-----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, Cj3Wb5fraJnPSDv2WeFGaeLF2TBJtQHKtWUbXYuE2MNxtesVJHgBsAtHnOnyhbay OX/WV93KuEyrZ3MoRODMZg== 0000950144-00-004220.txt : 20000331 0000950144-00-004220.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950144-00-004220 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WACKENHUT CORP CENTRAL INDEX KEY: 0000104030 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DETECTIVE, GUARD & ARMORED CAR SERVICES [7381] IRS NUMBER: 590857245 STATE OF INCORPORATION: FL FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05450 FILM NUMBER: 586876 BUSINESS ADDRESS: STREET 1: 4200 WACKENHUT DRIVE STREET 2: #100 CITY: PALM BEACH GARDEN STATE: FL ZIP: 33410 BUSINESS PHONE: 5616225656 MAIL ADDRESS: STREET 1: 4200 WACKENHUT DR STREET 2: #100 CITY: PALM BEACH GARDEN STATE: FL ZIP: 33410 10-K405 1 WACKENHUT CORPORATION FORM 10-K405 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 2000 OR [ ] 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 1-5450 THE WACKENHUT CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) FLORIDA 59-0857245 - ---------------------------------------- ------------------------------------ (State of Incorporation or Organization) (I.R.S. Employer Identification No.) 4200 WACKENHUT DR. #100, PALM BEACH GARDENS, FL 33410-4243 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's Telephone Number, Including Area Code: (561) 622-5656 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, Series A, $.10 par value New York Stock Exchange Common Stock, Series B, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None 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] At February 18, 2000, the aggregate value of 1,922,111 shares of Series A Common Stock and 8,924,287 shares of Series B Common Stock held by non-affiliates of the Registrant was $116,032,292. DOCUMENTS INCORPORATED BY REFERENCE Parts of the registrant's Annual Report to Shareholders for the fiscal year ended January 2, 2000 are incorporated by reference into Parts II and IV of this Report. Parts of the registrant's Proxy Statement for its 2000 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report. ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL The Wackenhut Corporation (the "Company") is a leading outsourcer of diversified services to business and government. The Company focuses strategically on three major businesses worldwide - security related and other operational support services, developer and manager of privatized correctional and detention facilities and personnel employee leasing and temporary services. The Security Services business consists of North America and Wackenhut International (WII). The security-related services businesses have expanded into a range of other support services to include base operations, facility management, fire and emergency medical services and food service to private and publicly managed correctional facilities. WII provides a greater variety of services than the Company offers domestically. These services include, among other things, electronic security systems, central station monitoring, cash-in-transit, satellite tracking of vehicles and cargo, building maintenance, secure storage of documents, postal services and distribution logistics. The Company, through its approximately 56% owned public subsidiary, Wackenhut Corrections Corporation (NYSE: WHC) designs, constructs, finances and manages correctional, detention and public sector mental health facilities and performs separate correctional-related services, including prisoner transportation, home detention monitoring and correctional health care. During the past four years, the Company has established a national presence in the flexible staffing industry which includes personnel employee leasing, temporary services, recruiting, risk management, payroll processing and human resource services. The Company has approximately 76,000 full and part-time employees, worldwide, serving over 10,000 commercial and governmental customers through an extensive network of offices and operations in 48 states and approximately 56 countries. The Company was incorporated in 1958 to continue the businesses that were originally established in 1954 by its Chairman, George R. Wackenhut, to provide security-related services to commercial and governmental customers. Since its founding, the Company has grown by: (i) enhancing its position in its security-related services business through the development of specialized and upgraded services; (ii) targeting specific segments of the security services industry; and (iii) expanding into a range of other support services in response to a growing trend toward privatization of governmental services and outsourcing by commercial customers. The Company is one of the largest security services organizations in the United States and is the leading United States-based provider of security services abroad. In addition to its physical security and uniformed officer services, the Company is a leader in the development of specialized niche services. For example, in response to a growing demand in the marketplace for security professionals with greater skill and responsibility levels, the Company has developed its Custom Protection Officer(R) ("CPO") program to provide highly specialized and trained security professionals to a broad range of customers such as national retailers, financial institutions and gated communities. CPO security professionals also are used as supplemental law enforcement forces by public transportation authorities and other governmental entities. Custom Protection Officer(R) is a Registered Service Mark of The Wackenhut Corporation. Another market initiative is the Company's National Accounts program, developed to provide focused and consistent service quality across its larger client's national, regional and global organizations. These clients asked for, and received, a dedicated executive within the Company to integrate and coordinate client security programs. These quality-centered programs partner the Company and its clients in performance excellence across the client's organization. The Company believes that the National Accounts program may also enable it to expand the scope of services offered worldwide to its National Account customers*. Management believes that the high quality and consistent service of its CPO and National Accounts programs provide the Company with an opportunity to maintain and enhance long-term relationships with its clients*. - -------- * Refer to Forward Looking Statements included in Exhibit 13.0 - page 21 to this Form 10-K. 2 3 As part of its strategy to respond to the growing trend toward privatization of governmental services, in 1984 the Company entered into the development and management of privatized correctional and detention facilities, a business which is now operated exclusively through its approximately 56% owned Wackenhut Corrections Corporation subsidiary ("WHC"). As of December 1999, WHC had contracts to manage 56 privatized correctional, detention and public sector mental health facilities, with a rated capacity of 39,930 beds. As of December 1999, 50 of these facilities with a rated capacity of 32,100 beds were in operation. It also had contracts for prisoner transportation, correctional health care services, and electronic monitoring. Building upon four decades of expertise in outsourcing services to businesses and government, in the third quarter of 1996, the Company entered into the professional employer organization ("PEO") employee leasing business by establishing Oasis Outsourcing, Inc. During 1997, the Company continued to expand its market presence in these areas and, consistent with that strategy, Wackenhut Resources, Inc. (WRI), a subsidiary of the Company, acquired the King Companies, in May 1997, and Professional Employee Management, Inc. (PEM Companies) in December 1997. Both companies are professional employer organizations, and in addition, the King Companies are in the temporary employment and recruiting service business. These two companies were combined with Oasis Outsourcing, Inc., under Wackenhut Resources, Inc., to form Flexible Staffing Services (Staffing Services). In November 1998, Flexible Staffing Services acquired Sharp Services and Advantage Temporary Services companies. By the end of 1999, Flexible Staffing Services had 21 PEO and 16 staffing offices in 11 states. In addition to the services, which the Company has specifically targeted for expansion, the Company continues to explore and selectively invest in other service businesses, including commercial and governmental support services, supplemental police services, crash-fire-rescue services, fire protection services, and airport services BUSINESS STRATEGY The Company focuses strategically on three major businesses worldwide - security related and other operational support services, developer and manager of privatized correctional and detention facilities and personnel employee leasing and temporary services. Key elements of the Company's business strategy are described below: SECURITY SERVICES o ENHANCE LEADERSHIP POSITION OF SECURITY-RELATED SERVICES. The Company strives to enhance its market position by attempting to provide the most reliable and consistent service in the industry. The Company believes its security professionals provide quality service because of: (i) strictly enforced screening and hiring procedures; (ii) intensive training; (iii) well organized supervisory and feedback procedures, and (iv) management dedicated to total quality programs. o DEVELOP SPECIALIZED SECURITY SERVICES. The Company has identified and targeted the National Account and CPO programs, as well as the traditional small commercial client market, as ongoing growth avenues toward market expansion. Management believes that the high quality and consistent service of its National Accounts and CPO programs provide the Company with an opportunity to establish and enhance long-term relationships with all its clients*. o DEVELOP COMPLEMENTARY SUPPORT SERVICES. The Company will seek to expand the scope of complementary support services it offers. The Company's successful identification and development of the correctional services and the staffing services has provided it with the experience it believes will allow it to develop other specialized programs and support services*. - -------- * Refer to Forward Looking Statements included in Exhibit 13.0 - page 21 to this Form 10-K. 3 4 o GEOGRAPHIC EXPANSION. The Company seeks to increase revenues and enhance earnings stability by continuing to expand its international presence in countries where its clients are expanding and building on its established expertise of local operations in existing and emerging markets. Historical revenue growth has been centered in Central and South America and, more recently, the Company has established its presence in Eastern European, Asian and African markets. Management believes that the Company's presence in approximately 56 countries worldwide provides it with an advantage when pursuing contracts with multi-national corporations. CORRECTIONAL SERVICES WHC's objective is to enhance its position as one of the leading providers of privatized correctional, detention and public sector mental health facility services. Key elements of WHC's business strategy include: (i) effective management of projects; (ii) selective development of new business opportunities such as mental health services provided through its subsidiary Atlantic Shores Healthcare, Inc.; (iii) selective pursuit of acquisitions; (iv) expansion of its scope of services; (v) expansion into international markets by establishing alliances with strategic local partners; and (vi) limiting capital risk. FLEXIBLE STAFFING SERVICES Wackenhut Resources has methodically expanded to become one of the largest outsourcing companies in the U.S. Its growth is resulting from the increasing trend of small and medium size businesses to lease employees from PEOs or use temporary workers in order to cut costs and provide more and better employee benefits. Wackenhut Resources' strategy for growth is to seek a balance between employee leasing and temporary staffing. It is felt that this broader blend of human resources services will better meet the needs of our clients as outsourcing trends continue. In addition to internal growth, the Company seeks to increase its presence in staffing services through selective acquisitions* such as the acquisitions of the King Companies in May 1997, Professional Employee Management, Inc. (PEM Companies) in December 1997, and Sharp Services and Advantage Temporary Services Companies in November 1998. o PURSUE SELECTED ACQUISITIONS. In addition to internal growth, the Company's growth strategy includes selected acquisitions*. MARKETS SECURITY SERVICES. The private security-related services industry includes guard services, alarm-monitoring services, security consulting services, armored car transport and other security services. The largest and most visible component of the industry is the guard service component, which also accounts for the largest portion of the Company's revenues. Guard service is often characterized within the industry as either "proprietary" or "contract," depending on the service provider. Under proprietary arrangements, end users of the services employ, schedule and manage their own security officers. In contrast, contract services are provided to end users pursuant to contracts with independent security-related service firms such as Wackenhut. Management believes that the advantages to clients of using contract security service providers rather than providing services internally on a proprietary basis are three-fold: (i) the client may realize cost and administrative savings; (ii) the client is freed to concentrate on its core competencies; and (iii) the client may be able to reduce labor management concerns with security-related employees, who are employed by the Company. CORRECTIONAL SERVICES. WHC views governmental agencies responsible for state correctional facilities in the United States and governmental agencies responsible for correctional facilities in the United Kingdom and Australia - -------- * Refer to Forward Looking Statements included in Exhibit 13.0 - page 21 to this Form 10-K. 4 5 as its primary potential customers. WHC's secondary customers include the INS, other federal and local agencies in the United States and other foreign governmental agencies. FLEXIBLE STAFFING SERVICES. Staffing Services provides temporary staffing, permanent placement, and Professional Employer Organization (PEO) services. The PEO provides integrated human resource administration, such as personnel employee leasing, risk management, payroll processing and human resource services. Client companies outsource a large part of the human resource function to the PEO. While the PEO becomes the employer of record for payroll and tax purposes, the client maintains control of the activities of the worksite employees. Due to the increasing complexity of the regulatory environment, employment costs per employee are rising dramatically, and constitute one of the market determinants. Outsourcing is expected to have a very compelling appeal to companies in the process of downsizing and reengineering*. COMPANY ORGANIZATION The Company's business can be divided into the Security Services, Correctional Services and Flexible Staffing Services. Securities Services encompasses all commercial and governmental business of the North American Operations (including Wackenhut of Canada Limited) and the International Operations. Security Services provides security-related and other support services. Correctional Services, which consists exclusively of the business conducted through WHC, provides privatized correctional, detention, and public sector mental health, facility design, development and management services. Flexible Staffing Services provides personnel employee leasing, temporary services, recruiting, risk management, payroll processing and human resource services. The following table sets forth the contribution to consolidated revenues and operating income by each of the Company's business segments for 1999, 1998 (53 weeks) and 1997 in millions of dollars. See Note 18 of Notes to Consolidated Financial Statements (which also includes a summary of domestic and international operations) included in Exhibit 13.0 to this Form 10-K.
1999 1998 1997 -------- -------- -------- REVENUES SECURITY SERVICES North American Operations $ 892.3 $ 810.0 $ 711.8 International Operations 148.7 137.2 117.2 -------- -------- -------- 1,041.0 947.2 829.0 CORRECTIONAL SERVICES 438.5 312.8 206.9 FLEXIBLE STAFFING SERVICES 672.8 495.1 90.9 -------- -------- -------- CONSOLIDATED REVENUES $2,152.3 $1,755.1 $1,126.8 ======== ======== ======== OPERATING INCOME SECURITY SERVICES North American Operations $ 24.7 $ 22.2 $ 20.1 International Operations 3.0 2.0 0.2 -------- -------- -------- 27.7 24.2 20.3 CORRECTIONAL SERVICES 26.0 22.5 16.5 FLEXIBLE STAFFING SERVICES 3.5 2.7 (0.3) UNALLOCATED CORPORATE EXPENSE (19.3) (17.0) (14.9) ONE-TIME CHARGE AND IMPAIRMENT OF ASSETS -- (18.3) -------- -------- -------- CONSOLIDATED OPERATING INCOME $ 37.9 $ 32.4 $ 3.3 ======== ======== ========
- -------- * Refer to Forward Looking Statements included in Exhibit 13.0 - page 21 to this Form 10-K. 5 6 SECURITY SERVICES Security Services is conducted through two separate operations: the North American Operations and the International Operations. NORTH AMERICAN OPERATIONS. The North American Operations (NAO) has historically provided the majority of the Company's consolidated revenues. NAO provides security-related and other support services throughout the United States and Canada. The North American Operations is subdivided between commercial, and government and regulated industry accounts. In conducting its Security Services, the Company has adopted a quality management approach to its services. General management responsibilities for each operation are vested in managers of geographic regions supported by a small group of managers located at Company headquarters. Day-to-day management responsibility for each group is vested in regional and site field managers who have primary responsibility for client contact and satisfaction. Field managers are selected through an intensive screening process and receive what the Company believes is state-of-the-art training. Supervisory personnel from Company headquarters periodically visit region headquarters and sites and carefully monitor operating results. COMMERCIAL ACCOUNTS. The Company furnishes security officers (armed and unarmed) to protect its clients' property, in the United States and Canada, against fire, theft, intrusion, vandalism and other physical harm. Specialized security services offered by the Company include crash-fire-rescue services, fire protection services and airport services. The Company also provides security-consulting services including security assessment and program development, specialized training programs for security guards, fire-crash-rescue personnel, and background investigative services. The Company will further enhance its market position in the security-related services industry through internal growth by continuing to: (i) pursue domestic and international National Accounts; (ii) differentiate its security-related services within the industry by emphasizing its CPO program; and (iii) market the Company's services to specialized market niches such as gated residential communities and hospitals. The Company intends to emphasize attracting and retaining national accounts that benefit from security-related services on a national or regional level at multiple locations. Such clients include retail chains, banks, specialized manufacturers and high tech companies. Management believes that such clients value the flexibility and service provided by a dedicated single point of contact with the Company through these nationally managed programs. For its CPO program, the Company recruits law enforcement academy graduates, former military police, and members of elite military units and college graduates with criminology-related degrees. These recruits are prepared for critical security assignments after completing a Company training program that surpasses any state or local requirements for security officer licensing. CPO security personnel perform such functions as prisoner transportation in Maryland and Colorado, neighborhood and downtown security in Florida, transit security in Wisconsin and Colorado, and other supplemental law enforcement-related services. Management believes that services provided by CPO security personnel distinguish the Company's services from those of the competition by providing highly specialized and trained security personnel capable of undertaking and accepting responsibilities that are beyond the capabilities of traditional security guards. Contracts with private industry generally are for a minimum of a one-year term. Most of these contracts are subject to termination by either party on 30 days prior notice. For most small accounts billing rates are typically based on a specified rate per hour and generally are subject to renegotiations or escalation if related costs increase because of changes in minimum wage laws, payroll tax changes or certain other events beyond the control of the Company. For many larger accounts, cost plus performance and management fee contracts are becoming the norm. The Company designs and engineers integrated security programs using both security officers and electronic equipment. These services include planning master security programs for particular facilities, custom designing security systems, procuring requisite electronic equipment, managing contracts and construction, training security personnel, and reviewing and evaluating security programs. Contracts for these integrated security-related services generally provide for a fixed fee and are awarded by competitive bidding. 6 7 The Company complements security services provided to its clients with investigative services, such as employee background screening and insurance fraud investigations. The Company maintains a national research center with the latest information-gathering technology for public records and a "fraud-waste- criminal" hotline for employees of clients to report workplace abuses. Clients ordinarily are charged an hourly rate for investigative services and a flat rate for background record searches. GOVERNMENT AND REGULATED INDUSTRY ACCOUNTS. The Company provides specialized security-related and support services for United States federal government entities, nuclear power generating facilities and prison and jail food service operations. Wackenhut Services, Inc. ("WSI") provides security services primarily to United States federal government entities. Services provided by WSI range from basic security and administrative support to specialized emergency response. In the United States, WSI provides security-related services at 12 sensitive government installations. For example, the Company has held the operations and maintenance contract for the Savannah River Site in South Carolina since 1983, the single largest government contract for security-related services. Since 1990, the Company has managed the Rocky Flats Environmental Technology Site near Denver and since 1964, has managed the Nevada Test Site near Las Vegas, and in this year, began providing security services at the Oak Ridge site. Since 1984, WSI has overseen training and resource development for the United States Department of Energy at the Nonproliferation and National Security Institute in Albuquerque, New Mexico. The Company's service contracts with governmental agencies are typically cost-reimbursable contracts providing the Company the ability to earn award fees based upon the achievement of performance goals. The Company's service contracts with governmental agencies are subject to annual governmental appropriations. The Company provides Nuclear Utility customers with highly trained and qualified security personnel, emergency planning, electronic detection equipment and integrated security systems to these utility companies. The terms of contracts entered into by the Nuclear Division generally are multi-year and include a variety of fee arrangements. The Company's experience with requirements and standards of the Nuclear Regulatory Commission ("NRC") enable it to assist customers in ensuring NRC compliance. The Company's correctional foodservice business, one of the largest in the industry, provides over 68 million meals annually to over 82 jail and prison facilities in 21 states throughout the United States. Food for regular, therapeutic and religious diets is prepared using conventional or cook-chill methods. The Company provides a quality assurance program that encompasses all aspects of the foodservice business. Specifically, the Company provides product testing and menu development through its staff of nutritional experts, which includes professional dietitians. Also, to ensure high quality of service and product, facility audits are conducted on an on-going basis. The Company bids for foodservice contracts and provides food services on a cost per meal basis. Complete foodservice management, commissary, laundry and janitorial programs are available to correctional clients. INTERNATIONAL OPERATIONS. International Operations accounts for approximately 7% of the Company's consolidated revenues. International Operation services is conducted primarily through Wackenhut International, Inc., ("WII") and its subsidiaries, affiliates and strategic partners. WII includes a network of subsidiaries, partnerships and affiliates in over 54 countries. Management believes the Company's international presence, through the operations of WII, is larger than any of its United States-based competitors. The majority of WII's international operations are structured through joint ventures with parties who operate in the given market. These parties often provide valuable insight into local markets, in addition to sharing financial responsibility for the venture. WII also provides a greater variety of services than the Company offers domestically. These services include, among other things, electronic security systems, central station monitoring, cash-in-transit, satellite tracking of vehicles and cargo, building maintenance, secure storage of documents, postal services, and distribution logistics. The Company believes that this experience will be valuable in assisting the Company's domestic expansion into new support service areas. 7 8 The Company's goal is to increase its international presence where its clients are expanding. With operations in every Latin American country, WII is concentrating in establishing its presence in Eastern Europe, Asia and Africa. In addition to providing traditional security services to commercial customers at overseas locations, WII provides security for the U.S. Department of State at embassies and missions in 17 locations. WII also provides protective services at NASA space shuttle support sites in Africa. Major competitors of WII include large United States-based companies with operations overseas, sizable foreign concerns such as Group 4, Securitas, Securicor, and Chubb and local and regional companies. CORRECTIONAL SERVICES Correctional Services is conducted through the operations of Wackenhut Corrections, Inc. ("WHC"). WHC is a leading developer and manager of privatized correctional, detention and public sector mental health facilities in the United States, the United Kingdom, Australia and South Africa. WHC was founded in 1984 as a division of the Company to capitalize on emerging opportunities in the private correctional services market. As of December 1999, WHC had contracts to manage 56 correctional, detention and public sector mental health facilities with an aggregate rated capacity of 39,930 beds, 50 contracts representing 32,110 beds were in operation and 6 were under development by WHC. WHC offers a comprehensive range of correctional, detention and public sector mental health facility management services from individual consulting projects to the integrated design, construction and management of correctional, detention and public sector mental health facilities. In addition to providing the fundamental services relating to the security of facilities and the detention and care of inmates, WHC has built a reputation as an effective provider of a wide array of in-facility rehabilitative and educational programs, such as chemical dependency counseling and treatment, basic education, and job and life skills training. Management believes that WHC's experience in delivering a full range of quality privatization services on a cost-effective basis to governmental agencies provides such agencies strong incentives to choose WHC when awarding new contracts or renewing existing contracts. WHC's facility management contracts typically have original terms ranging from one to ten years and give the customer at least one renewal option. STAFFING SERVICES Building upon four decades of expertise in outsourcing services to businesses and government the Company entered into the professional employer organization ("PEO") employee leasing business by establishing Oasis Outsourcing, Inc., a majority owned subsidiary, in the third quarter 1996. During 1997, the Company continued to expand its market presence and, consistent with that strategy, Wackenhut Resources, Inc. (WRI), a subsidiary of the Company, acquired the King Companies, in May 1997, and Professional Employee Management, Inc. (PEM Companies) in December 1997. Both companies are professional employer organizations, and in addition, the King Companies are in the temporary employment and recruiting service business. These two companies were combined with Oasis Outsourcing, Inc., under Wackenhut Resources, Inc., to form Flexible Staffing Services (Staffing Services). In November 1998 Flexible Staffing Services acquired Sharp Services Inc. and Advantage Temporary Services companies. By the end of 1999, Flexible Staffing Services had 21 PEO and 16 staffing offices in 11 states. CUSTOMERS During 1999, the Security Services provided services to 15,000 customers worldwide. No one customer comprised more than 10% of Security Services revenue during 1999 or 1998. Correctional Services contracts with governmental agencies of the State of Texas accounted for 19% and 25% of WHC's revenue in Fiscal 1999, respectively, and contracts with the State of Florida accounted for 19% and 11% of WHC's revenues in Fiscal 1999 and Fiscal 1998, respectively. The Staffing Services Business provides services to approximately 860 employee leasing clients. No one customer comprised more than 10% of Staffing Services revenue during 1999 or 1998. 8 9 COMPETITION The Company is one of the largest security and protective services organization in the United States and a leading provider of such services worldwide. The Company competes domestically and internationally with Burns Security Company and Securitas/Pinkerton's. The Company also competes with numerous local and regional security services companies. The top five providers of services similar to those provided by Security Services account for less than 15% of the security-services market in the United States. Competition in the security-related and other support services business is intense and is based primarily on price in relation to quality of service, the scope of services performed, and the extent of employee training and supervision. However, potential competitors can enter the security-related and other support services business without substantial capital investment or expense. WHC competes primarily on the basis of the quality and range of services offered, and its experience and reputation, both domestically and internationally, in the design and management of facilities. WHC competes with a number of companies domestically and internationally, including but not limited to, Prison Realty, Corrections Corporations of America, Correctional Services Corporation, Group 4 International Corrections Service, Securicor Group, U.K. Detention Services, Ltd., and Cornell Corrections Corporation. Some of the competitors are larger and have greater resources than WHC. WHC also competes on a localized basis in some markets with small companies that may have better knowledge of the local conditions and may be better able to gain political and public acceptance. Potential competitors can enter the correctional business without substantial capital investment or experience in management of correctional or detention facilities. In addition, in some markets, WHC may compete with governmental agencies that are responsible for correctional facilities. Although the overwhelming majority of PEOs are small, regionally based firms (the total number has been estimated at approximately 2,500), the Company competes with other major companies such as Staff Leasing, NovaCare, Employee Solutions, Administaff and The Vincam Group. EMPLOYEES Security Services principal business is labor intensive, and is affected substantially by the availability of qualified personnel and the cost of labor. As of December 1999, Security Services had over 66,000 full and part-time employees worldwide, most of whom are security officers and other personnel providing physical security services. The Company has not experienced any material difficulty in employing sufficient numbers of suitable security officers. Security officers and other personnel supplied by the Company to its clients are employees of the Company, even though stationed regularly at a client's premises. A small percentage of the employees of the Security Service business are covered by collective bargaining agreements. Relations with employees have been generally satisfactory. As of December 1999, Correctional Services had approximately 8,900 full-time employees. Correctional Services employs management, administrative and clerical, security, educational services, health services and general maintenance personnel. Employees at nine of WHC's Australian facilities are unionized. Staffing Services had approximately 300 administrative employees. In addition, Flexible Staffing Services had over 29,400 work-site employees as of December 1999. BUSINESS REGULATIONS AND LEGAL CONSIDERATIONS Security Services is subject to numerous city, county, and state firearm and occupational licensing laws that apply to security officers and private investigators. Many states have laws requiring training and registration of security officers, regulating the use of badges and uniforms, and imposing minimum bond, surety, or insurance standards. Many foreign countries have laws that restrict the Company's ability to render certain services, including laws prohibiting security-related services or limiting foreign investment. 9 10 In addition, many state and local governments are required to enter into a competitive bidding procedure before awarding contracts for products or services. The laws of certain jurisdictions may also require the Company to award subcontracts on a competitive basis or to subcontract with businesses owned by women or members of minority groups. The industry in which the Correctional Services operates is subject to national, federal, state and local regulations in the United States, Europe, South Africa and Australia which are administered by a variety of regulatory authorities. Generally, prospective providers of correctional services must be able to detail their readiness to, and must, comply with a variety of applicable state and local regulations, including education, health care and safety regulations. WHC's contracts frequently include extensive reporting requirements and require supervision and on-site monitoring by representatives of contracting governmental agencies. WHC's Kyle New Vision Chemical Dependency Treatment Center is licensed by the Texas Department of Criminal Justice to provide substance abuse treatment. Certain states, such as Florida and Texas, deem prison guards to be peace officers and require WHC personnel to be licensed and may make them subject to background investigation. State law also typically requires corrections officers to meet certain training standards. Flexible Staffing Services is subject to federal and state laws regarding the employer-employee relationship, including numerous federal and state laws relating to labor, tax and discrimination matters. While many states do not explicitly regulate PEO activities, a number of states have passed laws that have licensing or registration requirements for PEO companies and other states are considering such regulation. Such laws vary from state to state but generally provide for monitoring the fiscal responsibility of PEO companies. Management believes it conducts its business in compliance with the licensing and registration requirements of the states in which it operates and monitors such compliance annually. The failure to comply with applicable laws, rules or regulations or the loss of any required license could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, the current and future operations of the Company may be subject to additional regulations as a result of, among other factors, new statutes and regulations and changes in the manner in which existing statutes and regulations are or may be interpreted or applied. Any such additional regulations could have a material adverse effect on the Company's business, financial condition and results of operations. The Company may, under certain circumstances, be responsible for the actions of its employees and agents. Under the common law of negligence in many states, the Company can be held vicariously liable for wrongful acts or omissions of its agents or employees performed in the course and within the scope of their agency or employment. In addition, some states have statutes that expressly impose on the Company legal responsibility for the conduct of its agents or employees. The nature of the security-related services provided by the Company (such as armed security officers and fire rescue) may expose it to greater risks of liability for employee acts or omissions than are posed to other businesses. The Company maintains public liability insurance to mitigate against this exposure, although the laws of many states limit or prohibit insurance coverage of liability for punitive damages arising from willful, wanton or grossly negligent conduct. COMMITMENTS AND CONTINGENCIES On August 31, 1999, WHC announced the mutual decision between WHC, the Texas Department of Criminal Justice State Jail Division ("TDJC") and Travis County, Texas to discontinue WHC's contract for the operation of the Travis County Community Justice Center. The contract was discontinued effective November 8, 1999. WHC is involved in discussions with TDCJ regarding close-out of all contract claims. The Company cannot predict the outcome of these discussions at this time. In New Mexico, WHC has been in discussions with the State's Department of Corrections and the Legislative Finance Committee and has submitted proposed contract modifications regarding additional compensation for physical plant modification and increased staffing at Guadalupe County Correctional Facility and Lea County Correctional Facility which have been implemented by WHC. At this time no agreement has been reached regarding these contract modifications. 