-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, To9OQJ9PFwoFyACJUCNoE2+b5e9LQLp3nDEEglVABKG37tNqvG0MPA0ggwB8RDCA HG8DVyFWgRkfviF+QWvBeQ== 0000950135-99-004531.txt : 19990928 0000950135-99-004531.hdr.sgml : 19990928 ACCESSION NUMBER: 0000950135-99-004531 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990627 FILED AS OF DATE: 19990927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNICCO SERVICE CO CENTRAL INDEX KEY: 0001050011 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TO DWELLINGS & OTHER BUILDINGS [7340] IRS NUMBER: 042872501 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-42407 FILM NUMBER: 99717608 BUSINESS ADDRESS: STREET 1: FOUR COPLEY PLACE CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6178599100 MAIL ADDRESS: STREET 1: FOUR COPLEY PLACE CITY: BOSTON STATE: MA ZIP: 02116 10-K405 1 UNICCO SERVICE COMPANY 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- 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 --------------- 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) -------------- 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] --------------- DOCUMENTS INCORPORATED BY REFERENCE NOT APPLICABLE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 UNICCO SERVICE COMPANY FORM 10-K FISCAL YEAR ENDED JUNE 27, 1999 TABLE OF CONTENTS
ITEM PART I PAGE 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
-2- 3 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. -3- 4 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 -4- 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. -5- 6 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. -6- 7 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. -7- 8 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.
FOR THE YEARS ENDED ------------------------------------------------------------------- JUNE 25, JUNE 30, JUNE 29, JUNE 28, JUNE 27, 1995 1996(a) 1997 1998 1999 -------- -------- -------- -------- -------- 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
-8- 9 - ---------- (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. -9- 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. -10- 11 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.
FOR THE YEARS ENDED ----------------------------------------------------------------------- JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997 ----------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 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% ========= ======= ======== ======= ========= =======
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. -11- 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- 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- 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- 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- 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.
EXPECTED FISCAL YEAR OF MATURITY ---------------------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 THEREAFTER ---------------------------------------------------------------------------------------------- Fixed-Rate Senior Subordinated notes -- -- -- -- -- $105,000,000 Interest rate -- -- -- -- -- 9.875% Fixed-Rate Subordinated promissory Note -- -- $5,000,000 -- -- -- Interest rate -- -- 14.00% -- -- --
The estimated fair values of the Senior Subordinated Notes and the Subordinated Promissory Note at June 27, 1999 are presented below (in thousands):
CARRYING FAIR AMOUNT VALUE -------------- --------------- Fixed-Rate Senior Subordinated Notes $ 104,592 $ 101,588 Fixed-Rate Subordinated Promissory Note 5,000 5,745
-16- 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- 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS UNICCO SERVICE COMPANY
PAGE ---- 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
-18- 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- 20 UNICCO SERVICE COMPANY CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS)
FOR THE YEARS ENDED ------------------- JUNE 27, JUNE 28, JUNE 29, 1999 1998 1997 -------------- -------------- -------------- 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 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. -20- 21 UNICCO SERVICE COMPANY CONSOLIDATED BALANCE SHEET (IN THOUSANDS)
JUNE 27, JUNE 28, 1999 1998 -------------- -------------- 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 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. -21- 22 UNICCO SERVICE COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED NOTES TOTAL OTHER RECEIVABLE TREASURY SHAREHOLDERS' COMMON STOCK RETAINED COMPREHENSIVE FROM STOCK EQUITY SHARES AMOUNT EARNINGS INCOME STOCK SALES AMOUNT ------------- ------ ------ -------- ------------- ----------- -------- 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) ======== ===== ===== ======= ====== ====== ====
The accompanying notes are an integral part of these consolidated financial statements. -22- 23 UNICCO SERVICE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED ------------------- JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997 ------------- ------------- ------------- 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 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. -23- 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:
1999 1998 1997 IN THOUSANDS IN THOUSANDS IN THOUSANDS ------------ ------------ ------------ 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 ============ ============ ============
The components of the net assets of discontinued operations were as follows at June 28, 1998:
1998 IN THOUSANDS ------------ Property and equipment............................... $ 293 Acquired contract rights, net........................ 7,067 Deposits............................................. 21 ------------ $ 7,381 ============
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- 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:
ESTIMATED DESCRIPTION USEFUL LIFE ----------- ----------- 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
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:
1999 1998 IN THOUSANDS IN THOUSANDS ------------ ------------ 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 ============ ============
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- 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- 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- 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:
FISCAL YEAR AMOUNT ----------- IN THOUSANDS ------------ 2000...................................................................... $ 0 2001...................................................................... 0 2002...................................................................... 5,000 2003...................................................................... 0 2004...................................................................... 0 ------------ $ 5,000 ============
The estimated fair values of the Senior Subordinated Notes and the Subordinated Promissory Note at June 27, 1999 are presented below (in thousands):
CARRYING FAIR AMOUNT VALUE -------------- ------------ Fixed-Rate Senior Subordinated Notes $ 104,592 $ 101,588 Subordinated Promissory Note 5,000 5,745
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- 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:
FISCAL YEAR AMOUNT ----------- IN THOUSANDS ------------ 2000.......................................................... $ 5,117 2001.......................................................... 4,144 2002.......................................................... 3,199 2003.......................................................... 1,322 2004.......................................................... 450 Thereafter.................................................... 226 ------------ $ 14,458 ============
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- 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:
YEAR ENDED --------------------------------- IN THOUSANDS --------------------------------- JUNE 27, JUNE 28, JUNE 29, 1999 1998 1997 -------- -------- -------- Domestic........................................ $ 2,680 $ 2,223 $ 2,956 Foreign......................................... 1,250 727 199 -------- -------- -------- $ 3,930 $ 2,950 $ 3,155 ======== ======== ========
The provision (benefit) for income taxes related to income from continuing operations consists of the following:
YEAR ENDED --------------------------------- IN THOUSANDS --------------------------------- JUNE 27, JUNE 28, JUNE 29, 1999 1998 1997 -------- -------- -------- Current: Federal.................................... $ -- $ -- $ 309 State...................................... 316 35 133 Foreign.................................... 806 584 99 Deferred: Federal.................................... -- -- -- State...................................... (298) 27 1,787 -------- -------- -------- $ 824 $ 646 $ 2,328 ======== ======== ========
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- 31 Deferred tax assets (liabilities) are comprised of the following:
JUNE 27, JUNE 28, 1999 1998 IN THOUSANDS IN THOUSANDS ------------ ------------ 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) =========== ===========
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:
FOR THE YEAR ENDED ------------------------------------ JUNE 27, JUNE 28, JUNE 29, 1999 1998 1997 -------- -------- -------- 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% ====== ====== ======
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- 32 9. SHAREHOLDERS' EQUITY Common shares of UNICCO consist of the following:
JUNE 27, JUNE 28, 1999 1998 IN THOUSANDS IN THOUSANDS ------------ ------------ 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 ========= =========
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- 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):
NET REVENUE FROM CONTINUING OPERATIONS LONG-LIVED ASSETS -------------------------------------------------- -------------------------------------------- 1999 1998 1997 1999 1998 1997 -------------------------------------------------- -------------------------------------------- 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 ========== ========== ========== ========= ========= =========
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- 34 CONDENSED CONSOLIDATING STATEMENT OF INCOME - (IN THOUSANDS)
YEAR ENDED JUNE 27, 1999 ------------------------------------------------------------------------------------------- NONGUARANTOR GUARANTOR SUBSIDIARY CONSOLIDATED UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ 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 ========= ========= ========= ========= =========
-34- 35 CONDENSED CONSOLIDATING STATEMENT OF INCOME - (IN THOUSANDS)
YEAR ENDED JUNE 28, 1998 ------------------------------------------------------------------------------------- NONGUARANTOR GUARANTOR SUBSIDIARY CONSOLIDATED UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ 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 ========= ========= ========= ========= =========
-35- 36 CONDENSED CONSOLIDATING STATEMENT OF INCOME - (IN THOUSANDS)
YEAR ENDED JUNE 29, 1997 --------------------------------------------------------------------------------------- NONGUARANTOR GUARANTOR SUBSIDIARY CONSOLIDATED UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ 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 ========= ========= ========= ========= =========
-36- 37 CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
JUNE 27, 1999 ---------------------------------------------------------------------------------- NONGUARANTOR GUARANTOR SUBSIDIARY - CONSOLIDATED UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ 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 ======== ======== ======= ======== =========
