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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, 1996 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. [ ]
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 16, 1996 the Company had outstanding 5,707,391 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 $124,961,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report for the year ended June 30, 1996
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 14, 1996, are incorporated by reference into Part
III. The Company's Proxy Statement will be filed within 120 days after June 30,
1996.
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THE UNION CORPORATION
Form 10-K Annual Report
For the Fiscal Year Ended June 30, 1996
Table of Contents
Page
----
PART I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 9
PART III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners
and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 11
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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 five financial services
companies, Transworld Systems Inc. ("Transworld"), Allied Bond & Collection
Agency, Inc. ("Allied Bond"), Capital Credit Corporation ("Capital
Credit"), Interactive Performance, Inc. ("Interactive Performance") and
High Performance Services, Inc. ("High Performance Services"), which
provide a range of outsourcing services, such as delinquent accounts
receivable management and collection services, customer services and credit
authorization services, to both large and small companies.
(C) Narrative Description Of Business
---------------------------------
No customer comprises more than 10% of the Registrant's consolidated
revenues. However, 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; Interactive
Performance currently serves two customers and the loss of either would
have a material adverse effect on its results of operations; and High
Performance Services currently serves one customer and the loss of that
customer would have a material adverse effect on its results of operations.
Revenues derived from the Company's accounts receivable management
operations have historically been higher in the third and fourth fiscal
quarters than those in the first and second fiscal quarters.
ACCOUNTS RECEIVABLE MANAGEMENT
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 Company, through its Transworld, Allied Bond and Capital Credit
subsidiaries, 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
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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.
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 300 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 purchase a system for 45 accounts to major
corporations that purchase systems for 100,000 accounts.
Transworld'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 133 sales offices throughout the
country at year end and plans to open six new sales offices in fiscal 1997.
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 in a new location only after business has been
developed in that area 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
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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
approximately $600 with an average payment collected in excess of $190. CMS
had record collections, revenues and profits in 1996.
At September 16, 1996, approximately 400 persons were employed in
connection with the operations of Transworld, in addition to the
independent contractors. None of the employees is covered under a
collective bargaining agreement.
Allied Bond & Collection Agency, Inc.
-------------------------------------
Allied Bond, which is headquartered in Trevose, Pennsylvania, is a
contingency and fixed-fee basis collection and teleservicing 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 and 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 15 to 40 percent
of the amount collected.
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.
Allied Bond employed approximately 575 people at September 16, 1996, none
of whom is covered under a collective bargaining agreement.
Capital Credit Corporation
--------------------------
Capital Credit, headquartered in Jacksonville, Florida, provides
contingency and fixed-fee collection services to large national clients
primarily in four major market segments: bankcard, telecommunications,
travel and entertainment and government. Capital Credit earns commissions
that are generally in the range of 15 to 40 percent of the amount
collected.
Capital Credit's computerized on-line collection system links its Regional
Collection Centers in Florida and Massachusetts 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 employed approximately 240 people at September 16, 1996,
none of whom is covered under a collective bargaining agreement.
CALL CENTER OUTSOURCING SERVICES
There is a large and growing demand for call center outsourcing services,
which include customer service, billing inquiry, credit authorization, pre-
charge-off accounts receivable management, and telemarketing services,
among others. The Company, through its Interactive Performance and High
Performance Services subsidiaries, currently performs certain of these
services for several large companies. Call center outsourcing service
providers must possess strong managerial skills
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and technological expertise in order to train and manage the large number
of employees needed to handle a high volume of inbound and/or outbound
telephone calls in an automated environment.
Interactive Performance, Inc.
-----------------------------
Interactive Performance was formed in fiscal 1996 to provide accounts
receivable management services and billing inquiry services on an
outsourcing basis to AT&T Corp. pursuant to a three-year contract under
which revenues may reach approximately $20 million a year. Interactive
Performance began providing services to AT&T Corp. late in the third
quarter of fiscal 1996 at its newly created 50,000 square foot facility in
North Charleston, South Carolina and employed approximately 240 people at
September 16, 1996, none of whom is covered under a collective bargaining
agreement.
Interactive Performance also recently signed a letter of intent to provide
delinquent accounts receivable management, billing inquiry and credit
authorization services on an outsourcing basis to Lucent Technologies.
Revenues for these services may reach approximately $5 million over the
projected 18 month term of the agreement, which is currently being
finalized. Interactive Performance began providing services to Lucent
Technologies late in the fourth quarter of fiscal 1996 at its new 7,000
square foot facility in Jacksonville, Florida, and employed approximately
90 people at September 16, 1996, none of whom is covered under a collective
bargaining agreement.
High Performance Services, Inc.
-------------------------------
High Performance Services, headquartered in Jacksonville, Florida, was
formed to provide customer services on an outsourcing basis for Advanta
Corp.'s credit card business. Revenues for these services may reach
approximately $15 million over a two-year term. High Performance Services
began operations late in the fourth quarter of fiscal 1996 at its new
15,000 square foot facility in Jacksonville, Florida, and employed
approximately 160 people at September 16, 1996, none of whom is covered
under a collective bargaining agreement.
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 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
6
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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 this 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 issued a proposed plan which was 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 indicated 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 recorded by
the Company 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, included a provision of
approximately $4,000,000 for environmental matters. The provision for
environmental matters included 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 regarding this site, 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 1997. 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 third quarter of fiscal 1995, no
significant expenses related to environmental matters were recorded by the
Company during the three years ended June 30, 1996 due to the adequacy of
previously recorded reserve balances based on information available at that
time. 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.
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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.
(See Note 2 of Notes to Consolidated Financial Statements included in the
Company's 1996 Annual Report for additional information regarding
Discontinued Operations).
Employees
---------
The Company and its subsidiaries employed approximately 1,715 persons at
September 16, 1996. 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,
Capital Credit, Interactive Performance and High Performance Services
subsidiaries. The Company believes that the facilities of its operations
are suitable and adequate for its business.
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.
All offices for Capital Credit, Interactive Performance and High
Performance Services are leased.
See Item 1. Environmental Matters on pages 6 through 8 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 2 and 7 of Notes to Consolidated Financial Statements included in
the Company's 1996 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, 1996.
8
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Part II
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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 1996 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 1996 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
1996 Annual Report, which pages are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
---------------------------------------------------
The financial statements and supplementary data contained in the
Company's 1996 Annual Report, as listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule on page 12 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.
9
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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 14, 1996, 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 14, 1996, 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 14, 1996, which section is incorporated herein by reference.
(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 14, 1996, 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 page 8 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
14, 1996, which are incorporated herein by reference.
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PART IV
-------
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
------------------------------------------------------------------------
(a) 1. Financial Statements
--------------------
See Index to Consolidated Financial Statements and Financial Statement
Schedule on page 12 of this Form 10-K.
2. Reports and Financial Statement Schedule
----------------------------------------
See Index to Consolidated Financial Statements and Financial Statement
Schedule on page 12 of this Form 10-K.
3. Exhibits
--------
See Index to Exhibits on pages 13 and 14 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, 1996.
11
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Index to Consolidated Financial
Statements and Financial Statement Schedule
Annual Report
Item 14(a) (1) Page(s)
- -------------- -------------
Data incorporated by reference from
1996 Annual Report:
Consolidated Statements of Operations for the
Years Ended June 30, 1996, 1995 and 1994 9
Consolidated Balance Sheets at June 30, 1996 and 1995 10
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1996, 1995 and 1994 11
Consolidated Statements of Shareholders' Equity
for the Years Ended June 30, 1996, 1995 and 1994 12
Notes to Consolidated Financial Statements 13 - 21
Supplementary Information
Quarterly Data (Unaudited) 22
Report of Independent Auditors 23
Form 10-K
Item 14(a) (2) Page(s)
-------------- --------------
Schedule for the years ended June 30, 1996, 1995 and 1994:
Schedule II Valuation and Qualifying Accounts and Reserves 15
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.
12
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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 (12).
Certificate of Correction of Certificate of Incorporation of The Union
Corporation, dated March 12, 1990 (5).
(b) Certificate of Merger of The Union Corporation (a New Jersey
corporation) into The Union Corporation (a Delaware corporation), as
filed in New Jersey (7).
(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 (12).
(d) By-laws of The Union Corporation, amended and restated as of May 15,
1989 (14).
10. Material Contracts
(a) Employment Agreement between The Union Corporation and Melvin L.
Cooper, dated as of January 1, 1986 (8). Amendment dated September 30,
1986 (7). Amendment dated November 10, 1988 (6). Amendment dated
September 13, 1990 (5). Amendment dated September 1, 1992 (3).
Amendment dated March 15, 1995 (1).
(b) Rights Agreement dated March 14, 1988 between The Union Corporation and
Registrar and Transfer Company as Rights Agent (12). Amendment dated
May 23, 1990 (11). Amendment dated September 16, 1992 (12). Amendment
dated August 22, 1994 which established the First National Bank of
Boston as Rights Agent (13).
(c) Asset Purchase Agreement dated as of February 8, 1989 by and between
the Registrant and GSG Acquisition Corporation (10).
(d) Indemnification Agreement by and between The Union Corporation and each
member of the Board of Directors and each Executive Officer of the
Registrant (4).
(e) Employment Agreement by and between Transworld Systems, Inc., The Union
Corporation and Gordon S. Dunn dated as of July 1, 1995 (1).
(f) Employment Agreement by and between Transworld Systems, Inc. and George
M. Macaulay dated as of July 1, 1995 (1).
(g) Employment Agreement by and between Capital Credit Corporation,
The Union Corporation and William B. Hewitt dated as of July 1, 1995
(filed herewith).
(h) Employment Agreement by and between The Union Corporation and Nicholas
P. Gill dated as of March 22, 1995 (1).
(i) Asset Purchase Agreement dated December 1, 1992 by and between the
Registrant and Allied Bond & Collection Agency (9).
13
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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 (9).
(k) Employment Agreement by and between Allied Bond & Collection Agency,
Inc., The Union Corporation and Bernard Silver dated December 1, 1992
(9).
(l) Employment Agreement between Allied Bond & Collection Agency, Inc. and
Sheldon Zucker dated as of December 1, 1992 (3).
(m) Contract between AT&T Corp. and Interactive Performance, Inc. dated
January 19, 1996 (15). (Confidential treatment has been requested for
certain portions of this exhibit.)
(n) Contract between Advanta Corp. and High Performance Services, Inc.
dated August 16, 1996 (filed herewith). (Confidential treatment has
been requested for certain portions of this exhibit.)
11. Determination of primary and fully diluted income per common and common
equivalent share.
13. Annual Report to Shareholders for 1996.
(With the exception of the pages listed in the above index on page 12
and the items incorporated by reference in Items 3, 5, 6, 7 and 8 of
this Form 10-K, the Company's 1996 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; 3. and 10.
(1) Incorporated by reference to the Company's 1995 Form 10-K Report.
(2) Incorporated by reference to the Company's 1994 Form 10-K Report.
(3) Incorporated by reference to the Company's 1993 Form 10-K Report.
(4) Incorporated by reference to the Company's 1992 Form 10-K Report.
(5) Incorporated by reference to the Company's 1990 Form 10-K Report, Exhibit
No. 3(a) and 10(a), respectively (File No. 1-5371).
(6) Incorporated by reference to the Company's 1989 Form 10-K Report, Exhibit
No. 10(c) (File No. 1-5371).
(7) Incorporated by reference to the Company's 1987 Form 10-K Report, Exhibit
No. 3(b) and 10(c), respectively (File No. 1-5371).
(8) Incorporated by reference to the Company's 1986 Form 10-K Report, Exhibit
No. 10(d) (File No. 1-5371).
(9) Incorporated by reference to the Company's December 23, 1992 Form 8-K
Current Report.
(10) Incorporated by reference to the Company's February 15, 1989 Form 8-K
Current Report, Exhibit No. 1 (File No. 1-5371).
(11) Incorporated by reference to the Company's June 4, 1990 Form 8-K Current
Report, Exhibit No. 1 (File No. 1-5371).
(12) 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.
(13) Incorporated by reference to the Company's Form S-8 filed on September 2,
1994.
(14) Incorporated by reference to the Company's Form S-8 filed on January 3,
1995.
(15) Incorporated by reference to the Company's March 31, 1996 Form 10-Q
Report.
14
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THE UNION CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the years ended June 30, 1996, 1995 and 1994
(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
- ----------- ---------- ---------- --------- ---------- ----------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
1996 $542 $266 $ - $ 108 $700
=== === ===== === ===
1995 $552 $143 $ - $ 153 $542
=== === ===== === ===
1994 $807 $ 19 $ - $ 274 $552
=== === ===== === ===
</TABLE>
(A) Accounts receivable write-offs, net of recoveries.
15
<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, 1996
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, 1996
Officer; Director
September 27, 1996
John E. Angle James C. Miller III
------------- -------------------
John E. Angle James C. Miller III
Director Director
September 27, 1996 September 27, 1996
Gordon S. Dunn Stuart J. Northrop
-------------- ------------------
Gordon S. Dunn Stuart J. Northrop
Director Director
September 27, 1996 September 27, 1996
William B. Hewitt Herbert R. Silver
----------------- -----------------
William B. Hewitt Herbert R. Silver
President and Chief Director
Operating Officer; Director September 27, 1996
September 27, 1996
16
<PAGE>
EXHIBIT 10(g)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made and entered into as of July 1, 1995 by and among THE
UNION CORPORATION, a Delaware corporation (the "Company"), CAPITAL CREDIT
CORPORATION, a Delaware corporation and a wholly-owned subsidiary of the Company
("Capital"), and WILLIAM B. HEWITT (the "Employee").
WHEREAS, the Company, Capital and the Employee are currently parties
to an employment agreement ("Prior Agreement") which provides for Employee's
employment as Executive Vice President of the Company and Chairman and Chief
Executive Officer of Capital for a term ending on September 30, 1995; and
WHEREAS, the Employee, subsequent to the effective date of the Prior
Agreement, was appointed as President and Chief Operating Officer of the
Company; and
WHEREAS, the Company, Capital and the Employee desire to amend and
restate the Prior Agreement in its entirety, as of July 1, 1995, to reflect the
new positions which Employee now holds with the Company, to extend the term of
employment to June 30, 1998 and to amend certain other terms of the Prior
Agreement.
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 President and Chief Operating Officer
of the Company and as Chairman of the Board of Directors and the Chief Executive
Officer of Capital. In addition, the Employee shall serve in an executive
capacity and/or as a director of any Affiliates (as hereinafter defined in
Article FOURTH (A)(i)) 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"). All officers, employees and agents of the
Company and its subsidiaries (other than the CEO and other than officers,
employees and agents of Transworld Systems, Inc.) shall be subordinate to the
Employee and shall report to him or as he shall direct.
(C) The Employee shall devote all of his business time, efforts,
energy and skill to the business of the Company and its Affiliates, and shall
use his best efforts to promote the
<PAGE>
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 of four 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.
(E) The Employee shall be and remain a member of the Board of
Directors of the Company and an executive officer of the Company and serve as a
member of the Company's Management Group. During the term of this Agreement,
the Company shall take all reasonable actions to continue to elect, or nominate
for election, Employee as a Director of the Company.
(F) In the event the Employee is appointed as Chief Executive Officer
of the Company, this Agreement shall continue in full force and effect, except
that the Employee shall thereupon report to the Board of Directors of the
Company and all officers, employees and agents of all subsidiaries of the
Company (including Transworld Systems, Inc.) shall report to Employee or as
Employee shall direct.
SECOND:
(A) The term of this Agreement and the Employee's employment hereunder
shall commence effective as of July 1, 1995 (the "Effective Date") and, unless
extended by the written agreement of the parties, shall terminate on the earlier
to occur of (i) June 30, 1998 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, 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
Paragraphs (C) or (E) below, the Employee shall be entitled to receive only the
payments required to be made under those paragraphs.
-2-
<PAGE>
(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, 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 subsidiary, the taking of any actions, or the
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 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) In addition to termination pursuant to Article SECOND (A) and (B),
the Company shall at any time also be entitled to terminate the Employee's
services for any other reason, provided that in the event of termination
pursuant to this Article SECOND (C) the Company shall continue to pay to the
Employee his then current Base Salary pursuant to Article THIRD (A) for a period
from the date of such termination through the remaining term of this Agreement,
and the Employee shall be eligible to receive a pro-rata share of any bonus due
hereunder for the Fiscal Year in which the Employee is terminated under this
paragraph (with such bonus to be calculated in accordance with Article THIRD
(B)). In the event of termination pursuant to this Article SECOND (C), the
Employee 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
-3-
<PAGE>
terminated pursuant to Article SECOND (B), (D) or (E) or expires on June 30,
1998, 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) 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 (i) for any obligation to indemnify the Employee as provided in
the by-laws of the Company, (ii) under that certain Indemnification Agreement
dated as of September 16, 1991 between the Employee and the Company (the
"Indemnification Agreement") and (iii) under any written stock option agreements
between Employee and the Company (the "Option Agreements").
(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 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
-4-
<PAGE>
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, and 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(C) 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.
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) Subject to the terms of this Agreement, for each of the Fiscal
Years ending June 30, 1996 ("FY 96"), 1997 ("FY 97") and 1998 ("FY 98"),
Employee shall receive a bonus which shall be the sum of (1) a pretax income
component ("PI Component"), (2) a pretax margin component ("PM Component") and
(3) a discretionary component ("Discretionary Component"), each of which shall
be determined as set forth below.
