committee
George A. Keches Executive Vice President -- Finance and Administration, Chief Financial Officer and Treasurer
Richard T. Healey Vice President - Corporate Development
John C. Feitor Senior Vice President - Operations
Michael Finn Vice President - Human Resources
Jeffrey P. Peterson Vice President - Information Technology
Joseph J. Tinney, Jr. Vice President - Business Development
</TABLE>
ADVISORY BOARD
During fiscal 1998, the Company established an Advisory Board made up of
non-employee and non-shareholder independent advisors with whom senior
management consults 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 (1) Retired Partner, Arthur Andersen LLP
Mitchell Reese Managing Director, The Carlyle Group
Harvey Wagner Former Executive Vice President, Finance & Administration
and Chief Financial Officer, Premiere Technologies, Inc.
</TABLE>
(1) Chairman, Advisory Board
BIOGRAPHICAL INFORMATION
Set forth on the following page is additional biographical information
regarding each of the persons listed in the tables above.
-42-
<PAGE> 43
TRUSTEES AND EXECUTIVE OFFICERS
STEVEN C. KLETJIAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER Steven Kletjian,
55, has been Chairman and Chief Executive Officer of the Company since 1969. He
has over 32 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.
RICHARD J. KLETJIAN, VICE CHAIRMAN Richard Kletjian, 52, 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 29 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, 49,
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 26
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, 79, 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 CHAIRMAN,
OPERATING COMMITTEE Mr. Scoble, 48, joined the Company in June 1996 as a result
of the Ogden Acquisition. During fiscal 1998 he headed the Company's Industrial
Division and was later promoted to Executive Vice President of Operations and
Sales. Prior to joining the Company, Mr. Scoble had served in Ogden's facilities
services and food service operations businesses since 1981 and was a Vice
President of Ogden from 1989 to 1996.
GEORGE A. KECHES, EXECUTIVE VICE PRESIDENT -- FINANCE AND ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND TREASURER Mr. Keches, 42, 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.
RICHARD T. HEALEY, VICE PRESIDENT - CORPORATE DEVELOPMENT Mr. Healey, 57,
joined the Company as Vice President - Corporate Development in April, 1998,
having served in a similar capacity as a consultant to the Company since 1996.
From 1995 to 1996, Mr. Healey provided merger and acquisition consulting
services. Prior to that, he was Senior Vice President of I.T.E.C.O., a private
holding company.
JOHN C. FEITOR, SENIOR VICE PRESIDENT - OPERATIONS Mr. Feitor, 54, has
worked for the Company since 1970. He has held various positions including Area
Manager and Vice President of Operations. He was promoted to Senior Vice
President - Operations in 1996.
MICHAEL J. FINN, VICE PRESIDENT - HUMAN RESOURCES Mr. Finn, 56, joined the
Company in April, 1998. Prior to that, he held Human Resource leadership
positions with General Electric, most recently as Manager - Human Resources for
General Electric Power Systems Global Services Operations. Prior to that, he was
Manager - Human Resources for General Electric Plastics-Americas.
JEFFERY P. PETERSON, VICE PRESIDENT - INFORMATION TECHNOLOGY Mr. Peterson,
40, joined the Company in September 1998. Prior to that, he held several
managerial positions with Arthur Andersen LLP, most recently as Managing
Director for Internal Systems in the Arthur Andersen Technology Solutions (AATS)
group. Mr. Peterson was with Arthur Andersen for 17 years prior to joining
UNICCO.
-43-
<PAGE> 44
JOSEPH J. TINNEY, JR., VICE PRESIDENT - BUSINESS DEVELOPMENT Mr. Tinney,
42, joined the Company in June 1996 as a result of the Ogden acquisition. During
fiscal 1998, he was a part of the senior management of the Company's sales
organization and was later promoted to Vice President of Business Development.
Prior to joining the Company, Mr. Tinney had served in Ogden's Facilities
Services division since 1987 and was Director of National Sales from 1991 to
1996.
ADVISORY BOARD
GREGORY H. ADAMIAN, MPA, J.D., PH.D. (HON.) Dr. Adamian, 73, currently
serves as Chancellor and President Emeritus of Bentley College in Waltham,
Massachusetts, having previously served 21 years as its President. Dr. Adamian
also serves on the boards of Bentley College and Jo-Ann Fabrics Corporation. He
was previously a director of Liberty Mutual Life Insurance Company and the West
End House.
ANTON BERNARD (TON) FUNKE KUPPER Mr. Funke Kupper, 70, 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 1959 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 Service
Contractors from 1980 to 1982 and President of the Dutch Association of Building
Service Contractors from 1970 to 1983.
LEONARD LYNCH, CHAIRMAN Mr. Lynch, 62, is a retired partner of Arthur
Andersen LLP where he served as the Director 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, 40, is a Managing Director of 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 a Vice President in the mergers and acquisitions department of Alex. Brown &
Sons Incorporated.
HARVEY WAGNER Mr. Wagner, 58, served as the Executive Vice President,
Finance & Administration and Chief Financial Officer at Premiere Technologies,
Inc. from May 1998 to September 1999. From June 1994 to April 1998, Mr. Wagner
was the Senior Vice President of Finance, Chief Financial Officer and Treasurer
of Scientific-Atlanta, Inc. From September 1989 to April 1994, Mr. Wagner was
Vice President of Finance and Chief Financial Officer of Computervision
Corporation. Mr. Wagner is a founding Board Member and President of the Wellness
Community-Atlanta and sits on the Executive Advisory Board of the Wharton School
of the University of Pennsylvania.
-44-
<PAGE> 45
ITEM 11. 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 certain other persons who served as executive
officers of the Company during the fiscal year ended June 27, 1999.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------------------------------------- -----------------------------
SHARES
NAME AND PRINCIPAL POSITION OTHER ANNUAL UNDERLYING ALL OTHER
- --------------------------- SALARY BONUS (1) COMPENSATION OPTIONS COMPENSATION (5)
--------------- ---------- ------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Steven C. Kletjian........... 1999 $ 750,000 $ 200,000 $ 62,000(2) -- $ 108,000
Chief Executive Officer 1998 635,000 -- 26,000 -- 88,000
And Chairman 1997 615,000 -- 24,000 -- 104,000
Richard J. Kletjian.......... 1999 368,000 -- 37,000 -- 72,000
Vice Chairman 1998 373,000 -- 26,000 -- 52,000
1997 347,000 -- 23,000 -- 57,000
Robert P. Kletjian.......... 1999 368,000 -- 23,000 -- 55,000
Vice President and Vice 1998 359,000 -- 24,000 -- 41,000
Chairman 1997 342,000 -- 22,000 -- 65,000
Robert J. Scoble............ 1999 280,000 80,000 54,000(4) -- 5,000
Executive Vice President 1998 202,000 80,000 -- -- 6,000
of Operations and Chairman, 1997 196,000 60,000 -- -- 2,000
Operating Committee
George A. Keches.......... 1999 216,000 70,000 87,000(3) -- 4,000
Executive Vice President 1998 207,000 70,000 85,000(3) -- 6,000
-- Finance and 1997 180,000 60,000 -- -- 4,000
Administration, Chief
Financial Officer and
Treasurer
</TABLE>
- ----------
(1) Bonus amounts in each fiscal year represent payment of bonus
earned in the prior fiscal year.