10 11 ITEM 2. PROPERTIES The companies' executive offices are in The Wackenhut Center, located at 4200 Wackenhut Drive #100, Palm Beach Gardens, Florida. The Wackenhut Center contains approximately 91,800 square feet and is leased from Lepercq Corporate Income Fund, L.P., for an initial term of 15 years, commencing in March 1996, with consecutive options to extend the term of the lease for three additional five-year periods. This lease requires annual rental payments in the amount of $1,758,102 with no escalation during the initial 15-year term. In 1997, WHC purchased and renovated a 72-bed psychiatric hospital in Ft. Lauderdale, Florida. The Company owns a 15,000 square foot warehouse building in Miami, Florida. In addition, the Company owns three buildings in Ecuador and one each in the Dominican Republic, Costa Rica, Puerto Rico, Peru and Uruguay that are used for the operations of its foreign subsidiaries in those countries. All other offices of the Company are leased. The aggregate fiscal 1999 rent expense for all non-cancelable operating leases of office space, automobiles, data processing and other equipment was $18.2 million. The Company owns substantially all uniforms, firearms, and accessories used by its security officers. ITEM 3. LEGAL PROCEEDINGS The Company is presently, and is from time to time, subject to claims arising in the ordinary course of its business. In certain of such actions, plaintiffs request punitive or other damages that may not be covered by insurance. In the opinion of management, there are no other pending legal proceedings except those disclosures below, for which the potential impact if decided unfavorable to the Company could have a material adverse effect on the consolidated financial statements of the Company. In Caldwell County, Texas a grand jury was convened to investigate allegations of sexual misconduct and document tampering by individuals employed or formerly employed by WHC at the Lockhart Facility. This grand jury has been dismissed and issued no indictments. In Travis County, Texas, a grand jury took testimony regarding sexual misconduct by individuals employed or formerly employed by WHC at the Travis County Community Justice Center. This grand jury indicted twelve of WHC's former facility employees for various types of sexual misconduct. Management believes these indictments are not expected to have any material financial impact on the Company. Eleven of the twelve indicted former employees already resigned from or had been terminated by WHC as a result of WHC initiated investigations over the course of the prior three years. WHC is not providing counsel to assist in the defense of these twelve individuals. The District Attorney in Travis County continues to review WHC documents for alleged document tampering at the Travis County Facility. At this time the Company cannot predict the outcome of this investigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 11 12 EXECUTIVE OFFICERS OF THE REGISTRANT GEORGE R. WACKENHUT is Chairman of the Board of the Company and has been since its inception. He was Chief Executive Officer of the Company from the time it was founded until February 18, 2000. He was President of the Company from the time it was founded until April 26, 1986. He formerly was a Special Agent of the Federal Bureau of Investigation. Mr. Wackenhut is Chairman of the Board of Directors for Wackenhut Corrections Corporation, a member of the Board of Trustees of Correctional Properties Trust and is on the Dean's Advisory Board of the University of Miami School of Business. He is on the National Council of Trustees, Freedoms Foundation at Valley Forge, and the President's Advisory Council for the Small Business Administration, Region IV. He is a past participant in the Florida Governor's War on Crime and a past member of the Law Enforcement Council, National Council on Crime and Delinquency, and the Board of Visitors of the U.S. Army Military Police School. He is also a former member of the Board of Directors of SSJ Medical Development, Inc., Miami, Florida. Mr. Wackenhut is also a member of the American Society for Industrial Security. He was a recipient in 1990 of the Labor Order of Merit, First Class, from the government of Venezuela and in 1999 was awarded the distinguished Ellis Island Medal of Honor by the National Ethnic Coalition of Organizations. Also in 1999, he was inducted into the West Chester University Hall of Fame and the Athlete's Hall of Fame in Delaware County, Pennsylvania. Mr. Wackenhut received his B.S. degree from the University of Hawaii and his M.Ed. degree from Johns Hopkins University. Mr. Wackenhut is married to Ruth J. Wackenhut, Secretary of the Company. His son, Richard R. Wackenhut, is Vice Chairman of the Board of the Company and is President and Chief Executive Officer of the Company. RICHARD R. WACKENHUT is Vice Chairman of the Board of Directors, President and Chief Executive Officer of the Company. Mr. Wackenhut has been President and Chief Operating Officer of the Company and a member of the Board of Directors since 1986. He was Senior Vice President of Operations from 1983 to 1986. He was Manager of Physical Security from 1973 to 1974 and also served as Manager, Development at the Company's Headquarters from 1974 to 1976; Area Manager, Columbia, South Carolina, from 1976 to 1977; District Manager, Columbia, South Carolina from 1977 to 1979; Director, Physical Security Division at Corporate Headquarters from 1979 to 1980; Vice President, Operations from 1981 to 1982; and Senior Vice President, Domestic Operations from 1982 to 1983. Mr. Wackenhut is Director of Wackenhut del Ecuador, S.A.; Wackenhut UK Limited; Wackenhut Dominicana, S.A.; and several domestic subsidiaries of the Company, including Wackenhut Corrections Corporation. He is also a member of the Board of Trustees of Correctional Properties Trust. He is Vice Chairman of Associated Industries of Florida and is also a member of the American Society for Industrial Security, the International Association of Chiefs of Police and the International Security Management Association. He received his B.A. degree from The Citadel in 1969 and is currently a member of The Citadel Advisory Council. He also completed the Advanced Management Program of the Harvard University School of Business Administration in 1987. Mr. Wackenhut is the son of George R. Wackenhut, Chairman of the Board of the Company, and Ruth J. Wackenhut, Secretary of the Company. ALAN B. BERNSTEIN was elected to the Company's Board of Directors May 5, 1998, is Executive Vice President of the Company, beginning in 2000 became President, Global Security and was promoted to Chief Operating Officer effective March 9, 2000. Mr. Bernstein was President, North American Operations from 1991 through 1999. Prior to that, Mr. Bernstein was Senior Vice President, Domestic Operations from 1986 to 1991. He has been employed by the Company since 1976, except for a brief absence during 1982 when he was a partner in a family-owned security alarm business in New York State. Mr. Bernstein has served in the following positions with the Company or its subsidiaries: Vice President of Domestic Operations, 1985; Vice President, Corporate Business Development, 1984; President, Wackenhut Systems Corporation, 1983; Director of Integrated Guard Security, 1981; and Manager of Wackenhut Electronic Systems Corporation (Miami) from 1976 to 1981. He also serves on the Board of Directors of Ranger Security Detectors, Inc., El Paso, Texas; and several subsidiaries of the Corporation. He received his B.S.E.E. degree from the University of Rochester, and a M.B.A. degree from Cornell University. FERNANDO CARRIZOSA is Senior Vice President and President, Wackenhut International, Inc. and has been since January 28, 1989. Mr. Carrizosa was Vice President of International Operations from January 31, 1988 to January 28, 1989. He joined Wackenhut de Colombia in 1968 as Manager of Investigations. He was promoted to Manager of Human Resources, and then to Assistant to the President in 1974. He moved to Headquarters as a 12 13 trainee in 1974, and was promoted to Manager of Latin American Operations in 1980, a capacity in which he served until 1983. Mr. Carrizosa also served as Executive Vice President of Wackenhut International, 1983 to 1984 and President of Wackenhut International, 1984 to 1988. He is a Director of several subsidiaries and affiliates of the Company. He received a B.B.A. from Universidad Javeriana in Colombia, and a M.B.A. with honors from Florida International University in 1976. He also completed the Advanced Management Program at the Wharton School of Business in 1989. ROBERT C. KNEIP is Senior Vice President, Corporate Planning and Development of the Company, and President and Chief Executive Officer of Wackenhut Resources, Inc. Since he joined the Company in 1982, Dr. Kneip has held various positions in the Company including Director, Power Generating Services; Director, Contracts Management; Vice President, Contracts Management; and Vice President, Planning and Development. Dr. Kneip started Flexible Staffing Services by establishing OASIS Outsourcing, Inc., a majority owned subsidiary of the Company in 1996 and continues to be a major force in the Company's development of the Staffing Services Business. Prior to joining the Company, Dr. Kneip was employed by the Atomic Energy Commission, the Nuclear Regulatory Commission and Dravo Utility Constructors, Inc. He received a B.A. (Honors) from the University of Iowa, and an M.A. and Ph.D. from Tulane University. PHILIP L. MASLOWE is Senior Vice President and Chief Financial Officer of the Company and given the title of Treasurer effective March 9, 2000. He joined the Company in August 1997. Prior to joining the Company, Mr. Maslowe was employed by KinderCare Learning Centers, Inc., as Executive Vice President and Chief Financial Officer since 1993. Before joining KinderCare, he was Executive Vice President and Chief Financial Officer of Thrifty Corporation. From 1980 to 1991, Mr. Maslowe was with The Vons Companies, Inc., where he served as Group Vice President, Finance. Mr. Maslowe is a graduate of Loyola University of Chicago (magna cum laude) and holds a M.B.A. from the J.L. Kellogg Graduate School of Management at Northwestern University. Mr. Maslowe also serves on the Board of Directors of Bruno's Supermarkets, Inc. SANDRA L. NUSBAUM is Senior Vice President, Human Resources of the Company. Since she joined the Company in 1981, Ms. Nusbaum has held various positions in the Company including Personnel Representative, Director of Compensation and Benefits, and Vice President, Human Resources. Prior to joining the Company, Ms. Nusbaum was employed by DAK Industries. Ms. Nusbaum received a B.B.A. degree in Personnel Management and Marketing from Florida International University. TIMOTHY J. HOWARD is Senior Vice President and General Counsel of the Company. Since he joined the Company in 1982, Mr. Howard has held various positions in the Company including Manager of Industrial Relations, Associate General Counsel, and Deputy General Counsel of the Legal Department. Prior to joining the Company, Mr. Howard was employed by the State of Florida and was also an attorney in private practice. Mr. Howard received a B.A. and a Juris Doctorate from the University of Florida. RUTH J. WACKENHUT is Secretary of the Company and has been since 1958. She is married to George R. Wackenhut, Chairman of the Board of the Company and her son, Richard R. Wackenhut, is Vice Chairman, President and Chief Executive Officer of the Company and is also a director. GEORGE C. ZOLEY is Senior Vice President of the Company and Vice Chairman and Chief Executive Officer of Wackenhut Corrections Corporation. He has served as President and a Director of Wackenhut Corrections Corporation since it was incorporated in 1988, and Chief Executive Officer since April 1994. Dr. Zoley established Wackenhut Corrections Corporation as a division of The Wackenhut Corporation in 1984, and continues to be a major force in the Company's development of privatized correctional and detention facilities business. Dr. Zoley is also director of each of the entities through which Wackenhut Corrections conducts its international operations and Trustee of Correctional Properties Trust. Dr. Zoley has also served as a manager, director and then Vice President of Government Services for Wackenhut Services, Inc. from 1981 through 1988. Prior to joining Wackenhut Services, Inc., Dr. Zoley held various administrative and management positions for city and county governments in South Florida. Dr. Zoley has a Masters and Doctorate Degree in Public Administration. 13 14 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this Item is incorporated by reference to page xx of the Registrant's 1999 Annual Report to Shareholders, Exhibit 13.0. 14 15 ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference to pages xx through xx of the Registrant's 1999 Annual Report to Shareholders, Exhibit 13.0. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference to pages xx through xx of the Registrant's 1999 Annual Report to Shareholders, Exhibit 13.0. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to pages xx through xx of the Registrant's 1999 Annual Report to Shareholders, Exhibit 13.0, except for the Financial Statement Schedule listed in Item 14 (a) (2) of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III The information required by Items 10, 11, 12 and 13 of Form 10-K (except such information as is furnished in a separate caption "Executive Officers of the Registrant" and is included in Part I, hereto) is contained in, and is incorporated by reference from, the proxy statement (with the exception of the Board Compensation Committee Report and the Performance Graph) for the Company's 2000 Annual Meeting of Shareholders, which has been filed with the Securities and Exchange Commission pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following consolidated financial statements of the Company, included in the Registrant's Annual Report to Shareholders for the fiscal year ended January 2, 2000 are incorporated by reference in Part II, Item 8: Consolidated Balance Sheets - January 2, 2000 and January 3, 1999 Consolidated Statements of Income - Fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997 Consolidated Statements of Cash Flows - Fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997 Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements - Fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997 15 16 With the exception of the information incorporated by reference from the 1999 Annual Report to Shareholders in Part II, Items 5,6,7,8, and Parts IV of the Form 10-K, the Registrant's 1999 Annual Report to Shareholders is not to be deemed filed as part of this Report. 2. Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts - Page xx All other schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or not required. Individual financial statements of the Company have been omitted because it is primarily an operating Company and all significant subsidiaries included in the consolidated financial statements filed with this Annual Report are majority-owned. 3. Exhibits The following exhibits are filed as part of this Annual Report: EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Articles of Incorporation as amended and restated 3.2 Bylaws currently in effect 4.1 Revolving Credit and Reimbursement Agreement dated December 30, 1997 by and among The Wackenhut Corporation, Nations Bank, N.A., ScotiaBanc, and SunTrust Bank, as Lenders, and NationsBank, N.A., as Agent (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 4.2 Receivables Purchase Agreement dated as of December 30, 1997 among Wackenhut Funding Corporation, as Transferor, The Wackenhut Corporation, as Servicer, Enterprise Funding Corporation, as a Purchaser, and Nations Bank, N.A., as Agent (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 4.3 Amended and Restated Credit Agreement, dated December 18, 1997, by and among Wackenhut Corrections Corporation, Nations Bank, National Association, Scotia Banc Inc. and the Lenders Party thereto from time to time (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997) 4.4 Amended and Restated Participation Agreement, dated June 19, 1997 among Wackenhut Corrections Corporation, First Security Bank, National Association, the Various Bank and other Lending Institutions which are partners thereto from time to time, Scotia Banc Inc., and Nations Bank, National Association (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997) 4.5 Amended and Restated Lease Agreement, dated as of June 19, 1997, between First Security Bank, National Association and Wackenhut Corrections Corporation (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997) 16 17 4.6 Guaranty and Suretyship Agreement, dated December 18, 1997, among the Guarantors parties thereto and Nations Bank, National Association (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997) 4.7 Third Amended and Restated Trust Agreement, dated as of June 19, 1997, among Nations Bank, National Association and other financial institutions parties thereto and First Security Bank, National Association. (incorporated by reference to Wackenhut Corrections Corporation's Form 10-K Annual Report for the fiscal year ended December 28, 1997) 4.8 LC account agreement, dated as of December 30, 1997, and made between The Wackenhut Corporation, a Florida Corporation and Nations Bank, National Association, a national banking association, as a Lender (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 4.9 Amended and Restated Guaranty and Suretyship agreement, dated as of December 30, 1997 (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 4.10 Amendment Agreement No. 1 to Amended and Restated Credit Agreement, dated March 12, 1998, by and among Wackenhut Corporation (herein called the "Borrower"), NationsBank National Association (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit and Reimbursement Agreement dated December 30, 1997, among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose name are subscribed hereto (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 4.11 Amendment Agreement No. 2 to Amended and Restated Credit Agreement, dated August 7, 1998, by and among Wackenhut Corporation (herein called the "Borrower"), NationsBank National Association (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit and Reimbursement Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of March 12, 1998, among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose name are subscribed hereto (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 4.12 Amendment Agreement No. 3 to Amended and Restated Credit Agreement, dated February 10, 1999, by and among Wackenhut Corporation (herein called the "Borrower"), NationsBank National Association (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit and Reimbursement Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of March 12, 1998, and as further amended by Amendment Agreement No. 2 dated August 7, 1998, among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose name are subscribed hereto (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 4.13 Amendment Agreement No. 4 to Amended and Restated Credit Agreement, dated February 25, 1999, by and among Wackenhut Corporation (herein called the "Borrower"), NationsBank National Association (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit and Reimbursement Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of March 12, 1998, Amendment Agreement No. 2 dated August 7, 1998, and Amendment Agreement No. 3 dated as of February 10, 1999, among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose name are subscribed hereto (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 4.14 Amendment Agreement No. 5 to Amended and Restated Credit Agreement, dated April 12, 1999, by and among Wackenhut Corporation (herein called the "Borrower"), NationsBank National Association (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit 17 18 and Reimbursement Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of March 12, 1998, Amendment Agreement No. 2 dated August 7, 1998, Amendment Agreement No. 3 dated as of February 10, 1999, and Amendment Agreement No. 4 dated as of February 25, 1999, among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose name are subscribed hereto 4.15 Amendment Agreement No. 6 to Amended and Restated Credit Agreement, dated May 19, 1999, by and among Wackenhut Corporation (herein called the "Borrower"), NationsBank National Association (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit and Reimbursement Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of March 12, 1998, Amendment Agreement No. 2 dated August 7, 1998, Amendment Agreement No. 3 dated as of February 10, 1999, Amendment Agreement No. 4 dated as of February 25, 1999, and Amendment No. 5 dated as of April 12, 1999, among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose name are subscribed hereto 4.16 Amendment Agreement No. 7 to Amended and Restated Credit Agreement, dated December 31, 1999, by and among Wackenhut Corporation (herein called the "Borrower"), NationsBank National Association (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit and Reimbursement Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of March 12, 1998, Amendment Agreement No. 2 dated August 7, 1998, Amendment Agreement No. 3 dated as of February 10, 1999, Amendment Agreement No. 4 dated as of February 25, 1999, Amendment No. 5 dated as of April 12, 1999, and Amendment Agreement No. 6 dated as of May 19, 1999, among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose name are subscribed hereto 4.17 First Amendment to transfer and administration agreement (this "Amendment"), dated as of March 15, 2000 is among Wackenhut Funding Corporation, a Delaware corporation (the "Transferor"), The Wackenhut corporation, a Florida corporation, individually and as Servicer ("Wackenhut" or the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("Enterprise" or the "Purchaser") and as its successors assigns, and NATIONSBANK, N.A., a national banking association ("NationsBank"), as Agent for Enterprise and the Bank Investors (in such capacity, the "Agent") and as a Bank Investor (in such capacity, the "Agent") and as a Bank Investor (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 4.18 Second Amendment to transfer and administration agreement (this "Amendment"), dated as of December 23, 1998 is among Wackenhut Funding Corporation, a Delaware corporation (the "Transferor"), The Wackenhut corporation, a Florida corporation, individually and as Servicer ("Wackenhut" or the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("Enterprise" or the "Purchaser") and its successors assigns, and NATIONSBANK, N.A., a national banking association ("NationsBank"), as Agent for Enterprise and the Bank Investors (in such capacity, the "Agent") and as a Bank Investor (in such capacity, the "Agent") (incorporated by reference to the Registrants Form 10K Annual Report for the fiscal year ended January 3, 1999) 4.19 Third Amendment to transfer and administration agreement (this "AMENDMENT"), dated as of January 29, 1999, among Wackenhut Funding Corporation, a Delaware corporation (the "TRANSFEROR") and its successors and assigns, THE WACKENHUT CORPORATION, a Florida corporation, individually and as servicer ("WACKENHUT" or the "SERVICER"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("ENTERPRISE" or the "PURCHASER") and its successors assigns, and NATIONSBANK, N.A., a national banking association ("NATIONSBANK"), as agent for Enterprise and the Bank Investors (in such capacity, the "AGENT") and as a Bank Investor, amending that certain Transfer and Administration Agreement dated as of December 30, 1997 among the Transfer or, the Servicer, the Purchaser, the Agent and NationsBank (collectively, the "PARTIES"), as amended to the date hereof by the First Amendment to Transfer and Administration Agreement dated as of March 24, 1998, among the Parties and the Second Amendment to Transfer and Administration Agreement dated December 23, 1998, among the Parties 18 19 (collectively, the "ORIGINAL AGREEMENT," and said agreement as amended by this Amendment, the "AGREEMENT") (incorporated by reference to the Registrants Form 10K Annual Report for the fiscal year ended January 3, 1999) 4.20 Fourth Amendment to transfer and administration agreement (this "AMENDMENT"), dated as of January 28, 2000, among Wackenhut Funding Corporation, a Delaware corporation (the "TRANSFEROR") and its successors and assigns, THE WACKENHUT CORPORATION, a Florida corporation, individually and as servicer ("WACKENHUT" or the "SERVICER"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("ENTERPRISE" or the "PURCHASER") and its successors assigns, and NATIONSBANK, N.A., a national banking association ("NATIONSBANK"), as agent for Enterprise and the Bank Investors (in such capacity, the "AGENT") and as a Bank Investor, amending that certain Transfer and Administration Agreement dated as of December 30, 1997 among the Transfer or, the Servicer, the Purchaser, the Agent and NationsBank (collectively, the "PARTIES"), as amended to the date hereof by the First Amendment to Transfer and Administration Agreement dated as of March 24, 1998, among the Parties, the Second Amendment to Transfer and Administration Agreement dated December 23, 1998, among the Parties and the Third Amendment to Transfer and Administration Agreement dated January 29, 1999, among the Parties (collectively, the "ORIGINAL AGREEMENT," and said agreement as amended by this Amendment, the "AGREEMENT") 4.21 364-Day Revolving Credit Agreement dated September 10, 1999 by and among The Wackenhut Corporation and Bank of America, N.A., as Lenders 10.1 Form of Deferred Compensation Agreement for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Fernando Carrizosa, Robert C. Kneip, and Richard R. Wackenhut (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 10.2 Amendments to the Deferred Compensation Agreements for Executive Officers (the "Senior Plan"): Alan B. Bernstein, Fernando Carrizosa, Robert C. Kneip, and Richard R. Wackenhut (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 10.3 Executive Officer Retirement Plan (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.4 Amended and Restated Split Dollar arrangement with George R. and Ruth J. Wackenhut (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.5 Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.6 First Amendment dated November 3, 1995 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.7 Key Employee Long-Term Incentive Stock Plan dated July 1991 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1995) 10.8 Second Amendment dated August 1, 1996 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 28, 1997) 10.9 Amended Non-employee Director Stock Option Plan dated October 29, 1996 (incorporated by reference to the Registrant's Form 10-K Annual Report for the fiscal year ended December 28, 1997) 19 20 10.10 Third Amendment dated December 10, 1997 to Office Lease dated April 18, 1995 by and between The Wackenhut Corporation and Daniel S. Catalfumo, as Trustee under F.S. 689.071 (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 10.11 Summary description of the amendment to the Key Employee Long-Term Incentive Stock Plan effective as of January 28, 1997 (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 10.12 Senior Officer Retirement Agreement for James P. Rowan 10.13 Senior Officer Retirement Agreement for Sandra L. Nusbaum (incorporated by reference to the Registrants Form 10-K Annual Report for the fiscal year ended January 3, 1999) 10.14 Senior Officer Retirement Agreement for Timothy J. Howard 10.15 Senior Officer Retirement Agreement for Philip L. Maslowe 13.0 Annual Report to Shareholders for the year ended January 2, 2000, beginning with page xx (to be deemed filed only to the extent required by the instructions to exhibits for reports on this Form 10-K) 21.1 Subsidiaries of The Wackenhut Corporation 23.1 Consent of Arthur Andersen LLP 24.1 Powers of Attorney 27.1 Financial Data Schedule (for SEC use only) (b). Reports on Form 8-K. None 20 21 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. THE WACKENHUT CORPORATION Date: March 29, 2000 By: /s/ Philip L. Maslowe -------------------------------- Philip L. Maslowe Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Richard R. Wackenhut * Vice Chairman of the Board President and Chief March 5, 2000 - ----------------------------------- Executive Officer (principal executive officer) Richard R. Wackenhut /s/ Philip L. Maslowe Senior Vice President and Chief Financial Officer March 5, 2000 - ----------------------------------- Philip L. Maslowe /s/ Juan D. Miyar Vice President and Corporate Controller March 5, 2000 - ----------------------------------- (principal accounting officer) Juan D. Miyar /s/ Alan B. Bernstein * Director March 5, 2000 - ----------------------------------- Alan B. Bernstein /s/ Julius W. Becton, Jr. * Director March 5, 2000 - ----------------------------------- Julius W. Becton, Jr. /s/ Carroll A. Campbell * Director March 5, 2000 - ----------------------------------- Carroll A. Campbell /s/ Benjamin R. Civiletti * Director March 5, 2000 - ----------------------------------- Benjamin R. Civiletti /s/ Anne N. Foreman * Director March 5, 2000 - ----------------------------------- Anne N. Foreman /s/ Edward L. Hennessy, Jr. * Director March 5, 2000 - ----------------------------------- Edward L. Hennessy, Jr. /s/ Paul X. Kelley * Director March 5, 2000 - ----------------------------------- Paul X. Kelley /s/ Nancy Clark Reynolds * Director March 5, 2000 - ----------------------------------- Nancy Clark Reynolds /s/ John F. Ruffle* Director March 5, 2000 - ----------------------------------- John F. Ruffle /s/ Thomas P. Stafford* Director March 5, 2000 - ----------------------------------- Thomas P. Stafford
21 22
SIGNATURE TITLE DATE --------- ----- ---- /s/ George R. Wackenhut * Director March 5, 2000 ----------------------------------- George R. Wackenhut /s/ Richard R. Wackenhut * Director March 5, 2000 ----------------------------------- Richard R. Wackenhut *By /s/ Timothy J. Howard Senior Vice President, General Counsel and March 5, 2000 --------------------------------- Assistant Secretary Timothy J. Howard Attorney-in-fact
22 23 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in The Wackenhut Corporation's 1999 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 17, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed above in Item 14(a) 2 of the Corporation's Annual Report on Form 10-K for the fiscal year ended January 2, 2000 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP West Palm Beach, Florida, February 17, 2000. 24 SCHEDULE II THE WACKENHUT CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997 (IN THOUSANDS)
Balance At Charged to Charged Deductions, Balance At Beginning Cost and to Other Actual End of Description of Period Expenses Accounts Charge-Offs Period - ----------- --------- -------- -------- ----------- ------ YEAR ENDED JANUARY 2, 2000: Allowance for doubtful accounts.................. $ 4,699 1,769 119 (1,385) $ 5,202 YEAR ENDED JANUARY 3, 1999: Allowance for doubtful accounts.................. $ 2,713 3,079 515 (1,608) $ 4,699 YEAR ENDED DECEMBER 28, 1997: Allowance for doubtful accounts.................. $ 1,997 905 38 (227) $ 2,713
25 Financial Review The Wackenhut Corporation and Subsidiaries MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Quarterly dividends of $.075 per share on both its outstanding series A and B common stock were declared and paid for the first quarter of fiscal 1999 and for each of the four quarters of fiscal 1998. Thereafter, the Company discontinued its quarterly distribution of dividends. The Company intends to retain its earnings for general corporate purposes. During the 1999 fiscal year, the Company purchased 5,092 shares of its series B common stock at an average price of $16.94 per share, and Wackenhut Corrections Corporation (NYSE: WHC) purchased 424,500 shares of its common stock at an average price of $18.72. The ensuing table shows the high and low prices for the Company's series A (NYSE: WAK) and B (NYSE: WAKB) common stock, as reported on the New York Stock Exchange, for each quarterly period during fiscal 1999 and 1998. The prices shown in the table have been rounded to the nearest 1/16th. The approximate number of record holders of series A and B common stock as of February 17, 2000, was 601 and 623, respectively.
- --------------------------------------------------------------------------------------------------------------------------------- Fiscal 1999 Fiscal 1998 - --------------------------------------------------------------------------------------------------------------------------------- Series A Series B Series A Series B - --------------------------------------------------------------------------------------------------------------------------------- High Low High Low High Low High Low First $ 26 $ 21 $ 21-11/16 $ 16-11/16 $ 24-3/8 $ 21-1/2 $ 22-1/8 $ 19 Second 29-3/4 20 24 14-3/4 25-1/16 21-1/2 22-11/16 20 Third 29 19-1/2 23-1/2 14-9/16 23-1/8 18 21-5/8 15-1/2 Fourth 20 12-3/8 15 8-1/4 26 19-5/8 21-15/16 14-13/16 - ---------------------------------------------------------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS The management's discussion and analysis of financial condition and results of operations, corporate profile, letter to shareholders, corporate diversity, and the February 18, 2000 press release contain forward-looking statements that are based on current expectations, estimates and projections about the segments in which the corporation operates. These sections of the annual report also include management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The corporation undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Future Factors include increasing price and product/service competition by domestic and foreign competitors, including new entrants; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost effective basis; the mix of products/services; the achievement of lower costs and expenses; domestic and foreign governmental and public policy changes including environmental regulations; protection and validity of patent and other intellectual property rights; reliance on large customers; technological, implementation and cost/financial risks in increasing use of large, multi-year contracts; the outcome of pending and future litigation and governmental proceedings and continued availability of financing; financial instruments and financial resources in the amounts, at the times and on the terms required to support the corporation's future business. These are representative of the Future Factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general domestic and international economic conditions including interest rate and currency exchange rate fluctuations and other future factors. F-1 26 The Wackenhut Corporation and Subsidiaries SELECTED FINANCIAL DATA (in millions except per share data) The selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and the notes thereto.
