<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[ x ] Quarterly 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 Quarter Ended DECEMBER 31, 1995 Commission File Number 1-5371
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THE UNION CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 25-0848970
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(State of incorporation) (I.R.S. Employer Identification Number)
145 Mason Street, Greenwich, CT 06830
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(Address of principal executive offices) (Zip Code)
(203) 629-0505
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(Registrant's telephone number,including area code)
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
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5,610,617 Common shares were outstanding as of February 7, 1996
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EXPLANATORY NOTE
This Quarterly Report on Form 10-Q/A for the quarter ended December
31, 1995 is being filed in order to amend the initial Quarterly Report on
Form 10-Q in the following respects:
(i) Item 6(a) - to indicate that confidential treatment has
been requested for portions of one of the exhibits listed in such
item; and
(ii) Cover Page to Exhibit 10(a) - to indicate more clearly
that confidential treatment has been requested for portions of such
exhibit and the use of the symbol "*" to mark those portions of the
exhibit for which confidential treatment has been requested.
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements and Exhibits
Part I. Financial Information: Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
December 31, 1995 (Unaudited) and
June 30, 1995 3
Condensed Consolidated Statements of
Operations (Unaudited), for the Six
Months Ended December 31, 1995 and 1994 4
Condensed Consolidated Statements of
Operations (Unaudited), for the Three
Months Ended December 31, 1995 and 1994 5
Condensed Consolidated Statements of
Cash Flows (Unaudited), for the Six
Months Ended December 31, 1995 and 1994 6
Condensed Consolidated Statement of
Shareholders' Equity (Unaudited), for
the Six Months Ended December 31, 1995 7
Notes to Condensed Consolidated
Financial Statements (Unaudited) 8 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations (Unaudited) 10 - 16
Part II. Other Information:
Item 1. Legal Proceedings 17 - 20
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21 - 23
Signatures 24
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 1995 (Unaudited) and June 30, 1995
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
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ASSETS
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<S> <C> <C>
Current assets:
Cash $ 15,267 $ 14,805
Short-term investments, at cost,
which approximates market 22,716 21,930
Accounts receivable, trade, less allowance
for doubtful accounts of $639 and $542 5,965 6,339
Prepaid expenses and other current assets 5,227 5,254
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Total current assets 49,175 48,328
Property, buildings and equipment, net 8,328 9,283
Cost of intangible assets from businesses acquired,
less accumulated amortization of $8,357 and $7,636 49,836 50,426
Other assets and deferred charges 3,185 2,300
Deferred income taxes 3,563 2,826
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Total assets $114,087 $113,163
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 2,872 $ 3,044
Accrued expenses 20,490 18,747
Income taxes payable 246 992
Current portion of long-term debt 218 213
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Total current liabilities 23,826 22,996
Long-term debt 20,652 20,763
Other liabilities 12,295 12,200
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Total liabilities 56,773 55,959
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Shareholders' equity:
Common stock, $.50 par value; authorized shares,
15,000; issued shares 8,521 and 8,521 4,261 4,261
Additional paid-in capital 43,412 43,412
Retained earnings 46,447 46,337
Less treasury stock, at cost, 2,941 and 2,941 shares (36,806) (36,806)
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Total shareholders' equity 57,314 57,204
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Total liabilities and shareholders' equity $114,087 $113,163
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</TABLE>
3
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THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
For the Six Months Ended December 31, 1995 and 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Operating revenues $ 48,056 $ 47,286
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Expenses:
Operating expenses 32,458 30,671
Selling, general and administrative expenses 9,656 10,487
Depreciation and amortization 2,018 2,088
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Total expenses 44,132 43,246
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Operating income 3,924 4,040
Interest expense (788) (672)
Interest income 748 529
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Income from continuing operations
before income taxes 3,884 3,897
Provision for income taxes 1,709 1,676
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Income from continuing operations 2,175 2,221
Discontinued operations loss provision
(net of tax benefit of $935) (2,065) -
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Net income $ 110 $ 2,221
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Primary and fully diluted income per common share:
Income from continuing operations $ .38 $ .39
Discontinued operations loss provision (.36) -
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Net income $ .02 $ .39
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Average number of common and common equivalent
shares outstanding:
Primary 5,734,729 5,639,153
Fully diluted 5,789,605 5,671,058
</TABLE>
4
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THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
For the Three Months Ended December 31, 1995 and 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Operating revenues $24,069 $23,917
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Expenses:
Operating expenses 16,332 15,476
Selling, general and administrative expenses 4,775 5,116
Depreciation and amortization 993 1,025
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Total expenses 22,100 21,617
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Operating income 1,969 2,300
Interest expense (381) (364)
Interest income 374 295
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Income from continuing operations
before income taxes 1,962 2,231
Provision for income taxes 864 960
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Income from continuing operations 1,098 1,271
Discontinued operations loss provision
(net of tax benefit of $935) (2,065) -
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Net income (loss) $ (967) $ 1,271
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Primary and fully diluted income per common share:
Income from continuing operations $ .19 $ .22
Discontinued operations loss provision (.36) -
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Net income (loss) $ (.17) $ .22
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Average number of common and common equivalent
shares outstanding:
Primary 5,747,793 5,675,750
Fully diluted 5,793,259 5,675,750
</TABLE>
5
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THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 110 $ 2,221
Adjustments to reconcile net income to net cash
provided by operations:
Discontinued operations loss provision,
net of tax benefit 2,065 -
Depreciation and amortization 2,018 2,088
Deferred compensation expense 193 488
Provision for doubtful accounts 108 98
Provision for deferred income taxes 1,153 670
Changes in assets and liabilities:
Accounts receivable - decrease (increase) 266 (820)
Prepaid expenses and other current assets
- (increase) decrease (863) 392
Other assets and deferred charges - (increase)
decrease (885) 47
Accounts payable and accrued expenses - (decrease) (629) (1,389)
Income taxes payable - (decrease) (746) (841)
Other liabilities - (decrease) (963) (945)
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Net cash provided by operating activities 1,827 2,009
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Cash Flows From Investing Activities:
Capital expenditures (373) (385)
Additional purchase price related to the
purchase of Allied Bond & Collection Agency (131) (128)
Other 31 -
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Net cash (used by) investing activities (473) (513)
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Cash Flows From Financing Activities:
Principal payments on long-term debt (54) (50)
Principal payments on capital lease obligations (52) (50)
Purchase of treasury stock, at cost - (3,344)
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Net cash (used by) financing activities (106) (3,444)
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Net increase (decrease) in cash and short-term
investments 1,248 (1,948)
Cash and short-term investments at June 30 36,735 34,179
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Cash and short-term investments at December 31 $ 37,983 $ 32,231
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Supplemental disclosures of cash flow information:
Interest paid $ 748 $ 598
Income taxes paid 1,302 1,847
</TABLE>
6
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THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
For the Six Months Ended December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common paid-in Retained Treasury
stock capital earnings stock
------ ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1995 $ 4,261 $ 43,412 $ 46,337 $(36,806)
Net income - - 1,077 -
------ ------- ------- -------
Balance at September 30, 1995 4,261 43,412 47,414 (36,806)
Net (loss) - - (967) -
------ ------- ------- -------
Balance at December 31, 1995 $ 4,261 $ 43,412 $ 46,447 $(36,806)
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
7
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THE UNION CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The amounts set forth in this Form 10-Q have not been audited by
independent auditors; however, in the opinion of the management of The Union
Corporation (the "Company"), all adjustments (including normal recurring
accruals) necessary for a fair statement of the results of such periods have
been made.
The financial statements included in this Form 10-Q are presented in
accordance with the requirements of the form and may not include all disclosures
required by generally accepted accounting principles. For additional
information, reference is made to the Company's Annual Report for the year ended
June 30, 1995.
1. DISCONTINUED OPERATIONS
The Company reached tentative agreements with the federal government in
January 1996, subject to certain agency approvals and final approval by the
Court, 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 "Division"). Under the agreements, which
recognize the Company's co-operation in and substantial contribution to the
investigation of these matters, the Company will fulfill its commitment to make
compensation for the government's civil claims by paying $5,550,000. The
Company also accepted responsibility for the actions of the officers of the
former Division by entering a plea of guilty under the False Claims Act, 18
U.S.C. Section 287, although those actions were concealed from the management of
the Company, and will pay a fine of $250,000. As a result, 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, is expected to cover all costs of the above settlements, and
includes 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 Condensed
Consolidated Statements of Operations under the caption "Discontinued operations
loss provision" for the three and six months ended December 31, 1995. The
Condensed Consolidated Balance Sheet at December 31, 1995 includes "Accrued
expenses" of $2,200,000 and "Other liabilities" of $800,000 comprising the
$3,000,000 loss provision.
8
<PAGE>
As previously reported, 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 Condensed Consolidated Statements of Operations under the caption
"Discontinued operations loss provision" beginning in the third quarter of
fiscal 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 Systems Group division and the estimated legal costs to defend the
Company against the claims asserted by Gichner Systems Group, Inc.. The
$8,000,000 loss provision also included $4,000,000 for environmental matters and
approximately $500,000 of costs incurred by the Company during the quarter ended
March 31, 1995 for the aforementioned Gichner Systems Group division and
environmental matters.
