<PAGE>
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
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995 Commission file number 1-5371
THE UNION CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 25-0848970
(State of incorporation) (I.R.S. Employer Identification No.)
145 MASON STREET, GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER (AREA CODE 203) 629-0505
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which Registered
------------------- ------------------------
Common Stock, 50 cents par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 ]
Indicate by check mark whether 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 _____
-----
As of September 15, 1995 the Company had outstanding 5,580,617 shares of
common stock. The aggregate market value (based upon the closing price of these
shares on The New York Stock Exchange) of these shares held by nonaffiliates was
approximately $82,838,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report for the year ended June 30, 1995
are incorporated by reference into Parts I and II.
Portions of the Company's Proxy Statement, in connection with its
Annual Meeting to be held on November 16, 1995, are incorporated by reference
into Part III. The Company's Proxy Statement will be filed within 120 days
after June 30, 1995.
<PAGE>
THE UNION CORPORATION
Form 10-K Annual Report
For the Fiscal Year Ended June 30, 1995
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters 10
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 11
PART III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management 11
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 12
</TABLE>
2
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Part I.
- -------
Item 1. Business
- -----------------
(A) General Development of Business
-------------------------------
The Union Corporation, which was reincorporated in Delaware in 1986, was
formed in 1938. Its principal executive offices are located at 145 Mason
Street, Greenwich, Connecticut. When used herein, the "Company" means The
Union Corporation and its subsidiaries.
The Company conducts its business through subsidiaries which are
operationally decentralized. Matters pertaining to corporate strategy,
policy and finance are managed at Company headquarters.
The Company's operations are currently comprised of three financial services
companies, Transworld Systems, Inc. ("Transworld"), Allied Bond & Collection
Agency, Inc. ("Allied Bond") and Capital Credit Corporation ("Capital
Credit"), which provide accounts receivable management and related services
to a wide range of institutional, commercial, and governmental customers.
(C) Narrative Description of Business
---------------------------------
The debt collection industry is closely regulated by federal laws such as
the Fair Debt Collection Practices Act and similar state laws. The industry
is highly competitive and is comprised of companies serving large national
accounts and those that concentrate on local accounts in a particular
market. The Union Corporation serves both national and local accounts.
Accounts are placed for collection based on collection performance, price
and service provided.
The past-due consumer and commercial debt currently outstanding in the
United States includes among other obligations bad checks, delinquent credit
card and medical bills and uncollected loans and taxes owed to federal,
state and local governments. The key to collecting some of this bad debt is
"third-party" intervention. As a third party, the collection agency has an
advantage because debtors are far more concerned about their credit record
when they are contacted by an outside collection agency and, therefore, are
more likely to respond positively. The importance of national credit
grantors and the increased mobility of delinquent debtors have created a
demand for national collection firms like Transworld, Allied Bond and
Capital Credit. These companies have the financial and managerial resources
to maintain and upgrade sophisticated automated collection systems that
operate nationally.
Although both Allied Bond and Capital Credit have several large customers,
and the loss of any one of these customers could have a material adverse
effect on their respective results of operations, no customer comprises more
than 10% of the Registrant's consolidated revenues.
Revenues derived from the Company's contingency collection operations have
historically been higher in the third and fourth fiscal quarters than those
in the first and second fiscal quarters.
3
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Transworld Systems, Inc.
------------------------
Transworld, headquartered in Rohnert Park, California, offers the
combination of both fixed-fee and contingency fee collection services.
Transworld has a successful history which is attributable to the strength of
its marketing organization, a high recovery rate, cost-effectiveness and
quality of service.
Transworld's system reduces customers' in-house collection costs while
providing detailed monthly status reports for accounting and control
purposes. Its fixed-fee system, Phase I, is based on contacting the debtor
with a series of computer generated collection demands sent by mail. Unlike
companies whose revenues are derived from contingency collection,
Transworld's Phase I system currently charges a fixed fee ranging from $4.75
to $9.95 per account depending on the number of accounts placed.
Many customers with small-balance delinquent accounts, ranging between $50
and $100, have found Transworld's Phase I system to be the only economical
method of obtaining professional, third-party collection results.
Transworld's ability to get clients to make an early assignment of
delinquent accounts, usually forty-five to ninety days past-due, is possible
because of the low fixed-fee structure and its sophisticated computerized
management reporting system. Transworld also offers clients who purchase
systems for 500 or more accounts the option to electronically communicate
the debtor information that is necessary to initiate collection demands
directly to Transworld's computer system. Many clients experience
collection costs as low as five to seven percent of the amount collected,
while at the same time eliminating a good deal of their normal billing
expenses. The combination of low cost and high recovery rates results in a
high customer renewal rate.
Transworld currently has well over 40,000 customers using its services, from
small companies that may purchase a system for 45 accounts to major
corporations that purchase systems for 100,000 accounts at a time.
The company's marketing organization, consisting of more than 700
independent contractors, provides the sales effort and ongoing service
essential to the system. This group is highly motivated because it is paid
on a commission basis. Transworld had 132 sales offices throughout the
country at year end and plans to open six new sales offices in fiscal 1996.
Credit Management Services (CMS)
--------------------------------
Approximately 75% of the clients using Transworld's Phase I system assign
those accounts that were not collected during the fixed-fee program to CMS,
a division of Transworld, on a contingency fee basis (Phase II). Because a
CMS office is opened only after business has been developed by Transworld,
historically it has become profitable within the first month of operation.
4
<PAGE>
CMS collectors are paid on a commission basis and perform collection
services at 19 branch offices. Branch managers, trained and promoted from
within, are compensated through a combination of commission and profit
incentive. CMS has developed software packages and computer systems to
handle fiduciary reporting and interface with a client base of over 35,000.
The average debt assigned CMS is over $600 with an average payment collected
in excess of $180. CMS had record collections, revenues and profits in
1995.
At June 30, 1995, approximately 400 persons were employed in connection with
the operations of Transworld, in addition to the independent contractors.
None of the employees are covered under a collective bargaining agreement.
Allied Bond & Collection Agency, Inc.
-------------------------------------
Allied Bond, which is headquartered in Trevose, Pennsylvania, was acquired
in December 1992 and is a well managed, contingency fee basis collection
company. Allied Bond includes among its clients many of the larger consumer
credit grantors across a broad spectrum of industries such as banking, oil
refining and distribution companies, student loan servicing, retail, travel
and entertainment, utilities, telecommunications, and enjoys a significant
share in many of these markets. Collections are accomplished through a
combination of letters, telephone calls and litigation. Allied Bond earns
commissions that are generally in the range of 20 to 40 percent of the
amount collected.
Allied has strong, in-depth management at all levels. Every newly employed
collector first attends a comprehensive, in-house training class for four
weeks. During this time, the trainee learns to combine Allied's on-line
computer network with proper collection techniques. Allied's on-line
collection system enhances the ability of the individual collector to
operate efficiently. Upon graduation, collectors receive continuing
education and supervision to refine their skills, techniques, and
efficiency.
Allied Bond employed approximately 680 people at June 30, 1995, none of whom
are covered under a collective bargaining agreement.
Capital Credit Corporation
--------------------------
Capital Credit, which relocated its headquarters to its Regional Collection
Center in Jacksonville, Florida in the first quarter of fiscal 1995,
provides contingency and fixed fee collections and telemarketing services to
large national clients in eight market segments: bankcard,
telecommunications, travel and entertainment, government, retail, oil,
utilities and medical. Capital Credit earns commissions that are generally
in the range of 20 to 40 percent of the amount collected.
5
<PAGE>
Capital Credit's computerized on-line collection system links its three
Regional Collection Centers in Florida, Massachusetts and California and
permits customers to communicate electronically with the system for instant
exchange of information. This system substantially decreases clerical
effort and increases collector productivity.
Capital Credit's strategy for growth is premised upon the following
principles: being a top quartile performer for its clients in recovery rate,
compliance and customer service will yield increases in market share from
existing clients and will facilitate the acquisition of new clients within
the above market segments; the client base should be expanded and new
services offered to existing clients; maintaining state-of-the-art
technology is essential in maximizing staff productivity.
Capital Credit employed approximately 225 people at June 30, 1995, none of
whom are covered under a collective bargaining agreement.
Discontinued Operations
-----------------------
The Company recorded an $8,000,000 loss provision ($5,200,000 net of tax
benefit) or $.92 loss per share during the third quarter of fiscal 1995 for
costs related to certain of its discontinued operations, all of which were
terminated or otherwise disposed of prior to fiscal 1990. This provision
was recorded as a result of recent developments regarding previously
reported matters involving the Company's former Gichner Systems Group
division (the "Division") and environmental matters principally involving a
site where an inactive subsidiary of the Company fully performed a
settlement with the federal government which has reopened the matter. The
net loss provision of $5,200,000 is included in the Consolidated Statements
of Operations under the caption "Discontinued operations loss provision" for
the year ended June 30, 1995.
The $8,000,000 loss provision included an accrual of $3,500,000 for
estimated legal and accounting fees and settlement costs which are expected
to be incurred as a result of government claims for this matter and the
estimated legal costs to defend the Company against the claims asserted by
Gichner Systems Group, Inc.. The $8,000,000 loss provision also included
$4,000,000 for environmental matters and approximately $500,000 of costs
incurred by the Company during the quarter ended March 31, 1995 for the
aforementioned Gichner Systems Group division and environmental matters.
Gichner Systems Group Division:
The Company sold the assets and business of the Division to Gichner Systems
Group, Inc. (the "Purchaser") in 1989 and, accordingly, reflected the
Division as a discontinued operation in the Company's Statements of
Operations. In 1991 the Purchaser informed the Company that false pricing
information might have been supplied by former officers of the Division, who
were also members of the group that purchased the Division from the Company,
in connection with certain government contracts negotiated prior to the
sale. After investigation, those of the former
6
<PAGE>
officers who were then working for the Purchaser were terminated for cause,
and the Company and Purchaser have tendered to the Department of Defense a
report of the results of their investigation. In addition to civil
proceedings, the government has recently informed the Company that
notwithstanding the Company's cooperation with the government in this
matter, it will institute proceedings against the Company under the Major
Fraud Act as a result of the prior actions of the former officers of the
Division. The Company is currently in negotiation to resolve all aspects of
this investigation and believes that these matters will be resolved in
fiscal 1996. The Purchaser has recently commenced suit against the Company.
Although a summons has been served on the Company, the actual claims of the
Purchaser will not be known until a complaint is filed with the court and
served on the Company. It is presumed that the complaint will allege breach
by the Company of provisions of the Purchase Agreement. The Company denies
any breach of contract and intends to vigorously defend against any such
claims. Management believes that reserves established for these matters are
adequate based on current information, however there is no way to be certain
that future developments will not involve additional substantial costs that
may require future charges to the Discontinued operations loss provision.
The Company does not anticipate, based on current information, that the
resolution of these matters will have a material adverse impact on the
Company's overall financial condition given its available cash and short-
term investments.
Two former officers of the Division filed suit against the Company for
retirement benefits which the Company terminated when their alleged
misconduct was reported to the Company. All of their claims, and their
refiled claims, have been dismissed by the Court. The Company has
counterclaimed for damages resulting from the misconduct of the two former
officers of the Division.
Environmental Matters:
Current commercial operations of the Company and its subsidiaries do not
involve activities affecting the environment. However, the Company is a
party in several pending environmental proceedings involving the federal
Environmental Protection Agency ("EPA") and comparable state agencies in
Indiana, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania, South
Carolina and Virginia. All of these matters relate to discontinued
operations of former divisions or subsidiaries for which the Company has
potential continuing responsibility.
One group of the Company's known environmental proceedings relates to
Superfund or other sites where the Company's liability arises from arranging
for the disposal of allegedly hazardous substances in the ordinary course of
prior business operations. In most of these "generator" liability cases,
the Company's involvement is considered to be de minimus (i.e. a volumetric
share of approximately 1% or less) and in each of these cases the Company is
only one of many potentially responsible parties. From the information
currently available, there are a sufficient number of other economically
viable participating parties so
7
<PAGE>
that the Company's projected liability, although potentially joint and
several, is consistent with its allocable share of liability. At one
"generator" liability site, the Company's involvement is potentially more
significant because of the volume of waste contributed in past years by an
inactive subsidiary. Insufficient information is available regarding the
need for or extent and scope of any remedial actions which may be required.
The Company has recorded what it believes to be a reasonable estimate of its
potential liability, based on current information, for this site.
The second group of matters relates to environmental issues on properties
currently or formerly owned or operated by a subsidiary or division of the
Company. These cases generally involve matters for which the Company or an
inactive subsidiary is the sole or primary responsible party. In one such
case, however, although the affected subsidiary fully performed a settlement
with the federal government, the government has reopened the matter. A
group of financially solvent responsible parties has completed an extensive
investigation of the Superfund site under a consent order with the EPA and
submitted Remedial Investigation and Feasibility Study Reports (the
"Reports") to the EPA, which outline a range of various remedial
alternatives for the site. The EPA has issued a proposed plan which is
subject to public comment. The Company's environmental counsel retained two
environmental consulting firms to review and evaluate the Reports and
proposed plan. The findings of these consulting firms indicate that many of
the assumptions, purported facts and conclusions contained in the Reports
and proposed plan are significantly flawed. Notwithstanding the foregoing
and the Company's denial of liability because of the prior settlement with
the government, the $8,000,000 loss provision includes a provision of
approximately $4,000,000 for environmental matters. The provision for
environmental matters includes the estimated legal and consulting costs for
this and other sites involving the Company or an inactive subsidiary, the
estimated costs to defend the Company's aforementioned settlement with the
government, and the estimated remediation costs that the Company will incur,
based on current information, if its prior settlement with the government is
not upheld in court. However, the Company may be exposed to additional
substantial liability for this site as additional information becomes
available over the long-term. A better estimate of costs associated with any
further remediation to be taken at the site cannot be made until a Record of
Decision is issued by the EPA, which is expected to be issued in fiscal
1996. Actual remediation costs cannot be computed until such remedial action
is completed. Some of the other sites involving the Company or an inactive
subsidiary are at a stage where an assessment of liability, if any, cannot
reasonably be made.
It is the Company's policy to comply fully with all laws regulating
activities affecting the environment and to meet its obligations in this
area. In many "generator" liability cases, reasonable cost estimates are
available on which to base reserves on the Company's likely allocated share
among viable parties. Where insufficient information is available regarding
projected remedial actions for these "generator" liability cases, the
Company has recorded what it believes to be reasonable
8
<PAGE>
estimates of its potential liabilities. Reserves for liability for sites on
which former operations were conducted are based on cost estimates of
remedial actions projected for these sites. All known environmental claims
are periodically reviewed by the Company, where information is available, to
provide reasonable assurance that adequate reserves are maintained. Reserves
recorded for environmental liabilities are not net of insurance or other
expected recoveries. Other than the aforementioned loss provision that was
recorded by the Company during the quarter ended March 31, 1995, no
significant expenses related to environmental matters were recorded by the
Company during the three years ended June 30, 1995 due to the adequacy of
previously recorded reserve balances based on prior available information.
Management believes that reserves established to meet known and potential
environmental liabilities are adequate based on current information. The
Company does not anticipate, based on current information, that the
resolution of these matters will have a material adverse impact on the
Company's overall financial condition given its available cash and short-
term investments. However, there is no way to be certain that future
developments relating to environmental matters will not involve additional
substantial costs that may require future charges to the Discontinued
operations loss provision.
Employees
---------
The Company and its subsidiaries currently employ approximately 1,315
persons at June 30, 1995. Employees of the Company who meet certain
requirements as to age and length of service are entitled to participate in
a number of employee benefit programs, including medical insurance and
retirement plans. The Company considers its relations with its employees to
be good.
(D) Financial Information About Foreign and Domestic Operations and Export Sales
----------------------------------------------------------------------------
The Company has no foreign operations.
Item 2. Properties
- -------------------
The Company's operations are comprised of its Transworld, Allied Bond and
Capital Credit subsidiaries. Transworld owns its headquarters located in
Rohnert Park, California. The CMS division of Transworld operates out of 19
branch offices, all of which are leased except for the office located at
Transworld's headquarters in Rohnert Park.
Allied Bond leases its main facility from a partnership, of which the
general partners are the co-chairmen and co-chief executive officers of
Allied Bond, pursuant to a lease agreement that expires in July 2002. The
terms of the lease are comparable to those that would have been obtained
under arrangements with unrelated third parties.
Capital Credit leases its three regional collection centers. Based on its
current level of business, Capital Credit's three regional collection
centers have excess capacity. However, the excess capacity had been taken
into consideration in establishing the $9,000,000 pretax
9
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restructuring charge that was recorded in fiscal 1992 for the costs related
to the reduction of Capital Credit to a size commensurate with the reduced
volume of business resulting from the discontinuance of business from
American Express, its then largest customer.
The Company believes that the facilities of its operations are suitable and
adequate for its business.
See Item 1. Discontinued Operations on page 6 and Environmental Matters on
pages 7 through 9 of this Form 10-K for information regarding pending
environmental proceedings involving properties currently or formerly owned
or operated by a subsidiary or division of the Company.
Item 3. Legal Proceedings
- --------------------------
See Notes 3 and 8 of Notes to Consolidated Financial Statements included in
the Company's 1995 Annual Report, which notes are incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended June 30, 1995.
Part II
- -------
Item 5. Market for the Registrant's Common Stock and Related Security Holder
- -----------------------------------------------------------------------------
Matters
-------
See "Market for the Registrant's Common Stock and Related Security
Holder Matters" included on page 29 of the Company's 1995 Annual
Report, which is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
See table entitled "Selected Financial Data" included on page 30 of the
Company's 1995 Annual Report, which table is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included on pages 24 through 28 of the
Company's 1995 Annual Report, which pages are incorporated herein by
reference.
10
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Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The financial statements and supplementary data contained in the
Company's 1995 Annual Report, as listed in the Index to Consolidated
Financial Statements and Financial Statement Schedules on page 13 of
this Form 10-K are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
There have been no disagreements on accounting and financial disclosures
with the independent auditors.
Part III
- --------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
See the section captioned "Election of Directors" included in the
Company's Proxy Statement, in connection with its Annual Meeting to be
held on November 16, 1995, which section is incorporated herein by
reference.
Information regarding the executive officers of the Company who are also
directors and the executive officers of the Company who are not
directors is contained in the material incorporated above. The term of
office of each of the Company's executive officers extends until either
the expiration of their employment contract, their resignation or
removal or until a successor is chosen by the Board of Directors.
Mr. Herbert Silver, a director of the Company who is also the co-
chairman and co-chief executive officer of Allied Bond, is the brother
of Mr. Bernard Silver, who is also the co-chairman and co-chief
executive officer of Allied Bond. There are no family relationships
among any of the other directors or executive officers.
Item 11. Executive Compensation
- --------------------------------
See the section captioned "Executive Compensation" included in the
Company's Proxy Statement, in connection with its Annual Meeting to be
held on November 16, 1995, which section is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
See the section captioned "Voting Securities" included in the Company's
Proxy Statement, in connection with its Annual Meeting to be held on
November 16, 1995, which section is incorporated herein by reference.
11
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(b) Security Ownership of Directors and Officers
--------------------------------------------
See the section captioned "Voting Securities" included in the Company's
Proxy Statement, in connection with its Annual Meeting to be held on
November 16, 1995, which section is incorporated herein by reference.
(c) Changes in Control
------------------
The Company knows of no contractual arrangements which may, at a
subsequent date, result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
See Item 2. Properties on pages 9 and 10 of this Form 10-K and the
section captioned "Certain Transactions" included in the Company's Proxy
Statement, in connection with its Annual Meeting to be held on November
16, 1995, which are incorporated herein by reference.
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) 1. Financial Statements
--------------------
See Index to Consolidated Financial Statements and Financial Statement
Schedules on page 13 of this Form 10-K.
2. Reports and Financial Statement Schedules
-----------------------------------------
See Index to Consolidated Financial Statements and Financial Statement
Schedules on page 13 of this Form 10-K.
3. Exhibits
--------
See Index to Exhibits on pages 14 and 15 of this Form 10-K.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed for the three months ended June
30, 1995.
12
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Index to Consolidated Financial
Statements and Financial Statement Schedules
Annual Report
Item 14(a) (1) Page(s)
- -------------- -------------
Data incorporated by reference from
1995 Annual Report:
Consolidated Statements of Operations for the
Years Ended June 30, 1995, 1994 and 1993 9
Consolidated Balance Sheets at June 30, 1995 and 1994 10
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1995, 1994 and 1993 11
Consolidated Statements of Shareholders' Equity
for the Years Ended June 30, 1995, 1994 and 1993 12
Notes to Consolidated Financial Statements 13-21
Supplementary Information
Quarterly Data (Unaudited) 22
Report of Independent Auditors 23
Form 10-K
Page(s)
---------
Item 14(a) (2)
- --------------
Schedules for the years ended June 30, 1995, 1994 and 1993:
Schedule II Valuation and Qualifying Accounts and
Reserves 16
All other financial statements and schedules not listed have been omitted
because they are not applicable, or not required, or because the required
information is included in the Consolidated Financial Statements or notes
thereto.
13
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Index to Exhibits
Item 14(a) (3)
- --------------
3. Articles of Incorporation and By-laws.
(a) Certificate of Incorporation of The Union Corporation (11). Certificate
of Correction of Certificate of Incorporation of
The Union Corporation, dated March 12, 1990 (4).
(b) Certificate of Merger of The Union Corporation (a New Jersey
corporation) into The Union Corporation (a Delaware corporation), as
filed in New Jersey (6).
(c) Certificate of Ownership and Merger merging The Union Corporation (a New
Jersey corporation) into The Union Corporation (a Delaware corporation),
as filed in Delaware (11).
(d) By-laws of The Union Corporation, amended and restated as of May 15,
1989 (13).
10. Material Contracts
(a) Employment Agreement between The Union Corporation and Melvin L. Cooper,
dated as of January 1, 1986 (7). Amendment dated September 30, 1986
(6). Amendment dated November 10, 1988 (5). Amendment dated September
13, 1990 (4). Amendment dated September 1, 1992 (2). Amendment dated
March 15, 1995 (filed herewith).
(b) Rights Agreement dated March 14, 1988 between The Union Corporation and
Registrar and Transfer Company as Rights Agent (11). Amendment dated
May 23, 1990 (10). Amendment dated September 16, 1992 (11). Amendment
dated August 22, 1994 which established the First National Bank of
Boston as Rights Agent (12).
(c) Asset Purchase Agreement dated as of February 8, 1989 by and between
the Registrant and GSG Acquisition Corporation (9).
(d) Indemnification Agreement by and between The Union Corporation and
each member of the Board of Directors and each Executive Officer of the
Registrant (3).
(e) Employment Agreement by and between Transworld Systems, Inc., The Union
Corporation and Gordon S. Dunn dated as of July 1, 1995
(filed herewith).
(f) Employment Agreement by and between Transworld Systems, Inc. and George
M. Macaulay dated as of July 1, 1995 (filed herewith).
(g) Employment Agreement by and between Capital Credit Corporation, The
Union Corporation and William B. Hewitt dated as of July 1, 1994 (1).
(h) Employment Agreement by and between The Union Corporation and Nicholas
P. Gill dated as of March 22, 1995 (filed herewith).
(i) Asset Purchase Agreement dated December 1, 1992 by and between the
Registrant and Allied Bond & Collection Agency (8).
14
<PAGE>
Index to Exhibits (Continued)
Item 14(a) (3)
- --------------
10. Material Contracts (Continued)
(j) Employment Agreement by and between Allied Bond & Collection Agency,
Inc., The Union Corporation and Herbert R. Silver dated as of
December 1, 1992 (8).
(k) Employment Agreement by and between Allied Bond & Collection Agency,
Inc., The Union Corporation and Bernard Silver dated December 1, 1992
(8).
(l) Employment Agreement between Allied Bond & Collection Agency, Inc. and
Sheldon Zucker dated as of December 1, 1992 (2).
11. Determination of primary and fully diluted income per common and common
equivalent share.
13. Annual Report to Shareholders for 1995.
(With the exception of the pages listed in the above index and the items
incorporated by reference in Items 3, 5, 6, 7 and 8 of this Form 10-K, the
Company's 1995 Annual Report is not deemed to be filed as part of this Form
10-K.)
21. Subsidiaries of the registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule
______________________________
Footnotes to Item 14.
(1) Incorporated by reference to the Company's 1994 Form 10-K Report.
(2) Incorporated by reference to the Company's 1993 Form 10-K Report.
(3) Incorporated by reference to the Company's 1992 Form 10-K Report.
(4) Incorporated by reference to the Company's 1990 Form 10-K Report.
(5) Incorporated by reference to the Company's 1989 Form 10-K Report.