(i) The PI Component for each Fiscal Year during the term of this
Agreement shall be determined as provided in
-5-
<PAGE>
(a), (b) or (c) below, as applicable. The maximum PI Component payable in any
year shall be $225,000.
(a) FY 96. The PI Component for FY 96 shall be based on the extent to
-----
which FY 96 Adjusted Pretax Income (as hereinafter defined) exceeds FY 95
Capital Pretax Income (as hereinafter defined), in accordance with the
following:
<TABLE>
<CAPTION>
If FY 96 Adjusted
Pretax Income is: PI Component will be
- ----------------- --------------------
<S> <C>
equal to or greater than 110.0% of $169,000
FY 95 Capital Pretax Income but less
than 112.5% of FY 95 Capital Pretax
Income
equal to or greater than 112.5% of $202,000
FY 95 Capital Pretax Income but less
than 115.0% of FY 95 Capital Pretax
Income
equal to or greater than 115.0% of $225,000
FY 95 Capital Pretax Income
</TABLE>
In no event will any PI Component be payable in respect of FY 96 if FY 96
Adjusted Pretax Income is less than 110.0% of FY 95 Capital Pretax Income. "FY
96 Adjusted Pretax Income" means the combined income for FY 96 before the
provision for federal, state and local income taxes of (i) Capital and (ii) all
subsidiaries or divisions of the Company, or its existing subsidiaries, that are
formed after the date hereof to perform outsourcing services "FY 95 Capital
Pretax Income" means income of Capital for FY 95, before the provision for
federal, state and local income taxes.
(b) FY 97. The PI Component payable in FY 97 shall be based on the
-----
extent to which Consolidated Pretax Income of the Company (as hereinafter
defined) for such Fiscal Year exceeds the higher of Consolidated Pretax Income
of the Company for FY 95 and FY 96 (such higher amount hereinafter referred to
as the "Base FY 97 PI"), in accordance with the following:
-6-
<PAGE>
If FY 97 Consolidated
Pretax Income is: PI Component will be
- --------------------- --------------------
[S] [C]
equal to or greater than 110.0% of $169,000
the Base FY 97 PI but less than
112.5% of the Base FY 97 PI
equal to or greater than 112.5% of $202,000
the Base FY 97 PI but less than
115.0% of the Base FY 97 PI
equal to or greater than 115.0% of $225,000
the Base FY 97 PI
In no event will any PI Component be payable in respect of FY 97 if Consolidated
Pretax Income for such Fiscal Year is less than 110.0% of the Base FY 97 PI.
"Consolidated Pretax Income" of the Company for any Fiscal Year means
consolidated income from continuing operations of the Company, before the
provision for federal, state and local income taxes.
(c) FY 98. The PI Component payable in FY 98 shall be based on the
-----
extent to which Consolidated Pretax Income of the Company for such Fiscal Year
exceeds the highest Consolidated Pretax Income of the Company for each of FY 95,
FY 96 and FY 97 (such highest amount hereinafter referred to as the "Base FY 98
PI"), in accordance with the following:
If FY 98 Consolidated
Pretax Income is: PI Component will be
- --------------------- --------------------
[S] [C]
equal to or greater than 110.0% of $169,000
the Base FY 98 PI but less than
112.5% of the Base FY 98 PI
equal to or greater than 112.5% of $202,000
the Base FY 98 PI but less than
115.0% of the Base FY 98 PI
equal to or greater than 115.0% of $225,000
the Base FY 98 PI
In no event will any PI Component be payable in respect of FY 98 if Consolidated
Pretax Income for such Fiscal Year is less than 110% of the Base FY 98 PI.
(ii) The PM Component payable in respect of any Fiscal Year shall be
based on the extent to which the Pretax Margin (as hereinafter defined) for such
Fiscal Year equals or exceeds 9.0%. The amount of the PM Component payable in
respect of any Fiscal Year shall be calculated as follows:
-7-
<PAGE>
If Pretax Margin for
such Fiscal Year is: PM Component will be
- -------------------- --------------------
[S] [C]
equal to or greater than 9.0% but $ 84,000
less than 11.0%
equal to or greater than 11.0% but $ 98,000
less than 13.0%
equal to or greater than 13.0% $112,500
In no event will any PM Component be payable in respect of any Fiscal Year if
the Pretax Margin for such Fiscal Year is less than 9.0% and in no event will
the PM Component payable in respect of any Fiscal Year exceed $112,500. "Pretax
Margin" shall mean, for purposes of this Agreement, the percentage derived (a)
for FY 96, by dividing FY 96 Adjusted Pretax Income by the sum of the FY 96
revenues of Capital and the Outsourcing Subsidiaries, and (b) for each of FY 97
and FY 98, by dividing Consolidated Pretax Income of the Company for such Fiscal
Year by the aggregate revenues for the Company on a consolidated basis for such
Fiscal Year.
(iii) The Discretionary Component in respect of any Fiscal Year shall
be paid at the sole discretion of the CEO (or, if the Employee has been
appointed CEO by the time such determination is required, at the sole discretion
of the Board of Directors) and shall be based upon objectives established by the
CEO for such Fiscal Year (or, if the Employee has been appointed CEO before such
objectives are established, by objectives established by the Board of
Directors). The maximum amount of the Discretionary Component which may be
payable in respect of any Fiscal Year shall be $112,500.
(iv) The bonus payable in respect of any Fiscal Year shall be paid to
Employee within two and one-half months after the end of the applicable Fiscal
Year. The determination of Pretax Income, the PI Component, the Pretax Margin
and PM Component for any Fiscal Year shall be made by the independent
accountants who audit the Company's books and records, and such determination
shall be final, binding and conclusive.
(v) Notwithstanding anything to the contrary contained herein, if
the Company terminates 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 in respect of the Fiscal Year of termination. In the
event Employee's employment is terminated for any other reason, Employee shall
be entitled to a pro rata share of the PI and PM Components that would have been
payable in respect of such Fiscal Year had Employee remained employed for the
full year (based on the number of days in the Fiscal Year during which Employee
was
-8-
<PAGE>
actually employed), and a Discretionary Component may, at the discretion of the
CEO (or the Board of Directors, if applicable), also be paid. In the event this
Agreement terminates on June 30, 1998 and is not renewed or extended beyond that
date, Employee shall nevertheless be entitled to the PI and PM Components
payable in respect of FY 98, if any and the Discretionary Component for FY 98
may, at the discretion of the CEO (or Board of Directors, if applicable), also
be paid.
(C) Subject to the terms of this Agreement, Employee shall be granted
the following options to purchase Common Stock of the Company.
(i) Options Based on Increases in Pretax Income. Employee shall be
-------------------------------------------
eligible to receive options to purchase shares of Common Stock of the Company,
in accordance with the following:
(a) For FY 96.
---------------
If FY 96 Adjusted Option for Number of
Pretax Income is: Shares to be Granted
- ----------------- --------------------
equal to or greater than 150.0% but 20,000 shares
less than 170.0% of FY 95 Capital
Pretax Income
equal to or greater than 170.0% of 40,000 shares
FY 95 Capital Pretax Income
(b) For FY 97.
---------------
If FY 97 Consolidated Option for Number of
Pretax Income is: Shares to be Granted
- --------------------- --------------------
equal to or greater than 110.0% of 22,500 shares
the Base FY 97 PI but less than
112.5% of the Base FY 97 PI
equal to or greater than 112.5% of 27,000 shares
the Base FY 97 PI, but less than
115.0% of the Base FY 97 PI
equal to or greater than 115.0% of 30,000 shares
the Base FY 97 PI
-9-
<PAGE>
(c) For FY 98
---------
If FY 98 Consolidated Option for Number of
Pretax Income is: Shares to be Granted
- --------------------- --------------------
equal to or greater than 110% of the 22,500 shares
Base FY 98 PI but less than 112.5% of
the Base FY 98 PI
equal to or greater than 112.5% of 27,000 shares
the Base FY 98 PI, but less than
115.0% of the Base FY 98 PI
equal to or greater than 115.0% of 30,000 shares
the Base FY 98 PI
(ii) Additional Option. Employee will also be entitled to receive an
-----------------
option for 32,477 shares of Common Stock (unrelated to increases in Pretax
Income in any Fiscal Year). Such option shall be granted on the day of the
first meeting in FY 97 of the Stock Option Committee of the Company's Board of
Directors, and shall have an initial exercise price equal to the fair market
value of the Common Stock on the date of grant ("Grant Date FMV"). Such option
shall be exercisable at the Grant Date FMV price only if there is a "change of
control" of the Company, as contemplated by Article SECOND (E)(iv) of this
Agreement, prior to the appointment of the Employee as sole CEO of the Company;
otherwise, the exercise price of the option will be adjusted (up or down, as the
case may be) from the Grant Date FMV to a price equal to the fair market value
of the Common Stock on the effective date of the appointment of Employee as sole
CEO.
(iii) Terms and Conditions of Options. Except as otherwise provided
-------------------------------
in subparagraph (ii) of this Paragraph (C), the grant of any option to Employee
pursuant to this Agreement shall be made pursuant to the Company's 1994
Incentive Stock Plan, shall have a term of ten years from the date of grant, be
fully exercisable from and after the date of grant and have an exercise price
equal to the fair market value of the Common Stock on the date of grant. In
connection with the grant of any such options, the Employee shall also be
granted the right to satisfy the exercise price of such options and any tax
withholding liability which arises from the exercise of such options by either
having the Company withhold a portion of the shares to be issued upon exercise
or through the surrender of previously acquired shares. The grant of any option
pursuant to subparagraph (i) of this Paragraph (C) shall be made as promptly as
practicable following the determination that such option has been earned, and
the granting of such option shall be subject to Employee, at the time such
determination is made, continuing to be employed by the Company, provided,
however, that in the event
-10-
<PAGE>
this Agreement terminates on June 30, 1998 and is not renewed or extended beyond
that date, Employee shall nevertheless be entitled to the stock option earned
pursuant in clause (c) of Paragraph C(i), if any, unless the Company has offered
to renew or extend this Agreement on terms at least as favorable to the Employee
as those in effect on June 30, 1998 and the Employee rejects such offer, in
which event Employee shall not be entitled to the stock option. In the event
the Company terminates Employee's employment hereunder at any time for Cause or
the Employee resigns other than by reason of the occurrence of an Event (it
being agreed that the termination of employment at the end of the stated term of
this Agreement which follows Employee's rejection of the Company's offer to
renew or extend this Agreement on terms at least as favorable to the Employee as
those in effect on June 30, 1998 shall be deemed a resignation by the Employee
for purposes of this subparagraph (iii)), all stock options theretofore granted
to the Employee which remain unexercised at such time (or which have been
exercised but as to which certificates for the Company's Common Stock shares
have not yet been issued by the transfer agent) shall forthwith terminate and be
forfeited.
(D) 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. The Company will also compensate the
Employee in each Fiscal Year of employment hereunder in an amount not exceeding
10% of the Base Salary payable to him pursuant to Paragraph (A) of this Article
THIRD for the cost of legal, accounting and tax advisory services rendered to
him, or other miscellaneous expenses, documented to the extent reasonably
possible (the "Additional Compensation"). Any such Additional Compensation
shall not be deemed to be "Base Salary" for purposes of making bonus
calculations under this Agreement. It is acknowledged and agreed that the
Additional Compensation payable hereunder shall be pro rated if the Employee is
employed only during a portion of a Fiscal Year and that in the event any
amounts in excess of the appropriate pro-rata share of Additional Compensation
shall have been paid, then such excess shall forthwith be forfeited and
immediately returned to the Company. At the Company's option, the Company shall,
in lieu of receipt of such excess amount, have the right of offset in respect
thereof against any amounts otherwise due and owing to the Employee under this
Agreement.
(E) The Company shall, if requested by the Employee, procure and keep
in force during the term of this Agreement for the benefit of the Employee
(subject to the Employee taking any and all actions necessary to enable the
Company to obtain such insurance and subject to the additional limitations set
forth in this paragraph below) (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
-11-
<PAGE>
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 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 making bonus calculations under this Agreement. If and so long
as the Company or Capital 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.
(F) The Employee shall be eligible to the same medical and other
health insurance benefits as the Company provides, from time to time, for other
employees. 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.
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
-12-
<PAGE>
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 either the business of (i) collecting debts or accounts
receivables, (ii) accounts receivables management or (iii) call center
management, 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 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 receives
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
-13-
<PAGE>
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 constitutes the entire agreement between the
Company and the Employee in any way relating to the employment of the Employee
and merges all prior agreements and understandings between them other than the
Indemnification Agreement and Option Agreements.
(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
-14-
<PAGE>
given if personally delivered or sent by certified or registered mail, return
receipt requested, to the following addresses:
(i) If to the Employee:
William B. Hewitt
7 Orange Street
Charleston, South Carolina 29401
(ii) If to the Company:
The Union Corporation
145 Mason Street
Greenwich, Connecticut 06830
Attention: Secretary
(iii) If to Capital:
Capital Credit Corporation
Suite 210
800 Arlington Expressway
Jacksonville, Florida 32211
Attention: Secretary
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.
NINTH: If any of the provisions of this Agreement shall be held
invalid, the remainder of the Agreement shall not be affected thereby.
-15-
<PAGE>
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:/s/ MELVIN L. COOPER
-----------------------------
Name: Melvin L. Cooper
Title: Chairman
CAPITAL CREDIT CORPORATION
By:/s/ MICHAEL W. LONGA
-----------------------------
Name: Michael W. Longa
Title: Controller
/s/ WILLIAM B. HEWITT
--------------------------------
William B. Hewitt
-16-
<PAGE>
Exhibit 10(n)
[CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR
PORTIONS OF THIS EXHIBIT, WHICH PORTIONS ARE
INDICATED BY THE SYMBOL "*"]
High Performance Services, Inc. Advanta Corp.
c/o The Union Corporation Blair Mill Business Center
145 Mason Street 550 Blair Mill Road
Greenwich, CT 06830 Horsham, PA 19044
Attention: Mr. William B. Hewitt Attention: Ms. Diane Bowser
Subject to the terms and conditions stated in this Agreement, High Performance
Services, Inc. agrees to perform the customer services described below,
hereinafter "Work" or "Services", and Advanta Corp. ("Advanta") agrees to pay
the charges stated. Whenever the terms "you", "your" or "Contractor" are used
in this Agreement, the same shall mean High Performances Services, Inc.
Contractor is a wholly-owned subsidiary of The Union Corporation ("Union").
STATEMENT OF WORK
- -----------------
Contractor shall perform Services in anticipation of or following execution of
this Agreement and this Agreement shall expire on the last day of the calendar
month which is 24 months from the date Contractor notifies Advanta that the
facility where the Work will be performed (described in Section VI below) has
become operational. The facility will be deemed "operational" on the first day
of the month following the month in which Contractor first services live
accounts. The Services shall include but are not necessarily limited to the
following:
I. Contractor shall render customer services on behalf of Advanta and such
services shall be performed as described hereunder and in Exhibits A, B, C,
D and E, attached hereto and hereby made a part of this Agreement.
Contractor shall render customer services to Advanta and/or its affiliates.
Contractor shall render such customer services on behalf of and as directed
by Advanta and shall update Advanta's customer account information by
entering such available information into Advanta's computer system.
Contractor shall identify and "brand" itself as Advanta in providing
services as specified under this Agreement. Contractor shall use its best
efforts to provide these services in accordance with the highest
professional industry standards (and will follow, as near as may be
possible, Advanta's guidelines for telephone contacts). Contractor shall
be responsible for hiring and training the required management,
administrative personnel, customer service representatives and technical
staff to perform the Work under this Agreement within the timeframes agreed
upon.
II. Contractor's customer service representatives shall perform the Work by
utilizing Advanta's customer service policies as revised and updated from
time to time. Contractor will be notified of said changes within a
reasonable period of time to allow for sufficient training of Contractor's
customer service representatives.
Advanta shall have one Advanta on-site Manager ("Advanta's
Representative"), co-located with Contractor's employees performing the
Work, and such person shall be a liaison to the Contractor
<PAGE>
on behalf of Advanta. Contractor shall share information with on-site and
visiting Advanta representatives in order to inform such Advanta
representatives regarding Services performed. Such representatives will
not be employees or agents of persons (other than Advanta and its
affiliates) performing services which are the same or substantially the
same as the Services performed by Contractor.
Advanta and Contractor will establish an Executive Committee on which the
parties hereto are equally represented, consisting only of employees of the
parties or employees of the parties' affiliates, which will address and
resolve all issues affecting the Contractor's performance specified in this
Agreement. This committee will assure effective communications, planning
of work, review of performance standards and volumes covered by this
Agreement. This committee will meet at least quarterly or more often, if
warranted.
III. Contractor shall transfer the data Contractor deems pertinent in connection
with the Work to Advanta-selected employees through means of day-to-day
interaction, oral presentations, and reports. Such interaction,
presentations and reports shall not unreasonably interfere with the normal
conduct of the Work. When transferring any such data, if Contractor
incorporates any of its proprietary information as provided in the
CONFIDENTIAL INFORMATION clause of this Agreement, Advanta shall treat such
information in accordance with requirements set forth in such clause.