FISCAL YEAR ENDED: 1999 1998* - ------------------------------------------------------------------------------------------------------ -------------- ------------- RESULTS OF OPERATIONS: Revenues $ 2,152.3 $ 1,755.1 Operating income [a] 37.9 32.4 Income before income taxes [a] 39.9 34.6 Income before extraordinary charge and cumulative effect of accounting change [a] 19.6 15.9 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for write-off of deferred start-up costs [b] (6.6) Cumulative effect of accounting change for income taxes --------- --------- Net income $ 19.6 $ 9.3 - ------------------------------------------------------------------------------------------------------ --------- --------- EARNINGS PER SHARE - BASIC: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ 1.31 $ 1.07 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for write-off of deferred start-up costs (.44) Cumulative effect of accounting change for income taxes --------- --------- Earnings per share - Basic $ 1.31 $ .63 - ------------------------------------------------------------------------------------------------------ --------- --------- EARNINGS PER SHARE - ASSUMING DILUTION: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ 1.28 $ 1.03 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for write-off of deferred start-up costs (.44) Cumulative effect of accounting change for income taxes --------- --------- Earnings per share - Assuming Dilution $ 1.28 $ .59 - ------------------------------------------------------------------------------------------------------ --------- --------- CASH DIVIDENDS PER SHARE OF COMMON STOCK: [c] Total Dividends $ .08 $ .30 - ------------------------------------------------------------------------------------------------------ --------- --------- FINANCIAL CONDITION: Working capital $ 119.3 $ 98.2 Total assets 525.7 445.0 Total debt [d] 21.2 7.8 Shareholders' equity 163.9 149.2 - ------------------------------------------------------------------------------------------------------ --------- ---------
FISCAL YEAR ENDED: 1997 1996 1995 - ------------------------------------------------------------------------------------ ----------- ---------- ---------- RESULTS OF OPERATIONS: Revenues $ 1,126.8 $ 906.0 $ 797.0 Operating income [a] 3.3 16.3 15.8 Income before income taxes [a] 6.0 17.9 13.7 Income before extraordinary charge and cumulative effect of accounting change [a] 0.1 9.1 7.3 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for write-off of deferred start-up costs [b] Cumulative effect of accounting change for income taxes ----------- ---------- ---------- Net income $ 0.1 $ 9.1 $ 7.3 ----------- ---------- ---------- EARNINGS PER SHARE - BASIC: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ .01 $ .66 $ .60 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for write-off of deferred start-up costs Cumulative effect of accounting change for income taxes ----------- ---------- ---------- Earnings per share - Basic $ .01 $ .66 $ .60 - ------------------------------------------------------------------------------------ ----------- ---------- ---------- EARNINGS PER SHARE - ASSUMING DILUTION: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ (.01) $ .65 $ .60 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for write-off of deferred start-up costs Cumulative effect of accounting change for income taxes ----------- ---------- ---------- Earnings per share - Assuming Dilution $ (.01) $ .65 $ .60 - ------------------------------------------------------------------------------------ ----------- ---------- ---------- CASH DIVIDENDS PER SHARE OF COMMON STOCK: [c] Total Dividends $ .26 $ .26 $ .24 - ------------------------------------------------------------------------------------ ----------- ---------- ---------- FINANCIAL CONDITION: Working capital $ 116.8 $ 148.1 $ 51.9 Total assets 404.4 323.9 197.9 Total debt [d] 15.8 5.9 6.5 Shareholders' equity 146.8 148.2 62.9 - ------------------------------------------------------------------------------------ ----------- ---------- ----------
FISCAL YEAR ENDED: 1994 1993 1992* - ------------------------------------------------------------------------------------ ---------- ---------- --------- RESULTS OF OPERATIONS: Revenues $ 727.0 $ 659.0 $ 615.0 Operating income [a] 6.6 4.5 3.4 Income before income taxes [a] 3.0 3.4 1.6 Income before extraordinary charge and cumulative effect of accounting change [a] 2.3 3.6 1.1 Extraordinary charge - early extinguishment of debt, net of income taxes (0.9) (1.4) Cumulative effect of accounting change for write-off of deferred start-up costs [b] Cumulative effect of accounting change for income taxes 7.4 ---------- ---------- --------- Net income $ 1.4 $ 2.2 $ 8.5 ---------- ---------- --------- EARNINGS PER SHARE - BASIC: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ .19 $ .30 $ .09 Extraordinary charge - early extinguishment of debt, net of income taxes (.08) (.12) Cumulative effect of accounting change for write-off of deferred start-up costs Cumulative effect of accounting change for income taxes .61 ---------- ---------- --------- Earnings per share - Basic $ .11 $ .18 $ .70 - ------------------------------------------------------------------------------------ ---------- ---------- --------- EARNINGS PER SHARE - ASSUMING DILUTION: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ .19 $ .30 $ .09 Extraordinary charge - early extinguishment of debt, net of income taxes (.08) (.12) Cumulative effect of accounting change for write-off of deferred start-up costs Cumulative effect of accounting change for income taxes .61 ---------- ---------- --------- Earnings per share - Assuming Dilution $ .11 $ .18 $ .70 - ------------------------------------------------------------------------------------ ---------- ---------- --------- CASH DIVIDENDS PER SHARE OF COMMON STOCK: [c] Total Dividends $ .23 $ .23 $ .20 - ------------------------------------------------------------------------------------ ---------- ---------- --------- FINANCIAL CONDITION: Working capital $ 75.6 $ 56.2 $ 56.9 Total assets 212.8 211.3 192.2 Total debt [d] 42.8 67.9 64.0 Shareholders' equity 57.5 47.4 47.6 - ------------------------------------------------------------------------------------ ---------- ---------- ---------
FISCAL YEAR ENDED: 1991 1990 - ------------------------------------------------------------------------------------ -------- -------- RESULTS OF OPERATIONS: Revenues $ 570.0 $ 521.0 Operating income [a] 13.9 12.1 Income before income taxes [a] 11.9 10.7 Income before extraordinary charge and cumulative effect of accounting change [a] 7.7 7.0 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for write-off of deferred start-up costs [b] Cumulative effect of accounting change for income taxes -------- ------- Net income $ 7.7 $ 7.0 -------- ------- EARNINGS PER SHARE - BASIC: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ .64 $ .58 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for write-off of deferred start-up costs Cumulative effect of accounting change for income taxes -------- ------- Earnings per share - Basic $ .64 $ .58 - ------------------------------------------------------------------------------------ -------- ------- EARNINGS PER SHARE - ASSUMING DILUTION: [c] Income before extraordinary charge and cumulative effect of accounting change [a] $ .64 $ .58 Extraordinary charge - early extinguishment of debt, net of income taxes Cumulative effect of accounting change for write-off of deferred start-up costs Cumulative effect of accounting change for income taxes -------- ------- Earnings per share - Assuming Dilution $ .64 $ .58 - ------------------------------------------------------------------------------------ -------- ------- CASH DIVIDENDS PER SHARE OF COMMON STOCK: [c] Total Dividends $ .19 $ .19 - ------------------------------------------------------------------------------------ -------- ------- FINANCIAL CONDITION: Working capital $ 48.6 $ 42.4 Total assets 172.1 164.1 Total debt [d] 47.7 46.9 Shareholders' equity 42.8 37.9 - ------------------------------------------------------------------------------------ -------- -------
(a) Fiscal year 1997 includes a one-time pre-tax charge of $18.3 million before income taxes ($11.3 million after income taxes) or $0.76 per share. (b) See Note 2 to the consolidated financial statements. (c) Restated to reflect a 25% stock dividend declared during fiscal 1995 and 1994 and to reflect a 100% stock dividend, effected in the form of a stock split, declared during fiscal 1992. After the first quarter of fiscal 1999, dividends were discontinued to optimize growth opportunities. (d) Includes current portion of long-term debt, notes payable and long-term debt. * 53 weeks. F-2 27 The Wackenhut Corporation and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Tabular information in millions) OVERVIEW The Wackenhut Corporation, a Florida corporation, and subsidiaries (the "Company"), including WHC, a 56% owned public subsidiary, is a major provider of global business services which include security-related and other support services to business and government, a leading developer and manager of privatized correctional, detention and public sector mental health services facilities, and a provider of employee leasing and temporary staffing. Security Services has expanded into a range of support services to include security operations, facility management, fire and emergency medical services and food service to private and publicly managed correctional facilities. The Security Services business is organized into North American Operations and International Operations. Wackenhut Corrections designs, constructs, finances and manages correctional, detention and mental health psychiatric facilities and performs separate correctional-related services, including prisoner transpor-tation, home detention monitoring and correctional health care. During the past four years, the Company has established a national presence in the flexible staffing business, which includes personnel employee leasing, temporary services, recruiting, risk management, payroll processing and human resource services. Fiscal year 1999 revenue growth of 23 percent for the year brought the Company to the $2.2 billion level. This growth was accomplished in all three of the Company's service businesses - Security Services, Correction Services and Flexible Staffing Services - at rates above their respective industry averages. The Company's profitability from each business service also increased. Operating income of $37.9 million was up $5.5 million, or 17 percent, compared to the previous year. The Company's global Security Services business revenue grew 10 percent. The Company continued to see an increasing demand from the international business community to protect their assets from the potential for high losses due to crime and terrorism, and to insure the safety and welfare of their employees. In 1999, Correction Services' revenues increased by 40 percent through the addition of 5,000 revenue-producing beds. At present, the pipeline of additional beds expected to be contracted by government agencies worldwide exceeds 20,000. The Company's Flexible Staffing services business grew at roughly a 36 percent growth rate during the year. Flexible Staffing services continued to leverage its operations by back filling staff leasing or temporary services in locations that did not previously offer one or the other of those services. The Company's goal is to build on its reputation as a global provider of integrated business services to government and commercial clients and to be distinguished by the quality of those services. The Company will continue to build on its present strengths and where appropriate and profitable, will continue to seek geographic expansion and increased market share. During the fourth quarter of 1998, the Company adopted AICPA Statement of Position 98-5 ("SOP 98-5"), "Accounting for Costs of Start-up Activities." SOP 98-5 required the expensing of start-up costs, defined as pre-opening, pre-operating and pre-contract type costs. The adoption of SOP 98-5, which was applied retroactively to the first quarter of 1998, resulted in a one-time charge in 1998 of $6.6 million, net of income taxes, and after deducting the portion applicable to minority shareholders of Wackenhut Corrections Corporation. On a diluted basis, the cumulative effect of change in accounting principle was $0.44 per share during 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity are from operations and borrowings under its credit facilities. Cash and equivalents totaled $67.0 million at January 2, 2000, compared to $43.5 million at January 3, 1999. Of this $67.0 million, $15.4 million collateralizes certain obligations of the Company's captive insurance subsidiary. In addition, cash and cash equivalents of WHC, which totaled $41.0 million at January 2, 2000, is generally not available to the Company. The total amount available to the Company from its revolving credit and securitization facility is $170.0 million. The Company's sources of liquidity available are in the form of $95.0 million in lines of credit, available for revolving loans or letters of credit, and a $75.0 million accounts receivable securitization facility. Additionally, at January 2, 2000, WHC had a $30.0 million revolving credit facility, which includes $5.0 million for the issuance of letters of credit, eight letters of guarantee approximating $3.5 million under a separate foreign facility, and a $220.0 million operating lease facility to acquire and develop new correctional institutions used in its business. At January 2, 2000, $88.7 million of properties were in operation or under development under this $220.0 million operating lease facility guarantee. At January 2, 2000, the Company had no borrowings and $30.8 million of outstanding letters of credit against its bank revolving facilities. The unused portion of the revolving line of credit was $64.2 million. Under the accounts receivable securitization agreement, $69.5 million was outstanding at the end of fiscal 1999. Under the terms of the accounts receivable securitization facility, the Company retains substantially the same risk of credit loss as if receivables had not been sold under this facility. At January 2, 2000, $15 million was outstanding under Wackenhut Corrections' revolving credit facility and six letters of credit were outstanding in an aggregate amount of $2.5 million. On January 15, 1999, Wackenhut Corrections sold to Correctional Properties Trust ("CPV") one facility and its right to acquire one facility for $66.1 million, resulting in net proceeds to Wackenhut Corrections of $22.3 million. Simultaneous with these purchases, these facilities were leased back for ten years to Wackenhut Corrections with the net profit on the sale being amortized over the ten-year lease term. The Company and Wackenhut Corrections anticipate making cash investments in connection with future acquisitions. In addition, Wackenhut Corrections will continue to use cash and its available sources of funds to finance start-up costs, leasehold improvements and equity investments in F-3 28 correctional facilities, if appropriate, in connection with undertaking new contracts. Cash increased $23.5 million to $67.0 million at the end of fiscal 1999, compared to $43.5 million at the end of fiscal 1998. Net cash provided by operating activities was $41.6 million in fiscal 1999 compared to net cash used in operating activities of $0.2 million in fiscal 1998. Net income adjusted for non-cash items of $56.4 million plus increases in reserves for insurance losses of $20.4 million, accounts payable and accrued expenses of $10.7 million and accrued payroll and related taxes of $7.2 million, were partially offset by increases in accounts receivable of $31.2 million, inventories of $8.2 million, prepaid expenses of 5.4 million and other assets of $7.7 million. All other cash used in operating activities netted to $0.6 million. Cash used in investing activities amounted to $38.1 million in fiscal 1999, including capital expenditures of $44.0 million, which reflects the investment in facilities of Wackenhut Corrections and the purchases of equipment related to security-related services. The net purchases in marketable securities was $13.3 million and additional payments made for acquisitions was $4.7 million. These outlays of cash were partially offset by the net proceeds from the sale of prison facilities to CPV of $22.3 million. Investment in and advances from affiliates decreased $3.1 million and non-current assets increased $1.5 million. Cash provided by financing activities in fiscal 1999 amounted to $21.0 million including $16.5 million net proceeds from sales of accounts receivable. Net proceeds on short-term and long-term debt, including the revolving credit agreement, were $13.4 million. Purchases of treasury stock for both the Company and Wackenhut Corrections were $8.0 million. Cash dividends paid in fiscal 1999 were $2.2 million and were declared only for the first quarter of 1999. Thereafter, the Company discontinued its quarterly distribution of dividends to retain its earnings for general corporate purposes. All other cash provided by financing activities amounted to $1.3 million. Current cash requirements consist of amounts needed for capital expenditures, increased working capital needs resulting from corporate growth and business expansion, payment of liabilities incurred in the operation of the Company's business, the renovation or construction of correctional facilities by Wackenhut Corrections, and possible acquisitions. The Company continues to expand its domestic and international businesses and to pursue major contracts, some of which may require substantial initial cash outlays, which are partially or fully recoverable over the original term of the contract. Management believes that cash on hand, cash provided by operating activities and available lines of credit will be adequate to support currently planned business expansion and various obligations incurred in the operation of the Company's business through 2000. Management will continue to review its capital/financial planning alternatives to ensure long-term financial capital access and availability. Wackenhut Corrections' access to capital and ability to compete for future capital intensive projects is dependent upon, among other things, its ability to meet certain financial covenants included in its $220 million operating lease facility and its $30 million revolving credit facility. A substantial decline in Wackenhut Corrections' financial performance, as a result of an increase in operational expenses relative to revenue, could negatively impact WHC's ability to meet these covenants and could therefore limit WHC's access to capital. YEAR 2000 READINESS DISCLOSURE Management completed the installation of new systems hardware and software on schedule before the year 2000. Other systems including embedded technology, such as security systems, have been reviewed and management is not aware of any major problems. The Company expensed certain costs related to Year 2000 compliance. These costs included time and effort of internal staff and consultants for renovation, validation and implementation of computer enhancements and/or replacements. The total costs expensed in 1999 for achieving Year 2000 compliance, funded from working capital, was $0.8 million. These costs for Year 2000 compliance excluded the Company's total costs for previously planned new systems. Costs of implementing these new systems was $19.1 million, with $11.7 million capitalized and $7.4 million expensed. Deferral of other projects that would have a material effect on operations was not required as a result of the Company's Year 2000 efforts. The Company assessed the risks and full impact on operations if the most reasonably likely worst case Year 2000 scenario had occurred. In order to minimize any adverse impact on its operations of the Year 2000 problem, the Company developed operational contingency plans. Management continues to review the Year 2000 impact for third parties with whom the Company shares a material relationship. At this time, the Company is unaware of any third party Year 2000 issues that would materially affect these relationships. Notwithstanding the successful implemen-tation of the Company's Year 2000 plan, the Company's operations could nevertheless be affected by the ability of third parties, such as customers, suppliers and utilities dealing with the Company, to remediate their own Year 2000 issues over which the Company has no control. INFLATION Management believes that inflation has not had a material effect on the Company's results of operations during the past three fiscal years. Some of the Company's contracts include provisions for inflationary indexing; however, since personnel costs represent the Company's largest expense, inflation could have a substantial adverse effect on the Company's results of operations in the future to the extent that wages and salaries increase at a faster rate than the per diem or fixed rate received by the Company for its services. MARKET RISK The Company is exposed to market risks, including changes in interest rates and currency exchange rates. These exposures primarily relate to outstanding balances under the revolving line of credit and securitization facilities and international investments. In addition, Wackenhut Corrections is exposed to market risks arising from changes in interest rates with respect to its $220.0 million operating lease facility. Based on the Company's interest rate and foreign exchange rate exposure at January 2, 2000, a 10% change in the current interest rate or historical currency rate movements would not F-4 29 have a material effect on the Company's financial position or results of operations over the next fiscal year. RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto. The table on page 29 summarizes results of operations for the Company's three business segments by organizational group. Fiscal 1999 compared with Fiscal 1998 REVENUES Fiscal 1999 consolidated revenues increased $397.2 million, or 23%, over fiscal 1998 due to increases in all business groups. The Company's growth in the staff leasing/temporary services and the correctional business were the largest contributors to the increase over fiscal 1998. Security services also showed solid growth. SECURITY SERVICES BUSINESS Fiscal 1999 Security Services' North American and International Operations revenues increased $93.8 million, or 10%, to $1,041.0 million from $947.2 million in fiscal 1998. NORTH AMERICAN OPERATIONS Revenues of the North American Operations increased $82.3 million, or 10%, to $892.3 million in fiscal 1999 from $810.0 million in fiscal 1998. Within North American Operations, revenues from commercial accounts represented approximately 62% of total revenues of the group in fiscal 1999 versus 60% in fiscal 1998, and revenues from government/regulated industries represented the other portion. Commercial account revenues increased approxi-mately 15% in fiscal 1999 over fiscal 1998, primarily due to a combination of higher billing rates and increases in billable hours as the Company continued to expand its base of national accounts and Custom Protection Officer(R) ("CPO") clients. Revenues of government and regulated industries increased 3% in fiscal 1999 over fiscal 1998. INTERNATIONAL OPERATIONS International Operations' revenues increased $11.5 million, or 8%, to $148.7 million in fiscal 1999 from $137.2 million in fiscal 1998. Revenues in Latin America, principally in Venezuela, Guatemala, Peru, Uruguay and Costa Rica continued to increase mainly through expansion of the security-related business, diversification of services, and expansion of the client base of multi-national companies. In addition, a Mexican subsidiary, previously an affiliate, had revenues in 1999 of $4.3 million. CORRECTION SERVICES BUSINESS Fiscal 1999 correctional business revenues increased $125.7 million, or 40%, to $438.5 million in fiscal 1999 from $312.8 million in fiscal 1998. Of the increase in revenues in 1999 compared with 1998, $110.6 million is attributable to increased compensated resident days resulting from the opening of six new facilities in 1999 and increased compensated resident days at ten facilities that opened in 1998, $8.9 million is due to project revenues for the development of a hospital, and the balance represents facilities open during all of both periods. At the end of fiscal 1999, WHC operated 32,110 beds and had 7,820 beds under construction. Average facility occupancy in domestic facilities increased slightly to 97.4% of capacity in 1999 compared to 95.4% in 1998. Average facility occupancy in Australian facilities decreased slightly to 96.6% of capacity in 1999 compared to 98.2% in 1998. Total compensated resident days increased to 9.6 million in fiscal 1999 from 7.7 million in fiscal 1998. FLEXIBLE STAFFING SERVICES BUSINESS The significant growth in the Flexible Staffing Services business has resulted from both internal growth and acquisitions. Flexible Staffing Services 1999 revenues of $672.8 million reflect the acquisition, in November 1998, of Sharp and Advantage Temporary Staffing Companies and were 36% above last year's revenues of $495.1 million. Leased employees grew to approximately 29,480 at the end of 1999 from 24,800 at the end of 1998. Including Sharp and Advantage, temporary staffing hours were approximately 3.3 million in 1999 compared to 2.2 million in 1998. OPERATING INCOME Fiscal 1999 consolidated operating income was $37.9 million versus $32.4 million in fiscal 1998. The operating margin for fiscal 1999 remained flat at 1.8%. Although Security Services operating margin improved, this improvement was offset by a decline in WHC's operating margin and an increase in information technology costs related to the roll-out of new enterprise-wide systems. WHC's decline was due to the following factors: [1] lease payments to CPV for a full year in 1999, [2] an increase in expenses related to the construction of the South Florida State Hospital, and [3] additional expenses related to operations at seven facilities. SECURITY SERVICES BUSINESS Fiscal 1999 Security Services business operating income of $27.7 million increased $3.5 million, or 14%, from $24.2 million in fiscal 1998. NORTH AMERICAN OPERATIONS North American Operations' 1999 operating income of $24.7 million increased $2.5 million, or 11%, from $22.2 million in fiscal 1998. This increase can be attributed mainly to increased revenue growth from commercial and government-regulated security services net of decreased profit margins in food services. These increases were offset by increases in administrative and corporate costs. The increase in administrative and corporate expenses as compared to fiscal 1998 was due to increases in information technology costs as the Company continued to roll out new enterprise wide systems. Despite the higher costs associated with information technology, the North American Operations operating income as a percentage of revenues increased slightly in fiscal 1999 compared to fiscal 1998. INTERNATIONAL OPERATIONS The 1999 operating income of the International Operations Group increased $1.0 million, or 50%, to $3.0 million from $2.0 million in 1998 with operating margins improving to 2.0% F-5 30
1999 1998* 1997 ----------------------- ----------------------- ----------------------- $ % $ % $ % --------- ----- --------- ----- --------- ----- REVENUES (a) SECURITY SERVICES North American Operations $ 892.3 41.4 $ 810.0 46.2 $ 711.8 63.2 International Operations 148.7 6.9 137.2 7.8 117.2 10.4 --------- ----- --------- ----- --------- ----- 1,041.0 48.3 947.2 54.0 829.0 73.6 CORRECTION SERVICES 438.5 20.4 312.8 17.8 206.9 18.3 FLEXIBLE STAFFING SERVICES 672.8 31.3 495.1 28.2 90.9 8.1 --------- ----- --------- ----- --------- ----- CONSOLIDATED REVENUES $ 2,152.3 100.0 $ 1,755.1 100.0 $ 1,126.8 100.0 --------- ----- --------- ----- --------- ----- OPERATING INCOME (b) SECURITY SERVICES North American Operations $ 24.7 2.8 $ 22.2 2.7 $ 20.1 2.8 International Operations 3.0 2.0 2.0 1.5 0.2 0.2 --------- ----- --------- ----- --------- ----- 27.7 2.7 24.2 2.6 20.3 2.4 CORRECTION SERVICES 26.0 5.9 22.5 7.2 16.5 8.0 FLEXIBLE STAFFING SERVICES 3.5 0.5 2.7 0.5 (0.3) (0.3) UNALLOCATED CORPORATE EXPENSE (19.3) (0.9) (17.0) (1.0) (14.9) (1.3) ONE-TIME CHARGE AND IMPAIRMENT OF ASSETS -- -- (18.3) (1.6) --------- --------- --------- CONSOLIDATED OPERATING INCOME $ 37.9 1.8 $ 32.4 1.8 $ 3.3 0.3 --------- --------- ---------
(a) Represents percent of total revenues. (b) Represents percent of respective business related revenues. * 53 weeks in 1999 versus 1.5% in 1998. Improved operations of subsidiaries in Africa and Europe and growth in the security business contributed to this improvement. CORRECTION SERVICES BUSINESS Fiscal 1999 operating income from the correctional business increased $3.5 million, or 16%, to $26.0 million from $22.5 million in fiscal 1998. The increase is due principally to the increased profits from the six new facilities opened in fiscal 1999 and ten facilities opened in 1998. Operating margin as a percentage of revenues was 5.9% in fiscal 1999, compared to 7.2% in fiscal 1998. The decrease in operating margin was due partially to lease payments to CPV of $20.5 million offset by the amortization of deferred revenues of $1.7 million and expenses related to the development of the South Florida State Hospital. Additional expenses were also incurred related to operations at seven facilities in the United States. WHC has developed strategies to improve the operational performance of these facilities; however, there can be no assurances that these strategies will be successful. FLEXIBLE STAFFING SERVICES BUSINESS Flexible Staffing Services operating income of $3.5 million increased $0.8 million, or 30%, from $2.7 million in fiscal 1998. The operating income of the Flexible Staffing Services as a percentage of total Flexible Staffing revenues was 0.5% for fiscal 1999 and fiscal 1998. However, wages, social security and federal unemployment taxes are pass-through costs not subject to the Company's control. The fiscal 1999 controllable revenues of employee leasing services, the principal component of Flexible Staffing Services, of $32.2 million increased $9.1 million, or 39%, from $23.1 million in fiscal 1998 principally due to internal revenue growth. Operating margins of $5.2 million increased $3.0 million from $2.2 million or 16.1% and 9.5% of 1999 and 1998 controllable employee leasing services revenues, respectively, primarily due to improved operations of a subsidiary. The combined controllable revenue, including both employee leasing and temporary staffing revenues, was $83.8 million and $61.4 million, and the combined operating income was $3.5 million and $2.7 million with operating margins of 4.2% and 4.4% of combined controllable revenues in fiscal 1999 and 1998, respectively. CORPORATE EXPENSES AND INFORMATION SYSTEMS Unallocated corporate general and administrative expenses increased 14% to $19.3 million from $17.0 million in 1998. The increase reflects the continuing increase in information technology costs related to the rollout of new enterprise-wide systems and payroll-related costs attributable to corporate staff. However, as a percentage of consolidated revenues, unallocated corporate general and administrative expenses decreased to 0.9% from 1.0% in 1998. EBITDA Fiscal 1999 EBITDA, defined as earnings before interest expense, income taxes, depreciation and amortization, of $60.8 million increased $10.9 million, or 22%, from $49.9 million in fiscal 1998. As a percentage of revenues, EBITDA remained flat at 2.8%. Excluding the pass-through revenues of the Flexible Staffing Services, EBITDA as a percentage of revenues increased slightly to 3.9%. EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles. OTHER INCOME/(EXPENSE) Interest and investment income increased $2.2 million (44%) in fiscal 1999 over fiscal 1998 primarily due to Wackenhut F-6 31 Corrections recognizing a gain of $2.6 million from the sale of approximately one-half of its loans to overseas affiliates. This increase was more than offset by an increase in interest expense of $2.4 million to $5.2 million in fiscal 1999 from $2.8 million in 1998. The increase in interest expense is primarily attributable to increases in the average outstanding balances for securitized accounts receivable and the revolver loan. INCOME BEFORE INCOME TAXES Fiscal 1999 income before income taxes was $39.9 million, compared to $34.6 million in fiscal 1998. Income before income taxes was $5.3 million higher in fiscal 1999 than in fiscal 1998 for an increase of 15%. INCOME TAXES The combined federal and state effective income tax rate was 39.8% for fiscal 1999 and 39.7% for fiscal 1998. MINORITY INTEREST EXPENSE Minority interest expense (net of income taxes) increased to $10.9 million in fiscal 1999 from $8.5 million in fiscal 1998, reflecting principally the increase of $2.0 million in minority interest expense pertaining to increased earnings of Wackenhut Corrections Corporation. Minority interest expense in international subsidiaries increased $0.4 million in fiscal 1999 over fiscal 1998. EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) increased $3.0 million, or 86%, to $6.5 million in fiscal 1999 from $3.5 million in fiscal 1998. This increase relates to the Space Gateway joint venture in the North American Operations; improved performances overseas, primarily in Chile and in the U.K. due to the commencement of home monitoring contracts in January 1999, the opening of a prison in March 1999 and a juvenile detention center in September 1999. INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE Income before cumulative effect of change in accounting principle increased $3.7 million to $19.6 million in fiscal 1999, compared to $15.9 million in fiscal 1998. Diluted earnings per share before the cumulative effect of change in accounting principle was $1.28 in fiscal 1999, compared to $1.03 in fiscal 1998. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE In fiscal 1998, the Company adopted SOP 98-5. The adoption of SOP 98-5 resulted in 1998 a one-time charge of $6.6 million, net of income taxes. NET INCOME Net income was $19.6 million for fiscal 1999, or $1.31 basic earnings per share, as compared to $9.3 million, or $0.63 per share for fiscal 1998. Earnings per share on a diluted basis was $1.28 in fiscal 1999 compared to $0.59 for fiscal 1998. Goodwill amortization, after tax, amounted to $1.2 million for fiscal 1999. Excluding goodwill amortization, after tax, basic and diluted earnings per share would have been $0.08 and $0.07 more, respectively. FISCAL 1998 COMPARED WITH FISCAL 1997 REVENUES Fiscal 1998 consolidated revenues increased $628.3 million or 56% over fiscal 1997, due to increases in all business groups. The Company's expansion into staff leasing/temporary services and the accelerated growth in the correctional business were the largest contributors to the increase over fiscal 1998. Security services also showed solid growth, including substantially higher growth than industry averages. SECURITY SERVICES BUSINESS Fiscal 1998 security services business North American and International Operations revenues increased $118.2 million or 14% to $947.2 million from $829.0 million in fiscal 1997. NORTH AMERICAN OPERATIONS Revenues of the North American Operations increased $98.2 million, or 14%, to $810.0 million in fiscal 1998 from $711.8 million in fiscal 1997. Within North American Operations, revenues from commercial accounts represented approximately 60% of total revenues of the group in fiscal 1998 versus 59% in fiscal 1997, and revenues from government/regulated industries represented the other portion. Commercial account revenues increased 15% in fiscal 1998 over fiscal 1997, primarily due to a combination of increases in billable hours and higher billing rates, as the Company continued to expand its base of national accounts and Custom Protection Officer(R) ("CPO") clients. Revenues of government and regulated industries increased 12% in fiscal 1998 over fiscal 1997. INTERNATIONAL OPERATIONS International Operations' revenues increased $20.0 million, or 17%, to $137.2 million in fiscal 1998 from $117.2 million in fiscal 1997. These increases were partially offset by the exit from the Australian security market. In December 1997, the Company sold its Australian security subsidiary, which had revenues of $13.8 million in fiscal 1997. Excluding the 1997 revenues from the Australian security subsidiary, the increase in 1998 international operations revenue was $33.8 million, or 33%. Revenues in Latin America, principally in Puerto Rico and Guatemala, and Europe, principally in the United Kingdom, continued to increase mainly through expansion of the security related business, diversification of services, and expansion of the client base of multi-national companies. CORRECTION SERVICES BUSINESS Fiscal 1998 correctional business revenues increased $105.9 million, or 51%, to $312.8 million in fiscal 1998 from $206.9 million in fiscal 1997. In fiscal 1998, Wackenhut Corrections Corporation opened nine new facilities. At the end of fiscal 1998, WHC operated 26,067 beds and had 9,576 beds under construction. Average facility occupancy in domestic and Australian facilities decreased slightly to 95.4% and 98.2% in 1998 as compared to 96.9% and 100.0% in 1997, respectively. Total compensated resident days increased to 7.7 million in fiscal 1998 from 5.2 million in fiscal 1997. FLEXIBLE STAFFING SERVICES BUSINESS The significant growth in the Staffing Services business has resulted from both internal growth and acquisitions. Staffing Services revenues were $495.1 million for fiscal 1998, F-7 32 compared to $90.9 million in fiscal 1997. The increase in revenues in fiscal 1998 reflects the acquisitions of PEM in December 1997, a professional employer organization, and of Sharp, which was acquired in November 1998. When compared to the beginning of the year base business, leased employees have grown approximately 47% from 16,900 employees to 24,800. Temporary placement hours have grown approximately 50% from 1.5 million hours in 1997 to 2.2 million hours in 1998, which includes 300,000 hours from Sharp. OPERATING INCOME Fiscal 1998 consolidated operating income was $32.4 million versus $3.3 million in fiscal 1997. Excluding the one-time charges in fiscal 1997 of $18.3 million, operating income in 1998 increased $10.8 million or 50% from $21.6 million in 1997. The operating margin for fiscal 1998 was essentially flat, compared to fiscal 1997, excluding the one-time charges. Offsetting the increase in operating profit from higher revenues were the following factors: [1] WHC's lease payments to CPV, [2] the increase in information technology costs related to the new enterprise-wide systems, and [3] the increase in payroll and other direct costs of worksite employees of the staffing services. Direct costs of worksite employees of the staffing services are pass-through costs, not subject to the Company's control. SECURITY SERVICES BUSINESS Fiscal 1998 security services business operating income of $24.2 million increased $3.9 million, or 19%, from $20.3 million in fiscal 1997. NORTH AMERICAN OPERATIONS North American operations operating income of $22.2 million increased $2.1 million, or 10%, from $20.1 million in fiscal 1997. This increase can be attributed mainly to increased revenue growth from commercial and government/regulated security services and improved profit margins in food services. These increases were offset by increases in administrative and corporate costs. The increase in administrative and corporate expenses as compared to fiscal 1997 was due to increases in information technology costs as the Company rolls out new enterprise wide systems and payroll related costs attributable to headquarters staff. Despite the higher costs associated with information technology, the North American Operations' operating income as a percentage of revenues remained relatively stable in fiscal 1998 compared to fiscal 1997. INTERNATIONAL OPERATIONS Excluding the Australian subsidiary's 1997 loss of $1.6 million, the 1998 operating income of the International Operations Group increased $0.2 million, or 11%, and remained essentially unchanged at about 1.5% of related revenues. Otherwise, International Operations operating income increased $1.8 million to $2.0 million in fiscal 1998 from $0.2 million in fiscal 1997. The operating income of subsidiaries in Latin American and the Caribbean continued to show significant improvements as a result of increases in the security business, diversification into other security-related services and renegotiation of billing rates. Operating results showed softness in Europe (principally the United Kingdom, Russia and Czech Republic) and Asia. CORRECTION SERVICES BUSINESS Fiscal 1998 operating income from the correctional business increased $6.0 million, or 36%, to $22.5 million from $16.5 million in fiscal 1997. The increase is due principally to the increased profits from the new facilities opened in fiscal 1998. Operating margin was 7.2%, as a percentage of revenues in fiscal 1998 compared to 8.0% in fiscal 1997. The decrease in operating margin was due partially to the lease payments to CPV, which began in April 1998, and expensing of start-up costs due to the adoption of SOP 98-5, which were partially offset by the related decrease in amortization expense. In fiscal 1998, these additional costs were substantially offset by increased interest earnings. FLEXIBLE STAFFING SERVICES BUSINESS Flexible Staffing Services operating income was $2.7 million in fiscal 1998 compared to a loss of $0.3 million in fiscal 1997. This improvement is attributable principally to the acquisitions of PEM in December 1997, Sharp in November 1998 and an improvement in the profit contribution of internally developed staffing services. The operating income of the Flexible Staffing Services as a percentage of total Flexible Staffing revenues was 0.5% for fiscal 1998. However, wages, social security and federal unemployment taxes are pass-through costs not subject to the Company's control. The controllable revenues of employee leasing services, the principal component of the Flexible Staffing Services, was $23.1 million in fiscal 1998 and resulted in operating margin of $2.2 million or 9.5% of controllable revenues. The combined controllable revenue, including both employee leasing and temporary staffing revenues, was $61.4 million in fiscal 1998, and the combined operating margin was $2.7 million or 4.4% of combined controllable revenues in fiscal 1998. CORPORATE EXPENSES AND INFORMATION SYSTEMS Unallocated corporate general and administrative expenses increased 14% to $17.0 million from $14.9 million in 1997. The increase was due principally to an increase in information technology cost as the Company brings on-line new enterprise wide systems and payroll related costs attributable to corporate staff. However, as a percentage of consolidated revenues, unallocated corporate general and administrative expenses decreased to 1.0% from 1.3% in 1997. EBITDA Fiscal 1998 EBITDA, defined as earnings before interest expense, income taxes, depreciation and amortization, was $49.9 million versus $20.8 million in fiscal 1997. Adjusted EBITDA, which excludes the one-time charges for 1997, increased 28%, or $10.8 million, to $49.9 million from $39.1 million in fiscal 1997. As a percentage of revenues, Adjusted EBITDA was 2.8% for Fiscal 1998, compared to 3.5% for fiscal 1997 and was lower in 1998 than in 1997, principally due to the increase in pass-through revenues of the Flexible Staffing Services. Excluding the pass-through revenues of the Flexible Staffing Services, EBITDA as a percentage of revenues was 3.8% in fiscal 1998. Neither EBITDA nor Adjusted EBITDA represents cash flow from operations as defined by generally accepted accounting principles. F-8 33 OTHER INCOME/(EXPENSE) Interest and investment income increased $0.8 million (19%) in fiscal 1998 over fiscal 1997 due to the investment of proceeds from the sale of properties by Wackenhut Corrections to CPV, a real estate investment trust. This increase was offset by an increase in interest expense of $1.3 million, due to increased fees pertaining to the accounts receivable securitization agreement. INCOME BEFORE INCOME TAXES Fiscal 1998 income before income taxes was $34.6 million, compared to $6.0 million in fiscal 1997. Income before income taxes was $10.3 million higher in fiscal 1998 than in fiscal 1997, before the one-time charge of $18.3 million, for an increase of 42%. INCOME TAXES The combined federal and state effective income tax rate was 39.7% for fiscal 1998 and 37.7% for fiscal 1997. The higher effective rate in fiscal 1998 was due to decreases in the utilization of capital loss carryforwards from the prior year and the increase in the federal statutory rate to 35%. MINORITY INTEREST EXPENSE Minority interest expense (net of income taxes) increased to $8.5 million in fiscal 1998 from $5.7 million in 1997, reflecting principally the increase of $2.6 million in minority interest expense pertaining to increased earnings of Wackenhut Corrections. Minority interest expense in international subsidiaries increased $0.2 million in fiscal 1998 over fiscal 1997. EQUITY INCOME OF FOREIGN AFFILIATES Equity income of foreign affiliates (net of income taxes) increased $1.4 million, or 67%, to $3.5 million in fiscal 1998 from $2.1 million in fiscal 1997, primarily due to improved operations of Wackenhut Corrections in the United Kingdom and the operations of the International Group in Greece, Colombia and Chile. INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE Income before cumulative effect of change in accounting principle was $15.9 million in fiscal 1998, compared to $0.1 million in fiscal 1997. Income before cumulative effect of change in accounting principle was $4.5 million higher in fiscal 1998 than in 1997, before the 1997 one-time charge of $18.3 million, ($11.3 million after income taxes) for an increase of 39%. Diluted earnings per share before the cumulative effect of change in accounting principle was $1.03 in fiscal 1998, compared to $0.01 for fiscal 1997. Fiscal 1997 diluted earnings per share, before the one-time charge, was $0.76. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE In fiscal 1998, the Company adopted SOP 98-5. The adoption of SOP 98-5 resulted in a one-time charge of $6.6 million, net of income taxes, and after deducting the portion applicable to minority shareholders of Wackenhut Corrections Corporation. On a diluted basis, the cumulative effect of the change in accounting principle was $0.44 per share. NET INCOME Net income was $9.3 million for fiscal 1998, or $0.63 basic earnings per share, as compared to $0.1 million, or $0.01 per share for fiscal 1997. Earnings per share on a diluted basis was $0.59 in fiscal 1998 compared to a loss of $0.01 per share for fiscal 1997, as explained in more detail in Note 15 to the Consolidated Financial Statements. Goodwill amortization, after tax, amounted to $1.3 million for fiscal 1998. Excluding goodwill amortization, after tax, both basic and diluted earnings per share would have been $0.08 more. F-9 34 The Wackenhut Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (in millions except per share data) FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, and DECEMBER 28, 1997
1999 1998* 1997 - ----------------------------------------------------------------------------- --------- --------- --------- REVENUES $ 2,152.3 $ 1,755.1 $ 1,126.8 --------- --------- --------- OPERATING EXPENSES Payroll and related taxes 1,688.5 1,359.5 835.7 Other operating expenses 403.0 345.7 252.0 Depreciation and amortization 22.9 17.5 17.5 One-time charges and impairment of assets -- -- 18.3 --------- --------- --------- OPERATING INCOME 37.9 32.4 3.3 --------- --------- --------- OTHER INCOME (EXPENSE) Interest and investment income 7.2 5.0 4.2 Interest expense (5.2) (2.8) (1.5) --------- --------- --------- INCOME BEFORE INCOME TAXES 39.9 34.6 6.0 INCOME TAXES (15.9) (13.7) (2.3) MINORITY INTEREST, NET OF INCOME TAXES OF $7.2, $5.5 AND $3.9 (10.9) (8.5) (5.7) EQUITY INCOME OF AFFILIATES, NET OF INCOME TAXES OF $4.3, $2.3 AND $1.4 6.5 3.5 2.1 --------- --------- --------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 19.6 15.9 0.1 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET (NOTE 2) -- (6.6) -- --------- --------- --------- NET INCOME $ 19.6 $ 9.3 $ 0.1 --------- --------- --------- EARNINGS (LOSS) PER SHARE: Basic Income before cumulative effect of change in accounting principle $ 1.31 $ 1.07 $ 0.01 Cumulative effect of change in accounting principle $ -- $ (0.44) $ -- --------- --------- --------- Net income $ 1.31 $ 0.63 $ 0.01 Diluted Income (loss) before cumulative effect of change in accounting principle $ 1.28 $ 1.03 $ (0.01) Cumulative effect of change in accounting principle $ -- $ (0.44) $ -- --------- --------- --------- Net income (loss) $ 1.28 $ 0.59 $ (0.01) BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 14.9 14.8 14.7 DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 15.1 15.1 14.7 - ----------------------------------------------------------------------------- --------- --------- ---------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. * 53 weeks F-10 35 The Wackenhut Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (in millions except share data) JANUARY 2, 2000 and JANUARY 3, 1999
1999 1998 - ---------------------------------------------------------------------------------------------- ------ ------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 67.0 $ 43.5 Accounts receivable, net 182.3 167.8 Inventories 14.7 14.5 Deferred taxes 10.5 7.4 Prepaid expenses 12.5 7.1 Other 12.1 12.2 ------ ------ 299.1 252.5 ------ ------ MARKETABLE SECURITIES 28.8 18.5 ------ ------ PROPERTY AND EQUIPMENT, - at cost 96.1 76.2 - accumulated depreciation (27.9) (19.6) ------ ------ 68.2 56.6 ------ ------ DEFERRED TAXES 5.1 12.2 ------ ------ OTHER ASSETS Goodwill, net 52.3 41.7 Other Intangibles, net 16.1 14.0 Investment in and advances to affiliates, at cost 42.0 36.7 Other 14.1 12.8 ------ ------ 124.5 105.2 ------ ------ $525.7 $445.0 - ---------------------------------------------------------------------------------------------- ------ ------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current portion of long-term debt $ 4.7 $ 4.4 Accounts payable 38.3 36.4 Accrued payroll and related taxes 77.1 70.0 Accrued expenses 59.7 43.5 ------ ------ 179.8 154.3 ------ ------ RESERVES FOR INSURANCE LOSSES 77.5 57.1 ------ ------ LONG-TERM DEBT 16.5 3.4 ------ ------ DEFERRED REVENUE 15.2 16.7 ------ ------ OTHER 17.4 16.7 ------ ------ COMMITMENTS AND CONTINGENCIES (note 16) MINORITY INTEREST 55.4 47.6 ------ ------ SHAREHOLDERS' EQUITY Preferred stock, 10 million shares authorized, none outstanding -- -- Common stock, $.10 par value, 50 million shares authorized Series A, 3.9 million issued and outstanding 0.4 0.4 Series B, 11.1 million issued and outstanding 1.1 1.1 Additional paid-in capital 124.8 125.5 Retained earnings 51.0 32.5 Accumulated other comprehensive income (loss) (10.3) (7.3) Treasury stock at cost, 0.2 million of Series B shares (3.1) (3.0) ------ ------ 163.9 149.2 ------ ------ $525.7 $445.0 - ---------------------------------------------------------------------------------------------- ------ ------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-11 36 The Wackenhut Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, and DECEMBER 28, 1997
1999 1998* 1997 - ------------------------------------------------------------------------------ ------- ------- ------- CASH FLOWS PROVIDED BY (USED IN): OPERATING ACTIVITIES Net income $ 19.6 $ 9.3 $ 0.1 Adjustments to reconcile net income to net cash Provided by (used in) operating activities: Cumulative effect of accounting change -- 6.6 -- One-time charges and impairment of assets -- -- 18.3 Depreciation expense 10.1 7.0 6.4 Uniform amortization 7.9 6.8 5.4 Other amortization expense 4.9 3.7 5.7 Deferred taxes 5.1 (15.6) (4.9) Provision for bad debts 0.3 3.0 0.9 Equity income, net of dividends (8.1) (5.7) (3.3) Minority interests in net income 18.1 14.0 9.6 Other (1.5) (0.7) (2.5) Changes in assets and liabilities, net of acquisitions and divestitures - (Increase) Decrease in assets: Accounts receivable (31.2) (50.6) (33.7) Inventories (8.2) (11.0) (5.7) Prepaid expenses (5.4) 2.0 0.4 Other current assets 0.1 (5.0) (4.5) Other (7.7) (6.3) (1.7) Increase (Decrease) in liabilities: Accounts payable and accrued expenses 10.7 13.8 33.2 Accrued payroll and related taxes 7.2 17.6 12.8 Reserves for insurance losses 20.4 9.7 2.7 Other (0.7) 1.2 3.5 ------- ------- ------- Net Cash Provided By (Used In) Operating Activities 41.6 (0.2) 42.7 ------- ------- ------- INVESTING ACTIVITIES Net proceeds from sale of prison facilities to CPV (see note 9) 22.3 41.8 -- Proceeds from notes receivable -- -- 9.5 Payments for acquisitions, net of cash acquired (4.7) (8.1) (30.1) Net investment in and advances (to) from affiliates and joint ventures 3.1 (10.9) (3.3) Capital expenditures (44.0) (33.9) (27.7) Sales of marketable securities 6.2 17.4 31.5 Purchases of marketable securities (19.5) (28.1) (23.9) Non-current assets (1.5) (7.7) (12.4) ------- ------- ------- Net Cash Used In Investing Activities (38.1) (29.5) (56.4) ------- ------- ------- FINANCING ACTIVITIES Net proceeds from exercise of stock options of subsidiary 0.2 1.8 1.6 Proceeds from the exercise of stock options 1.1 0.9 1.1 Proceeds from issuance of debt 315.0 294.5 51.7 Payments on debt (301.6) (305.7) (43.3) Dividends paid (2.2) (4.4) (3.8) Net proceeds from sales of accounts receivable 16.5 53.0 -- Purchase of treasury stock of subsidiary (7.9) (8.9) -- Purchase of treasury stock (0.1) (1.9) -- ------- ------- ------- Net Cash Provided By Financing Activities 21.0 29.3 7.3 ------- ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1.0) (1.3) (1.2) ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23.5 (1.7) (7.6) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 43.5 45.2 52.8 ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 67.0 $ 43.5 $ 45.2 ------- ------- ------- SUPPLEMENTAL DISCLOSURES: CASH PAID DURING THE YEAR FOR - interest $ 6.3 $ 2.8 $ 1.5 - income taxes 12.6 18.4 2.4 NON-CASH FINANCING AND INVESTING ACTIVITIES: Common stock issued in acquisition -- -- 0.8 Impact on equity from tax benefit related to the exercise of options issued under the Company's non-qualified stock option plan 0.4 0.3 0.5 - ------------------------------------------------------------------------------ ------- ------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. * 53 weeks F-12 37 The Wackenhut Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (in millions except per share data) FISCAL YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999, and DECEMBER 28, 1997
Unrealized Common Stock Additional Foreign Loss on Total Par Value $.10 Paid-in Retained Treasury Currency Marketable Shareholders Series A Series B Capital Earnings Stock Translation Securities Equity - ----------------------------------------- -------- -------- ---------- -------- -------- ----------- ----------- ------------ BALANCE, DECEMBER 29, 1996 $ 0.4 $ 1.1 $ 120.7 $ 31.3 $ (1.1) $ (4.2) $ -- $ 148.2 Proceeds from the exercise of stock options 1.1 1.1 Tax benefit related to employee stock options 0.5 0.5 Common stock issued in acquisition 0.8 0.8 Subsidiary's exercise of stock options 2.1 2.1 Dividends (3.8) (3.8) Comprehensive income (loss): Net income 0.1 Change in foreign currency translation, Net of income tax benefits of $1.4 (2.2) Total comprehensive loss (2.1) -------- -------- --------- -------- ------- -------- ----------- -------- BALANCE, DECEMBER 28, 1997 0.4 1.1 125.2 27.6 (1.1) (6.4) -- 146.8 Proceeds from the exercise of stock options 0.9 0.9 Tax benefit related to employee stock options 0.3 0.3 Subsidiary's exercise of stock options 3.9 3.9 Subsidiary's purchase of treasury stock (4.8) (4.8) Purchase of treasury stock (1.9) (1.9) Dividends (4.4) (4.4) Comprehensive income (loss): Net income 9.3 Change in foreign currency translation, Net of income tax benefits of $0.6 (0.9) Total comprehensive income 8.4 -------- -------- --------- -------- ------- -------- ----------- -------- BALANCE, JANUARY 3, 1999 0.4 1.1 125.5 32.5 (3.0) (7.3) -- 149.2 Proceeds from the exercise of stock options 1.1 1.1 Tax benefit related to employee stock options 0.4 0.4 Issuance of Performance Shares 0.6 0.6 Subsidiary's exercise of stock options 1.7 1.7 Subsidiary's purchase of treasury stock (4.5) (4.5) Purchase of treasury stock (0.1) (0.1) Dividends (1.1) (1.1) Comprehensive income (loss): Net income 19.6 Change in foreign currency translation, Net of income tax benefits of $0.7 (1.1) Unrealized loss on marketable securities, Net of income tax benefits of $1.0 (1.9) Total comprehensive income 16.6 -------- -------- --------- -------- ------- -------- ----------- -------- BALANCE, JANUARY 2, 2000 $ 0.4 $ 1.1 $ 124.8 $ 51.0 $ (3.1) $ (8.4) $ (1.9) 163.9 - ----------------------------------------- -------- -------- --------- -------- ------- -------- ----------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-13 38 The Wackenhut Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar information in millions except share and per share data) For the Fiscal Years Ended January 2, 2000, January 3, 1999, and December 28, 1997 (1) GENERAL The Wackenhut Corporation, a Florida corporation, and subsidiaries (the "Company"), including Wackenhut Corrections Corporation ("WHC"), a 56% owned subsidiary, is a major provider of global business services which include security-related and other support services to business and government, a leading developer and manager of privatized correctional, detention and public sector mental health services, and a provider of employee leasing and temporary staffing. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR The Company's fiscal year ends on the Sunday closest to the calendar year end. Fiscal years 1999 and 1997 each included 52 weeks. Fiscal year 1998 included 53 weeks. BASIS OF FINANCIAL STATEMENT PRESENTATION All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and cash equivalents, accounts receivable, other receivables, notes payable, accounts payable and long-term debt approximates fair value. Accounts receivable are net of allowances of $5.2 million and $4.7 million at January 2, 2000 and January 3, 1999, respectively. Marketable securities are classified as available-for-sale. Realized gains and losses from the sale of securities are based on specific identification of the security. Unrealized gains and losses on marketable securities are included in shareholders' equity as a component of accumulated other comprehensive income (loss). CASH AND CASH EQUIVALENTS The Company classifies as cash equivalents all interest-bearing deposits or investments with original maturities of three months or less. INVENTORIES Food, alarm systems and electronics inventories are carried at the lower of cost or market, on a first-in first-out basis. Uniform inventories are carried at amortized cost and are amortized over a period of eighteen months. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation. Maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of related assets. Accelerated methods of depreciation are generally used for income tax purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. LONG-LIVED ASSETS Long-lived assets including certain identifiable intangibles, and the goodwill related to those assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset in question may not be recoverable including, but not limited to, a deterioration of profits for a business segment that has long-lived assets, and when other changes occur which might impair recovery of long-lived assets. Management has reviewed the Company's long-lived assets and has determined that there are no events requiring impairment loss recognition. The method used to measure impairment would be undiscounted operating cash flows estimated over the remaining amortization period for the related long-lived assets. GOODWILL, OTHER INTANGIBLES AND DEFERRED START-UP COSTS Goodwill represents the cost of an acquired enterprise in excess of the fair market value of the net tangible and identifiable intangible assets acquired. Other intangibles include the fair market value of contracts purchased in acquisitions. Goodwill and contract values are amortized on a straight-line basis over 10 to 30 years. Through December 28, 1997, start-up costs, which consist of costs of initial employee training, travel and other direct expenses primarily incurred in connection with the opening of new correctional facilities, were previously capitalized and amortized on a straight-line basis over the lesser of the initial term of the contract plus renewals or five years. During the fourth quarter of 1998, the Company adopted AICPA Statement of Position 98-5 ("SOP 98-5"), "Accounting for Costs of Start-up Activities." SOP 98-5 requires the expensing of start-up costs, defined as pre-opening, pre-operating and pre-contract type costs. The adoption of SOP 98-5, which was applied retroactively to the first quarter of 1998, resulted in a one-time charge in 1998 of $6.6 million, net of income taxes and after deducting the portion applicable to minority shareholders of Wackenhut Corrections Corporation. On a diluted basis, the cumulative F-14 39 effect of change in accounting principle was $0.44 per share in 1998. DEFERRED SOFTWARE AND DEVELOPMENT COSTS The Company capitalizes purchased software which is ready for service and certain development costs related to the design and implementation of purchased and internally developed information systems software with a useful life of more than one year. Upon implementation of the software, deferred computer software costs are amortized using the straight-line method over the expected useful life of the product, not to exceed five years. The costs of computer software upgrades and maintenance are expensed as incurred. DEFERRED REVENUE Deferred revenue primarily represents the unamortized net profit on the sale of properties by WHC to Correctional Properties Trust ("CPV"), a Maryland real estate investment trust. WHC leases these properties back from CPV. Deferred revenue is being amortized over the lives of the leases and is recognized in income as a reduction of rental expense. FOREIGN CURRENCY TRANSLATION The Company's foreign operations use the local currency as their functional currency. Assets and liabilities of the operations (except for countries with highly inflationary economies) are translated at the exchange rates in effect on the balance sheet date. Income statement items (except for countries with highly inflationary economies) are translated at the average exchange rates for the reporting period. The impact of these currency fluctuations is included in shareholders' equity as a component of accumulated other comprehensive income (loss). The financial statements of subsidiaries located in highly inflationary economies are remeasured as if the functional currency were the U.S. dollar. The remeasurement of these local currencies into U.S. dollars creates translation adjustments which are included in the statements of income. REVENUES Project development and design revenues are recognized as earned on a percentage of completion basis measured by the percentage of costs incurred to date as compared to estimated total cost for each contract. This method is used because management considers costs incurred to date to be the best available measure of progress on these contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which the Company determines that such losses are probable. Contract costs include all direct material and labor costs and those indirect costs related to contract performance. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. All other revenue is recognized as services are provided. During fiscal years 1999, 1998 and 1997, revenue from one customer, the U.S. Department of Energy, accounted for approximately 6%, 7%, and 11%, respectively, of the Company's consolidated revenues. INCOME TAXES Deferred income taxes are determined on the estimated future tax effects of differences between the financial reporting and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the asset or liability from year to year. MINORITY INTEREST The minority interest expense represents principally the separate public ownership in WHC, as listed on the New York Stock Exchange, and the ownership by foreign investors in several subsidiaries of Wackenhut International, Incorporated. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. In the computation of diluted earnings per share, net income is reduced by the dilutive effect of WHC's stock options and dividing the result by the weighted-average number of common shares outstanding of all potential dilutive common stock equivalents. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133 The Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 2000. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement 133." This Statement defers the effective date of SFAS No. 133 to fiscal 2001 at which time adoption is planned. Management believes the impact of adopting these statements will not have a material impact upon the Company's results of operations or financial position. (3) ACQUISITIONS In November 1998, the Company purchased certain assets and assumed certain liabilities of Sharp Services, Inc. and Advantage Temporary Services, Inc., for an initial payment of $8.1 million in cash, with a contingent cash payment, payable no later than May 2001, subject to adjustments based on actual workers' compensation claims. In no event will the total purchase price exceed $10.0 million. The acquisitions were accounted for under the purchase method, and the Company recorded approximately $5.4 million of goodwill which is being amortized on a straight-line basis over 30 years. The results of operations for Sharp and Advantage Companies have been included in the Company's consolidated financial statements from the date of acquisition. The following unaudited pro forma information combines the consolidated results of operations of the Company, Sharp and Advantage as if the acquisitions had occurred at the beginning of 1998. F-15 40 1998* 1997 - ------------------------------------- --------- --------- Pro forma revenues $ 1,771.9 $ 1,366.1 Pro forma net income $ 9.8 $ 1.4 Pro forma per share - basic $ 0.66 $ 0.09 Pro forma per share - diluted $ 0.63 $ 0.08 - ------------------------------------- --------- --------- * 53 weeks The unaudited pro forma results have been prepared for comparative purposes only, after the cumulative effect of change in accounting principle in 1998, and include adjustments for additional amortization expense as a result of goodwill and the related income tax effects. The pro forma results may not be indicative of results that would have occurred had the combination been in effect for the period presented, nor do they purport to be indicative of the results that will be obtained in the future. In December 1997, the Company purchased certain assets and assumed certain liabilities of Professional Employee Management, Inc., a professional employer organization in Sarasota, Florida for an initial payment of $18.9 million in cash, together with a series of contingent earn-out payments which will become payable either in cash or shares of the Company's series B Common Stock (at the option of the Company) based on performance. A $4.7 million contingent earn-out payment, accrued for in 1998, was paid out in cash in 1999. The Company in 1999 recorded an additional $9.6 million liability under the contingent earn-out, which will be paid out in cash subsequent to January 2, 2000. In no event will the total purchase price exceed $50.7 million. The acquisition was accounted for under the purchase method, and to date the Company has recorded $32.1 million of goodwill, which is being amortized on a straight-line basis over 30 years. (4) PROPERTY AND EQUIPMENT Property and equipment consist of the following at fiscal year end: Years 1999 1998 - ---------------------------------------- ------- ------- Land $ 3.5 $ 2.6 Buildings and improvements 7 to 30 23.2 15.8 Equipment 1 1/2 to 20 33.6 26.9 Furniture and fixtures 3 to 10 6.9 6.6 Automobiles 3 7.7 6.3 Construction in progress 21.2 18.0 ------- ------- $ 96.1 $ 76.2 - ---------------------------------------- ------- ------- (5) WHOLLY OWNED CASUALTY REINSURANCE SUBSIDIARY The Company has a wholly owned casualty insurance subsidiary that reinsures a portion of the Company's workers' compensation and general and automobile liability insurance. Incurred losses are recorded as reported. Provision is made to cover losses incurred but not reported. Loss reserves are computed based on actuarial studies and, in the opinion of management, are adequate. A summary of operations for the last three fiscal years is as follows: 1999 1998 1997 - ----------------------------- ------- ------ ------ Intercompany premiums $ 44.1 $ 27.2 $ 20.7 Loss expense (45.0) (26.0) (21.2) ------- ------ ------ Underwriting gain (loss) (0.9) 1.2 (0.5) Investment income 3.2 3.1 2.9 ------- ------ ------ $ 2.3 $ 4.3 $ 2.4 - ----------------------------- ------- ------ ------ Marketable securities and certificates of deposit, carried at fair value, consisted of the following: January 2, 2000 January 3, 1999 - ------------------------------------------------------------- Fair Fair Value Cost Value Cost - -------------------- ------- ------- ------- ------- Municipal Bonds $ 11.7 $ 12.8 $ 6.8 $ 6.8 Government Bonds 10.7 10.9 2.5 2.5 Preferred Stock 6.4 8.0 9.2 9.2 ------- ------- ------- ------- $ 28.8 $ 31.7 $ 18.5 $ 18.5 - -------------------- ------- ------- ------- ------- The Company has placed in trust, in favor of certain insurance companies, its marketable securities and $15.4 million in cash and cash equivalents, and has issued irrevocable standby letters of credit for $22.7 million. Municipal bonds mature from 2018 to 2026 and government bonds mature in periods ranging from 3 to 25 years. At January 2, 2000, the Company's reinsurance subsidiary has specific restrictions on future purchases of marketable securities, and on withdrawals from the trust. (6) INVESTMENT IN AFFILIATES Equity in undistributed earnings of affiliates approximated $22.5 million and $14.0 million at January 2, 2000, and January 3, 1999, respectively, and is included in "Investments in and advances to foreign affiliates." The following is a summary of condensed unaudited information pertaining to foreign affiliates: 1999 1998 - ------------------------------------ -------- -------- Balance sheet items: Current assets $ 118.1 $ 57.4 Noncurrent assets 62.2 49.1 Current liabilities 82.0 48.5 Noncurrent liabilities 29.3 18.6 Minority interest liability 1.3 0.2 Income statement items for the fiscal year: Revenues $ 566.2 $ 229.9 Operating income 32.5 16.3 Net income before taxes 28.5 15.2 - ------------------------------------ -------- -------- F-16 41 (7) GOODWILL AND OTHER INTANGIBLES Goodwill and other intangibles consist of the following: January 2, January 3, 2000 1999 - ---------------------------------- ---------- ---------- Goodwill $ 57.6 $ 45.2 Contract value 15.6 15.6 Other 7.2 2.9 ------ ------- 80.4 63.7 Accumulated amortization Goodwill 5.3 3.5 Contract value 4.8 3.9 Other 1.9 0.6 ------ ------- 12.0 8.0 ------ ------- Net $ 68.4 $ 55.7 - ---------------------------------- ------- ------- (8) NOTES PAYABLE AND LONG-TERM DEBT Long-term debt consists of the following: January 2, January 3, 2000 1999 - ---------------------------------- ---------- ---------- Revolving loan - $ 15.0 $ 1.8 8.0% in 1999 and 5.4% in 1998 Lease obligation payable in Installments through 2004 at a Weighted average rate of 4.5% 1.8 1.8 Other debt principally related to North American operations and International subsidiaries 4.4 4.2 ------- ------- Total 21.2 7.8 Less: current portion 4.7 4.4 ------- ------- Total $ 16.5 $ 3.4 - ---------------------------------- ------- ------- In December 1997, Wackenhut Corrections entered into a $30 million revolving credit facility with a syndicate of banks, which includes a $5 million line of credit for the issuance of letters of credit. The interest payable is a function of the prime rate, federal funds rate or LIBOR, depending upon fixed charge coverage ratios. The facility requires WHC to, among other things, maintain a maximum leverage ratio; minimum fixed charge coverage ratio; and a minimum tangible net worth. The facility also limits certain payments and distributions. As of January 2, 2000, $15 million was outstanding under this facility with an interest rate of 8.0% and outstanding letters of credit amounted to $2.5 million, in addition to eight letters of guarantee totaling $3.5 million under a separate foreign facility. The $15.0 million debt becomes due in 2002. On December 30, 1997, the Company entered into a revolving credit agreement under which the Company was able to borrow up to $40 million. In 1999, the Company modified its revolving credit agreements under which up to $95 million may be borrowed. As of January 2, 2000, the unused portion of the revolving line of credit was $64.2 million, after deducting $30.8 million in outstanding letters of credit. The agreement requires, among other things, that the Company maintain a minimum consolidated net worth and limits certain payments and distributions. As of January 2, 2000, the Company was in compliance with the applicable loan covenants. In December 1997, the Company entered into a three-year agreement to sell, on an ongoing basis, eligible receivables up to a maximum of $60 million. In February 1999, the Company amended the agreement to increase the eligible receivables to a maximum