See Part II, Item 1 of this Form 10-Q for additional information regarding
these matters.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained very strong and liquid at
December 31, 1995 with cash and short-term investments totaling $37,983,000,
working capital of $25,349,000 and net worth of $57,314,000. During the six
months ended December 31, 1995, the net cash provided by operating activities
was $1,827,000 compared to $2,009,000 a year ago. Net cash provided by
operating activities included an increase in other current assets and other
assets of $900,000 for cash deposited into a trust established to fund deferred
bonuses for the chairman of a subsidiary of the Company, partially offset by a
decrease of $545,000 in income taxes paid and a decrease of approximately
$300,000 in cash outflows charged against Capital Credit Corporation's
("Capital Credit") restructuring provision related to the relocation of its
headquarters in the first quarter of fiscal 1995. The Company's capital
spending during the six months ended December 31, 1995 principally represents
costs related to the purchase of computer, telecommunications and office
equipment and was comparable to a year ago.
The Company reached tentative agreements with the federal government in
January 1996, subject to certain agency approvals and final approval by the
Court, 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. Under the agreements, if approved, the Company
will pay $5,800,000 to settle all civil and criminal claims involving the
Company. The Company anticipates that it will make such payments to the
government during fiscal 1996. (See "Gichner Systems Group Division" section of
Part II, Item 1 of this Form 10-Q for additional information).
As previously announced, Interactive Performance, Inc. ("Interactive"), a
newly-formed, wholly-owned subsidiary of the Company, has been awarded a
contract to provide accounts receivable management for AT&T Corp. Revenues
under this three-year contract may reach $20,000,000 a year. The Company
anticipates that Interactive will make capital expenditures of approximately
$3,000,000 during the next twelve months.
During the six months ended December 31, 1994 the Company purchased, with
available funds, 55,200 shares of its common stock for approximately $514,000.
The Company also paid $2,830,000 in July 1994 for 290,600 shares of its common
stock that was purchased in June 1994. As of February 7, 1996, the Company
holds approximately 2,941,000 shares of its common stock at an aggregate cost of
approximately $36,806,000. Future purchases, if any, by the Company of its
common stock will be funded with available funds.
10
<PAGE>
In December 1992, the Company completed the acquisition of Allied Bond &
Collection Agency ("Allied Bond"), a business engaged in providing collection
services on a contingency fee basis throughout the United States, for an initial
purchase price of approximately $40,300,000, which includes acquisition related
costs. In addition, contingent payments not to exceed approximately $8,300,000
may be payable by the Company based upon Allied Bond attaining certain earnings
levels over the five and one-half year period ending June 30, 1998. As of
December 31, 1995, approximately $769,000 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 which was scheduled to convert to a three year term loan on December 31,
1994 (the "Credit Agreement"). During fiscal 1995 the bank extended the
revolving line of credit until December 31, 1996, at which time the revolving
line of credit will convert to a three year term loan.
Under the terms of the Credit Agreement, the aggregate principal amount
outstanding on December 31, 1996, which is limited to a maximum of
$20,000,000 under the revolving line of credit, must be repaid by the Company
in twelve quarterly installments commencing March 31, 1997 and ending
December 31, 1999. Each of the first eleven installments must be in an amount
equal to one-twentieth of the outstanding loan balance on December 31, 1996,
with the twelfth installment equal to the amount necessary to repay the then
unpaid principal amount of the loan. The loans bear interest, at the
Company's option, at either the bank's base rate, which is announced by the
bank from time to time; or at 3/4% above the bank's Eurodollar rate during
both the revolving and term loan periods. The interest rate, which is reset
periodically, on the revolving term loan was 6.375% at December 31, 1995.
The maximum amount of letters of credit that the bank will issue under the
Credit Agreement is $5,000,000. As of February 7, 1996, the Company was
contingently liable for outstanding letters of credit aggregating approximately
$1,621,000 which reduced the amount available for letters of credit under the
Credit Agreement to approximately $3,379,000.
Pursuant to a March 1995 amendment (the "Amendment") to the Company's
employment agreement with the Chairman of the Company (the "Employment
Agreement"), an amount equal to the discounted net present value of the deferred
compensation payable to the Chairman under the Employment Agreement will be paid
to the Chairman at the time of his retirement. The discounted net present value
of the deferred compensation at December 31, 1995 was approximately $3,000,000,
which amount is included in "Other liabilities" in the Condensed Consolidated
Balance Sheet. 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 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
11
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rendered for the life of the Chairman. The discounted net present value of the
aggregate consulting fees was approximately $2,250,000 at December 31, 1995,
which will be expensed as the services are rendered.
The employment agreement dated July 1, 1995 with the chairman of a
subsidiary of the Company provides for the subsidiary to deposit into a trust
the aggregate amount of deferred bonuses, and related interest, earned by the
chairman, which amount was approximately $1,500,000 at December 31, 1995. As of
December 31, 1995, the subsidiary of the Company had deposited $900,000 of the
$1,500,000 into a trust of which $250,000 is included in the Condensed
Consolidated Balance Sheet in "Prepaid and other current assets" and $650,000 is
included in "Other assets and deferred charges". The subsidiary will deposit
the remaining $600,000 into the trust during the third quarter of fiscal 1996.
The Company and certain subsidiaries are involved in litigation and
administrative proceedings described in Part II, Item 1 of this Form 10-Q. The
Company periodically reviews and updates the status of these matters and the
past costs incurred with respect to each. Estimates of future costs are based
upon currently available data. The Company recorded a $3,000,000 loss provision
($2,065,000 net of tax benefit) during the second quarter of fiscal 1996 and an
$8,000,000 loss provision ($5,200,000 net of tax benefit) during the third
quarter of fiscal 1995. The net loss provisions of $2,065,000 and $5,200,000
were included in the Condensed Consolidated Statements of Operations under the
caption "Discontinued operations loss provision" in the second quarter of fiscal
1996 and in the third quarter of fiscal 1995, respectively.
Management believes that reserves established to meet known and potential
environmental liabilities for the pending environmental proceedings referred to
above and the matters involving the Company's former Gichner Systems Group
division also referred to above are adequate based on current information.
However, there is no way to be certain that future developments relating to any
of these matters 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 the Legal
Proceedings and the matters relating to Discontinued Operations described in
Part II, Item 1 of this Form 10-Q will have a material adverse impact on the
Company's overall financial condition given its available cash and short-term
investments, nor that the resolution of the Legal Proceedings described on page
17 will have a material adverse impact on the Company's future results of
operations.
Management believes that current cash and short-term investments and the
Company's future cash flows from operations are sufficient to provide for
anticipated working capital, debt service and capital expenditure requirements.
12
<PAGE>
SIX MONTHS ENDED DECEMBER 31, 1995 VS. SIX MONTHS ENDED DECEMBER 31, 1994
OPERATING REVENUES
Operating revenues increased to $48,056,000 for the six months ended
December 31, 1995 compared with $47,286,000 for the six months ended December
31, 1994. Revenues at Transworld Systems, Inc. ("Transworld Systems") were
$27,990,000 compared with $28,531,000 a year ago. The decrease in revenues at
Transworld Systems is partially due to the acceleration of customer orders in
fiscal 1995 prior to a scheduled price increase in Transworld's fixed-fee letter
service, which took effect in the second quarter of fiscal 1995. The Transworld
Systems price increase was in response to the United States postal rate increase
that took effect on January 1, 1995. Revenues at Capital Credit increased by
19% in the first six months of fiscal 1996 compared with a year ago, which was
the result of the steady increase in the level of placements received from its
clients. Allied Bond reported a modest increase in revenues despite changing
market conditions such as reduced collectibility of accounts placed for
collection and lower commission rates in certain key markets. Allied also
reported an increase in the dollar value of accounts placed for collection from
its clients and an increase in the amount collected on behalf of its clients
during the six months ended December 31, 1995 compared to a year ago.
OPERATING EXPENSES
Operating expenses increased by $1,787,000 for the six months ended
December 31, 1995 compared with 1994. The increase was attributable to
increases in operating expenses at Transworld Systems, Capital Credit and Allied
Bond. The increase in operating expenses at Transworld Systems was primarily
the result of the increase in postal rates. The increase in operating expenses
at both Capital Credit and Allied Bond resulted from increased collection costs
and compensation expenses, which resulted in part from their respective
increases in revenues and reflected changing market conditions such as reduced
collectibility of accounts placed for collection.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $831,000 for the
six months ended December 31, 1995 compared with 1994. The reduction was
attributable to decreases in expenses at the Corporate office and Capital
Credit, partially offset by increases at Transworld Systems and Allied Bond.
The decrease in Corporate office expenses primarily resulted from a decrease of
approximately $600,000 of legal fees related to discontinued operations of the
Company and a decrease of approximately $300,000 in deferred compensation
expense. During the six months ended December 31, 1995 such legal fees were
charged against the reserves that were established for discontinued operations
of the Company in the third quarter of fiscal 1995 (See Note 1). During the six
months ended December 31, 1994 such legal fees were included in selling, general
and administrative expenses.
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<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased by $70,000 for the six
months ended December 31, 1995 compared with the six months ended December 31,
1994 principally due to a decrease at Allied Bond.