IV. The following Exhibits are attached hereto as part of this Agreement.
Definitions hereunder apply to the Exhibits unless the Agreement otherwise
requires:
Exhibit A describes the operational requirements for the Work to be
---------
performed by the Contractor on behalf of Advanta.
Exhibit B describes Advanta's Performance Measurements.
---------
Exhibit C describes the systems and interfaces, Contractor's access rights
---------
to such systems, and the Equipment to be supplied by Advanta and to be used
by the Contractor for the Work.
Exhibit D describes the volume-forecast process to be used by Contractor
---------
under this Agreement.
Exhibit E describes Contractor's compensation for Work performed under this
---------
Agreement.
V. Unless Contractor obtains Advanta customer names for purpose of
solicitation through a means other than through Advanta-provided
information or through the performance of Services under this Agreement,
Contractor shall not solicit Advanta customers nor shall Contractor use
Advanta customer names and/or customer databases for any purpose other than
those expressly allowed under this Agreement.
-2-
<PAGE>
VI.
*__________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
_________________________________________________________________________*
VII. Union shall provide to Advanta its consolidated audited annual financial
statements within 110 days after the end of each fiscal year.
ARBITRATION
- -----------
If a dispute arises out of or relates to this Agreement, or its breach, and the
parties have not been successful in resolving such dispute through negotiation,
the parties agree to attempt to resolve the dispute through arbitration by
submitting the dispute to a sole arbitrator selected by the parties or, at any
time at the option of a party, to arbitration by the American Arbitration
Association ("AAA"). Each party shall bear its own expenses and an equal share
of the expenses of the arbitrator and the fees of the AAA. The parties, their
representatives, other participants and the arbitrator shall hold the existence,
content and result of arbitration in confidence, except as may be required by
applicable law or regulation. All defenses based on passage of time shall be
tolled pending the termination of the arbitration. Nothing in this clause shall
be construed to preclude any party from seeking injunctive relief in order to
protect its rights pending arbitration. A request by a party to a court for
such injunctive relief shall not be deemed a waiver of the obligation to
arbitrate.
ASSIGNMENT AND SUBCONTRACTING BY CONTRACTOR
- -------------------------------------------
Contractor shall not assign any right or interest under this Agreement
(excepting monies due or to become due) or delegate or subcontract any Work or
other obligation to be performed or owed under this Agreement without the prior
written consent of Advanta. Any attempted assignment, delegation or
subcontracting in contravention of the above provisions shall be void and
ineffective. Any assignment of monies due shall be void and ineffective to the
extent that (1) Contractor shall not have given Advanta at least thirty (30)
days prior written notice of such assignment or (2) such assignment attempts to
impose upon Advanta obligations to the assignee additional to the payment of
such monies, or to preclude Advanta from dealing solely and directly with
Contractor in all matters pertaining to this Agreement, including the
negotiation of amendments or settlements or charges due.
ASSIGNMENT BY ADVANTA
- ---------------------
Advanta shall have the right to assign this Agreement and to assign its rights
and delegate its duties under this Agreement either in whole or in part (an
"Assignment"), including, but not limited to, software licenses and other grants
of intellectual property rights, at any time and without Contractor's consent,
to
-3-
<PAGE>
(i) any present or future affiliate (including any subsidiary or affiliated
entity thereof) of Advanta or (ii) any unaffiliated new entities that may be
formed by Advanta pursuant to a corporate reorganization, including any
subsidiary or affiliated entity thereof. Advanta shall give Contractor prior
written notice of any Assignment, including (i) the effective date of the
Assignment ("Effective Date"), and (ii) the entity or entities receiving rights
and/or assuming obligations thereunder ("Entities"). Such assignment shall not
relieve Advanta from its obligations hereunder.
AUDIT
- ------
*_______________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________*
In the event Advanta conducts an audit of Contractor as a result of (or in the
course of an audit discovers) misconduct by Contractor, Contractor shall incur
the reasonable out-of-pocket expenses incurred by Advanta for such audit, unless
the amount of damages incurred by Advanta as a result of such misconduct does
not exceed $50,000, in which case the Contractor shall not be required to bear
the cost of such audit. For purposes hereof, "misconduct" shall be deemed to
mean fraud, gross negligence or willful misconduct of Contractor, or material
breaches of this Agreement by Contractor.
CARE AND CUSTODY OF PROPERTY
- ----------------------------
Contractor shall have the care, custody and control of Equipment (as hereinafter
defined in the EQUIPMENT clause) and any other Advanta records or materials
(hereinafter in this clause collectively referred to as "Materials") as
described hereunder in the possession of Contractor pursuant to this Agreement,
and shall be responsible for any and all damage to or loss of such Materials,
other than damage attributable to Advanta or its agents, acts of war and other
uninsurable risks and damages and other than normal wear and tear during the
time they are in Contractor's care, custody and control. Contractor's
responsibility hereunder with respect to any Materials shall commence upon
delivery and/or installation of such Materials (in good working order) by
Advanta and shall continue until such Materials are repossessed by Advanta or
its designees. The delivery, installation and, if required, the repossession of
any such Materials shall be at no cost to Contractor. The liability of
Contractor for any and all damage to or loss of Materials of Advanta in
Contractor's possession shall be based on the replacement value of such
Materials as determined. Materials supplied by Advanta shall be maintained by
Advanta at no cost to Contractor.
CHANGES
- -------
Advanta may at any time during the progress of the Work require additions to or
alterations of or deductions or deviations (all hereinafter referred to as a
"Change") from the Work described herein. No Change shall be considered as an
addition or alteration to or deduction or deviation from the Work, unless
-4-
<PAGE>
made pursuant to a written Change Order issued by Advanta. Within thirty (30)
days after a request for a Change, Contractor shall submit a proposal to Advanta
which includes estimated increases or decreases in Contractor's costs or changes
in the Work schedule necessitated by the Change. Advanta shall, within thirty
(30) days of receipt of the proposal, either (i) accept the proposal, in which
event Advanta shall issue a written Change Order directing Contractor to perform
the Change or (ii) advise Contractor not to perform the Change, in which event
Contractor shall proceed with the original Work.
CHOICE OF LAW
- -------------
The construction, interpretation and performance of this Agreement and all
transactions under it shall be governed by the laws of the State of Delaware.
The parties agree that the provisions of the Delaware Uniform Commercial Code
apply to this Agreement and all transactions under it, including agreements and
transactions relating to the furnishing of services, the lease or rental of
equipment or material, and the license of software.
COMPENSATION
- ------------
Contractor's invoices for fees established in Exhibit E shall be paid to
Contractor for Work, and are to include
*_______________________________________________________________________________
______________________________________________________________________________*.
Advanta agrees to pay Contractor following receipt by Advanta of invoices for
Work performed hereunder. Payment shall be made fifteen (15) days after
invoices are received by the designated Advanta Representative.
COMPLIANCE WITH LAWS
- --------------------
Contractor and all persons furnished by Contractor shall comply with all
applicable federal, state and local laws, ordinances, regulations and codes,
including the procurement of required permits, certificates, licenses,
insurance, approvals and inspections in performance under this Agreement.
CONFIDENTIAL INFORMATION
- ------------------------
Neither Contractor nor Advanta shall provide to the other under, or have
provided in contemplation of, this Agreement any idea, data, program, technical,
business or other intangible information, however conveyed, or any document,
print, tape, disk, semiconductor memory or other information-conveying tangible
article, unless such party has the right to do so.
Subject to the foregoing, in the event either party discloses Confidential
Information (as hereinafter defined) to the other, the receiving party shall
hold such Confidential Information in confidence, shall use the Confidential
Information only for the purpose of its internal business, shall reproduce the
Confidential Information only to the extent necessary for such purpose, shall
restrict disclosure
-5-
<PAGE>
of the Confidential Information to its employees (and employees and/or
consultants of its affiliated companies) and consultants with a need to know
(and advise the employees of the obligations assumed herein) and shall not
disclose the Confidential Information to any other third party without prior
without written approval of the other and will take reasonable precautions to
avoid unauthorized disclosure and protect against unauthorized use of the
Confidential Information. The foregoing imposes no obligation upon the receiving
party with respect to Confidential Information which the receiving party can
establish by legally sufficient evidence: (a) was previously and legally in the
possession of or was rightfully known by the receiving party without an
obligation to maintain its confidentiality prior to receipt from the disclosing
party; (b) is or becomes generally known to the public without violation of this
Agreement; (c) is obtained by the receiving party in good faith from a third
party having the right to disclose it without an obligation of confidentiality;
(d) is independently developed by the receiving party without the participation
of individuals who have had access to the Confidential Information; or (e) is
required by law to be disclosed provided diligent efforts are undertaken to
limit disclosure.
The term "Confidential Information" means any and all information disclosed by
the disclosing party to the receiving party verbally, electronically, visually,
written or in other tangible form which is identified as confidential or
proprietary to the disclosing party. If any Confidential Information disclosed
is not in tangible form, its confidential or proprietary nature must first be
announced and it must be reduced to writing, with a copy of the writing being
furnished to the receiving party, within thirty (30) days of the disclosure of
the intangible information. Confidential Information includes, but is not
limited to, trade secrets, computer programs, software, formulas, data,
inventions, techniques, marketing plans, strategies, forecasts, third party
confidential information, business data, employee data and business plans. Any
Confidential Information provided by Contractor shall be furnished only to the
Advanta's Representative at the Jacksonville, Florida facility.
DISASTER RECOVERY
- -----------------
On or before 120 days after execution of this Agreement, Contractor shall submit
a contingency plan for Advanta's Work in the event of a disaster, described as a
force majeure condition in the clause FORCE MAJEURE or extended outage at
Contractor's site where Work is being performed, and shall submit such plan to
Advanta for review and approval by Advanta and such approval shall be provided
in writing by Advanta to Contractor. The plan shall include, but shall not be
limited to, modification of inbound calling requirements in the event of a
disaster and how Contractor will support operations in the event of major system
and/or infrastructure outages and its capability in support of the Facility,
systems, infrastructure and data. Costs incurred in connection with the
establishment, maintenance, implementation and performance of the plan shall be
chargeable to Advanta. Within 120 days after execution of this Agreement,
Advanta shall provide Contractor with a disaster recovery plan for Advanta as it
relates to Work under this Agreement.
In the event any telecommunications services or processes are not operating
properly, Contractor shall take immediate and appropriate action in accordance
with Contractor's business continuity plan to rectify the malfunction and shall
immediately notify Advanta's Representative within one (1) hour (or such lesser
time as appropriate under the circumstances) after Contractor becomes aware of
the service-affecting situation and of remedial action taken. Advanta shall take
immediate and appropriate action to remedy any malfunction involving its
Equipment.
-6-
<PAGE>
ENTIRE AGREEMENT
- ----------------
This Agreement and Exhibits and Attachments hereto shall constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and shall not be modified or rescinded, except in writing signed by
Contractor and Advanta. Additional or different terms inserted in this
Agreement, or deletions thereto, whether by alterations, addenda, or otherwise,
shall be of no force and effect, unless expressly consented to by the parties in
writing. Estimates or forecasts furnished by Advanta or Contractor shall not
constitute commitments. The provisions of this Agreement supersede all
contemporaneous oral agreements and all prior oral and written quotations,
communications, agreements and understandings of the parties with respect to the
subject matter of this Agreement. All approvals or consents by the parties in
this Agreement or the Exhibits hereto shall not be unreasonably withheld or
unreasonably delayed.
EQUIPMENT
- ---------
Except for the communications and computer equipment provided directly to
Contractor by Advanta ("Equipment") as provided for in this Agreement,
Contractor shall provide all labor and other equipment for performance of this
Agreement (the "tools"). Advanta shall provide the Equipment for performance of
this Agreement.
Contractor shall assume risk of loss and damage to such Equipment while on
Contractor's premises. Contractor agrees not to remove the Equipment from
Contractor's premises where such Equipment is located. Advanta shall assume
responsibility for the Equipment upon expiration or termination of this
Agreement. Advanta shall conduct maintenance on the Equipment at its cost. The
Equipment shall be provided and maintained in accordance with the following
requirements.
A. Advanta shall provide communications and computer equipment necessary to
equip the Facility leased by Contractor for performance of the Work for
Advanta under this Agreement and such Equipment shall remain Advanta's
property at all times.
1. Contractor shall be responsible for the safekeeping of the Equipment,
assume all risks of loss or damage to the same except as limited by
the CARE AND CUSTODY OF PROPERTY clause and be liable for the
replacement value of such Equipment (subject to the provisions of
paragraph 3. below). Advanta shall provide maintenance service for
the Equipment, as required, repair, remove, replace, move or ship such
Equipment, unless such Equipment was lost or damaged by Contractor.
Contractor shall maintain during the term of this Agreement and during
the period of time Contractor has the care, custody and control of the
Equipment owned or furnished by Advanta the All Risk Property
Insurance policy required in the INSURANCE clause.
2. Contractor shall use the Equipment in accordance with all applicable
OSHA requirements and other safety requirements, codes or standards,
and keep in force at all times during the course of this Agreement a
policy of Workers' Compensation insurance as prescribed by the law of
the state in which the Work is performed. Contractor may procure
whatever additional insurance Contractor deems appropriate.
Contractor agrees to indemnify and hold
-7-
<PAGE>
harmless Advanta from and against any and all losses, damages, claims,
demands, suits, and liabilities (including reasonable attorney's fees)
resulting from the operation, use or storage of the Equipment unless
such claims are based on defects in the Equipment or its operation not
the fault of Contractor.
3. Advanta shall permanently mark or, if impracticable to do so, then
affix labeling stating that the Equipment is the PROPERTY OF ADVANTA
CORP. Advanta shall prepare and deliver to Contractor, simultaneously
with the delivery of any Equipment, a report providing the name,
location and serial number for such Equipment. Such report shall also
include Advanta's estimate of replacement value of such Equipment, it
being understood that Contractor shall use its reasonable efforts to
insure such Equipment for the amount of the replacement value
estimated by Advanta, but that if the insurer ascribes a lower
replacement value to such Equipment, Contractor's liability with
respect to replacement value shall be limited to the insurable amount.
Advanta shall update reports with respect to any Equipment delivered
hereunder as appropriate. Contractor shall promptly notify Advanta of
any Equipment operational issues as it so becomes aware.
4. Contractor shall keep the Equipment in the location where Services are
being performed for Advanta by Contractor, and, in case of removal by
Contractor or any of its employees of all or any part of it from one
building to another, Contractor's responsibility for loss or damage
shall continue.
5. Contractor shall use the Equipment only in performing Services for
Advanta, unless otherwise agreed in writing by Advanta.
6. Advanta may inspect, inventory, and authenticate the account of
Equipment furnished under this Agreement during Contractor's normal
business hours. Contractor shall provide Advanta access to the
premises where all such Equipment is located. The obligations assumed
by Contractor with respect to Equipment furnished under this Agreement
are for the protection of Advanta's property. Contractor shall hold
for Advanta's disposition any or all of such Equipment in Contractor's
possession free of restrictions at (a) the completion of the Services,
or (b) termination of this Agreement.
B. The data stored in the computer Equipment and on all backup and archival
media is and shall remain the property of Advanta and is subject to the
terms and conditions set forth in the CONFIDENTIAL INFORMATION and RIGHTS
IN DATA clauses set forth hereunder. Contractor shall provide all such
data in the format reasonably required by Advanta upon (a) the completion
of the services, (b) termination of this Agreement, or (c) the withdrawal
of Equipment. Upon being notified of Advanta's receipt of such data by
Advanta, Contractor shall destroy (or at Advanta's request provide to
Advanta) all other copies, regardless of form, of Advanta's data in its
possession.
-8-
<PAGE>
FORCE MAJEURE
- -------------
Neither party shall be held responsible for any delay or failure in performance
of any part of this Agreement to the extent such delay or failure is caused by
fire, flood, explosion, war, strike, embargo, government requirement, civil or
military authority, act of God, or other similar causes beyond its control and
without the fault or negligence of the delayed or nonperforming party ("force
majeure conditions"). Notwithstanding the foregoing, Contractor's liability for
loss or damage to Advanta's Equipment in Contractor's possession or control
shall not be modified by this clause. If any force majeure condition occurs,
the party delayed or unable to perform shall give immediate notice to the other
party, stating the nature of the force majeure condition and any action being
taken to avoid or minimize its effect. Once the force majeure condition ceases,
the parties will resume performance under this Agreement with an option by
either party to extend the period of this Agreement up to the length of time the
force majeure condition endured, not to exceed ninety (90) days.
HEADINGS
- --------
The headings contained in this Agreement are for convenience of reference only
and shall not affect the interpretation or meaning of this Agreement.
INCENTIVE PAYMENTS
- ------------------
Advanta and Contractor agree to enter into good faith negotiations for
development of the Quality Performance Measurement Standards, incorporating
applicable incentive payments related to such standards, and such standards
shall be developed in final form within six months after execution of this
Agreement. In the event no agreement can be reached between the parties at the
end of six months, Advanta shall have final decision as to the standards for
performance of the Work under this Agreement. Such standards shall be
incorporated in this Agreement.