of $75 million. The costs associated with this sale of receivables are based on the amount borrowed and the cost of issuing commercial paper plus predetermined fees. Such costs are included in "Interest expense" in the consolidated statements of income. There were $69.5 million and $53 million accounts receivable sold under this agreement at January 2, 2000, and January 3, 1999, respectively. The total amount available to the Company from its revolving credit, line of credit and accounts receivable securitization facility is $170 million. The Company has a demand operating line of credit with a Canadian bank with a maximum borrowing amount of $2.1 million. At January 2, 2000, the Company had short-term borrowings under this line of credit of $2.0 million for working capital purposes, bearing interest at the bank's prime lending rate of 6.5%. The Company had outstanding notes payable and operating lines of credit of $2.4 million at January 2, 2000 to meet working capital needs of its international subsidiaries with $2.2 million due within one year. The long-term portion of the capital lease obligation maturing during each of the three years after 2000 is $0.6 million, $0.6 million and $0.1 million, respectively. (9) SALE OF FACILITIES TO CORRECTIONAL PROPERTIES TRUST On April 28, 1998, Correctional Properties Trust ("CPV"), a Maryland real estate investment trust, sold 6.2 million shares of common stock at an offering price of $20.00 per share in an initial public offering. Approximately $113 million of the net proceeds of the offering were used to acquire eight correctional and detention facilities operated by WHC. WHC received approximately $42 million for the three facilities owned by it and for the rights to acquire four of the other five facilities, and realized a profit of approximately $18 million. The eighth facility was purchased directly from the government entity. CPV also was granted the option to acquire three additional correctional facilities under development by WHC and the fifteen-year right to acquire and lease back future correctional and detention facilities developed or acquired by WHC. On October 30, 1998, CPV acquired the completed portion of a ninth facility for $26.0 million. During Fiscal 1999, CPV acquired a 600-bed expansion of the ninth facility and the right to acquire a tenth facility for $67.7 million. Subsequent to January 2, 2000, CPV purchased an eleventh facility that WHC had the right to acquire for $15.3 million. Simultaneous with the purchases, WHC entered into ten-year operating leases of these facilities from CPV. As the lease agreements are subject to contractual lease increases, WHC records operating lease expense for these leases on a straight-line basis over the term of the leases. The deferred unamortized net profit at January 2, 2000, which is included in "Deferred revenue" in the accompanying balance sheets, is $14.9 million with $1.8 million short-term, and $13.1 million long-term excluding F-17 42 the long-term portion of deferred development fee revenue. The net profit is being amortized over the ten year lease term. The Company recorded net rental expense related to CPV of $18.9 million and $6.9 million in fiscal 1999 and 1998, respectively. The future minimum lease commitments under the leases for these eleven facilities are as follows: Annual Year Rental - ------------------------------------------------- ------- 2000 $ 22.3 2001 22.6 2002 22.7 2003 22.7 2004 22.7 Thereafter 84.2 ------- $ 197.2 - ------------------------------------------------- ------- (10) PREFERRED, COMMON AND TREASURY STOCK The Board of Directors has authorized 10 million shares of preferred stock. As of January 2, 2000, no preferred stock has been issued. The Board of Directors has authorized 50 million shares of the Company's common, with 3.9 million shares to be designated as series A common stock and 46.1 million shares to be designated as series B common stock. The Board of Directors of the Company and of Wackenhut Corrections authorized the repurchase, at the discretion of each company's senior management, of up to 0.5 million shares of Series B common stock and 0.5 million shares of Wackenhut Corrections common stock, respectively. In February 1999, the Board of Directors of Wackenhut Corrections authorized, in addition to that previously authorized, the repurchase of up to 0.5 million shares of its common stock. The Company's repurchases of shares of common stock are recorded as treasury stock and result in a reduction of stockholders' equity. Wackenhut Corrections' repurchases of shares of common stock are recorded as a reduction to additional paid-in capital and minority interest. As of January 2, 2000, the Company had bought back 196,400 shares of the Company's Series B common stock at an average price of $15.48, and Wackenhut Corrections repurchased 878,000 shares of Wackenhut Corrections common stock at an average price of $19.13 per share. (11) STOCK INCENTIVE AND STOCK OPTION Key employees of the Company and its subsidiaries are eligible to participate in the Key Employee Long-Term Incentive Stock Plan ("incentive stock plan"). Under the incentive stock plan, options for the Company's series B common stock are granted to participants as approved by the Nominating and Compensation Committee of the Company's Board of Directors ("Committee"). Under terms of the incentive stock plan, options are granted at prices not less than the fair market value at date of grant (or as otherwise determined by the Committee), become exercisable after a minimum of six months, and expire no later than ten years after the date of grant. The Committee may grant incentive stock options or non-qualified stock options. Options are subject to adjustment upon the occurrence of certain events, including stock splits and stock dividends. The incentive stock plan authorizes the Company to award or grant restricted stock and performance stock to key employees. Non-employee directors of the Company are eligible to participate in The Wackenhut Corporation non-employee directors' stock option plan ("directors' stock option plan"). Under the directors' stock option plan, non-employee directors are granted 2,000 stock options for series B common stock upon their election or re-election to the Board of Directors. Under terms of the directors' stock option plan, options are granted at the fair market value at date of grant, become exercisable at date of grant, and expire ten years after the date of grant. At January 2, 2000, 1,840,060 shares of series B common stock were reserved for issuance, including 725,927 shares available for future grants or awards. A summary of the status of the Company's stock option plans, as of January 2, 2000, January 3, 1999, and December 28, 1997 is presented below: 1999 1998 1997 - ------------------------------------------------------------------------ Shares Price Shares Price Shares Price - ------------------------------------------------------------------------ Outstanding at Beginning of Year 847,630 $14.30 668,693 $11.64 597,255 $ 9.75 Options: Granted 230,000 16.69 255,000 19.75 213,000 15.77 Exercised (101,851) 10.15 (76,063) 11.71 (119,687) 10.56 Forfeited 3,125 6.16 (21,875) 6.16 -------------------------------------------------------- Outstanding at end of year 978,904 15.06 847,630 14.06 668,693 11.64 -------------------------------------------------------- Exercisable at year end 978,904 15.06 847,630 14.06 638,693 11.30 - ------------------------------------------------------------------------ Option groups outstanding at January 2, 2000 and related exercise price and remaining life information are as follows: Outstanding Exercise Remaining Grant Date & Exercisable Price Life (Years) - ------------------------------------------------------------- 04/30/94 130,104 $ 6.16 4 01/28/95 98,000 $ 10.80 5 01/31/96 110,000 $ 14.00 6 01/28/97 131,700 $ 15.25 7 08/09/97 26,100 $ 18.94 7 01/27/98 255,000 $ 19.75 8 02/18/99 228,000 $ 16.69 9 - ------------------------------------------------------------- The Company applies Accounting Principles Board Opinion ("APB No. 25") and related interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation for the Company's stock-based compensation plans been determined pursuant to Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have decreased accordingly. Using the Black-Scholes option F-18 43 pricing model for all options granted after January 1, 1995, the Company's pro forma net income, pro forma net income per share and pro forma weighted average fair value of options granted, with related assumptions, are as follows: 1999 1998* 1997 - ------------------------------------------------------------------ Pro forma basic net income $ 18.6 $ 8.2 $ (0.6) Pro forma basic earnings per share $ 1.25 $ 0.55 $ (0.04) Pro forma diluted net income $ 18.5 $ 7.7 $ (0.7) Pro forma diluted earnings per share $ 1.22 $ 0.51 $ (0.05) Pro forma weighted average fair value of options granted $ 6.69 $ 6.94 $ 5.65 Risk-free interest rate 4.9 % 5.4 % 5.9 % (5.4)% (5.6)% (6.3)% Expected life (years) 5 5 5 Expected volatility 38.0 % 35.0 % 36.0 % Quarterly dividend** -- $0.075 0.065 - ------------------------------------------------------------------ * 53 weeks ** The Company discontinued its quarterly dividend after the first quarter of 1999. (12) WACKENHUT CORRECTIONS CORPORATION STOCK OPTION PLANS In January 1996, Wackenhut Corrections sold 4.6 million shares of common stock at an offering price of $12.00 per share. After the offering, the Company's ownership in Wackenhut Corrections was reduced to approximately 55%. During 1999, the exercise of 39,070 non-qualified stock options of Wackenhut Corrections, net of treasury stock purchases, resulted in the Company's ownership of Wackenhut Corrections equaling approximately 56% at January 2, 2000. The board of directors of Wackenhut Corrections has granted non-qualified stock options to purchase common stock which, if fully exercised, would reduce the Company's ownership in Wackenhut Corrections to approximately 53%. (13) RETIREMENT AND DEFERRED COMPENSATION PLANS The Company has a noncontributory defined benefit pension plan covering certain of its executives. Retirement benefits are based on years of service, employees' average compensation for the last five years prior to retirement and social security benefits. Currently, the plan is not funded. The Company purchases and is the beneficiary of life insurance policies for each participant enrolled in the plan. The assumptions for the discount rate and the average increase in compensation used in determining the pension expense and funded status information are 6.5% and 4.0%, respectively. Total pension expense for fiscal 1999, 1998, and 1997 was $0.5 million, $0.6 million, and $0.5 million, respectively. The present value of accumulated pension benefits was $3.0 million at the end of each fiscal year presented and is included in "Other liabilities" in the accompanying consolidated balance sheets. The Company has established non-qualified deferred compensation agreements with certain senior executives providing for fixed annual benefits ranging from $100,000 to $175,000 payable upon retirement at age 60 for a period of 20 years. In the event of death before retirement, annual benefits are paid to beneficiaries for a period of 10 years. Currently, the plan is not funded. The Company purchases and is the beneficiary of life insurance policies for each participant enrolled in the plan. The cost of these agreements is being charged to expense and accrued using a present value method over the expected terms of employment. The charge to expense for fiscal 1999, 1998, and 1997 was $0.8 million, $1.5 million, and $0.6 million, respectively. The liability for deferred compensation was $6.4 million and $5.7 million at fiscal year end 1999 and 1998, respectively, and is included in "Other liabilities" in the accompanying consolidated balance sheets. In February 2000, the Board of Directors approved an amendment to the senior executives' non-qualified deferred compensation agreements for fixed annual benefits ranging from $175,000 to $250,000 per employee payable upon retirement at age 60 for a period of 25 years to be incurred over the future service period of the employee. (14) INCOME TAXES The provision (credit) for income taxes in the consolidated statements of income, consists of the following: 1999 1998* 1997 - --------------------------- ------- ------- ------- Federal income taxes: Current $ 11.5 $ 15.8 $ 1.8 Deferred 1.8 (4.9) (0.1) ------- ------- ------- 13.3 10.9 1.7 State income taxes: Current $ 2.6 $ 3.5 $ 0.9 Deferred - (0.7) (0.3) ------- ------- ------- 2.6 2.8 0.6 ------- ------- ------- Total $ 15.9 $ 13.7 $ 2.3 - --------------------------- ------- ------- ------- * 53 weeks A reconciliation of the statutory U.S. federal tax rate (35%) and the effective income tax rate is as follows: 1999 1998* 1997 - --------------------------- ------- ------- ------- Provision using statutory federal income tax rate $ 14.0 $ 12.1 $ 2.1 State income taxes, net of federal benefit 1.7 1.6 0.3 Other, net 0.2 -- (0.1) ------- ------- ------- $ 15.9 $ 13.7 $ 2.3 - --------------------------- ------- ------- ------- * 53 weeks The components of the net current deferred income tax asset (liability) are as follows: 1999 1998 - ---------------------------------------- ------- ------- Amortization of uniforms and $ (2.1) $ (2.3) accessories Accrued vacation pay 2.8 2.2 Other reserves 9.8 7.5 ------- ------- Current deferred tax asset, net $ 10.5 $ 7.4 - ---------------------------------------- ------- ------- F-19 44 The components of the net non-current deferred income tax asset (liability) are shown below: 1999 1998 - ---------------------------------------- --------- ---------- Income of foreign subsidiaries and affiliates $ (20.9) $ (15.5) Gain on sale of properties to CPV 8.4 9.0 Deferred compensation 7.8 6.9 Reserve for losses of reinsurance subsidiary 5.7 5.7 Reserve for claims of employee health trust 4.5 4.3 Deferred charges 0.1 0.1 Other, net (0.5) 1.7 ------- ------- Non-current deferred tax asset, net $ 5.1 $ 12.2 - ---------------------------------------- ------- ------- The exercise of non-qualified stock options which have been granted under the Company's stock option plans gives rise to compensation which is includable in the taxable income of the applicable employees and deducted by the Company for federal and state income tax purposes. Such compensation results from increases in the fair market value of the Company's common stock subsequent to the date of grant. In accordance with APB No. 25, such compensation is not recognized as an expense for financial accounting purposes and related tax benefits are credited directly to additional paid-in-capital. (15) EARNINGS PER SHARE The table below shows the amounts used in computing earnings per share in accordance with SFAS No. 128. Common stock equivalents related to stock options if exercised are excluded from diluted earnings (loss) per share calculations if their effect would be anti-dilutive. In fiscal 1999, 1998 and 1997 the total number of stock options excluded because their effect would have been anti-dilutive were 329,100, 263,231, and 266,997 respectively (share data in millions). 1999 1998* 1997 - -------------------------------- ------ ------ ------ Basic Net income $ 19.6 $ 9.3 $ 0.1 Weighted average common shares outstanding 14.9 14.8 14.7 ------ ------ ------ Basic earnings per share $ 1.31 $ 0.63 $ 0.01 ------ ------ ------ Diluted Net income $ 19.6 $ 9.3 $ 0.1 Effect of Wackenhut Corrections stock options (0.2) (0.4) (0.2) ------ ------ ------ Net income (loss) $ 19.4 $ 8.9 $ (0.1) ------ ------ ------ Weighted average common shares outstanding 14.9 14.8 14.7 Assumed exercise of stock options, net of common shares assumed repurchased with the proceeds 0.2 0.3 ------ ------ ------ Adjusted weighted average common shares outstanding 15.1 15.1 14.7 ------ ------ ------ Diluted earnings (loss) per share $ 1.28 $ 0.59 $(0.01) - -------------------------------- ------ ------ ------ * 53 weeks (16) COMMITMENTS AND CONTINGENCIES The Company is presently, and is from time to time, subject to other claims arising in the ordinary course of its business. In certain of such actions, plaintiffs request punitive or other damages that may not be covered by insurance. In the opinion of management, there are no other pending legal proceedings except those disclosures below, for which the potential impact if decided unfavorable to the Company could have a material adverse effect on the consolidated financial statements of the Company. In Texas, grand juries have been convened in Travis and Caldwell Counties and are taking testimony regarding alleged sexual misconduct and document tampering by individuals employed or formerly employed by WHC. At this time, the Company is unable to predict the outcome of these investigations and any potential impact on the financial position, net worth or results of operations of the Company. In New Mexico, WHC has been in discussions with the State's Department of Corrections and the Legislative Finance Committee to remedy serious operational issues at the WHC's facilities in Lea and Guadalupe Counties. WHC has developed and presented to the State of New Mexico (the "State") recommended contract modifications with associated operational and fiscal resource needs for both facilities. WHC can give no assurances as to the ultimate acceptability of these contract modifications by the State. Additionally, WHC has submitted a proposal to the Federal Bureau of Prisons for the Lea County Correctional Facility for its possible use to hold low security criminal aliens. On August 31, 1999, WHC announced the mutual decision between WHC, the Texas Department of Criminal Justice State Jail Division (TDCJ) and Travis County, Texas, to discontinue WHC's contract for the operation of the Travis County Community Justice Center. The contract was discontinued effective November 8, 1999. WHC is involved in discussions with TDCJ regarding close-out of all contract claims. The Company cannot predict the outcome of these discussions at this time. The Company leases office space, data processing equipment and automobiles under non-cancelable operating leases expiring between 2000 and 2017. Rent expense for the fiscal years ended January 2, 2000, January 3, 1999, and December 28, 1997 was $22.2 million, $15.8 million, and $10.0 million, respectively. In December 1997, Wackenhut Corrections entered into a $220 million operating lease facility that was established to acquire and develop new correctional institutions used in its business. As a condition of this facility, Wackenhut Corrections unconditionally agreed to guarantee certain obligations of First Security Bank, N.A., a party to the aforementioned operating lease facility. As of January 2, 2000, approximately $88.7 million of properties were under development under this facility. The minimum commitments under these leases and the 15 year lease for the corporate headquarters, are as follows: Minimum Year Commitment - -------------------------------------------- ---------------- 2000 $ 18.4 2001 15.6 2002 13.8 2003 12.6 2004 11.5 Thereafter 54.4 ------- $ 126.3 - -------------------------------------------- ------- F-20 45 (17) BUSINESS SEGMENTS The Company's principal segments are grouped based on similarity of business services provided and the type of customer for which these services are offered. These services consists of security services, correction services and flexible staffing services. The Wackenhut Corporation, a Florida corporation, and subsidiaries (the "Company"), including Wackenhut Corrections Corporation ("WHC"), a 56% owned subsidiary, is a major provider of global business services which include security-related and other support services to business and government, a leading developer and manager of privatized correctional, detention and public sector mental health services facilities, and a provider of employee leasing and temporary staffing. For segment reporting, the accounts of the Company's captive insurance company have been included in unallocated corporate expenses. Intersegment transactions are accounted for on an arms-length basis and are eliminated in consolidation. Direct general and administrative expenses are allocated based on usage. 1999 1998* 1997 - -------------------------------- -------- -------- -------- REVENUES: Security services $1,041.0 $ 947.2 $ 829.0 Correctional services 438.5 312.8 206.9 Staffing services 672.8 495.1 90.9 -------- -------- -------- Total revenues $2,152.3 $1,755.1 $1,126.8 - -------------------------------- -------- -------- -------- OPERATING INCOME: Security services $ 27.7 $ 24.2 $ 20.3 Correctional services 26.0 22.5 16.5 Staffing services 3.5 2.7 (0.3) Unallocated corporate Expenses (19.3) (17.0) (14.9) One-time charges and Impairment of assets -- -- (18.3) -------- -------- -------- Total operating income $ 37.9 $ 32.4 $ 3.3 - -------------------------------- -------- -------- -------- EQUITY INCOME (LOSS) OF AFFILIATES, NET OF TAXES: Security services $ 3.2 $ 1.4 $ 1.0 Correctional services 3.3 2.1 1.1 -------- -------- -------- Total equity income $ 6.5 $ 3.5 $ 2.1 - -------------------------------- -------- -------- -------- CAPITAL EXPENDITURES: Security services $ 3.0 $ 4.6 $ 2.9 Correctional services 39.0 25.0 23.9 Staffing services 0.8 0.9 0.3 Unallocated corporate Expenses 1.2 3.4 0.6 -------- -------- -------- Total capital expenditures $ 44.0 $ 33.9 $ 27.7 - -------------------------------- -------- -------- -------- DEPRECIATION AND AMORTIZATION EXPENSE: Security services $ 12.7 $ 11.5 $ 10.1 Correctional services 5.4 3.6 6.3 Staffing services 2.0 1.5 0.4 Unallocated corporate Expenses 2.8 0.9 0.7 -------- -------- -------- Total expenses $ 22.9 $ 17.5 $ 17.5 - -------------------------------- -------- -------- -------- IDENTIFIABLE ASSETS: Security services $ 163.3 $ 168.3 $ 171.3 Correctional services 208.2 145.5 139.2 Staffing services 76.1 62.6 45.1 Unallocated corporate Expenses 78.1 68.6 48.8 -------- -------- -------- Total identifiable assets $ 525.7 $ 445.0 $ 404.4 - -------------------------------- -------- -------- -------- * 53 weeks DOMESTIC AND INTERNATIONAL OPERATIONS Non-U.S. operations of the Company and its subsidiaries are conducted primarily in South America, the United Kingdom and Australia. No individual foreign subsidiary of the Company represented over 10% of combined revenues in 1998. Minority interest in consolidated foreign subsidiaries have been reflected, net of applicable income taxes, in the accompanying financial statements. The Company carries its investment in affiliates under the equity method. U.S. income taxes which would be payable upon remittance of affiliates' earnings to the Company are provided currently. Long-lived assets consist of property, plant and equipment. A summary of domestic and international operations is shown below: 1999 1998* 1997 - -------------------------------- -------- -------- -------- REVENUES: Domestic operations $1,914.4 $1,548.7 $ 953.0 International operations 237.9 206.4 173.8 -------- -------- -------- Total revenues $2,152.3 $1,755.1 $1,126.8 - -------------------------------- -------- -------- -------- OPERATING INCOME: Domestic operations $ 27.5 $ 26.2 $ 17.1 International operations 10.4 6.2 4.5 One-time charges and impairment of assets -- -- (18.3) -------- -------- -------- Total operating income $ 37.9 $ 32.4 $ 3.3 - -------------------------------- -------- -------- -------- EQUITY INCOME (LOSS) OF AFFILIATES, NET OF TAXES: Domestic operations $ 1.4 -- -- International operations 5.1 3.5 2.1 -------- -------- -------- Total equity income $ 6.5 3.5 2.1 - -------------------------------- -------- -------- -------- CAPITAL EXPENDITURES: Domestic operations $ 39.7 $ 29.5 $ 19.6 International operations 4.3 4.4 8.1 -------- -------- -------- Total capital expenditures $ 44.0 $ 33.9 $ 27.7 - -------------------------------- -------- -------- -------- DEPRECIATION AND AMORTIZATION EXPENSE: Domestic operations $ 18.1 $ 12.8 $ 12.9 International operations 4.8 4.7 4.6 -------- -------- -------- Total expenses $ 22.9 $ 17.5 $ 17.5 - -------------------------------- -------- -------- -------- LONG-LIVED ASSETS: Domestic operations $ 52.7 $ 46.9 $ 48.2 International operations 15.5 9.7 8.2 -------- -------- -------- Total long-lived assets $ 68.2 $ 56.6 $ 56.4 - -------------------------------- -------- -------- -------- *53 weeks F-21 46 (18) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the Company and its subsidiaries for the fiscal years ended January 2, 2000 and January 3, 1999 is as follows:
First Second Third Fourth 1999 Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------------------- Revenues $ 500.1 $ 530.3 $ 547.5 $ 574.4 Income from operations $ 7.9 $ 9.0 $ 10.9 $ 10.1 Net income $ 4.0 $ 4.7 $ 5.4 $ 5.5 Earnings per share - basic $ 0.27 $ 0.31 $ 0.36 $ 0.37 Earnings per share - diluted $ 0.26 $ 0.30 $ 0.35 $ 0.37 - ----------------------------------------------------------------------------------------------------------------------------- 1998 (14 weeks) - ----------------------------------------------------------------------------------------------------------------------------- Revenues $ 398.6 $ 416.7 $ 438.4 $ 501.4 Income from operations $ 5.9 $ 8.8 $ 8.7 $ 9.0 Cumulative effect of change in accounting principle (1) $ (6.6) $ -- $ -- $ -- Net income (loss) $ (4.1) $ 4.0 $ 4.4 $ 5.0 Earnings per share - basic Income before cumulative effect of change in accounting principle $ 0.17 $ 0.27 $ 0.30 $ 0.34 Cumulative effect of change in accounting principle $ (0.44) $ -- $ -- $ -- Net income (loss) $ (0.27) $ 0.27 $ 0.30 $ 0.34 Earnings per share - assuming dilution Income before cumulative effect of change in accounting principle $ 0.16 $ 0.26 $ 0.29 $ 0.33 Cumulative effect of change in accounting principle $ (0.44) $ -- $ -- $ -- Net income (loss) $ (0.28) $ 0.26 $ 0.29 $ 0.33 - -----------------------------------------------------------------------------------------------------------------------------
Note: Each quarter has 13 weeks, except for the fourth quarter of 1998 that has 14 weeks. (1) In the fourth quarter the Company adopted SOP 98-5 resulting in a charge of $6.6 million after-tax and minority interest expense (described in Note 2, hereto) and has been recognized retroactively to the first quarter of 1998. F-22 47 Report of Independent Certified Public Accountants To the Shareholders of The Wackenhut Corporation: We have audited the accompanying consolidated balance sheets of The Wackenhut Corporation (a Florida corporation) and subsidiaries as of January 2, 2000 and January 3, 1999, and the related consolidated statements of income, cash flows and shareholders' equity and comprehensive income for each of the three fiscal years in the period ended January 2, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Wackenhut Corporation and subsidiaries as of January 2, 2000 and January 3, 1999, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 2, 2000, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, effective December 29, 1997, the Company changed its method of accounting for costs of start-up activities. ARTHUR ANDERSEN LLP West Palm Beach, Florida, February 17, 2000. F-23 48 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS To the Shareholders of The Wackenhut Corporation: The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. They include amounts based on judgments and estimates. Representation in the consolidated financial statements and the fairness and integrity of such statements are the responsibility of management. In order to meet management's responsibility, the Company maintains a system of internal controls and procedures and a program of internal audits designed to provide reasonable assurance that the Company's assets are controlled and safeguarded, that transactions are executed in accordance with management's authorization and properly recorded, and that accounting records may be relied upon in the preparation of consolidated financial statements. The consolidated financial statements have been audited by Arthur Andersen LLP, independent certified public accountants, whose appointment was ratified by shareholders. Their report expresses a professional opinion as to whether management's financial statements considered in their entirety present fairly, in conformity with generally accepted accounting principles, the Company's financial position and results of operations. Their audit was conducted in accordance with generally accepted auditing standards. As part of this audit, Arthur Andersen LLP considered the Company's system of internal controls to the degree they deemed necessary to determine the nature, timing and extent of their audit tests which support their opinion on the consolidated financial statements. The audit committee of the board of directors meets periodically with representatives of management, the independent certified public accountants and the Company's internal auditors to review matters relating to financial reporting, internal accounting controls and auditing. Both the internal auditors and the independent certified public accountants have unrestricted access to the audit committee to discuss the results of their reviews. /s/ George R. Wackenhut /s/ Philip L. Maslowe George R. Wackenhut Philip L. Maslowe Chairman of the Board Senior Vice President, Chief Financial Officer Palm Beach Gardens, Florida, February 17, 2000 F-24 EX-3.1 2 WACKENHUT CORP ARTICLES OF INCORPORATION 1 Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE WACKENHUT CORPORATION Pursuant to Sections 607.1002 and 607.1007 of the Florida Business Corporation Act, the Articles of Incorporation of the undersigned corporation (the "Corporation") are hereby amended and restated in their entirety as follows: ARTICLE I The name of this Corporation shall be: THE WACKENHUT CORPORATION ARTICLE II The purpose for which the Corporation is formed and the principal objects of business to be carried on by it are as follows: (a) To contract for and provide any of the functions of Services of a private investigative agency, uniformed or un-uniformed personnel, management consultation, advice, plans, surveys and systems for the safety, security control, protection and efficiency of persons, business, industrial and governmental firms and agencies. (b) To engage in and carry on the business of manufacturing and producing, buying, selling or otherwise dealing in or with goods, wares and merchandise of every kind and description and to acquire, own, use, sell and convey, mortgage otherwise encumber any real estate or personal property in whole or in part and in any manner whatever to acquire, own, dispose of franchises, licenses, options or rights in any real estate or personal property or other property interests. (c) To engage in and carry on a general brokerage commission, forwarding and exporting and importing business and to act as factors, agents, commission merchants and dealers in the buying, selling or dealing in of goods, wares and merchandise of all kinds and descriptions. (d) To conduct and engage in any business, occupation or enterprise and to exercise any power or authority which may be done by a private corporation organized and existing under and by virtue of Chapter 608, Florida Statute, it being the intention that this Corporation may conduct and transact any business lawfully authorized and not prohibited by said Chapter 608, Florida Statute. 2 ARTICLE III The maximum number of shares of stock that the Corporation shall be authorized to issue shall be 60,000,000 shares which are to be divided into two classes as follows: 50,000,000 shares of Common Stock, par value $ 0.10 per share of which 3,858,885 shares are designated as Series A Common Stock and 46,141,115 shares are designated as Series B Common Stock; and 10,000,000 shares of Preferred Stock. The Series A Common Stock and the Series B Common Stock may be issued from time to time as determined by the Board of Directors of the Corporation. The Series A Common Stock and the Series B Common Stock shall be identical in all respects except that the Series B Common Stock shall have no right to vote. The Preferred Stock may be created and issued from time to time in one or more series with such designations, preferences, limitations, conversion rights, cumulative, relative, participating, optional or other rights, including voting rights, qualifications, limitations or restrictions thereof as determined by the Board of Directors of the Corporation and set forth in the resolution or resolutions providing for the creation and issuance of the stock in such series. Shares of one class or series of the Company's capital stock may be issued through a stock dividend or stock split on shares of another class or series of the Company's capital stock. ARTICLE IV The principal place of business of this corporation shall be at 4200 Wackenhut Drive, Palm Beach Gardens, Florida, or at such other place as may be designated by the Board of Directors from time to time. This corporation shall have full power and authority to transact business and to establish offices or agencies at such places as may be in the best interests of this corporation. ARTICLE V This Corporation is to exist perpetually. ARTICLE VI The business of this Corporation shall be conducted by a Board of Directors consisting of not less than three (3) nor more than nineteen (19) members, the exact number to be determined from time to time in the By-Laws of this Corporation. The Board of Directors shall have sole authority to adopt or amend By-Laws for the government of this Corporation. 2 3 ARTICLE VII The Corporation shall have the following powers: (a) To acquire all or any part of the good will, rights, property and business of any person, firm, association or corporation heretofore or hereafter engaged in any business similar to any business which the corporation has the power to conduct and to hold, utilize, enjoy and in any and all manner dispose of the whole or any part of the rights, property and business so acquired, and to assume in connection therewith any liabilities of any person, firm, association or corporation. (b) To apply for, obtain, purchase, or otherwise acquire, any patents, copy rights, licenses, trademarks, trade names, rights, processes, formulas and the like, which may seem capable of being used for any of the purposes of the corporation; and to use, exercise, develop, grant licenses in respect of, sell and otherwise turn to account the same. (c) To carry out all or any part of the aforesaid objects and purposes, and to conduct its business in all or any part of its branches, in any or all states, territories, districts and possessions of the United States of America and in foreign countries. (d) The Corporation shall be authorized to exercise and enjoy all of the powers, rights and privileges granted to or conferred upon corporations organized under the laws of the State of Florida now or hereafter in force, and the enumeration of any powers shall not be deemed to exclude any powers, rights or privileges so granted or conferred. ARTICLE VIII The Board of Directors, by the affirmative vote of a majority of the Directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all Directors for services to the Corporation as directors, officers or otherwise. The authority vested in the Board of Directors by this Article IX shall include, in addition to the authority to establish salaries, the authority to establish the payment of bonuses, stock options and pension and profit-sharing plans. ARTICLE IX No holder of any of the shares of the capital stock of the Corporation shall be entitled as of right to purchase or to subscribe for any unissued stock of any class, or any additional shares of any class, whether presently or hereinafter authorized, and also including without limitation, bonds, certificates of indebtedness, debentures, or other 3 4 securities convertible into stock of the Corporation or carrying any right to purchase stock of any class. Such unissued stock, or additional authorized issue of any stock, or other securities convertible into stock or carrying any right to purchase stock, may be issued and disposed of, pursuant to resolutions of the Board of Directors, to such persons, firms, corporations or associations and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its discretion. The Corporation shall indemnify every person who was or is a party or is or was threatened to be made a party to any action, suit or proceeding whether civil, criminal, administrative or investigative by reason of the fact he is or was a director, officer, employee, or agent, or is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit or proceeding, (except in such cases involving gross negligence or willful misconduct) in the performance of their duties, to the full extent permitted by applicable law. Such indemnification may, in the discretion of the Board of Directors, include advances of expenses in advance of final disposition subject to the provisions of applicable law. Such right of indemnification shall not be exclusive of any right to which any director, officer, employee, agent or controlling stockholder of the Corporation may be entitled as a matter of law. 4 5 The foregoing restated Articles of Incorporation which integrate the original Articles of Incorporation of The Wackenhut Corporation and the amendments thereto, without further modification, were duly adopted at a Quarterly Meeting of the Board of Directors of the Corporation held on February 17, 2000. IN WITNESS WHEREOF, the undersigned President and Chief Operating Officer and the Assistant Secretary of the Corporation have executed these Restated Articles of Incorporation this 17th day of February, 2000. /s/ Richard R. Wackenhut ------------------------------------- Richard R. Wackenhut President and Chief Executive Officer /s/ Timothy J. Howard ------------------------------------- Timothy J. Howard Assistant Secretary 5 6 CERTIFICATE OF PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE WACKENHUT CORPORATION The Wackenhut Corporation, a Florida corporation (the "Corporation"), hereby certifies, pursuant to and in accordance with Section 607.1007 of the Florida Business Corporation Act (the "Act") for the purpose of filing its Amended and Restated Articles of Incorporation with the Secretary of State of the State of Florida, that: 1. The name of the Corporation is The Wackenhut Corporation. 