OPERATING INCOME
Operating income was $3,924,000 for the six months ended December 31, 1995
compared with $4,040,000 for the six months ended December 31, 1994. This
decrease was due to decreases at Transworld Systems and Allied Bond, partially
offset by a decrease in Corporate office expense and an increase in operating
income at Capital Credit. The decrease in Corporate office expenses primarily
resulted from a decrease of approximately $600,000 of legal fees related to
discontinued operations of the Company and a decrease of approximately $300,000
in deferred compensation expense. During the six months ended December 31, 1995
such legal fees were charged against the reserves that were established for
discontinued operations of the Company in the third quarter of fiscal 1995 (See
Note 1). During the six months ended December 31, 1994 such legal fees were
included in selling, general and administrative expenses. Transworld Systems
reported operating income of $5,879,000, before amortization of goodwill,
compared with $6,680,000 a year ago, principally reflecting the decrease in its
revenues and the increase in postal rates, and an operating margin of 20%, after
amortization of goodwill, for the first six months of fiscal 1996. Capital
Credit's operating income was well ahead of last year during the six months
ended December 31, 1995. Allied Bond continued to operate profitably before
amortization of goodwill and depreciation expense related to its acquisition.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased by $116,000 for the six months ended December
31, 1995 compared with December 31, 1994 principally due to an increase in the
interest rate charged for the borrowings under the Credit Agreement. Interest
income increased by $219,000 for the six months ended December 31, 1995 compared
with a year ago, due to higher average short-term investment balances and
interest rates.
During the six months ended December 31, 1995, the Company primarily
invested in commercial paper with short-term maturities and overnight time
deposits. During the six months ended December 31, 1994, the Company primarily
invested 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% for the six months ended December 31, 1995 and 43% for the six months ended
December 31, 1994.
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THREE MONTHS ENDED DECEMBER 31, 1995 VS. THREE MONTHS ENDED DECEMBER 31, 1994
OPERATING REVENUES
Operating revenues increased to $24,069,000 for the three months ended
December 31, 1995 compared with $23,917,000 for the three months ended December
31, 1994. Revenues at Transworld Systems were $14,174,000 compared with
$14,560,000 a year ago. The decrease in revenues at Transworld Systems is
partially due to the acceleration of customer orders in fiscal 1995 prior to a
scheduled price increase in Transworld's fixed-fee letter service, which took
effect in the second quarter of fiscal 1995. The Transworld Systems price
increase was in response to the United States postal rate increase that took
effect on January 1, 1995. Revenues at Capital Credit increased by 11% in the
second quarter of fiscal 1996 compared with a year ago, which was the result of
the steady increase in the level of placements received from its clients.
Allied Bond reported a modest increase in revenues despite changing market
conditions such as reduced collectibility of accounts placed for collection and
lower commission rates in certain key markets. Allied also reported an increase
in the dollar value of accounts placed for collection from its clients and an
increase in the amount collected on behalf of its clients during the three
months ended December 31, 1995 compared to a year ago.
OPERATING EXPENSES
Operating expenses increased by $856,000 for the three months ended
December 31, 1995 compared with 1994. The increase was attributable to
increases in operating expenses at Transworld Systems, Capital Credit and Allied
Bond. The increase in operating expenses at Transworld Systems was primarily
the result of the increase in postal rates. The increase in operating expenses
at both Capital Credit and Allied Bond resulted from increased collection costs
and compensation expenses, which resulted in part from their respective
increases in revenues and reflected changing market conditions such as reduced
collectibility of accounts placed for collection.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $341,000 for the
three months ended December 31, 1995 compared with 1994. The reduction was
attributable to a decrease in expenses at the Corporate office, partially offset
by an increase at Allied Bond, while expenses at Transworld Systems and Capital
Credit were essentially unchanged. The decrease in Corporate office expenses
primarily resulted from a decrease of approximately $300,000 of legal fees
related to discontinued operations of the Company and a decrease of
approximately $150,000 in deferred compensation expense. During the three
months ended December 31, 1995 such legal fees were charged against the reserves
that were established for discontinued operations of the Company in the third
quarter of fiscal 1995 (See Note 1). During the three months ended December 31,
1994 such legal fees were included in selling, general and administrative
expenses.
15
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense decreased by $32,000 for the three
months ended December 31, 1995 compared with the three months ended December 31,
1994 principally due to a decrease at Allied Bond.
OPERATING INCOME
Operating income was $1,969,000 for the three months ended December 31,
1995 compared with $2,300,000 for the three months ended December 31, 1994.
This decrease was due to decreases at Transworld Systems and Allied Bond,
partially offset by a decrease in Corporate office expenses, while operating
income at Capital Credit was essentially unchanged. The decrease in Corporate
office expenses primarily resulted from a decrease of approximately $300,000 of
legal fees related to discontinued operations of the Company and a decrease of
approximately $150,000 in deferred compensation expense. During the three
months ended December 31, 1995 such legal fees were charged against the reserves
that were established for discontinued operations of the Company in the third
quarter of fiscal 1995 (See Note 1). During the three months ended December 31,
1994 such legal fees were included in selling, general and administrative
expenses. Transworld Systems reported operating income of $2,954,000, before
amortization of goodwill, compared with $3,532,000 a year ago, principally
reflecting the decrease in its revenues and the increase in postal rates, and an
operating margin of 20%, after amortization of goodwill, for the second quarter
of fiscal 1996. Allied Bond continued to operate profitably, before
amortization of goodwill and depreciation expense related to its acquisition,
and reported an increase in operating income and an improvement in its operating
margin for the second quarter of fiscal 1996 compared to the first quarter of
fiscal 1996.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased by $17,000 for the three months ended December
31, 1995 compared with December 31, 1994 principally due to an increase in the
interest rate charged for the borrowings under the Credit Agreement. Interest
income increased by $79,000 for the three months ended December 31, 1995
compared with a year ago, due to higher average short-term investment balances
and interest rates.
During the three months ended December 31, 1995 and 1994, the Company
primarily invested in commercial paper with short-term maturities and overnight
time deposits.
INCOME TAXES
The Company's effective income tax rate for continuing operations was
44% for the three months ended December 31, 1995 and 43% for the three months
ended December 31, 1994.
16
<PAGE>
PART II - OTHER INFORMATION (UNAUDITED)
ITEM 1. LEGAL PROCEEDINGS:
In addition to the continuing environmental clean-up efforts and other
matters described below, the Company and its subsidiaries are parties to a
number of lawsuits arising in the ordinary course of business.
In June 1991, two stockholder class actions were brought, and then
consolidated, against the Company, Capital Credit, certain directors and current
and former executive officers of the Company, and certain former directors and
officers of Capital Credit, seeking damages under the securities laws in
connection with the misstatement by the Company of certain quarterly financial
statements in fiscal 1990 and 1991. The Company and the individual defendants
denied any and all wrongdoing or liability and vigorously defended the action.
In order to end the substantial expense and distraction of continued litigation,
the Company settled the action, which settlement has been approved by the court.
All claims against the Company and the other defendants have been dismissed with
prejudice. The Company and its insurer each paid one-half of the $1,500,000
settlement amount in March 1995. That portion of the settlement amount which
was not covered by insurance was charged against existing reserves, all of which
had been recorded in prior fiscal years.
In a lawsuit brought in 1993 by three individuals engaged by Transworld
Systems as independent contractors, in which it was alleged that Transworld
Systems has improperly treated the plaintiffs as independent contractors rather
than employees, all of the asserted claims have been dismissed by the Court with
prejudice.
Some of the same persons and others have also brought suit against
Transworld Systems and certain of its directors and officers, alleging breach of
contract and mental distress as a result of Transworld Systems' failure to
supply plaintiffs with copies of a monthly publication distributed by Transworld
Systems. 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.
Based on current estimates and information, the Company does not believe
that the ultimate resolution of the above lawsuits will have a material
adverse impact on the Company's overall financial condition or future results
of operations.
17
<PAGE>
Gichner Systems Group Division:
The Company sold the assets and business of the Company's Gichner Systems
Group division (the "Division") to Gichner Systems Group, Inc. (the "Purchaser")
in 1989 and, accordingly, reflected the Division as a discontinued operation in
the Company's Statements of Operations. In 1991 the Purchaser informed the
Company that false pricing information might have been supplied by former
officers of the Division, who were also members of the group that purchased the
Division from the Company, in connection with certain government contracts
negotiated prior to the sale. After investigation, those of the former officers
who where then working for the Purchaser were terminated for cause, and the
Company and Purchaser have tendered to the Department of Defense a report of the
results of their investigation. The Company recorded a $8,000,000 loss
provision ($5,200,000 net of tax benefit) during the third quarter of fiscal
1995, which 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 this matter and the estimated legal costs to defend the
Company against claims asserted by the Purchaser. The Company reached tentative
agreements with the federal government in January 1996, subject to certain
agency approvals and final approval by the Court, to settle the above matters.
Under the agreements, which recognize the Company's co-operation in and
substantial contribution to the investigation of these matters, the Company will
fulfill its commitment to make compensation for the government's civil claims by
paying $5,550,000. The Company also accepted responsibility for the actions of
the officers of the former Division by entering a plea of guilty under the False
Claims Act, 18 U.S.C. Section 287, although those actions were concealed from
the management of the Company, and will pay a fine of $250,000. As a result,
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, is expected to cover all costs of the
above settlements, and includes 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 Purchaser commenced suit
against the Company in which it alleges misrepresentation and breach by the
Company of the provisions of the Purchase Agreement and asserts claims for
damages and indemnification. The Company denies each of the claims of the
Purchaser and intends to vigorously defend against this action. Although
management believes that reserves established for these matters are 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 these
matters will have a material adverse impact on the Company's overall financial
condition given its available cash and short-term investments.