(2) Includes $40,000 representing taxable fringe benefit associated with
personal use of Company-provided transportation.
(3) Includes partial forgiveness of indebtedness of $72,000 and $84,000 in
fiscal 1999 and 1998 respectively, incurred in connection with the purchase
of 27 non-voting common shares of the Company.
(4) Includes $52,000 of reimbursements related to relocation of executive
officer.
(5) Includes premiums paid by the Company for life insurance for the designated
officer and matching contributions by the Company to the executives' 401(k)
plan.
-45-
<PAGE> 46
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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>
SHAREHOLDER NUMBER OF PERCENTAGE OF PERCENTAGE OF
- ----------- SHARES 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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
a commercial insurance carrier. After deducting pre-determined fees for
administration, claims processing and taxes, the carrier remits the net premiums
to Ashmont pursuant to a re-insurance agreement. Ashmont, as re-insurer, then
reimburses the carrier for insurance losses paid on a monthly basis. Net
insurance premiums received by Ashmont pursuant to this arrangement aggregated
$8.1 million for fiscal 1999. 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.
The Company holds notes receivable, including notes receivable from stock
sales, aggregating approximately $1,282,000 from four of its shareholders
consisting primarily of demand notes that bear interest at an average Applicable
Federal Rate (5.00% at June 27, 1999). Interest receivables related to those
notes were approximately $241,000 at June 27, 1999. During fiscal 1999, the
Company forgave $72,000 of the principal amount of such notes on account of the
continued employment of one of the shareholders.
The Company 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 were
$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 7 of Notes to
Consolidated Financial Statements.
On September 30, 1998, the Company entered into an agreement to lease
certain equipment from an affiliate. The monthly payments are $90,000 and the
lease expires in September 2002. Total payments made by the Company under this
lease were $810,000 for fiscal 1999. The Company is responsible for all costs
and expenses of owning, operating and maintaining the equipment. These lease
payments are included in Note 7 of Notes to Consolidated Financial Statements.
-46-
<PAGE> 47
In fiscal 1999, the Company paid consulting fees of $58,000 to Leonard
Lynch, Chairman of the Advisory Board.
In connection with the Ogden Acquisition in June 1996, the Company borrowed
$3.0 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 Notes 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.
In September, 1997, the Company repaid a note payable to Sharkay Kletjian,
a Trustee of the Company, in the aggregate principal amount of approximately
$282,000. Interest on this note was payable at a rate of 20% per annum.
PART IV
ITEM. 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements are listed in the Index to Financial
Statements contained in Item 8 of this Report.
2. Financial Statement Schedules, to the extent required, appear in
subsection (d) below.
3. Exhibits are listed in subsection (c) below.
(b) Reports on Form 8-K:
None
(c) Exhibits:
EXHIBIT DESCRIPTION
NUMBER -----------
------
3.1(a) Amended Declaration of Trust of UNICCO Service Company
3.2(a) Certificate of Incorporation of UNICCO Finance Corp.
3.3(a) By-laws of UNICCO Service Company
3.4(a) By-laws of UNICCO Finance Corp.
3.5(a) Articles of Organization of USC, Inc.
3.6(a) Certificate of Incorporation of UNICCO Government Services,
Inc.
3.7(a) By-laws of USC, Inc.
3.8(a) By-laws of UNICCO Government Services, Inc.
4.1(a) Indenture dated October 17, 1997 among UNICCO Service Company,
UNICCO Finance Corp., the Guarantors party thereto and State
Street Bank and Trust Company, as Trustee
4.2(b) First Supplemental Indenture and Guarantee
4.3(c) Second Supplemental Indenture and Guarantee
4.4(a) Form of Notes (included in Exhibit 4.1)
-47-
<PAGE> 48
4.5(a) Form of Guaranty (included in Exhibit 4.1)
10.1(a) Amended and Restated Revolving Credit Agreement dated as of
October 17, 1997 by and among BankBoston, N.A. and other banks
party thereto, and UNICCO Service Company, USC, Inc., UNICCO
Finance Corp., UNICCO Security Services, Inc. and UNICCO
Government Services, Inc.
10.2(d) Modification No. 1 dated as of March 31, 1998 to Amended and
Restated Revolving Credit Agreement
10.3(d) Second Amendment dated as of June 30, 1998 to Amended and
Restated Revolving Credit Agreement
10.4(c) Third Amendment dated as of December 28, 1998 to Amended and
Restated Revolving Credit Agreement
10.5(a) Share Purchase Agreement with George A. Keches dated June 20,
1996 and Amendment No. 1 to Share Purchase Agreement dated
February 2, 1998
10.6(a) Share Purchase Agreement with John C. Feitor dated July 1,
1989 and Amendment No. 1 to Share Purchase Agreement dated
February 2, 1998
10.7(a) 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
10.8(c) Waiver and Second Amendment to Note Purchase Agreement dated
as of December 28, 1998
10.9(e) Stock Purchase Agreement for the Acquisition of UNICCO
Security Services, Inc. dated as of October 26, 1998 with
Argenbright Security, Inc.
10.10(c) First Amendment to Stock Purchase Agreement dated as of
December 11, 1998
10.11(f) UNICCO Service Company Deferred Compensation Plan
21.1(c) Subsidiaries of the Registrant
23.1(c) Consent of PricewaterhouseCoopers LLP
27.1(c) Financial Data Schedule
- ----------
(a) Incorporated by reference to the Company's Form S-4 Registration Statement
declared effective by the Commission on February 6, 1998 (File No.
333-42407).
(b) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1998.
(c) Filed herewith.
(d) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 28, 1998.
(e) Incorporated by reference to the Company's Current Report on Form 8-K filed
November 2, 1998.