2. The Corporation's Amended and Restated Articles of Incorporation are attached hereto (the "Restated Articles"). 3. The Restated Articles contain no amendments to the Corporation's Articles of Incorporation and require only Board of Directors approval, and the Restated Articles were unanimously adopted and approved by the Corporation's Board of Directors at a duly called meeting on February 17, 2000. IN WITNESS WHEREOF, the undersigned, for the purpose of amending and restating the Corporation's Articles of Incorporation pursuant to the laws of the State of Florida, has executed these Amended and Restated Articles of Incorporation as of February 17, 2000. THE WACKENHUT CORPORATION By: /s/ Richard R. Wackenhut ------------------------------------- Richard R. Wackenhut President and Chief Executive Officer EX-3.2 3 WACKENHUT CORP BY LAWS 1 Exhibit 3.2 BY-LAWS OF THE WACKENHUT CORPORATION (Incorporated under the laws of Florida) ~~~~~~~~~~~~~~~~~~ (Including all Amendments through October 23, 1998) 2 BY-LAWS OF THE WACKENHUT CORPORATION (Incorporated under the laws of Florida) ~~~~~~~~~~~~~~~~~~ (Including all Amendments through October 23, 1998 ARTICLE I - STOCK 1. Transfers of stock shall be made only upon the books of the Corporation, and only by the person named in the certificate or by an attorney, lawfully constituted, in writing, and only upon surrender of the certificate therefor. 2. Subject to the laws of the State of Florida, the Certificate of Incorporation, and the By-Laws, the Board of Directors may make such rules and regulations as they may deem expedient relative to the issue, transfer and registration of certificates of the capital stock of the Corporation, and may appoint a transfer agent or registrar of transfers, or both, and require all certificates of stock to bear the signature of such transfer agent or registrar, or the signature of both. 3. Registered stockholders only shall be entitled to be treated by the Corporation as the holders in fact of stock standing in their respective names, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of Florida. 4. In case of loss or destruction of any certificate of stock, another may be issued in its place upon proof of such loss or destruction and upon the giving of a satisfactory bond of indemnity to the Corporation in such sum as the Directors may provide. ARTICLE II - STOCKHOLDERS' MEETING 1. All meetings of the stockholders shall be held at such place, within or without the State of Florida, as shall be stated in the notice of the meeting. 2. The annual meeting of the stockholders of the Corporation for the election of Directors to succeed those whose terms expire, and for the transaction of such other business as may come before the meeting, shall be held at such hour and on such day as the Board of Directors may determine and cause to be stated in the notice of the meeting; provided, however, the date of such meeting shall be within 150 days following the close of the fiscal year of the Corporation. If the annual meeting of stockholders be not held as herein prescribed, the election of Directors may be held at any meeting thereafter called pursuant to these By-Laws. Any stockholder, represented in person or by proxy, may call for an election by ballot; otherwise the election shall be held with or without ballot as the Chairman of the meeting prescribes. 3 ARTICLE II - STOCKHOLDERS' MEETING, CONTINUED 3. Special meetings of the stockholders may be called by the Chairman of the Board, the President, or one of the Vice Presidents or by the Board of Directors, and shall be called at any time by the Chairman of the Board, the President, one of the vice Presidents, Secretary or Treasurer upon the request, in writing, of stockholders owning twenty percent (20%) of the outstanding stock of the Corporation entitled to vote. Such request must state in specific terms the purpose of the meeting. 4. Notice of the time and place of annual and of all special meetings of the stockholders shall be given at least ten (10) days prior to the meeting to each stockholder of record of the Corporation entitled to vote thereat. Business transacted at all special meetings of the stockholders shall be confined to the purposes stated in the notice thereof and matters incidental thereto. 5. A quorum at any annual or special meeting of the stockholders shall consist of stockholders holding a majority of the capital stock of this Corporation outstanding and entitled to vote thereat, represented either in person or by proxy, except as otherwise specially provided by law or in the Certificate of Incorporation. If a quorum be not present at a properly called stockholders' meeting, the meeting may be adjourned by a majority of those present and entitled to vote thereat. ARTICLE III - BOARD OF DIRECTORS 1. The management of all the affairs, property and interests of the Corporation shall be vested in a Board of not less than three (3) and not more than nineteen (19) Directors, consisting of persons who shall be elected to and who shall, except as hereinafter provided, hold office until the next annual meeting or until their successors are elected and qualify. Directors need not be stockholders. In addition to the powers and authorities by the Bay-Laws and the Certificate of Incorporation expressly conferred upon it, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. 2. The exact number of Directors shall be determined from time to time by resolution adopted by the affirmative vote of a majority of all the Directors then holding office at any special or regular meeting, provided that in the case of a special meeting notice of such proposed action has been included in the notice thereof. Any such resolution, when so adopted, shall effect an amendment of this section and constitute a determination of the exact number of persons constituting the Board of Directors. Any such resolution increasing or decreasing the number of Directors shall have the effect of creating or eliminating a vacancy or vacancies, as the case may be; provided, however, that no such resolution shall reduce the number of Directors below the number then holding office. 3. In case any vacancy or vacancies shall occur in the Board of Directors by reason of death, resignation or expiration of term of office or by reason of an increase in the number of Directors as provided in Section 2 of this ARTICLE III, the remaining Directors, by the affirmative vote of a Majority thereof, may elect a Director to fill each such vacancy to hold office for the period specified in Section 1 of this ARTICLE III. 2 4 ARTICLE III - BOARD OF DIRECTORS, CONTINUED 4. Any Directors may be removed at any time with or without cause, by a vote of stockholders holding a majority of the stock of the Corporation entitled to vote. Any Director may be removed at any time for cause by resolution adopted by the affirmative vote of a majority of all the Directors then holding office at any special or regular meeting provided notice of such proposed action has been included in the notice of such meeting. 5. Annual Meetings of the Directors shall be held with or without notice in the general location of and promptly following the Annual Meeting of the Shareholders. Regular meetings of the Directors may be held without notice at such times and at such places, within or without the State of Florida, as the Directors may from time to time determine. 6. Special meetings of the Directors may be called at any time by the Chairman of the Board, the President or one of the Vice Presidents or the Secretary, or upon written request of two or more Directors, such request stating the purpose for which the meeting is to be called, or to be held at the principal office of the Corporation or at such place within or without the State of Florida as the Directors may from time to time decide. 7. Written notice of the date, time and place of special meetings of the Board shall be given to each Director either by personal delivery or by mail, telegram or cablegram at least two (2) days before the date designated therein for such meeting. 8. A majority of the whole Board of Directors shall be necessary at all meetings to constitute a quorum for the transaction of business; but less than a quorum may adjourn the meeting, which may be held on a subsequent date without further notice, provided a quorum be present at such deferred meeting. Unless otherwise specifically provided by the laws of the State of Florida or the Certificate of Incorporation, the act of a majority of the Directors present at any properly convened meeting at which there is a quorum shall be the act of the Board. 9. No stated salary, subject to any limitations contained in the Certificate of Incorporation, shall be paid Directors, as such, for their services, but by resolution of the Board a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board, or for attendance at each regular or special meeting of a standing or special committee or of the Executive Committee; provided, however, that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. 10. The Board of Directors be and is hereby authorized to name retiring Directors as Director-Emeritus having the right to attend meetings of the Board without vote. The expenses of such Director-Emeritus, including transportation, meals and lodging, may, in the discretion of the Board of Directors, be paid by the Corporation. 11. Upon attaining the age of seventy-three (73), a Director shall not be eligible for election as a member of the Board of Directors unless the Nominating and Compensation Committee of the Board of Directors unanimously grants a waiver of this requirement. 3 5 ARTICLE IV - EXECUTIVE COMMITTEE The Board of Directors may, by resolution, appoint an Executive Committee to consist of up to five Directors, which Executive Committee shall have and may exercise, during the intervals between meetings of the Board of Directors, all the powers vested in the Board of Directors under any statute, the Certificate of Incorporation or the By-Laws of the Corporation, except the power to (a) determine the number of Directors constituting the Board, (b) remove any Director for cause, (c) fill vacancies in the Board of Directors, (d) change the membership or fill vacancies in the Executive Committee, (e) approve amendments of the Certificate of Incorporation, or (f) amend or repeal the By-Laws of the Corporation. The Board of Directors shall have the exclusive power at any time and from time to time to change the membership of and fill vacancies in the Executive Committee. The Executive Committee may make rules for the conduct of its business. The Executive Committee shall keep and preserve minutes reflecting its actions. A majority of the members of the Executive Committee shall be a quorum. After at least three (3) hours notice, with good faith effort to contact each member orally, by telephone or telegram, all actions may be taken without additional notice of any kind by the unanimous agreement of a majority of the members of the Executive Committee. However, if one of the members of the Executive Committee dissents, action can only be taken upon the approval of a majority of the members of the executive Committee after due notice as provided for in ARTICLE VII. ARTICLE V - OFFICERS 1. The officers of the Corporation shall be a President, a Vice President, a Secretary and a Treasurer, and, in the discretion of the Board of Directors, a Chairman of the Board, an additional Vice President or Vice Presidents, including an Executive or Senior Vice President, a Controller, and one or more Assistant Secretaries and one or more Assistant Treasurers, who shall be elected by the Directors at their regular annual meeting immediately following each annual meeting of the stockholders. Officers shall hold office until the next annual meeting of the Board of Directors unless otherwise provided in these By-Laws, and until their successors are elected and qualify. The Chairman of the Board and the President shall be elected from among the Directors. Any person may hold two or more offices, except that the President may not also be Secretary or an Assistant Secretary. No person holding two or more offices shall sign any instrument in the capacity of more than one office. 2. If there be a Chairman of the Board, he shall preside at all meetings of the stockholders and of the Board of Directors (otherwise the President shall preside at such meetings), and shall also perform such other duties as may be prescribed by the Board of Directors. 3. The other officers of the Corporation shall have such powers and duties as generally pertain to their respective offices as well as such powers and duties as from time to time may be conferred by the Board of Directors. 4. In the case of the absence or inability to act of any office of the Corporation, and of any person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer or any Director or other person whom they may select. The Board of Directors may delegate duties and powers to any elected or appointed officer of the Corporation even though such duties and powers are vested in other officers of the Corporation. 4 6 ARTICLE V - OFFICERS, CONTINUED 5. Vacancies in any office arising from any cause may be filled by the Directors at any regular or special meeting. 6. The Board of Directors may appoint such other officers and agents as it shall deem necessary or expedient, who shall hold their offices or appointed positions for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. 7. The salaries of all officers and agents shall be fixed by the Board of Directors. Salaries of all employees of the Corporation (the officers or agents shall not be included within the term "employees" for the purpose of this Section) shall be fixed by the President or a Vice President, except that the President may delegate such powers to other officers or agents as to employees under their immediate control. 8. Any officer or agent elected or appointed by the Board of Directors may be removed, at any time, with or without the cause, by the Board of Directors or by the President. ARTICLE VI - FISCAL YEAR The fiscal year shall terminate at the close of business on the Sunday closest to December 31, of each year. ARTICLE VII - NOTICES 1. Whenever the laws of the State of Florida or these By-Laws require notice to be given to any Director, officer or stockholder, they shall not be construed to mean personal notices; such notice may be given by telegram or may be given by depositing written notice in a post office or letter box, in a post-paid sealed wrapper, addressed to such Director, officer or stockholder at his or her address as the same appears in the books of the Corporation; and the time when the same shall be mailed shall be deemed to be the time of the giving of such notice. 2. Waiver of any notice in writing, signed by a stockholder Director or officer, whether before or after the time stated in said waiver for holding a meeting, shall be deemed equivalent to a notice required to be given by the laws of the State of Florida or by these By-Laws to any Director, officer or stockholder. This provision of the By-Laws shall be liberally construed. ARTICLE VIII - ACTION WITHOUT MEETING Nothing contained in these By-Laws shall be deemed to prohibit the Board of Directors of this Corporation or any committee thereof from proceeding in accordance with any provision of the laws of the State of Florida now or hereafter in effect pursuant to which any action of the Board of Directors of the Corporation or of any committee thereof, which is required or permitted to be taken at a meeting, may be taken without a meeting if written consent to the action signed by all the members of the Board of Directors or the committee, as the case may be, is filed in the minutes of the proceedings of the Board of Directors or committee prior to the taking of such action. 5 7 ARTICLE IX - AMENDMENT OR REPEAL OF BY-LAWS The By-Laws may be amended or repealed by the Board of Directors of the Corporation; provided that notice in general terms of such amendment or repeal has been given to each member of the Board of Directors in writing at least five (5) days prior to said meeting, provided that such notice shall not be required in the event of (a) the signing by all members of the Board of Directors of a Waiver of Notice of meeting incorporating the amendment or the repeal or (b) the presence of all members of the Board of Directors at the meeting at which the amendment or repeal is considered and acted upon by the Board of Directors. ARTICLE X - INDEMNIFICATION The Corporation shall indemnify every person who was or is a party or is or was threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact he is or was a director, officer, employee, or agent, or is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such actin, suit or proceeding, (except in such cases involving gross negligence or willful misconduct) in the performance of their duties to the full extent permitted by applicable law. Such indemnification may, in the discretion of the Board of Directors, include advances of his expenses in advance or final disposition subject to the provisions of applicable law. Such right of indemnification shall not be exclusive of any right to which any director, officer, employee, agent or controlling stockholder of the Corporation may be entitled as a matter of law. ARTICLE XI - OTHER COMMITTEES The Board of Directors may appoint an Audit and Finance Committee, a Nominating and Compensation Committee and such other committees as the Board of Directors deem appropriate. The number of members of these committees shall consist of such number as are deemed appropriate by the Board of Directors. ARTICLE XII - CONTROL-SHARE ACQUISITIONS ELECTION Pursuant to Section 607.0902 (5) Florida Statutes, the Corporation elects that Section 607.0902 not apply to control-share acquisitions (as defined in the Statute) of the shares of The Wackenhut Corporation (TWC), effective July 28, 1990. 6 EX-4.14 4 AMENDMENT NO.5 TO AMENDED CREDIT AGREEMENT 1 Exhibit 4.14 AMENDMENT AGREEMENT NO. 5 TO AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT AGREEMENT (this "Amendment Agreement") is made and entered into as of this 12th day of April, 1999, by and among THE WACKENHUT CORPORATION, a Florida corporation (herein called the "Borrower"), NATIONSBANK NATIONAL ASSOCIATION (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit and Reimbursement Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of March 12, 1998, Amendment Agreement No. 2 dated as of August 7, 1998, Amendment Agreement No. 3 dated as of February 10, 1999, and Amendment Agreement No. 4 dated as of February 25, 1999 among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose names are subscribed hereto. W I T N E S S E T H: WHEREAS, the Borrower, the Agent and the Lenders have entered into the Agreement pursuant to which the Lenders have agreed to make revolving loans to the Borrower in the aggregate principal amount of up to $65,000,000 as evidenced by the Notes (as defined in the Agreement) and to issue Letters of Credit for the benefit of the Borrower; and WHEREAS, as a condition to the making of the loans pursuant to the Agreement the Lenders have required that all wholly-owned Subsidiaries of the Borrower guarantee payment of all Obligations of the Borrower arising under the Agreement; and WHEREAS, the Borrower has requested that the Agreement be further amended in the manner described herein and the Agent and the Required Lenders have agreed, subject to the terms and conditions hereof, to make such amendment, as provided herein; NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby agree as follows: 1. DEFINITIONS. The term "Agreement" as used herein and in the Loan Documents (as defined in the Agreement) shall mean the Agreement as hereinafter amended and modified. Unless the context otherwise requires, all terms used herein without definition shall have the definition provided therefor in the Agreement. 2. AMENDMENT. Subject to the conditions set forth herein, the Agreement is hereby amended, effective as of the date hereof, as follows: (a) The definition of "Consolidated Net Worth" is hereby amended by deleting the final clause thereof, reading "PLUS or MINUS, as the case may be (iv) the cumulative effect of foreign exchange valuations" and inserting in lieu thereof the following: "PLUS (iv) up to $7,000,000 for the cumulative effect of the change in accounting principles regarding start-up costs of WCC." (b) SECTION 7.06 is hereby amended in its entirety so that as amended it shall read as follows: "7.06 CONSOLIDATED NET WORTH. The Borrower will at all times keep and maintain Consolidated Net Worth at an amount not less than (i) 90% of Borrower and Subsidiaries Consolidated Net Worth at September 30, 1997 and (ii) as at the last day of each succeeding fiscal quarter of the Borrower and until (but excluding) the last day of the next following fiscal quarter of the Borrower, the sum of (A) the amount of 2 Consolidated Net Worth required to be maintained pursuant to this SECTION 7.06 as at the end of the immediately preceding fiscal quarter, plus, (B) 50% of Consolidated Net Income (with no reduction for net losses for any period) for the fiscal quarter of the Borrower ending on such day, provided that for the quarter ended December 31, 1998 there shall be added to Consolidated Net Income up to $7,000,000 for the cumulative effect of the change in accounting principles regarding start-up costs of WCC, plus (C) 75% of the net proceeds to the Borrower from the sale of shares of the Borrower's capital stock received during the fiscal quarter of the Borrower ending on such date. The calculation of this covenant shall be based upon the consolidated financial statements of the Borrower and its Subsidiaries, including WCC." 3. SUBSIDIARY CONSENTS. Each Subsidiary of the Borrower that has delivered a Guaranty to the Agent has joined in the execution of this Amendment Agreement for the purpose of (i) agreeing to the amendment to the Agreement and (ii) confirming its guarantee of payment of all the Obligations. 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants that: (a) The representations and warranties made by Borrower in Article VI of the Agreement are true on and as of the date hereof; (b) There has been no material adverse change in the condition, financial or otherwise, of the Borrower and its Subsidiaries since the date of the most recent financial reports of the Borrower received by each Lender under Section 7.17 thereof, other than changes in the ordinary course of business, none of which has been a material adverse change; (c) The business and properties of the Borrower and its Subsidiaries are not and have not been adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of armed forces, war or acts of God or the public enemy, or cancellation or loss of any major contracts; and (d) No event has occurred and no condition exists which, upon the consummation of the transaction contemplated hereby, constitutes a Default or an Event of Default on the part of the Borrower under the Agreement, the Notes or any other Loan Document either immediately or with the lapse of time or the giving of notice, or both. 5. CONDITIONS. This Amendment Agreement shall become effective upon the Borrower delivering to the Agent five (5) counterparts of this Amendment Agreement duly executed by the Borrower, the Agent and the Required Lenders and consented to by each of the Subsidiaries and receipt by the Agent of all fees and expenses due in connection with this Amendment Agreement. 6. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, conditions, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and no one of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any other party to the other. None of the terms or conditions of this Amendment Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing, in the manner provided in the Agreement, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any proceeding or succeeding breach thereof. 2 3 7. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically amended, modified or supplemented, the Agreement and all of the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. [Remainder of page intentionally left blank.] 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. BORROWER: THE WACKENHUT CORPORATION WITNESS: /s/ Joyce P. Veltre - ---------------------------- By: /s/ Mildred F. Smith ------------------------------------- Name: Mildred F. Smith Title: Vice President 4 5 GUARANTORS: AMERICAN GUARD AND ALERT, INCORPORATED TITANIA ADVERTISING, INCORPORATED TITANIA INSURANCE COMPANY OF AMERICA TUHNEKCAW, INC. WACKENHUT AIRLINE SERVICES, INC. WACKENHUT EDUCATIONAL SERVICES, INC. WACKENHUT FINANCIAL, INC. WACKENHUT INTERNATIONAL, INCORPORATED WACKENHUT OF NEVADA, INC. WACKENHUT PUERTO RICO, INC. WACKENHUT SERVICES, INCORPORATED WACKENHUT SERVICES LIMITED LIABILITY COMPANY WACKENHUT RESOURCES, INCORPORATED KING STAFFING, INC. SOUTHEASTERN RESOURCES, INC. WORKFORCE ALTERNATIVE, INC. KING TEMPORARY STAFFING, INC. WRI II, INC. PROFESSIONAL EMPLOYEE MANAGEMENT, INC. WITNESS: /s/ Joyce P. Veltre - ---------------------------- By: /s/ Mildred F. Smith ------------------------------------- Name: Mildred F. Smith Title: Vice President 5 6 NATIONSBANK, NATIONAL ASSOCIATION, as Agent for the Lenders By: /s/ John E. Williams ------------------------------------- Name: John E. Williams Title: Senior Vice President NATIONSBANK, NATIONAL ASSOCIATION, as Lender By: /s/ John E. Williams ------------------------------------- Name: John E. Williams Title: Senior Vice President SCOTIABANC INC. By: /s/ W.J. Brown ------------------------------------- Name: W.J. Brown Title: Managing Director SUNTRUST BANK, SOUTH FLORIDA, N.A. By: /s/ William H. Crawford ------------------------------------- Name: William H. Crawford Title: Assistant Vice President FIRST UNION NATIONAL BANK By: /s/ Mareen Walker Duvall ------------------------------------- Name: Mareen Walker Duvall Title: Senior Vice President 6 EX-4.15 5 AMENDMENT NO.6 TO AMENDED CREDIT AGREEMENT 1 Exhibit 4.15 AMENDMENT AGREEMENT NO. 6 TO AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT AGREEMENT (this "Amendment Agreement") is made and entered into as of this 19th day of May, 1999, by and among THE WACKENHUT CORPORATION, a Florida corporation (herein called the "Borrower"), NATIONSBANK NATIONAL ASSOCIATION (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit and Reimbursement Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of March 12, 1998, Amendment Agreement No. 2 dated as of August 7, 1998, Amendment Agreement No. 3 dated as of February 10, 1999, Amendment Agreement No. 4 dated as of February 25, 1999 and Amendment No. 5 dated April 12, 1999 among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose names are subscribed hereto. W I T N E S S E T H: WHEREAS, the Borrower, the Agent and the Lenders have entered into the Agreement pursuant to which the Lenders have agreed to make revolving loans to the Borrower in the aggregate principal amount of up to $65,000,000 as evidenced by the Notes (as defined in the Agreement) and to issue Letters of Credit for the benefit of the Borrower; and WHEREAS, as a condition to the making of the loans pursuant to the Agreement the Lenders have required that all wholly-owned Subsidiaries of the Borrower guarantee payment of all Obligations of the Borrower arising under the Agreement; and WHEREAS, the Borrower has requested that the Agreement be further amended in the manner described herein and the Agent and the Required Lenders have agreed, subject to the terms and conditions hereof, to make such amendment, as provided herein; NOW, THEREFORE, the Borrower, the Agent and the Lenders party hereto do hereby agree as follows: 1. DEFINITIONS. The term "Agreement" as used herein and in the Loan Documents (as defined in the Agreement) shall mean the Agreement as hereinafter amended and modified. Unless the context otherwise requires, all terms used herein without definition shall have the definition provided therefor in the Agreement. 2. AMENDMENT. Subject to the conditions set forth herein, the Agreement is hereby amended, effective as of the date hereof, as follows: (a) The definition of "Applicable Margin" in SECTION 1.01 is hereby amended by adding the following new sentence at the end of such definition: "Notwithstanding the foregoing, if at anytime the certificate furnished to the Agent pursuant to SECTION 7.17(f) shall disclose that Consolidated Funded Debt (excluding Funded Debt of WCC from Consolidated Funded Debt) exceeds 40% of Total Capitalization and does not exceed 50% of Total Capitalization, then their shall be added to the Applicable Margin set forth above, 0.250%." (b) SECTION 7.07(a) is hereby amended in its entirety so that as amended it shall read as follows: "(a) The Borrower will at all times keep and maintain Consolidated Funded Debt (excluding Funded Debt of WCC from Consolidated Funded Debt) in an amount not to exceed 50% of Total Capitalization." 2 3. SUBSIDIARY CONSENTS. Each Subsidiary of the Borrower that has delivered a Guaranty to the Agent has joined in the execution of this Amendment Agreement for the purpose of (i) agreeing to the amendment to the Agreement and (ii) confirming its guarantee of payment of all the Obligations. 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants that: (a) The representations and warranties made by Borrower in Article VI of the Agreement are true on and as of the date hereof; (b) There has been no material adverse change in the condition, financial or otherwise, of the Borrower and its Subsidiaries since the date of the most recent financial reports of the Borrower received by each Lender under Section 7.17 thereof, other than changes in the ordinary course of business, none of which has been a material adverse change; (c) The business and properties of the Borrower and its Subsidiaries are not and have not been adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of armed forces, war or acts of God or the public enemy, or cancellation or loss of any major contracts; and (d) No event has occurred and no condition exists which, upon the consummation of the transaction contemplated hereby, constitutes a Default or an Event of Default on the part of the Borrower under the Agreement, the Notes or any other Loan Document either immediately or with the lapse of time or the giving of notice, or both. 5. CONDITIONS. This Amendment Agreement shall become effective upon the Borrower delivering to the Agent five (5) counterparts of this Amendment Agreement duly executed by the Borrower, the Agent and the Required Lenders and consented to by each of the Subsidiaries and receipt by the Agent of all fees and expenses due in connection with this Amendment Agreement. 6. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, conditions, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and no one of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any other party to the other. None of the terms or conditions of this Amendment Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing, in the manner provided in the Agreement, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any proceeding or succeeding breach thereof. 7. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically amended, modified or supplemented, the Agreement and all of the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. [Remainder of page intentionally left blank.] 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. BORROWER: THE WACKENHUT CORPORATION WITNESS: By: /s/ Mildred F. Smith -------------------------------- Name:Mildred F. Smith /s/ Claire Nabb Title: Vice President - --------------------------- 3 4 GUARANTORS: AMERICAN GUARD AND ALERT, INCORPORATED TITANIA ADVERTISING, INCORPORATED TITANIA INSURANCE COMPANY OF AMERICA TUHNEKCAW, INC. WACKENHUT AIRLINE SERVICES, INC. WACKENHUT EDUCATIONAL SERVICES, INC. WACKENHUT FINANCIAL, INC. WACKENHUT INTERNATIONAL, INCORPORATED WACKENHUT OF NEVADA, INC. WACKENHUT PUERTO RICO, INC. WACKENHUT SERVICES, INCORPORATED WACKENHUT SERVICES LIMITED LIABILITY COMPANY WACKENHUT RESOURCES, INCORPORATED KING STAFFING, INC. SOUTHEASTERN RESOURCES, INC. WORKFORCE ALTERNATIVE, INC. KING TEMPORARY STAFFING, INC. WRI II, INC. PROFESSIONAL EMPLOYEE MANAGEMENT, INC. WITNESS: By: /s/ Mildred F. Smith -------------------------------- Name:Mildred F. Smith /s/ Claire Nabb Title: Vice President - --------------------------- 4 5 NATIONSBANK, NATIONAL ASSOCIATION, as Agent for the Lenders By: /s/ John E. Williams ---------------------------------- Name: John E. Williams Title: Senior Vice President NATIONSBANK, NATIONAL ASSOCIATION, as Lender By: /s/ John E. Williams ---------------------------------- Name: John E. Williams Title: Senior Vice President SCOTIABANC INC. By: /s/ W.J. Brown ---------------------------------- Name: W.J. Brown Title: Managing Director SUNTRUST BANK, SOUTH FLORIDA, N.A. By: /s/ William H. Crawford ---------------------------------- Name: William H. Crawford Title: Assistant Vice President FIRST UNION NATIONAL BANK By: /s/ Mareen Walker Duvall ---------------------------------- Name: Mareen Walker Duvall Title: Senior Vice President 5 EX-4.16 6 AMENDMENT NO.7 TO AMENDED CREDIT AGREEMENT 1 EXHIBIT 4.16 AMENDMENT AGREEMENT NO. 7 TO AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT AGREEMENT (this "Amendment Agreement") is made and entered into as of December 31, 1999, by and among THE WACKENHUT CORPORATION, a Florida corporation (herein called the "Borrower"), BANK OF AMERICA, N.A. (formerly NationsBank, N.A.) (the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and Restated Revolving Credit and Reimbursement Agreement dated December 30, 1997, as amended by Amendment Agreement No. 1 dated as of March 12, 1998, Amendment Agreement No. 2 dated as of August 7, 1998, Amendment Agreement No. 3 dated as of February 10, 1999, Amendment Agreement No. 4 dated as of February 25, 1999, Amendment No. 5 dated April 12, 1999 and Amendment Agreement No. 6 dated as of May 19, 1999 among such Lenders, Borrower and the Agent (the "Agreement") and the Lenders whose names are subscribed hereto. R E C I T A L S WHEREAS, the Borrower, and the Agent and the Lenders have entered into the Agreement pursuant to which the Lenders have agreed to make revolving loans to the Borrower in the aggregate principal amount of up to $65,000,000 as evidenced by the Notes (as defined in the Agreement) and to issue Letters of Credit for the benefit of the Borrower; and WHEREAS, as a condition to the making of the loans pursuant to the Agreement the Lenders have required that all wholly-owned Subsidiaries of the Borrower guarantee payment of all Obligations of the Borrower arising under the Agreement; and WHEREAS, the Borrower has requested that the Agreement be further amended in the manner described herein and the Agent and the Required Lenders have agreed, subject to the terms and conditions hereof, to make such amendment, as provided herein; A G R E E M E N T NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. The term "Agreement" as used herein and in the Loan Documents (as defined in the Agreement) shall mean the Agreement as hereinafter amended and modified. Unless the context otherwise requires, all terms used herein without definition shall have the definition provided therefor in the Agreement 2 2. AMENDMENT. Section 7.14 of the Original Loan Agreement is hereby deleted in its entirety and replaced with the following: "7.14 GUARANTIES. The Borrower will not, and will not permit any Subsidiary to, become or be liable in respect of any Guaranty, except for (a) the Guaranty Agreements and (b) other Guaranties which in the aggregate do not provide for the guaranty of amounts in an aggregate principal amount exceeding $3,000,000 at any time." 3. SUBSIDIARY CONSENTS. Each Subsidiary of the Borrower that has delivered a Guaranty to the Agent has joined in the execution of this Amendment Agreement for the purpose of (i) agreeing to the Agreement and (ii) confirming its guarantee of payment of all the Obligations. 