INDEMNITY
- ---------
1. Subject to the provisions of the LIMITATION OF LIABILITY clause, Contractor
agrees to indemnify and save harmless Advanta, its affiliates and each of
their officers, directors, employees, agents, successors and assigns (all
hereinafter referred to in this clause as "Advanta") from and against any
losses, damages, claims, demands, suits, liabilities, and expenses
(including reasonable attorney's fees) which arise out of or result from
acts or omissions of Contractor or its affiliates or assigns or the
employees or agents of any of them in connection with its performance under
this Agreement or that arise out of or result from third party actions
which are based upon acts or omissions of Contractor, including without
limitation: (1) injuries or death to persons, or damage to property,
arising out of or caused by the performance of the Work or services
performed by Contractor or persons employed by Contractor; (2) assertions
under Workers' Compensation or similar acts made by persons employed by
Contractor; (3) any failure on the part of Contractor to satisfy all valid
claims for
*__________________________________________________________________________
___________________________________________________________*; or (4) any
failure by Contractor to perform Contractor's obligations under this
clause. Contractor agrees to defend Advanta, at Advanta's request, against
-9-
<PAGE>
any such claim, demand or suit. Advanta agrees to notify Contractor within
a reasonable time of any written claims or demands against Advanta for
which Contractor is responsible under this clause.
2. Subject to the provisions of the LIMITATION OF LIABILITY clause, Advanta
agrees to indemnify and save harmless Contractor, its affiliates and the
officers, directors, employees, agents, successors and assignees of each
(all hereinafter referred to in this clause as "Contractor") from and
against, without limitation, any losses, damages, claims, demands, suits,
liabilities, and expenses (including reasonable attorney's fees) that arise
out of or result from acts or omissions of Advanta or its affiliates or
assigns or the employees or agents of any of them (other than Contractor)
in connection with its performance under this Agreement. Advanta agrees to
defend Contractor, at Contractor's request, against any such claim, demand
or suit. Contractor agrees to notify Advanta within a reasonable time of
any written claims or demands against Contractor for which Advanta is
responsible under this clause.
3. Subject to the provisions of the LIMITATION OF LIABILITY clause, Contractor
shall indemnify and save harmless Advanta, its affiliates and each of their
officers, directors, employees, successors and assigns (all hereinafter
referred to in this clause as "Advanta") from and against any losses,
damages, liabilities, and expenses (including reasonable attorney's fees)
that arise out of or result from any claim of infringement brought against
Advanta to the extent it is based upon Advanta's use of tangible or
intangible material provided by Contractor (hereinafter referred to in this
clause as an "Infringement Claim"). If the Infringement Claim arises from
Contractor's adherence to Advanta's written or oral instructions regarding
Work or tangible or intangible goods provided to Contractor (hereinafter
referred to in this clause as "Items") and if the Items are not owned by or
licensed to Contractor, Advanta shall indemnify Contractor to the same
extent and upon the same terms which apply to Contractor's obligation to
indemnify Advanta hereunder. Advanta or Contractor shall defend or settle,
at its own expense, any demand, action or suit on any Infringement Claim
against the other for which it is indemnitor under the preceding provisions
and each shall timely notify the other of any assertion against it of any
Infringement Claim and shall cooperate in good faith with the other to
facilitate the defense of any such Claim.
INSPECTION
- ----------
Advanta's Representative shall, during regular business hours, have access to
any and all Work and work related data and facilities containing such Work and
data for the purpose of inspection or quality review and Contractor shall
provide facilities for such purpose. Such inspection shall not unreasonably
interfere with performance of the Work.
INSURANCE
- ---------
Contractor shall maintain during the term of this Agreement: (1) Workers'
Compensation insurance as prescribed by the law of the state or nation in which
the Work is performed; (2) employer's liability insurance with limits of at
least $300,000 for each occurrence; (3) comprehensive automobile liability
insurance if the use of motor vehicles is required, with limits of at least
$1,000,000 combined single limit
-10-
<PAGE>
for bodily injury and property damage for each occurrence; (4) Comprehensive
General Liability ("CGL") insurance, including Blanket Contractual Liability and
Broad Form Property damage, with limits of at least $1,000,000 combined single
limit for bodily injury and property damage for each occurrence, (5) All Risk
Property Insurance (including flood and earthquake coverage) at replacement
value, and (6) Errors and Omissions and Electronic Data Processing professional
liability insurance, with limits of at least $3,000,000. All CGL, automobile
liability and All Risk Property insurance shall designate Advanta, its
affiliates, and their officers, directors and employees (all hereinafter
referred to in this clause as the "Additional Insureds") as an additional
insured. All such insurance must be primary and required to respond and pay
prior to any other available coverage. Contractor agrees that Contractor, and to
the extent Contractor is able to so secure the agreement of such person,
Contractor's insurer(s) and anyone claiming by, through, under or in
Contractor's behalf, shall have no claim, right of action or right of
subrogation against the Additional Insureds based on any loss or liability
insured under the foregoing insurance. Contractor shall furnish certificates or
adequate proof of the foregoing insurance including, if specifically requested
by Advanta, copies of the endorsements and insurance policies. Advanta shall be
notified in writing at least fifteen (15) days prior to cancellation by
Contractor of any applicable policy, and as promptly as practicable following
cancellation of any such policy by an insurer.
INVOICING
- ---------
Contractor's invoices shall be rendered upon completion of the Work or at other
times expressly provided for in the Agreement, and shall be payable within
fifteen (15) days after receipt by the designated Advanta Representative.
Contractor shall mail invoices with copies of any supporting documentation
reasonably required by Advanta to the address shown in this Agreement.
Invoicing will begin following the execution of this Agreement. Invoicing will
continue during any force majeure period and will also continue after
termination of this Agreement until all costs described in the
TERMINATION/EXPIRATION clause have been paid to Contractor.
Contractor's invoices shall be rendered and paid in accordance with the
COMPENSATION clause contained herein.
Contractor's invoices shall be sent to Advanta twice a month as follows: (i) by
the 25th day of the calendar month for the Work performed through the 15th day
of the current calendar month and (ii) by the 10th day of the calendar month for
then unbilled Work performed in the preceding calendar month. Such invoices
shall be in the format provided for in Attachment V to Exhibit E, attached
hereto and hereby made a part of this Agreement.
Contractor shall submit an original and duplicate copy of each invoice to the
following address or to an address to be mutually agreed upon by the parties in
writing:
Advanta Corp.
Blair Mill Business Center
550 Blair Mill Road
Horsham, PA 19044
-11-
<PAGE>
LABOR RELATIONS
- ---------------
Contractor shall be responsible for its own labor relations with any trade or
union represented among its employees and shall negotiate and be responsible for
adjusting all disputes between itself and its employees or any union
representing such employees. Contractor shall notify Advanta's Representative
if Contractor has knowledge of any actual or potential labor dispute which is
delaying or could delay the timely performance of this Agreement. If any
dispute, work stoppage or strike should occur, Contractor shall notify Advanta's
Representative and agrees to make all reasonable efforts and take all reasonable
action necessary to settle the matter.
LICENSE TO MEDIA
- ----------------
Advanta hereby grants to Contractor a non-exclusive, revocable, non-transferable
license to copy, distribute, display and use the Advanta media for the purpose
of training Contractor's employees to perform Work under this Agreement and such
media shall be for customer service training, whether such Advanta media is
fixed in any documentary material, photograph, tape, diskette or other tangible
medium of expression furnished under this Agreement by Advanta to Contractor,
and which act would, if unlicensed, constitute or contribute to or induce an
infringement of any copyright or patent licensable by Advanta for its works of
authorships. Such license is, however, restricted to the extent that it shall
be exercised solely to further educational or training programs conducted by
Contractor to aid the implementation of training the employees of Contractor
that are performing Work under this Agreement. The foregoing license does not
include the right of Contractor to grant any sublicenses whatsoever. Title to
any such documentary material, photograph, tape, diskette or other tangible
medium of expression furnished hereunder to Contractor will remain with Advanta
and shall be promptly returned to Advanta upon expiration or termination of this
Agreement (if a renewal agreement is not executed by the parties), termination
of the foregoing license by Advanta and/or upon request by Advanta.
LIMITATION OF LIABILITY
- -----------------------
A. Except as otherwise provided in this Agreement, each party's liability to
the other (as distinct from a party's obligation to pay for Services
provided pursuant to this Agreement) for any loss, cost, claim, injury,
liability, or expense, including reasonable attorneys' fees, relating to or
arising out of any act or omission in its performance under this Agreement,
shall be limited to the amount of direct damages actually incurred.
B. In no event shall either party be liable to the other for consequential
damages in the nature of lost profits or lost revenue arising under this
Agreement or exemplary or punitive damages unless imposed by regulatory
authority.
C. Each party hereto shall be entitled to reasonably rely upon information or
instructions supplied by the other party, and neither party shall be liable
to the other for any loss or damage resulting from acts or omissions of the
other reasonably taken at the request of the other party, or reasonably
based on information or instructions supplied or omitted by the other.
-12-
<PAGE>
MARKET RIGHTS
- -------------
It is expressly understood and agreed that this Agreement does not grant to
Contractor an exclusive right or privilege to sell to Advanta any services of
the type described in this Agreement. It is, therefore, understood that Advanta
may contract with other Contractors for the procurement of comparable services.
In the event that Contractor or any of its affiliates provide like customer
service activities to any other bankcard issuer, Contractor shall provide a
separate physical customer service center and separate and different local
operations management and customer service representatives for such services.
Contractor's customer service representatives performing Work under this
Agreement shall not concurrently perform customer services for other bankcard
issuers.
NOTICES
- -------
Any notice or demand which under the terms of this Agreement or under any
statute must be given or made by Contractor or Advanta shall be in writing and
shall be given or made by telegram, overnight courier, confirmed facsimile, or
similar communication or by certified or registered mail addressed to the
respective parties as follows:
To Advanta: Advanta Corp.
Blair Mill Business Center
550 Blair Mill Road
Horsham, PA 19044
Attn: Legal Department
Fax No. _______________
To Contractor: William B. Hewitt
High Performance Services, Inc.
c/o The Union Corporation
145 Mason Street
Greenwich, CT 06830
Fax No. (203) 629-1046
The above addresses may be changed at any time by giving prior written notice as
above provided. Notice shall be effective when received, if given by overnight
courier, telegram or confirmed facsimile, or three days after it is sent by
certified or registered mail.
ORDERLY TRANSITION
- ------------------
In the event of expiration or termination of this Agreement, in whole or in
part, wherein all or some portion of the Work will be performed by Advanta
itself or another party, Contractor agrees to provide its full cooperation in
the orderly transition of the Work to Advanta or elsewhere, including packing
and
-13-
<PAGE>
preparing for shipment of any materials or other inventory to be transferred,
files and similar media necessary for continuation of the Work transferred,
continuation of Work at reducing levels if necessary during a transition period
and at reduced levels if Work is transferred in part. Contractor shall not be
responsible for packing or shipment of Advanta Equipment supplied by Advanta
pursuant hereto.
Contractor shall within sixty (60) days after notice by Advanta of a decision to
effect a transition, develop and submit to Advanta an orderly transition plan of
the Work to Advanta itself or otherwise.
PERFORMANCE
- -----------
Contractor will proceed with promptness and diligence and will use its best
efforts to ensure that the Work is performed in a first class workmanlike
manner.
RELATIONSHIP
- ------------
It is understood and agreed that all employees hired by Contractor to perform
the services under this Agreement are Contractor's employees. Contractor shall
exercise full control and direction over the employees of Contractor performing
the Work covered by this Agreement. Any changes in personnel that may be
reasonably requested by Advanta through its authorized representative shall be
made as soon as reasonably possible.
Neither Contractor nor its employees or agents shall be deemed to be Advanta's
employees or agents. It is understood that Contractor is an independent
contractor engaged to provide customer and other services for Advanta.
Contractor is wholly responsible for withholding and remitting all applicable
federal, state and local income and other payroll taxes with respect to its
employees, including contributions from them as required by law.
Without limiting any other requirements in this Agreement for complying with
laws, Contractor shall, when hiring personnel for performing the Work hereunder,
comply with applicable legislation and government agency orders and regulations
prohibiting discrimination against any employee or applicant for employment
because of race, color, religion, sex, national origin, age or handicap, and
Contractor shall comply with the provisions of the Fair Labor Standards Act of
1938, as amended, and all other applicable Federal, state and local law
governing employment. Where required by law, certificates of compliance shall be
provided.
None of Contractor's customer service employees assigned to perform Work under
this Agreement shall be assigned to any other activities, unless Contractor
submits a plan of the work and time involved for such work to Advanta for
approval by Advanta.
REPRESENTATION OF RIGHT TO USE
- ------------------------------
Contractor represents that it is authorized and permitted to use any and all
software and other material which it does not own and which will be used to
perform the Services, excluding materials provided to Contractor by Advanta.
-14-
<PAGE>
REPRESENTATIVES
- ---------------
Advanta's Representative is Diane Bowser or such other person as may be
designated in writing by from time to time. Contractor's Representative is
William B. Hewitt or such other person as may be designated in writing by
Contractor from time to time.
RIGHTS IN DATA
- --------------
Contractor agrees that all material prepared by Contractor under this Agreement,
regardless of where prepared, shall be owned by Advanta and shall be deemed to
be works made for hire. To the extent that any material may not, by operation
of law, be works for hire, Contractor hereby assigns to Advanta the ownership of
all right, title and interest in such items, including but not limited to
copyrights. Contractor agrees to give Advanta, its designees, assigns or
successors all assistance reasonably required to perfect such rights, titles and
interest. Advanta shall permit Contractor to keep copies of any material deemed
works for hire hereunder or otherwise assigned to Advanta hereunder, to the
extent such material constitutes business records generated by Contractor in the
course of its performance of Services hereunder.
RIGHT OF ENTRY AND PLANT RULES
- ------------------------------
Advanta personnel shall have the right to enter the Facility during normal
business hours with respect to the performance of this Agreement, subject to all
building rules and regulations, security regulations and procedures.
Visitations at the Facility shall not unreasonably interfere with performance of
the Work.
Contractor shall initiate and maintain building security for the protection of
Advanta's information while in Contractor's control and shall limit access to
operating areas and information to those with a need for such access. Within 90
days of execution of this Agreement, Contractor shall establish and provide in
writing to Advanta its security procedures for approval by Advanta.
SEVERABILITY
- ------------
If any of the provisions of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not invalidate or render unenforceable
the entire agreement, but rather the entire agreement shall be construed as if
not containing the particular invalid or unenforceable provision or provisions,
and the rights and obligations of Contractor and Advanta shall be construed and
enforced accordingly.
SURVIVAL OF OBLIGATIONS
- -----------------------
Notwithstanding any other provision of this Agreement to the contrary, the
obligations of the parties under this Agreement which by their nature would
continue beyond the termination, cancellation or expiration of this Agreement,
including, by way of illustration only and not limitation, those in the clauses
ARBITRATION, COMPENSATION, COMPLIANCE WITH LAWS, CONFIDENTIAL INFORMATION,
INDEMNITY, INSURANCE and USE OF INFORMATION, as well as Exhibit E, shall survive
termination, cancellation or expiration of this Agreement.
-15-
<PAGE>
TAXES
- -----
*_______________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________*
TERMINATION/EXPIRATION
- ----------------------
Termination provisions under this Agreement shall be in accordance with the
following:
A. Termination for Convenience:
Advanta may at any time terminate this Agreement, in whole or in part, by
providing not less than 120 days prior written notice to Contractor. In
such case, Advanta shall be liable for payment of the amount due for Work
performed up to and including the date of termination, including the
portion of any incentive payments earned by Contractor through the date of
such termination, and no further Work will be rendered by Contractor after
the effective date of termination. In addition, in the event of such
termination for convenience:
(1) Advanta shall assume
*_____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
___________________*, and
(2) If such termination occurs less than *_____* years after Work has
commenced under this Agreement, Advanta shall pay for
*_______________________________________________________*, and
(3) Advanta shall pay
*_____________________________________________________________________
______________________________________________________________________
_______*, and
(4) Advanta shall pay all
*_____________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
_____________________________________________________________________*
B. Breach by Contractor:
Advanta may terminate this Agreement at any time, without waiving other
rights herein, and shall be entitled to obtain all such remedies as
injunctive or equitable relief, as well as attorneys' fees, as may be
deemed proper by a court of competent jurisdiction at any time if
Contractor is in material breach of this Agreement. In such breach case,
Advanta shall provide Contractor ninety
-16-
<PAGE>
(90) days to cure such breach prior to termination after notice specifying
the alleged breach. In the event of such termination Advanta's liability to
Contractor shall be for*___________________________________________*.
C. Termination for Default:
Advanta may terminate this Agreement at any time for fraud by Contractor or
if Union or Contractor declares bankruptcy or makes a filing of a petition
under any Federal or state bankruptcy, receivership, moratorium or similar
law, or if a petition is filed or case commenced against Contractor or
Union (which filing or case is not dismissed within 30 days of filing or
commencement). In such case, Advanta's liability shall be limited to
payment of the amount due for Work performed, up to and including the date
of termination, and no further Work will be rendered by Contractor after
the effective date of termination.
D. The parties agree that a failure to achieve performance standards
established under the Agreement is not considered a breach for purposes of
this TERMINATION/EXPIRATION clause.