(f) Incorporated by reference to the Company's Form S-8 Registration Statement
filed July 8, 1999. (File No. 333-82445)
-48-
<PAGE> 49
(d) - Financial statement schedules
SCHEDULE I -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 27, 1999
------------------------
CHARGED TO COSTS
BEGINNING AND EXPENSES DEDUCTIONS/ ENDING BALANCE
DESCRIPTION BALANCE ---------------- ADJUSTMENT --------------
----------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 2,010 $ 998 $ (541) $ 2,467
========= ======== ========== ==========
YEAR ENDED JUNE 28, 1998
------------------------
CHARGED TO COSTS
BEGINNING AND EXPENSES DEDUCTIONS/ ENDING BALANCE
DESCRIPTION BALANCE ---------------- ADJUSTMENTS --------------
----------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,561 $ 1,166 $ (717) $ 2,010
========= ======== ========= ==========
YEAR ENDED JUNE 29, 1997
------------------------
CHARGED TO COSTS
BEGINNING AND EXPENSES DEDUCTIONS/ ENDING BALANCE
DESCRIPTION BALANCE ---------------- ADJUSTMENTS --------------
----------- --------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 239 $ 1,336 $ (14) $ 1,561
========= ======== ========= ==========
</TABLE>
-49-
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 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
Dated: September 25, 1999 By: /s/ Steven C. Kletjian
-------------------------------
Steven C. Kletjian
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Steven C. Kletjian Chief Executive Officer September 25, 1999
- -------------------------------------------- and Chairman of the
Steven C. Kletjian Board of Trustees
/s/ George A. Keches Executive Vice President, September 25, 1999
- -------------------------------------------- Chief Financial Officer
George A. Keches and Treasurer
/s/ Richard J. Kletjian Trustee September 25, 1999
- --------------------------------------------
Richard J. Kletjian
/s/ Robert P. Kletjian Trustee September 25, 1999
- --------------------------------------------
Robert P. Kletjian
/s/ Sharkay Kletjian Trustee September 25, 1999
- --------------------------------------------
Sharkay Kletjian
</TABLE>
-50-
<PAGE> 51
EXHIBIT INDEX
EXHIBIT DESCRIPTION
NUMBER -----------
------
3.1(a) Amended Declaration of Trust of UNICCO Service Company
3.2(a) Certificate of Incorporation of UNICCO Finance Corp.
3.3(a) By-laws of UNICCO Service Company
3.4(a) By-laws of UNICCO Finance Corp.
3.5(a) Articles of Organization of USC, Inc.
3.6(a) Certificate of Incorporation of UNICCO Government Services,
Inc.
3.7(a) By-laws of USC, Inc.
3.8(a) By-laws of UNICCO Government Services, Inc.
4.1(a) Indenture dated October 17, 1997 among UNICCO Service Company,
UNICCO Finance Corp., the Guarantors party thereto and State
Street Bank and Trust Company, as Trustee
4.2(b) First Supplemental Indenture and Guarantee
4.3(c) Second Supplemental Indenture and Guarantee
4.4(a) Form of Notes (included in Exhibit 4.1)
4.5(a) Form of Guaranty (included in Exhibit 4.1)
10.1(a) Amended and Restated Revolving Credit Agreement dated as of
October 17, 1997 by and among BankBoston, N.A. and other banks
party thereto, and UNICCO Service Company, USC, Inc., UNICCO
Finance Corp., UNICCO Security Services, Inc. and UNICCO
Government Services, Inc.
10.2(d) Modification No. 1 dated as of March 31, 1998 to Amended and
Restated Revolving Credit Agreement
10.3(d) Second Amendment dated as of June 30, 1998 to Amended and
Restated Revolving Credit Agreement
10.4(c) Third Amendment dated as of December 28, 1998 to Amended and
Restated Revolving Credit Agreement
10.5(a) Share Purchase Agreement with George A. Keches dated June 20,
1996 and Amendment No. 1 to Share Purchase Agreement dated
February 2, 1998
10.6(a) Share Purchase Agreement with John C. Feitor dated July 1,
1989 and Amendment No. 1 to Share Purchase Agreement dated
February 2, 1998
10.7(a) 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
10.8(c) Waiver and Second Amendment to Note Purchase Agreement dated
as of December 28, 1998
10.9(e) Stock Purchase Agreement for the Acquisition of UNICCO
Security Services, Inc. dated as of October 26, 1998 with
Argenbright Security, Inc.
10.10(c) First Amendment to Stock Purchase Agreement dated as of
December 11, 1998
10.11(f) UNICCO Service Company Deferred Compensation Plan
21.1(c) Subsidiaries of the Registrant
23.1(c) Consent of PricewaterhouseCoopers LLP
27.1(c) Financial Data Schedule
- ----------
(a) Incorporated by reference to the Company's Form S-4 Registration Statement
declared effective by the Commission on February 6, 1998 (File No.
333-42407).
(b) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1998.
(c) Filed herewith.
(d) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 28, 1998.
(e) Incorporated by reference to the Company's Current Report on Form 8-K filed
November 2, 1998.
(f) Incorporated by reference to the Company's Form S-8 Registration Statement
filed July 8, 1999. (File No. 333-82445)
<PAGE> 1
EXHIBIT 4.3
SECOND SUPPLEMENTAL INDENTURE AND GUARANTEE
SECOND SUPPLEMENTAL INDENTURE AND GUARANTEE (this "Supplemental
Indenture"), dated as of June 8, 1999, among UNICCO Service of M.I. (the
"Guaranteeing Restricted Subsidiary"), 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").
W I T N E S S E T H
WHEREAS, the Issuers have heretofore executed and delivered to the
Trustee an Indenture (the "Original 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") and a First
Supplemental Indenture dated as of February 27, 1998 (together with the Original
Indenture, the "Indenture");
WHEREAS, on December 28, 1998, a Note Guarantee was executed by USC,
Inc., UNICCO Government Services, Inc., American Building Services, Inc. and
UNICCO Service of N.J., Inc. which amended the Note Guarantees dated as of
February 27, 1998, and as of October 17, 1997 (the "Original Note Guarantees"),
and for all purposes replaced the Original Note Guarantees;
WHEREAS, the Guaranteeing Restricted Subsidiary has been acquired or
created by the Company as provided in Sections 4.18 and 11.04 of the Indenture;
WHEREAS, effective as of the date hereof, the Company dissolved its
wholly-owned subsidiary, American Building Services, Inc.;
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Restricted Subsidiary shall execute and deliver to the Trustee a
supplemental indenture pursuant to which the 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
<PAGE> 2
Restricted Subsidiary 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 Subsidiary
hereby agrees as follows:
(a) Along with all the Guarantors (other than American Building
Services, Inc., which has been dissolved) party to the Note
Guarantee dated as of December 28, 1998, 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.
2
<PAGE> 3
(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 Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect.
(f) The Guarantors 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
<PAGE> 4
3. EXECUTION AND DELIVERY. The 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 SUBSIDIARY MAY CONSOLIDATE, ETC. ON
CERTAIN TERMS.
(a) The Guaranteeing Restricted Subsidiary 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:
(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
4
<PAGE> 5
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 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 Subsidiary, 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.
5
<PAGE> 6
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW
YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL 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.
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 Subsidiary
and the Issuers.
SIGNATURES
Dated as of the date first set forth above.
Guaranteeing Restricted Subsidiary:
UNICCO SERVICE OF M.I., INC.
By: /s/ George A. Keches
---------------------------
Name: George A. Keches
Title: Treasurer
Other Guarantors:
UNICCO SERVICE OF N.J., INC.
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
Issuers:
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
STATE STREET BANK AND TRUST
COMPANY, AS TRUSTEE
By: /s/ Andrew M. Sinasky
_________________________________
Name: Andrew M. Sinasky
Title: Assistant Vice President
7
<PAGE> 1
EXHIBIT 10.4
UNICCO SERVICE COMPANY
USC, INC.
UNICCO GOVERNMENT SERVICES, INC.
UNICCO FINANCE CORP.
AMERICAN BUILDING SERVICES, INC.
UNICCO SERVICE OF N.J., INC.