18
<PAGE>
Two former officers of the Division filed suit against the Company for
retirement benefits which the Company terminated when their alleged misconduct
was reported to the Company. All of their claims, and their refiled claims,
have been dismissed by the Court. The Company has counterclaimed for damages
resulting from the misconduct of the two former officers of the Division. The
estate of a third former officer of the Division has filed suit against the
Company for similar claims, which the Company denies and intends to vigorously
defend against this action.
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 may be required. The
Company has recorded what it believes to be a reasonable estimate of its
potential liability, based on current information, for this site.
The second group of matters relates to environmental issues on properties
currently or formerly owned or operated by a subsidiary or division of the
Company. These cases generally involve matters for which the Company or an
inactive subsidiary is the sole or primary responsible party. In one such case,
however, although the affected subsidiary fully performed a settlement with the
federal government, the government has reopened the matter. A group of
financially solvent responsible parties has completed an extensive investigation
of the Superfund site under a consent order with the EPA and submitted Remedial
Investigation and Feasibility Study Reports (the "Reports") to the EPA, which
outline a range of various remedial alternatives for the site. The EPA has
issued a proposed plan which is subject to public comment. The Company's
environmental counsel retained two environmental consulting firms to review and
evaluate the Reports and proposed plan. The findings
19
<PAGE>
of these consulting firms indicate that many of the assumptions, purported facts
and conclusions contained in the Reports and proposed plan are significantly
flawed and such findings have been recently submitted to the EPA.
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 includes a provision of approximately
$4,000,000 for environmental matters. The provision for environmental matters
includes the estimated legal and consulting costs for this and other sites
involving the Company or an inactive subsidiary, the estimated costs to defend
the Company's aforementioned settlement with the government, and the estimated
remediation costs that the Company will incur, based on current information, if
its prior settlement with the government is not upheld in court. However, the
Company may be exposed to additional substantial liability for this site as
additional information becomes available over the long-term. A better estimate
of costs associated with any further remediation to be taken at the site cannot
be made until a Record of Decision is issued by the EPA, which is expected to be
issued in fiscal 1996. Actual remediation costs cannot be computed until such
remedial action is completed. Some of the other sites involving the Company or
an inactive subsidiary are at a stage where an assessment of liability, if any,
cannot reasonably be made.
It is the Company's policy to comply fully with all laws regulating
activities affecting the environment and to meet its obligations in this area.
In many "generator" liability cases, reasonable cost estimates are available on
which to base reserves on the Company's likely allocated share among viable
parties. Where insufficient information is available regarding projected
remedial actions for these "generator" liability cases, the Company has recorded
what it believes to be reasonable estimates of its potential liabilities.
Reserves for liability for sites on which former operations were conducted are
based on cost estimates of remedial actions projected for these sites. All
known environmental claims are periodically reviewed by the Company, where
information is available, to provide reasonable assurance that adequate reserves
are maintained. Reserves recorded for environmental liabilities are not net of
insurance or other expected recoveries. Other than the aforementioned loss
provision that was recorded by the Company during the third quarter of fiscal
1995, no significant expenses related to environmental matters were recorded by
the Company during the six months ended December 31, 1995 or the three years
ended June 30, 1995 due to the adequacy of recorded reserve balances based on
prior available information. Management believes that reserves established
to meet known and potential environmental liabilities are adequate based on
current information. The Company does not anticipate, based on current
information, that the resolution of these matters will have a material
adverse impact on the Company's overall financial condition given its
available cash and short-term investments. However, there is no way to be
certain that future developments relating to environmental matters will not
involve additional substantial costs that may require future charges to the
Discontinued operations loss provision.
20
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
On November 16, 1995, the Company held its Annual Meeting of Stockholders. The
following matter was voted on and approved by the stockholders:
Messrs. John E. Angle, James C. Miller III and Herbert R. Silver were re-
elected to the Board of Directors and Messrs. Melvin L. Cooper, Gordon S.
Dunn, William B. Hewitt, Robert A. Kerr and Stuart J. Northrop continued to
serve as members of the Board of Directors after the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
Exhibit No. 10(a) Agreement between Interactive Performance, Inc., a
wholly- owned subsidiary of The Union Corporation, and
AT&T Corp. (Confidential treatment has been requested
for certain portions of this Exhibit.)
Exhibit No. 11 Computation of Primary and Fully Diluted Earnings Per
Share (Unaudited)
Exhibit No. 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed for the six months ended December
31, 1995.
21
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES Item 6
Computation of Primary and Fully Diluted Earnings
Per Share (Unaudited) Exhibit 11
----------
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended December 31,
--------------------------------------------------------------------
1995 1994
-------------------------------- --------------------------------
Income Income
Number of Net of Per Share Number of Net of Per Share
Shares Taxes Amount Shares Taxes Amount
--------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS:
Average common shares (based
on weighted average number
of shares outstanding) 5,580,617 5,536,814
Common stock equivalents
(stock options) 154,112 102,339
--------- ---------
Income from continuing
operations 5,734,729 $ 2,175 $ .38 5,639,153 $ 2,221 $ .39
--------- ---------
--------- ---------
Discontinued operations loss
provision (net of tax) 5,734,729 (2,065) (.36) 5,639,153 - -
--------- ------ ---- --------- ------ ----
--------- ---------
Net income 5,734,729 $ 110 $ .02 5,639,153 $ 2,221 $ .39
--------- ------ ---- --------- ------ ----
--------- ------ ---- --------- ------ ----
FULLY DILUTED EARNINGS:
Average common shares (based
on weighted average number
of shares outstanding) 5,580,617 5,536,814
Common stock equivalents
(stock options) 208,988 134,244
--------- ---------
Income from continuing
operations 5,789,605 $ 2,175 $ .38 5,671,058 $ 2,221 $ .39
--------- ---------
--------- ---------
Discontinued operations loss
provision (net of tax) 5,789,605 (2,065) (.36) 5,671,058 - -
--------- ------ ---- --------- ------ ----
--------- ---------
Net income 5,789,605 $ 110 $ .02 5,671,058 $ 2,221 $ .39
--------- ------ ---- --------- ------ ----
--------- ------ ---- --------- ------ ----
</TABLE>
22
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES Item 6
Computation of Primary and Fully Diluted Earnings
Per Share (Unaudited) Exhibit 11
----------
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended December 31,
--------------------------------------------------------------------
1995 1994
-------------------------------- --------------------------------
Income Income
Number of Net of Per Share Number of Net of Per Share
Shares Taxes Amount Shares Taxes Amount
--------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS:
Average common shares (based
on weighted average number
of shares outstanding) 5,580,617 5,535,340
Common stock equivalents
(stock options) 167,176 140,410
--------- ---------
Income from continuing
operations 5,747,793 $ 1,098 $ .19 5,675,750 $ 1,271 $ .22
--------- ---------
--------- ---------
Discontinued operations loss
provision (net of tax) 5,747,793 (2,065) (.36) 5,675,750 - -
--------- ------ ---- --------- ------ ----
--------- ---------
Net income (loss) 5,747,793 $ (967) $(.17) 5,675,750 $ 1,271 $ .22
--------- ------ ---- --------- ------ ----
--------- ------ ---- --------- ------ ----
FULLY DILUTED EARNINGS:
Average common shares (based
on weighted average number
of shares outstanding) 5,580,617 5,535,340
Common stock equivalents
(stock options) 212,642 140,410
--------- ---------
Income from continuing
operations 5,793,259 $ 1,098 $ .19 5,675,750 $ 1,271 $ .22
--------- ---------
--------- ---------
Discontinued operations loss
provision (net of tax) 5,793,259 (2,065) (.36) 5,675,750 - -
--------- ------ ---- --------- ------ ----
--------- ---------
Net income (loss) 5,793,259 $ (967) $(.17) 5,675,750 $ 1,271 $ .22
--------- ------ ---- --------- ------ ----
--------- ------ ---- --------- ------ ----
</TABLE>
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE UNION CORPORATION
(Registrant)
Date: May 30, 1996 By: Nicholas P. Gill
--------------------------------
Nicholas P. Gill
Vice President,
Treasurer and Secretary
(Chief Financial Officer)
24
<PAGE>
[CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT, WHICH
PORTIONS ARE INDICATED BY THE SYMBOL "*".]
Exhibit 10(a)
AGREEMENT NO. LF9099D
PAGE 1 OF 23
ACCEPTANCE SHALL BE INDICATED BY
SIGNING AND RETURNING DUPLICATE TO:
Interactive Performance, Inc. AT&T Corp.
c/o The Union Corporation 188 Mt. Airy Road, Room A135
145 Mason Street Basking Ridge, NJ 07920
Greenwich, CT 06830 Attention: Betty I. Brown
Attention: William B. Hewitt
Subject to the terms and conditions stated in this Agreement, Interactive
Performance, Inc. agrees to perform the teleservices described, hereinafter
"Work", and AT&T Corp. ("AT&T") agrees to pay the charges stated. Whenever the
terms "you", "your" or "Contractor" are used in this Agreement, the same shall
mean Interactive Performance, 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 36 months from the date
Contractor notifies AT&T that the facility where the Work will be performed
(described in Section VI below) has become operational, which such term is
defined in Exhibit B, however under no circumstances continuing beyond May 31,
1999. The services shall include but are not necessarily limited to the
following:
I. Contractor shall render live account teleservices to AT&T 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 provide AT&T, its Agents and/or its affiliates with live
account teleservices for AT&T's Portfolio of active and usage threshold exceeded
accounts (not in default). For purposes of this Agreement, an account is in
default when it is charged off by AT&T. AT&T will remove from Contractor's
portfolio of accounts any accounts which are in default. Contractor shall
request and accept payment arrangements from customers and enter these
arrangements and other account updating information into the AT&T-licensed
CACSPLUS-TM- and AT&T's Resident Account Management Platform ("RAMP") collection
system. All such payments made by customers shall be made to AT&T.