E. Advanta shall notify Contractor not later than six (6) months prior to
expiration of this Agreement of either (i) its desire to extend or renew
this Agreement, in which case both parties shall promptly and in good faith
enter into negotiations to extend or renew this Agreement on terms that are
acceptable to both parties or (ii) its decision to exercise its option to
renew or its decision not to renew this Agreement and exit the location
with the Advanta-provided Equipment. In the event of non-renewal,
Advanta's responsibility for payments to Contractor shall be limited to
requirements set forth in Section A of this clause, and Contractor shall be
returned the security deposit, if any, under the lease.
WAIVER
- ------
The failure of either party at any time to enforce any right or remedy available
to it under this Agreement or otherwise with respect to any breach or failure by
the other party shall not be construed to be a waiver of such right or remedy
with respect to any other breach or failure by the other party.
-17-
<PAGE>
IN WITNESS WHEREOF, Contractor and Advanta have executed this Agreement in
duplicate on the day and year below written.
HIGH PERFORMANCE ADVANTA CORP.
SERVICES, INC.
By: /s/ William B. Hewitt By: /s/ Diane L. Bowser
------------------------------ ------------------------------
(Signature) (Signature)
William B. Hewitt, Pres and CEO Diane L. Bowser, VP Operations
--------------------------------- ------------------------------
Name & Title Name & Title
(Typed or Printed) (Typed or Printed)
August 13, 1996 August 16, 1996
------------------------------ ------------------------------
(Date) (Date)
-18-
<PAGE>
The Union Corporation hereby guarantees the performance of all obligations,
services and duties of High Performance Services, Inc. under and in connection
with this Agreement and the Exhibits annexed hereto.
THE UNION CORPORATION
By:/s/ Melvin L. Cooper
------------------------------------
(Signature)
Melvin L. Cooper, Chairman and CEO
- ---------------------------------------
Name & Title
(Typed or Printed)
August 14, 1996
- ---------------------------------------
(Date)
-19-
<PAGE>
EXHIBIT A
---------
This is Exhibit A to Agreement between High Performance Services, Inc.
("Contractor") and Advanta Corp. ("Advanta") and outlines the operational
requirements for the Work performed by the Contractor on behalf of Advanta.
I. DEPARTMENTAL GOALS
The following is a list of the departmental goals within Advanta Customer
Service where performance levels are expected to be met or exceeded on
daily basis:
. Service Level *----------*
. Abandonment Rate *----------*
. Calls/Hour/Rep. *----------*
. Total Work Time *----------*
. Manned Time % *----------*
. Calls Monitored/Rep/Mo. *----------*
. Average Monitoring Score *----------*
Note: An incentive program is currently being discussed to compensate
Contractor for performance that exceeds target in the following areas:
Service Level
Abandonment Rate
Unit Costs
Quality/Satisfaction Measurement
This contract will be amended to reflect the details of this program once
finalized.
II. HOURS OF OPERATION
A. The Contractor shall arrange its work schedules to accommodate forecasted
call volumes and list completion requirements, unless directed otherwise by
Advanta
B. Incoming calls will be handled within the following timeframes:
*____________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________*
A-1
<PAGE>
III. HOLIDAYS
A. Contractor observes the following holidays:
1. New Year's Day
2. Memorial Day
3. Independence Day
4. Labor Day
5. Thanksgiving Day
6. Christmas Day
B. When Advanta chooses to be open on a holiday observed by Contractor,
*__________________________________________________________________________
___________________________________________________________________________
__________________________________*.
C. In addition, Advanta shall advise Contractor regarding closure on non-
traditional Advanta holidays, weekends, or early closing on a particular
work day such as Christmas Eve, a minimum of two weeks prior to the first
of the month in which the day occurs.
IV. POLICIES AND PROCEDURES
Advanta will furnish Contractor with Advanta policies and procedures for the
Work to be performed on behalf of Advanta. Any changes Contractor makes to such
material must have the written approval of Advanta prior to implementation.
When Advanta provides updates, revisions, and/or deletions to policies and
procedures, Contractor shall promptly implement such changes.
Contractor has the right to employ its internal policies and procedures as they
relate to the administration of its business and its proprietary systems (e.g.,
payroll, scheduling systems). Advanta has the right to review such policies and
procedures and all subsequent changes to such procedures prior to
implementation.
Contractor is responsible to ensure that its staff is aware of and fully
complies with all Advanta and Contractor policies and procedures.
V. CUSTOMER COMPLAINT HANDLING
Advanta will provide Contractor with customer complaint handling procedures for
both written and verbal complaints. Advanta's general guideline for responding
to customer complaints is within *________________* of receipt. However,
specific timeframes will be dependent on the source and nature of the complaint
and may be of an expedited nature requiring less than *________________*
resolution. Complaints may be received from, but are not limited to, the
following sources: State Utility Commissions, FCC, Consumer Rights Groups,
Advanta Executives, and directly from the customer or representative of the
customer.
A-2
<PAGE>
Contractor shall comply with complaint retention guidelines provided by Advanta.
VI. CALL MONITORING
Monitoring of customer contacts will be performed by Advanta and Contractor to
verify that service quality levels established by Advanta are met or exceeded.
It is Contractor's responsibility to monitor outbound and inbound calls to
ensure compliance with Advanta and Contractor policies and procedures. Minimum
standards require that an average of *_______________________* per full time on-
line employee per month be monitored and documented along with any comments and
action taken. The actual number of contacts per on-line employee will be based
on the number of hours worked and the individual level of performance. Based on
call observation data, it is the responsibility of Contractor to provide re-
training, skill development and disciplinary action, when appropriate. Advanta
has the right to review such documentation at any time and provide remedial
recommendations. Contractor is responsible for implementing and complying with
Advanta recommended actions.
Advanta has the right to monitor on-line employee calls at any time, at
Advanta's expense either on site by Advanta personnel or remotely by Advanta
Headquarters Staff. When deemed appropriate by Advanta, Advanta will provide
results of such monitoring to Contractor. Contractor and Advanta will mutually
agree upon recommended actions.
Advanta has the right to conduct independent audit interviews of customers to
verify that call quality standards established by Advanta are met or exceeded.
Advanta will provide Contractor with the results of such interviews.
VII. ON-SITE PERSONNEL
Contractor will provide a sufficient number of on-site skilled personnel to
answer questions, resolve problems, respond to requests, provide development to
employees, and to ensure Advanta quality standards and requirements are met or
exceeded.
Advanta will initially provide one (1) on-site person. Any modifications to the
number of Advanta on-site personnel will be mutually agreed upon between Advanta
and Contractor. Contractor is responsible for providing suitable office
accommodations, supplies, data, and voice communications, monitoring capability
and security access for Advanta personnel. Contractor, as deemed appropriate,
will include the on-site Advanta Manager in staff meetings and general business
meetings related to the services performed for Advanta.
VIII. PROFESSIONALISM IN THE WORKPLACE
Contractor personnel are responsible for adhering to the highest level of
professionalism when handling Advanta customers and when interacting with
Advanta employees.
A-3
<PAGE>
Contractor shall ensure that all personnel associated with this project adhere
to Advanta's Business Ethics and the highest quality standards when interacting
with Advanta customers.
IX. DISPUTE RESOLUTION
All disputes that arise out of relate to this Agreement shall be resolved by
using protocol in accordance with the following:
A. Routine channels such as Advanta's on-site manager, Technical
Representative, Agreement Representative, and/or other designated Advanta
personnel
B. Executive Committee
C. American Arbitration Association as set forth in the ARBITRATION clause
A-4
<PAGE>
EXHIBIT B
---------
This is Exhibit B to Agreement between High Performance Services, Inc.
("Contractor") and Advanta Corp. ("Advanta") and outlines the measurement
standards and reporting which shall be applicable to all customer service
activities performed by the Contractor on behalf of Advanta under this
Agreement.
The following monthly key performance indicators are to be used and
reported to measure departmental performance:
. Inquiry rate
. Total call volume accepted
. Abandonment rate
. Rep. average speed of answer
. Service level
. Calls handled/FTE
. Rep. productivity/hour
The following daily key performance indicators are to be used and reported
to Advanta:
. Attrition rate
. Service level
. Abandonment rate
. Rep. average speed of answer
. Total average speed of answer
. Rep. average call length
. Staff utilization
. Average PCP
. Average wait time
. Total number of calls accepted
. Number of calls answered by Rep.
. Number of calls accepted by Rep.
. Forecasted Rep. productivity
. Actual Rep. productivity
. Forecasted total hours paid
. Administrative hours paid
. Regular hours paid
. Overtime hours paid
. Total Rep. hours paid
. New hire hours paid
. Total actual hours paid
. Phone FTE
. Paid FTE
. Forecasted phone hours worked
B-1
<PAGE>
. Actual phone hours worked
. Senior support hours
. New hire support hours
. New hire training hours
. Current training hours
. Phone miscellaneous hours
. Meeting hours
. Break hours
. Sick hours
. Paid time off hours
. Clerical hours
The following standards are used to measure call quality (Customer Contact
Quality Objectives and Scoring sheet are attached):
. Call opening or greeting
. Telephone skills
. Resource utilization
. Product knowledge
. Call closing
Once final requirements are established, this list may be modified to
reflect only those performance indicators in which Advanta does not have
direct access to the daily and monthly results. Performance indicators
will be included on Advanta's existing daily/monthly MIS report.
B-2
<PAGE>
EXHIBIT C
---------
This is Exhibit C to Agreement Number [________] between High Performance
Services, Inc. ("Contractor") and Advanta Corp. ("Advanta") and outlines the
systems and interface requirements for the Work performed by the Contractor
on behalf of Advanta. All Tools and Equipment supplied by Advanta will be
maintained by Advanta at its cost.
Assumptions:
1. One on-site technical resource will act as site technical
coordinator for duration of contract.
2. Service maintenance agreements are in place for all systems that
require service maintenance agreements.
3. Adequate spares will be available where required.
The following matrix outlines the required service levels for the
systems and the parties responsible for the service.
Sparred items will be installed by the HPSI technical resource on-site.
The traffic manager will route calls to the Centralized Help desk.
Support issues will be collected by the traffic manager and routed to
the help desk for call tracking and problem resolution. Recurring
issues will be tracked, and escalated to tier 2 or tier 3 support.
Escalated issues will be the responsibility of tier 3 for resolution.
The following flow chart represents the problem resolution process:
[Flow chart not included]
C-1
<PAGE>
<TABLE>
<CAPTION>
System Escalation Action
<S> <C> <C>
RMS Tier 1 - Advanta Help Desk . *_______________________________*
. *_______________________________*
. *_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
Aspect Remote Call Center Tier 1 - Advanta Help Desk . *_______________________________*
. *_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
Aspect Teleset Tier 1 - HPSI technical resource . *_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
Point to Point T-1 Tier 1 - Advanta Help Desk . *_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
Routers Tier 1 - Advanta Help desk . *_______________________________*
. *_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
CSU/DSU Tier 1 - Advanta Help Desk . *_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
- --------------------------------------------------------------------------------------------------------
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C> <C>
3 COM Hubs Tier 1 - Advanta Help Desk . *_______________________________*
. *_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
. *_______________________________*
*_______________________________*
Digital Terminal Servers HPSI resource . *_______________________________*
*_______________________________*
Digital VT 220 HPSI resource . *_______________________________*
. *_______________________________*
. *_______________________________*
PC's HPSI resource . *_______________________________*
. *_______________________________*
*_______________________________*
NT server Tier 1 - Advanta Help Desk . *_______________________________*
. *_______________________________*
Cabling HPSI resource HPSI resource . *_______________________________*
. *_______________________________*
. *_______________________________*
*_______________________________*
- --------------------------------------------------------------------------------------------------------
</TABLE>
Escalation matrix
<TABLE>
<CAPTION>
Service Maintenance
System Response Time Requirement Responsible Party Contract
<S> <C> <C> <C> <C>
RMS *___________________________________________________________*
Aspect Remote
Call Center *___________________________________________________________*
Aspect Teleset *___________________________________________________________*
Point to Point T-1 *___________________________________________________________*
Routers *___________________________________________________________*
CSU/DSU *___________________________________________________________*
3 COM Hubs *___________________________________________________________*
Digital Terminal
Servers *___________________________________________________________*
Digital VT 220 *___________________________________________________________*
PC's *___________________________________________________________*
NT server *___________________________________________________________*
Cabling *___________________________________________________________*
- -----------------------------------------------------------------------------------
</TABLE>
C-3
<PAGE>
EXHIBIT D
---------
This is Exhibit D to Agreement between High Performance Services, Inc.
("Contractor") and Advanta Corp. ("Advanta") and provides account volume and
staffing levels required to perform the Work.
MONTHLY/FISCAL CALL VOLUME FORECAST
MONTH/PERIOD YEAR TOTAL
------------ ---- -----
*___________ ____ _____*
*___________ ____ _____*
*___________ ____ _____*
*___________ ____ _____*
*___________ ____ _____*
A. Initial Account Volume Estimates
The current estimate for call volumes is shown above and hereby made a
part of this Exhibit.
B. Volume and Staffing Forecast Process
1. The projections of on-line FTEs required to support the forecasted
volumes will be established using a monthly process and model
involving Advanta and Contractor personnel. Advanta and Contractor
agree that the assumptions used in the model may change, based upon
operational experience resulting in difference staffing estimates.
2. The volume forecasting and staffing process will take place between
the 15th and 20th day of each month. The process will be completed
by the 20th of the month.
a. By the 15th of each month, Advanta will provide Contractor
with inbound call volume forecasts for a minimum of three (3)
months.
b. By the 19th of each month, Contractor and Advanta shall use
Advanta forecasts to determine the staff needed for the next
three months. These current estimates will be compared to the
prior month's forecasted staff levels to identify potential
"short cycle" problems, e.g., decrease staff this month and
increase next month.
D-1
<PAGE>
c. By the 20th of each month, Contractor will set target staffing
levels for the month commencing approximately 40 days hence,
hiring levels for the coming month, and staffing schedules for
the coming month.
d. Contractor will manage the staffing hours to within +/-
*_____* percent (*__*%) of the staffing level agreed upon in
(c) above.
e. Once a staffing forecast has been determined for a given
month, any increases to the staffing levels (other than as
contemplated by (d) above) within that month must be approved
by Advanta in writing.
D-2
<PAGE>
EXHIBIT E
---------
This is Exhibit E to Agreement between High Performance Services, Inc.
("Contractor") and Advanta Corp. provides the pricing of the Work performed
under this Agreement.
I. PRICING STRUCTURE
*____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
____________________________________________________________________________*
II. *____________*
*____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
____________________________________________________________________________*
III. *_____________*
*____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
E-1
<PAGE>
_____________________________________________________________________________
_____________________________________________________________________________
____________________________________________________________________________*
IV. *_____________*
*____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
____________________________________________________________________________*
V. MONTHLY PAYMENT PROCESSING
------------------------------
*____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
____________________________________________________________________________*
From time to time Contractor may deem it necessary to enter into contractual
agreements to perform the services under this Agreement. Any written
contractual obligation for a period in excess of twelve months shall be
approved by Advanta in writing.
A sample invoice is shown in Attachment V. Invoicing should start at the end
of the first month following execution of the Agreement, and will continue
until all costs are paid as provided by the Termination/Expiration clause.
VI. RIGHT TO INFORMATION
*____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
E-2
<PAGE>
_____________________________________________________________________________
________________________________________________________________________*.
VII. FORCE MAJEURE
Payments herein provided will continue during periods covered by the Force
Majeure clause. If the Force Majeure continues for an extended period of
time
*____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
________________________________________________________________________*.
E-3
<PAGE>
Attachment V
to Exhibit E
Sample Invoice
[Name and Address of Advanta representative] Invoice Date:
Invoice Number: XXXXXXXX
Advanta Agreement No.:
Invoice for Work Performed from <DATE1> to <DATE2>
*__________________________ Invoice
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
____________*
TOTAL: $X,XXX,XX $X,XXX,XXX
X
INVOICE TOTAL: $X,XXX,XXX
Variance Analysis and Supporting Data Submitted on Separate Pages
Please remit payment to: High Performance Services, Inc. Street Address,
City, State, Zip
Attention: William B. Hewitt
E-4
<PAGE>
THE UNION CORPORATION EXHIBIT 11
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,
---------------------------
1996 1995 1994
---------------------------------- ---------------------------------- ----------------------------
Income Income Number Income Per
Number of Net of Per Share Number of Net of Per Share of Net of Share
Primary: Shares Taxes Amount Shares Taxes Amount Shares Taxes Amount
- ------- --------- ----------- --------- --------- ----------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average common shares
(based on weighted
average number of shares
outstanding) 5,611 5,558 6,152
Common stock equivalents
(stock options) 180 99 82
----- ----- -----
Income from continuing
operations 5,791 $ 6,519 $1.13 5,657 $ 5,707 $1.01 6,234 $4,479 $ .72
===== ===== =====
Discontinued operations
loss provision
(net of $935 and $2,800
tax benefit) 5,791 (2,065) (.36) 5,657 (5,200) (.92) - - -
===== ===== =====
Cumulative effect of
change in
accounting for income
taxes - - - - - - 6,234 1,068 .17
===== ------- ----- ===== ------- ----- ===== ------ -----
Net income 5,791 $ 4,454 $ .77 5,657 $ 507 $ .09 6,234 $5,547 $ .89
===== ======= ===== ===== ======= ===== ===== ====== =====
Fully Diluted:
- ---------------------------
Average common shares
(based on weighted
average number of shares
outstanding) 5,611 5,558 6,152
Common stock equivalents
(stock options) 225 168 82
----- ----- -----
Income from continuing
operations 5,836 $ 6,519 $1.12 5,726 $ 5,707 $1.00 6,234 $4,479 $ .72
===== ===== =====
Discontinued operations
loss provision
(net of $935 and $2,800
tax benefit) 5,836 (2,065) (.35) 5,726 (5,200) (.91) - - -
===== ===== =====
Cumulative effect of
change in
accounting for income
taxes - - - - - - 6,234 1,068 .17
===== ------- ----- ===== ------- ----- ===== ------ -----
Net income 5,836 $ 4,454 $ .77 5,726 $ 507 $ .09 6,234 $5,547 $ .89
===== ======= ===== ===== ======= ===== ===== ====== =====
</TABLE>
<PAGE>
EXHIBIT 13
THE UNION
CORPORATION
1996 ANNUAL REPORT
<PAGE>
TABLE OF CONTENTS
- -----------------
Company Profile......................................... 1
Report to Shareholders.................................. 2
Business Overview....................................... 5
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>
The Union Corporation and Subsidiaries
COMPANY PROFILE
- ------------------------------------------
The Union Corporation, through its Transworld Systems Inc., Allied Bond &
Collection Agency, Inc., Capital Credit Corporation, Interactive Performance,
Inc. and High Performance Services, Inc. subsidiaries, is a leading provider of
a range of outsourcing services, such as delinquent accounts receivable
management and collection services, customer services and credit authorization
services, to both large and small companies.