Four Copley Place
Boston, MA 02116
Dated as of: December 28, 1998
BankBoston, N.A.
Individually and as Agent
100 Federal Street
Boston, Massachusetts 02110
Fleet National Bank
One Federal Street
Boston, Massachusetts 02110
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Re: Third Amendment to Loan Documents
---------------------------------
Ladies and Gentlemen:
We refer to the Amended and Restated Revolving Credit Agreement, dated
as of October 17, 1997 (as amended from time to time, the "Credit Agreement"),
among Unicco Service Company, USC, Inc., Unicco Government Services, Inc.,
Unicco Finance Corp., American Building Services, Inc. and Unicco Service of
N.J., Inc. (collectively, the "Borrowers"), Unicco Security Services, Inc.
("U-Security"), the banking institutions referred to therein as Banks (the
"Banks"), and BankBoston, N.A. as Agent (the "Agent"). Upon the terms and
subject to the conditions contained in the Credit Agreement, you agreed to make
Revolving Loans to the Borrowers and U-Security. We also refer to that certain
Security Agreement, dated as of June 28, 1996 (as amended, the "Security
Agreement") by U-Security in favor of the Agent for the ratable benefit of the
Banks, pursuant to which U-Security granted to the Agent a security interest in
certain of its assets to secure the Obligations of the Borrowers under the
Credit Agreement.
-1-
<PAGE> 2
Terms used in this letter of agreement (the "Third Amendment") which
are not defined herein, but which are defined in the Credit Agreement, shall
have the same respective meanings herein as therein.
We have requested that you (a) consent to the sale by USC of the
U-Security Shares on substantially the terms set forth in that certain Stock
Purchase Agreement dated as of October 26, 1998 among Argenbright Security,
Inc., Unicco Security Services, Inc., USC, Inc. and Unicco Service Company
(together with any other documents or instruments executed in connection
therewith, the "U-Security Stock Sale Documents"), (b) terminate the Security
Agreement and release the lien of the Agent in the assets of U-Security, and (c)
make certain amendments to the Credit Agreement, the Revolving Credit Notes and
certain other Loan Documents. You have advised us that you are prepared and
would be pleased to make the amendments so requested by us on the condition that
we join with you in this Third Amendment.
Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this Third Amendment, and fully intending
to be legally bound by this Third Amendment, we hereby agree with you as
follows:
ARTICLE I
AMENDMENTS TO LOAN DOCUMENTS
Effective as of the date hereof, the Loan Documents and the Security
Documents are amended in each of the following respects:
(a) The terms "Loan Documents" and "Security Documents" shall,
wherever used in any of the Loan Documents or Security Documents, be deemed to
also mean and include this Third Amendment.
(b) The term "Borrowers" shall, wherever used in any of the Loan
Documents or Security Documents, be deemed to be a reference to the Borrowers as
defined therein, other than Unicco Security Services, Inc., and Unicco Security
Services, Inc., upon the effectiveness hereof, shall be released from any and
all liabilities and obligations under the Loan Documents, except with respect to
any indemnification or similar Obligations arising or occurring prior to the
date hereof.
(c) The Preamble of the Credit Agreement is hereby amended to
delete therefrom the following language:
"UNICCO SECURITY SERVICES, INC. (f/k/a Ogden Allied Security Services,
Inc.)("U-Security"), a Delaware corporation, having its chief executive
office at Four Copley Place, Boston, Massachusetts 02116,".
-2-
<PAGE> 3
(d) The Credit Agreement and each of the other Loan Documents and
Security Documents or Security Documents is hereby amended to delete each and
every reference to "Unicco Security Services, Inc." and "U-Security".
(e) The definition of "U-Security Shares" contained in Section 1
of the Credit Agreement is hereby deleted in its entirety, and each and every
reference in the Credit Agreement or other Loan Documents or Security Documents
to "U-Security Shares" is hereby deleted.
(f) The definition of "USC Subsidiaries" contained in Section 1 of
the Credit Agreement is hereby deleted in its entirety, and each and every
reference in the Credit Agreement or other Loan Documents to "the USC
Subsidiaries" shall be deemed a reference to "U-Government".
(g) Section 4.19 (iii) of the Credit Agreement is hereby amended
to read in its entirety as follows:
(iii) ["Intentionally Omitted."]
(h) Section 4.24 of the Credit Agreement is hereby amended to read
in its entirety as follows:
4.24 FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each member of
the Borrower Affiliated Group possesses all franchises, patents,
copyrights, trademarks, tradenames, service marks, licenses and
permits, and rights in respect of the foregoing, adequate for the
conduct of its business substantially now conducted without known
conflict with any rights of others and, in each case, free of any
Encumbrance not permitted by Section 6.5, except for licenses and
permits the non-possession of which would not have a material adverse
effect on the business operations, property, assets, nature of assets,
condition (financial or otherwise) or prospects of any member of the
Borrower Affiliated Group.
(j) Sections 7.1 (l) and (m) of the Credit Agreement are hereby
amended to delete therefrom the phrase "(other than U-Security)" wherever it
appears.
(k) EXHIBIT A to the Credit Agreement and each of the Revolving
Credit Notes is amended and restated as set forth in the Revolving Credit Notes
attached hereto as ANNEX 1.
-3-
<PAGE> 4
ARTICLE II
CONSENT AND WAIVER
(a) The Borrowers have requested that the Agent and the Banks
consent to the sale of the U-Security Shares pursuant to Section 6.6 of the
Credit Agreement.
(b) In connection with the sale of the U-Security Shares, the
Borrowers have requested that the Agent and the Banks terminate the Security
Agreement entered into by U-Security and release their liens in the assets of
U-Security.
(c) In accordance with such requests, subject to the provisions of
Article III below, the Agent and the Banks hereby (i) consent, pursuant to
Section 6.6 of the Credit Agreement, to the sale of the U-Security Shares, and
(ii) consent, pursuant to Section 6.16 of the Credit Agreement, to the amendment
of the MCRC Subordinated Debt Documents in the form furnished to the Agent,
(iii) agree to terminate the Security Agreement entered into by U-Security in
accordance with its terms (without prejudice to provisions therein that survive
the termination of such Security Agreement) and to release their liens in the
assets of U-Security.
ARTICLE III
CONDITIONS PRECEDENT TO AMENDMENT, CONSENT AND WAIVER
The agreement of the Agent and the Banks herein to (i) amend the Loan
Documents, (ii) consent to the sale of the U-Security Shares, and (iii)
terminate the Security Agreement and liens as aforesaid is subject to the
fulfillment of each of the following conditions:
(a) (i) The sale of the U-Security Shares shall have been
completed and become effective as of the date hereof upon the terms set forth in
the U-Security Stock Sale Documents (substantially in the form delivered to and
approved by the Agent and the Banks), (ii) such sale shall have occurred
pursuant to the U-Security Stock Sale Documents, without recourse to any
provision thereof permitting the waiver by any party thereto of any condition,
obligation, covenant or other requirement without the prior written consent of
the Agent and the Banks and (iii) USC shall have received at least $11,998,500,
by wire transfer of immediately available funds, as payment for the U-Security
Shares.