*___________________________________________________________________________.
Contractor shall provide these services in accordance with the highest
professional industry standards (and will follow, as near as may be, AT&T's
guidelines for telephone contacts). Contractor shall be responsible for hiring
and training the required management, administrative, teleservice
representatives and technical staff to support this project within the
timeframes agreed upon.
II. Contractor's teleservice representatives may perform the Work by utilizing
AT&T's Credit Management Center Methods and Procedures and the AT&T Credit and
Collection Policies as revised and updated by AT&T 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 teleservices representatives.
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 2 OF 23
AT&T shall have up to four AT&T personnel, including the on-site Manager, co-
located with Contractor employees performing the Work, and such personnel shall
be a liaison to the Contractor on behalf of AT&T. Contractor shall share
information with on-site and visiting AT&T representatives in order to educate
such AT&T representatives regarding industry policy for services performed under
this Agreement, practices and technology involved in performing the Work. Such
representatives will not be employees or agents of persons performing services
which are the same or substantially the same as those performed by Contractor._
AT&T 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. For purposes
of this clause, employees of AT&T may include management consultants approved by
Contractor in writing. Such approval shall not be unreasonably withheld. In the
event of a deadlock regarding the establishment of performance standards, AT&T
will cast the deciding vote, unless it pertains to the Liquidated Damages and
Incentive Payment clause. 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 knowledge of strategies, methodologies, risk
management related information, recommended variances in campaign strategies,
expected learnings, marketing impacts, teleservice scenario impacts, dialer
campaigns and other data Contractor deems pertinent in connection with the Work,
to AT&T-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 knowledge described herein, if Contractor incorporates any of its
proprietary information as provided in the CONTRACTOR'S INFORMATION clause, AT&T
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 AT&T.
EXHIBIT B describes AT&T's Performance Measurements. Contractor agrees to
manage and perform the Work under this Agreement in a way that insures that such
services are monitored and managed to adhere to such Performance Measurements.
EXHIBIT C describes the systems and interfaces, Contractor's access rights
to such systems, and the Equipment *___________________ 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 AT&T customer's names for purpose of solicitation
through a means other than through AT&T-provided information, Contractor shall
not solicit AT&T customers nor shall
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 3 OF 23
Contractor use AT&T customer names and/or customer databases for any purpose
other than those expressly allowed under this Agreement. The Published/Non-
Published numbers shall not be matched or stored in any Contractor database.
This Section V is pursuant to requirements set forth in the USE OF INFORMATION
clause.
VI. *
VII. Union shall provide to AT&T its consolidated audited annual financial
statements and copies of the following SEC filings:
A. "Annual Report" filed on Form 10-K
B. "Quarterly Report" filed on Form 10-Q
C. "Current Report" filed on Form 8-K
D. "Notice of Proposed Sale of Securities" filed on Form 144, where
applicable
Union shall submit such statements and filings to the AT&T Technical
Representative within 30 days after filing with the SEC. If AT&T gives notice
to Contractor that any financial statement gives undue risk to AT&T, Union shall
promptly submit corrective action plans to AT&T for approval by AT&T in writing
to mitigate impact to AT&T. In the event Union does not submit such documents
to AT&T within thirty days after filing with the SEC, AT&T shall have the right
to terminate this Agreement in accordance with the TERMINATION/EXPIRATION
clause. AT&T acknowledges receipt of the Annual Report of Union for the fiscal
year ended June 30, 1995, and all subsequent filings called for by this
Agreement to the date of execution of this Agreement and agrees that they do not
give undue risk to AT&T.
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") or any other arbitrator opted by a party. 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
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 4 OF 23
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
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 AT&T. Any attempted assignment, delegation or subcontracting
in contravention of the above provisions shall be void and ineffective. Any
assignment of monies shall be void and ineffective to the extent that (1)
Contractor shall not have given AT&T at least thirty (30) days prior written
notice of such assignment or (2) such assignment attempts to impose upon AT&T
obligations to the assignee additional to the payment of such monies, or to
preclude AT&T from dealing solely and directly with Contractor in all matters
pertaining to this Agreement including the negotiation of amendments or
settlements or charges due. All Work performed by Contractor's subcontractor(s)
at any time shall be deemed Work performed by Contractor.
In addition, Contractor shall not assign this Agreement, without the prior
written consent of AT&T, to an affiliate or to a successor whether by stock
transfer, operation of law, or merger or to an unaffiliated acquiror of all or
any portion of Contractor's business, stock or assets.
ASSIGNMENT BY AT&T
AT&T 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 (i) any present or future affiliate (including any subsidiary or affiliated
entity thereof) of AT&T or (ii) any unaffiliated new entities that may be formed
by AT&T pursuant to a corporate reorganization, including any subsidiary or
affiliated entity thereof. AT&T 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 AT&T from
its obligations hereunder.
AUDIT
*
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 5 OF 23
Notwithstanding the above, AT&T-designated auditors shall have the right to
review any operational item, and the right to receive audits reports prepared by
or for the Contractor, covering any aspect of the Work under this Agreement.
In the event AT&T or any government authority conducts an audit of Contractor as
a result of misconduct by Contractor that required such an audit, Contractor
shall incur all costs associated with such audit, including, but not limited to
reimbursement to AT&T for reasonable out-of-pocket expenses incurred for such
audit.
CARE AND CUSTODY OF PROPERTY
Contractor shall have the care, custody and control of all AT&T's Equipment and
any other AT&T records or materials (hereinafter in this clause referred to as
"Materials") as described hereunder in the possession of Contractor pursuant to
this Agreement, and shall be fully responsible for any and all damage to or loss
of such Materials, other than damage attributable to AT&T and other than normal
wear and tear during the time they are in Contractor's care, custody and
control. When AT&T orders the Materials for delivery to Contractor or delivers
Materials in its possession to Contractor, Contractor's responsibility hereunder
shall commence upon delivery and installation (in good working order) by AT&T
and shall continue uninterrupted until the Materials are repossessed by AT&T or
its designees at no cost to Contractor. The liability of Contractor for any and
all damage to or loss of Materials of AT&T in Contractor's possession shall be
based on the full replacement value of the Materials as determined. Equipment
supplied by AT&T shall be maintained by AT&T.
CHANGES
AT&T 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 nor shall
Contractor be entitled to any compensation for work done pursuant to or in
contemplation of a Change, unless made pursuant to a written Change Order issued
by AT&T. Within thirty (30) days after a request for a Change, Contractor shall
submit a proposal to AT&T which includes estimated increases or decreases in
Contractor's costs or changes in the Work schedule necessitated by the Change.
AT&T shall within thirty (30) days of receipt of the proposal, either (i) accept
the proposal, in which event AT&T 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 New Jersey
excluding its choice of laws rules and excluding the Convention for the
International Sale of Goods. The parties agree that the provisions of the New
Jersey 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. Contractor agrees to submit to the jurisdiction of any court
<PAGE>
AGREEMENT NO. LF9099D
PAGE 6 OF 23
wherein an action is commenced against AT&T based on a claim for which
Contractor has agreed to indemnify AT&T under this Agreement.
COMPENSATION
Contractor's invoices for fees established in Exhibit E shall be paid to
Contractor for Work, and are to include *_______________________________________
________________________________________________________________________________
____________________________________. AT&T agrees to pay Contractor following
receipt by AT&T of invoices, for Work performed hereunder. Payment shall be
made thirty (30) days after invoices are received by the designated AT&T
Representative. AT&T may withhold from payment that portion of any invoice
which is disputed in good faith until the dispute is resolved by the parties.
COMPLIANCE WITH LAWS
Contractor and all persons furnished by Contractor shall comply with all
applicable federal, state, local and foreign laws, ordinances, regulations and
codes, including those relating to the use of chlorofluorocarbons, and including
the identification and procurement of required permits, certificates, licenses,
insurance, approvals and inspections in performance under this Agreement.
Contractor agrees to indemnify, defend (at AT&T's request) and save harmless
AT&T, its affiliates, its and their customers and each of their officers,
directors and employees pursuant to the INDEMNITY clause of this Agreement from
and against any losses, damages, claims, demands, suits, liabilities, fines,
penalties and expenses (including reasonable attorney's fees) that arise out of
or result from Contractor's failure to do so.
Without limiting the generality of any of the foregoing, with respect to live
account teleservices performed by Contractor on behalf of AT&T, Contractor shall
comply with all applicable laws for such services, including but not limited to
all regulations or requirements as may be lawfully imposed by governmental
authorities such as the Securities & Exchange Commission (SEC), Federal Trade
Commission (FTC), Federal Communications Commission (FCC), Department of Justice
(DOJ), Internal Revenue Service (IRS) and State regulatory bodies. Contractor
must notify AT&T within 24 hours of any changes, cancellation, non-renewal, or
claims against a bond or license. Contractor agrees to indemnify AT&T, pursuant
to the clause INDEMNITY of this Agreement, and its customers for any loss or
damage that may be sustained by reason of Contractor's failure to do so.