(6) Incorporated by reference to the Company's 1987 Form 10-K Report.
(7) Incorporated by reference to the Company's 1986 Form 10-K Report.
(8) Incorporated by reference to the Company's December 23, 1992
Form 8-K Current Report.
(9) Incorporated by reference to the Company's February 15, 1989
Form 8-K Current Report.
(10) Incorporated by reference to the Company's June 4, 1990 Form 8-K
Current Report.
(11) Incorporated by reference to the Company's Form 8-B/A Amendment to
Registration of Securities of Certain Successor Issuers filed on
July 5, 1994.
(12) Incorporated by reference to the Company's Form S-8 filed on
September 2, 1994.
(13) Incorporated by reference to the Company's Form S-8 filed on
January 3, 1995.
15
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the years ended June 30, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------- ---------- -------------------- ---------- ----------
Additions
Balance at Charged to Balance at
beginning costs and Other (A) close of
Description of period expenses Additions Deductions period
- ----------------------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1995 $552 $143 $ - $ 153 $542
=== === === === ===
1994 $807 $ 19 $ - $ 274 $552
=== === === === ===
1993 $675 $158 $ - $ 26 $807
=== === === === ===
</TABLE>
(A) Accounts receivable write-offs, net of recoveries.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, The Union Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE UNION CORPORATION
MELVIN L. COOPER
-------------------------
Melvin L. Cooper
Chairman of the Board
(Chief Executive Officer)
NICHOLAS P. GILL
-------------------------
Nicholas P. Gill
Vice President, Treasurer
and Secretary
(Chief Financial Officer)
DATE: September 27, 1995
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.
MELVIN L. COOPER ROBERT A. KERR
--------------------- ----------------------
Melvin L. Cooper Robert A. Kerr
Chairman of the Board Director
and Chief Executive September 27, 1995
Officer; Director
September 27, 1995
JOHN E. ANGLE JAMES C. MILLER III
--------------------- -----------------------
John E. Angle James C. Miller III
Director Director
September 27, 1995 September 27, 1995
GORDON S. DUNN STUART J. NORTHROP
--------------------- -----------------------
Gordon S. Dunn Stuart J. Northrop
Director Director
September 27, 1995 September 27, 1995
WILLIAM B. HEWITT HERBERT R. SILVER
--------------------- -----------------------
William B. Hewitt Herbert R. Silver
President and Chief Director
Operating Officer; Director September 27, 1995
September 27, 1995
17
<PAGE>
EXHIBIT 10(a)
Amendment No. 3 to the Employment Agreement
dated as of November 10, 1988,
between The Union Corporation ("Company")
and Melvin L. Cooper ("Employee")
WHEREAS, the Company and Employee are parties to an Amended and
Restated Employment Agreement made as of November 10, 1988, as amended on
September 13, 1990, on September 1, 1992 and as further amended hereby
(hereinafter, as amended, the "Agreement") and
WHEREAS, the Company and Employee have agreed on further terms
providing for the extension of the Agreement to December 31, 1997 and for
certain cash payments on Employee's retirement or the termination of the
Agreement, and
WHEREAS, Employee has agreed that his service as a consultant shall be
limited to a period of ten (10) years from the date of Termination (as
hereinafter defined), and the Company has agreed to set aside funds for the
payment to him of compensation for acting as such consultant, all as hereinafter
provided,
NOW THEREFORE, this Amendment WITNESSETH:
<PAGE>
-2-
1. "Termination" as used in this Amendment shall mean Employee's
voluntary retirement pursuant to Paragraph 2 of the Agreement or the expiration
of the Agreement on December 31, 1997.
2. Within ten (10) business days after Termination, Company will pay
to Employee (less applicable withholding and payroll taxes) in cash of the
following:
(a) All salary and bonus to which Employee is entitled under the
Agreement. "Salary" shall mean the annual salary rate in effect at
the time of Termination. "Bonus" shall mean an amount equal to 10% of
the pre-tax income of the Company in excess of the opening net worth
of the Company at the commencement of its then current fiscal year
times the average coupon equivalent rate for 13 week Treasury Bills of
the United States Treasury Department based on the rate reported by
the Treasury Department in the weekly auctions during the period from
the commencement of the fiscal year through the nearest weekly auction
preceding Termination. If Employee is employed for less than a full
fiscal year of Company during the fiscal year in which Termination
occurs, Bonus shall be annualized and in an amount equivalent to what
would
<PAGE>
-3-
have been payable to Employee if the results during the period of
employment had continued for a full twelve months and the average
coupon rate had continued for the same period. Such Bonus shall not
exceed 100% of Salary. "Pre-tax income" shall be computed without
regard to unusual, nonrecurring gains or losses not resulting from
current operations of Company and its operating subsidiaries or
charges or reserves for liabilities attributable to discontinued
operations.
(b) The amount required to reimburse expenses and the cost of
legal and accounting services as provided in Section 6(e) of the
Agreement.
(c) That amount that equals the then "Actuarial Equivalent" (as
hereinafter defined) of all of the amounts to the receipt or benefit
of which Employee is or will become entitled during his lifetime
following Termination pursuant to the provisions of subsections (i)
and (ii) next following (the "Entitlements"). For purposes hereof,
the term Actuarial Equivalent shall mean the value of the
Entitlements, computed with respect to payments of amounts required to
be paid to Employee under subsection (i) below, as if such
<PAGE>
-4-
payments were paid to Employee on the first day of each month
commencing on the date of Termination, and with respect to the
insurance premiums to be paid by the Company under subsection (ii)
below, as if such payments were made on the dates upon which such
premiums first became due, using the number of the years (to two
decimal places) of Employee's life expectancy on the date of
Termination, and a discount rate equal to the lowest of the following:
(A) the average of the reference rate of the Company's principal long-
term lender during the two years prior to the date of Termination, (B)
120% of the "Applicable Federal Rate" as determined pursuant to
Section 1274 of the Internal Revenue Code, (C) the 30 year Treasury
bond rate at the date of Termination, or (D) the rate which would be
used in determining the cost of an annuity for an amount equal to the
sum of the Entitlements:
(i) The pension payable to Employee pursuant to Section 6(d) of
the Agreement.
(ii) The premiums payable and to become payable on the policies
of insurance referred to in Section 9(a),
<PAGE>
-5-
(b) and (c) of the Agreement as amended by amendment dated September
13, 1990.
3. Paragraph 7 of the Agreement is amended to provide that the term
during which Employee shall act as a consultant shall be ten (10) years after
Termination instead of life, and said paragraph shall otherwise continue as
written.
4. Upon Termination, the Company, Employee and an independent
corporate trustee such as a bank trust department that may be granted corporate
trustee owners under the law of the state of its incorporation (the "Trustee")
reasonably satisfactory to the Company and Employee, shall enter into a trust
agreement in the form annexed hereto as Exhibit A, and the Company shall deliver
to the Trustee within ten (10) business days after Termination funds sufficient
to pay to Employee for a period of ten (10) years the compensation payable to
him under Paragraph 7 of the Agreement. Subject to its availability, Employee
and the Company have agreed that the Trustee shall be the Bank of Boston. The
fees and expenses of the Trustee shall be paid as provided in Exhibit A.
5. To the extent payments are not made by the Trustee for any
reason, such payments shall be timely made by the Company. If payments are
suspended during insolvency, each
<PAGE>
-6-
payment made after suspension shall include interest at a current rate for 30
day Treasury bills for the period from the time such suspended payment should
have been made until such payment is actually made; and the compensation payable
pursuant to Paragraph 7 of the Agreement shall be increased by the amount of
such interest.
6. The applicable discount rate (assuming that all funds are
invested in securities exempt from federal income tax) for purposes of Paragraph
2(c) hereof and any disputes regarding the calculation of the amounts payable by
the terms of this Amendment shall be referred to Ernst & Young, the public
accountants and auditors auditing the books and records of the Company for the
fiscal year ended June 30, 1995, whose determination shall be final.
7. In all other respects, the Agreement is reaffirmed.
<PAGE>
-7-
IN WITNESS WHEREOF, the Employee and the Company, by its duly
authorized officers, have set their hands and the seal of the Company this 15th
----
day of March, 1995.
MELVIN L. COOPER
-------------------------
MELVIN L. COOPER
ATTEST: THE UNION CORPORATION
MARIA BERNABE By NICHOLAS P. GILL
----------------------- -----------------------
VICE PRESIDENT
<PAGE>
EXHIBIT A
TRUST AGREEMENT
THIS AGREEMENT (the "Trust Agreement") made as of the ____ day of
____________ 1995, by and between THE UNION CORPORATION (the "Company") THE BANK
OF BOSTON, N.A. ("Trustee") and MELVIN L. COOPER ("Employee").
W I T N E S S E T H:
-------------------
WHEREAS, the Company has entered into an Employment Agreement made as
of November 10, 1988, as amended on September 13, 1990, on September 1, 1992 and
as further amended on ________ __, 1995 (the "Agreement") with Employee; and
WHEREAS, the Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of the Company's creditors in the event of the Company's Insolvency (as herein
defined) until paid to the Employee in such manner and at such times as
specified in the Agreement; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Agreement as an unfunded arrangement maintained for the purpose of providing
certain compensation benefits for the Employee, who, for purposes of Title I of
the
<PAGE>
Employee Retirement Income Security Act of 1974 is a member of a select group of
management or highly compensated employees; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in meeting its
liabilities under the Agreement.
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
----------------------
(a) The Company hereby deposits with Trustee $_________, in trust,
funds sufficient to pay to Employee the Compensation payable to him under
Paragraph 7 of the Agreement, which shall become the initial principal of the
Trust to be held, administered and disposed of by Trustee as provided in this
Trust Agreement.
(b) The Trust hereby established is irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company
is the grantor, within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of
- 2 -
<PAGE>
Internal Revenue Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust and any earnings thereon shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes set forth in Paragraph 7 of the Agreement and for the
uses and purposes of general creditors of the Company as herein set forth.
Employee shall have no preferred claim on, or any beneficial ownership interest
in, any assets of the Trust. Any rights created under the Agreement and this
Trust Agreement shall be mere unsecured contractual rights of Employee against
the Company. Any assets held by the Trust will be subject to the claims of the
Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) The Company shall make additional deposits of cash or other
property in trust with Trustee as required to meet its obligations under the
Agreement if and to the extent that the initial funding becomes inadequate.
Neither Trustee nor Employee shall have any right to compel deposits other than
those required by the Agreement and by this subparagraph (e) and Section 9 of
this Trust Agreement.
- 3 -
<PAGE>
Section 2. Payments to Employee.
---------------------
(a) The Company shall deliver to Trustee a copy of the Agreement, and
Trustee shall be entitled to rely upon the text of said Agreement until it is
notified by a writing signed by the Company and Employee of any amendment
thereto. Trustee shall make payments to Employee in accordance with Paragraph 7
of such Agreement; and if and to the extent that the Trustee does not, the
Company shall timely make such payments.
(b) The Trustee shall make provision for the reporting and withholding
of any federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of this Trust Agreement
and shall pay amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and paid by Company.
(c) Notwithstanding anything contained in this Trust Agreement to the
contrary, if at any time the Trust finally is determined by the Internal Revenue
Service ("IRS") not to be a "grantor trust," with the result that the income of
the Trust is not treated as income of the Company pursuant to Subpart E of
Subchapter J of the Internal Revenue Code, or if a tax is finally determined by
the IRS to be payable by Employee or his beneficiaries in respect of any vested
interest in the Trust
- 4 -
<PAGE>
prior to payment of such interest to Employee or his beneficiaries, then the
Trust shall immediately terminate and the full fair market value of the assets
in the Trust shall be paid to Employee. For purposes of this Section, a final
determination of the IRS shall be a decision rendered by the IRS which is no
longer subject to administrative appeal within the IRS.
Section 3. Trustee Responsibility Regarding Payments to Employee
-----------------------------------------------------
When the Company Is Insolvent.
- ------------------------------
(a) Trustee shall cease payment of benefits to the Employee if the
Company is Insolvent. The Company shall be considered "Insolvent" for purposes
of this Trust Agreement if (i) the Company is unable to pay its debts as they
become due, or (ii) the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section l(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(1) The Board of Directors and the Vice President and Chief Financial
Officer of the Company shall have the duty to inform Trustee in writing of the
Company's Insolvency. If a person claiming to be a creditor of the Company
alleges in
- 5 -
<PAGE>
writing to Trustee that the Company has become Insolvent, Trustee shall
determine whether the Company is Insolvent and, pending such determination,
Trustee shall discontinue payment of benefits to Employee or his beneficiaries.
(2) Unless Trustee has actual knowledge of the Company's Insolvency,
or has received notice from the Company or a person claiming to be a creditor
alleging that the Company is Insolvent, Trustee shall have no duty to inquire
whether the Company is Insolvent. Trustee may in all events rely on such
evidence concerning the Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a determination
concerning the Company's solvency.
(3) If at any time Trustee has determined that the Company is
Insolvent, Trustee shall discontinue payments to Employee or his beneficiaries
and shall hold the assets of the Trust for the benefit of the Company's general
creditors. Nothing in this Trust Agreement shall in any way diminish any rights
of Employee or his beneficiaries to pursue his rights as a general creditor of
the Company with respect to benefits due under the Agreement or otherwise.
(4) Trustee shall resume the payment of benefits to Employee or his
beneficiaries in accordance with Section 2 of
- 6 -
<PAGE>
this Trust Agreement only after Trustee has determined that the Company is not
Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(a) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Employee or his beneficiaries under the terms of the Agreement for the period of
such discontinuance, less the aggregate amount of any payments made to Employee
by the Company in lieu of the payments provided for hereunder during any such
period of discontinuance.
Section 4. Payments to Company.
-------------------
Except as provided in Section 3 hereof, the Company shall have no
right or power to direct Trustee to return to the Company or to divert to others
(except general creditors of the Company in the event of Insolvency) any of the
Trust assets before all payment of benefits have been made to Employee or his
beneficiaries, pursuant to the terms of Paragraph 7 of the Agreement.
- 7 -
<PAGE>
Section 5. Investment Authority.
--------------------
(a) Trustee shall invest all Trust funds in cash, cash equivalents,
U.S. Government Treasury bills, notes or bonds, corporate bonds or debentures
rated AA or better of American corporations, and equity securities, not
exceeding 35% of principal at cost when purchased, issued by American
corporations, all as determined by the Trustee, but not including securities of
the Company. All rights associated with assets of the Trust shall be exercised
by Trustee or the person designated by Trustee, and shall in no event be
exercisable by or rest with Employee. Voting rights with respect to Trust
assets may be exercised by the Company, but dividends, interest and other
distributions shall be trust income or principal, as the case may be.
Section 6. Disposition of Income.
---------------------
During the term of this Trust, all income received by the Trust, net
of required distributions, expenses and taxes, shall be accumulated and
reinvested.
Section 7. Accounting by Trustee.
----------------------
(a) The Trustee shall keep or cause to be kept accurate and detailed
accounts of any investments, receipts,
- 8 -
<PAGE>
disbursements, and all other transactions hereunder and all necessary and
appropriate records required to identify correctly and reflect accurately the
interest of Employee or his beneficiaries, and all accounts, books and records
relating thereto shall be open to inspection and audit at all reasonable times
by the Company and Employee or his beneficiaries (or any person designated by
Employee or his beneficiaries, if applicable). All such accounts, books and
records shall be preserved (in original form, or on microfilm, magnetic tape or
any other similar process) for such period as the Trustee may determine, but the
Trustee may only destroy such accounts, books and records after first notifying
both the Company and the Employee (or his beneficiaries) in writing of its
intention to do so and transferring to the Company (or Employee, if not so
requested by the Company) any of such accounts, books and records so requested.
(b) Within forty-five days after the close of each fiscal year of the
Company, and within thirty days after the close of each fiscal quarter of the
Company, and within thirty days after the removal or resignation of the Trustee
or the termination of the Employee Trust, the Trustee shall file with the
Company (with a copy to Employee or his beneficiaries) a written account setting
forth all investments, receipts, disbursements and other transactions effected
by it during the preceding fiscal year or quarter, as the case may be, or during
- 9 -
<PAGE>
the period from the close of the preceding fiscal quarter to the date of such
removal, resignation or termination, including a description of all investments
and securities purchased and sold with the cost or net proceeds of such
purchases or sales and showing all cash, securities and other property and their
respective fair market values held at the end of such fiscal year or quarter or
other period.
(c) The Trustee shall from time to time permit the independent public
accountants and auditors who audit the books and records of Company to have
access during ordinary business hours to such records as may be necessary to
audit the Trustee's accounts.
(d) Nothing contained in this Trust Agreement shall be construed as
depriving the Trustee, Company, Employee or his beneficiaries of the right to
have a judicial settlement of the Trustee's accounts, and upon any proceeding
for a judicial settlement of the Trustee's accounts or for instructions, the
only necessary parties thereto in addition to the Trustee shall be the Company
and Employee or his beneficiaries.
(f) In the event of the removal or resignation of the Trustee, the
Trustee shall deliver to the successor trustee all records which shall be
required by the successor trustee to enable it to carry out the provisions of
this Trust Agreement.
- 10 -
<PAGE>
(g) In addition to any returns required of the Trustee by law, the
Trustee shall prepare and file such tax reports and other returns as the Company
and the Trustee may from time to time agree.
Section 8. Responsibility of Trustee.
-------------------------
(a) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a written direction, request or approval given by the Company and Employee which
is contemplated by, and in conformity with, the terms of the Agreement or this
Trust Agreement. In the event of a dispute between the Company and any other
party to the Trust Agreement, Trustee may apply to a court of competent
jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
reasonable attorney's fees and expenses) relating thereto and to be primarily
liable for such payments unless such litigation is attributable to the
- 11 -
<PAGE>
Trustee's gross negligence or wilful misconduct. If the Company does not pay
such costs, expenses and liabilities in a reasonably timely manner, Trustee may
obtain payment from the Trust.
(c) Trustee may consult with legal counsel with respect to any of its
duties or obligations hereunder.
(d) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom,
- 12 -
<PAGE>
within the meaning of Section 301.7701-2 of the Procedure and Administrative
Regulations promulgated pursuant to the Internal Revenue Code.
Section 9. Compensation and Expenses of Trustee.
------------------------------------
The Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee.
----------------------------------
(a) Trustee may resign at any time by written notice to the Company
and Employee (or his beneficiaries), which shall be effective 30 days after
receipt of such notice unless the Company and Trustee agree otherwise.
(b) At any time, the Company may remove the Trustee with or without
cause, upon at least 30 days notice in writing to the Trustee, provided,
however, that the Company may not remove the Trustee if a Change of Control, as
defined in the Agreement, has occurred.
(c) In the event of such removal or resignation, the Trustee shall
duly file with the Company (with a copy to Employee or his beneficiaries) a
written account as provided in Section 7
- 13 -
<PAGE>
of this Trust Agreement for the period since the last previous annual
accounting, listing the investments of the Trustee and any uninvested cash
balance thereof, and setting forth all receipts, disbursements, distributions
and other transactions respecting the Trust not included in any previous
account.
(d) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets and records of transactions hereunder shall be
transferred to the successor Trustee. The transfer shall be completed within 30
days after receipt of notice of the appointment of a successor Trustee, unless
the Company extends the time limit.
(e) If Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment has
been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 11. Appointment of Successor.
------------------------
(a) If Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Company shall appoint as
- 14 -
<PAGE>
successor Trustee a bank trust department or other party that may be granted
corporate trustee powers under state law to replace Trustee upon resignation or
removal. Such successor shall be one of the ten largest national banks in the
Continental United States or the next largest bank prepared to accept the
trusteeship if none of the larger banks is willing to do so. The appointment
shall be effective when accepted in writing by the new Trustee, who shall have
all of the rights and powers of the former Trustee. Such successor Trustee
shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or desirable to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 5, 7 and 8 hereof. The successor Trustee shall not be responsible for
and the Company shall indemnify and defend the successor Trustee from any claim
or liability resulting from any action or inaction of any prior Trustee or from
any other past event, or any condition existing at the time it becomes successor
Trustee.
Section 12. Amendment or Termination.
------------------------
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee, the Company, and Employee,
- 15 -
<PAGE>
provided that no amendment shall be made to Section 1(c) or (d) or Section 2(c).
(b) This Trust Agreement shall not terminate until Employee has
received all benefits pursuant to the terms of Paragraph 7 of the Agreement.
(c) Upon written approval of Employee, the Company may terminate this
Trust prior to the time all benefit payments under the Agreement have been made.
All assets in the Trust at termination shall be used to meet the obligations of
Company to Employee and any excess shall be returned to the Company.
Section 13. Miscellaneous.
-------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Employee and his beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other
- 16 -
<PAGE>
legal or equitable process. The provisions of this Trust Agreement shall inure
to the benefit of the Employee's heirs, executors, administrators and successors
in interest.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
- 17 -
<PAGE>
Section 14. Effective Date.
--------------
The effective date of this Trust Agreement shall be April ___, 1995.
THE UNION CORPORATION
By:
------------------------------
Nicholas P. Gill
Vice President and Chief
Financial Officer
Attest:
_________________________ THE BANK OF BOSTON
Secretary
By:
-------------------------------
Attest:
- --------------------------
Secretary
-----------------------------------
Melvin L. Cooper
- 18 -
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK)
On this day of April, 1995, before me personally appeared Melvin
L. Cooper, to me known and known to me to be the person mentioned and described
in, and who executed the foregoing instrument as Employee, and he duly
acknowledged to me that he executed the same.
---------------------------------
Notary Public
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK)
On this day of April, 1995, before me personally came Nicholas P.
Gill, to me known, and who, being duly sworn did depose and say that he is Vice
President and Chief Financial Officer of The Union Corporation, the Corporation
described as the Company herein and which executed the above instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of Directors
of said corporation, and that he signed his name thereto by like order.
---------------------------------
Notary Public
[Bank Acknowledgement]
- -------------------------
- 19 -
<PAGE>
EXHIBIT 10(e)
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made and entered into on July 1, 1995, by and between
TRANSWORLD SYSTEMS, INC., a California corporation ("Company"), THE UNION
CORPORATION, a Delaware corporation ("Union") and GORDON DUNN ("Dunn").
WHEREAS, effective July 1, 1995, the Company desires to employ Dunn as an
executive officer and Dunn desires to be so employed by the Company, upon the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, Dunn has been employed by Company under a contract dated March 31,
1994; and
WHEREAS, the Company and Dunn further agree that on and after July 1, 1995,
this Agreement replaces and supersedes the March 31, 1994, contract; and
WHEREAS, all of the issued and outstanding capital stock of the Company is
owned by Union,
NOW THEREFORE, the parties agree as follows:
FIRST: A. Upon the terms and subject to the conditions of this Agreement,
the Company for itself and for its subsidiaries, will employ Dunn as Chairman of
the Board of the Company and Dunn hereby agrees to accept such employment.
B. Dunn shall devote not less than 75% of his business time, efforts,
energy and skills to his employment hereunder, as in his judgment may be
required for the proper conduct of its activities, and he shall use all
reasonable efforts to promote the best interest of the Company and its
subsidiaries and, if elected, shall serve as a director of Union, the Company
and all subsidiaries of the Company without compensation other than that
provided in Article THIRD hereof. Dunn agrees to travel on such Company
business as, in his judgment, may be required, but he shall not be required to
change his residence. He shall be reimbursed for such travel expenses in
accordance with Company policy.
SECOND: A. The term of Dunn's employment hereunder shall commence on July
1, 1995 (the "Commencement Date") and shall
<PAGE>
terminate on the earlier to occur of (1) June 30, 1997 or (2) termination in
accordance with Paragraph B. or C. of this Article SECOND.
B. The Company shall be entitled to terminate Dunn's employment in any of
the following circumstances:
(1) For cause by reason of either (a) the failure, refusal or neglect of
Dunn fully and faithfully to perform his obligations hereunder or (b) the
failure, refusal or neglect of Dunn to use his best efforts to implement any
lawful action requested by the Board of Directors of the Company or Union not
inconsistent with this Agreement;
(2) Mental or physical incapacity or inability of Dunn to perform his
duties for a consecutive period of one hundred fifty (150) days or a non-
consecutive period of one hundred eighty (180) days during any twelve (12) month
period;
(3) The death of Dunn; or
(4) Dunn is convicted of or pleads nolo contendere to a crime or offense
---- ----------
involving the property, operations of the Company, Union, or any affiliate of
either of them, or moral turpitude. If Dunn is indicted for any such crime or
offense, the Company may elect to suspend Dunn's employment hereunder during the
period after indictment and until proceedings against Dunn are terminated
without a finding that Dunn is guilty as charged, or this Agreement is
terminated; but his Base Salary hereunder shall be continued unless and until
this Agreement is terminated in accordance with its terms.