(b) On or before the date hereof, the Agent shall have received
copies of all of the U-Security Stock Sale Documents, as executed and delivered
by the parties thereto, all of which shall be in form and substance satisfactory
to the Agent.
-4-
<PAGE> 5
(c) On or before the date hereof, the Agent shall have received a
copy of each amendment, consent or waiver to the applicable Subordinated Debt
Documents, to the extent any such amendment, consent or waiver is necessary in
connection with the sale of the U-Security Shares, from the each of the holders
of the Subordinated Debt, in form and substance satisfactory to the Agent,
consenting to the sale of the U-Security Shares and the termination of the
Security Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrowers hereby jointly and severally represent and warrant to you
as follows:
(a) NO DEFAULTS OR EVENTS OF DEFAULT. No Default or Event of
Default exists on the date of this Third Amendment (both before and after giving
effect to all of the arrangements and transactions contemplated by this Third
Amendment).
(b) BINDING EFFECT OF DOCUMENTS. This Third Amendment has been
duly executed and delivered to you by the Borrowers and is in full force and
effect as of the date hereof, and the agreements and obligations of the
Borrowers contained herein constitute the joint and several, and legal, valid
and binding obligations of the Borrowers enforceable against the Borrowers in
accordance with their respective terms.
ARTICLE V
PROVISIONS OF GENERAL APPLICATION
(a) NO OTHER CHANGES. Except to the extent specifically amended
and supplemented hereby, all of the terms, conditions and the provisions of the
Credit Agreement and each of the Loan Documents and Security Documents shall
remain unmodified, and the Credit Agreement and each of the other Loan Documents
and Security Documents, as amended and supplemented by this Third Amendment, are
confirmed as being in full force and effect.
(b) SURVIVAL OF INDEMNIFICATION. Notwithstanding the provisions of
this Third Amendment, the obligations of U-Security to indemnify the Agent and
the Banks pursuant to Section 10.3 of the Credit Agreement shall continue, and
are not in any way prejudiced or limited by the sale of the U-Security Shares,
with respect to matters arising or occurring prior to the date hereof.
(c) FURTHER ASSURANCES. The Agent and the Banks will execute and
deliver any UCC-3 termination statements or other documents or instruments
necessary to release their lien in the assets of U-Security as the Borrowers
shall reasonably request.
-5-
<PAGE> 6
(d) GOVERNING LAW. This Third Amendment is intended to take effect
as a sealed instrument and shall be deemed to be a contract under the laws of
the Commonwealth of Massachusetts. This Third Amendment and the rights and
obligations of each of the parties hereto and thereto shall be governed by and
interpreted and determined in accordance with the laws of the Commonwealth of
Massachusetts.
(e) BINDING EFFECT; ASSIGNMENT. This Third Amendment shall be
binding upon and inure to the benefit of each of the parties hereto and their
respective successors in title and assigns.
(f) COUNTERPARTS. This Third Amendment may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed an original, but all of which together shall constitute one instrument.
In making proof of this Third Amendment, it shall not be necessary to produce or
account for more than one counterpart thereof signed by each of the parties
hereto.
(g) CONFLICT WITH OTHER AGREEMENTS. If any of the terms of this
Third Amendment shall conflict in any respect with any of the terms of any of
the Credit Agreement or any other Loan Document, the terms of this Third
Amendment shall be controlling.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this Third Amendment and return such
counterpart to the undersigned, whereupon this Third Amendment, as so accepted
by you, shall become a binding agreement among you and the undersigned.
Very truly yours,
THE BORROWERS:
UNICCO SERVICE COMPANY
By: /s/ George A. Keches
-------------------------------------
Title: Treasurer
USC, INC.
By: /s/ George A. Keches
-------------------------------------
Title: Treasurer
(Signatures continued on next page)
-6-
<PAGE> 7
UNICCO GOVERNMENT SERVICES, INC.
By: /s/ George A. Keches
-------------------------------------
Title: Treasurer
UNICCO FINANCE CORP.
By: /s/ George A. Keches
-------------------------------------
Title: Treasurer
AMERICAN BUILDING SERVICES, INC.
By: /s/ George A. Keches
-------------------------------------
Title: Treasurer
UNICCO SERVICE OF N.J., INC.
By: /s/ George A. Keches
-------------------------------------
Title: Treasurer
The foregoing Third Amendment is hereby accepted by the undersigned as
of December 28, 1998.
THE BANKS:
BANKBOSTON, N.A.
By: /s/ H. J. Petrillo
-------------------------------------
Title: Director
FLEET NATIONAL BANK
By: /s/ Theresa A. Crofts
-------------------------------------
Title: Assistant Vice President
(signatures continued on next page)
-7-
<PAGE> 8
STATE STREET BANK AND TRUST COMPANY
By: /s/ Mark Miller
-------------------------------------
Title: Vice President
THE AGENT:
BANKBOSTON, N.A., as Agent
By: /s/ H. J. Petrillo
-------------------------------------
Title: Director
CONSENT OF GUARANTOR
Unicco Facility Services Canada Company (the "Guarantor") has
guaranteed the Obligations of the Borrowers under (and as defined in) the Credit
Agreement by executing one or more Unlimited Guarantees, dated as of October 17,
1997 (the "U-Canada Guaranty"). By executing this letter, the Guarantor hereby
absolutely and unconditionally reaffirms the U-Canada Guaranty and acknowledges
and agrees to the terms and conditions of this Third Amendment, and the Credit
Agreement as amended hereby.
UNICCO FACILITY SERVICES CANADA COMPANY
By: /s/ George A. Keches
-------------------------------------
Title: Treasurer
-8-
<PAGE> 1
EXHIBIT 10.8
WAIVER AND
SECOND AMENDMENT TO
NOTE PURCHASE AGREEMENT
This Waiver and Second Amendment to Note Purchase Agreement (the
"Waiver and Amendment") is made as of this 28th day of December, 1998, by and
between UNICCO SERVICE COMPANY, a Massachusetts business trust ("UNICCO"), USC,
INC., a Massachusetts corporation ("USC"), UNICCO SECURITY SERVICES, INC., a
Delaware corporation ("U-Security"), and UNICCO GOVERNMENT SERVICES, INC., a
Delaware corporation, with their principal place of business at Four Copley
Place, Boston, Massachusetts 02116 (individually a "Company" and collectively
the "Companies") and MASSACHUSETTS CAPITAL RESOURCE COMPANY, a Massachusetts
special purpose limited partnership with a principal place of business at 420
Boylston Street, Boston, Massachusetts 02116 (the "Purchaser").