CONTRACTOR'S INFORMATION
Except as provided hereunder, Contractor shall not provide 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 Contractor has the right to do so, and Contractor shall not view
any of the foregoing as confidential or proprietary.
Subject to the foregoing, AT&T, may desire to have Contractor disclose to AT&T,
certain specifications, designs, plans, drawings, software, data, prototypes, or
other business and/or technical information related to performing live account
teleservices for AT&T information (hereinafter in this clause shall be referred
to as "INFORMATION") which is proprietary to the Contractor. In such
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 7 OF 23
event, AT&T, for two years from the effective date of receipt by AT&T of
INFORMATION under this Agreement, shall hold the INFORMATION in confidence,
shall use the INFORMATION only for the purpose of its internal business, shall
reproduce the INFORMATION only to the extent necessary for such purpose, shall
restrict disclosure of the INFORMATION to its employees (and employees 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
INFORMATION to any third party without prior without written approval of the
Contractor, provided that the foregoing shall not apply to information
previously known to AT&T free of obligation, or made public through no fault
imputable to AT&T.
All INFORMATION shall be furnished only to the on-site Manager at the
*__________________________ facility and the following representative of
AT&T, or a successor representative of each as AT&T may designate in writing:
Name: Norene Buckstine
Title: Staff Manager
Address: 295 North Maple Avenue - Room 6147F3
Basking Ridge, New Jersey 07920
Telephone: 908-221-8920
AT&T shall not be liable for the inadvertent or accidental disclosure of
INFORMATION, if the disclosure occurs despite the exercise of the same degree of
care as AT&T normally takes to preserve its own proprietary information of a
similar nature.
INFORMATION shall be subject to the restrictions herein, if it is in writing or
other tangible form, only if clearly marked as proprietary when disclosed to
AT&T or, if not in tangible form, its proprietary nature must first be
announced; and it must be reduced to writing, with a copy of the writing being
furnished to AT&T within thirty (30) days of the disclosure of the intangible
information. Contractor shall endeavor to keep to a minimum the amount of
INFORMATION that is furnished to AT&T upon which restrictions are imposed.
DISASTER RECOVERY
On or before 120 days after execution of this Agreement, Contractor shall
submit a contingency plan for AT&T'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 AT&T Work is being performed and
shall submit such plan to AT&T for review and approval by AT&T and such
approval shall be provided in writing by AT&T to Contractor. The plan shall
include, but shall not be limited to modification of outbound and inbound
calling requirements in the event of a disaster and how Contractor will
operationally support AT&T's internal collections operation in the event of
major system and/or infrastructure outages and its capability in support of
its facility, systems, infrastructure and data. Costs incurred in connection
with the establishment, maintenance, implementation and performance of the
plan shall be *______________________________________________________________
_____________________________________. Within 120 days after execution of
this Agreement, AT&T shall provide Contractor with a disaster recovery plan
for AT&T as it relates to Work under this Agreement.
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 8 OF 23
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 the AT&T on-site manager within one (1) hour after Contractor
becomes aware of the service-affecting situation and of remedial action taken.
AT&T shall take immediate and appropriate action to remedy any malfunction
involving its Equipment.
ENTIRE AGREEMENT
This Agreement 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 AT&T. Additional or
different terms inserted in this Agreement by Contractor, or deletions thereto,
whether by alterations, addenda, or otherwise, shall be of no force and effect,
unless expressly consented to by AT&T in writing. Estimates or forecasts
furnished by AT&T 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. The term "Work" as used in this Agreement may also be referred to as
"services". 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 ("Equipment") as provided
for in this Agreement *________________________________________________________
_____________________________________________________.
*______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________.
The Equipment shall be provided and maintained in accordance with the following
requirements.
A. *
1. *
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 9 OF 23
2. Contractor shall use the Equipment in accordance with all applicable OSHA
requirements and other safety requirements, codes or standards, and keep in
force 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 that it,
its 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 AT&T or
AT&T's customers based on any loss or liability insured against under any policy
of insurance. Contractor agrees to indemnify and hold harmless AT&T and AT&T's
customers from and against any and all losses, damages, claims, demands, suits,
and liabilities (including reasonable attorney's fees) of any kind and nature
whatsoever (including but not limited to claims resulting from injuries or death
to person or damage to property) in any way arising out of or resulting from the
operation, use or storage of the Equipment or any accident in connection
therewith unless such claims are based on defects in the Equipment or its
operation not the fault of Contractor.
3. *___________________________________________________________________________
________________________________________________________________________________
__________________________________________________. Contractor shall promptly
notify AT&T 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 AT&T 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. *
6. *
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 10 OF 23
B. The data stored in the computer Equipment *__________________________________
and is pursuant to the terms and conditions set forth in the Title to Work
Products and Use of Information clauses set forth hereunder. *_________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
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 or its
subcontractors ("force majeure conditions"). Notwithstanding the foregoing,
Contractor's liability for loss or damage to AT&T's Materials as defined the
CARE AND CUSTODY OF PROPERTY clause 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.
GOVERNMENT CONTRACT PROVISIONS
The following provisions regarding equal opportunity, and all applicable laws,
rules, regulations and executive orders specifically related thereto, including
applicable provisions and clauses from the Federal Acquisition Regulation and
all supplements thereto are incorporated in this Agreement as they apply to work
performed under specific U.S. Government contracts: 41 CFR 60-1.4, Equal
Opportunity; 41 CFR 60-1.7, Reports and Other Required information; 41 CFR 60-
1.9, Segregated Facilities; 41 CFR 60-250.4, Affirmative Action For Disabled
Veterans and Veterans of the Vietnam Era (if in excess of $10,000); and 41 CFR
60-741.4, Affirmative Action for Disabled Workers (if in excess of $2,500),
"contractor" and "subcontractor" shall mean "Contractor". In addition, orders
placed under this Agreement containing a notation that the material or services
are intended for use under Government contracts shall be subject to such other
Government provisions printed, typed or written thereon, or on the reverse side
thereof, or in attachments thereto.
HEADINGS
The headings contained in this Agreement are for convenience of reference only
and shall not affect the interpretation or meaning of this Agreement.
IDENTIFICATION
Contractor shall not, without AT&T's prior written consent, engage in
advertising, promotion or publicity related to this Agreement, or make public
use of any identification in any circumstances related to this Agreement, except
as may be required by applicable law, "Identification" means any
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 11 OF 23
copy or semblance of any trade name, trademark, service mark, insignia, symbol,
logo, or any other product, service or organization designation, or any
specification or drawing of AT&T or its affiliates, or evidence of inspection by
or for any of them. Contractor shall remove or obliterate any identification
prior to any use or disposition of any material rejected or not purchased by
AT&T, and shall indemnify, defend (at AT&T's request) and save harmless AT&T and
its affiliates and each of their officers, directors and employees from and
against any losses, damages, claims, demands, suits, liabilities, fines,
penalties and expenses (including reasonable attorney's fees) arising out of
Contractor's failure to so remove or obliterate.
Subject to the foregoing AT&T's Agreement Representative shall provide to
Contractor, after this Agreement is executed, a letter establishing Contractor's
rights in advertising for hiring of persons for performance of this Agreement.
Contractor shall have the right to disclose that AT&T is a client of Contractor.
Any further information referencing AT&T as client of Contractor must have prior
written approval from the AT&T Agreement Representative.
IMPLEADER
Contractor shall not implead or bring an action against AT&T or its customers or
the employees of either based on any claim by any person for personal injury or
death to an employee of AT&T or its customers occurring in the course or scope
of employment and that arises out of Material (as defined in the CARE AND
CUSTODY OF PROPERTY clause) or services to maintain that Material furnished
under this Agreement.
INDEMNITY
1. All persons furnished by Contractor shall be considered solely Contractor's
employees or agents, and Contractor shall be responsible for payment of all
unemployment, social security and other payroll taxes, including contributions
when required by law. Contractor agrees to indemnify and save harmless AT&T,
its affiliates, its and their customers, and each of their officers, directors,
employees, successors and assigns (all hereinafter referred to in this clause as
"AT&T") from and against any losses, damages, claims, demands, suits,
liabilities, and expenses (including reasonable attorney's fees) that arise out
of or result from third party actions which relate to or are based upon acts or
omissions of Contractor, including but not limited to the following: (1)
injuries or death to persons or damage to property, including theft, in any way
arising out of or occasioned by, caused or alleged to have been caused by or on
account of the performance of the Work or services performed by Contractor or
persons furnished by Contractor; (2) assertions under Workers' Compensation or
similar acts made by persons furnished by Contractor or by any subcontractor of
Contractor, or by reason of any injuries to such persons for which AT&T would be
responsible under Workers' Compensation or similar acts if the persons were
employed by AT&T; (3) any failure on the part of Contractor to satisfy all
valid claims *________________________________________________________________
___________________________________________________________________ or (4) any
failure by Contractor to perform Contractor's obligations under this clause or
the INSURANCE clause. Contractor agrees to defend AT&T, at AT&T's request,
against any such claim, demand or suit. AT&T agrees to notify Contractor within
a reasonable time of any written claims or demands against AT&T for which
Contractor is responsible under this clause.