C. Dunn shall be entitled to terminate his employment in any of the
following circumstances:
(1) A disposition by Union of fifty percent (50%) or more of its shares of
stock in the Company except through a disposition of such shares to the
stockholders of Union pursuant to Section 355 of the Internal Revenue Code of
1986, as amended (or similar provision) and except for a merger with or a
transfer of
2
<PAGE>
shares to a wholly-owned subsidiary of Union;
(2) Any disposition of all or substantially all of the business or assets
of the Company other than to a wholly-owned subsidiary of Union;
(3) Any "Change in Control" of Union, as that term is defined in Union's
1984 Stock Option Plan.
THIRD: A. Dunn shall receive, during his employment hereunder in
accordance with the terms hereof, a Base Salary, commencing on the effective
date hereof, computed at the rate of Two Hundred Thousand Dollars ($200,000) per
annum, payable in such installments as shall accord with the normal pay
practices of the Company.
B. (1) The Company shall also pay production/incentive bonuses to Dunn
for each full twelve (12) month period commencing July 1, 1995 and July 1, 1996
as set forth in Schedule 1, annexed hereto. The term "pretax earnings of the
Company" shall have the same meaning as the term "pretax earnings of Transworld"
as defined in Section 1.3(a)(ii) of the Stock Purchase Agreement dated May 14,
1985, by and among Union, Dunn and Joanne Dunn, except that the "pretax earnings
of Transworld" shall exclude the effect of any bonus expense related to Dunn,
and for any period ending after July 1, 1995, any bonus expense related to
George Macaulay, if George Macaulay is then acting as President of the Company.
(2) If Dunn's regular employment terminates prior to June 30, 1997, for any
reason other than pursuant to Article SECOND B.(1) or B.(4), then the
production/incentive bonus payable under paragraph THIRD B.(1) shall be payable
only for the year of such termination and prior years, and for the year of
termination shall be pro rated as follows: the amount of bonus that would have
been payable but for such termination for the period ending June 30 following
such termination shall be determined as though such termination had not occurred
and such amount shall be
3
<PAGE>
multiplied by a fraction, the numerator of which is the number of days from the
July 1 prior to such termination through the date of termination and the
denominator of which is Three Hundred Sixty-Five (365).
(3) If Dunn's regular employment terminates prior to June 30, 1997,
pursuant to Article SECOND B.(1) or B.(4), then no production/incentive bonus
shall be payable under Article THIRD B.(1) for the year of such termination.
C. In addition to Article THIRD, paragraphs A. and B. above, the Company
shall, during Dunn's employment hereunder in accordance with the terms hereof:
(1) Provide health insurance and supplemental medical reimbursement
coverage and life insurance for Dunn with coverage at least comparable to the
coverage currently provided by the Company to Dunn.
(2) Provide Dunn with the use of an automobile comparable to the automobile
currently provided to him by the Company.
(3) Reimburse Dunn for properly documented expenses reasonably incurred by
Dunn in connection with his services hereunder and as a director of Union.
(4) Grant Dunn paid vacation in accordance with Company practice.
(5) Include Dunn in any Company defined contribution plan or other
retirement plan for which he shall be eligible.
(6) Include Dunn in any other Company benefit plans for which he shall be
eligible.
(7) Contribute $30,000 for each full fiscal year during which Dunn is
employed hereunder to the non-qualified retirement plan established for him.
D. If Dunn retires from regular employment with the Company,
4
<PAGE>
(1) he shall remain in the Company's medical insurance plan or he shall be
provided other comparable medical insurance coverage; and
(2) the life insurance policies referred to in Article FOURTH A. shall be
transferred to him at such time.
E. Notwithstanding anything to the contrary in this Agreement, if Dunn's
employment hereunder would otherwise terminate pursuant to Article SECOND upon
the termination of this Agreement on June 30, 1997, the Company may nevertheless
elect, at its sole option, to continue the employment of Dunn until such period
as it may elect, up to and including, but not beyond, June 30, 2000. If the
Company elects to continue Dunn's employment after June 30, 1997, Dunn shall not
be entitled to any bonus or other compensation for such period except the sum of
$50,000 per annum for each year, prorated for any partial year, of such term,
and all of the duties and obligations of the parties shall continue in
accordance with this Agreement except that (1) Paragraph FIRST B. shall no
longer apply, (2) the Company shall have no obligation with respect to such
period to make any payment under Paragraph THIRD C., but in such event Paragraph
THIRD D. will apply, and (3) Dunn's employment will be deemed to have terminated
for purposes of any deferred compensation plan of the Company. The provisions
of Article SIXTH shall continue to apply during any such extended term of Dunn's
employment with the Company.
F. Notwithstanding anything to the contrary in this Agreement, if Dunn
voluntarily terminates his employment prior to June 30, 1997, and if none of the
provisions of paragraphs SECOND B. or SECOND C. apply to such termination, the
Company may nevertheless elect, at its sole option, to continue the employment
of Dunn until such period it may elect, up to and including, but not beyond,
June 30, 2000. If the Company elects to continue Dunn's employment in
accordance with this paragraph F., Dunn shall not be entitled to any bonus or
compensation for such period except
5
<PAGE>
for the sum of $50,000 per annum for each year, prorated for any partial year,
of such term, and all of the duties and obligations of the parties shall
continue in accordance with this Agreement except that (1) Paragraph FIRST B.
shall no longer apply, (2) the Company shall have no obligation with respect to
such period to make any payment under Paragraph THIRD C., but in such event
Paragraph THIRD D. will apply, and (3) Dunn's employment will be deemed to have
terminated for purposes of any deferred compensation plan of the Company. The
provisions of Article SIXTH shall continue to apply during any such extended
term of Dunn's employment with the Company.
FOURTH: A. The term life insurance policy on the life of Dunn in the face
amount of $1,400,000 contemplated by the Employment Agreement shall, at Dunn's
request, be divided into two separate policies with face amounts of $1,000,000
and $400,000, respectively; it being agreed that (i) the $1,000,000 term policy
shall be transferred to Dunn at any time upon his request, (ii) the cost of all
premiums payable on said policy shall be borne by the Company until the
termination of Dunn's employment with the Company under the circumstances set
forth below and (iii) Dunn shall have the right to designate the beneficiary(s)
under said policy to the extent of $1,000,000 through the date it is transferred
to Dunn. Upon termination of this Agreement on June 30, 1997, after or upon
termination by reason of his mental or physical incapacity as provided in
Article SECOND B.(2) or pursuant to the provisions of Article SECOND C. or
Article THIRD D., the Company shall transfer to Dunn the whole life insurance
policy currently in force in the face amount of $600,000 on Dunn's life
maintained by Union or the Company, as the case may be, and the aforementioned
term policy in the face amount of $400,000. Union or the Company, as the case
may be, will cause ownership of the policies referred to in this Article FOURTH
A. to be transferred to Dunn, net of the interpolated terminal reserve, if any,
by such arrangement as the
6
<PAGE>
parties may agree, including payment by Dunn to the Company, of the amount of
the interpolated terminal reserve, or by Dunn assuming any policy loan up to the
amount of the interpolated reserve, as the case may be.
B. Upon the termination of Dunn's employment pursuant to Article SECOND B.
or if Dunn elects to terminate his employment pursuant to Article SECOND C. or
Article THIRD D., then, subject to Article THIRD B.(2), Article FOURTH C., and
Article THIRD D., Dunn shall be entitled only to so much of his Base Salary and
any deferred compensation as have been earned to the date of termination.
C. If Dunn elects to terminate his employment pursuant to Article SECOND
C., then within sixty (60) days after the date of such termination, the Company
shall pay to Dunn the lesser of the sum of One Million Five Hundred Thousand
Dollars ($1,500,000) in cash, or Two Hundred Ninety-Nine Percent (299%) of the
"base amount" as that term is defined in Section 280G of the Internal Revenue
Code of 1986, as amended, or equivalent section.
FIFTH: A. Bonuses previously earned by Dunn pursuant to Article THIRD B.
of the Employment Agreement shall be deferred and shall be paid in accordance
with this paragraph FIFTH. Said amount may, but need not, be set aside in a
separate account by the Company or contributed to a Rabbi Trust by the Company.
Until any of such amount is actually contributed to a Rabbi Trust, the amount of
deferred compensation due to Dunn shall be calculated as though such amount had
been invested on the thirtieth day after the end of the twelve month period in
which it was earned in ten year United States Treasury obligations and the
interest accumulated and used to purchase additional ten year United States
Treasury obligations as the interest would have been paid if it had been so
invested. From and after the time any of such amount is actually contributed to
a Rabbi Trust, the amount of deferred compensation with respect to amounts so
contributed shall be based upon the actual income,
7
<PAGE>
earnings and losses of the amounts held by such Rabbi Trust and not in
accordance with the preceding sentence. All of the administrative costs and
expenses with respect to establishing and maintaining such Rabbi Trust shall be
paid by the Company and shall not be deducted from any of Dunn's deferred
compensation amount. If a reserve fund is segregated from the other assets
owned by the Company and so identified on its books and records, or if the
Company establishes a Rabbi Trust and contributes any amount of the reserve fund
thereto, such segregated fund or trust shall nevertheless be an asset of the
Company and subject to the claims of the Company's general creditors. The
amounts earned and to be paid as deferred compensation pursuant to this
Agreement shall relieve the Company of its liability to Dunn only to the extent
actually paid.
B. Dunn shall have the right to designate a beneficiary of all of the
amounts payable under this Agreement, except certain life insurance benefits
referred to in Article FOURTH A., in the event of his death and to change any
beneficiary previously designated by him. Such designation shall be made by
delivering to the Chief Executive Officer of Union a writing dated and signed by
Dunn setting forth the name and address of the person or persons so designated.
Upon the death of Dunn, any amounts payable under this Agreement shall be paid
to the beneficiary or beneficiaries designated by Dunn, or, failing such
designation, to his estate. Upon the termination of Dunn's regular employment
with the Company, the entire amount then allocated to the deferred compensation
fund, including all earnings and accretions thereto shall be paid to Dunn (or
his beneficiary or beneficiaries if such termination occurs as a result of the
death of Dunn) under such one of the following options as Dunn or such
beneficiary or beneficiaries, or failing a designated beneficiary or
beneficiaries, Dunn's legal representatives, shall select within thirty (30)
days after said termination of employment:
8
<PAGE>
(1) Such amount shall be paid in monthly installments as nearly equal as
practicable over a designated number of months as specified by the person
entitled to select the option, not exceeding One Hundred Twenty (120) months,
commencing thirty (30) days after the termination of Dunn's regular employment
with the Company, provided that no monthly installment except the last shall be
less than $1,000; if this option is selected, all earnings and accretions to the
sum retained by the Company following the termination of Dunn's regular
employment shall be credited to the fund and shall be paid to Dunn either by
increasing the amount of each monthly payment or by increasing the number of
specified monthly payments.
(2) Such amount may be applied to the purchase of an immediate or deferred
life annuity contract on the sole life of Dunn, or jointly on the lives of Dunn
and the beneficiary designated by Dunn pursuant to paragraph FIFTH B. above.
(3) Such amount may be paid forthwith in a lump sum.
If more than one beneficiary is designated and Dunn's spouse is a
beneficiary, the option shall be selected by her if she survives him, and
otherwise by a majority of the beneficiaries.
C. Notwithstanding the provisions of paragraph B. of this Article FIFTH,
at any time after the occurrence of any of the events specified in paragraph C.
of Article SECOND of this Agreement, without needing to terminate Dunn's
employment hereunder, Dunn may elect to have the entire amount then allocated to
the deferred compensation fund, including all earnings and accretions thereon,
paid to Dunn under such one of the options described in paragraph B. of this
Article FIFTH as Dunn shall select.
D. Notwithstanding any of the foregoing, Dunn has elected to, and the
Company and Union agree that Dunn may, withdraw the sum of Two Hundred Fifty
Thousand Dollars ($250,000) per year
9
<PAGE>
from the deferred compensation account in 1995, and in January 1996 and each
January thereafter until the entire amount allocated to the deferred
compensation fund, including all earnings and accretions thereto, has been paid
to Dunn or his beneficiaries.
SIXTH: A. (1) Dunn agrees that, during the period from the Commencement
Date hereof through the fifth (5th) anniversary of the Commencement Date, Dunn
shall not disclose to any person, corporation, firm, partnership or other entity
whatsoever (except the Company, Union or its affiliates) or any officer,
director, stockholder, partner, associate, employee, agent or representative of
any such partnership, firm or corporation, any information received by him
during the course of his association with the Company and Union relating to the
business affairs of the Company, Union, or any of their affiliates, including,
without limitation, information concerning customers, prospective customers,
operations, acquisitions, prospective acquisitions, agreements, understandings,
facilities, equipment, lease arrangements, staff, trade secrets, discoveries,
ideas, methods, surveys, research and any other information relating to the
business and objectives of the Company, Union, and their affiliates, except only
information which is otherwise generally available to the public.
(2) During his employment hereunder, Dunn shall exercise reasonable
precautions to protect the integrity of the customer and prospective customer
lists, agreements, contracts and any other documents embodying any information
of the type described in paragraph (1) above and, upon termination of his
employment hereunder, he shall return to the Company all of such documents (and
any copies thereof) in his possession or control.
B. During the period from the Commencement Date through the fifth (5th)
anniversary of the Commencement Date, Dunn shall not be nor shall he permit any
member of his immediate family to be in any way engaged, directly or indirectly,
in the United States, Canada or any other country in which the Company, Union or
10
<PAGE>
their affiliates currently or at any time during the term of this Agreement
operate, as an employee, partner, proprietor, officer, director, consultant,
agent, or stockholder of any corporation, partnership, proprietorship or other
form of business entity, which is either (1) engaged in substantially the same
line of business as the Company is engaged in or as it may be engaged in while
Dunn is employed hereunder, or (2) primarily engaged in the business of
collecting debts or accounts receivable or the accounts receivable management
business as any such business is currently or hereafter carried on or engaged in
during the term of Dunn's employment hereunder, by Union, Capital Credit
Corporation, Allied Bond & Collection Agency, Inc., Union Financial Services,
Inc., their subsidiaries and affiliates. For purposes hereof, "immediate
family" is defined in Rule 16a-1(e) of the Securities and Exchange Commission.
C. During the period from the Commencement Date through the fifth (5th)
anniversary of the Commencement Date Dunn shall not seek to persuade any
director, officer or employee of the Company or any person or entity providing
services to the Company as an independent contractor to discontinue that
individual's status or employment with the Company, nor to become employed or
otherwise engaged in any activity similar to or competitive with the activities
described in Article SIXTH B. above, nor will he hire or retain any such person,
nor will he solicit or cause or authorize, directly or indirectly, to be
solicited, for or on behalf of himself or any third party, any business subject
to Article SIXTH B. from others who are customers of the Company at any time
during such five year period.
D. If any of the restrictions on activities contained in this Article
SIXTH shall for any reason be held by a court of competent jurisdiction to be
excessively broad as to duration, geographic scope, activity or subject, such
restrictions shall be construed so as to thereafter be limited or reduced to be
11
<PAGE>
enforceable to the extent compatible with the applicable law as it shall then
appear; it being understood that by the execution of this Agreement, the parties
hereto regard such restrictions as reasonable and compatible with their
respective rights.
E. Dunn acknowledges that were he to breach the provisions of this Article
SIXTH, the damage to the Company would be irreparable, and he therefore agrees
that, in addition to provable damages and reasonable attorneys' fees, the
Company shall be entitled to equitable relief to enforce its rights hereunder.
F. The provisions of this Article SIXTH shall survive any termination of
this Agreement except a termination by the Company other than pursuant to
Article SECOND B.
SEVENTH: A. This Agreement constitutes the entire agreement between the
Company and Dunn in any way relating to the employment of Dunn for the period
commencing July 1, 1995, and merges all prior agreements and understandings
between them.
B. This Agreement may not be altered or amended except by a writing signed
by the parties against whom such alteration or amendment is sought to be
enforced. No waiver by either party of any provision or condition of this
Agreement shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time.
EIGHTH: This Agreement is personal and non-assignable by Dunn. It shall
inure to the benefit of any corporation or other entity with which the Company
shall merge or consolidate or to which the Company shall lease or sell all or
substantially all of its assets and may be assigned by the Company to any
affiliate of the Company or to any corporation or entity with which such
affiliate shall merge or consolidate or which shall lease or acquire all or
substantially all of the assets of such affiliate. Any assignee must assume all
the obligations of the Company hereunder, but such assignment and assumption
shall not serve as a release of the Company.
12
<PAGE>
NINTH: Any notices or other communications required or permitted hereunder
shall be in writing and shall be duly given if personally delivered or sent by
certified or registered mail, return receipt requested, to the following
addresses:
If to Dunn: Gordon Dunn
83 Summit Avenue
San Rafael, CA 94901
Copy to: Kirt F. Zeigler, Esq.
Anderson, Zeigler, Disharoon,
Gallagher & Gray
50 Old Courthouse Square
Santa Rosa, CA 95404
If to the Company: Transworld Systems, Inc.
5880 Commerce Boulevard
Rohnert Park, CA 94920
Attention: Secretary
If to Union: The Union Corporation
145 Mason Street
Greenwich, CT 06830
Attention: Chairman
Copy to: Robert H. Haines, Esq.
Zimet, Haines, Friedman & Kaplan
460 Park Avenue
New York, NY 10022
Either party may alter the address for the sending of notices to such party by a
written notice sent in conformity with this Agreement.
TENTH: This Agreement shall be governed by and construed in accordance
with the laws of the State of California with respect to agreements made and to
be performed wholly therein.
ELEVENTH: If any of the provisions of this Agreement shall be held
invalid, the remainder of the Agreement shall not be affected thereby.
TWELFTH: The party breaching this Agreement shall be liable for the costs
and expenses of the injured party, including
13
<PAGE>
reasonable attorneys' fees, incurred in the enforcement of this Agreement or in
the determination and collection of damages for such breach.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
TRANSWORLD SYSTEMS, INC.
GORDON S. DUNN
- ------------------------------
Gordon S. Dunn By:GEORGE MACAULAY
----------------------------
George Macaulay
THE UNION CORPORATION
By:MELVIN L. COOPER
----------------------------
Melvin L. Cooper
Chairman of the Board and
Chief Executive Officer
14
<PAGE>
SCHEDULE 1
----------
GORDON DUNN
EMPLOYMENT AGREEMENT
BONUS SCHEDULE
--------------
If the pretax earnings of the Company The aggregate
(per Paragraph THIRD B.(1)) equals or bonus amount
exceeds the following amount: shall be:
- -------------------------------------- -------------
$13,000,000 $150,000
$14,000,000 $225,000
$15,000,000 or more $250,000
15
<PAGE>
EXHIBIT 10(f)
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made and entered into on July 1, 1995, by and between
TRANSWORLD SYSTEMS, INC., a California corporation ("Company") and GEORGE
MACAULAY (the "Employee").
WHEREAS, the Employee is currently employed by Company under a contract
dated March 31, 1994, and the Company and the Employee have agreed that this
Agreement replaces and supersedes that contract; and
WHEREAS, effective July 1, 1995, the Company desires to continue to employ
the Employee as an executive officer and the Employee desires to continue to be
so employed by the Company, upon the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, all of the issued and outstanding capital stock of the Company is
owned by THE UNION CORPORATION, a Delaware corporation ("Union"),
NOW THEREFORE, in consideration of the premises and mutual promises and
agreements hereinafter set forth, the parties hereto hereby agree as follows:
FIRST:
(A) Upon the terms and subject to the conditions of this Agreement,
effective July 1, 1995, the Company shall employ the Employee in an executive
capacity, and the Employee hereby accepts such employment, upon the terms and
conditions hereof.
(B) The Employee shall serve as the President of the Company and, in
addition, as such other officer and/or director of any subsidiaries, and as a
director of any Affiliates (as hereinafter defined) of Company as the Board of
Directors of the Company and Union shall determine, without any compensation
other than that provided for in Article THIRD hereof. The Employee shall report
to the Board of Directors of the Company, and, so long as Union shall be the
majority shareholder of the Company during the term of this Agreement, to the
chief executive officer of Union (hereinafter "CEO"). All officers, employees
and agents of the Company other than Gordon Dunn shall be subordinate to the
Employee and shall report to him or as he shall direct.
<PAGE>
(C) The Employee shall devote all of his business time, efforts, energy and
skill to the business of the Company, its subsidiaries and, insofar as he is a
director or officer of an Affiliate, such Affiliate, and shall use his best
efforts to promote the interests thereof. The Employee's Services shall be
rendered with due regard by the Employee for the prompt, efficient and
economical operation of the Company's business to the end of achieving the
objectives set forth in the Company's annual business plans.
(D) The Employee shall be entitled to vacation time in accordance with
Company practice.
SECOND:
(A) Unless extended by the written agreement of the parties, the term of
this Agreement and the Employee's employment thereunder shall commence effective
as of July 1, 1995, ("Commencement Date"), and shall terminate on the earlier
to occur of (i) June 30, 1997 or (ii) termination in accordance with Paragraphs
(B), (C) or (D) of this Article SECOND, in any of which events this Agreement
shall terminate on such date and shall be of no further force and effect (except
as provided in Article FOURTH hereof), it being acknowledged and agreed that in
the event of any termination pursuant to said Paragraphs (B) or(C) below, the
Company shall have no further liability or obligation to the Employee, except
that if his employment is terminated under Paragraph B(ii) or (iii), Employee
shall be entitled to a pro-rata bonus for the Fiscal Year of termination
pursuant to Article THIRD (B), and in the event of any termination pursuant to
Paragraph (C) below, the Employee shall be entitled to receive only the payments
required to be made under that paragraph.
(B) The Company shall be entitled to terminate the Employee's services in
any of the following circumstances:
(i) For "Cause" by reason of the occurrence of any of the following: (a)
the chronic failure, refusal or neglect of the Employee fully and faithfully to
perform his obligations hereunder, (b) the failure, refusal or neglect of the
Employee to use all reasonable efforts in good faith to implement any lawful
directions or policy (not inconsistent with this Agreement) of the
2
<PAGE>
Board of Directors of the Company or of the CEO or of the Board of Directors of
Union, or (c) unless it can be shown that Employee acted in good faith and
reasonably believed he was acting in the best interest of the Company, Union, or
any Affiliate, the taking of any actions, or the omission to take any actions,
by the Employee which bring public obloquy upon the Company, Union or any
Affiliate or (d) the conviction of, or nolo contendere plea by, the Employee in
---- ----------
respect of any crime or offense involving the property, operations or activities
of the Company, Union or any Affiliate.
(ii) Mental or physical incapacity or inability of the Employee to
perform his duties for a consecutive period of One Hundred Fifty (150) days or a
non-consecutive period of One Hundred Eighty (180) days during any twelve (12)
month period; or
(iii) The death of the Employee.
(C) In the event the Employee is indicted for any crime or offense (other
than traffic infractions and similar minor matters), the Company shall have the
right to suspend the Employee's services hereunder during the period after
indictment and until proceedings against the Employee are terminated without a
finding that the Employee is guilty as charged. Unless this Agreement is
otherwise terminated pursuant to Article SECOND (B) or (D) or expires on June
30, 1997, the Employee shall continue to receive his Base Salary during such
suspension period; and upon the end of such suspension, if this Agreement is
still in effect, the Employee shall resume performance hereunder. Such
suspension shall not extend the term of this Agreement. Provided Employee would
be entitled to resume performance hereunder,without regard to the date, Employee
shall be entitled to any bonus earned pursuant to Article THIRD (B) in respect
of the Fiscal Year in which such suspension commenced.
(D) If, at any time after the date hereof, any of the following events (an
"Event") occurs;
(i) more than twenty percent (20%) of Union's then issued and outstanding
voting stock shall have been purchased or acquired (or voting rights with
respect thereto shall have been acquired) by a person, corporation or group
thereof acting in
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<PAGE>
concert, the purpose or result of which would be a change in either "control" of
Union (as generally described in subparagraph (iv) hereof and without the
approval of the then existing Board of Directors of Union); or
(ii) within twenty four (24) months after occurrence of an Event of the
type described in (i) above, the Employee is terminated or the terms and
conditions of the Employee's employment, including duties or location, are
substantially modified; or
(iii) a majority of the Board of Directors of Union consists of persons
other than nominees of the Board of Directors of Union as it existed immediately
prior to the occurrence of an Event of the type described in (i) above; or
(iv) a transaction or circumstance occurs or eventuates which
reasonably may be construed as effecting or constituting a clear and present
probability of effecting a change in "control" of Union, as "control" is
generally or reasonably understood in the business community which has not been
approved by the Board of Directors of Union as it existed immediately prior to
the occurrence of such transaction or circumstance;
then, upon the occurrence of any such Event, the Employee may elect, by written
notice to the Company, to treat any such transaction or circumstance as a
material breach of this Agreement and terminate his employment as an officer and
director of the Company, Union, their subsidiaries and Affiliates. It is agreed
that, in such event, the Employee will suffer irreparable damage and harm which
will be incapable or very difficult of accurate estimation. Accordingly, the
Company will pay to the Employee, within three (3) days of such Event, an amount
equal to Two Hundred Ninety-Nine Percent (299%) of the Employee's "base amount",
as such term is defined in Section 280G of the Internal Revenue Code of 1986, as
amended,and regulations pursuant thereto in effect at the time of termination of
the Employee's employment (collectively, the "Code"). In the event of a dispute
as to the amount, the matter shall be referred to the independent public
accountants and auditors who were the auditors for Union at the time of the
occurrence of the Event, and their determination shall be final,
4
<PAGE>
binding and conclusive. The parties agree that it is their intent to comply
with the "safe harbor" provisions of Section 280G of the Code. In order that
the amounts payable pursuant to this Paragraph (D) do not constitute "excess
parachute payments" within the meaning of said Section 280G, the payments and
other consideration provided for hereunder shall, to the extent necessary, be
reduced accordingly.