WHEREAS, the Companies and the Purchaser are parties to a Note Purchase
Agreement dated as of June 28, 1996, as amended by First Amendment to Note
Purchase Agreement dated as of October 17, 1997 (as amended, the "Agreement"),
pursuant to which the Companies issued to the Purchaser and the Purchaser
acquired the Companies' Promissory Note due September 30, 2001 in the original
principal amount of $5,000,000 (the "Note");
WHEREAS, UNICCO, USC and U-Security have entered into a Stock Purchase
Agreement dated as of October 26, 1998, as amended by the First Amendment to
Stock Purchase Agreement, dated December 11, 1998 (the "Purchase Agreement"),
pursuant to which USC has agreed to sell all of the stock of U-Security to
Argenbright Security, Inc.;
WHEREAS, the Purchaser, which has been and continues to be the holder
of the Note, is agreeable to waiving all provisions of the Agreement which would
restrict the consummation of the transactions contemplated by the Purchase
Agreement (the "Sale Transaction") and to amending the Agreement and the Note to
remove U-Security as a maker of the Note and as a party to the Agreement.
NOW, THEREFORE, the Companies, jointly and severally, and the
Purchaser, hereby agree as follows:
A. AMENDMENTS TO THE NOTE AND AGREEMENT; RELEASE OF U-SECURITY.
The Note and Agreement are hereby amended by deleting U-Security from the term
and meaning of "Company" and Companies" wherever such terms appear in the Note
and the Agreement, including without limitation in the definition of those terms
in the preamble to the Agreement, Section 6.01 of the Agreement and the first
paragraph of the Note. From
<PAGE> 2
and after the date hereof, U-Security shall not for any purpose be deemed to be
a Company or one of the Companies under the Note and the Agreement, or to have
any obligation to the Purchaser with respect to obligations under the Note and
the Agreement, and U-Security shall be deemed released in all respects from any
and all liability under the Note and the Agreement.
B. WAIVER. Notwithstanding anything to contrary set forth in the
Agreement, including, without limitation, Sections 4.02(e) and 4.02(i) thereof,
the Purchaser hereby waives any default which may otherwise arise with respect
to, consents and agrees to, and hereby authorizes UNICCO and USC to engage in
and consummate, the Sale Transaction.
C. MISCELLANEOUS PROVISIONS.
1. Except as otherwise expressly provided by this Waiver and
Amendment, all of the terms, conditions and provisions of the Note and Agreement
shall remain the same. It is declared and agreed by each of the parties hereto
that the Note and Agreement, as amended hereby, are and shall continue in full
force and effect, and that this Waiver and Amendment, together with the
Agreement, shall be read and construed as one instrument. All references to the
Agreement shall mean the Agreement as amended hereby.
2. This Waiver and Amendment is intended to take effect as an
agreement under seal and shall be construed according to and governed by the
laws of the Commonwealth of Massachusetts.
3. This Waiver and Amendment may be executed in any number of
counterparts, but all such counterparts shall together constitute but one
instrument. In making proof of the Amendment it shall not be necessary to
produce or account for more than one counterpart signed by each party hereto by
and against which enforcement hereof is sought.
IN WITNESS WHEREOF, the parties have executed this Wavier and Amendment
as of the date first above written.
UNICCO SERVICE COMPANY
By: /s/ George A. Keches
----------------------------------
George A. Keches, Treasurer
(SIGNATURES CONTINUED ON NEXT PAGE)
2
<PAGE> 3
USC, INC.
By: /s/ George A. Keches
-------------------------------------
George A. Keches, Treasurer
UNICCO SECURITY SERVICES, INC.
By: /s/ George A. Keches
-------------------------------------
George A. Keches, Assistant Treasurer
UNICCO GOVERNMENT SERVICES, INC.
By: /s/ George A. Keches
-------------------------------------
George A. Keches, Treasurer
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By: /s/ Richard Anderson
-------------------------------------
Title: Senior Vice President
------------------------------
3
<PAGE> 1
EXHIBIT 10.10
EXECUTION DRAFT
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
This First Amendment to Stock Purchase Agreement, dated December 11,
1998 (this "Amendment"), is by and among Argenbright Security, Inc., a Georgia
corporation (the "Purchaser"); UNICCO Security Services, Inc., a Delaware
corporation (the "Company"); USC, Inc., a Massachusetts corporation ("Seller");
and UNICCO Service Company, a Massachusetts business trust ("Shareholder");
BACKGROUND
A. The Purchaser, the Company, the Seller and the Shareholder
have executed and delivered a Stock Purchase Agreement, dated October 26, 1998
(the "Stock Purchase Agreement").
B. The Purchaser, the Company, the Seller and the Shareholder
desire to amend the Stock Purchase Agreement.
AGREEMENTS
1. DEFINITIONS. Any capitalized term not otherwise defined in
this Amendment shall have the same meaning as in the Stock Purchase Agreement.
2. AMENDMENT OF STOCK PURCHASE AGREEMENT.
(a) SECTION 1.4. Section 1.4 is amended to read as
follows:
1.4 CLOSING. Subject to the fulfillment or
waiver of the conditions precedent set forth in Article 6
hereof, and subject to any extension permitted under clause
(y) of Section 9.3(b) hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take
place at the offices of Posternak, Blankstein & Lund, L.L.P.,
at 100 Charles River Plaza, Boston, Massachusetts 02114-2723,
on December 28, 1998, or such other date as may be agreed upon
by the parties (such date, the "Closing Date"). Subject to the
consummation of the Closing, the sale, transfer and conveyance
to the Purchaser of the Shares shall be deemed effective as of
12:01 A.M., Eastern Standard Time, on the Closing Date (the
"Effective Time"). Except as otherwise provided herein, all
proceedings to be taken and all documents to be executed at
the Closing shall be deemed to have been taken, delivered and
executed simultaneously, and no proceeding shall be deemed
taken nor documents deemed executed or delivered until all
have been taken, delivered and executed.
<PAGE> 2
(b) SECTION 5.18. The last sentence of Section 5.18 shall
be deleted and the following text shall be inserted in its place:
No supplement or amendment to any such Schedules
shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Sections
6.1(a) or 6.2(a); provided, however that the
disclosure in any such supplement or amendment to the
Schedules with respect to any matter occurring after
the date hereof (which did not exist on the date
hereof) shall not form the basis of a claim for
misrepresentation or breach of a representation,
warranty, covenant or agreement hereunder; provided,
further, however, that none of the Shareholder,
Purchaser, Seller or the Company shall be deemed to
have failed to satisfy the conditions set forth in
Sections 6.1(a) or 6.2(a) by reason of the disclosure
in any supplement or amendment to the Schedules with
respect to any matter occurring after the date of the
First Amendment to Stock Purchase Agreement, dated
December 11, 1998 (the "Amendment Date") (which did
not exist on the date hereof or at any time
thereafter through the Amendment Date).