[Map omitted of the continental United States that shows the location of the
offices of each subsidiary of the Company - Transworld Systems Sales Offices
(133), CMS Collection Offices (19), Allied Bond Collection Offices (3), Capital
Credit Collection Offices (2), Interactive Performance Call Centers (2), High
Performance Services Call Center (1).]
1
<PAGE>
The Union Corporation and Subsidiaries
REPORT TO SHAREHOLDERS
- ------------------------------------------
1996 was the most exciting year in Union's history and augurs well for its
future.
One of the two single most important events of the 1996 fiscal year was the
successful repositioning of the Company. Today, in addition to being a leader
in accounts receivable management, Union is also an important provider of
critical inbound and outbound telephone based call center outsourcing services,
which has the potential of having a significant, long-term, positive impact on
the Company and shareholder value. These outsourcing services include customer
service, billing inquiry, credit authorization and pre-charge-off receivables
management and are currently being performed by Union on behalf of three major
companies, AT&T Corp., Lucent Technologies and Advanta Corp.
The second major achievement in fiscal 1996 was that Union's core business,
accounts receivable management, reported its highest level of revenues since
Union became a pure financial services company, and the Company's operating
income and earnings per share from continuing operations increased for the
fourth consecutive year. Transworld Systems, Union's largest and most profitable
subsidiary, lead the way with record revenues and operating income.
One of the two strategic objectives for fiscal 1996, as defined in the 1995
Annual Report, was to build upon our core business of accounts receivable
management and expand into a new related market by offering outsourcing services
to clients and other corporate entities. Union chose to enter the call center
outsourcing business because the opportunities within the industry matched the
strategic objectives that Union established several years ago, which were to
expand the Company's product offerings, increase revenues and income and improve
profit margins. This new area of business development is an attractive market
for the Company because of the following attributes:
o Similar management skills are required for accounts receivable management
and call center outsourcing services.
o Outsourcing is a large and growing multi-billion dollar business.
o There are a limited number of companies that have the technical, financial and
managerial strength to effectively compete in the large corporate outsourcing
market, and few can match Union's experience and expertise in accounts
receivable management, which is an important component for certain users of
outsourcing services.
o Union has strong relationships and a solid performance track record with many
large companies that currently use, or are planning to use, outsourcing
providers.
[Graph omitted that shows the Revenue of the Company based on the following
data:
REVENUES
Fiscal years 1992-1996
($ in millions)
Fiscal Fiscal Fiscal Fiscal Fiscal
1992 1993* 1994 1995 1996**
------ ------ ------ ------ -------
Total Revenues $85.9 $80.5 $92.1 $97.6 $103.7
Transworld Systems 55.2 54.9 53.6 57.1 59.6
Other Subsidiaries 30.7 25.6 38.5 40.5 44.1
* Fiscal year 1993 includes the results of Allied Bond following its
acquisition in December 1992.
** Fiscal year 1996 includes the results of Interactive Performance and High
Performance Services following the commencement of their operations during
the third and fourth fiscal quarters, respectively.
[Graphic text box omitted that contains the following statement: In addition to
being a leader in accounts receivable management, Union is also an important
provider of critical inbound and outbound telephone based call center
outsourcing services...]
2
<PAGE>
o Revenues and earnings from outsourcing services are less cyclical than
those in accounts receivable management.
Union's strategy to substantially increase its outsourcing business is to:
o Target market segments that the Company knows well, such as large
corporations in telecommunications, financial services, retail and power
utility industries.
o Build the business initially with clients whose business experience with
Union has proven that Union can deliver high value at an effective price.
o Establish separate subsidiaries, which will focus on each target market in
order to provide the skilled, dedicated resources and customized assistance
that is required by sophisticated clients. For example, the Company's
Interactive Performance and High Performance Services subsidiaries serve the
telecommunications and financial services markets, respectively.
This strategy was successfully implemented in fiscal 1996 as evidenced by the
fact that Union acquired three major outsourcing clients during the year, each
won through a competitive process. Important factors in Union's success in this
regard were understanding the clients' needs, the ability to present innovative,
constructive solutions and Union's responsiveness and flexibility.
Additionally, Allied Bond's management and its outstanding reputation for
performance, service and technological expertise were major contributing factors
in winning these awards.
Other noteworthy developments in fiscal 1996 were:
o Total revenue for the year ended June 30, 1996 was $103.7 million, the
highest level achieved since Union became a pure financial services company.
o Operating income of $11.6 million and Income from continuing operations
of $6.5 million in fiscal 1996, which represent increases of 13% and 14%,
respectively, compared with a year ago. Fiscal 1996 primary earnings per
share for Income from continuing operations was $1.13, compared with $1.01 in
fiscal 1995.
o Union's financial condition remained strong and liquid at June 30, 1996, with
cash and short-term investments of approximately $43 million, working capital
of approximately $31 million and net worth of approximately $63 million.
o Cash generated by the Company's operating subsidiaries, as measured by
profit before taxes, amortization of goodwill and depreciation expense and
Union's corporate office expenses, was a record $19.4 million.
[Graph omitted that shows the Operating Income* of the Company's subsidiaries
based on the following data:
OPERATING INCOME*
FROM SUBSIDIARIES
Fiscal years 1992-1996
($ in millions)
Fiscal Fiscal Fiscal Fiscal Fiscal
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
Total Subsidiaries $13.5 $12.0 $14.2 $16.9 $17.3
Transworld Systems 13.1 12.2 11.9 13.1 13.9
Other Subsidiaries 0.4** (0.2)*** 2.3 3.8 3.4
* 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 following its
acquisition in December 1992.]
[Graphic text box omitted that contains the following statement: Total revenue
approximated $104 million, the highest level achieved since Union became a pure
financial services company.]
3
<PAGE>
o Transworld Systems had a record year, with revenue of $59.6 million and
operating income, before amortization of goodwill, of $13.9 million.
Moreover, Transworld Systems' fourth quarter was the best quarter in its
history, with revenue of $16.3 million and operating income, before goodwill
amortization, of $4.1 million. Transworld Systems also continued to maintain
strong operating margins, which were 24% and 22% in the fourth fiscal quarter
and year ended June 30, 1996, respectively, after amortization of goodwill.
Cash generated by Transworld Systems, as measured by profit before taxes,
amortization of goodwill and depreciation expense, was a record $14.9
million.
o Capital Credit reported increases in revenue and operating income of 18%
and 57%, respectively, in fiscal 1996 compared with a year ago.
o Allied Bond has proven to be the well managed company we thought it was when
we bought it. While Allied Bond has not provided the revenue and earnings
expected, due to changing market conditions such as reduced collectibility of
accounts placed for collection and lower commission rates in certain key
markets, it continued to operate profitably during fiscal 1996 after
absorbing the amortization of goodwill and depreciation expense related to
its acquisition. Allied Bond's management has reorganized its operations to
meet these changing industry conditions, the result of which has been that
Allied's collections per collector increased in fiscal 1996, compared with a
year ago, and its total expenses per collector were at their lowest level
since Allied was acquired by the Company in December 1992.
THE FUTURE
Union's strategic objectives are to continue our expansion into providing call
center outsourcing services and to continue to develop the revenue and profit
potential of our accounts receivable management businesses.
We are confident of the Company's future, and we will continue to pursue
strategies that will strengthen our Company and increase shareholder value in
the years ahead.
Respectfully,
MELVIN L. COOPER
Melvin L. Cooper
Chairman of the Board and
Chief Executive Officer
WILLIAM B. HEWITT
William B. Hewitt
President and Chief
Operating Officer
September 16, 1996
[Graph omitted that shows the Cash generated* by the Company's subsidiaries
based on the following data:
CASH GENERATED*
BY SUBSIDIARIES
Fiscal years 1992-1996
($ in millions)
Fiscal Fiscal Fiscal Fiscal Fiscal
1992 1993** 1994 1995 1996
------ ------ ------ ------ ------
Total Subsidiaries $15.3 $13.9 $16.4 $18.9 $19.4
Transworld Systems 14.0 13.2 12.8 14.0 14.9
Other Subsidiaries 1.3 0.7 3.6 4.9 4.5
* Represents cash generated by Transworld Systems, Allied Bond, Capital Credit,
Interactive Peformance and High Performance Services, as measured by profit
before taxes, amortization of goodwill and depreciation expense and Union's
corporate office expenses.
** Fiscal year 1993 includes the results of Allied Bond following its
acquisition in December 1992.]
[Graphic text box omitted that contains the following statement: Cash generated*
by the Company's operating subsidiaries was a record $19.4 million.]
4
<PAGE>
The Union Corporation and Subsidiaries
BUSINESS OVERVIEW
- ------------------------------------------
ACCOUNTS RECEIVABLE MANAGEMENT
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:
o Develop new products and collection services to expand business with
present customers and attract new customers.
o Apply proven technology in order to provide clients with superior and
cost-effective collection services.
o Improve profit margins through increased productivity and cost control.
o 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 300 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
[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 acccounting and control purposes.]
5
<PAGE>
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 purchase a system for 45 accounts to major corporations
that purchase systems for 100,000 accounts.
Transworld'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 133 sales offices throughout
the country at year end and plans to open six new sales offices in fiscal 1997.
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 in a new location only after business has been developed in that area 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 approximately $600 with an average payment collected in excess of $190.
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 1996, 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 and fixed-fee basis collection and teleservicing
company with a nationally recognized reputation for superior performance. In
fiscal 1996, 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,
[Graphic text box omitted that contains the following statement: Allied Bond &
Collection Agency is a well managed contingency and fixed-fee basis collection
and teleservicing company with a nationally recognized reputation for superior
performance. In fiscal 1996, Allied had a record volume of placements, both in
aggregate dollars and number of accounts placed for collection.]
6
<PAGE>
utilities and telecommunications, and enjoys a significant share in many of
these markets. 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 collection services to large
national clients primarily in four major market segments:
o Bankcard
o Telecommunications
o Travel and Entertainment
o Government
Capital Credit, headquartered in Jacksonville, Florida, continued to make
significant financial and operational improvements in fiscal 1996. Its
computerized on-line collection system links its Regional Collection Centers in
Florida and Massachusetts 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:
o 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 four market
segments listed above.
o The client base should be expanded and new services offered to existing
clients.
o Maintaining state-of-the-art technology is essential in maximizing staff
productivity.
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
1996 and is well positioned for growth.]
7
<PAGE>
CALL CENTER OUTSOURCING SERVICES
There is a large and growing demand for call center outsourcing services, which
include customer service, billing inquiry, credit authorization, pre-charge-off
accounts receivable management, and telemarketing services, among others. Call
center outsourcing service providers must possess strong managerial skills and
technological expertise in order to train and manage the large number of
employees needed to handle a high volume of inbound and/or outbound telephone
calls in an automated environment.
INTERACTIVE PERFORMANCE, INC.
Interactive Performance was formed in fiscal 1996 to provide accounts
receivable management services and billing inquiry services on an outsourcing
basis to AT&T Corp. under a previously announced three-year contract under which
revenues may reach approximately $20 million a year. Interactive Performance
began providing services to AT&T Corp. late in the third quarter of fiscal 1996
at its newly created 50,000 square foot facility in North Charleston, South
Carolina.
Interactive Performance also recently signed a letter of intent to provide
delinquent accounts receivable management, billing inquiry and credit
authorization services on an outsourcing basis to Lucent Technologies.
Interactive Performance began providing services to Lucent Technologies late in
the fourth quarter of fiscal 1996 at its new 7,000 square foot facility in
Jacksonville, Florida. Revenues for these services may reach approximately $5
million over the projected 18 month term of the agreement, which is currently
being finalized.
HIGH PERFORMANCE SERVICES, INC.
High Performance Services, headquartered in Jacksonville, Florida, was formed to
provide customer services on an outsourcing basis for Advanta Corp.'s credit
card business. As previously announced, revenues for these services may reach
approximately $15 million over a two-year term. High Performance Services began
operations late in the fourth quarter of fiscal 1996 at its new 15,000 square
foot facility in Jacksonville, Florida.
[Graphic text box omitted that contains the following statement: Interactive
Performance was formed in fiscal 1996 to provide accounts receivable management
services and billing inquiry services on an outsourcing basis to AT&T Corp.
under a previously announced three-year contract under which revenues may reach
approximately $20 million a year.]
8
<PAGE>
The Union Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------
<TABLE>
<CAPTION>
For the years ended June 30, 1996, 1995 and 1994
- ----------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $103,732 $ 97,649 $ 92,109
- -----------------------------------------------------------------------------------------------------------
Expenses:
Operating expenses 67,877 63,482 59,255
Selling, general and administrative expenses 20,190 19,759 20,470
Depreciation and amortization 4,058 4,101 4,442
- -----------------------------------------------------------------------------------------------------------
Operating costs and expenses 92,125 87,342 84,167
- -----------------------------------------------------------------------------------------------------------
Operating income 11,607 10,307 7,942
Interest expense (1,475) (1,450) (1,048)
Interest income 1,509 1,242 723
- -----------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 11,641 10,099 7,617
Provision for income taxes 5,122 4,392 3,138
- -----------------------------------------------------------------------------------------------------------
Income from continuing operations 6,519 5,707 4,479
Discontinued operations loss provision
(net of tax benefits of $935 and $2,800) (2,065) (5,200) -
- -----------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting
for income taxes 4,454 507 4,479
Cumulative effect of change in accounting for income taxes - - 1,068
- -----------------------------------------------------------------------------------------------------------
Net income $ 4,454 $ 507 $ 5,547
===========================================================================================================
Primary income per common share:
Income from continuing operations $ 1.13 $ 1.01 $ .72
Discontinued operations loss provision (.36) (.92) -
Cumulative effect of change in accounting for income taxes - - .17
- -----------------------------------------------------------------------------------------------------------
Net income $ .77 $ .09 $ .89
===========================================================================================================
Fully diluted income per common share:
Income from continuing operations $ 1.12 $ 1.00 $ .72
Discontinued operations loss provision (.35) (.91) -
Cumulative effect of change in accounting for income taxes - - .17
- -----------------------------------------------------------------------------------------------------------
Net income $ .77 $ .09 $ .89
===========================================================================================================
Average number of common shares outstanding:
Primary 5,791 5,657 6,234
Fully diluted 5,836 5,726 6,234
- -----------------------------------------------------------------------------------------------------------
</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, 1996 and 1995
- ------------------------------------------------------------------------------------------------
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 18,634 $ 14,805
Short-term investments, at cost, which approximates market 24,529 21,930
Accounts receivable, trade, less allowance for doubtful accounts of
$700 and $542 9,135 6,339
Prepaid expenses and other current assets 5,860 5,254
- ------------------------------------------------------------------------------------------------
Total current assets 58,158 48,328
Property, buildings and equipment, net 9,168 9,283
Cost of intangible assets from businesses acquired, less accumulated
amortization of $9,080 and $7,636 49,248 50,426
Other assets and deferred charges 3,526 2,300
Deferred income taxes 2,886 2,826
- ------------------------------------------------------------------------------------------------
Total assets $122,986 $113,163
================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 3,531 $ 3,044
Accrued expenses 22,065 18,747
Income taxes payable 1,448 992
Current portion of long-term debt 277 213
- ------------------------------------------------------------------------------------------------
Total current liabilities 27,321 22,996
Long-term debt 20,634 20,763
Other liabilities 12,038 12,200
- ------------------------------------------------------------------------------------------------
Total liabilities 59,993 55,959
- ------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.50 par value; authorized shares, 15,000;
issued shares, 8,601 and 8,521 4,300 4,261
Additional paid-in capital 44,708 43,412
Retained earnings 50,791 46,337
Less treasury stock, at cost, 2,941 shares and 2,941 shares (36,806) (36,806)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 62,993 57,204
- ------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $122,986 $113,163
================================================================================================
</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, 1996, 1995 and 1994
- -------------------------------------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 4,454 $ 507 $ 5,547
Adjustments to reconcile income to net cash provided by operations:
Discontinued operations loss provision, net of tax benefit 2,065 5,200 -
Cumulative effect of change in accounting for income taxes - - (1,068)
Depreciation and amortization 4,058 4,101 4,442
Deferred compensation expense 432 723 655
Non-cash compensation expense 434 - -
Provision for doubtful accounts 266 143 19
Provision for deferred income taxes 1,161 1,334 1,472
Changes in assets and liabilities:
Accounts receivable - (increase) decrease (3,062) (1,822) 116
Prepaid expenses and other current assets - (increase) decrease (696) 282 379
Other assets and deferred charges - (increase) (1,226) (165) (179)
Accounts payable and accrued expenses - increase (decrease) 805 220 (556)
Income taxes payable - increase (decrease) 506 (183) (193)
Other liabilities - (decrease) (790) (2,847) (1,699)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,407 7,493 8,935
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Capital expenditures (2,383) (1,177) (927)
Additional purchase price related to the purchase of
Allied Bond & Collection Agency (266) (260) (253)
Other 46 42 26
- -------------------------------------------------------------------------------------------------------------
Net cash (used by) investing activities (2,603) (1,395) (1,154)
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Purchase of treasury stock, at cost - (3,344) (4,229)
Principal payments on long-term debt (110) (102) (94)
Principal payments on capital lease obligations (117) (99) (108)
Proceeds from exercise of stock options 851 3 -
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used by) financing activities 624 (3,542) (4,431)
- -------------------------------------------------------------------------------------------------------------
Net increase in cash and short-term investments 6,428 2,556 3,350
Cash and short-term investments at beginning of year 36,735 34,179 30,829
- -------------------------------------------------------------------------------------------------------------
Cash and short-term investments at end of year $43,163 $36,735 $ 34,179
=============================================================================================================
Supplemental disclosures of cash flow information:
Interest paid $ 1,751 $ 1,308 $ 959
Income taxes paid 3,455 3,241 1,859
Supplemental disclosures of noncash investing and financing activities:
Capitalized equipment lease obligations $ 162 $ - $ 184
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, 1996, 1995 and 1994
- -----------------------------------------------------------------------------------------------------------------------
Additional
Common paid-in Retained Treasury
(Dollars in thousands) stock capital earnings stock
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
Net income - - 4,454 -
Proceeds from common stock issued upon exercise of
stock options (79,116 shares, net) 39 1,296 - -
- -----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 $ 4,300 $44,708 $50,791 $(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.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND SHORT-TERM INVESTMENTS:
The Company primarily invests excess cash balances in 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, three to 30 years; equipment and furniture and fixtures,
three to 10 years; computer software, three to five years.