THIRD:
(A) The Employee shall receive, during his employment hereunder in
accordance with the terms hereof, a salary (the "Base Salary"), commencing on
the Effective Date, computed at the rate of $300,000 per annum, payable in such
installments as shall accord with normal pay practices of the Company, but not
less often than monthly.
(B) (i) Subject to the terms or this Agreement, for each of the Fiscal
Years of the Company ending June 30, 1996, and 1997, the Employee also shall be
entitled to receive a bonus on the Adjusted Pretax Income of the Company and its
subsidiaries, if any, to be determined as set forth in Schedule 1, annexed
hereto.
(ii) For purposes hereof, "Adjusted Pretax Income" shall mean the net
income of the Company and its subsidiaries as reported to Union for the twelve
(12) months ended June 30, before Federal and state income taxes, and before (a)
goodwill amortization expense, (b) bonus expense for Gordon Dunn, (c) interest
expense, if any, related to the deferred bonus of Gordon Dunn, (d) Employee's
bonus expense in respect of periods after July 1, 1995.
(iii) The Company shall contribute for each full fiscal year during
which Employee is employed hereunder $15,000 to a non-qualified retirement plan
established for him.
(iv) (a) Notwithstanding anything to the contrary contained herein,
if the Company terminates the Employee's employment hereunder at any time for
Cause or if the Employee resigns other than by reason of the occurrence of an
Event no bonus shall be payable for the Fiscal Year of termination.
5
<PAGE>
(b) If Employee is terminated for cause as defined in Article SECOND
(B)(i)(c) or (d) and the acts or omissions of the Employee relating to said
termination shall have occurred in a prior Fiscal Year, then all bonus payments
received by, or payable to, the Employee for such prior Fiscal Year and any
succeeding Fiscal Years shall forthwith be forfeited and immediately returned to
the Company, or may be offset by the Company against any other amounts payable
to or in respect of the Employee pursuant to this Agreement. If the Company
terminates Employee for Cause as defined in Article SECOND (B)(i)(c) or (d), any
shares received by Employee upon exercise of a stock option on or after the date
on which the acts or omissions of Employee first occurred and any succeeding
year shall be immediately returned to Union upon demand, provided, however, that
Union shall return to Employee, against delivery of such shares, the exercise
price paid by Employee upon exercise. If shares returnable pursuant hereto have
been transferred by Employee, Employee shall return to Union equivalent shares
or the then Fair Market Value thereof, upon demand, or such Fair Market Value
may be offset by the Company or Union against any other amounts payable to or in
respect of the Employee pursuant to this Agreement. The rights of Union and the
Company under this paragraph shall survive the expiration of this Agreement by
lapse of time or its termination for any other reason.
(C) In the event the Company terminates the Employee's employment
hereunder at any time for Cause or the Employee resigns other than by reason of
the occurrence of an Event, all options theretofore granted to the Employee
which remain unexercised at such time (or which have been exercised but as to
which certificates for Union Common Stock shares have not yet been issued by the
transfer agent) shall forthwith terminate and be forfeited.
(D) The Company shall procure and keep in force during the term of this
Agreement for the benefit of the Employee (i) a policy of disability income
insurance which will provide the Employee with a benefit of $1,000,000 and (ii)
a policy of term, "split dollar" or other life insurance, to be determined at
the sole discretion of the CEO, in the face amount of $1,000,000, provided in
each case that such insurance can be obtained by the Company at a commercially
reasonable cost. The Company shall pay all of the premiums payable on such
insurance, provided that the
6
<PAGE>
Company shall only be required to pay the normal rate for "non-rated" males of
the Employee's age, and all or a portion of the cost of such premiums shall be
additional compensation to the Employee. Any such compensation shall not be
deemed to be "Base Salary" for purposes of this Agreement. The beneficiary of
such insurance shall be as designated by the Employee, and the owner of the
insurance policy shall be the Employee or his assigns. The Employee agrees to
submit to any physical examination required by any prospective insurer, and will
otherwise cooperate with the Company in connection with any life or disability
insurance on the Employee which the Company may wish to obtain.
(E) The Employee shall be eligible for the same medical and other health
insurance benefits as the Company provides, from time to time, for other
employees.
(F) Notwithstanding anything to the contrary in this Agreement, if the
Employee's employment hereunder would otherwise terminate pursuant to paragraph
SECOND (A) upon the termination of this Agreement on June 30, 1997, the Company
may nevertheless elect, at its sole option, to continue the employment of the
Employee until such period as it may elect, up to and including, but not beyond,
June 30, 1999. If the Company elects to continue the Employee's employment
after June 30, 1997, the Employee shall not be entitled to any bonus or other
compensation for such period except the sum of $50,000 per annum for each year,
prorated for any partial year, of such term, and all of the duties and
obligations of the parties shall continue in accordance with this Agreement
except that (1) Paragraph FIRST (C) shall no longer apply, (2) the Company shall
have no obligation with respect to such period to make any payment under
Paragraphs THIRD (B)(i), THIRD (B)(iii), THIRD (D) or THIRD (E) and (3) the
Employee's employment will be deemed to have terminated for purposes of any
deferred compensation plan of the Company. The provisions of Article FOURTH
shall continue to apply during any such extended term of the Employee's
employment with the Company.
(G) Notwithstanding anything to the contrary in this Agreement, if Employee
voluntarily terminates his employment prior to June 30, 1997, and if none of the
provisions of paragraphs SECOND (B) and SECOND (C) or SECOND (D) apply to such
termination,
7
<PAGE>
the Company may nevertheless elect, at its sole option, to continue the
employment of Employee until such period it may elect, up to and including, but
not beyond, June 30, 1999. If the Company elects to continue Employee's
employment in accordance with this paragraph (G), Employee shall not be entitled
to any bonus or compensation for such period except for the sum of $50,000 per
annum for each year, prorated for any partial year, of such term, and all of the
duties and obligations of the parties shall continue in accordance with this
Agreement except that (1) Paragraph FIRST (C) shall no longer apply, (2) the
Company shall have no obligation with respect to such period to make any payment
under Paragraphs THIRD (B)(i), THIRD (B)(iii), THIRD (D) or THIRD (E)and (3) the
Employee's employment will be deemed to have terminated for purposes of any
deferred compensation plan of the Company. The provisions of Article FOURTH
shall continue to apply during any such extended term of the Employee's
employment with the Company.
FOURTH:
(A) (i) The Employee agrees that, during his employment with the Company
and for a period of two (2) years after the termination of his employment with
the Company (for any reason whatsoever), except to the extent approved by Union
or required by applicable law, he shall not (except in the good faith
performance of his duties on behalf of the Company, Union or any Affiliate)
disclose to any person, corporation, firm, partnership or other entity
whatsoever (except the Company, Union or any Affiliate and/or his or its legal
counsel) or any officer, director, stockholder, partner, associate, employee,
agent or representative thereof, any information received by him during the
course of his association with the Company relating to the business and affairs
of the Company, Union or any Affiliates, including, without limitation,
information concerning their customers, prospective customers, operations,
acquisitions, acquisition candidates, agreements, understandings, facilities,
equipment, lease arrangements, staff, trade secrets, discoveries, ideas,
methods, surveys, research and any other information relating to the business
and objectives of the Company, Union and Affiliates, except only information
which is otherwise generally available to the public. "Affiliate" in this
Agreement means any person or entity controlling, controlled by, or under common
control with
8
<PAGE>
Union.
(ii) During his employment with the Company, the Employee shall take
reasonable precautions to protect the integrity of customer and prospective
customer lists, agreements, contracts or any other documents embodying any
information of the type described in Article FOURTH (A)(i) and, upon termination
of his employment, he shall return to the Company all such documents (and copies
thereof and notes relating thereto) in his possession or control.
(B) During his employment with the Company and (subject to Article FOURTH
(D)) for a period of two (2) years after the termination of his employment with
the Company, the Employee shall not, in any way, be engaged, directly or
indirectly, in the United States, Canada or any other country in which the
Company, Union and Affiliates currently, or at any time during the term of
Employee's employment hereunder, operate, as an employee, partner, proprietor,
officer, director, consultant, agent, or stockholder of any corporation,
partnership, proprietorship or other form of business entity, which is primarily
engaged in the business of collecting debts or accounts receivable or the
accounts receivable management businesses or in substantially the same line of
business as any businesses currently or hereafter carried on or engaged in,
during the term of the Employee's employment hereunder, by the Company, Union,
Capital Credit Corporation, Allied Bond & Collection Agency, Inc., Union
Financial Services, Inc., their subsidiaries and Affiliates. Notwithstanding
anything above to the contrary, the Employee may own, as an inactive investor,
securities of any competitor corporation of a class either (i) listed on any
securities exchange or (ii) traded on the over-the-counter market and listed on
any generally accepted quotation service, so long as his holdings in any one
such corporation shall not, in the aggregate, constitute more than one percent
(1%) of the voting stock of such corporation.
(C) During his employment with the Company and (subject to Article FOURTH
(D)) for a period of two (2) years after the termination of his employment with
the Company for any reason whatsoever, the Employee shall not seek to persuade
any Director, officer or employee of the Company, Union or any Affiliate, or any
9
<PAGE>
person or entity providing services to the Company as an independent contractor,
to discontinue that individual's status or employment with the Company, Union or
any Affiliate, nor to become employed or otherwise engaged in any activity
similar to or competitive with the activities described in Article FOURTH(B)
above, nor will he hire or retain any such person, nor will he solicit or cause
or authorize, directly or indirectly, to be solicited, for or on behalf of
himself or any third party, any business subject to Article FOURTH (B) from
others who are, at any time within two (2) years prior to the cessation of his
employment hereunder, customers or partners of the Company, Union or any
Affiliate. The foregoing shall not be construed to derogate from the Employee's
authority to terminate employees of the Company or its subsidiaries who are
subordinate to him.
(D) If any of the restrictions on post-employment competitive activities
contained in this Article FOURTH shall for any reason be held by a court of
competent jurisdiction to be excessively broad as to duration, geographical
scope, activity or subject, such restrictions shall be construed so as to
thereafter be limited or reduced to be enforceable to the extent compatible with
the applicable law as it shall then appear, it being understood that by the
execution of this Agreement the parties hereto regard such restrictions as
reasonable and compatible with their respective rights.
(E) The Employee acknowledges that were he to breach the provisions of this
Article FOURTH, the damages to the Company, Union and Affiliates would be
irreparable, and he therefore agrees that, in addition to provable damages and
reasonable attorneys' fees, the Company and its Affiliates shall be entitled to
equitable relief to enforce their rights hereunder.
FIFTH:
(A) This Agreement constitutes the entire agreement between the Company
and the Employee in any way relating to the employment of the Employee and,
effective July 1, 1995, merges all prior agreements and understandings between
them,
(B) This Agreement may not be altered or amended except
10
<PAGE>
by a writing signed by the party against whom such alteration or amendment is
sought to be enforced. No waiver by either party of any provision or condition
of this Agreement by him or it to be performed shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or any prior or
subsequent time.
SIXTH:
This Agreement is personal and non-assignable by the Employee. It shall
inure to the benefit of any corporation or other entity with which the Company
shall merge or consolidate or to which the Company shall lease or sell all or
substantially all of its assets and may be assigned by the Company to any
Affiliate of the Company or to any corporation or entity with which such
Affiliate shall merge or consolidate or which shall lease or acquire all or
substantially all of the assets of such Affiliate.
SEVENTH:
Any notices or other communications required or permitted hereunder shall
be in writing and shall be duly given if personally delivered or sent by
certified or registered mail, return receipt requested, to the following
addresses:
(i) If to the Employee: George Macaulay
120 Massimo Circle
Santa Rosa, CA 95404
(ii) If to the Company: Transworld Systems, Inc.
5880 Commerce Boulevard
Rohnert Park, CA 94928
Attention: Secretary
With a copy to: The Union Corporation
145 Mason Street
Greenwich, CT 06830
Attention: Chairman
11
<PAGE>
(iii) If to Union: The Union Corporation
145 Mason Street
Greenwich, CT 06830
Attention: Chairman
Either party may alter the address for the sending of notices to such party by a
written notice sent in conformity with this Agreement.
EIGHTH:
This Agreement shall be governed by and construed in accordance with the
laws of the State of California with respect to agreements made and to be
performed wholly therein.
NINTH:
If any of the provisions of this Agreement shall be held invalid, the
remainder of the Agreement shall not be affected thereby.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
TRANSWORLD SYSTEMS, INC.
GEORGE MACAULAY
- ------------------------------
George Macaulay By:GORDON S. DUNN
----------------------------
Gordon S. Dunn
12
<PAGE>
SCHEDULE 1
----------
GEORGE MACAULAY
EMPLOYMENT AGREEMENT
BONUS SCHEDULE
--------------
<TABLE>
<CAPTION>
(1) (2) (3)
If the Adjusted Pretax Income of The aggregate
Year Ended the Company equals or exceeds bonus amount
June 30 the following amount(s): shall be:
- ------------ -------------------------------- -------------
<S> <C> <C>
1996 $ 13,000,000 $300,000
$ 14,000,000 $350,000
$ 14,500,000 $400,000
$ 15,000,000 $450,000
$ 15,500,000 $500,000
$ 16,000,000 $550,000
$ 16,500,000 + $600,000
- ------------------------------------------------------------
1997 $ 13,000,000 $300,000
$ 14,500,000 $350,000
$ 15,000,000 $400,000
$ 15,500,000 $450,000
$ 16,000,000 $500,000
$ 16,500,000 $550,000
$ 17,000,000 + $600,000
</TABLE>
13
<PAGE>
EXHIBIT 10(h)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made and entered into as of March 22, 1995, by and between
THE UNION CORPORATION, a Delaware corporation (the "Company"), and NICHOLAS P.
GILL (the "Employee").
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company, upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual promises
and agreements hereinafter set forth, the parties hereto hereby agree as
follows:
FIRST:
(A) Upon the terms and subject to the conditions of this Agreement,
the Company hereby employs the Employee in an executive capacity, and the
Employee hereby accepts such employment.
(B) The Employee shall serve as the Vice President, Chief Financial
Officer and Secretary-Treasurer of the Company, and, in addition, as a director
and/or officer of any Affiliates (as hereinafter defined) of the Company as the
Board of Directors of the Company shall determine, without any compensation
other than that provided for in Article THIRD hereof. The Employee shall report
to the chief executive officer of the Company (hereinafter "CEO"). An
"Affiliate" is any corporation, partnership or joint venture controlling,
controlled by or under common control with the Company.
(C) The Employee shall devote all of his business time, efforts,
energy and skill to the business of the Company and, insofar as he is a director
of an Affiliate, such Affiliate, and shall use his best efforts to promote the
interests thereof.
(D) The Employee shall be entitled to vacation time of three weeks per
Fiscal Year, which need not be taken consecutively. Up to one week of vacation
time not taken in any Fiscal Year of the Company may be carried over to the
following Fiscal Year, it being understood that the maximum carryover time into
any new Fiscal Year shall be one week. As used in this Agreement, "Fiscal Year"
means the 12 month period ending June 30.
SECOND:
(A) Unless extended by the written agreement of the parties, the term
of this Agreement and the Employee's employment hereunder shall commence
effective as of January 1, 1995
<PAGE>
("Commencement Date"), and shall terminate on the earlier to occur of (i) June
30, 1997 or (ii) termination in accordance with Paragraphs (B), (C) or (D) of
this Article SECOND, in any of which events this Agreement shall terminate on
such date and shall be of no further force and effect (except as provided in
Article FOURTH hereof), it being acknowledged and agreed that in the event of
any termination pursuant to said Paragraphs (B) or (D) below, the Company shall
have no further liability or obligation to the Employee (i) except for any
obligation to indemnify Employee as provided in the by-laws of the Company; (ii)
except as provided in the Indemnification Agreement dated August 27, 1990
between the Company and Employee (the "Indemnification Agreement"); (iii) except
for obligations of the Company and rights of Employee under various stock option
agreements (the "Stock Option Agreements"); and (iv) except that if his
employment is terminated under Paragraph B(ii) or (C), Employee shall be paid,
from the date of termination, his Base Salary for the longer of the balance of
the term of this Agreement or twelve months. If termination occurs by reason of
the death of Employee, his surviving spouse (or such other person or persons as
he may designate in writing to the Company from time to time) shall receive in a
lump sum an amount equal to his Base Salary for six months. The foregoing
payments to be made by Company if Employee is terminated by reason of death or
disability or Paragraph (C) below shall be in addition to those required under
Article THIRD (D). In the event of any termination pursuant to Paragraph (E)
below, Employee shall be entitled to receive only the payments required to be
made under that paragraph.
(B) The Company shall be entitled to terminate the Employee's services
in any of the following circumstances:
(i) For "Cause" by reason of the occurrence of any of the following:
(a) the chronic failure, refusal or neglect of the Employee fully and faithfully
to perform his obligations hereunder, (b) the failure, refusal or neglect of the
Employee to use all reasonable efforts in good faith to implement any lawful
directions or policy (not inconsistent with this Agreement) of the Board of
Directors of the Company or of the CEO of the Company, or (c) unless it can be
shown that Employee acted in good faith and reasonably believed he was acting in
the best interest of the Company, or any Affiliate, the taking of any actions,
or the intentional omission to take any actions, by the Employee which bring
public obloquy upon the Company or any Affiliate or (d) the conviction of, or
nolo contendere plea by, the Employee in respect of any crime or offense
- ---- ----------
involving the property, operations or activities of the Company or any
Affiliate, or moral turpitude.
(ii) Mental or physical incapacity or inability of the Employee to
perform his duties for a consecutive period of
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<PAGE>
150 days or a non-consecutive period of 180 days during any twelve month period;
or
(iii) The death of the Employee.
(iv) Failure by Employee to give notice as required by Article
SECOND (D).
(C) The Company shall at any time also be entitled to terminate the
Employee's services other than pursuant to Article SECOND (A) or (B) above. In
the event of termination pursuant to this Article SECOND (C), the Employee shall
receive the compensation provided for in Paragraph SECOND (A) and shall not be
entitled to any damages by reason of such termination other than as set forth in
this Article SECOND (C). In the event the Employee receives payments pursuant
to Article SECOND (E), such payments shall be in lieu of any amounts payable
under this Article SECOND (C). In the event the Employee is indicted for any
crime or offense (other than traffic infractions and similar minor matters), the
Company shall have the right to suspend the Employee's services hereunder during
the period after indictment and until proceedings against the Employee are
terminated without a finding that the Employee is guilty. Unless this Agreement
is otherwise terminated pursuant to Article SECOND (B), (D) or (E) or expires on
June 30, 1997, the Employee shall continue to receive his Base Salary during
such suspension period; and upon the end of such suspension, if this Agreement
is still in effect, the Employee shall resume performance hereunder. Such
suspension shall not extend the term of this Agreement.
(D) The Employee shall at any time be entitled to terminate his
services hereunder by submitting his written resignation to the Company, to be
effective 90 days thereafter (unless an Event, as hereinafter defined, has
occurred). Notwithstanding anything to the contrary herein contained, upon
receipt of such notice, the Company may terminate Employee's employment at any
time thereafter, and from and after Employee's termination under this Article
SECOND (D), the Company shall have no further liability or obligation to the
Employee, except for the indemnification obligations referred to in Article
SECOND (A) which shall survive.
(E) If, at any time after the date hereof, any of the following events
(an "Event") occurs;
(i) more than 20% of the Company's then issued and outstanding
voting stock shall have been purchased or acquired (or voting rights with
respect thereto shall have been acquired) by a person, corporation or group
thereof acting in concert, the purpose or result of which would be a change in
either "control" of the Company (as generally described in
-3-
<PAGE>
subparagraph (iv) hereof and without the approval of the then existing Board of
Directors of the Company); or
(ii) within twenty four months after occurrence of an Event of the
type described in (i) above, the Employee is terminated or the terms and
conditions of the Employee's employment, including duties or location, are
substantially modified; or
(iii) a majority of the Board of Directors of the Company consists of
persons other than nominees of the Board of Directors of the Company as it
existed immediately prior to the occurrence of an Event of the type described in
(i) above; or
(iv) a transaction or circumstance occurs or eventuates which
reasonably may be construed as effecting or constituting a clear and present
probability of effecting a change in "control" of the Company, as "control" is
generally or reasonably understood in the business community which has not been
approved by the Board of Directors of the Company as it existed immediately
prior to the occurrence of such transaction or circumstance;
then, upon the occurrence of any such Event, the Employee may elect, by written
notice to the Company, to treat any such transaction or circumstance as a
material breach of this Agreement and terminate his employment as an officer and
director of the Company and its Affiliates. It is agreed that, in such event,
the Employee will suffer irreparable damage and harm which will be incapable or
very difficult of accurate estimation. Accordingly, in lieu of amounts that the
Employee would be entitled to under Article SECOND(A) of this Agreement, the
Company will pay to the Employee, within three days of such Event, an amount
equal to 299% of the Employee's "base amount", as such term is defined in
Section 280G of the Internal Revenue Code of 1986, as amended, and regulations
pursuant thereto in effect at the time of termination of the Employee's
employment (collectively, the "Code"). In the event of a dispute as to the
amount, the matter shall be referred to the independent public accountants and
auditors who were the auditors for the Company at the time of the occurrence of
the Event, and their determination shall be final, binding and conclusive. The
parties agree that it is their intent to comply with the "safe harbor"
provisions of Section 280G of the Code. In order that the amounts payable
pursuant to this Paragraph (E) do not constitute "excess parachute payments"
within the meaning of said Section 280G, the payments and other consideration
provided for hereunder shall, to the extent necessary, be reduced accordingly.
-4-
<PAGE>
THIRD:
(A) The Employee shall receive, during his employment hereunder in
accordance with the terms hereof, a salary commencing on the Effective Date,
computed at the rate of not less than $170,000 per annum ("Base Salary"),
payable in such installments as shall accord with normal pay practices of the
Company, but not less often than monthly.
(B) Employee may also receive a discretionary bonus as determined by
the Compensation Committee or the Board of Directors of the Company.
(C) The Company will reimburse the Employee for properly documented
business expenses, reasonably incurred by the Employee in connection with the
performance of his services hereunder.
(D) The Company shall procure and keep in force during the term of
this Agreement for the benefit of the Employee (i) a policy of disability income
insurance which will provide the Employee with a benefit of $500,000 and (ii) a
policy of term, "split dollar" or other life insurance, to be determined at the
sole discretion of the CEO, in the face amount of $500,000, provided in each
case that such insurance can be obtained by the Company at a commercially
reasonable cost. The Company shall pay all of the premiums payable on such
insurance, provided that the Company shall only be required to pay the normal
rate for "non-rated" males of the Employee's age, and all or a portion of the
cost of such premiums shall be additional compensation to the Employee. If and
so long as the Company and/or Capital (or any other Affiliate of the Company)
establishes and maintains group life and/or disability insurance programs for
which the Employee is eligible, benefits under such programs shall offset the
insurance obligations otherwise provided for above. The beneficiary of such
insurance shall be as designated by the Employee, and the owner of the insurance
policy (but not any group policy) shall be the Employee or his assigns. The
Employee agrees to submit to any physical examination required by any
prospective insurer, and will otherwise cooperate with the Company in connection
with any life or disability insurance on the Employee which the Company may wish
to obtain.
(E) The Employee shall be eligible to the same medical and other
health insurance benefits as the Company provides, from time to time, for other
executives. The Employee shall not be required to contribute any portion of the
premiums payable for such medical and health insurance, all such premiums being
payable by the Company.