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 12 OF 23
2. Except as limited by paragraph (3) following, AT&T shall indemnify and save
harmless Contractor, its affiliates, and the officers, directors and employees
of each (all hereinafter referred to in this clause as "Contractor") from and
against 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 AT&T or its affiliates or assigns or the employees or agents of any
of them in connection with its performance under this Agreement. AT&T agrees to
defend Contractor, at Contractor's request, against any such claim, demand or
suit. Contractor agrees to notify AT&T within a reasonable time of any written
claims or demands against Contractor for which AT&T is responsible under this
clause.
3. Contractor has agreed herein to perform certain tasks that are or may be
subject to federal law or regulation. The parties agree that Contractor
undertakes these obligations under federal law and regulation freely and solely.
Accordingly, AT&T's indemnification specifically shall not apply with respect to
any obligation or requirement to which Contractor may be claimed to be or held
to be liable which arises under such federal law or regulation, except for
instructions from AT&T to contact customers (1) for accounts subject to
bankruptcy proceedings, or (2) at the business telephone number of a person
regarding a home account, or (3) at a number causing a third party disclosure,
or (4) at a frequency that involves a violation of applicable law.
INFRINGEMENT
Contractor shall indemnify and save harmless AT&T, its affiliates, its and their
customers, and each of their officers, directors, employees, successors and
assigns (all hereinafter referred to in this clause as AT&T) from and against
any losses, damages, liabilities, fines, penalties, and expenses (including
reasonable attorney's fees) that arise out of or result from any proved or
unproved claim (1) of infringement of any patent, copyright, trademark or trade
secret right, or other intellectual property right, private right, or any other
proprietary or personal interest, and (2) related by circumstances to the
existence of this agreement or performance under or in contemplation of it (an
Infringement Claim). If the Infringement Claim arises solely from Contractor's
adherence to AT&T's written instructions regarding services or tangible or
intangible goods provided to Contractor (Items) and if the Items are not (1)
commercial items available on the open market or the same as such items, or (2)
items of Contractor's designated origin, design or selection, AT&T shall
indemnify Contractor. AT&T 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
AT&T's Representatives shall at all times 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 safe and proper
facilities for such purpose. Such inspection shall not unreasonably interfere
with performance of the Work.
INSURANCE
<PAGE>
AGREEMENT NO. LF9099D
PAGE 13 OF 23
Contractor shall maintain and cause Contractor's subcontractors to 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
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), and (6) Errors
and Omissions professional liability insurance, with limits of at least
$3,000,000. All CGL, automobile liability and All Risk Property insurance shall
designate AT&T Corp., its affiliates, and their officers, directors and
employees (all hereinafter referred to in this clause as "AT&T") 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, 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 AT&T and its customers based on any loss or liability insured under the
foregoing insurance. Contractor and Contractor's subcontractors shall furnish
prior to the start of Work certificates or adequate proof of the foregoing
insurance including, if specifically requested by AT&T, copies of the
endorsements and insurance policies. AT&T shall be notified in writing at least
thirty (30) days prior to cancellation of or any change in the policy.
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 when the
Work has been performed. Contractor shall mail invoices with copies of any
supporting documentation required by AT&T to the address shown in this
Agreement. The Work shall be delivered free from all claims, liens, and charges
whatsoever. *___________________________________________________________________
_____________________________________________________________________________.
Contractor's invoices shall be rendered and paid in accordance with the clause
COMPENSATION contained herein and shall reference Agreement No. LF9099D.
Contractor's invoices shall be sent to AT&T by the 10th calendar day of the
month for Work performed in the proceeding month and 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:
Norene C. Buckstine
AT&T
Room 6147F1
295 North Maple Avenue
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 14 OF 23
Basking Ridge, New Jersey 07920
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 immediately notify AT&T's
Technical and Agreement Representatives 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 AT&T's Technical and Agreement Representatives
and agrees to make all reasonable efforts and take all reasonable action
necessary to immediately settle the matter.
LICENSE TO MEDIA
AT&T hereby grants to Contractor a non-exclusive license to copy, distribute,
display and use the AT&T media for the purpose of training its employees to
perform Work under this Agreement and such media shall be for CACSPLUS training,
Collector training and Intelligent Work Station ("IWS") training, whether such
AT&T media is fixed in any documentary material, photograph, tape, diskette or
other tangible medium of expression furnished under this Agreement by AT&T to
Contractor, and which act would, if unlicensed, constitute or contribute to or
induce an infringement of any copyright or patent licensable by AT&T 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 solely performing Work under this Agreement. The foregoing
license does not include the right of Contractor to grant sublicenses of the
same scope to its affiliates or elsewhere. As used in this paragraph, an
affiliate of a party hereto is a corporation or other legal entity controlled by
or controlling or under common control with that party. Title to any such
documentary material, photograph, tape or other tangible medium of expression
furnished hereunder to Contractor will remain with AT&T and shall be returned to
AT&T upon expiration of this Agreement (if a renewal agreement is not executed
by the parties), termination and/or upon request by AT&T.
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 punitive damages unless imposed by regulatory authority.
C. Neither party shall be liable to the other for any loss or damage resulting
from acts or omissions of the other, or based on information supplied or omitted
by the other.
<PAGE>
AGREEMENT NO. LF9099D
PAGE 15 OF 23
LIQUIDATED DAMAGES AND INCENTIVE PAYMENTS
AT&T and Contractor agrees to enter into good faith negotiations for development
of the Quality Performance Measurement Standards, incorporating applicable
damages to be determined, incentive payments related to such standards, and such
standards shall be developed in final form within twelve months after execution
of this Agreement. In the event no agreement can be settled between the parties
at the end of twelve months, AT&T shall have final decision as to the Direct
Measures of Quality (DMOQs) and the AT&T Standards for performance of the Work
under this Agreement. If the parties do not agree on liquidated damages and/or
incentives to be applied in conjunction with these standards, no such damages or
incentives shall apply and that result shall not be subject to arbitration under
this Agreement. Such standards shall be incorporated in this Agreement by the
AT&T Agreement Representative.
MARKET RIGHTS
It is expressly understood and agreed that this Agreement does not grant to
Contractor an exclusive right or privilege to sell to AT&T any services of the
type described in this Agreement. It is, therefore, understood that AT&T may
contract with other Contractors for the procurement of comparable services. In
addition, AT&T shall at its sole discretion, decide the extent to which AT&T
will market, advertise, promote, support, or otherwise assist in further
offerings of the material or services; however nothing in this sentence shall
be deemed to grant to AT&T further rights than set forth in CONTRACTOR'S
INFORMATION clause.
It is further expressly understood and agreed that Union nor any of its
affiliates shall provide like services to *____________________________________
_______________________________________________________________________________
_______________________________________________________________________________
______________________________, and such notification shall be made to AT&T at
the time Union or any of its appropriate affiliates are selected as a supplier
for such services. In the event of provision of like teleservice activities
*_______________________________________, not only shall Contractor provide a
separate physical teleservice center, but it shall also provide separate and
different local management and teleservice representatives for such services.
Contractor's employees and/or contracted teleservice representatives
performing Work under this Agreement shall not concurrently perform
teleservices for *___________________________________.
*
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 16 OF 23
NOTICES
Any notice or demand which under the terms of this Agreement or under any
statute must be given or made by Contractor or AT&T shall be in writing and
shall be given or made by telegram, confirmed facsimile, or similar
communication or by certified or registered mail addressed to the respective
parties as follows:
To AT&T: Betty I. Brown
AT&T Corp.
Room A135
188 Mount Airy Road
Basking Ridge, New Jersey 07920
With a copy to: Norene C. Buckstine
AT&T
Room 6147F1
295 North Maple Avenue
Basking Ridge, New Jersey 07920
To Contractor: William B. Hewitt
Interactive Performance, Inc.
c/o The Union Corporation
145 Mason Street
Greenwich, CT 06830
With a copy to: Bernard Silver
Allied Bond
1 Allied Drive
Neshaminy Interplex
Trevose, Pennsylvania 19053
The above addresses may be changed at any time by giving prior written notice as
above provided.
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 AT&T itself
or elsewhere, Contractor agrees to provide its full cooperation in the orderly
transition of the Work to AT&T or elsewhere, including, but not necessarily
limited to packing and preparing for shipment of any materials or other
inventory to be transferred, provision of reports, 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 *_________________________________________.
Contractor shall within sixty (60) days after notice by AT&T of a decision to
effect a transition, develop and submit to AT&T for approval by AT&T an orderly
transition plan of the Work to AT&T itself or otherwise and such approval by
AT&T shall be provided to Contractor in writing.
* Portion deleted - confidential treatment requested
<PAGE>
AGREEMENT NO. LF9099D
PAGE 17 OF 23
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 AT&T through its authorized representative shall be made
as soon as reasonably possible.
Neither Contractor nor its employees or agents shall be deemed to be AT&T's
employees or agents. It is understood that Contractor is an independent
contractor engaged to service AT&T's accounts not in default. Contractor is
wholly responsible for withholding and payment of 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 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 AT&T for approval by AT&T. In no
event shall any of Contractor's local employees and local contracted teleservice
representatives performing Work under this Agreement concurrently participate in
like Work for *______________________________________.
RELEASES VOID
Neither party shall require (i) waivers or releases of any personal rights or
(ii) execution of documents which conflict with the terms of this Agreement,
from employees, representatives or customers of the other in connection with
visits to its premises and both parties agree that no such releases, waivers or
documents shall be pleaded by them or third persons in any action or proceeding.
REPRESENTATIVES
AT&T's Technical Representative is Norene C. Buckstine and AT&T's Agreement
Representative is Betty I. Brown or such other persons as may be designated in
writing by AT&T from time to time. Contractor's Representative is Bernard
Silver or such other person as may be designated in writing by Contractor from
time to time.