ACCOUNTING FOR INTANGIBLES:
The net cost of intangible assets of businesses acquired amounting to
$48,328,000 and $49,506,000 at June 30, 1996 and 1995, respectively, is being
amortized on a straight-line basis over a 40 year period. Such amortization
amounted to $1,444,000, $1,437,000 and $1,432,000 during the years ended June
30, 1996, 1995 and 1994, 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 9) whereby deferred tax assets and liabilities
are determined based on the differences between financial reporting and tax
bases of assets and liabilities.
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.
ACCOUNTING DEVELOPMENTS:
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of",
establishes standards for the recognition and measurement of impairment losses
on long-lived assets and intangible assets. The Company does not believe that
the implementation of SFAS No. 121 in fiscal 1997 will have a material effect on
the results of its operations or financial position.
2. DISCONTINUED OPERATIONS:
The Company reached agreements with the federal government in January 1996,
subject to certain agency approvals and final approval by the Court, which
approvals were given in August 1996, to settle the previously reported matters
involving false pricing information and claims made by certain senior officers
of the Company's former Gichner Systems Group division (the "Gichner Division").
In accordance with the agreements, which recognize the Company's co-operation in
and substantial contribution to the investigation of these matters, the Company
fulfilled its commitment to make compensation for the government's civil claims
by paying $5,550,000 in September 1996. The Company also accepted responsibility
for the actions of the officers of the former Gichner Division by entering a
plea of guilty under the federal False Claims Act, although those actions were
concealed from the management of the Company, and paid a fine of $250,000 in
August 1996. As previously reported, the Company recorded a $3,000,000 loss
provision ($2,065,000 net of tax benefit), or $.36 loss per share, during the
second quarter of fiscal 1996 for its Discontinued Operations, which provision,
combined with amounts previously reserved in connection with these matters,
covered all costs of the above settlements with the government, and included an
accrual for the estimated legal and accounting fees related to the government
claims and other costs related to certain discontinued operations of the
Company, all of which were terminated or otherwise disposed of prior to fiscal
1990. The net loss provision of $2,065,000 is included in the Consolidated
Statements of Operations under the caption "Discontinued operations loss
provision" for the year ended June 30, 1996.
13
<PAGE>
The Union Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
As previously reported, the Company also 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 developments regarding
the former Gichner Division (discussed in the preceding paragraph) 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 was 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 were expected to be
incurred as a result of government claims for the matter involving the former
Gichner Division and the estimated legal costs to defend the Company against the
claims asserted by the purchaser of the Gichner Division. 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 Gichner Division and environmental matters.
GICHNER SYSTEMS GROUP DIVISION:
The Company sold the assets and business of the Gichner Division to Gichner
Systems Group, Inc. (the "Purchaser") in 1989 and, accordingly, reflected the
Gichner Division as a discontinued operation in the Company's Consolidated
Statements of Operations. In 1991 the Purchaser informed the Company that false
pricing information might have been supplied by former officers of the Gichner
Division, who were also members of the group that purchased the Gichner Division
from the Company and officers of the Purchaser, 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 tendered to the Department of Defense a
report of the results of their investigation.
The Purchaser, which has pled guilty to obstruction of justice as a result of
its hindrance of the government's investigation and its destruction of documents
related to this matter, commenced suit against the Company in which it alleges
misrepresentation and breach by the Company of provisions of the Purchase
Agreement and asserts claims for damages and indemnification. The Company
denies each of the claims and intends to vigorously defend this action.
Although management believes the reserve established for this matter is adequate
based on current information, 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 this matter
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 Gichner 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 Gichner
Division. The estate of a third former officer of the Gichner Division has
filed suit against the Company for similar claims, which the Company denies and
intends to vigorously defend.
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 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
14
<PAGE>
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 this 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 issued a
proposed plan which was 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 indicated
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 recorded during the third
quarter of fiscal 1995 included a provision of approximately $4,000,000 for
environmental matters. The provision for environmental matters included 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 regarding this site, 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 1997. 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 third quarter of fiscal 1995, no significant
expenses related to environmental matters were recorded by the Company during
the three years ended June 30, 1996 due to the adequacy of previously recorded
reserve balances based on information available at that time. 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.
3. PROPERTY, BUILDINGS AND EQUIPMENT:
Property, buildings and equipment, at cost, are summarized below:
June 30,
- ----------------------------------------------------------
(In thousands) 1996 1995
- ----------------------------------------------------------
Land $ 1,488 $ 1,087
Buildings and leasehold
improvements 4,486 3,897
Equipment and furniture
and fixtures 13,634 12,525
Computer software 3,200 3,200
- ----------------------------------------------------------
Subtotal 22,808 20,709
Less accumulated depreciation 13,640 11,426
- ----------------------------------------------------------
Net property, buildings and
equipment $ 9,168 $ 9,283
==========================================================
15
<PAGE>
The Union Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
4. ACCRUED EXPENSES:
Accrued expenses are summarized below:
June 30,
- -----------------------------------------------------------
(In thousands) 1996 1995
- -----------------------------------------------------------
Compensation and benefits $ 4,976 $ 4,972
Accrued collection costs 3,271 2,764
Accrued commissions 1,788 1,407
Accrued liabilities retained from
discontinued operations 8,169 6,428
Current portion of restructuring
provision 250 497
Other 3,611 2,679
- -----------------------------------------------------------
Total $22,065 $18,747
===========================================================
5. LONG-TERM DEBT:
June 30,
- -----------------------------------------------------------
(In thousands) 1996 1995
- -----------------------------------------------------------
Senior debt:
Collateralized notes at 8.25% $ 585 $ 695
Capitalized lease obligations 326 281
Unsecured revolving line of credit 20,000 20,000
- -----------------------------------------------------------
Total debt 20,911 20,976
Less current portion 277 213
- -----------------------------------------------------------
Total long-term debt $20,634 $20,763
===========================================================
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 that was
scheduled to convert to a three year term loan on December 31, 1994, which
conversion date was subsequently extended to December 31, 1996. During fiscal
1996, the Company received written confirmation that the bank extended the
revolving line of credit until December 31, 1998, 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, 1998 must be repaid by the Company in twelve
quarterly installments commencing March 31, 1999 and ending December 31, 2001.
Each of the first eleven installments must be in an amount equal to one-
twentieth of the outstanding loan balance on December 31, 1998, 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 approximately 6.44% at June 30, 1996.
The maximum amount of letters of credit that the bank will issue under the
Credit Agreement is $5,000,000. At June 30, 1996, the Company was contingently
liable for outstanding letters of credit aggregating approximately $3,725,000
which reduced the amount available for letters of credit under the Credit
Agreement to approximately $1,275,000.
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, 1996.
The aggregate amount of long-term debt, excluding capitalized leases (See Note
7), which becomes due during each of the next five years ending June 30, is as
follows: 1997, $120,000; 1998, $130,000; 1999, $2,141,000; 2000, $4,153,000;
2001, $4,040,000.
6. OTHER LIABILITIES:
Other liabilities are summarized below:
June 30,
- ---------------------------------------------------------------------------
(In thousands) 1996 1995
- ---------------------------------------------------------------------------
Compensation and benefits $ 6,743 $ 6,439
Noncurrent liabilities retained
from discontinued operations 3,720 3,926
Noncurrent portion of
restructuring provision - 241
Net noncurrent state
deferred tax liability 429 233
Other 1,146 1,361
- ---------------------------------------------------------------------------
Total $12,038 $12,200
===========================================================================
7. COMMITMENTS AND CONTINGENT LIABILITIES:
LEASES:
The Company leases equipment and facilities with terms ranging from one to seven
years with renewal options generally being available.
Property, buildings and equipment includes $671,000, before accumulated
depreciation, of fixed assets held under capitalized leases at June 30, 1996.
Related accumulated depreciation was $357,000 at June 30, 1996.
16
<PAGE>
Future minimum lease payments under long-term leases
as of June 30, 1996 are as follows:
Capitalized Operating
Leases Leases
- ----------------------------------------------------
1997 $176,000 $ 5,028,000
1998 143,000 3,608,000
1999 39,000 2,924,000
2000 1,000 2,311,000
2001 - 1,546,000
2002 and thereafter - 783,000
- ----------------------------------------------------
Total minimum
lease payments 359,000 $16,200,000
Amount representing
interest 33,000
- ----------------------------------------------------
Present value of minimum
lease payments $326,000
====================================================
Rental expense included in Operating income amounted to $4,370,000 in 1996,
$4,045,000 in 1995 and $3,953,000 in 1994.
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 $539,000, $513,000 and
$489,000 in 1996, 1995 and 1994, 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 was 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 were dismissed by the Court in 1996 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 certain business information including copies of a monthly
publication distributed by Transworld Systems. Several persons have also brought
suit alleging wrongful termination. The claims in these actions against
Transworld Systems have been reviewed by counsel and, based on their assessment,
management has concluded that the claims are without merit.
Four alleged class actions have been brought against Transworld Systems by
debtors who received written collection notices from either Transworld Systems
or its Credit Management Services division. Plaintiffs in these actions allege
that such letters violated various provisions of the federal Fair Debt
Collection Practices Act or comparable state regulations. The claims in these
actions against Transworld Systems have been reviewed by counsel and, based on
their assessment, management has concluded that the claims are of doubtful
merit. Transworld Systems intends to vigorously defend these actions.
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 a lawsuit 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 2 of Notes to
Consolidated Financial Statements for additional information regarding these
matters.
17
<PAGE>
The Union Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
8. STOCK OPTION PLANS:
At June 30, 1996, 1,003,308 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) 119,523 387,247 64,561 42,000 10,000
Available for future grants (2) 379,977 - - - -
Exercised to date 500 517,483 217,049 - 116,000
Surrendered to date for SARs - - 58,389 - -
Expired - 340,270 10,001 7,000 18,500
- ------------------------------------------------------------------------------------------------------------
Authorized shares 500,000 1,245,000 350,000 49,000 144,500
============================================================================================================
Total reserved (1) + (2) 499,500 387,247 64,561 42,000 10,000
============================================================================================================
</TABLE>
The 1994 Incentive Stock Plan ("1994 Plan"), which was approved by the
shareholders at the Annual Meeting in November 1994, provides for the issuance
of options, stock appreciation rights 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. Options granted under the 1994 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 1994 Plan expires on August 24, 2004.
The 1991 Non-Employee Directors' Stock Option Plan ("Directors' Plan"), which
expired on December 31, 1995, provided 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 served in
such capacity for at least one full year automatically received an option to
purchase 3,500 shares of common stock on November 19th of each year, until the
director received 10,500 shares. Options granted under the Directors' Plan were
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.
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 terminated on December 31, 1987 and the 1984 Plan
terminated 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, 1996, options for 448,583 shares were exercisable. At June 30,
1995, there were 477,000 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, 1996 follows:
Option price Number of
per share shares
- ------------------------------------------------------------------
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
Granted 14.750 to 17.625 90,023
Exercised 9.813 to 14.438 (100,110)
Expired 22.440 (30,000)
- ------------------------------------------------------------------
OUTSTANDING AT JUNE 30, 1996 $ 7.375 TO $ 22.875 623,331
==================================================================
18
<PAGE>
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 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 fair 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 were 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 were not exercisable if the market value of
the Company's common stock was not equal to or greater than 150% of the
respective exercise prices. The option to purchase 30,000 shares at $22.44 per
share expired on September 15, 1995. The remaining options were exercised in
fiscal 1996.
During fiscal 1996, certain optionees elected to pay for a portion or all of the
exercise price of the options they exercised by surrendering a total of 20,994
shares of common stock of the Company that were previously acquired by the
optionees or were acquired by the optionees in conjunction with the exercise of
the options.
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 acquired
by the optionee, that had a fair market value on the date of exercise equal to
the exercise price.
The tax benefits that the Company realized as a result of the exercise of
nonincentive stock options are included in "Additional paid-in capital" in the
Consolidated Balance Sheets.
At June 30, 1996, 1995 and 1994, there were an aggregate of 131,000 options with
related SARs outstanding under the 1973 and 1984 plans which were exercisable at
$10.75 per share. In August 1996, the holder of these options exercised his
right to purchase the 131,000 shares under option.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", establishes accounting and reporting standards for stock based
employee compensation plans. As permitted by the standard, the Company expects
to continue to account for such arrangements under APB Opinion No. 25.
Accordingly, adoption of the standard in fiscal 1997 will not affect the
Company's results of operations or financial position.
9. 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.
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:
Year ended June 30,
- --------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------
Current:
Federal $2,725 $1,936 $ 971
State 1,236 1,122 695
- --------------------------------------------
Total current 3,961 3,058 1,666
- --------------------------------------------
Deferred:
Federal 1,040 1,244 1,329
State 121 90 143
- --------------------------------------------
Total deferred 1,161 1,334 1,472
- --------------------------------------------
Total income taxes $5,122 $4,392 $3,138
============================================
As described in Note 2, the Company recorded deferred tax benefits of $935,000
and $2,800,000 in fiscal 1996 and fiscal 1995, respectively, as a result of loss
provisions recorded for discontinued operations.
19
<PAGE>
The Union Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------
The significant components of the Company's deferred tax assets and liabilities
are as follows:
June 30,
- ----------------------------------------------------------------
(in thousands) 1996 1995 1994
- ----------------------------------------------------------------
Deferred Tax Assets:
Compensation
and benefits $ 3,562 $ 3,479 $ 3,551
Restructuring provision 105 1,322 2,104
Accrued liabilities retained
from discontinued
operations 4,059 4,010 879
Book depreciation in
excess of tax
depreciation 350 - -
Net state operating
loss carryforwards 1,263 886 765
Other 519 374 428
- ----------------------------------------------------------------
Total deferred tax assets 9,858 10,071 7,727
Valuation allowance for
deferred tax assets (2,191) (2,095) (1,897)
- ----------------------------------------------------------------
Deferred tax assets, net
of valuation allowance 7,667 7,976 5,830
- ----------------------------------------------------------------
Deferred Tax Liabilities:
Tax goodwill amortization
in excess of book
amortization (2,410) (1,726) (1,071)
Tax depreciation in
excess of book
depreciation - (767) (742)
- ----------------------------------------------------------------
Total deferred tax liabilities (2,410) (2,493) (1,813)
- ----------------------------------------------------------------
Net deferred tax assets $ 5,257 $ 5,483 $ 4,017
================================================================
The valuation allowance for deferred tax assets relates to certain 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 $2,800,000 and $2,890,000 are
included in "Prepaid expenses and other current assets" in the Consolidated
Balance Sheets at June 30, 1996 and 1995, respectively. Also, net noncurrent
state deferred tax liabilities of $429,000 and $233,000 are included in "Other
liabilities" in the Consolidated Balance Sheets at June 30, 1996 and 1995,
respectively.