-5-
<PAGE>
FOURTH:
(A) (i) The Employee agrees that, during his employment with the
Company and for a period of two years after the termination of his employment
with the Company (for any reason whatsoever), except to the extent approved by
the Company or required by applicable law, he shall not (except in the good
faith performance of his duties on behalf of the Company or any Affiliate)
disclose to any person, corporation, firm, partnership or other entity
whatsoever (except the Company or any Affiliate and/or his legal counsel) or any
officer, director, stockholder, partner, associate, employee, agent or
representative thereof, any information received by him during the course of his
association with the Company relating to the business and affairs of the Company
or any Affiliates, including, without limitation, information concerning their
customers, prospective customers, operations, acquisitions, acquisition
candidates, agreements, understandings, facilities, equipment, lease
arrangements, staff, trade secrets, discoveries, ideas, methods, surveys,
research and any other information relating to the business and objectives of
the Company and Affiliates, except only information which is otherwise generally
available to the public. "Affiliate" in this Agreement means any person or
entity controlling, controlled by, or under common control with the Company.
(ii) During his employment with the Company, the Employee shall take
reasonable precautions to protect the integrity of customer and prospective
customer lists, agreements, contracts or any other documents embodying any
information of the type described in Article FOURTH(A)(i) and, upon termination
of his employment, he shall return to the Company all such documents (and copies
thereof and notes relating thereto) in his possession or control.
(B) During his employment with the Company and (subject to Article
FOURTH (D)) for a period of two years after the termination of his employment
with the Company or two years after Employee receives his last payment of salary
pursuant hereto, whichever is later, the Employee shall not, in any way, be
engaged, directly or indirectly, in the United States, Canada or any other
country in which the Company or any of its Affiliates currently, or at any time
during the term of Employee's employment hereunder, operate, as an employee,
partner, proprietor, officer, director, consultant, agent, or stockholder of any
corporation, partnership, proprietorship or other form of business entity, which
is primarily engaged in the business of collecting debts or accounts receivables
or the accounts receivables management businesses or in substantially the same
line of business as any businesses currently or hereafter carried on or engaged
in, during the term of the Employee's employment hereunder, by the Company or
any of its Affiliates. Notwithstanding anything above to the contrary, the
-6-
<PAGE>
Employee may own, as an inactive investor, securities of any competitor
corporation of a class either (i) listed on any securities exchange or (ii)
traded on the over-the-counter market and listed on any generally accepted
quotation service, so long as his holdings in any one such corporation shall
not, in the aggregate, constitute more than 1% of the voting stock of such
corporation.
(C) During his employment with the Company and (subject to Article
FOURTH (D)) for a period of two years after the termination of his employment
with the Company for any reason whatsoever, or two years after Employee received
his last payment of salary pursuant hereto, whichever is later, the Employee
shall not seek to persuade any Director, officer or employee of the Company or
any Affiliate to discontinue that individual's status or employment with the
Company or any Affiliate, nor to become employed in any activity similar to or
competitive with the activities described in Article FOURTH (B) above, nor will
he hire or retain any such person, nor will he solicit or cause or authorize,
directly or indirectly, to be solicited, for or on behalf of himself or any
third party, any business subject to Article FOURTH (B) from others who are, at
any time within two years prior to the cessation of his employment hereunder,
customers or partners of the Company or any Affiliate. The foregoing shall not
be construed to derogate from the Employee's authority to terminate employees of
the Company or its subsidiaries who are subordinate to him.
(D) If any of the restrictions on post-employment competitive
activities contained in this Article FOURTH shall for any reason be held by a
court of competent jurisdiction to be excessively broad as to duration,
geographical scope, activity or subject, such restrictions shall be construed so
as to thereafter be limited or reduced to be enforceable to the extent
compatible with the applicable law as it shall then appear, it being understood
that by the execution of this Agreement the parties hereto regard such
restrictions as reasonable and compatible with their respective rights.
(E) The Employee acknowledges that were he to breach the provisions of
this Article FOURTH, the damages to the Company and Affiliates would be
irreparable, and he therefore agrees that, in addition to provable damages and
reasonable attorneys' fees, the Company and its Affiliates shall be entitled to
equitable relief to enforce their rights hereunder.
FIFTH:
(A) This Agreement, the indemnification obligations and the Stock
Option agreements constitute all of the agreements between the Company and the
Employee in any way relating to the employment of the Employee.
-7-
<PAGE>
(B) This Agreement may not be altered or amended except by a writing
signed by the party against whom such alteration or amendment is sought to be
enforced. No waiver by either party of any provision or condition of this
Agreement by him or it to be performed shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or any prior or subsequent time.
SIXTH: This Agreement is personal and non-assignable by the
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall lease
or sell all or substantially all of its assets and may be assigned by the
Company to any Affiliate of the Company or to any corporation or entity with
which such Affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such Affiliate.
SEVENTH: Any notices or other communications required or permitted
hereunder shall be in writing and shall be duly given if personally delivered or
sent by certified or registered mail, return receipt requested, to the following
addresses:
(i) If to the Employee:
Nicholas P. Gill
35 Round Lake Road
Ridgefield, Connecticut 06877
(ii) If to Union:
The Union Corporation
145 Mason Street
Greenwich, Connecticut 06830
Attention: Chairman
Either party may alter the address for the sending of notices to such party by a
written notice sent in conformity with this Agreement.
EIGHTH: This Agreement was negotiated in the City of New York and
shall be governed by and construed in accordance with the laws of the State of
New York with respect to agreements made and to be performed wholly therein.
-8-
<PAGE>
NINTH: If any of the provisions of this Agreement shall be held
invalid, the remainder of the Agreement shall not be affected thereby.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the day and year first above written.
THE UNION CORPORATION
By:MELVIN L. COOPER
-------------------------
Melvin L. Cooper,
Chairman
NICHOLAS P. GILL
-------------------------
Nicholas P. Gill
-9-
<PAGE>
EXHIBIT 11
THE UNION CORPORATION AND SUBSIDIARIES
Determination of Primary and Fully Diluted Income Per Common and Common
Equivalent Share
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended June 30,
---------------------------
1995 1994 1993
-------------------------------- ---------------------------------- --------------------------------
Number of Income Net Per Share Number of Income Net Per Share Number of Income Net Per Share
Primary: Shares of Taxes Amount Shares of Taxes Amount Shares of Taxes Amount
- -------- --------- ------------ --------- --------- ----------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average common shares
(based on weighted
average number of shares
outstanding) 5,558 6,152 6,498
Common stock equivalents
(stock options) 99 82 116
----- ----- -----
Income from continuing
operations 5,657 $ 5,707 $1.01 6,234 $4,479 $.72 6,614 $4,670 $.71
===== ===== =====
Discontinued operations
loss provision
(net of $2,800 tax
benefit) 5,657 (5,200) (.92) - - - - - -
===== ===== =====
Cumulative effect of
change in
accounting for income
taxes - - - 6,234 1,068 .17 - - -
===== ------- ----- ===== ------ ----- ===== ------ ----
Net income 5,657 $ 507 $ .09 6,234 $5,547 $.89 6,614 $4,670 $.71
===== ======= ===== ===== ====== ===== ===== ====== ====
Fully Diluted:
- --------------
Average common shares
(based on weighted
average number of shares
outstanding) 5,558 6,152 6,498
Common stock equivalents
(stock options) 168 82 116
----- ----- -----
Income from continuing
operations 5,726 $ 5,707 $1.00 6,234 $4,479 $.72 6,614 $4,670 $.71
===== ===== =====
Discontinued operations
loss provision
(net of $2,800 tax
benefit) 5,726 (5,200) (.91) - - - - - -
===== ===== =====
Cumulative effect of
change in
accounting for income
taxes - - - 6,234 1,068 .17 - - -
===== ------- ----- ===== ------ ----- ===== ------ ----
Net income 5,726 $ 507 $ .09 6,234 $5,547 $.89 6,614 $4,670 $.71
===== ======= ===== ===== ====== ===== ===== ====== ====
</TABLE>
<PAGE>
EXHIBIT 13
1995 Annual Report
- ------------------
THE UNION
CORPORATION
<PAGE>
TABLE OF CONTENTS
- -----------------
Company Profile.............................................................. 1
Report to Shareholders....................................................... 2
Business Overview............................................................ 6
Consolidated Statements of Operations........................................ 9
Consolidated Balance Sheets.................................................. 10
Consolidated Statements of Cash Flows........................................ 11
Consolidated Statements of Shareholders' Equity.............................. 12
Notes to Consolidated Financial Statements................................... 13
Management's Report.......................................................... 23
Report of Independent Auditors............................................... 23
Management's Discussion and Analysis
of Financial Condition and Results of Operations......................... 24
Selected Financial Data...................................................... 30
Corporate Information........................................................ 31
<PAGE>
COMPANY PROFILE
- ---------------
The Union Corporation, through its Transworld Systems, Inc., Allied Bond &
Collection Agency, Inc. and Capital Credit Corporation subsidiaries, provides
accounts receivable management and related services to a wide range of
institutional, commercial and governmental customers.
[Map omitted of the continental United States that shows the location of the
offices of each subsidiary of the Company-Transworld Systems Sales Offices
(132), CMS Collection Offices (19), Allied Bond Collection Offices (3), Capital
Credit Collection Offices(3).]
1
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
REPORT TO SHAREHOLDERS
- ----------------------------------------------------------------------
Fiscal 1995 was a year of solid achievement for The Union Corporation. We
accomplished our objectives for fiscal 1995 and moved from a period of
stabilization last year to one of growth. In the process, we expanded our
client base, entered into new market segments, improved profit margins in each
of our companies and established the ground work for future growth and
profitability.
Some of the accomplishments in fiscal 1995 were:
. Total revenues for the year ended June 30, 1995 were approximately $98
million, the highest level achieved since Union became a pure financial services
company providing accounts receivable management and related services.
. The Company's three operating subsidiaries reported record operating income
of approximately $17 million (before Corporate overhead and amortization of
goodwill and depreciation expense related to purchase accounting adjustments).
This was an increase of 19% over the previous year.
. Cash generated by the three operating subsidiaries, as measured by profit
before taxes, amortization of goodwill and depreciation expense, was
approximately $19 million, a 15% increase from the previous high achieved in
fiscal 1994.
. Operating income in the fourth quarter of fiscal 1995 increased approximately
$1.1 million over the same period a year ago as a result of improvements in
operations, a reduction in corporate expenses and the elimination of expenses
for discontinued operations from continuing operations.
. Union's financial condition remained strong and liquid at June 30, 1995, with
cash and short-term investments of approximately $37 million, working capital of
approximately $25 million and a net worth of approximately $57 million.
. The Company continued its share buy-back program acquiring 55,200 shares of
common stock in fiscal 1995 for approximately $514,000.
. Consistent with its strategic objectives, Union was recently advised that it
has been selected from a field of 22 companies to provide a major corporation
with customer services and pre-chargeoff collections on an outsourcing basis.
The size and term of the contract are presently being discussed.
. Additionally, Union has joined with a major financial services company in
exploring the feasibility of providing a wide range of services to financial
institutions on an outsourcing basis. This project is in its early stages of
development and there is no assurance that it will constitute a viable activity
for the Company.
The two developments immediately above have important potential for Union
because they would mark the entry of the Company into businesses with
significant revenue and profit potential in markets outside of
[Graph omitted that shows the Revenue of the Company based on the following
data:
REVENUES
Fiscal Years 1991-1995
($ in millions)
Fiscal Fiscal Fiscal Fiscal Fiscal
1991 1992 1993* 1994 1995
------ ------ ------ ------ ------
Total Revenues $82.7 $85.9 $80.5 $92.1 $97.6
Transworld Systems 51.1 55.2 54.9 53.6 57.1
Other Subsidiaries 31.6 30.7 25.6 38.5 40.5
* Fiscal year 1993 includes the results of Allied Bond, since its acquisition
in December 1992. The results of Capital Credit in 1993 and thereafter do
not include revenues derived from American Express.]
[Graphic text box omitted that contains the following statement: Total revenues
approximated $98 million, the highest level achieved since Union became a pure
financial services company.]
2
<PAGE>
accounts receivable management that require similar managerial and operating
skills.
FINANCIAL PERFORMANCE
Revenues for the year were $97,649,000 in fiscal 1995 compared with $92,109,000
for the prior year reflecting increases at Transworld Systems, Allied Bond and
Capital Credit. Union's operating income was $10,307,000 in fiscal 1995, an
increase of 30%, compared with $7,942,000 a year ago. Income from Continuing
Operations was $5,707,000 for the current fiscal year or $1.01 per share
compared with $4,479,000 or $.72 per share in fiscal 1994.
As previously announced, the Company recorded an $8,000,000 loss provision
($5,200,000 net of tax benefit) or $.92 loss per share during the third fiscal
quarter for its Discontinued Operations, all of which were terminated or
otherwise disposed of prior to fiscal 1990. As a result of the loss provision
for discontinued operations, the Company reported net income of $507,000 or
$.09 per share in fiscal 1995 compared with net income of $5,547,000 or $.89
per share a year ago. Net income in fiscal 1994 included the effect of the
Company's implementation of SFAS 109, "Accounting for Income Taxes", the
cumulative effect of which was to increase net income by $1,068,000 or $.17 per
share. Interest income and interest expense increased $519,000 and $402,000,
respectively, during fiscal 1995 compared with a year ago, primarily reflecting
higher interest rates.
TRANSWORLD SYSTEMS, INC.
Transworld Systems reported record revenues of $57.1 million in fiscal 1995
compared with $53.6 million a year ago. Transworld Systems' operating income
was $13,057,000, before amortization of goodwill, an increase of 10% compared
with $11,885,000 a year ago. Transworld was able to maintain an operating
margin of 22%, after amortization of goodwill, despite increased competition and
an increase in postal rates.
The CMS contingency fee division of Transworld Systems continued to set records
in revenues and operating income while at the same time reporting a 12% increase
in operating margins. CMS opened its 19th office in Charlotte, North Carolina
in June 1995, which was profitable in its first month of operation.
Revenues, profits and margins continued to place Transworld Systems in the
dominant position of the fixed-fee accounts receivable management market.
Transworld operates nationally offering both fixed-fee and contingency fee
collection services with a customer base of well over 40,000 clients. Last
year, renewed emphasis was placed on upgrading the sales force of more than 700
independent sales contractors. The success of this effort was reflected in each
sales division reporting year to year gains. Market conditions in southern
California, which is an important market for Transworld Systems, stabilized and
the company was able to register a gain in revenue after several years of
declining sales.
[Graph omitted that shows the Operating Income* of the Company's subsidiaries
based on the following data:
OPERATING INCOME *
Fiscal Years 1991-1995
($ in millions)
Fiscal Fiscal Fiscal Fiscal Fiscal
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
Total Subsidiaries $14.5 $13.5 $12.0 $14.2 $16.9
Transworld Systems 12.1 13.1 12.2 11.9 13.1
Other Subsidiaries 2.4 0.4 ** (0.2)*** 2.3 3.8
* Represents operating income of Union's subsidiaries before goodwill and
depreciation expenses related to purchase accounting adjustments. Also
excludes Union's corporate office expenses.
** Fiscal year 1992 results do not include the $9 million pretax
restructuring charge recorded by Capital Credit.
*** Fiscal year 1993 includes the results of Allied Bond, since its
acquisition in December 1992. The results of Capital Credit in 1993 and
thereafter do not include revenues and direct expenses related to American
Express.]
[Graphic text box omitted that contains the following statement: The Company's
operating subsidiaries reported record operating income of approximately $17
million..., an increase of 19% over the previous year.]
3
<PAGE>
Transworld had 132 sales offices in operation nationwide at year end.
ALLIED BOND & COLLECTION AGENCY, INC.
Allied Bond reported a 7% increase in revenues and a 22% increase in operating
income, before amortization of goodwill and depreciation expense related to its
acquisition, for the fiscal year ended June 30, 1995 compared with a year ago.
These improvements were made despite changing market conditions, which took
place during fiscal 1995 and are continuing, such as reduced collectibility of
accounts placed for collection and lower commission rates in certain key
markets. Allied offset these continuing trends, in part, by obtaining increased
market share in traditional markets such as banking and retailing, expanding its
teleservicing/call center operations and fee per account services and by
entering new markets such as telecommunications and utilities. In fiscal 1995
the dollar value of past due accounts receivable placed for collection was 14%
higher than a year ago. These results were made possible by Allied diligently
managing its business to maximize profits while at the same time maintaining its
reputation for superior collection performance and service.
CAPITAL CREDIT CORPORATION
Capital Credit was solidly profitable in fiscal 1995 reporting a $1 million
improvement in operating income for the year when compared to its operating loss
of $200,000 in fiscal 1994. The company has now operated profitably during each
of the last six consecutive quarters. Revenues in fiscal 1995 remained
essentially unchanged from the prior year, reflecting in part the effect of the
reduced collectibility of certain accounts placed for collection and lower
commission rates being experienced by the collection industry. Capital Credit
expects to offset these conditions by increasing placements, which in the fourth
quarter of fiscal 1995 contributed to the 16% increase in revenue, and by
offering new, related services to existing and new clients. In fiscal 1995 the
dollar value of past due accounts receivable placed for collection was 21%
higher than a year ago.
MANAGEMENT PROMOTIONS
This past May, William B. Hewitt was elected President and Chief Operating
Officer of The Union Corporation in recognition of his role in the turnaround
achieved by Capital Credit and, most importantly, of his leadership and
management of the strategic effort to broaden Union's core businesses. Mr.
Hewitt continues in the position of Chairman and Chief Executive Officer of
Capital Credit. During the year Nicholas Gill was named to the additional
position of Vice President in recognition of his contributions in the areas of
finance, administration and discontinued operations which include related
environmental matters.
THE FUTURE
Union's strategic objectives for fiscal 1996 are twofold:
We will continue to develop the revenue and profit potential of
[Graph omitted that shows the Cash generated* by the Company's subsidiaries
based on the following data:
CASH GENERATED*
BY SUBSIDIARIES
Fiscal Years 1991-1995
($ in millions)
Fiscal Fiscal Fiscal Fiscal Fiscal
1991 1992 1993 ** 1994 1995
------ ------ ------ ------ ------
Total Subsidiaries $16.2 $15.3 $13.9 $16.4 $18.9
Transworld Systems 13.0 14.0 13.2 12.8 14.0
Other Subsidiaries 3.2 1.3 0.7 3.6 4.9
* Represents cash generated by Transworld Systems, Allied Bond and Capital
Credit, as measured by profit before taxes, amortization of goodwill and
depreciation expense.
** Fiscal year 1993 includes the results of Allied Bond, since its acquisition
in December 1992.]
[Graphic text box omitted that contains the following statement: Cash generated*
by operating subsidiaries reached a record $19 million.]
4
<PAGE>
Transworld Systems, Allied Bond and Capital Credit by anticipating and meeting
our customers' needs and expectations in the areas of performance, service and
innovation and by expanding into markets that offer consistent growth in
revenues and profits.
We will build upon our core competence in accounts receivable management and
expand into new markets by providing on an outsourcing basis such services as
customer service and pre-chargeoff collections. Union's efforts in this respect,
as described earlier in this report, are examples of the outsourcing strategy
that the Company will continue to pursue. These services differ from contingency
fee based collections in that they are less price sensitive and are customarily
provided under long-term contracts .
We are confident of the Company's future and our ability to increase shareholder
value in the years ahead.
Respectfully,
MELVIN L. COOPER
Melvin L. Cooper
Chairman of the Board and
Chief Executive Officer
WILLIAM B. HEWITT
William B. Hewitt
President and Chief
Operating Officer
September 22, 1995
[Graphic text box omitted that contains the following statement: Income from
Continuing Operations was $5.7 million for the current fiscal year or $1.01 per
share compared with $4.5 million or $.72 per share in fiscal 1994.]
5
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
BUSINESS OVERVIEW
- -----------------
The key to collecting past due debt is "third-party" intervention. As a third
party, the collection agency has an advantage because debtors are far more
concerned about their credit record when they are contacted by an outside
collection agency and, therefore, are more likely to respond positively. The
importance of national credit grantors and the increased mobility of delinquent
debtors have created a demand for national collection firms like Transworld
Systems, Allied Bond and Capital Credit. These companies have the financial and
managerial resources to maintain and upgrade sophisticated automated collection
systems that operate nationally.
Union's objectives for these businesses are:
. Develop new products and collection services to expand business with present
customers and attract new customers.
. Apply proven technology in order to provide clients with superior and
cost-effective collection services.
. Improve profit margins through increased productivity and cost control.
. Provide high quality customer service.
TRANSWORLD SYSTEMS, INC.
Transworld, headquartered in Rohnert Park, California, offers the combination of
both fixed-fee and contingency fee collection services. As the leading company
of its type in the industry, Transworld has a successful history of growth which
is attributable to the strength of its marketing organization, a high recovery
rate, cost-effectiveness and quality of service. Transworld's system reduces
customers' in-house collection costs while providing detailed monthly status
reports for accounting and control purposes. Its fixed-fee system, Phase I, is
based on contacting the debtor with a series of computer generated collection
demands sent by mail. Unlike companies whose revenues are derived from
contingency collection, Transworld's Phase I system currently charges a fixed
fee ranging from $4.75 to $9.95 per account depending on the number of accounts
placed.
Many customers with small-balance delinquent accounts, ranging between $50 and
$100, have found Transworld's Phase I system to be the only economical method of
obtaining professional, third-party collection results. Transworld's ability to
get clients to make an early assignment of delinquent accounts, usually forty-
five to ninety days past due, is possible because of the low fixed-fee structure
and its sophisticated computerized management reporting system. Transworld also
offers clients who purchase systems for 500 or more accounts the option to
electronically communicate the debtor information that is necessary to initiate
collection demands directly to Transworld's computer system. Many clients
experience collection costs as low as five to seven percent of the amount
collected, while at
[Graphic text box omitted that contains the following statement: Transworld has
a successful history of growth which is attributable to the strength of its
marketing organization, a high recovery rate, cost-effectiveness and quality of
service. Transworld's system reduces customers' in-house collection costs while
providing detailed monthly status reports for accounting and control purposes.]
6
<PAGE>
the same time eliminating a good deal of their normal billing expenses. The
combination of low cost and high recovery rates results in a high customer
renewal rate.
Transworld currently has well over 40,000 customers using its services, from
small companies that may purchase a system for 45 accounts to major corporations
that purchase systems for 100,000 accounts at a time.
The company's outstanding marketing organization, consisting of more than 700
independent contractors, provides the sales effort and ongoing service essential
to the system. This group is highly motivated because it is paid on a commission
basis. The building of such a sales force is a formidable barrier to entry for
potential competitors. Transworld had 132 sales offices throughout the country
at year end and plans to open six new sales offices in fiscal 1996.
CREDIT MANAGEMENT SERVICES (CMS)
Approximately 75% of the clients using Transworld's Phase I system assign those
accounts that were not collected during the fixed-fee program to CMS, a division
of Transworld, on a contingency fee basis (Phase II). Because a CMS office is
opened only after business has been developed by Transworld, historically it has
become profitable within the first month of operation.
CMS collectors are paid on a commission basis and perform collection services at
19 branch offices. Branch managers, trained and promoted from within, are
compensated through a combination of commission and profit incentive. CMS has
developed software packages and computer systems to handle fiduciary reporting
and interface with a client base of over 35,000. The average debt assigned to
CMS is over $600 with an average payment collected in excess of $180. CMS
completed another very strong year and had record collections, revenues and
profits.
Transworld continued to strengthen and upgrade its independent contractor sales
force in fiscal 1995, has maintained its high operating margins and positive
cash flow, and is well positioned for future growth.
ALLIED BOND & COLLECTION AGENCY, INC.
Allied Bond & Collection Agency, headquartered in Trevose, Pennsylvania, is a
well managed, contingency fee basis collection company with a nationally
recognized reputation for superior collection performance. In fiscal 1995 Allied
had a record volume of placements, both in aggregate dollars and number of
accounts placed for collection. Allied includes among its clients many of the
larger consumer credit grantors across a broad spectrum of industries such as
banking, oil refining and distribution companies, student loan servicing,
retail, travel and entertainment, utilities, telecommunications, and enjoys a
significant share in many of these markets.
[Graphic text box omitted that contains the following statement: Allied Bond &
Collection Agency is a well managed, contingency fee basis collection company
with a nationally recognized reputation for superior collection performance. In
fiscal 1995 Allied had a record volume of placements, both in aggregate dollars
and number of accounts placed for collection.]
7
<PAGE>
Through aggressive sales techniques, Allied has been able to increase its market
share in several of these areas.
Allied has strong, in-depth management at all levels. Every newly-employed
collector first attends a comprehensive, in-house training class for four weeks.