(c) SECTION 6.1. Section 6.1 is amended as follows:
(i) The text of subsection (a) shall be deleted and
replaced with the following text:
(a) Each of the representations and
warranties of Shareholder, Seller and the Company set
forth in Articles 3 and 4 hereof shall have been true
and correct on and as of the date of this Agreement,
as of the Amendment Date and, except with respect to
the "Excluded Representations" (as defined below), as
of the Closing Date, with the same force and effect
as though made on and as of the Closing Date. The
term "Excluded Representations" means the
representations and warranties of the Shareholder,
Seller and Company set forth in Section 4.8
[Undisclosed Liabilities]; Sections 4.9(a)(i),
4.9(a)iii) and 4.9(b)(iv) [Absence of Certain Changes
and Events]; the last sentence of Section 4.12
[Material Contracts], to the extent relating to a
breach of a Material Contract by a party other than
Company; clauses (d) through (o) of Section 4.15
[Labor Matters]; subsections (a), (b) and (e)(i) of
Section 4.16 [Environmental Matters]; the last
sentence of Section 4.17 [Insurance]; Section 4.19
[Litigation]; and the last sentence of Section 4.24
[Customers]. Notwithstanding the foregoing, any such
representation or warranty that is already qualified
by "materiality" shall be true in all respects at the
time it is reaffirmed; provided, however, that the
foregoing is inapplicable to the Excluded
Representations as of the Closing Date because the
Excluded Representations will not be reaffirmed as of
the Closing Date.
2
<PAGE> 3
(ii) Subsection (b) shall be amended by the addition of a
new last sentence to read as follows:
Neither Shareholder, Seller nor Company shall be
deemed to be in default with respect to the covenants
set forth in subsections (b) or (c) of Section 5.2 or
subsection (c) of Section 5.3 because of the
occurrence between the Amendment Date and the Closing
Event of any event not within the control of
Shareholder, Purchaser or Company.
(iii) The text of subsection (e) shall be deleted and the
word "reserved" shall be inserted in its place;
(iv) The text of subsection (r) shall be deleted and the
word "reserved" shall be inserted in its place; and
(v) The text of subsection (s) shall be deleted and the
word "reserved" shall be inserted in its place.
(d) SECTION 6.2. Section 6.2 is amended as follows:
(i) The text of subsection (i) shall be deleted and the
word "reserved" shall be inserted in its place.
(e) SECTION 7.2. Section 7.2 is amended to read as
follows:
7.2 CERTAIN TAX MATTERS.
(a) Any tax sharing agreement between the
Company and the Seller and/or any direct or indirect
subsidiary of the Seller shall be, and is hereby, terminated
as of the Closing Date and will have no further effect for any
taxable year (whether the current year, a future year or a
past year).
(b) Seller will join with Purchaser in making an
election under Section 338(h)(10) of the Code and Treasury
Regulation Section 1.338(h)(10)-1 (and any corresponding
elections under any applicable state and local Laws)
(collectively, a "Section 338(h)(10) Election") with respect
to the purchase and sale of the Shares hereunder. Seller will
pay any Tax attributable to the making of the Section
338(h)(10) Election and Seller will indemnify Purchaser and
the Company from and against any and all damages, penalties,
fines, costs, reasonable amounts paid in settlement,
liabilities, obligations, losses, expenses and fees (including
court costs and reasonable attorneys' fees and expenses)
arising out of any failure to pay such Tax.
(c) Seller will be responsible for preparing and
filing all income and franchise Tax Returns of the Company for
all Tax periods ending on or before the
3
<PAGE> 4
Closing Date, and Seller shall pay all income and franchise
taxes of Company for all such periods. Purchaser will be
responsible for preparing and filing the Section 338(h)(10)
election (provided that Seller shall provide such written
consents and other items required by Seller to make such
election) and all income and franchise Tax Returns of the
Company relating to periods beginning on or after the Closing
Date. After the Closing has occurred, Purchaser will cause the
Company to provide, or cause to be provided, to Seller,
without charge, any information that may reasonably be
requested by Seller in connection with the preparation of any
Tax Returns relating to periods ending on or before the
Closing Date.
(d) The parties hereto agree to cooperate with
one another to allocate the Purchase Price in a manner
reasonably acceptable to the parties. Such agreed allocation
shall be binding on the Seller and Purchaser and their
respective affiliates for all purposes (including without
limitation, financial accounting purposes, financial and
regulatory reporting purposes and tax purposes) and none of
the parties or such affiliates shall take for tax purposes any
position in any tax return, report, form, declaration or
questionnaire that is inconsistent with such allocation.
(f) SECTION 7.4(d). Section 7.4 is amended as follows:
(i) Clause (C) of subsection 7.4(d) is amended to read as
follows:
(C) performing its obligations under the terms of (w)
the Agreement dated October 1, 1996, between
Shareholder and General Services Administration; (x)
the Agreement dated May 19, 1997 between Shareholder
and LeMoyne-Owen College; (y) the Agreement dated
July 1, 1992 between Shareholder and The McCallie
School; and (z) the Agreement dated September, 1988
between Shareholder and Ingersoll-Rand Company.
(g) ARTICLE 7. Article 7 shall be amended by the
insertion of new Sections 7.5 and 7.6 to read as follows:
7.5 CHICAGO EEOC LITIGATION. Seller and
Shareholder shall provide, promptly following
receipt, to Purchaser copies of all correspondence
with the EEOC and the court, pleadings and discovery
requests and responses relating to the action filed
by the Equal Employment Opportunity Commission in the
United States District Court for the Northern
District of Illinois, Eastern Division (Civil Action
No. 98C 6083) (the "EEOC Litigation") and otherwise
keep Purchaser fully informed regarding the status of
the EEOC Litigation; PROVIDED, HOWEVER, that Seller
and Shareholder shall be under no obligation to
provide to Purchaser any attorney/client confidential
or privileged materials or any materials relating to
matters involving Seller or Shareholder insurance
coverage for the EEOC
4
<PAGE> 5
Litigation. Seller and Shareholder shall (i) at their
sole cost and expense, vigorously defend against the
claims asserted against the Company in the EEOC
Litigation to the extent such claims relate to
actions or omissions of the Company occurring prior
to the Closing Date, and (ii) permit Purchaser to
monitor the defense of the EEOC Litigation, with
counsel of its own choice and at its expense and
(iii) consult with and consider the recommendations
and advice of Purchaser and any such counsel with
respect to defense of the EEOC Litigation. Neither
Seller nor Shareholder shall settle the EEOC
Litigation without the prior written consent of the
Purchaser. The parties agree that, notwithstanding
any other provision of this Agreement, (i) the
obligations of Seller and Shareholder set forth in
this Section 7.5 shall survive the Closing
indefinitely, and (ii) there are no express or
implied limitations on Seller's and Shareholder's
defense and settlement rights relating to the
Shareholder in the EEOC Litigation.
7.6 LEMOYNE-OWEN COLLEGE CONTRACT.
Seller and Shareholder shall use their best efforts
to obtain, as soon as practicable following the
Closing, the consent of LeMoyne-Owen College, a
client of the Shareholder, to the execution of a
subcontract between the Shareholder and the Purchaser
providing for the performance by the Purchaser of all
services included within the Company Activities that
Shareholder is obligated to provide pursuant to its
contract with such client. Shareholder shall enter
into such subcontract with Purchaser promptly
following Shareholder's receipt of such consent, if
it is received. The obligations of Seller and
Shareholder set forth in this Section 7.6 shall
survive the Closing indefinitely.