RIGHT OF ENTRY AND PLANT RULES
Each shall have the right to enter the premises of the other party during normal
business hours with respect to the performance of this Agreement, subject to all
plant rules and regulations, security
* Portion deleted - confidential treatment requested
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AGREEMENT NO. LF9099D
PAGE 18 OF 23
regulations and procedures of which such party is informed and U.S. Government
clearance requirements if applicable. AT&T is not responsible for the
safekeeping of Contractor's property on AT&T premises. Contractor shall provide
and maintain sufficient covering and take any other precautions necessary to
protect AT&T's stock, equipment and other property from damage due to
Contractor's performance of the Work . Visitations at Work site shall not
unreasonably interfere with performance of the Work.
Contractor shall initiate and maintain strict building security for the
protection of AT&T'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 AT&T its security procedures for approval by AT&T.
SERVICE CONTINUITY
Contractor shall use exclusively, and AT&T shall provide at its expense
telecommunications services for the Work hereunder for inbound and outbound
calling. Contractor shall also use exclusively, and AT&T shall provide at its
expense telecommunications circuits in appropriate states for local calling in
the event such local services are offered and allowed by law for AT&T to
provide.
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 AT&T shall be construed and
enforced accordingly.
SURVIVAL OF OBLIGATIONS
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 illustrations only and not limitation, those in the clauses
"COMPLIANCE WITH LAWS, IDENTIFICATION, IMPLEADER, INDEMNITY, INFRINGEMENT,
INSURANCE, RELEASES VOID, USE OF INFORMATION and WARRANTY, shall survive
termination, cancellation or expiration of this Agreement.
TAXES
*
* Portion deleted - confidential treatment requested
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AGREEMENT NO. LF9099D
PAGE 19 OF 23
TERMINATION/EXPIRATION
Termination provisions under this Agreement shall be in accordance with the
following:
A. Termination for Convenience:
AT&T may at any time terminate this Agreement, in whole or in part, by
providing reasonable written notice to Contractor. In such case, AT&T'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.
In the event of such termination for convenience AT&T may *____________________
___________________________________________________, but in any case under such
termination:
(1) AT&T shall assume *_________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
______________________________________________________________________, and
(2) if such termination is less than *______ years, AT&T shall pay *____________
____________________________________________, and
(3) AT&T shall pay *____________________________________________________________
___________________________________________________, and
(4) AT&T shall pay*_____________________________________________________________
____________________________________________________________________________.
Such payment shall constitute a full and complete discharge of AT&T's
obligations to Contractor, subject to the SURVIVAL OF OBLIGATIONS clause.
B. Breach by Contractor:
AT&T 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, AT&T shall provide Contractor ninety (90)
days to cure such breach prior to termination after notice specifying the
alleged breach. During the period of such alleged breach, AT&T may elect to *__
________________________________________________________________________________
___________________________________________. If such breach is cured within the
ninety (90) day period *____________________________________________. In the
event of such termination AT&T's liability to Contractor shall be for *________.
* Portion deleted - confidential treatment requested
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AGREEMENT NO. LF9099D
PAGE 20 OF 23
C. Termination for Default:
AT&T may terminate this Agreement at any time for willful misconduct, gross
negligence, fraud or bankruptcy by Contractor. In such case, AT&T'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. Such payment shall
constitute AT&T full and complete discharge of AT&T's obligations, subject to
the SURVIVAL OF OBLIGATIONS clause. If AT&T elects to assume the operations of
the facility, AT&T shall be responsible for all remaining obligations under the
lease.
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. AT&T shall notify Contractor on or about six (6) months prior to expiration
of this Agreement of its intention to exercise its option to renew or:
(1) Decide not to renew this Agreement and exit the location facility with the
AT&T-provided tools and equipment. In such case AT&T's liability shall be
limited to requirements set forth in Section A of this clause, and Contractor
shall be returned the security deposit under the lease.
(2) Decide not to renew this Agreement and cause the operation of such
facility, including all furnishing, tools and equipment and obligations of the
lease required to perform services of this Agreement to be transferred to AT&T
itself or otherwise in accordance with the ORDERLY TRANSITION clause herein.
Contractor shall have no further obligations under the lease of the facility and
shall have its security deposit returned.
TITLE TO WORK PRODUCTS
All right, title and interest in and to all tangible and intangible work and
work products developed or produced under this Agreement by or on behalf of
Contractor for AT&T, whether comprising or incorporated in campaign strategies,
specifications, drawings, sketches, models, samples, data, computer programs,
reports, documentation or other technical or business information, and all
right, title and interest in and to patents, copyrights, trade secrets,
trademarks and other intellectual property derived from such work and work
products are hereby assigned by Contractor to AT&T and are hereby agreed by
Contractor to be transferred to AT&T or otherwise vested therein, effective when
first capable of being so assigned, transferred or vested. Contractor shall
obligate its employees, subcontractors and others to provide, and shall supply
to AT&T at no extra cost, all such assignments, rights and covenants as AT&T
deems appropriate to assure and perfect such transfer or other vesting. All
work and work products shall be provided to AT&T as required herein or upon
termination or completion of this Agreement, whichever is earlier, unless
Contractor is requested in writing to do otherwise. All such work and work
products shall be considered and arranged to be a "work made for hire" to the
extent allowed by law.
The work and work products developed or produced under this Agreement shall be
the original work of Contractor, unless AT&T's Technical Representative has
consented in writing to the inclusion of work or work products owned or
copyrighted by others (hereafter "included works"). In requesting such
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AGREEMENT NO. LF9099D
PAGE 21 OF 23
consent, Contractor shall notify AT&T of the scope of the rights and permissions
Contractor intends to obtain for AT&T with respect to such included works and
modify the scope of same as requested by AT&T. Copies of all rights and
permissions, clearly identifying the included works to which they apply, shall
be supplied to AT&T promptly after their acquisition.
AT&T shall not acquire title hereunder to any intangible work or work products
preexisting execution of this Agreement and not developed or produced in
anticipation hereof.
Contractor agrees, for itself and its affiliates, not to assert patents and
copyrights owned or controlled by Contractor or any parent thereof or subsidiary
of either against AT&T, its affiliates, and its or their direct or indirect
customers, in connection with any work product or other subject matter directly
or indirectly derived from Work done hereunder.
USE OF INFORMATION
Contractor shall view as AT&T's property any idea, data, program, technical,
business or other intangible information, however conveyed, and any document,
print, tape, disk, tool, or other tangible information-conveying or performance-
aiding article owned or controlled by AT&T, and provided to, or acquired by,
Contractor under or in contemplation of this Agreement ("Information").
Contractor shall and as AT&T directs, destroy or surrender to AT&T promptly at
its request any such article or any copy of such Information. Contractor shall
keep Information confidential and use it only in performing Work under this
Agreement and obligate its employees, subcontractors and others working for it
to do so, provided that the foregoing shall not apply to information previously
known to Contractor free of obligation, or made public through no fault
imputable to Contractor.
Without limiting the generality of any of the foregoing, all Work under this
Agreement shall be considered proprietary. AT&T's name shall not be used as a
reference or in promotional materials, except as provided for in the
IDENTIFICATION clause. Third party tours of the dedicated facility for this
Agreement are prohibited without written permission by AT&T. Contractor may not
distribute, transmit, store, destroy, or disclose proprietary AT&T Information
without the express written permission of AT&T. Guidelines and procedures for
safeguarding AT&T proprietary Information can be found in Corporate Security
Instruction 3.01, and such instructions shall be provided to Contractor by AT&T.
Given that the highly proprietary and confidential nature of the business
information, customer account data, software, plans and other items of the Work
under this Agreement is critical to AT&T's overall marketing and collection
strategy, Contractor acknowledges that monetary damages may not be a sufficient
remedy if there occurs unauthorized disclosure of AT&T's proprietary Information
to anyone other than those with a need to know to perform this Agreement.
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.
<PAGE>
AGREEMENT NO. LF9099D
PAGE 22 OF 23
WARRANTY
Contractor warrants that the Work will proceed with promptness and diligence and
shall be executed in a first class workmanlike manner, in accordance with the
highest professional standards in the field.
WORK DONE BY OTHERS
If any part of the Work is dependent upon Work done by others, Contractor shall
inspect and promptly report to AT&T's Representative any defect that renders
such other Work unsuitable for Contractor's proper performance. Contractor's
silence shall constitute approval of such other Work as fit and suitable for
Contractor's performance.
IN WITNESS WHEREOF, Contractor and AT&T have executed this Agreement in
duplicate on the day and year below written.
INTERACTIVE PERFORMANCE, INC. AT&T CORP.
By: /s/ Bernard Silver By: /s/ P.A. Cox
--------------------------- -----------------------------------
(Signature) (Signature)
President Global Procurement Director
Bernard Silver P.A. Cox
_________________________________ ________________________________________
(Name & Title Typed or Printed) (Name & Title Typed or Printed)
January 19, 1996 December 29, 1995
_________________________________ ________________________________________
(Date) (Date)
<PAGE>
AGREEMENT NO. LF90990
PAGE 23 OF 23
The Union Corporation hereby guarantees the performance of all obligations,
services and duties of Interactive Performance, 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
---------------------------------
(Name & Title Typed or Printed)
January 19, 1996
---------------------------------
(Date)