During this time, the trainee learns to combine Allied's on-line computer
network with proper collection techniques. Allied's computerized on-line
collection system enhances the ability of the individual collector to operate
efficiently. Upon graduation, collectors receive continuing education and
supervision to refine their skills, techniques, and efficiency.
The company is broadening the scope and flexibility of its collection services
and techniques in order to expand within existing credit markets as well as to
successfully penetrate into new markets to capitalize on Allied's proven
capabilities.
CAPITAL CREDIT CORPORATION
Capital Credit provides contingency and fixed-fee collections and
telemarketing services to large national clients in eight market segments:
. Bankcard
. Telecommunications
. Travel and Entertainment
. Government
. Retail
. Oil
. Utilities
. Medical
Capital Credit, which relocated its headquarters to its Regional Collection
Center in Jacksonville, Florida in the first quarter of fiscal 1995, continued
to make significant financial and operational improvements in fiscal 1995. Its
computerized on-line collection system links its three Regional Collection
Centers in Florida, Massachusetts and California and permits customers to
communicate electronically with the system for an instant exchange of
information. This system substantially decreases clerical effort and increases
collector productivity.
Capital Credit's strategy for growth is premised upon the following principles:
. Being a top quartile performer for clients in recovery rate, compliance and
customer service will yield increases in market share from existing clients
and will facilitate the acquisition of new clients within the above market
segments.
. The client base should be expanded and new services offered to existing
clients.
. Maintaining state-of-the-art technology is essential in maximizing staff
productivity.
Capital Credit made good progress in fiscal 1995 in applying all of these
principles.
Capital Credit is well positioned and its emphasis on productivity, marketing
and control of expenses should continue to improve its financial and operational
performance.
[Graphic text box omitted that contains the following statement: Capital Credit
continued to make significant financial and operational improvements in fiscal
1995 and is well positioned for growth.]
8
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In thousands, except per share amounts) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Operating revenues $97,649 $92,109 $80,499
------- ------- -------
Expenses:
Operating expenses 63,482 59,255 52,711
Selling, general and administrative expenses 19,759 20,470 16,869
Depreciation and amortization 4,101 4,442 3,291
------- ------- -------
Operating costs and expenses 87,342 84,167 72,871
------- ------- -------
Operating income 10,307 7,942 7,628
Interest expense (1,450) (1,048) (687)
Interest income 1,242 723 1,074
------- ------- -------
Income from continuing operations before income taxes 10,099 7,617 8,015
Provision for income taxes 4,392 3,138 3,345
------- ------- -------
Income from continuing operations 5,707 4,479 4,670
Discontinued operations loss provision
(net of tax benefit of $2,800) (5,200) - -
------- ------- -------
Income before cumulative effect of change in accounting
for income taxes 507 4,479 4,670
Cumulative effect of change in accounting for income taxes - 1,068 -
------- ------- -------
Net income $ 507 $ 5,547 $ 4,670
======= ======= =======
Primary income per common share:
Income from continuing operations $ 1.01 $ .72 $ .71
Discontinued operations loss provision (.92) - -
Cumulative effect of change in accounting for income taxes - .17 -
------- ------- -------
Net income $ .09 $ .89 $ .71
======= ======= =======
Fully diluted income per common share:
Income from continuing operations $ 1.00 $ .72 $ .71
Discontinued operations loss provision (.91) - -
Cumulative effect of change in accounting for income taxes - .17 -
------- ------- -------
Net income $ .09 $ .89 $ .71
======= ======= =======
Average number of common shares outstanding:
Primary 5,657 6,234 6,614
Fully diluted 5,726 6,234 6,614
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
JUNE 30, 1995 AND 1994
(In thousands) 1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 14,805 $ 11,579
Short-term investments, at cost, which approximates market 21,930 22,600
Accounts receivable, trade, less allowance for doubtful accounts of
$542 and $552 6,339 4,660
Prepaid expenses and other current assets 5,254 3,846
--------- ---------
Total current assets 48,328 42,685
Property, buildings and equipment, net 9,283 10,812
Cost of intangible assets from businesses acquired, less accumulated
amortization of $7,636 and $6,199 50,426 51,603
Other assets and deferred charges 2,300 2,135
Deferred income taxes 2,826 2,960
--------- ---------
Total assets $ 113,163 $ 110,195
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,044 $ 5,307
Accrued expenses 18,747 13,894
Income taxes payable 992 1,525
Current portion of long-term debt 213 204
--------- ---------
Total current liabilities 22,996 20,930
Long-term debt 20,763 20,973
Other liabilities 12,200 11,291
--------- ---------
Total liabilities 55,959 53,194
--------- ---------
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.50 par value; authorized shares, 15,000;
issued shares, 8,521 and 8,476 4,261 4,238
Additional paid-in capital 43,412 43,225
Retained earnings 46,337 45,830
Less treasury stock, at cost, 2,941 shares and 2,886 shares (36,806) (36,292)
--------- ---------
Total shareholders' equity 57,204 57,001
--------- ---------
Total liabilities and shareholders' equity $ 113,163 $ 110,195
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In thousands) 1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 507 $ 5,547 $ 4,670
Adjustments to reconcile income to net cash provided by operations:
Discontinued operations loss provision, net of tax benefit 5,200 - -
Cumulative effect of change in accounting for income taxes - (1,068) -
Depreciation and amortization 4,101 4,442 3,291
Deferred compensation expense 723 655 340
Provision for doubtful accounts 143 19 158
Provision for deferred income taxes 1,334 1,472 1,410
Changes in assets and liabilities:
Accounts receivable - (increase) decrease (1,822) 116 829
Prepaid expenses and other current assets - decrease (increase) 282 379 (367)
Other assets and deferred charges - (increase) (165) (179) (7)
Accounts payable and accrued expenses - increase (decrease) 220 (556) (5,351)
Income taxes payable - (decrease) increase (183) (193) 108
Other liabilities - (decrease) increase (2,847) (1,699) 70
-------- ------- -------
Net cash provided by operating activities 7,493 8,935 5,151
-------- ------- -------
Cash Flows From Investing Activities:
Capital expenditures (1,177) (927) (774)
Purchase of net assets of Allied Bond & Collection Agency,
net of cash acquired (260) (253) (40,348)
Other 42 26 37
-------- ------- -------
Net cash (used by) investing activities (1,395) (1,154) (41,085)
-------- ------- -------
Cash Flows From Financing Activities:
Purchase of treasury stock, at cost (3,344) (4,229) (14,789)
Principal payments on long-term debt (102) (94) (95)
Principal payments on capital lease obligations (99) (108) (21)
Proceeds from borrowing under line of credit facility - - 20,000
Proceeds from exercise of stock options 3 - 158
-------- ------- -------
Net cash (used by) provided by financing activities (3,542) (4,431) 5,253
-------- ------- -------
Net increase (decrease) in cash and short-term investments 2,556 3,350 (30,681)
Cash and short-term investments at beginning of year 34,179 30,829 61,510
-------- ------- -------
Cash and short-term investments at end of year $ 36,735 $34,179 $30,829
======== ======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 1,308 $ 959 $ 616
Income taxes paid 3,241 1,859 2,042
Supplemental disclosures of noncash investing and financing activities:
Capitalized equipment lease obligations $ - $ 184 $ 325
Accrued liability for treasury stock purchases - 2,830 -
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Additional
Common paid-in Retained Treasury
(Dollars in thousands) stock capital earnings stock
------ ------- -------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1992 $4,224 $43,081 $35,613 $(14,444)
Net income - - 4,670 -
Proceeds from common stock issued upon exercise of
stock options (27,500 shares) 14 144 - -
Purchase of treasury stock, at cost (1,053,000 shares) - - - (14,789)
------ ------- -------- --------
Balance at June 30, 1993 4,238 43,225 40,283 (29,233)
Net income - - 5,547 -
Purchase of treasury stock, at cost (677,000 shares) - - - (7,059)
------ ------- -------- --------
Balance at June 30, 1994 4,238 43,225 45,830 (36,292)
Net income - - 507 -
Proceeds from common stock issued upon exercise of
stock option (45,277 shares, net) 23 187 - -
Purchase of treasury stock, at cost (55,200 shares) - - - (514)
------ ------- -------- --------
BALANCE AT JUNE 30, 1995 $4,261 $43,412 $46,337 $(36,806)
====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of The Union
Corporation and its subsidiaries (the "Company"). All intercompany transactions
and accounts have been eliminated.
REVENUE RECOGNITION:
Revenue is generally recorded upon the performance of services.
CASH AND SHORT-TERM INVESTMENTS:
The Company primarily invests excess cash balances in U.S. government securities
and commercial paper with short-term maturities and overnight time deposits. The
Company considers its cash and short-term investments with an original maturity
or redemption date of three months or less to be cash equivalents.
PROPERTY, BUILDINGS AND EQUIPMENT:
Property, buildings and equipment are stated at cost. The Company uses the
straight-line method to provide for depreciation and amortization over the
following estimated useful lives of the assets or terms of leases: buildings and
leasehold improvements, seven to 30 years; equipment and furniture and fixtures,
four to 10 years; computer software, five years.
ACCOUNTING FOR INTANGIBLES:
The net cost of intangible assets of businesses acquired amounting to
$49,506,000 and $50,683,000 at June 30, 1995 and 1994, respectively, is being
amortized on a straight-line basis over a 40 year period. Such amortization
amounted to $1,437,000, $1,432,000 and $1,047,000 during the years ended June
30, 1995, 1994 and 1993, respectively. Certain intangible assets from
acquisitions made prior to October 31, 1970, amounting to $920,000, are not
being amortized since, in the opinion of management, there has been no
diminution in value.
INCOME TAXES:
The Company changed its method of accounting for income taxes in fiscal 1994 to
the liability method (See Note 10) whereby deferred tax assets and liabilities
are determined based on the differences between financial reporting and tax
bases of assets and liabilities. In fiscal 1993, the provision for deferred
income taxes represents the tax effect of differences between the time
transactions are recorded for financial statement purposes and the time they
affect taxable income.
PER SHARE DATA:
Income per common share is computed on the basis of the weighted average number
of common shares and dilutive common share equivalents outstanding during the
year.
2. ACQUISITION OF ALLIED BOND & COLLECTION AGENCY:
In December 1992, the Company completed the acquisition of Allied Bond &
Collection Agency ("Allied Bond"), a business engaged in providing collection
services on a contingency fee basis throughout the United States, for an initial
purchase price of approximately $40,300,000, which includes acquisition related
costs. In addition, contingent payments not to exceed approximately $8,300,000
may be payable by the Company based upon Allied Bond attaining certain earnings
levels over the five and one-half year period ending June 30, 1998. As of June
30, 1995, $638,000 of such contingent payments have been made. The Company
acquired substantially all tangible and intangible assets and properties of
Allied Bond, except certain cash, and assumed certain liabilities. The
acquisition was financed from existing working capital, a $5,000,000 short-term
promissory note issued by the Company, which was repaid by the Company with
existing funds in March 1993, and $20,000,000 borrowed under an existing
unsecured $25,000,000 two year revolving line of credit furnished by a bank
which converts to a three year term loan (See Note 6).
This transaction has been accounted for using the purchase method of accounting
and, accordingly, the results of operations of Allied Bond have been included in
the Company's consolidated results of operations since the effective date of
acquisition. The Company's allocation of the purchase price resulted in goodwill
of approximately $36,260,000 to date, which is subject to further adjustments
for the contingent payments noted above, and is being amortized over a forty-
year period.
The following unaudited pro forma summary of consolidated results of operations
gives effect to the acquisition as if it had occurred at the beginning of the
period presented.
<TABLE>
<CAPTION>
Year ended
(In thousands, except per share amounts) June 30,1993
------------
<S> <C>
Operating revenues $92,514
=======
Income before income taxes $ 8,511
Provision for income taxes 3,575
-------
Net income $ 4,936
=======
Primary and fully diluted
income per common share $ .75
=======
</TABLE>
13
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
The pro forma financial information is not necessarily indicative of the results
of operations that would have occurred had the acquisition been consummated at
the beginning of the period presented or of the future results of operations of
the combined companies.
3. DISCONTINUED OPERATIONS:
The Company recorded an $8,000,000 loss provision ($5,200,000 net of tax
benefit) or $.92 loss per share during the third quarter of fiscal 1995 for
costs related to certain of its discontinued operations, all of which were
terminated or otherwise disposed of prior to fiscal 1990. This provision was
recorded as a result of recent developments regarding previously reported
matters involving the Company's former Gichner Systems Group division (the
"Division") and environmental matters principally involving a site where an
inactive subsidiary of the Company fully performed a settlement with the federal
government which has reopened the matter. The net loss provision of $5,200,000
is included in the Consolidated Statements of Operations under the caption
"Discontinued operations loss provision" for the year ended June 30, 1995.
The $8,000,000 loss provision included an accrual of $3,500,000 for estimated
legal and accounting fees and settlement costs which are expected to be incurred
as a result of government claims for this matter and the estimated legal costs
to defend the Company against the claims asserted by Gichner Systems Group,
Inc.. The $8,000,000 loss provision also included $4,000,000 for environmental
matters and approximately $500,000 of costs incurred by the Company during the
quarter ended March 31, 1995 for the aforementioned Gichner Systems Group
division and environmental matters.
GICHNER SYSTEMS GROUP DIVISION:
The Company sold the assets and business of the Division to Gichner Systems
Group, Inc. (the "Purchaser") in 1989 and, accordingly, reflected the Division
as a discontinued operation in the Company's Statements of Operations. In 1991
the Purchaser informed the Company that false pricing information might have
been supplied by former officers of the Division, who were also members of the
group that purchased the Division from the Company, in connection with certain
government contracts negotiated prior to the sale. After investigation, those of
the former officers who were then working for the Purchaser were terminated for
cause, and the Company and Purchaser have tendered to the Department of Defense
a report of the results of their investigation. In addition to civil
proceedings, the government has recently informed the Company that
notwithstanding the Company's cooperation with the government in this matter, it
will institute proceedings against the Company under the Major Fraud Act as a
result of the prior actions of the former officers of the Division. The Company
is currently in negotiation to resolve all aspects of this investigation and
believes that these matters will be resolved in fiscal 1996. The Purchaser has
recently commenced suit against the Company. Although a summons has been served
on the Company, the actual claims of the Purchaser will not be known until a
complaint is filed with the court and served on the Company. It is presumed that
the complaint will allege breach by the Company of provisions of the Purchase
Agreement. The Company denies any breach of contract and intends to vigorously
defend against any such claims. Management believes that reserves established
for these matters are adequate based on current information, however there is
no way to be certain that future developments will not involve additional
substantial costs that may require future charges to the Discontinued operations
loss provision. The Company does not anticipate, based on current information,
that the resolution of these matters will have a material adverse impact on the
Company's overall financial condition given its available cash and short-term
investments.
Two former officers of the Division filed suit against the Company for
retirement benefits which the Company terminated when their alleged misconduct
was reported to the Company. All of their claims, and their refiled claims, have
been dismissed by the Court. The Company has counterclaimed for damages
resulting from the misconduct of the two former officers of the Division.
ENVIRONMENTAL MATTERS:
Current commercial operations of the Company and its subsidiaries do not involve
activities affecting the environment. However, the Company is a party in several
pending environmental proceedings involving the federal Environmental Protection
Agency ("EPA") and comparable state agencies in Indiana, Maryland,
Massachusetts, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. All
of these matters relate to discontinued operations of former divisions or
subsidiaries for which the Company has potential continuing responsibility.
One group of the Company's known environmental proceedings relates to Superfund
or other sites where the Company's liability arises from arranging for the
disposal of allegedly hazardous substances in the ordinary course of prior
business operations. In most of these "generator" lia-
14
<PAGE>
bility cases, the Company's involvement is considered to be de minimus (i.e. a
volumetric share of approximately 1% or less) and in each of these cases the
Company is only one of many potentially responsible parties. From the
information currently available, there are a sufficient number of other
economically viable participating parties so that the Company's projected
liability, although potentially joint and several, is consistent with its
allocable share of liability. At one "generator" liability site, the Company's
involvement is potentially more significant because of the volume of waste
contributed in past years by an inactive subsidiary. Insufficient information is
available regarding the need for or extent and scope of any remedial actions
which may be required. The Company has recorded what it believes to be a
reasonable estimate of its potential liability, based on current information,
for this site.
The second group of matters relates to environmental issues on properties
currently or formerly owned or operated by a subsidiary or division of the
Company. These cases generally involve matters for which the Company or an
inactive subsidiary is the sole or primary responsible party. In one such case,
however, although the affected subsidiary fully performed a settlement with the
federal government, the government has reopened the matter. A group of
financially solvent responsible parties has completed an extensive investigation
of the Superfund site under a consent order with the EPA and submitted Remedial
Investigation and Feasibility Study Reports (the "Reports") to the EPA, which
outline a range of various remedial alternatives for the site. The EPA has
issued a proposed plan which is subject to public comment. The Company's
environmental counsel retained two environmental consulting firms to review and
evaluate the Reports and proposed plan. The findings of these consulting firms
indicate that many of the assumptions, purported facts and conclusions contained
in the Reports and proposed plan are significantly flawed. Notwithstanding the
foregoing and the Company's denial of liability because of the prior settlement
with the government, the $8,000,000 loss provision includes a provision of
approximately $4,000,000 for environmental matters. The provision for
environmental matters includes the estimated legal and consulting costs for this
and other sites involving the Company or an inactive subsidiary, the estimated
costs to defend the Company's aforementioned settlement with the government, and
the estimated remediation costs that the Company will incur, based on current
information, if its prior settlement with the government is not upheld in court.
However, the Company may be exposed to additional substantial liability for this
site as additional information becomes available over the long-term. A better
estimate of costs associated with any further remediation to be taken at the
site cannot be made until a Record of Decision is issued by the EPA, which is
expected to be issued in fiscal 1996. Actual remediation costs cannot be
computed until such remedial action is completed. Some of the other sites
involving the Company or an inactive subsidiary are at a stage where an
assessment of liability, if any, cannot reasonably be made.
It is the Company's policy to comply fully with all laws regulating activities
affecting the environment and to meet its obligations in this area. In many
"generator" liability cases, reasonable cost estimates are available on which to
base reserves on the Company's likely allocated share among viable parties.
Where insufficient information is available regarding projected remedial actions
for these "generator" liability cases, the Company has recorded what it believes
to be reasonable estimates of its potential liabilities. Reserves for liability
for sites on which former operations were conducted are based on cost estimates
of remedial actions projected for these sites. All known environmental claims
are periodically reviewed by the Company, where information is available, to
provide reasonable assurance that adequate reserves are maintained. Reserves
recorded for environmental liabilities are not net of insurance or other
expected recoveries. Other than the aforementioned loss provision that was
recorded by the Company during the quarter ended March 31, 1995, no significant
expenses related to environmental matters were recorded by the Company during
the three years ended June 30, 1995 due to the adequacy of previously recorded
reserve balances based on prior available information. Management believes that
reserves established to meet known and potential environmental liabilities are
adequate based on current information. The Company does not anticipate, based on
current information, that the resolution of these matters will have a material
adverse impact on the Company's overall financial condition given its available
cash and short-term investments. However, there is no way to be certain that
future developments relating to environmental matters will not involve
additional substantial costs that may require future charges to the Discontinued
operations loss provision.
15
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
4. PROPERTY, BUILDINGS AND EQUIPMENT:
Property, buildings and equipment, at cost, are summarized below:
<TABLE>
<CAPTION>
June 30,
-----------------------
(In thousands) 1995 1994
------ ------
<S> <C> <C>
Land $1,087 $ 1,087
Buildings and leasehold
improvements 3,897 3,902
Equipment and furniture
and fixtures 12,525 11,872
Computer software 3,200 3,200
------ -------
Subtotal 20,709 20,061
Less accumulated depreciation 11,426 9,249
------ -------
Net property, buildings and
equipment $9,283 $10,812
====== =======
</TABLE>
5. ACCRUED EXPENSES:
Accrued expenses are summarized below:
<TABLE>
<CAPTION>
June 30,
-------------------------
(In thousands) 1995 1994
------- -------
<S> <C> <C>
Compensation and benefits $ 4,972 $ 4,659
Accrued collection costs 2,764 1,772
Accrued commissions 1,407 1,157
Accrued liabilities retained from
discontinued operations 6,428 853
Current portion of restructuring
provision 497 1,515
Other 2,679 3,938
------- -------
Total $18,747 $13,894
======= =======
</TABLE>
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
June 30,
-------------------------
(In thousands) 1995 1994
------- -------
<S> <C> <C>
Senior debt:
Collateralized notes at 8.25% $ 695 $ 797
Capitalized lease obligations 281 380
Unsecured revolving line of credit 20,000 20,000
------- -------
Total debt 20,976 21,177
Less current portion 213 204
------- -------
Total long-term debt $20,763 $20,973
======= =======
</TABLE>
In December 1992, the Company borrowed $20,000,000 under an existing $25,000,000
unsecured Revolving Credit Agreement, as amended, (the "Credit Agreement")
furnished by a bank. Pursuant to the terms of the Credit Agreement, the Company
borrowed the $20,000,000 under a two year revolving line of credit which was
scheduled to convert to a three year term loan on December 31, 1994. During
fiscal 1995 the bank extended the revolving line of credit until December 31,
1996, at which time the revolving line of credit will convert to a three year
term loan.
Under the new terms of the Credit Agreement, the aggregate principal amount
outstanding, which is limited to a maximum of $20,000,000, under the revolving
line of credit on December 31, 1996 must be repaid by the Company in twelve
quarterly installments commencing March 31, 1997 and ending December 31, 1999.
Each of the first eleven installments must be in an amount equal to one-
twentieth of the outstanding loan balance on December 31, 1996, with the twelfth
installment equal to the amount necessary to repay the then unpaid principal
amount of the loan. The loans bear interest, at the Company's option, at either
the bank's base rate, which is announced by the bank from time to time; or at
3/4% above the bank's Eurodollar rate during both the revolving and term loan
periods. The interest rate, which is reset periodically, on the revolving term
loan was 7.25% at June 30, 1995.
The maximum amount of letters of credit that the bank will issue under the
Credit Agreement is $5,000,000. At June 30, 1995, the Company was contingently
liable for outstanding letters of credit aggregating approximately $1,621,000
which reduced the amount available for letters of credit under the Credit
Agreement to approximately $3,379,000.
Under the terms of the Credit Agreement, the Company is precluded from paying
cash dividends on common stock, is limited to capital expenditures of $8,500,000
per year and is required to meet certain financial tests, all of which were met
at June 30, 1995.
The aggregate amount of long-term debt, excluding capitalized leases (See Note
8), which becomes due during each of the next five years ending June 30, is as
follows: 1996, $110,000; 1997, $2,120,000; 1998, $4,130,000; 1999, $4,141,000;
2000, $10,153,000.
7. OTHER LIABILITIES:
Other liabilities are summarized below:
<TABLE>
<CAPTION>
June 30,
-------------------------
(In thousands) 1995 1994
------- -------
<S> <C> <C>
Compensation and benefits $ 6,439 $ 7,717
Noncurrent liabilities retained
from discontinued operations 3,926 1,192
Noncurrent portion of
restructuring provision 241 1,082
Other 1,594 1,300
------- -------
Total $12,200 $11,291
======= =======
</TABLE>
16
<PAGE>
8. COMMITMENTS AND CONTINGENT LIABILITIES:
LEASES:
The Company leases equipment and facilities with terms ranging from 1 to 8 years
with renewal options generally being available.
Property, buildings and equipment includes $509,000, before accumulated
depreciation, of fixed assets held under capitalized leases at June 30, 1995.
Related accumulated depreciation was $235,000 at June 30, 1995.
Future minimum lease payments under long-term leases as of June 30, 1995 are as
follows:
<TABLE>
<CAPTION>
Capitalized Operating
Leases Leases
-------- -----------
<S> <C> <C>
1996 $121,000 $ 4,327,000
1997 121,000 3,595,000
1998 88,000 2,050,000
1999 - 1,510,000
2000 - 1,297,000
2001 and thereafter - 1,765,000
-------- -----------
Total minimum
lease payments 330,000 $14,544,000
Amount representing ===========
interest 49,000
--------
Present value of minimum
lease payments $281,000
========
</TABLE>
Rental expense included in Operating Income amounted to $4,045,000 in 1995,
$3,953,000 in 1994 and $3,623,000 in 1993.
Allied Bond leases its main facility from a partnership, of which the general
partners are the co-chairmen and co-chief executive officers of Allied Bond,
pursuant to a lease agreement that expires in July 2002. The terms of the lease
are comparable to those that would have been obtained under arrangements with
unrelated third parties. Allied Bond paid approximately $513,000, $489,000 and
$273,000 in 1995, 1994 and 1993, respectively, pursuant to such lease.