(h) SECTION 8.1. Section 8.1 shall be amended as follows:
(i) Paragraph (iii) of subsection 8.1(a) shall be amended
to read as follows:
the Excluded Liabilities (including, without
limitation, the Terminated Contracts, Terminated
Vehicles, and any liability or cost incurred in
respect of any EEOC claim or other litigation
(including, without limitation, the EEOC Litigation)
relating to events occurring prior to the Closing
Date);
(ii) The following text shall be inserted at the end of
Section 8.1:
Purchaser acknowledges and agrees that it shall not
be entitled to assert any claim against the Seller or
Shareholder pursuant to this Section 8.1 or otherwise
with respect to (i) any claim asserted by the EEOC
against the Company and/or the Purchaser in the EEOC
Litigation or any other action, to the extent arising
or resulting from conduct of the Company following
the Closing Date or conduct of the Purchaser at any
time prior to or following the
5
<PAGE> 6
Closing Date, or (ii) any costs or expenses of
compliance with any injunctive relief which may be
imposed as a result of the EEOC Litigation and which
relates to the operations or business of the
Purchaser other than the operations and business of
the Company as they existed prior to the Closing
Date.
(i) SECTION 9.3(b). Section 9.3(b) is amended as follows:
(i) The text of clause (ii) shall be deleted and replaced
with the word "reserved"; and
(ii) The date "December 1, 1998" in clause (iii) shall be
deleted and replaced with the date "December 28,
1998".
(j) SECTION 9.3(c). Section 9.3(c) is amended by the
deletion of the date "December 1, 1998" in clause (ii) and the
replacement of such date with the date "December 28, 1998".
3. REPRESENTATIONS AND WARRANTIES; COVENANTS. (a) Each of the
representations and warranties of Shareholder, Seller and Company set forth in
the Stock Purchase Agreement was true and correct in all material respects on
the date of the execution of the Stock Purchase Agreement and is true and
correct in all material respects on and as of the date hereof (unless limited by
their term to a prior date) with the same force and effect as though made on and
as of the date hereof; provided, however, that any such representation or
warranty that is already qualified by "materiality" was true and correct on the
date of execution of the Stock Purchase Agreement and is true and correct on and
as of the date hereof with the same force and effect as though made on and as of
the date hereof. Shareholder, Seller and Company have performed and complied
with, in all material respects, all covenants, obligations and agreements set
forth in the Stock Purchase Agreement to be performed and complied with by them
prior to the date hereof.
(b) Purchaser represents and warrants to Seller,
Shareholder and Company that Purchaser has obtained the consent of First Union
National Bank, N.A., as Syndication Agent pursuant to Purchaser's credit
agreement, to the consummation of the transactions contemplated by the Stock
Purchase Agreement and that such consent remains in full force and effect on the
date of this Agreement.
4. AMENDMENT OF SCHEDULES. Copies of amended and restated
Schedules 4.12, 4.18, 4.19 and 5.4 are attached to this Amendment. The Seller
and Shareholder jointly and severally represent and warrant to the Purchaser (i)
that the customer contracts that were included on Schedule 4.12 on the date of
the execution of the Stock Purchase Agreement and that are not included in
Schedule 4.12 as amended on the date hereof (the "Excluded Contracts") were
mistakenly included on Schedule 4.12 because they had expired or been terminated
prior to the date of the Stock Purchase Agreement and (ii) that the financial
results and projections supplied by the Seller, Shareholder or Company to
Purchaser in connection with Purchaser's evaluation of the Company's business
did not include any revenues attributable to the Excluded Contracts.
6
<PAGE> 7
5. AMENDMENT OF EXHIBIT. Subsection 2.1(g) of Exhibit C to the
Stock Purchase Agreement, the Assumption Agreement, shall be amended to read as
follows: "any liability arising in connection with the termination of employment
of any employee of the Company, Seller or Shareholder that arises prior to the
Closing." The parties agree that all references in the Stock Purchase Agreement
to Exhibit C shall refer to Exhibit C as so amended.
6. EXECUTION OF ESCROW AGREEMENT. Simultaneously with the
execution and delivery of this Agreement, (i) the Purchaser, the Seller and
SunTrust Bank, Atlanta, as Escrow Agent, are executing and delivering the Escrow
Agreement, dated as of the date hereof, in the form attached to this Amendment
as Exhibit "A" and (ii) the Purchaser is depositing into the escrow fund created
by such Escrow Agreement the sum of $1,200,000 in cash in immediately available
funds, such funds to be held and disbursed pursuant to the terms of such Escrow
Agreement.
7. EFFECT ON STOCK PURCHASE AGREEMENT. Except as expressly
modified by this Amendment, the Parties ratify and confirm the Stock Purchase
Agreement in all respects.
[Signatures appear on the following page]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
PURCHASER:
ARGENBRIGHT SECURITY, INC.
By: /s/ David L. Gamsey
-------------------------------------
Title: Vice President and CEO
-------------------------------
THE COMPANY:
UNICCO SECURITY SERVICES, INC.
By: /s/ George A. Keches
-------------------------------------
Title: Assistant Treasurer
-------------------------------
SELLER:
USC, INC.
By: /s/ George A. Keches
-------------------------------------
Title: Treasurer
-------------------------------
SHAREHOLDER
UNICCO SERVICE COMPANY
By: /s/ George A. Keches
-------------------------------------
Title: CFO
-------------------------------
8
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF UNICCO SERVICE COMPANY
(1) UNICCO Finance Corp. (Delaware corporation)
(2) USC, Inc. (Massachusetts corporation)
(a) UNICCO Government Services, Inc. (f/k/a Ogden Allied
Eastern States Maintenance Corporation) (Delaware corporation)
(3) UNICCO Service of N.J., Inc. (New Jersey corporation)
(4) UNICCO of M.I., Inc. (Michigan corporation)
(5) UNICCO Facility Services Canada Company (Nova Scotia unlimited
liability company)*
*UNICCO Facility Services Canada Company is owned jointly by UNICCO Service
Company (79%) and USC, Inc. (21%).
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-82445) of UNICCO Service Company of our report
dated September 20, 1999 relating to the financial statements and financial
statement schedules, which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, MA
September 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
JUNE 27, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS
INCLUDED IN THIS REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-START> JUN-29-1998
<PERIOD-END> JUN-27-1999
<CASH> 24,938
<SECURITIES> 0
<RECEIVABLES> 76,406
<ALLOWANCES> 2,467
<INVENTORY> 0
<CURRENT-ASSETS> 104,016
<PP&E> 17,021
<DEPRECIATION> 11,607
<TOTAL-ASSETS> 159,884
<CURRENT-LIABILITIES> 36,373
<BONDS> 109,592
0
0
<COMMON> 378
<OTHER-SE> 13,381
<TOTAL-LIABILITY-AND-EQUITY> 159,884
<SALES> 522,363
<TOTAL-REVENUES> 522,363
<CGS> 462,563
<TOTAL-COSTS> 462,563
<OTHER-EXPENSES> 44,782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,088
<INCOME-PRETAX> 3,930
<INCOME-TAX> 824
<INCOME-CONTINUING> 3,106
<DISCONTINUED> 5,225
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,331
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>The Company's equity is not publicly traded.
</FN>
</TABLE>