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants that: (a) The representations and warranties made by Borrower in Article VI of the Agreement are true on and as of the date hereof; (b) There has been no material adverse change in the condition, financial or otherwise, of the Borrower and its Subsidiaries since the date of the most recent financial reports of the Borrower received by each Lender under Section 7.17 thereof, other than changes in the ordinary course of business, none of which has been a material adverse change; (c) The business and properties of the Borrower and its Subsidiaries are not and have not been adversely affected in any substantial way as the result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo, riot, activities of armed forces, war or acts of God or the public enemy, or cancellation or loss of any major contracts; and (d) No event has occurred and no condition exists which, upon the consummation of the transaction contemplated hereby, constitutes a Default or an Event of Default on the part of the Borrower under the Agreement, the Notes or an other Loan Document either immediately or with the lapse of time or the giving of notice, or both. 5. CONDITIONS. This Amendment Agreement shall become effective upon the Borrower delivering to the Agent a counterpart of this Amendment Agreement duly executed by the Borrower, the Agent and the Required Lenders and consented to by each of the Subsidiaries and receipt by the Agent of all fees and expenses, if any, due in connection with this Amendment Agreement. 6. NO OTHER AMENDMENTS. Except as modified hereby, all other terms, conditions and provisions of the Agreement shall remain in full force and effect. 2 3 7. COUNTERPARTS. This Amendment Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original and it shall not be necessary in making proof of this Amendment Agreement to produce or account for more than one such counterpart. The parties hereto acknowledge and agree that executed signature pages delivered via facsimile shall have the same force and legal effect as originally executed counterparts. 8. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Florida. [signature pages to follow] 3 4 IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment Agreement to be duly executed and delivered by its duly authorized officer as of the date first above written. BORROWER: THE WACKENHUT CORPORATION By: /s/ Philip Maslowe ---------------------------------------- Name: Philip Maslowe Title: Chief Financial Officer GUARANTORS: AMERICAN GUARD AND ALERT, INCORPORATED TITANIA ADVERTISING, INCORPORATED TITANIA INSURANCE COMPANY OF AMERICA TUHNEKCAW, INC. WACKENHUT AIRLINE SERVICES, INC. WACKENHUT EDUCATIONAL SERVICES, INC. WACKENHUT FINANCIAL, INC. WACKENHUT INTERNATIONAL, INCORPORATED WACKENHUT OF NEVADA, INC. WACKENHUT PUERTO RICO, INC. WACKENHUT SERVICES, INCORPORATED WACKENHUT SERVICES LIMITED LIABILITY COMPANY WACKENHUT RESOURCES, INCORPORATED KING STAFFING, INC. SOUTHEASTERN RESOURCES, INC. WORKFORCE ALTERNATIVE, INC. KING TEMPORARY STAFFING, INC WRI II, INC. PROFESSIONAL EMPLOYEE MANAGEMENT, INC. By: /s/ Ian Green ---------------------------------------- Name: Ian Green Title: Asst. Treasurer 4 5 BANK OF AMERICA, N.A., as Agent and as a Lender By: /s/ John E. Williams ----------------------------------------- Name: John E. William Title: Managing Director SCOTIABANC INC., as Co-Agent and as a Lender By: /s/ Frank F. Sandler ----------------------------------------- Name: Frank F. Sandler Title: Relationship Manager SUNTRUST BANK, SOUTH FLORIDA, N.A., as a Lender By: /s/ William H. Crawford ----------------------------------------- Name: William H. Crawford Title: Assistant Vice President Suntrust Banks, Inc. FIRST UNION NATIONAL BANK, as a Lender By: ----------------------------------------- Name: Title: EX-4.20 7 4TH AMENDMENT TO TRANSFER AGREEMENT 1 Exhibit 4.20 AMENDMENT NUMBER 4 TO TRANSFER AND ADMINISTRATION AGREEMENT AMENDMENT NUMBER 4 TO TRANSFER AND ADMINISTRATION AGREEMENT (this "AMENDMENT"), dated as of January 28, 2000, among WACKENHUT FUNDING CORPORATION, a Delaware corporation (the "TRANSFEROR") and its successors and assigns, THE WACKENHUT CORPORATION, a Florida corporation, individually and as servicer ("WACKENHUT" or the "SERVICER"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("ENTERPRISE" or the "PURCHASER") and its successors assigns, and BANK OF AMERICA, N.A. (as successor to NATIONSBANK, N.A.), a national banking association ("BANK OF AMERICA"), as agent for Enterprise and the Bank Investors (in such capacity, the "AGENT") and as a Bank Investor, amending that certain Transfer and Administration Agreement dated as of December 30, 1997 among the Transferor, the Servicer, the Purchaser, the Agent and Bank of America (collectively, the "PARTIES"), as amended to the date hereof by the First Amendment to Transfer and Administration Agreement dated as of March 24, 1998, among the Parties, the Second Amendment to Transfer and Administration Agreement dated December 23, 1998, among the Parties, and the Third Amendment to the Transfer and Administration Agreement dated January 29, 1999, among the Parties (collectively, the "ORIGINAL AGREEMENT," and said agreement as amended by this Amendment, the "AGREEMENT"). WHEREAS, the Transferor has requested that the Purchaser and the Agent agree to: (a) extend the Commitment Termination Date of the Original Agreement, and (b) make certain other amendments to the Original Agreement; WHEREAS, the Original Agreement requires that the consent of the Transferor, the Servicer, the Purchaser and each Bank Investor be obtained in order to effect certain of the amendments contemplated herein; WHEREAS, on the terms and conditions set forth herein, the parties hereto consent to such amendments; WHEREAS, capitalized terms used herein shall have the meanings assigned to such terms in the Original Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENT TO DEFINITIONS. The definition of "NET WORTH" should be deleted in its entirety. 2 SECTION 2. AMENDMENT TO SECTION 1.5(a). Section 1.5(a) of the Original Agreement is hereby amended to read in its entirety as follows (solely for convenience, changed text is italicized): "(a) The 'COMMITMENT TERMINATION DATE' shall be the earlier to occur of (i) MARCH 31, 2000 (herein, as the same may be extended, called the"SCHEDULED COMMITMENT TERMINATION DATE"), and (ii) the date of Termination of the Commitment pursuant to SECTION 1.7 or 11.2." SECTION 3. AMENDMENT TO SECTION 7.1(h). Section 7.1(h) of the Original Agreement is hereby amended to read in its entirety as follows (solely for convenience, changed text is italicized): "(h) MINIMUM NET WORTH. The Transferor shall at all times maintain a minimum NET WORTH of not less than 10% of the Net Pool Balance." SECTION 4. CONDITION PRECEDENT. This Amendment shall not become effective until the Agent shall have executed this Amendment and shall have received counterparts of this Amendment executed by the Purchaser, the Transferor, the Servicer and each Bank Investor. SECTION 5. REPRESENTATIONS AND WARRANTIES. Each of the Transferor and the Servicer hereby makes to the Purchaser, the Agent and each Bank Investor on and as of the date hereof, the following representations and warranties: (a) AUTHORITY. Each of the Transferor and the Servicer has the requisite corporate power and authority to execute and deliver this Amendment and to perform its obligations hereunder and under the Original Agreement (as modified hereby). The execution, delivery and performance by the Transferor and the Servicer of this Amendment and the performance of the Original Agreement (as modified hereby) have been duly approved by all necessary corporate action and no other corporate proceedings are necessary to consummate such transactions; (b) ENFORCEABILITY. This Amendment has been duly executed and delivered by each of the Transferor and the Servicer. The Original Agreement (as modified hereby) is the legal, valid and binding obligation of the Transferor and the Servicer enforceable against the Transferor and the Servicer in accordance with its terms, and is in full force and effect; and (c) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Transferor and the Servicer contained in the Original Agreement (other than any such representations or warranties that, by their 2 3 terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof. SECTION 6. REFERENCE TO AND EFFECT ON THE ORIGINAL AGREEMENT. Except as specifically amended and modified above, the Original Agreement is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not operate as waiver of any right, power or remedy of the Purchaser, the Agent or the Bank Investor(s) under the Agreement, nor constitute a waiver of any provision of the Original Agreement. SECTION 7. NO TERMINATION EVENT. No event has occurred and is continuing that constitutes a Termination Event or an Unmatured Termination Event. SECTION 8. AMENDMENT AND WAIVER. No provision hereof may be amended, waived, supplemented, restated, discharged or terminated without the written consent of the Transferor, the Purchaser, the Agent and the Majority Investors. SECTION 9. SUCCESSORS AND ASSIGNS. This Amendment shall bind, and the benefits hereof shall inure to the parties hereof and their respective successors and permitted assigns; PROVIDED, HOWEVER, the Transferor may not assign any of its rights or delegate any of its duties under this Amendment without the prior written consent of the Purchaser. SECTION 10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE TRANSFEROR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 11. SEVERABILITY; COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same instrument. Any provisions of this Amendment which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or 3 4 unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 12. CAPTIONS. The captions in this Amendment are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 4 5 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first written above. ENTERPRISE FUNDING CORPORATION, as Purchaser By: /s/ Bernard J. Angelo ----------------------------------- Name: Bernard J. Angelo Title: Vice President WACKENHUT FUNDING CORPORATION as Transferor By: /s/ Mildred F. Smith ----------------------------------- Name: Mildred F. Smith Title: Vice President THE WACKENHUT CORPORATION, as Servicer By: /s/ Philip L. Maslowe ----------------------------------- Name: Philip L. Maslowe Title: Senior Vice President BANK OF AMERICA, N.A. (as successor to NATIONSBANK, N.A.), as Agent and a Bank Investor By: /s/ Chris Parrish ----------------------------------- Name: Chris Parrish Title: Vice President SUNTRUST BANK, SUCCESSOR-IN-INTEREST TO SUNTRUST BANK, SOUTH FLORIDA, N.A., as a Bank Investor By: /s/ William H. Crawford ----------------------------------- Name: William H. Crawford Title: Asst. Vice President THE BANK OF NOVA SCOTIA, as a Bank Investor By: /s/ William E. Zarrett ----------------------------------- Name: William E. Zarrett Title: Managing Director 5 EX-4.21 8 364 DAY REVOLVING CREDIT AGREEMENT 1 Exhibit 4.21 Bank of America September 10, 1999 The Wackenhut Corporation 4200 Wackenhut Drive, Suite 100 Palm Beach Gardens, Florida 33410 Attn: Frank Finizia Assistant Secretary and Corporate Counsel Re: 364-DAY REVOLVING CREDIT FACILITY Ladies/Gentlemen: BANK OF AMERICA, N.A. ("LENDER") is pleased to make available to THE WACKENHUT CORPORATION, a Florida corporation ("BORROWER"), a revolving credit facility on the terms and subject to the conditions set forth below. Terms not defined herein have the meanings assigned to them in EXHIBIT A hereto. 1. THE FACILITY. (a) THE COMMITMENT. Subject to the terms and conditions set forth herein, Lender agrees to make available to Borrower from the date hereof until the Maturity Date a revolving line of credit providing for loans ("LOANS") in an aggregate principal amount not exceeding at any time $30,000,000 (the "COMMITMENT"). Within the foregoing limit, Borrower may borrow, repay and reborrow Loans until the Maturity Date. (b) BORROWINGS, CONVERSIONS, CONTINUATIONS. Borrower may request that Loans be (i) made as or converted to Base Rate Loans by irrevocable notice to be received by Lender not later than 12:30 p.m. on the Business Day of the borrowing or conversion, or (ii) made or continued as, or converted to, Offshore Rate Loans by irrevocable notice to be received by Lender not later than 12:30 p.m. three Business Days prior to the Business Day of the borrowing, continuation or conversion. If Borrower fails to give a notice of conversion or continuation prior to the end of any Interest Period in respect of any Offshore Rate Loan, Borrower shall be deemed to have requested that such Loan be converted to a Base Rate Loan on the last day of the applicable Interest Period. Each Offshore Rate Loan shall be in a minimum principal amount of $300,000 or an integral multiple thereof. Each Base Rate Loan shall be in a 2 minimum principal amount of $300,000. There shall not be more than six (6) different Interest Periods in effect at any time. (c) INTEREST. At the option of Borrower, Loans shall bear interest at a rate per annum equal to (i) the Offshore Rate PLUS the Applicable Margin; or (ii) the Base Rate. Interest on Base Rate Loans when the Base Rate is determined by Lender's "prime" rate shall be calculated on the basis of a year of 365 or 366 days and actual days elapsed. All other interest hereunder shall be calculated on the basis of a year of 360 days and actual days elapsed. Borrower promises to pay interest (i) for each Offshore Rate Loan, on the last day of the applicable Interest Period, and, if the Interest Period is longer than three months, on the respective dates that fall every three months after the beginning of the Interest Period; (ii) for Base Rate Loans, on the last Business Day of each calendar quarter; and (iii) for all Loans, on the Maturity Date. If the time for any payment is extended by operation of law or otherwise, interest shall continue to accrue for such extended period. Upon the occurrence and during the continuance of an Event of Default hereunder, Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on the outstanding amount of all Loans hereunder at a rate per annum equal to the then applicable rate plus 2.0%. Such interest shall be payable on demand. In no case shall interest hereunder exceed the amount that Lender may charge or collect under applicable law. (d) EVIDENCE OF LOANS. The Loans and all payments thereon shall be evidenced by Lender's loan accounts and records; PROVIDED, HOWEVER, that upon the request of Lender, the Loans may be evidenced by a grid promissory note in the form of EXHIBIT B hereto, instead of or in addition to such loan accounts and records. Such loan accounts, records and promissory note shall be conclusive absent manifest error of the amount of the Loans and payments thereon. Any failure to record any Loan or payment thereon or any error in doing so shall not limit or otherwise affect the obligation of Borrower to pay any amount owing with respect to the Loans. (e) FEES. Borrower promises to pay the following fees in accordance with the terms hereof: (i) UPFRONT FEE. Borrower shall pay to Lender an upfront fee (the "UPFRONT FEE") in accordance with the terms and conditions of that certain letter agreement dated as of August 27, 1999 between Borrower and Lender. The Upfront Fee shall be due and payable to Lender upon the execution and delivery of this Agreement and shall be non-refundable once paid. -1- 3 (ii) COMMITMENT FEE. Borrower shall pay to Lender a commitment fee (the "COMMITMENT FEE") in accordance with the terms of the pricing grid appearing below on the actual daily unused portion of the Commitment, payable in arrears on the last Business Day of each calendar quarter and on the Maturity Date, and calculated on the basis of a year of 360 days and actual days elapsed. FIXED CHARGES COVERAGE RATIO COMMITMENT FEE ---------------------------- -------------- Greater than 2.0x .20% Less than or equal to 2.0x but .25% greater than 1.75x Less than or equal to 1.75x but .30% greater than or equal to 1.5x (f) REPAYMENT. Borrower promises to pay all Loans then outstanding on the Maturity Date. Borrower shall make all payments required hereunder not later than 12:30 p.m. (other than if such payment is made by a debit by the Lender to an account designated by Borrower) on the date of payment in same day funds in United States Dollars at the office of Lender located at Charlotte, North Carolina or such other address as Lender may from time to time designate in writing. All payments by Borrower to Lender hereunder shall be made to Lender in full without set-off or counterclaim and free and clear of and exempt from, and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties or charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof. Borrower shall reimburse Lender for any taxes imposed on or withheld from such payments (other than taxes imposed on Lender's income, and franchise taxes imposed on Lender, by the jurisdiction under the laws of which Lender is organized or any political subdivision thereof). (g) PREPAYMENTS. Borrower may, upon three Business Days' notice, in the case of Offshore Rate Loans, and upon same-day notice in the case of Base Rate Loans, prepay Loans on any Business Day; PROVIDED that Borrower pays all Breakage Costs (if any) associated with such prepayment on the date of such prepayment. Prepayments of Offshore Rate Loans must be accompanied by a payment of interest on the amount so prepaid. Prepayments must be in a principal amount equal to (i) at least $5,000,000 (or a greater amount which is an integral multiple of $1,000,000) or (ii) to the extent Borrower chooses to prepay the outstanding principal balance of all Loans, the outstanding principal amount thereof. -2- 4 (h) COMMITMENT REDUCTIONS. Borrower may, upon five Business Days' notice, reduce or cancel the undrawn portion of the Commitment, PROVIDED, that the amount of such reduction is not less than $5,000,000 or such greater amount which is in an integral multiple of $1,000,000. Each such reduction shall permanently reduce the Commitment. 2. (a) CONDITIONS PRECEDENT TO INITIAL LOAN. As a condition precedent to the initial Loan hereunder, Lender must receive the following from Borrower in form satisfactory to Lender: (i) the enclosed duplicate of this Agreement duly executed and delivered on behalf of Borrower; (ii) a certified borrowing resolution or other evidence of Borrower's authority to borrow; (iii) a certificate of incumbency; (iv) if requested by Lender, a promissory note as contemplated in PARAGRAPH 1(d) above; and (v) such other documents (including legal opinions) as Lender may reasonably request. (b) CONDITIONS TO EACH BORROWING, CONTINUATION AND CONVERSION. As a condition precedent to each borrowing (including the initial borrowing), conversion and continuation of any Loan: (i) Borrower must furnish Lender with, as appropriate, a notice of borrowing, conversion or continuation; (ii) each representation and warranty set forth in PARAGRAPH 3 below (or incorporated therein by reference) shall be true and correct in all material respects as if made on the date of such borrowing, continuation or conversion; and (iii) no Default or Event of Default shall have occurred and be continuing on the date of such borrowing, continuation or conversion. Each notice of borrowing and notice of conversion or continuation shall be deemed a representation and warranty by Borrower that the conditions referred to in clauses (ii) and (iii) above have been met. 3. REPRESENTATIONS AND WARRANTIES. Reference is made to the Existing Credit Agreement and the representations and warranties of Lessee contained in Sections 6.01 through 6.04, 6.06 through 6.08, 6.10, 6.12, 6.14, 6.16 and 6.17 of the Existing Credit Agreement -3- 5 (hereinafter referred to as the "INCORPORATED REPRESENTATIONS AND WARRANTIES"). Borrower agrees with Lender that the Incorporated Representations and Warranties (and all other relevant provisions of the Existing Credit Agreement related thereto, including without limitation all exhibits, schedules and the defined terms contained in Section 1.02 thereof, which are used in the Incorporated Representations and Warranties) are hereby incorporated by reference into this Agreement to the same extent and with the same effect as if set forth fully herein and shall inure to the benefit of Lender, without giving effect to any waiver, amendment, modification or replacement of the Existing Credit Agreement or any term or provision of the Incorporated Representations and Warranties occurring subsequent to the date of this Agreement, except to the extent otherwise specifically provided in the final paragraph of Section 4 of this Agreement. Borrower represents that the Incorporated Representations and Warranties are true and accurate as of the date hereof. Borrower further represents and warrants that: (a) FULL DISCLOSURE. No written statement made by Borrower to Lender in connection with this Agreement, or in connection with any Loan, contains any untrue statement of a material fact or omits a material fact necessary to make the statement made not misleading. (b) POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The execution, delivery and performance of this Agreement and the other Loan Documents by Borrower are within its powers and have been duly authorized by all necessary action, and this Agreement is and the other Loan Documents, when executed, will be, legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms. The execution, delivery and performance of this Agreement and the other Loan Documents are not in contravention of law or of the terms of Borrower's organic documents and will not result in the breach of or constitute a default under, or result in the creation of a lien under any indenture, agreement or undertaking to which Borrower is a party or by which it or its property may be bound or affected. (c) USE OF PROCEEDS. The proceeds of the Loans will be used solely for working capital or general corporate purposes, and not in contravention of Regulation U of the Board of Governors of the Federal Reserve Bank or any other requirement of law. (d) YEAR 2000 READINESS DISCLOSURE. Borrower has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by Borrower or any of its Subsidiaries (or their respective suppliers, vendors and customers) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing -4- 6 the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan in accordance with that timetable. Based on the foregoing, Borrower believes that all computer applications (including those of its and its Subsidiaries' customers and vendors) that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect on Borrower or on the transaction documented under this Agreement. 4. COVENANTS. Reference is made to the Existing Credit Agreement and the covenants contained in Sections 7.01 through 7.23 of the Existing Credit Agreement (hereinafter referred to as the "INCORPORATED COVENANTS"). So long as principal of and interest on any Loan or any other amount payable hereunder or under any other Loan Document remains unpaid or unsatisfied or the Commitment has not been terminated, Borrower shall comply with the Incorporated Covenants, it being agreed that such covenants and agreements shall survive any termination, cancellation or discharge of the Existing Credit Agreement. Borrower agrees with Lender that the Incorporated Covenants (and all other relevant provisions of the Existing Credit Agreement related thereto, including without limitation all exhibits, schedules and the defined terms contained in Section 1.02 thereof, which are used in the Incorporated Covenants) are hereby incorporated by reference into this Agreement to the same extent and with the same effect as if set forth fully herein and shall inure to the benefit of Lender, without giving effect to any waiver, amendment, modification or replacement of the Existing Credit Agreement or any term or provision of the Incorporated Covenants occurring subsequent to the date of this Agreement, except to the extent otherwise specifically provided in the following paragraph of this Section 4. In the event a waiver is granted under the Existing Credit Agreement or an amendment or modification is executed with respect to the Existing Credit Agreement, and such waiver, amendment and/or modification affects the Incorporated Representations and Warranties or the Incorporated Covenants, then such waiver, amendment or modification shall be effective with respect to the Incorporated Representations and Warranties and the Incorporated Covenants as incorporated by reference into this Agreement only if consented to in writing by the Lender. In the event of any replacement of the Existing Credit Agreement with a similar credit facility (the "NEW FACILITY") the representations and warranties and covenants contained in the New Facility which correspond to the representations and warranties and covenants contained in (a) Sections 6.01 through 6.04, 6.06 through 6.08, 6.10, 6.12, 6.14, 6.16 and 6.17 and (b) Sections 7.01 through 7.23, respectively, of the Existing Credit Agreement shall become the Incorporated Representations and Warranties and the Incorporated Covenants hereunder only if consented to in writing by Lender and, if such consent is not granted or if the Existing Credit Agreement is terminated and not replaced, then the representations and warranties and covenants contained in (a) Sections 6.01 through 6.04, 6.06 through 6.08, 6.10, 6.12, 6.14, 6.16 and 6.17 and (b) Sections 7.01 through 7.23, respectively, of the Existing Credit Agreement (together with any modifications or amendments approved in accordance with this paragraph) shall continue to be the Incorporated Representations and Warranties and the Incorporated Covenants hereunder. -5- 7 5. EVENTS OF DEFAULT. The following are "EVENTS OF DEFAULT:" (a) Borrower fails to pay any principal of any Loan as and on the date when due; or (b) Borrower fails to pay any interest on any Loan, or any fees due hereunder, or any portion thereof, within three days after the date when due; or (c) Any representation or warranty in any Loan Document (including without limitation the Incorporated Representations and Warranties) or in any certificate, agreement, instrument or other document made or delivered by Borrower pursuant to or in connection with any Loan Document proves to have been incorrect when made or deemed made; or (d) Borrower fails to comply with any covenant or agreement incorporated herein by reference pursuant to PARAGRAPH 4 above, subject to any applicable grace period and/or notice requirement set forth in Sections 8.01(e) and (f) of the Existing Credit Agreement (it being understood and agreed that any such notice requirement shall be met by Lender's giving the applicable notice to Borrower); or (e) Any "Event of Default" specified in Article VIII of the Existing Credit Agreement occurs and is continuing, without giving effect to any waiver thereof pursuant to the Existing Credit Agreement. Upon the occurrence of an Event of Default, Lender may declare the Commitment to be terminated, whereupon the Commitment shall be terminated, and/or declare all sums outstanding hereunder and under the other Loan Documents to be immediately due and payable, together with all interest thereon, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character, all of which are hereby expressly waived; PROVIDED, HOWEVER, that upon the occurrence of any event specified in Sections 8.01(j) or (k) of the Existing Credit Agreement, the Commitment shall automatically terminate, and all sums outstanding hereunder and under each other Loan Document shall become immediately due and payable, together with all interest thereon, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character, all of which are hereby expressly waived. 6. MISCELLANEOUS. (a) All financial computations required under this Agreement shall be made, and all financial information required under this Agreement shall be prepared, in accordance with generally accepted accounting principles consistently applied. -6- 8 (b) All references herein and in the other Loan Documents to any time of day shall mean the local (standard or daylight, as in effect) time of Charlotte, North Carolina. (c) All Breakage Costs shall be for the account of Borrower. (d) If on or prior to the first day of any Interest Period the Lender determines (which determination shall be conclusive) that (i) by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Offshore Rate for such Interest Period or (ii) the Offshore Rate will not adequately and fairly reflect the cost to the Lender of funding Offshore Rate Loans for such Interest Period, then the Lender shall give the Borrower prompt notice thereof specifying the relevant amounts or periods, and so long as such condition remains in effect, the Lender shall be under no obligation to make additional Offshore Rate Loans, continue Offshore Rate Loans or to convert Loans into Offshore Rate Loans and Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Offshore Rate Loans, either prepay such Loans or convert such Loans to Base Rate Loans in accordance with the terms of this Agreement. (e) Borrower shall reimburse or compensate Lender, upon demand, for all costs incurred, losses suffered or payments made by Lender which are applied or reasonably allocated by Lender to the transactions contemplated herein (all as determined by Lender in its reasonable discretion) by reason of any and all future reserve, deposit, capital adequacy or similar requirements against (or against any class of or change in or in the amount of) assets, liabilities or commitments of, or extensions of credit by, Lender; and compliance by Lender with any directive, or requirements from any regulatory authority, whether or not having the force of law. (f) No amendment or waiver of any provision of this Agreement (including any provision of the Existing Credit Agreement incorporated herein by reference pursuant to PARAGRAPH 3 or PARAGRAPH 4 above and any waiver of PARAGRAPH 5(d) above) or of any other Loan Document and no consent by Lender to any departure therefrom by Borrower shall be effective unless such amendment, waiver or consent shall be in writing and signed by a duly authorized officer of Lender, and any such amendment, waiver or consent shall then be effective only for the period and on the conditions and for the specific instance specified in such writing. No failure or delay by Lender in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other rights, power or privilege. (g) Except as otherwise expressly provided herein, notices and other communications to each party provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy or electronic mail -7- 9 to the address provided from time to time by such party. Any such notice or other communication sent by overnight courier service, mail or telecopy shall be effective on the earlier of actual receipt and (i) if sent by overnight courier service, the scheduled delivery date, (ii) if sent by mail, the fourth Business Day after deposit in the U.S. mail first class postage prepaid, and (iii) if sent by telecopy, when transmission in legible form is complete. All notices and other communications sent by the other means listed in the first sentence of this paragraph shall be effective upon receipt. Notwithstanding anything to the contrary contained herein, all notices (by whatever means) to Lender pursuant to PARAGRAPH 1(b) hereof shall be effective only upon receipt. (h) This Agreement shall inure to the benefit of the parties hereto and their respective successors and assigns, except that Borrower may not assign its rights and obligations hereunder. Lender may at any time (i) assign all or any part of its rights and obligations hereunder to any other Person with the consent of Borrower, such consent not to be unreasonably withheld, PROVIDED that no such consent shall be required if the assignment is to an affiliate of Lender or if a Default or Event of Default exists, and (ii) grant to any other Person participating interests in all or part of its rights and obligations hereunder without notice to Borrower. Borrower agrees to execute any documents reasonably requested by Lender in connection with any such assignment. All information provided by or on behalf of Borrower to Lender or its affiliates may be furnished by Lender to its affiliates and to any actual or proposed assignee or participant. (i) Borrower agrees to pay Lender, on demand, all reasonable out-of-pocket expenses and legal fees (including the allocated costs for in-house legal services) incurred by Lender in connection with: (i) the preparation, negotiation and execution of this Agreement or any other Loan Document and the consummation of the transactions contemplated hereby and thereby, (ii) any amendment, supplement or modification to this Agreement or any other Loan Document and (iii) the enforcement of this Agreement or any instruments or agreements executed in connection herewith. (j) If any provision of this Agreement or any other Loan Document shall be held invalid or unenforceable in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof or thereof. This Agreement supersedes all prior agreements and oral negotiations with respect to the subject matter hereof. (k) This Agreement may be executed in one or more counterparts, and each counterpart, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. (l) This Agreement and the other Loan Documents are governed by, and shall be construed in accordance with, the laws of the State of North Carolina and the applicable laws of the United States of America. Borrower hereby submits to the -8- 10 nonexclusive jurisdiction of the United States District Court and each state court in the City of Charlotte, North Carolina for the purposes of all legal proceedings arising out of or relating to any of the Loan Documents or the transactions contemplated thereby. Borrower irrevocably consents to the service of any and all process in any such action or proceeding by the mailing of copies of such process to Borrower at its address set forth beneath its signature hereto. Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. (m) BORROWER AND LENDER EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. (n) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. -9- 11 Please indicate your acceptance of the Commitment on the foregoing terms and conditions by returning an executed copy of this Agreement to the undersigned not later than September 24, 1999. BANK OF AMERICA, N.A. By: /s/ Robert Mauriello ------------------------------- Name: Robert Mauriello Title: Vice President ACCEPTED AND AGREED TO: THE WACKENHUT CORPORATION By: /s/ Kenneth J. Matulia -------------------------------- Name: Kenneth J. Matulia Title: Assistant Secretary Date: 20 Sept., 1999 STATE OF Maryland COUNTY OF Anne Arandel I, Glenda K. White, a Notary Public for said County and State, do hereby certify that Kenneth J. Matulia, the Assistant Secretary of The Wackenhut Corporation, a Florida corporation, personally appeared before me this day, and being by me duly sworn, acknowledged, on behalf of The Wackenhut Corporation as its duly authorized representative, the due execution of the foregoing instrument. Witness my hand and official seal this 20th day of September, 1999. (Official Seal) /s/ Glenda K. White -------------------------------------- Notary Public My Commission Expires December 1, 1999 -10- 12 EXHIBIT A DEFINITIONS Agreement: This letter agreement, as amended, restated, extended, supplemented or otherwise modified in writing from time to time. Applicable Margin: The appropriate applicable percentage corresponding to the Fixed Charges Coverage Ratio in effect as of the four quarter period most recently ended as specified below: Fixed Charges Coverage Ratio Offshore Rate Loan ---------------------------- ------------------ Greater than 2.0x .675% Less than or equal to 2.0x but .925% greater than 1.75x Less than or equal to 1.75x but 1.30% greater than or equal to 1.5x The Applicable Margin shall be established at the end of each fiscal quarter of Borrower (each, a "DETERMINATION DATE"). Any change in the Applicable Margin following each Determination Date shall be determined based upon the computations calculated and set forth in the certificate delivered in accordance with Section 7.17(f) of the Existing Credit Agreement, and shall be effective commencing on the date following the date such certificate is received (or, if earlier, the date such certificate was required to be delivered) until the date following the date on which a new certificate is delivered or required to be delivered, whichever shall first occur; PROVIDED, if Borrower shall fail to deliver such certificate within five (5) days after the time period required by Section 7.17 of the Existing Credit Agreement, then the Applicable Margin shall correspond to the largest Applicable Margin set forth in the grid above from the date such certificate was required to be delivered until the appropriate certificate is so delivered; PROVIDED FURTHER, that the Applicable Margin will increase by .25% on April 2, 2000 and each scheduled fiscal quarter of Borrower ending thereafter until the Loans are paid in full and the Commitment terminated. Notwithstanding the foregoing, if at any time the certificate furnished pursuant to Section 7.17(f) of the Existing Credit Agreement shall disclose that Consolidated Funded Debt (excluding Funded Debt of Wackenhut Corrections Corporation, a Florida corporation and Subsidiary of Borrower, from Consolidated Funded Debt) exceeds 40% of Total Capitalization (but does not exceed 50% of Total Capitalization), then there shall be added to the Applicable Margin set forth above .25%. A-1 13 Base Rate: A fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest publicly announced from time to time by Lender as its "prime" rate. The Lender's prime rate is the per annum rate of interest established from time to time by Lender as its prime rate, which rate may not be the lowest rate of interest charged by Lender to its customers. Any change in the prime rate announced by Lender shall take effect at the opening of business on the day specified in the public announcement of such change. Base Rate Loan: A Loan bearing interest based on the Base Rate. Breakage Costs: Any loss, cost or expense incurred by Lender (including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by Lender to maintain the relevant Offshore Rate Loan or from fees payable to terminate the deposits from which such funds were obtained) as a result of (i) any continuation, conversion, payment or prepayment of any Offshore Rate Loan on a day other than the last day of the Interest Period therefor (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or (ii) any failure by Borrower (for a reason other than the failure of Lender to make a Loan when all conditions to making such Loan have been met by Borrower in accordance with the terms hereof) to prepay, borrow, continue or convert any Offshore Rate Loan on a date or in the amount notified by Borrower. The certificate of Lender as to its costs of funds, losses and expenses incurred shall be conclusive absent manifest error. Business Day: Any day other than a Saturday, Sunday, or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, the State of North Carolina and, if such day relates to any Offshore Rate Loan, means any such day on which dealings in dollar deposits are conducted by and between banks in the offshore dollar interbank market. Consolidated Funded Debt: As defined in the Existing Credit Agreement. Default: Any event that, with the giving of any notice, the passage of time, or both, would be an Event of Default. Event of Default: Has the meaning set forth in PARAGRAPH 5. A-2 14 Existing Credit The Amended and Restated Revolving Credit and Agreement: Reimbursement Agreement dated December 30, 1997 by and among Borrower, NationsBank, National Association (now known as Bank of America, N.A.), as administrative agent, Scotiabanc, as co-agent, and the lenders party thereto from time to time (as amended by that certain Amendment Agreement No. 1 dated as of March 12, 1998, Amendment Agreement No. 2 dated as of August 7, 1998, Amendment Agreement No. 3 dated as of February 10, 1999, Amendment Agreement No. 4 dated as of February 25, 1999, Amendment Agreement No. 5 dated as of April 12, 1999 and Amendment Agreement No. 6 dated as of May 19, 1999) Federal Funds Rate: For any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; PROVIDED that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to Lender on such day on such transactions as determined by Lender. Fixed Charges As defined in the Existing Credit Agreement. Coverage Ratio: Funded Debt: As defined in the Existing Credit Agreement. A-3 15 Interest Period: For each Offshore Rate Loan, (a) initially, the period commencing on the date the Offshore Rate Loan is disbursed or converted from a Base Rate Loan and (b) thereafter, the period commencing on the last day of the preceding Interest Period, and, in each case, ending on the earlier of (x) the Maturity Date and (y) one, two, three or six months thereafter, as requested by Borrower; PROVIDED that: (i) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; and (ii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period. Loan Documents: This Agreement, and any promissory note, certificate, fee letter, and other instrument, document or agreement delivered in connection with this Agreement. Material Adverse Any set of circumstances or events which (a) has or Effect: could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of any Loan Document, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise), business operations or prospects of Borrower or (c) materially impairs or could reasonably be expected to materially impair the ability of Borrower to perform its obligations and liabilities under this Agreement or any other Loan Document. Maturity Date: September 8, 2000, or such earlier date on which the Commitment may terminate in accordance with the terms hereof. Offshore Rate: For any Interest Period with respect to any Offshore Rate Loan, a rate per annum determined pursuant to the following formula: Offshore Base Rate Offshore Rate = ----------------------- 1.00 - Eurodollar Reserve Percentage Where, "OFFSHORE BASE RATE" means, for such Interest Period: A-4 16 (a) the rate per annum (carried out to the fifth decimal place) equal to the rate determined by Lender to be the offered rate that appears on the page of the Telerate Screen that displays an average British Bankers Association Interest Settlement Rate (such page currently being page number 3750) for deposits in dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (b) in the event the rate referenced in the preceding clause (a) does not appear on such page or service or such page or service shall cease to be available, the rate per annum (carried to the fifth decimal place) equal to the rate determined by Lender to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (c) in the event the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum determined by Lender as the rate of interest at which dollar deposits (for delivery on the first day of such Interest Period) in same day funds in the approximate amount of the applicable Offshore Rate Loan and with a term equivalent to such Interest Period would be offered by Lender's London Branch to major banks in the offshore dollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period. A-5 17 "EURODOLLAR RESERVE PERCENTAGE" means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day applicable to Lender under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Offshore Rate for each outstanding Offshore Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. Offshore Rate Loan: A Loan bearing interest based on the Offshore Rate. Subsidiary: A corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by Borrower. Total Capitalization: As defined in the Existing Credit Agreement. A-6 18 EXHIBIT B FORM OF PROMISSORY NOTE $30,000,000 September 10, 1999 FOR VALUE RECEIVED, the undersigned, THE WACKENHUT CORPORATION, a Florida corporation ("BORROWER"), hereby promises to pay to the order of BANK OF AMERICA, N.A. ("LENDER") the principal sum of Thirty Million Dollars ($30,000,000) or, if less, the aggregate unpaid principal amount of all Loans made by Lender to Borrower pursuant to the letter agreement, dated as of September 10, 1999 (such letter agreement, as it may be amended, restated, extended, supplemented or otherwise modified from time to time, being hereinafter called the "AGREEMENT"), between Borrower and Lender, on the Maturity Date. Borrower further promises to pay interest on the unpaid principal amount of the Loans evidenced hereby from time to time at the rates, on the dates, and otherwise as provided in the Agreement. Lender is authorized to endorse the amount and the date on which each Loan is made or converted, the Interest Period therefor (if applicable) and each payment of principal with respect thereto on the schedules annexed hereto and made a part hereof, or on continuations thereof which shall be attached hereto and made a part hereof; PROVIDED that any failure to so endorse such information on such schedule or continuation thereof or any error in doing so shall not limit or otherwise affect any obligation of Borrower under the Agreement or this promissory note. This promissory note is the promissory note referred to in, and is entitled to the benefits of, the Agreement, which Agreement, among other things, contains provisions for acceleration of the maturity of the Loans evidenced hereby upon the happening of certain stated events and also for prepayments on account of principal of the Loans prior to the maturity thereof upon the terms and conditions therein specified. Unless otherwise defined herein, terms defined in the Agreement are used herein with their defined meanings therein. This promissory note shall be governed by, and construed in accordance with, the laws of the State of North Carolina. THE WACKENHUT CORPORATION By: /s/ Kenneth J. Matulia ------------------------------- Name: Kenneth J. Matulia Title: Assistant Secretary B-1 19 SCHEDULE A TO NOTE BASE RATE LOANS AND REPAYMENT OF BASE RATE LOANS
(1) (2) (3) (4) (5) Amount of Base Rate Amount of Base Rate Loan Repaid or Unpaid Principal Loan Made or Converted Converted to Offshore Balance of Offshore Notation Date from Offshore Rate Loan Rate Loan Rate Loans Made By ---- ----------------------- --------------------- ---------------- --------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- --------------- - --------------- --------------- --------------- -------------- ---------------
B-2 20 SCHEDULE B TO NOTE OFFSHORE RATE LOANS AND REPAYMENT OF OFFSHORE RATE LOANS
(1) (2) (3) (4) (5) (6) Amount of Amount of Offshore Rate Offshore Rate Unpaid Principal Loan Made or Loan Repaid or Balance of Converted from Converted to Base Offshore Notation Date Base Rate Loan Interest Period Rate Loan Rate Loans Made By ---- -------------- --------------- ----------------- ---------------- -------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- --------------- - --------------- --------------- --------------- -------------- --------------- ---------------
B-3 21 OUT OF STATE CLOSING AFFIDAVIT STATE OF MARYLAND COUNTY OF BALTIMORE BEFORE ME, the undersigned, a Notary Public in and for the State of aforesaid, personally appeared Kenneth J. Matalia, the Asst. Secretary of THE WACKENHUT CORPORATION (the "Borrower"), who, being by me first duly sworn, stated: 1. On the date hereof, the Borrower executed a credit or loan agreement and/or attached promissory note (the "Loan Documents") of even date herewith in the maximum principal amount of $30,000,000 in favor of Bank of America, N.A. (the "Bank"), whose applicable offices are located in Charlotte, Mecklenburg County, North Carolina. 2. The Borrower has personally mailed or shipped the Loan Documents to the Bank via overnight courier, for delivery to the Bank and its acceptance at the Bank's offices located in Charlotte, Mecklenburg County, North Carolina. DATED the 20th day of September, 1999. Signature of Borrower's Officer: /s/ Kenneth J. Matalia ---------------------------------------- Title: Assistant Secretary Print Name: Kenneth J. Matalia Sworn to and subscribed before me this 20th day of September, 1999. /s/ Glenda K. White - ----------------------------------- Notary Public Print Name: Glenda K. White State and County Aforesaid My Commission Expires: December 1, 1999 [NOTARY SEAL OR STAMP] 22 OUT OF STATE CLOSING AFFIDAVIT STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG BEFORE ME, the undersigned, a Notary Public in and for the State of aforesaid, personally appeared Robert Mauriello, the Vice President of Bank of America, N.A. (the "Bank"), who, being by me first duly sworn stated: 1. On or about the date hereof, The Wackenhut Corp. (the "Borrower") executed a credit or loan agreement and/or attached promissory note (the "Loan Documents") in the maximum principal amount of $30,000,000.00 in favor of the Bank, whose applicable offices are located in Charlotte, Mecklenburg County, North Carolina. 2. The Borrower has mailed or shipped the Loan Documents to the Bank via overnight courier, for delivery to the Bank and its acceptance at the Bank's offices located in Charlotte, Mecklenburg County, North Carolina. 3. I, as an authorized officer of the Bank, have received a package containing the Loan Documents and have accepted and executed the Loan Documents on behalf of the Bank, all of which has taken place in the Bank's offices located in Charlotte, Mecklenburg County, North Carolina. DATED the 21st day of September, 1999. Signature of Bank's Officer: /s/ Robert Mauriello ---------------------------------------- Title: Vice President Print Name: Robert Mauriello Sworn to and subscribed before me this 21st day of September, 1999. /s/ Glenda G. Wallace - ----------------------------------- Notary Public Print Name: Glenda G. Wallace State and County Aforesaid My Commission Expires: 9-28-02 [NOTARY SEAL OR STAMP] B-5 EX-10.14 9 SENIOR OFFICER RETIREMENT AGREEMENT T HOWARD 1 EXHIBIT 10.14 SENIOR OFFICER RETIREMENT AGREEMENT THE WACKENHUT CORPORATION, a Florida corporation (Company) and Timothy J. Howard (Executive) hereby agree as follows: 1. EMPLOYMENT. Company will employ Executive as Senior Vice President or in such other positions as may be determined from time to time by the Board of Directors of Company and at such rate of compensation as may be so determined. Executive will devote his full energy, skill and best efforts to the affairs of Company on a full-time basis. It is contemplated that such employment will continue until August 30, 2008, (Executive's Retirement Date), but nevertheless either Company or Executive may terminate Executive's employment at any time and for any reason upon sixty (60) days written notice to the other. 2. RETIREMENT. In the event of Executive's retirement, at any time after the execution of this Agreement, and commencing with the first month after Executive actually retires, Company will pay Executive $8,333.00 monthly for two hundred forty (240) months. 3. TERMINATION OF EMPLOYMENT. If Executive terminates his employment with Company, or if Company terminates Executive's employment prior to Executive's Retirement Date but after May 7, 1999, Company shall pay Executive monthly, commencing with the first month after executive's Retirement Date and continuing for two hundred forty (240) months, the amount specified in Section 2 above. In the sole discretion of the Board of Directors of Company, periods of time during which Executive may be disabled may be treated as time of employment for purposes of this computation. 4. DEATH. If Executive dies before his Retirement Date and before termination of his employment with Company, Company shall pay Executive's named Beneficiary (designated as provided in Section 6 of this Agrement and hereinafter referred to as Beneficiary) a monthly amount of $4,166.00 commencing with the first month following death and continuing for one hundred twenty (120) months thereafter. In the case of death of Executive after termination of employment with Company, but before his Retirement Date, the Company shall pay to beneficiary $4,166.00 commencing with the first month following death and continuing for one hundred twenty (120) months thereafter. If Executive dies within two hundred forty (240) months following his Retirement Date and while receiving payments hereunder, 1 2 Company shall pay Beneficiary the payments which would have been made to Executive had he lived for the balance of said two hundred forty (240) month period. 5. SMALL AMOUNTS. In the event the amount of any monthly payments provided herein shall be less than Twenty ($20) Dollars, The Company in its sole discretion may in lieu thereof pay the commuted value of such payments (calculated on the basis of the interest rate and mortality assumptions being used by The Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin, to calculate immediate annuity rates on the date of this Agreement) to the person entitled to such payments. 6. BENEFICIARY. The Beneficiary (or Beneficiaries) of any payments to be made after Executive's death, shall be as designated by Executive and shown on attached Exhibit A or such other person or persons as Executive shall designate in writing to Company. If no effective designation of Beneficiaries has been made by Executive, any such payments shall be made to Executive's estate. 7. RESTRICTIONS. Executive shall not at any time, either directly or indirectly, accept employment with, render service, assistance or advice to, or allow his name to be used by any competitor of the Company unless approved by the Board of Directors of the Company. Determination by the Board of Directors of the Company that Executive has engaged in any such activity shall be binding and conclusive on all parties, and in addition to all other rights and remedies which Company shall have, neither Executive not Beneficiary shall be entitled to any payments hereunder. 8. INSURANCE. If Company shall elect to purchase a life insurance contract to provide Company with funds to make payments hereunder, Company shall at all times be the sole and complete Owner and beneficiary of such contract, and shall have the unrestricted right to use all amounts and exercise all options and privileges thereunder without knowledge or consent of Executive or Beneficiary or any other person, it being expressly agreed that neither Executive nor Beneficiary nor any other person shall have any right, title or interest whatsoever in or to any such contract. 2 3 9. SOURCE OF PAYMENTS. Executive, Beneficiary and any other person or persons having or claiming a right to payments hereunder or to any interest in this Agreement shall rely solely on the unsecured promise of Company set forth herein, and nothing in this Agreement shall be construed to give Executive, Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by Company or in which it may have any right, title or interest now or in the future, but Executive shall have the right to enforce his claim against Company in the same manner as any unsecured creditor. 10. AMENDMENT. This Agreement may be amended at any time or from time to time by written agreement of the parties. 11. ASSIGNMENT. Neither Executive, nor Beneficiary, nor any other person entitled to payments hereunder shall have power to transfer, assign, anticipate, mortgage or otherwise encumber in advance any of such payments, nor shall such payments be subject to seizure for the payment of public or private debts, judgments, alimony or separate maintenance, or be transferable by operation of law in event of bankruptcy, insolvency or otherwise. 12. BINDING EFFECT. This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Company agrees it will not be a party to any merger, consolidation or reorganization, unless and until its obligations hereunder shall be expressly assumed by its successor or successors. 3 4 IN WITNESS WHEREOF the parties have executed this Agreement effective the 2nd day of August, 1999. (Executive) (Company) THE WACKENHUT CORPORATION /s/ Timothy J. Howard By: /s/ R. R. Wackenhut - --------------------------------- ---------------------------------------- Timothy J. Howard President and Chief Operating Officer Attest: /s/ Sandra Nusbaum ------------------------------------ [CORPORATE SEAL] 4 EX-10.15 10 SENIOR OFFICER RETIREMENT AGREEMENT P MASLOWE 1 EXHIBIT 10.15 SENIOR OFFICER RETIREMENT AGREEMENT Effective August 11, 1997, THE WACKENHUT CORPORATION, a Florida corporation (Company) and Philip L. Maslowe (Executive) hereby agree as follows: 1. EMPLOYMENT. Company will employ Executive as Senior Vice President or in such other positions as may be determined from time to time by the Board of Directors of Company and at such rate of compensation as may be so determined. Executive will devote his full energy, skill and best efforts to the affairs of Company on a full-time basis. It is contemplated that such employment will continue until August 30, 2007 (Executive's Retirement Date), but nevertheless either Company or Executive may terminate Executive's employment at any time and for any reason upon sixty (60) days written notice to the other. 2. RETIREMENT. In the event Executive's employment continues until his Retirement Date, upon retirement, and commencing with the first month after Executive actually retires, Company will pay Executive $8,333.00 monthly for two hundred forty (240) months. 3. TERMINATION OF EMPLOYMENT A. If Executive terminates his employment with Company, or if Company terminates Executive's employment prior to Executive's Retirement Date pursuant to Section 1 above, but after August 30, 1998, Company will pay Executive monthly, commencing with the first month after Executive's Retirement Date and continuing for two hundred forty (240) months, an amount calculated by multiplying the monthly amount payable at retirement specified in Section 2 above by a fraction the numerator of which is the sum of the number of years of service between the effective date of this Agreement and the date of termination of employment (partial years of service are rounded up to a full year if over six months and rounded down if under six months), and the denominator of which is the number three (3); provided, however in no event shall the amount paid per month exceed the amount payable under Section 2 of this Agreement. In the sole discretion of the Board of Directors of Company, periods of time during which Executive may be disabled may be treated as time of employment for purposes of this computation. B. If Executive terminates his employment with Company, or if Company terminates Executive's employment prior to Executive's Retirement Date but after August 30, 1998, Company will pay Executive monthly, commencing with the first month after Executive's Retirement Date and continuing for two hundred forty (240) months, an amount calculated by multiplying the monthly amount payable at retirement specified in Section 2 above by a fraction the numerator of which is the sum of the number of full years between the date of this Agreement and the date of termination of employment, and the 1 2 denominator of which is the number three (3); provided, however, in no event shall the amount paid per month exceed the amount payable under Section 2 of this Agreement. In the sole discretion of the board of Directors of Company, periods of time during which Executive may be disabled may be treated as time of employment for purposes of this computation. C. If Executive terminates his employment with Company prior to August 31, 1998, or if Company terminates Executive's employment for any reason prior to August 31, 1998, Executive or Beneficiary shall receive no payments whatsoever under this Agreement. 4. DEATH. If Executive dies before his Retirement Date and before termination of his employment with Company, Company shall pay Executive's named Beneficiary (designated as provided in Section 6 of this Agreement and hereinafter referred to as Beneficiary) a monthly amount of $4,166.00 commencing with the first month following death and continuing for one hundred twenty (120) months thereafter. In the case of death of Executive after termination of employment with Company, but before his Retirement Date, the Company shall pay to Beneficiary the lesser of (a) a monthly amount determined by multiplying $4,166.00 by the fraction determined from subsection 3.A of this Agreement, or (b) $4,166.00 commencing with the first month following death and continuing for one hundred twenty (120) months thereafter. If Executive dies within two hundred forty (240) months following his Retirement Date and while receiving payments hereunder, Company shall pay Beneficiary the payments which would have been made to Executive had he lived for the balance of said two-hundred forty (240) month period. If Executive shall die by suicide prior to August 31, 1999, whether sane or insane, no payments shall be made by the Company. If the Executive shall die by suicide after August 30, 1999, the Company shall make such payments as would be required by this Agreement had Executive died at that time other than by suicide. 5. SMALL AMOUNTS. In the event the amount of any monthly payments provided herein shall be less than Twenty ($20) Dollars, The Company in its sole discretion may in lieu thereof pay the commuted value of such payments (calculated on the basis of the interest rate and mortality assumptions being used by The Northwestern Mutual Life Insurance Company of Milwaukee, Wisconsin, to calculate immediate annuity rates on the date of this Agreement) to the person entitled to such payments. 6. BENEFICIARY. The Beneficiary (or Beneficiaries) of any payments to be made after Executive's death, shall be as designated by Executive and shown on attached Exhibit A or such other person or persons as Executive shall designate in writing to Company. If no effective designation of Beneficiaries has been made by Executive, any such payments shall be made to Executive's estate. 2 3 7. RESTRICTIONS. Executive shall not at any time, either directly or indirectly, accept employment with, render service, assistance or advice to, or allow his name to be used by any competitor of the Company unless approved by the Board of Directors of the Company. Determination by the Board of Directors of the Company that Executive has engaged in any such activity shall be binding and conclusive on all parties, and in addition to all other rights and remedies which Company shall have, neither Executive nor Beneficiary shall be entitled to any payments hereunder. 8. INSURANCE. If Company shall elect to purchase a life insurance contract to provide Company with funds to make payments hereunder, Company shall at all times be the sole and complete Owner and beneficiary of such contract, and shall have the unrestricted right to use all amounts and exercise all options and privileges thereunder without knowledge or consent of Executive of Beneficiary or any other person, it being expressly agreed that neither Executive nor Beneficiary nor any other person shall have any right, title or interest whatsoever in or to any such contract. 9. SOURCE OF PAYMENTS. Executive, Beneficiary and any other person or persons having or claiming a right to payments hereunder or to any interest in this Agreement shall rely solely on the unsecured promise of Company set forth herein, and nothing in this Agreement shall be construed to give Executive, Beneficiary or any other person or persons any right, title, interest or claim in or to any specific asset, fund, reserve, account or property of any kind whatsoever owned by Company or in which it may have any right, title or interest now or in the future, but Executive shall have the right to enforce his claim against Company in the same manner as any unsecured creditor. 10. AMENDMENT. This Agreement may be amended at any time or from time to time by written agreement of the parties. 3 4 11. ASSIGNMENT. Neither Executive, nor Beneficiary, nor any other person entitled to payments hereunder shall have power to transfer, assign, anticipate, mortgage or otherwise encumber in advance any of such payments, nor shall such payments be subject to seizure for the payment of public or private debts, judgments, alimony or separate maintenance, or be transferable by operation of law in event of bankruptcy, insolvency or otherwise. 12. BINDING EFFECT. This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, successors and assigns. The Company agrees it will not be a party to any merger, consolidation or reorganization, unless and until its obligations hereunder shall be expressly assumed by its successor or successors. IN WITNESS WHEREOF, this Agreement shall be effective the 11th day of August, 1997. (Executive) (Company) THE WACKENHUT CORPORATION /s/ Philip L. Maslowe By: /s/ G. R. Wackenhut - ---------------------------------- ------------------------------------- Philip L. Maslowe President and Chief Executive Officer Attest: /s/ Frank Finizia --------------------------------- (CORPORATE SEAL) 4 EX-21 11 WACKENHUT CORP SUBSIDIARIES OF WACKENHUT 1 EXHIBIT 21.1 SUBSIDIARIES OF THE CORPORATION SUBSIDIARIES OF THE WACKENHUT CORPORATION American Guard and Alert, Inc. (Alaska) Titania Advertising, Incorporated (Florida) Titania Insurance Company of America (Vermont) Tuhnekcaw, Inc. (Delaware) Wackenhut Airline Services, Inc. (Florida) Wackenhut Australia, Pty., Ltd. (Australia) Wackenhut of Canada, Ltd. (Canada) Wackenhut Corrections Corporation (Florida) Wackenhut Educational Services, Inc. (Florida) Wackenhut Financial, Inc. (Delaware) Wackenhut Funding Corp. (Delaware) Wackenhut International, Incorporated (Florida) Wackenhut of Nevada, Inc. (Nevada) Wackenhut Resources, Inc. (Florida) Wackenhut Services, Incorporated (Florida) Wackenhut.com Online Store, Inc. (Florida) SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED Ecma, S.A. de C.V. (El Salvador) Instituto Wackenhut, S.A. (Ecuador) Peruana de Seguridad y Vigilancia, S.A. (PESEVISA) (Peru) Seguridad Wackenhut, S.A. de CV (Mexico) Setecsa de Venezuela, C.A. (Venezuela) Wackenhut A/O (Russia) Wackenhut Belize, Ltd. (Belize) Wackenhut Bolivia, S.A. (Bolivia) Wackenhut Cameroon, S.A. (Cameroon) Wackenhut Central Europe GMBH (Germany) Wackenhut Czech, SPOL, S.R.O. (Czech Republic) Wackenhut de El Salvador, S.A. (El Salvador) Wackenhut de Guatemala, S.A. (Guatemala) Wackenhut de Honduras, S.A. (Honduras) Wackenhut de Nicaragua, S.A. (Nicaragua) Wackenhut de Valores, S.A. (Guatemala) Wackenhut de Venezuela, S.A. (Venezuela) Wackenhut del Ecuador, S.A. (Ecuador) Wackenhut Dominicana, S.A. (Dominican Republic) Wackenhut France, S.A.R.L. (France) Wackenhut Gambia, Ltd. (Gambia) Wackenhut Jamaica, Ltd. (Jamaica) Wackenhut Kuban (Russia) Wackenhut Pakistan (PVT) Limited (Pakistan) Wackenhut Morocco, Inc. (Morocco) Wackenhut Maghreb, S.A. (Morocco) Wackenhut Mozambique Lda (Mozambique) Wackenhut Neva (Russia) Wackenhut Paraguay, S.A. (Paraguay) Wackenhut Peru, S.A. (Peru) Wackenhut Puerto Rico, Inc. (Puerto Rico) 2 SUBSIDIARIES OF WACKENHUT INTERNATIONAL, INCORPORATED (CONTINUED) Wackenhut S.A. (Costa Rica) Wackenhut Sakhalin (Russia) Wackenhut Santa Cruz, S.A. (Bolivia) Wackenhut Seges (Ivory Coast) Wackenhut Services S.A. de C.V. (El Salvador) Wackenhut Sierra Leone (Sierra Leone) Wackenhut Transportation de Valores, S.A. (Ecuador) Wackenhut Venzolana, SA (Venezuela) Wackenhut U.K. Limited (United Kingdom) Wackenhut Uruguay, S.A. (Uruguay) WII/Sound and Security Engineering Co. (Jordan) SUBSIDIARY OF AMERICAN GUARD AND ALERT Ahtna AGA Security, Inc. (Alaska) SUBSIDIARIES OF WACKENHUT CORRECTIONS CORPORATION Atlantic Shores Healthcare, Inc. Miramichi Youth Centre Management, Inc. Wackenhut Corrections (U.K.), Limited (United Kingdom) Wackenhut Corrections Corporation Australia Pty Ltd. (Australia) Wackenhut Corrections of Canada, Ltd. (Canada) Wackenhut Corrections Design Services, Inc. Wackenhut Corrections Netherlands Antilles, N.V. Wackenhut Corrections Puerto Rico, Inc. WCC Development, Inc. (Florida) WCC/FL/01, Inc. (Florida) WCC/FL/02, Inc. (Florida) WCC Financial, Inc. (Delaware) WCC Real Estate Holdings, LLC (Florida) SUBSIDIARY OF WACKENHUT CORRECTIONS CORPORATION AUSTRALIA Wackenhut Correctional Services Pty Ltd. (Australia) Australasian Correctional Management Pty Ltd. (Australia) Australasian Correctional Investment Pty Ltd. (Australia) SUBSIDIARY OF WACKENHUT SERVICES, INCORPORATED Wackenhut Services, LLC. (Colorado) SUBSIDIARIES OF WACKENHUT RESOURCES, INC. WRI Employers Insurance, Inc. WRI Staffing, Inc. WRI II, Inc. Professional Employee Management, Inc. Professional Employee Management II, Inc. Professional Employee Management III, Inc. Professional Employee Management IV, Inc. Professional Employee Management Benefits, Inc. Professional Employee Management Services, Inc. Oasis Outsourcing, Inc. Oasis Outsourcing II, Inc. Oasis Outsourcing III, Inc. Oasis Outsourcing IV, Inc. Oasis Outsourcing Benefits, Inc. King Staffing, Inc. King Temporary Staffing, Inc. Workforce Alternative, Inc. King Benefits, Inc. King Employee Services, Inc. EX-23.1 12 WACKENHUT CORP CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the incorporation of our report incorporated by reference in this Form 10-K into the Company's previously filed Registration Statements on Forms S-8 (Registration Statement File Nos. 33-59159, 333-11833, 333-11837, 333-46399 and 333-80607). ARTHUR ANDERSEN LLP West Palm Beach, Florida, March 29, 2000. EX-24.1 13 WACKENHUT CORP POWER OF ATTORNEY 1 Exhibit 24.1 THE WACKENHUT CORPORATION ANNUAL REPORT ON FORM 10-K POWERS OF ATTORNEY GEORGE R. WACKENHUT RICHARD R. WACKENHUT JULIUS W. BECTON, JR. CARROLL A. CAMPBELL BENJAMIN R. CIVILETTI ANNE N. FOREMAN EDWARD L. HENNESSY, JR. PAUL X. KELLEY NANCY C. REYNOLDS JOHN F. RUFFLE THOMAS P. STAFFORD 2 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ George R. Wackenhut Date: 2-17-00 - ------------------------------------ ----------------------------- George R. Wackenhut, Director 3 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Richard R. Wackenhut Date: 2-17-00 - ------------------------------------ ----------------------------- Richard R. Wackenhut, Director 4 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Julius W. Becton, Jr. Date: 2-17-00 - ------------------------------------ ----------------------------- Julius W. Becton, Jr., Director 5 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Carroll A. Campbell Date: 2-24-00 - ------------------------------------ ----------------------------- Carroll A. Campbell, Director 6 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Benjamin R. Civiletti Date: 2-17-00 - ------------------------------------ ----------------------------- Benjamin R. Civiletti, Director 7 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Anne N. Foreman Date: 2-17-00 - ------------------------------------ ----------------------------- Anne N. Foreman, Director 8 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Edward L. Hennessy, Jr. Date: 2-22-00 - ------------------------------------ ----------------------------- Edward L. Hennessy, Jr., Director 9 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Paul X. Kelley Date: 2-23-00 - ------------------------------------ ----------------------------- Paul X. Kelley, Director 10 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Nancy Reynolds Date: 2-16-00 - ------------------------------------ ----------------------------- Nancy Reynolds, Director 11 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ John F. Ruffle Date: 2-17-00 - ------------------------------------ ----------------------------- John F. Ruffle, Director 12 POWER OF ATTORNEY The undersigned member of the Board of Directors of The Wackenhut Corporation hereby constitute and appoint Philip L. Maslowe, Juan D. Miyar, Timothy L. McCormick, Timothy J. Howard and Francis E. Finizia and each of them severally, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him/her and in his/her name, place and stead, in any and all capacities to sign any and all reports on Form 10-K (Annual Report pursuant to the Securities Exchange Act of 1934) and any amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Thomas P. Stafford Date: 3-22-00 - ------------------------------------ ----------------------------- Thomas P. Stafford, Director EX-27.1 14 WACKENHUT CORP FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO FORM 10-K FOR THE YEAR ENDED JANUARY 2, 2000. 1,000,000 12-MOS JAN-02-2000 JAN-04-1999 JAN-02-2000 67 29 188 5 15 299 96 28 526 180 17 2 0 0 162 526 0 2,152 0 2,114 0 2 5 40 16 0 0 0 0 20 1.31 1.28 MARKETABLE SECURITIES ARE CLASSIFIED AS NON-CURRENT ASSETS ON THE BALANCE SHEET. INCLUDES $10 MILLION OF DEFERRED TAXES, $12 MILLION OF PREPAID EXPENSES AND $12 MILLION OF OTHER CURRENT ASSETS. INCLUDES $43 MILLION OF NOTES AND ACCOUNTS PAYABLE, $77 MILLION OF ACCRUED PAYROLL AND RELATED TAXES AND $60 MILLION OF ACCRUED EXPENSES. INCLUDES $78 MILLION RESERVE FOR LOSSES OF CASUALTY REINSURANCE SUBSIDIARY, $55 MILLION MINORITY INTEREST, $15 MILLION DEFERRED REVENUE AND $17 MILLION OTHER LIABILITIES. INCLUDES MINORITY INTEREST AND EQUITY INCOME OF FOREIGN AFFILIATES - NET OF INCOME TAXES OF $(11) MILLION AND $7 MILLION RESPECTIVELY.
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