LITIGATION:
In June 1991, two stockholder class actions were brought, and then consolidated,
against the Company, Capital Credit, certain directors and current and former
executive officers of the Company, and certain former directors and officers of
Capital Credit, seeking damages under the securities laws in connection with the
misstatement by the Company of certain quarterly financial statements in fiscal
1990 and 1991. The Company and the individual defendants denied any and all
wrongdoing or liability and vigorously defended the action. In order to end the
substantial expense and distraction of continued litigation, the Company settled
the action, which settlement has been approved by the court. All claims against
the Company and the other defendants have been dismissed with prejudice. The
Company and its insurer each paid one-half of the $1,500,000 settlement amount
in March 1995. That portion of the settlement amount which was not covered by
insurance was charged against existing reserves, all of which had been recorded
in prior fiscal years.
In a lawsuit brought in 1993 by three individuals engaged by Transworld Systems
as independent contractors, in which it was alleged that Transworld Systems has
improperly treated the plaintiffs as independent contractors rather than
employees, all of the asserted claims have been dismissed by the Court with
prejudice.
Some of the same persons and others have also brought suit against Transworld
Systems and certain of its directors and officers, alleging breach of contract
and mental distress as a result of Transworld Systems' failure to supply
plaintiffs with copies of a monthly publication distributed by Transworld
Systems. One person has also brought suit alleging wrongful termination. The
claims in this action against Transworld Systems have been reviewed by counsel
and, based on their assessment, management has concluded that the claims are
without merit.
In addition, the Company and certain subsidiaries are also parties to a number
of lawsuits arising in the ordinary course of business.
Based on current estimates and information, the Company does not believe that
the ultimate resolution of the above matters will have a material adverse impact
on the Company's overall financial condition or future results of operations.
OTHER:
The Company is a party in various lawsuits and administrative proceedings
involving its former Gichner Systems Group division. The Company is also a party
in several pending environmental proceedings involving the federal Environmental
Protection Agency and comparable agencies in various states. All of these
environmental matters relate to discontinued operations of former divisions or
subsidiaries for which the Company has potential continuing responsibility. See
Note 3 of Notes to Consolidated Financial Statements for additional information
regarding these matters.
17
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
9. STOCK OPTION PLANS:
At June 30, 1995, 1,140,418 shares of the Company's common stock were reserved
for issuance to officers, key employees and directors under various stock option
plans as summarized below:
<TABLE>
<CAPTION>
Number of shares
--------------------------------------------------------------------------------
1994 1973 1991
Incentive 1984 Nonqualified Non-Employee Not
Stock Stock Option Stock Option Directors' Stock under any
Plan Plan Plan Option Plan option plan
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Under option (1) 30,000 496,857 64,561 42,000 30,000
Available for future grants (2) 470,000 - - 7,000 -
Exercised to date - 437,873 217,049 - 96,000
Surrendered to date for SARs - - 58,389 - -
Expired - 310,270 10,001 - 18,500
-------- --------- --------- ------- -------
Authorized shares 500,000 1,245,000 350,000 49,000 144,500
======== ========= ========= ======= =======
Total reserved (1) + (2) 500,000 496,857 64,561 49,000 30,000
======== ========= ========= ======= =======
</TABLE>
The 1994 Incentive Stock Plan ("1994 Plan"), which was adopted by the Board of
Directors in August 1994 and approved by the shareholders at the Annual Meeting
in November 1994, provides for the issuance of options and other securities to
purchase, in the aggregate, up to 500,000 shares of the Company's common stock
to employees of the Company or its subsidiaries. The 1991 Non-Employee
Directors' Stock Option Plan ("Directors' Plan") provides for the issuance of
options to purchase up to an aggregate of 49,000 shares of the Company's common
stock to Non-Employee Directors. Under the Directors' Plan, each director who
has served in such capacity for at least one full year automatically receives an
option to purchase 3,500 shares of common stock on November 19th of each year,
until the director receives 10,500 shares. Options granted under the 1994 Plan
and the Directors' Plan are granted at an exercise price equal to the fair
market value of the stock on the date of such grant and generally expire
approximately ten years after the date of grant. The Directors' Plan expires
December 31, 1995 and the 1994 Plan expires August 24, 2004.
Options under the 1984 Stock Option Plan ("1984 Plan") and the 1973 Nonqualified
Stock Option Plan ("1973 Plan") were granted through the date that the plan
expired at such prices and upon such terms as the Stock Option Committee of the
Board of Directors fixed as to each optionee. Options granted under the 1984
Plan and the 1973 Plan generally expire approximately ten years after the date
of grant. The 1973 Plan expired on December 31, 1987 and the 1984 Plan expired
on September 17, 1994. The nonqualified options (not under any option plan) are
presently exercisable and expire ten years after date of grant through 1997.
At June 30, 1995, options for 420,338 shares were exercisable. At June 30, 1994,
there were 253,685 shares available for future grants. Under the 1994 Plan,
options which are forfeited without exercise are available for future grant
through the date the plan expires.
Additional information with respect to shares under option for the three years
ended June 30, 1995 follows:
<TABLE>
<CAPTION>
Option price Number of
per share shares
------------------------ ---------
<S> <C> <C>
Outstanding at June 30,1992 $ 4.620 to $23.625 550,103
Granted 12.313 to 14.813 128,000
Forfeited 19.250 to 22.690 (20,000)
------------------------ ---------
Outstanding at June 30, 1993 $ 4.620 to $23.625 658,103
Granted 10.375 to 12.500 117,000
Forfeited 12.000 to 18.875 (9,100)
------------------------ ---------
Outstanding at June 30, 1994 $ 4.620 to $23.625 766,003
Granted 11.875 to 14.625 101,583
Exercised 4.62 (69,000)
Exchanged 14.125 to 23.625 (124,168)
Forfeited 11.875 (11,000)
------------------------ ---------
OUTSTANDING AT JUNE 30, 1995 $ 7.375 TO $22.875 663,418
======================== =========
</TABLE>
On August 25, 1994, the Board of Directors approved a plan which offered all
optionees under the 1984 Stock Option Plan, other than members of the Executive
Management Group of the Company, the opportunity to voluntarily exchange all of
their unexercised options granted
18
<PAGE>
during calendar 1990, 1991 and 1992 for a new option to purchase one-half of the
number of shares subject to the above unexercised options at the exercise price
of $11.875 per share, the current market value on August 25, 1994. Under the
plan, options covering 124,168 shares that were exercisable at prices ranging
from $14.125 to $23.625 per share were exchanged for options to purchase 62,083
shares at the lower price.
The chief executive officer of a subsidiary who is also a Director and Officer
of the Company was awarded options to purchase 30,000 shares in each fiscal year
ended June 30, 1992, 1993 and 1994 at exercise prices of $22.44, $14.125 and
$12.00 per share, respectively. The options awarded to such grantee under all
three awards are exercisable for a period commencing six months after the
respective dates of grant and ending four years from the respective dates of
grant, provided that such options shall not be exercisable if the market value
of the Company's common stock is not equal to or greater than 150% of the
respective exercise prices. The option to purchase 30,000 shares at $22.44 per
share expires on September 15, 1995.
During fiscal 1995, an option was exercised to purchase 69,000 shares of common
stock of the Company and the optionee elected to pay for these shares by
surrendering 23,723 shares of common stock of the Company, previously owned by
the optionee, that had a fair market value on the date of exercise equal to the
exercise price. The tax benefit that the Company will realize as a result of the
exercise of this stock option is included in "Additional paid-in capital" in the
Consolidated Balance Sheet at June 30, 1995.
The 1994, 1984 and 1973 plans provide for the grant of stock appreciation rights
("SARs") at the discretion of the Stock Option Committee of the Board of
Directors.
At June 30, 1995, 1994 and 1993, there were 131,000 options with related SARs
outstanding which were exercisable at $10.75 per share. The holder of these SARs
may elect to surrender an unexercised option, or any portion thereof, and
receive in exchange from the Company a number of shares having an aggregate
market value equal to 75% of the difference between the option price and the
market value of such shares to the extent such appreciation equals or is less
than $5.00 per share, and 90% of such appreciation over $5.00 per share. The
Company, at the sole discretion of the Stock Option Committee, has the option of
settling its obligations arising out of the exercise of SARs in stock, cash or a
combination thereof.
During fiscal 1993, 27,500 options that were originally issued to an investor
group in December 1983 at an exercise price of $5.75 were exercised. The
investor group had previously transferred these options to various individuals
including an option to acquire 12,500 shares to a Director who currently is also
Chairman and an option to acquire 5,000 shares to a Director of the Company.
10. INCOME TAXES:
The Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes", effective July 1, 1993. Under SFAS 109,
the liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Prior to the adoption of SFAS 109, income tax expense
was determined using the deferred method. Deferred tax expense was based on
items of income and expense that were reported in different years in the
financial statements and tax returns and were measured at the tax rate in effect
in the year the difference originated.
As permitted by SFAS 109, the Company has elected not to restate the financial
statements of any prior years. Although the change in accounting for income
taxes did not have a material effect on "Income before cumulative effect of
change in accounting for income taxes" for the year ended June 30, 1994, the
cumulative effect of the change increased net income by $1,068,000, or $.17 per
share.
The provision for income taxes on continuing operations is comprised of the
following:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------------------
(In thousands) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $1,936 $ 971 $1,127
State 1,122 695 808
------ ------ ------
Total current 3,058 1,666 1,935
------ ------ ------
Deferred:
Federal 1,244 1,329 1,387
State 90 143 23
------ ------ ------
Total deferred 1,334 1,472 1,410
------ ------ ------
Total income taxes $4,392 $3,138 $3,345
====== ====== ======
</TABLE>
19
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
As described in Note 3, the Company recorded a deferred tax benefit of
$2,800,000 in fiscal 1995 as a result of the loss provision recorded for
discontinued operations.
The significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
June 30,
---------------------
(In thousands) 1995 1994
------ ------
<S> <C> <C>
Deferred Tax Assets:
Compensation and benefits $3,479 $3,551
Restructuring provision 1,322 2,104
Accrued liabilities retained from
discontinued operations 4,010 879
Net state operating loss
carryforwards 886 765
Other 374 428
------ ------
Total deferred tax assets 10,071 7,727
Valuation allowance for
deferred tax assets (2,095) (1,897)
------ ------
Deferred tax assets, net
of valuation allowance 7,976 5,830
------ ------
Deferred Tax Liabilities:
Tax goodwill amortization in
excess of book amortization (1,726) (1,071)
Tax depreciation in excess
of book depreciation (767) (742)
------ ------
Total deferred tax liabilities (2,493) (1,813)
------ ------
Net deferred tax assets $5,483 $4,017
====== ======
</TABLE>
The valuation allowance for deferred tax assets relates to the state deferred
tax assets, including the net state operating loss carryforwards, as management
currently believes that the realization of the state deferred tax assets do not
meet the "more likely than not" criteria outlined in SFAS 109.
Net current federal deferred tax assets of $2,890,000 and $1,200,000 are
included in "Prepaid expenses and other current assets" in the Consolidated
Balance Sheets at June 30, 1995 and 1994, respectively. Also, a net non-current
state deferred tax liability of $233,000 is included in "Other liabilities" in
the Consolidated Balance Sheet at June 30, 1995 and a net current state deferred
tax liability of $143,000 is included in "Income taxes payable" in the
Consolidated Balance Sheet at June 30, 1994.
The significant components of the net deferred tax provision on continuing
operations for 1993 were as follows:
<TABLE>
<CAPTION>
Year ended
(In thousands) June 30,1993
------------
<S> <C>
Restructuring charge $1,003
Deferred compensation (116)
Accruals relating to discontinued operations 508
Other 15
------
Total $1,410
======
</TABLE>
A reconciliation of the provision for income taxes on continuing operations
computed at the U.S. federal statutory income tax rate, 34%, to the tax
provision as reported for 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------------
(In thousands) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Provision computed
at U.S. federal
statutory income
tax rate $3,434 $2,590 $2,725
Increases (reductions)
in taxes resulting from:
State income taxes,
net of federal income
tax benefit 800 553 548
Amortization of
intangibles 182 182 356
Tax benefit resulting
from change in tax
law allowing a
retroactive deduction
for the amortization
of certain goodwill - (174) -
Tax exempt interest
income - (14) (214)
Other (24) 1 (70)
------ ------ ------
Total $4,392 $3,138 $3,345
====== ====== ======
</TABLE>
During fiscal 1994, the Omnibus Budget Reconciliation Act of 1993 (the "Act")
was passed which, among other changes, allows a tax deduction for the
amortization of certain goodwill acquired subsequent to July 1991. As a result,
a tax benefit of $174,000 was recorded in fiscal 1994 resulting from the fiscal
1993 amortization of goodwill from the acquisition of Allied Bond (See Note 2)
that became deductible due to the tax law change.
20
<PAGE>
11. RETIREMENT PLANS:
The Company's Transworld Systems subsidiary terminated its defined benefit
pension plan effective October 31, 1993. Benefits under the plan were frozen as
of October 31, 1993 and no new participants could enter the plan. The plan's
assets, which aggregated approximately $2,000,000 on June 30, 1994 and
approximated the amount of the accumulated benefit obligation, were distributed
to all plan participants during the year ended June 30, 1995, after the receipt
of a favorable determination by the Internal Revenue Service related to the plan
termination. The net pension cost related to the plan during the years ended
June 30, 1994 and 1993 was approximately $300,000 and $199,000, respectively. As
a result of the termination of the plan, the accumulated benefit obligation
increased in 1994 primarily due to a required change in the discount rate to
4.5% in 1994 from 7% in 1993. The effect of the termination on the Company's
results was not significant.
The Company also has trusteed defined contribution plans covering substantially
all of its employees. The contributions to these plans generally represent a
percentage of employee salary. The costs of the plans, which are funded
currently, amounted to $494,000, $357,000, and $306,000 in the years ended June
30, 1995, 1994 and 1993, respectively.
Certain officers, directors and key employees of the Company have agreements
which provide for deferred compensation after termination of active employment.
The Company accrues the estimated total deferred compensation under each
agreement over the expected period of active employment. Deferred compensation
expense during the years ended June 30, 1995, 1994 and 1993 was $723,000,
$655,000 and $340,000, respectively.
12. RIGHTS AGREEMENT:
During fiscal 1988, the Board of Directors of the Company (the "Board") declared
a dividend distribution of one common stock purchase right (a "Right") for each
outstanding share of the common stock of the Company. The Rights expire at the
close of business on December 31, 1998, unless earlier redeemed by the Company.
Each Right entitles the registered holder to purchase one-half of one share of
common stock, at the exercise price as declared by the Board, subject to
adjustment. The exercise price is currently $30 per whole share. The Rights will
not be exercisable until the Distribution Date, which will occur when a person
(other than a certain former shareholder or any shareholder who has filed a
Schedule 13G pursuant to Regulation 13d-1(b) or 13d-2(b) and remains eligible to
do so) becomes and remains the beneficial owner of 15% or more of the Company's
outstanding common stock or announces an offer which would result in such person
acquiring 30% or more of the Company's common stock.
After the Distribution Date, Rights Certificates will be mailed to holders of
record of the common stock as of the close of business on the Distribution Date.
After the Rights become exercisable, if the Company is a party to certain merger
or business combination transactions or transfers 50% or more of its assets or
earnings power, or if the acquiring person engages in certain self-dealing
transactions, each holder of a Right will receive, upon exercise of each Right,
that number of shares of common stock, of either the Company or the acquiring
company, having a market value equal to two times the Exercise Price of the
Right.
Pursuant to certain provisions of the Rights Agreement, the Company may redeem
the Rights in whole and the Board of Directors may amend the Rights Agreement.
13. TREASURY STOCK:
During fiscal 1995 the Company purchased, with available funds, 55,200 shares of
the Company's common stock for approximately $514,000. During fiscal 1994 the
Company purchased, with available funds, 677,000 shares of the Company's common
stock for $7,059,000. All purchases were under share repurchase authorizations
previously announced.
21
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
14. QUARTERLY DATA (UNAUDITED):
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenues $23,369 $23,917 $24,240 $26,123
Operating income 1,740 2,300 2,478 3,789
Income from continuing operations before
income taxes 1,666 2,231 2,453 3,749
Provision for income taxes 716 960 1,055 1,661
Income from continuing operations 950 1,271 1,398 2,088
Discontinued operations loss provision
(net of tax benefit of $2,800) - - (5,200) -
Net income 950 1,271 (3,802) 2,088
Primary income per common share:
Income from continuing operations .17 .22 .25 .37
Discontinued operations loss provision - - (.92) -
Net income .17 .22 (.67) .37
Fully diluted income per common share:
Income from continuing operations .17 .22 .25 .36
Discontinued loss provision - - (.92) -
Net income .17 .22 (.67) .36
<CAPTION>
First Second Third Fourth
1994 quarter quarter quarter quarter
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenues $22,956 $21,760 $23,028 $24,365
Operating income 1,463 1,502 2,252 2,725
Income before income taxes and cumulative effect of
change in accounting for income taxes 1,384 1,426 2,164 2,643
Provision for income taxes 570 588 891 1,089
Income before cumulative effect of
change in accounting for income taxes 814 838 1,273 1,554
Cumulative effect of change in accounting
for income taxes 1,068 - - -
Net income 1,882 838 1,273 1,554
Primary and fully diluted income per common share:
Income before cumulative effect of
change in accounting for income taxes .13 .13 .20 .26
Cumulative effect of change in accounting
for income taxes .17 - - -
Net income .30 .13 .20 .26
</TABLE>
22
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
MANAGEMENT'S REPORT AND
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
MANAGEMENT'S REPORT
Management is responsible for the integrity and objectivity of the data included
in this report. The financial statements have been prepared in accordance with
generally accepted accounting principles. Where necessary, they reflect
estimates based on management judgment.
Established accounting procedures and related systems of internal control are
designed to provide reasonable assurance that assets are safeguarded and that
transactions are executed in accordance with management's authorizations and are
recorded properly in the books and records. The accounting and control systems
are continually reviewed.
The Audit Committee, composed of four members of the Board of Directors who are
not employees of the Company, meets regularly with representatives of
management, the independent auditors and the internal auditor to monitor the
functioning of the accounting and control systems, to determine the scope of the
annual audit by the independent auditors, and to review the results of the
independent and internal auditing activities. The Audit Committee recommends
independent auditors for appointment by the Board. The independent auditors and
internal auditor have direct access to the Audit Committee.
The independent auditors conduct an objective, independent audit of the
financial statements. Their report appears at the right.
NICHOLAS P. GILL
Nicholas P. Gill
Vice President,
Chief Financial Officer
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Union Corporation
We have audited the accompanying consolidated balance sheets of The Union
Corporation and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 consolidated financial position of The Union
Corporation and subsidiaries at June 30, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1995, in conformity with generally accepted accounting
principles.
As described in Note 10 to the consolidated financial statements, during the
year ended June 30, 1994 the Company changed its method of accounting for income
taxes.
ERNST & YOUNG LLP
New York, New York
September 22, 1995
23
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
(Years referred to are Fiscal Years)
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong and liquid at June 30, 1995
with cash and short-term investments totaling $36,735,000, working capital of
$25,332,000 and net worth of $57,204,000. During the twelve months ended June
30, 1995 the net cash provided by operating activities was $7,493,000, compared
to $8,935,000 a year ago. This decrease was principally attributable to an
increase in accounts receivable, principally due to the increase in revenues,
and a decrease in other liabilities (excluding the effect of the increase of
approximately $3,000,000 recorded in other liabilities for discontinued
operations), partially offset by the increase in "Income from continuing
operations" and an increase in accounts payable and accrued expenses. The
aggregate cash disbursements related to discontinued operations of the Company
were essentially unchanged in 1995 compared to a year ago.
During fiscal 1995 the Company purchased, with available funds, 55,200 shares of
the Company's common stock for approximately $514,000. The Company also paid
$2,830,000 in July 1994 for 290,600 shares of its common stock that were
purchased in June 1994. All purchases were under share repurchase authorizations
previously announced. As of September 15, 1995, the Company held approximately
2,941,000 shares of its common stock at an aggregate cost of $36,806,000. Future
purchases, if any, by the Company of its common stock will be funded with
available funds.
Capital expenditures, excluding capital lease obligations, were $1,177,000 in
fiscal 1995 compared to $927,000 in fiscal 1994. The fiscal 1995 capital
expenditures principally represent costs related to the purchase of computer,
telecommunications and office equipment by Transworld Systems, Allied Bond and
Capital Credit. The Company anticipates that capital expenditures of
approximately $1,500,000 will be made during fiscal 1996.
The Company has been recently advised that it has been selected to provide a
major corporation with customer services and pre-chargeoff collections on an
outsourcing basis. The size and term of the contract are presently being
discussed.
In December 1992, the Company completed the acquisition of Allied Bond for an
initial purchase price of approximately $40,300,000. In addition, contingent
payments not to exceed approximately $8,300,000 may be payable by the Company
based upon Allied Bond attaining certain earnings levels over the five and one-
half year period ending June 30, 1998. As of June 30, 1995, $638,000 of such
contingent payments have been made. The acquisition was financed from existing
working capital, a $5,000,000 short-term promissory note issued by the Company,
which was repaid by the Company with existing funds in March 1993, and
$20,000,000 borrowed under an existing unsecured $25,000,000 two year revolving
line of credit furnished by a bank which was scheduled to convert to a three
year term loan on December 31, 1994 (the "Credit Agreement"). During fiscal 1995
the bank extended the revolving line of credit until December 31, 1996, at which
time the revolving line of credit will convert to a three year term loan.
Under the new terms of the Credit Agreement, the aggregate principal amount
outstanding, which is limited to a maximum of $20,000,000, under the revolving
line of credit on December 31, 1996 must be repaid by the Company in twelve
quarterly installments commencing March 31, 1997 and ending December 31, 1999.
Each of the first eleven installments must be in an amount equal to one-
twentieth of the outstanding loan balance on December 31, 1996, with the twelfth
installment equal to the amount necessary to repay the then unpaid principal
amount of the loan. The maximum amount of letters of credit that the bank will
issue under the Credit Agreement is $5,000,000. At June 30, 1995, the Company
was contingently liable for outstanding letters of credit aggregating
approximately $1,621,000 which reduced the amount available for letters of
credit under the Credit Agreement to approximately $3,379,000.
Pursuant to a March 1995 amendment (the "Amendment") to the Company's employment
agreement with the Chairman of the Company (the "Employment Agreement"), an
amount equal to the discounted net present value of the deferred compensation
payable to the Chairman under the Employment Agreement will be paid to the
Chairman at the time of his retirement. The discounted net present value of the
deferred compensation at June 30, 1995 was approximately $3,000,000, which
amount is included in "Other liabilities" in the Consolidated Balance Sheets.
The Amendment also extends the term of the Chairman's employment to December 31,
1997 and provides for the Company to deposit into a trust, at the time of the
Chairman's retirement, an amount equal to the discounted
24
<PAGE>
net present value of the aggregate consulting fees to be paid by the Company to
the Chairman for consulting services to be rendered by the Chairman for a period
of up to ten years following his retirement, previously such consulting services
were to be rendered by the Chairman for the remainder of his life. The
discounted net present value of the aggregate consulting fees was approximately
$2,000,000 at June 30, 1995, which will be expensed as the services are
rendered.
The employment agreement dated July 1, 1995 with the chairman of a subsidiary of
the Company provides for the subsidiary to deposit into a trust the aggregate
amount of the deferred bonuses, and related interest, earned by the chairman,
which amount was approximately $1,500,000 at June 30, 1995.
The Company recorded an $8,000,000 loss provision ($5,200,000 net of tax
benefit) or $.92 loss per share during the third quarter of fiscal 1995 for
costs related to certain of its discontinued operations, all of which were
terminated or otherwise disposed of prior to fiscal 1990. This provision was
recorded as a result of recent developments regarding previously reported
matters involving the Company's former Gichner Systems Group division (the
"Division") and environmental matters principally involving a site where an
inactive subsidiary of the Company fully performed a settlement with the federal
government which has reopened the matter. The net loss provision of $5,200,000
is included in the Consolidated Statements of Operations under the caption
"Discontinued operations loss provision" for the year ended June 30, 1995.
The $8,000,000 loss provision included an accrual of $3,500,000 for estimated
legal and accounting fees and settlement costs which are expected to be incurred
as a result of government claims for this matter and the estimated legal costs
to defend the Company against the claims asserted by Gichner Systems Group,
Inc.. The $8,000,000 loss provision also included $4,000,000 for environmental
matters and approximately $500,000 of costs incurred by the Company during the
quarter ended March 31, 1995 for the aforementioned Gichner Systems Group
division and environmental matters.