-37- 38 CONDENSED CONSOLIDATING BALANCE SHEET - (IN THOUSANDS)
JUNE 28, 1998 ----------------------------------------------------------------------------------- NONGUARANTOR GUARANTOR SUBSIDIARY - CONSOLIDATED UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ 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 ======== ======== ======= ======== =========
-38- 39 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
YEAR ENDED JUNE 27, 1999 ------------------------------------------------------------------------- NONGUARANTOR GUARANTOR SUBSIDIARY - CONSOLIDATED UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ 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 ======== ======== ======== ======== ========
-39- 40 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
YEAR ENDED JUNE 28, 1998 ------------------------------------------------------------------------ NONGUARANTOR GUARANTOR SUBSIDIARY - CONSOLIDATED UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ 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 ========= ========= ========= ========= =========
-40- 41 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - (IN THOUSANDS)
YEAR ENDED JUNE 29, 1997 -------------------------------------------------------------------------- NONGUARANTOR GUARANTOR SUBSIDIARY - CONSOLIDATED UNICCO SUBSIDIARIES UFSCC ELIMINATIONS TOTAL ------ ------------ ------------ ------------ ------------ 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 ======== ======== ======== ========= ========
-41- 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
NAME POSITION ---- -------- 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
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:
NAME POSITION ---- -------- 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.
(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- 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- 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- 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.
ANNUAL LONG-TERM COMPENSATION COMPENSATION ----------------------------------------------- ----------------------------- SHARES NAME AND PRINCIPAL POSITION OTHER ANNUAL UNDERLYING ALL OTHER - --------------------------- SALARY BONUS (1) COMPENSATION OPTIONS COMPENSATION (5) --------------- ---------- ------------- ---------- ---------------- 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
- ---------- (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- 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.
SHAREHOLDER NUMBER OF PERCENTAGE OF PERCENTAGE OF - ----------- SHARES CLASS VOTING POWER --------- ------------- ------------- 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% ======= ======= =======
- ---------- (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- 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- 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- 49 (d) - Financial statement schedules SCHEDULE I -VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
YEAR ENDED JUNE 27, 1999 ------------------------ CHARGED TO COSTS BEGINNING AND EXPENSES DEDUCTIONS/ ENDING BALANCE DESCRIPTION BALANCE ---------------- ADJUSTMENT -------------- ----------- ---------- ----------- 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 -------------- ----------- ---------- ----------- 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 -------------- ----------- --------- ----------- Allowance for doubtful accounts $ 239 $ 1,336 $ (14) $ 1,561 ========= ======== ========= ==========
-49- 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.
/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
-50- 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) EX-4.3 2 SECOND SUPPLEMENTAL INDENTURE & GUARANTEE 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 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 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 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 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 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 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 EX-10.4 3 THIRD AMENDMENT TO LOAN DOCUMENTS 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- 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- 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- 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- 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- 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- 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- 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- EX-10.8 4 WAIVER & SECOND AMENDMENT TO NOTE PURCHASE AGREE. 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 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 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 EX-10.10 5 FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT 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. 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 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 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 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 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 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 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 EX-21.1 6 SUBSIDIARIES OF UNICCO SERVICE COMPANY 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%). EX-23.1 7 CONSENT OF INDEPENDENT ACCOUNTANTS 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 EX-27 8 FINANCIAL DATA SCHEDULE
5 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. 1,000 YEAR JUN-27-1999 JUN-29-1998 JUN-27-1999 24,938 0 76,406 2,467 0 104,016 17,021 11,607 159,884 36,373 109,592 0 0 378 13,381 159,884 522,363 522,363 462,563 462,563 44,782 0 11,088 3,930 824 3,106 5,225 0 0 8,331 0 0 The Company's equity is not publicly traded.
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