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 1996, 1995 and 1994 is as follows:
Year ended June 30,
- -----------------------------------------------------------
(in thousands) 1996 1995 1994
- -----------------------------------------------------------
Provision computed
at U.S. federal
statutory income
tax rate $3,958 $3,434 $2,590
Increases (reductions)
in taxes resulting from:
State income taxes,
net of federal income
tax benefit 896 800 553
Amortization of
intangibles 182 182 182
Tax benefit resulting
from change in tax
law allowing a
retroactive deduction
for the amortization
of certain goodwill - - (174)
Tax exempt interest
income - - (14)
Other 86 (24) 1
- -------------------------------------------------------------
Total $5,122 $4,392 $3,138
=============================================================
During fiscal 1994, the Omnibus Budget Reconciliation Act of 1993 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 that became
deductible due to the tax law change.
20
<PAGE>
10. RETIREMENT PLANS:
The Company has 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 $479,000, $494,000, and $357,000, in the years ended June 30, 1996, 1995 and
1994, 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, 1996, 1995 and 1994 was $432,000,
$723,000 and $655,000, respectively.
11. 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.
12. 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
- ------------------------------------------
13. QUARTERLY DATA (UNAUDITED):
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
1996 quarter quarter quarter quarter
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $23,987 $24,069 $27,237 $28,439
Operating income 1,955 1,969 3,696 3,987
Income from continuing operations before
income taxes 1,922 1,962 3,737 4,020
Provision for income taxes 845 864 1,644 1,769
Income from continuing operations 1,077 1,098 2,093 2,251
Discontinued operations loss provision
(net of tax benefit of $935) - (2,065) - -
Net income (loss) 1,077 (967) 2,093 2,251
Primary and fully diluted income per common share:
Income from continuing operations .19 .19 .36 .38
Discontinued operations loss provision - (.36) - -
Net income (loss) .19 (.17) .36 .38
First Second Third Fourth
1995 quarter quarter quarter quarter
- -------------------------------------------------------------------------------------------
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 (loss) 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 (loss) .17 .22 (.67) .37
Fully diluted income per common share:
Income from continuing operations .17 .22 .25 .36
Discontinued operations loss provision - - (.92) -
Net income (loss) .17 .22 (.67) .36
</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, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.
As described in Note 9 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
August 16, 1996
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, 1996
with cash and short-term investments totaling $43,163,000, working capital of
$30,837,000 and net worth of $62,993,000. During the twelve months ended June
30, 1996 the net cash provided by operating activities was $8,407,000, compared
to $7,493,000 a year ago. This increase was principally attributable to an
increase of approximately $800,000 in Income from continuing operations, an
increase in accounts payable and accrued expenses, principally due to the start-
up of the new outsourcing businesses, partially offset by an increase in
accounts receivable, principally due to the increase in revenues from the new
outsourcing businesses, and increases in other current assets and other assets,
which primarily represent amounts deposited into a trust established to fund the
deferred bonuses previously earned by the chairman of a subsidiary of the
Company (see discussion below). The aggregate cash disbursements related to
discontinued operations of the Company increased approximately $350,000 in 1996
compared to a year ago.
The Company fulfilled its commitment to make compensation for the government's
civil claims involving the Company's former Gichner Systems Group division (the
"Gichner Division") and paid $5,550,000 to the federal government in September
1996. (See Note 2 of Notes to Consolidated Financial Statements for additional
information).
As of September 16, 1996, 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 $2,383,000 in
fiscal 1996 compared to $1,177,000 in fiscal 1995. The fiscal 1996 capital
expenditures principally represent costs related to the purchase of computer,
telecommunications and office equipment by Transworld Systems, Allied Bond and
Capital Credit and office equipment and leasehold improvements by Interactive
Performance. The Company anticipates that capital expenditures of approximately
$3,000,000 will be made during fiscal 1997.
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, 1996, $904,000 of such
contingent payments have been made. The acquisition was financed in part from
$20,000,000 borrowed under an existing unsecured $25,000,000 two year revolving
line of credit furnished by a bank (the "Credit Agreement"). During fiscal
1996, the Company received written confirmation that the bank will extend the
revolving line of credit until December 31, 1998, 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, 1998 must be repaid by the Company in twelve
quarterly installments commencing March 31, 1999 and ending December 31, 2001.
Each of the first eleven installments must be in an amount equal to one-
twentieth of the outstanding loan balance on December 31, 1998, 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, 1996, the Company
was contingently liable for outstanding letters of credit aggregating
approximately $3,725,000 which reduced the amount available for letters of
credit under the Credit Agreement to approximately $1,275,000.
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, 1996 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 net present value of
the aggregate consulting fees to be paid by the Company to the Chairman for
consulting
24
<PAGE>
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 $2,250,000 at
June 30, 1996, which will be expensed as the services are rendered.
In accordance with the employment agreement dated July 1, 1995 with the chairman
of a subsidiary of the Company, the subsidiary deposited approximately
$1,500,000 into a trust during fiscal 1996, which represented the deferred
bonuses, and related interest, previously earned by the chairman. In accordance
with the agreement, the chairman withdrew $250,000 in January 1996 and may
withdraw $250,000 each January thereafter until the entire amount deposited in
the trust, including all earnings and accretions thereto, has been paid. The
chairman may also withdraw the balance remaining in the trust upon retirement.
As of June 30, 1996, $250,000 of the balance remaining in the trust is included
in the Consolidated Balance Sheet in "Prepaid expenses and other current assets"
and $1,000,000 is included in "Other assets and deferred charges".
The Company sold the assets and business of the Gichner Division to Gichner
Systems Group, Inc. (the "Purchaser") in 1989 and, accordingly, reflected the
Gichner Division as a discontinued operation in the Company's Consolidated
Statements of Operations. In 1991 the Purchaser informed the Company that false
pricing information might have been supplied by former officers of the Gichner
Division, who were also members of the group that purchased the Gichner Division
from the Company and officers of the Purchaser, 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 tendered to the Department of Defense a
report of the results of their investigation.
The Purchaser, which has pled guilty to obstruction of justice as a result of
its hindrance of the government's investigation and its destruction of documents
related to this matter, commenced suit against the Company in which it alleges
misrepresentation and breach by the Company of provisions of the Purchase
Agreement and asserts claims for damages and indemnification. The Company
denies each of the claims and intends to vigorously defend this action.
Although management believes the reserve established for this matter is adequate
based on current information, 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 this matter
will have a material adverse impact on the Company's overall financial condition
given its available cash and short-term investments.
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 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
25
<PAGE>
government, the government has reopened the matter. A group of financially
solvent responsible parties has completed an extensive investigation of this
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 issued a
proposed plan which was 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 indicated 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 included a provision of
approximately $4,000,000 for environmental matters. The provision for
environmental matters included 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
regarding this site, 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 1997. 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 fiscal 1995, no significant expenses related to
environmental matters were recorded by the Company during the three years ended
June 30, 1996 due to the adequacy of previously recorded reserve balances based
on information available at that time. 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 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 were dismissed by the Court in 1996 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 certain business information including copies of a monthly
publication distributed by Transworld Systems. Several persons have also brought
suit alleging wrongful termination. The claims in these actions against
Transworld Systems have been reviewed by counsel and, based upon their
assessment, management has concluded that the claims are without merit.
Four alleged class actions have been brought against Transworld Systems by
debtors who received written collection notices from either Transworld Systems
or its Credit Management Services division. Plaintiffs in these actions allege
that such letters violated various provisions of the federal Fair Debt
Collection Practices Act or comparable state regulations. The claims in these
actions against Transworld Systems have been reviewed by counsel and, based on
their assessment, management has concluded that the claims are of doubtful
merit. Transworld Systems intends to vigorously defend these actions.
26
<PAGE>
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
1996 Compared to 1995
OPERATING REVENUES
Operating revenues increased to $103,732,000 in 1996 compared with $97,649,000
in 1995 due to increases in revenues at Transworld Systems and Capital Credit
and the inclusion of revenues from the Company's recently formed Interactive
Performance and High Performance Services subsidiaries, which began operations
in the third and fourth quarters of fiscal 1996, respectively. Revenues at
Transworld Systems were $59,553,000 in 1996 compared with $57,144,000 in 1995.
Revenues at Capital Credit increased by 18% compared with a year ago, which
resulted from the increase in the level of placements received from its clients
during fiscal 1996. Revenues at Allied Bond decreased 2% in fiscal 1996
compared with a year ago due to changing market conditions previously reported
such as reduced collectibility of accounts placed for collection and lower
commission rates in certain key markets. However, Allied Bond also reported an
increase in the dollar value of accounts placed with Allied Bond for collection
by its clients in 1996 compared with a year ago, and increases in the average
amount collected per collector and in the total amount collected on behalf of
its clients during fiscal 1996 compared with a year ago.
OPERATING INCOME
Operating income increased 13% to $11,607,000 in 1996 compared with $10,307,000
in 1995 due to increases at Transworld Systems and Capital Credit, the inclusion
of the operating results of Interactive Performance and High Performance
Services and a decrease in Corporate office expenses, partially offset by a
decrease in operating income at Allied Bond. Transworld Systems reported a 6%
increase in operating income to $13,866,000, before amortization of goodwill,
compared with $13,057,000 a year ago and an operating margin of 22% after
amortization of goodwill. Capital Credit reported a 57% increase in operating
income compared to a year ago. Although Allied Bond reported a decrease in
operating income compared with a year ago, it continued to operate profitably,
after amortization of goodwill and depreciation expense related to its
acquisition, in spite of the changing market conditions described above. In
fiscal 1995, Corporate office expenses included 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.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased $25,000 to $1,475,000 in 1996 from $1,450,000 in 1995
due to increases in the interest rates charged for borrowings under the Credit
Agreement.
Interest income increased $267,000 to $1,509,000 in 1996 from $1,242,000 in 1995
due to higher average short-term interest rates. During the year ended June 30,
1996, the Company primarily invested its excess cash balances in commercial
paper with short-term maturities and overnight time deposits. 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.
INCOME TAXES
The Company's effective income tax rate for continuing operations was 44% in
1996 compared to 43% in 1995.
DISCONTINUED OPERATIONS LOSS PROVISION
The Company recorded a $3,000,000 loss provision ($2,065,000 net of tax
benefit), or $.36 loss per share, during the second quarter of fiscal 1996 for
its Discontinued Operations, which provision, combined with amounts previously
reserved in connection with the previously reported matters involving the
Company's former Gichner Systems Group division, covered all costs of the
settlements with the government, and included an accrual for the estimated legal
and accounting fees related to the government claims and other costs related to
certain discontinued operations of the Company, all of which were terminated or
otherwise disposed of prior to fiscal 1990. The net loss provision of
$2,065,000 is included in the Consolidated Statements of Operations under the
caption "Discontinued operations loss provision" for the year ended June 30,
1996.
27
<PAGE>
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 Note 9 of 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 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 was included in the Consolidated
Statements of Operations under the caption "Discontinued operations loss
provision" for the year ended June 30, 1995.
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, 1996 and 1995, respectively.
FISCAL YEAR
1996
----------------------
Quarter Ending: High Low
- ------------------------------------------
September 30, 1995 16 1/2 14 3/8
December 31, 1995 18 3/4 15 1/4
March 31, 1996 21 1/4 16 1/4
June 30, 1996 22 1/8 17 5/8
Fiscal Year
1995
----------------------
Quarter Ending: High Low
- ------------------------------------------
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
The last reported sales price of the Company's common
stock on September 16, 1996, as reported on The New
York Stock Exchange, was $22.875 per share.
The approximate number of holders of record of common
stock as of September 16, 1996 was 2,786.
Under the terms of the Credit Agreement, the Company is
precluded from paying cash dividends on its common stock
(See Note 5 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)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the years ended June 30: 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Operating revenues $103,732 $ 97,649 $ 92,109 $ 80,499 $ 85,942
Total operating costs and
expenses, before
restructuring charge 92,125 87,342 84,167 72,871 76,029
Restructuring charge - - - - 9,000
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 11,607 10,307 7,942 7,628 913
Interest expense (1,475) (1,450) (1,048) (687) (260)
Interest income 1,509 1,242 723 1,074 2,643
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations before
income taxes 11,641 10,099 7,617 8,015 3,296
Provision for income taxes 5,122 4,392 3,138 3,345 1,154
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations 6,519 5,707 4,479 4,670 2,142
Discontinued operations
loss provision
(net of tax benefits
of $935 and
$2,800) (Note 2) (2,065) (5,200) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Income before cumulative
effect of change
in accounting for
income taxes 4,454 507 4,479 4,670 2,142
Cumulative effect of
change in
accounting for income
taxes (Note 9) - - 1,068 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,454 $ 507 $ 5,547 $ 4,670 $ 2,142
====================================================================================================================================
Primary income per common
share:
Income from
continuing operations $ 1.13 $ 1.01 $ .72 $ .71 $ .28
Discontinued
operations loss
provision (.36) (.92) - - -
Cumulative effect of
change in
accounting for income
taxes - - .17 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ .77 $ .09 $ .89 $ .71 $ .28
====================================================================================================================================
Fully diluted income per
common share:
Income from
continuing operations $ 1.12 $ 1.00 $ .72 $ .71 $ .28
Discontinued
operations loss
provision (.35) (.91) - - -
Cumulative effect of
change in
accounting for income
taxes - - .17 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ .77 $ .09 $ .89 $ .71 $ .28
====================================================================================================================================
At June 30:
Current assets $ 58,158 $ 48,328 $ 42,685 $ 40,169 $ 70,657
Current liabilities 27,321 22,996 20,930 18,201 21,136
- ------------------------------------------------------------------------------------------------------------------------------------
Working capital $ 30,837 $ 25,332 $ 21,755 $ 21,968 $ 49,521
====================================================================================================================================
Property, buildings
and equipment, net $ 9,168 $ 9,283 $ 10,812 $ 12,737 $ 8,098
Total assets 122,986 113,163 110,195 110,085 101,935
Long-term debt
(excluding current
portion) 20,634 20,763 20,973 21,036 900
Treasury stock, at cost 36,806 36,806 36,292 29,233 14,444
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: The fiscal 1993 amounts include the results of Allied Bond following 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 5 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
Boston EquiServe
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 14, 1996.
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
CAPITAL CREDIT CORPORATION
8000 Arlington Expressway
Jacksonville, FL 32211
ALLIED BOND & COLLECTION AGENCY, INC.
One Allied Drive
Neshaminy Interplex
Trevose, PA 19047
INTERACTIVE PERFORMANCE, INC.
4275 Bridgeview Drive
North Charleston, SC 29405
HIGH PERFORMANCE SERVICES, INC.
8000 Arlington Expressway
Jacksonville, FL 32211
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, Interactive
Performance, Inc. and High Performance Services, Inc., 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 /2/
Gordon S. Dunn Bernard Silver /3/
Nicholas P. Gill Herbert R. Silver
William B. Hewitt Sheldon Zucker /4/
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. George M. Macaulay is President of Transworld Systems Inc.
3. Bernard Silver is Co-Chairman and Co-Chief Executive Officer of Allied Bond &
Collection Agency, Inc.
4. 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
High Performance Services, Inc. Delaware
Interactive Performance, Inc. (3) 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).
(3) Interactive Performance, Inc. has the following wholly-owned subsidiary:
Interactive Performance of Florida, Inc. (Delaware).
<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 August 16, 1996 included in the
1996 Annual Report to Shareholders of The Union Corporation.
Our audits also included the consolidated financial statement schedule of The
Union Corporation listed in Item 14(a). This schedule is 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 schedule,
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents 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 August 16,
1996, 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 schedule included in this Annual Report
(Form 10-K) of The Union Corporation.
ERNST & YOUNG LLP
New York, New York
September 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Note: 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, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> $18,634
<SECURITIES> 24,529
<RECEIVABLES> 9,835
<ALLOWANCES> 700
<INVENTORY> 0
<CURRENT-ASSETS> 58,158
<PP&E> 22,808
<DEPRECIATION> 13,640
<TOTAL-ASSETS> 122,986
<CURRENT-LIABILITIES> 27,321
<BONDS> 20,634
0
0
<COMMON> 4,300
<OTHER-SE> 58,693
<TOTAL-LIABILITY-AND-EQUITY> 122,986
<SALES> 0
<TOTAL-REVENUES> 103,732
<CGS> 0
<TOTAL-COSTS> 67,877
<OTHER-EXPENSES> 4,058<F1>
<LOSS-PROVISION> 266
<INTEREST-EXPENSE> 1,475
<INCOME-PRETAX> 11,641
<INCOME-TAX> 5,122
<INCOME-CONTINUING> 6,519
<DISCONTINUED> (2,065)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,454
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<FN>
<F1>Represents the total depreciation and amortization expense, but does not
include S,G&A expenses of $20,190.
</FN>
</TABLE>