The Company sold the assets and business of the Division to Gichner Systems
Group, Inc. (the "Purchaser") in 1989 and, accordingly, reflected the Division
as a discontinued operation in the Company's Statements of Operations. In 1991
the Purchaser informed the Company that false pricing information might have
been supplied by former officers of the Division, who were also members of the
group that purchased the Division from the Company, in connection with certain
government contracts negotiated prior to the sale. After investigation, those of
the former officers who were then working for the Purchaser were terminated for
cause, and the Company and Purchaser have tendered to the Department of Defense
a report of the results of their investigation. In addition to civil
proceedings, the government has recently informed the Company that
notwithstanding the Company's cooperation with the government in this matter, it
will institute proceedings against the Company under the Major Fraud Act as a
result of the prior actions of the former officers of the Division. The Company
is currently in negotiation to resolve all aspects of this investigation and
believes that these matters will be resolved in fiscal 1996. The Purchaser has
recently commenced suit against the Company. Although a summons has been served
on the Company, the actual claims of the Purchaser will not be known until a
complaint is filed with the court and served on the Company. It is presumed that
the complaint will allege breach by the Company of provisions of the Purchase
Agreement. The Company denies any breach of contract and intends to vigorously
defend against any such claims. Management believes that reserves established
for these matters are adequate based on current information, however there is no
way to be certain that future developments will not involve additional
substantial costs that may require future charges to the Discontinued operations
loss provision. The Company does not anticipate, based on current information,
that the resolution of these matters will have a material adverse impact on the
Company's overall financial condition given its available cash and short-term
investments.
Two former officers of the Division filed suit against the Company for
retirement benefits which the Company terminated when their alleged misconduct
was reported to the Company. All of their claims, and their refiled claims, have
been dismissed by the Court. The Company has counterclaimed for damages
resulting from the misconduct of the two former officers of the Division.
Current commercial operations of the Company and its subsidiaries do not involve
activities affecting the environment. However, the Company is a party in several
pending environmental proceedings involving the federal Environmental Protection
Agency ("EPA") and comparable state agencies in Indiana, Maryland,
Massachusetts, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. All
of these matters relate to discontinued operations of former divisions or
subsidiaries for which the Company has potential continuing responsibility.
25
<PAGE>
One group of the Company's known environmental proceedings relates to Superfund
or other sites where the Company's liability arises from arranging for the
disposal of allegedly hazardous substances in the ordinary course of prior
business operations. In most of these "generator" liability cases, the Company's
involvement is considered to be de minimus (i.e. a volumetric share of
approximately 1% or less) and in each of these cases the Company is only one of
many potentially responsible parties. From the information currently available,
there are a sufficient number of other economically viable participating parties
so that the Company's projected liability, although potentially joint and
several, is consistent with its allocable share of liability. At one "generator"
liability site, the Company's involvement is potentially more significant
because of the volume of waste contributed in past years by an inactive
subsidiary. Insufficient information is available regarding the need for or
extent and scope of any remedial actions which may be required. The Company has
recorded what it believes to be a reasonable estimate of its potential
liability, based on current information, for this site.
The second group of matters relates to environmental issues on properties
currently or formerly owned or operated by a subsidiary or division of the
Company. These cases generally involve matters for which the Company or an
inactive subsidiary is the sole or primary responsible party. In one such case,
however, although the affected subsidiary fully performed a settlement with the
federal government, the government has reopened the matter. A group of
financially solvent responsible parties has completed an extensive investigation
of the Superfund site under a consent order with the EPA and submitted Remedial
Investigation and Feasibility Study Reports (the "Reports") to the EPA, which
outline a range of various remedial alternatives for the site. The EPA has
issued a proposed plan which is subject to public comment. The Company's
environmental counsel retained two environmental consulting firms to review and
evaluate the Reports and proposed plan. The findings of these consulting firms
indicate that many of the assumptions, purported facts and conclusions contained
in the Reports and proposed plan are significantly flawed. Notwithstanding the
foregoing and the Company's denial of liability because of the prior settlement
with the government, the $8,000,000 loss provision includes a provision of
approximately $4,000,000 for environmental matters. The provision for
environmental matters includes the estimated legal and consulting costs for this
and other sites involving the Company or an inactive subsidiary, the estimated
costs to defend the Company's aforementioned settlement with the government, and
the estimated remediation costs that the Company will incur, based on current
information, if its prior settlement with the government is not upheld in court.
However, the Company may be exposed to additional substantial liability for this
site as additional information becomes available over the long-term. A better
estimate of costs associated with any further remediation to be taken at the
site cannot be made until a Record of Decision is issued by the EPA, which is
expected to be issued in fiscal 1996. Actual remediation costs cannot be
computed until such remedial action is completed. Some of the other sites
involving the Company or an inactive subsidiary are at a stage where an
assessment of liability, if any, cannot reasonably be made.
It is the Company's policy to comply fully with all laws regulating activities
affecting the environment and to meet its obligations in this area. In many
"generator" liability cases, reasonable cost estimates are available on which to
base reserves on the Company's likely allocated share among viable parties.
Where insufficient information is available regarding projected remedial actions
for these "generator" liability cases, the Company has recorded what it believes
to be reasonable estimates of its potential liabilities. Reserves for liability
for sites on which former operations were conducted are based on cost estimates
of remedial actions projected for these sites. All known environmental claims
are periodically reviewed by the Company, where information is available, to
provide reasonable assurance that adequate reserves are maintained. Reserves
recorded for environmental liabilities are not net of insurance or other
expected recoveries. Other than the aforementioned loss provision that was
recorded by the Company during the quarter ended March 31, 1995, no significant
expenses related to environmental matters were recorded by the Company during
the three years ended June 30, 1995 due to the adequacy of previously recorded
reserve balances based on prior available information. Management believes that
reserves established to meet known and potential environmental liabilities are
adequate based on current information. The Company does not anticipate, based on
current information, that the resolution of these matters will have a material
adverse impact on the Company's overall financial condition given its available
cash and short-term investments. However, there is no way to be certain that
future developments relating to environmental matters will not involve
additional substantial costs that may require future charges to the Discontinued
operations loss provision.
In June 1991, two stockholder class actions were brought, and then consolidated,
against the Company, Capital
26
<PAGE>
Credit, certain directors and current and former executive officers of the
Company, and certain former directors and officers of Capital Credit, seeking
damages under the securities laws in connection with the misstatement by the
Company of certain quarterly financial statements in fiscal 1990 and 1991. The
Company and the individual defendants denied any and all wrongdoing or liability
and vigorously defended the action. In order to end the substantial expense and
distraction of continued litigation, the Company settled the action, which
settlement has been approved by the court. All claims against the Company and
the other defendants have been dismissed with prejudice. The Company and its
insurer each paid one-half of the $1,500,000 settlement amount in March 1995.
That portion of the settlement amount which was not covered by insurance was
charged against existing reserves, all of which had been recorded in prior
fiscal years.
In a lawsuit brought in 1993 by three individuals engaged by Transworld Systems
as independent contractors, in which it was alleged that Transworld Systems has
improperly treated the plaintiffs as independent contractors rather than
employees, all of the asserted claims have been dismissed by the Court with
prejudice.
Some of the same persons and others have also brought suit against Transworld
Systems and certain of its directors and officers, alleging breach of contract
and mental distress as a result of Transworld Systems' failure to supply
plaintiffs with copies of a monthly publication distributed by Transworld
Systems. One person has also brought suit alleging wrongful termination. The
claims in this action against Transworld Systems have been reviewed by counsel
and, based upon their assessment, management has concluded that the claims are
without merit.
Management believes that current cash and short-term investments and its future
cash flows from operations are sufficient to provide for anticipated working
capital, debt service and capital expenditure requirements.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
OPERATING REVENUES
Operating revenues increased to $97,649,000 in 1995 compared with $92,109,000 in
1994. Revenues at Transworld Systems were $57,144,000 in 1995 compared with
$53,583,000 in 1994. Revenues at Allied Bond increased by 7% during fiscal 1995
compared to a year ago, while revenues at Capital Credit were essentially
unchanged in fiscal 1995 compared with 1994.
OPERATING INCOME
Operating income increased to $10,307,000 in 1995 compared with $7,942,000 in
1994 due to increases at Transworld Systems, Allied Bond and Capital Credit,
partially offset by increased deferred compensation expenses at the Corporate
office. Transworld Systems reported a 10% increase in operating income to
$13,057,000, before amortization of goodwill, compared with $11,885,000 a year
ago and an operating margin of 22% after amortization of goodwill. Allied Bond
reported a 22% increase in operating income, compared with a year ago, before
amortization of goodwill and depreciation expense related to its acquisition,
and Capital Credit operated profitably in fiscal 1995. Capital Credit's
operating income improved by more than $1,000,000 in fiscal 1995 when compared
to its operating loss of approximately $200,000 a year ago. Corporate office
expenses in 1995 include legal fees of approximately $700,000 related to
discontinued operations of the Company. These legal fees were expensed prior to
the third quarter of fiscal 1995, at which time the Company recorded the
$8,000,000 pretax loss provision for discontinued operations. Corporate office
expenses included approximately $800,000 of legal fees in fiscal 1994 related to
discontinued operations.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased $402,000 to $1,450,000 in 1995 from $1,048,000 in
1994 due to increases in the interest rates charged for borrowings under the
Credit Agreement.
Interest income increased $519,000 to $1,242,000 in 1995 from $723,000 in 1994
due to higher average short-term interest rates. During the year ended June 30,
1995, the Company primarily invested its excess cash balances in commercial
paper and U.S. government securities, both with short-term maturities, and
overnight time deposits. During the year ended June 30, 1994, the Company
primarily invested its excess cash balances in U.S. government securities with
short-term maturities and overnight time deposits.
INCOME TAXES
The Company's effective income tax rate for continuing operations was 43% in
1995 compared to 41% in 1994. The Company adopted SFAS 109, "Accounting for
Income Taxes", effective July 1, 1993. Although the change in accounting for
income taxes did not have a material effect on "Income before cumulative effect
of change in accounting for income taxes" for the year ended June 30, 1994, the
cumulative effect of the change increased net income by $1,068,000, or $.17 per
share. See Notes 1 and 10 of
27
<PAGE>
Notes to Consolidated Financial Statements for an additional description of
income taxes.
DISCONTINUED OPERATIONS LOSS PROVISION
The Company recorded an $8,000,000 loss provision ($5,200,000 net of tax
benefit) or $.92 loss per share during the third quarter of fiscal 1995 for
costs related to certain of its discontinued operations, all of which were
terminated or otherwise disposed of prior to fiscal 1990. This provision was
recorded as a result of recent developments regarding previously reported
matters involving the Company's former Gichner Systems Group division and
environmental matters principally involving a site where an inactive subsidiary
of the Company fully performed a settlement with the federal government which
has reopened the matter. The net loss provision of $5,200,000 is included in the
Consolidated Statements of Operations under the caption "Discontinued operations
loss provision" for the year ended June 30, 1995.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
OPERATING REVENUES
Operating revenues were $92,109,000 in 1994 compared to operating revenues of
$80,499,000 in 1993. The increase was primarily the result of the inclusion of
revenues from Allied Bond, which was acquired in December 1992, and to a lesser
extent an increase in revenues at Capital Credit. Revenues at Transworld Systems
were $53,583,000 in 1994 compared with $54,935,000 in 1993, while revenues at
Capital Credit increased approximately 20% compared to 1993. Transworld Systems'
revenues in southern California, which is a major market for the company, were
essentially unchanged from a year ago, and although revenues in that market have
not recovered to the level of previous years they appear to have stabilized
recently.
OPERATING INCOME
Operating income was $7,942,000 in 1994 compared to $7,628,000 in 1993. The
increase was primarily the result of the improved results at Capital Credit and
the inclusion of Allied Bond, which was acquired in December 1992, partially
offset by increased Corporate office expenses and a modest decrease in operating
income at Transworld Systems. Transworld Systems reported operating income of
$11,885,000, before amortization of goodwill, compared to $12,218,000 a year
ago. Capital Credit's operating results improved by approximately $1,600,000,
resulting in an operating loss of approximately $200,000 in 1994 compared to an
operating loss of approximately $1,800,000 in 1993. The increase in Corporate
office expenses primarily resulted from approximately $800,000 of legal fees
related to discontinued operations of the Company and to a lesser extent
increased compensation expense. The Company anticipates that it will record
additional legal fees related to discontinued operations in fiscal 1995. In
prior years such legal fees were charged against reserves established for the
discontinued operations of the Company.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased $361,000 to $1,048,000 in 1994 from $687,000 in 1993
principally due to the borrowings under the Credit Agreement.
Interest income decreased to $723,000 in 1994 from $1,074,000 in 1993. The
decrease is principally due to lower average short-term investment balances that
primarily resulted from expenditures for the purchase of treasury stock and the
acquisition of Allied Bond. During the year ended June 30, 1994 and the six
month period ended June 30, 1993, the Company primarily invested in U.S.
government securities with short-term maturities and overnight time deposits.
During the six month period ended December 31, 1992, the Company primarily
invested in tax free revenue bonds, which were subject to short-term redemption
features and were secured by irrevocable letters of credit issued by various
banks.
INCOME TAXES
The Company's effective income tax rate was 41% in 1994 compared to 42% in 1993.
As discussed in Note 10, the Company adopted SFAS 109, "Accounting for Income
Taxes", effective July 1, 1993. Although the adoption of SFAS 109 did not have a
material effect on "Income before cumulative effect of change in accounting for
income taxes" for the year ended June 30, 1994, the cumulative effect of the
change increased net income by $1,068,000, or $.17 per share. In August 1993,
the Omnibus Budget Reconciliation Act of 1993 was passed which, among other
changes, allows a tax deduction for the amortization of certain goodwill.
Consequently, beginning in the first quarter of fiscal 1994 the tax benefit
related to the amortization of goodwill from the acquisition of Allied Bond is
reflected in the Company's financial statements. See Notes 1 and 10 of Notes to
Consolidated Financial Statements for an additional description of income taxes.
28
<PAGE>
MARKET FOR THE REGISTRANT'S
COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Company's common stock is listed and traded on the New York Stock Exchange.
The following table shows the quarterly high and low sales prices as reported
for the years ended June 30, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
FISCAL YEAR
1995
----------------------
QUARTER ENDING: HIGH LOW
------ ------
<S> <C> <C>
SEPTEMBER 30, 1994 13 7/8 8 3/4
DECEMBER 31, 1994 14 7/8 12 7/8
MARCH 31, 1995 14 3/8 12 1/2
JUNE 30, 1995 15 7/8 13 1/4
<CAPTION>
Fiscal Year
1994
----------------------
Quarter Ending: High Low
------ ------
<S> <C> <C>
September 30, 1993 12 5/8 11 1/8
December 31, 1993 13 1/4 11 1/2
March 31, 1994 13 1/4 10 1/4
June 30, 1994 11 1/4 9 1/2
</TABLE>
The last reported sales price of the Company's common stock on September 15,
1995, as reported on The New York Stock Exchange, was $15.25 per share.
The approximate number of holders of record of common stock as of September 15,
1995 was 2,945.
Under the terms of the Credit Agreement, the Company is precluded from paying
cash dividends on its common stock (See Note 6 of Notes to Consolidated
Financial Statements for additional information).
29
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
- -----------------------
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
---------------------------------------------------------------------
For the years ended June 30: 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 97,649 $ 92,109 $ 80,499 $ 85,942 $ 82,652
Total operating costs and expenses, before
restructuring charge 87,342 84,167 72,871 76,029 71,017
Restructuring charge - - - 9,000 -
-------- -------- -------- -------- --------
Operating income 10,307 7,942 7,628 913 11,635
Interest expense (1,450) (1,048) (687) (260) (273)
Interest income 1,242 723 1,074 2,643 3,050
-------- -------- -------- -------- --------
Income from continuing operations
before income taxes 10,099 7,617 8,015 3,296 14,412
Provision for income taxes 4,392 3,138 3,345 1,154 4,958
-------- -------- -------- -------- --------
Income from continuing operations 5,707 4,479 4,670 2,142 9,454
Discontinued operations loss provision
(net of tax benefit of $2,800) (Note 3) (5,200) - - - -
-------- -------- -------- -------- --------
Income before cumulative effect of change
in accounting for income taxes 507 4,479 4,670 2,142 9,454
Cumulative effect of change in
accounting for income taxes (Note 10) - 1,068 - - -
-------- -------- -------- -------- --------
Net income $ 507 $ 5,547 $ 4,670 $ 2,142 $ 9,454
======== ======== ======== ======== ========
Primary income per common share:
Income from continuing operations $ 1.01 $ .72 $ .71 $ .28 $ 1.21
Discontinued operations loss provision (.92) - - - -
Cumulative effect of change in
accounting for income taxes - .17 - - -
-------- -------- -------- -------- --------
Net income $ .09 $ .89 $ .71 $ .28 $ 1.21
======== ======== ======== ======== ========
Fully diluted income per common share:
Income from continuing operations $ 1.00 $ .72 $ .71 $ .28 $ 1.20
Discontinued operations loss provision (.91) - - - -
Cumulative effect of change in
accounting for income taxes - .17 - - -
-------- -------- -------- -------- --------
Net income $ .09 $ .89 $ .71 $ .28 $ 1.20
======== ======== ======== ======== ========
At June 30:
Current assets $ 48,328 $ 42,685 $ 40,169 $ 70,657 $ 71,415
Current liabilities 22,996 20,930 18,201 21,136 16,662
-------- -------- -------- -------- --------
Working capital $ 25,332 $ 21,755 $ 21,968 $ 49,521 $ 54,753
======== ======== ======== ======== ========
Property, buildings and equipment, net $ 9,283 $ 10,812 $ 12,737 $ 8,098 $ 9,312
Total assets 113,163 110,195 110,085 101,935 102,666
Long-term debt (excluding current portion) 20,763 20,973 21,036 900 1,688
Treasury stock, at cost 36,806 36,292 29,233 14,444 4,328
</TABLE>
Note: The fiscal 1993 amounts include results of Allied Bond since its
acquisition in December 1992. A $9,000,000 restructuring charge was recorded in
fiscal 1992 for the costs related to the reduction of the Company's Capital
Credit Corporation subsidiary to a size commensurate with the reduced volume of
business resulting from the discontinuance of business from American Express,
its then largest customer. Therefore, fiscal 1993 and thereafter do not include
any revenues or direct expenses related to American Express while approximately
$19,600,000 of revenues for the Company's Capital Credit Corporation subsidiary
were derived from American Express in fiscal 1992. Additionally, under the terms
of the Credit Agreement, the Company is precluded from paying cash dividends on
its common stock (See Note 6 of Notes to Consolidated Financial Statements for
additional information).
30
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
CORPORATE INFORMATION
- ---------------------
THE UNION CORPORATION
145 Mason Street
Greenwich, CT 06830
Telephone (203)629-0505
REGISTRAR AND TRANSFER AGENT
The First National Bank of Boston
Blue Hills Office Park
150 Royall Street
Canton, MA 02021
Telephone (800)733-5001
SECURITIES LISTINGS
New York Stock Exchange, Inc.
(Symbol UCO) Common Stock
ANNUAL MEETING
The annual meeting of shareholders of the Company will be held on Thursday,
November 16, 1995.
FORM 10-K
A copy of The Union Corporation's Annual Report to the Securities and Exchange
Commission on Form 10-K is available to shareholders on request. For a copy of
Form 10-K, please write to:
The Union Corporation
145 Mason Street
Greenwich, CT 06830
Attn: Nicholas P. Gill
Secretary
OPERATING COMPANIES
FINANCIAL SERVICES
TRANSWORLD SYSTEMS, INC.
5880 Commerce Boulevard
Rohnert Park, CA 94928
Gordon S. Dunn, Chairman
George M. Macaulay, President
CAPITAL CREDIT CORPORATION
8000 Arlington Expressway
Jacksonville, FL 32211
William B. Hewitt, Chairman
and Chief Executive Officer
ALLIED BOND & COLLECTION AGENCY, INC.
One Allied Drive
Neshaminy Interplex
Trevose, PA 19047
Herbert R. Silver & Bernard Silver
Co-Chairmen and Co-Chief Executive Officers
DIRECTORS
MELVIN L. COOPER
Chairman of the Board and Chief Executive Officer
JOHN E. ANGLE
Retired: Formerly Executive Vice President, Production
U.S. Steel Corporation
GORDON S. DUNN
Chairman
Transworld Systems, Inc.
WILLIAM B. HEWITT
Chairman and Chief Executive Officer of Capital Credit Corporation and
President and Chief Operating Officer of The Union Corporation
ROBERT A. KERR
Retired: Formerly Chairman and Chief Executive Officer
Banc One, Dayton, Ohio
JAMES C. MILLER III
Counselor, Citizens for a Sound Economy and formerly Director of the Federal
Office of Management and Budget
STUART J. NORTHROP
Retired: Formerly Chairman and Chief Executive Officer
Huffy Corporation, Dayton, Ohio
HERBERT R. SILVER
Co-Chairman and Co-Chief Executive Officer
Allied Bond & Collection Agency, Inc.
EXECUTIVE OFFICERS
MELVIN L. COOPER
Chairman of the Board and Chief Executive Officer
WILLIAM B. HEWITT
President and Chief Operating Officer
NICHOLAS P. GILL
Vice President, Treasurer, Secretary
and Chief Financial Officer
EXECUTIVE MANAGEMENT GROUP /1/
Melvin L. Cooper George M. Macaulay
Gordon S. Dunn Bernard Silver /2/
Nicholas P. Gill Herbert R. Silver
William B. Hewitt Sheldon Zucker /3/
1. Members of the Executive Management Group are considered "executive officers"
for purposes of reporting under Section 16 and Regulation 14A of the
Securities and Exchange Act of 1934, as amended.
2. Bernard Silver is Co-Chairman and Co-Chief Executive Officer of Allied Bond &
Collection Agency, Inc.
3. Sheldon Zucker is Executive Vice President and Chief Operating Officer of
Allied Bond & Collection Agency, Inc.
31
<PAGE>
SPACE FOR NOTES
---------------
<PAGE>
THE UNION
CORPORATION
145 Mason Street
Greenwich, CT 06830
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the principal subsidiaries of the Company. Such
subsidiaries are incorporated or organized in the jurisdictions indicated.
State or Jurisdiction
of Incorporation
---------------------
The Union Corporation (Registrant) Delaware
Name of Subsidiary (1)
- ------------------
Allied Bond & Collection Agency, Inc. (2) Delaware
Capital Credit Corporation Delaware
Transworld Systems, Inc. California
UCO Properties, Inc. Delaware
Union Financial Services Group, Inc. Nevada
(1) Does not include inactive subsidiaries.
(2) Allied Bond & Collection Agency, Inc. has the following wholly-owned
subsidiary:
American Child Support Service Bureau Inc. (Pennsylvania).
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Union Corporation of our report dated September 22, 1995 included in the
1995 Annual Report to Shareholders of The Union Corporation.
Our audits also included the consolidated financial statement schedules of The
Union Corporation listed in Item 14(a). These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the consolidated financial statement schedules,
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information set
forth therein.
We also consent to the incorporation by reference in the Registration Statements
on Form S-8 (Nos. 33-88204, 33-33615, 33-83608, 2-98930, 2-52439, 2-89570 and
2-65720) and Form S-3 (Nos. 33-25818 and 33-13625) of The Union Corporation and
in the related prospectuses of our report dated September 22, 1995, with respect
to the consolidated financial statements incorporated herein by reference, and
our report included in the preceding paragraph with respect to the consolidated
financial statement schedules included in this Annual Report (Form 10-K) of The
Union Corporation.
ERNST & YOUNG LLP
New York, New York
September 25, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS INCLUDED AS EXHIBIT 13 TO THE FORM 10-K FOR THE YEAR
ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 14,805
<SECURITIES> 21,930
<RECEIVABLES> 6,881
<ALLOWANCES> 542
<INVENTORY> 0
<CURRENT-ASSETS> 48,328
<PP&E> 20,709
<DEPRECIATION> 11,426
<TOTAL-ASSETS> 113,163
<CURRENT-LIABILITIES> 22,996
<BONDS> 20,763
<COMMON> 4,261
0
0
<OTHER-SE> 52,943
<TOTAL-LIABILITY-AND-EQUITY> 113,163
<SALES> 0
<TOTAL-REVENUES> 97,649
<CGS> 0
<TOTAL-COSTS> 63,482
<OTHER-EXPENSES> 4,101<F1>
<LOSS-PROVISION> 143
<INTEREST-EXPENSE> 1,450
<INCOME-PRETAX> 10,099
<INCOME-TAX> 4,392
<INCOME-CONTINUING> 5,707
<DISCONTINUED> (5,200)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 507
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1>REPRESENTS THE TOTAL DEPRECIATION AND AMORTIZATION EXPENSE, BUT DOES NOT
INCLUDE S, G & A EXPENSES OF $19,759.
</FN>
</TABLE>
