<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ 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 September 30, 1997 Commission File Number 1-5371
------------------ ------
The Union Corporation
-------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 25-0848970
------------------------------ -------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
211 King Street, Charleston, SC 29401
--------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(803) 958-3800
-------------------------------------------------
(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 _________
---------
5,798,965 Common shares were outstanding as of November 7, 1997
--------- -----------------------
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
Index to Condensed Consolidated
Financial Statements and Exhibits
Part I. Financial Information: Page
-------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
September 30, 1997 (Unaudited) and
June 30, 1997 3
Condensed Consolidated Statements of
Operations (Unaudited), for the Three
Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of
Cash Flows (Unaudited), for the Three
Months Ended September 30, 1997 and 1996 5
Condensed Consolidated Statement of
Shareholders' Equity (Unaudited), for
the Three Months Ended September 30, 1997 6
Notes to Condensed Consolidated
Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations (Unaudited) 8 - 11
Part II. Other Information (Unaudited):
Item 1. Legal Proceedings 12 - 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1997 (Unaudited) and June 30, 1997
(In thousands)
September 30, June 30,
1997 1997
-------- --------
ASSETS
------
Current assets:
Cash $ 10,902 $ 11,574
Short-term investments, at cost,
which approximates market 41,346 37,804
Accounts receivable, trade, less allowance
for doubtful accounts of $737 and $681 10,770 10,214
Prepaid expenses and other current assets 3,965 3,842
-------- --------
Total current assets 66,983 63,434
Property, buildings and equipment, net 8,264 8,323
Cost of intangible assets from businesses acquired,
less accumulated amortization of $10,895 and $10,532 47,660 48,023
Other assets and deferred charges 3,574 3,490
Deferred income taxes 2,499 2,749
-------- --------
Total assets $128,980 $126,019
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 3,013 $ 3,406
Accrued expenses 17,727 18,015
Income taxes payable 1,783 866
Current portion of long-term debt 236 259
-------- --------
Total current liabilities 22,759 22,546
Long-term debt 20,331 20,379
Other liabilities 11,619 11,482
-------- --------
Total liabilities 54,709 54,407
-------- --------
Shareholders' equity:
Common stock, $.50 par value; authorized shares,
15,000; issued shares 8,742 and 8,696 4,371 4,348
Additional paid-in capital 45,965 45,272
Retained earnings 60,830 58,887
Less treasury stock, at cost, 2,945 and 2,945 shares (36,895) (36,895)
-------- --------
Total shareholders' equity 74,271 71,612
-------- --------
Total liabilities and shareholders' equity $128,980 $126,019
======== ========
3
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
For the Three Months Ended September 30, 1997 and 1996
(Dollars in thousands, except per share amounts)
1997 1996
-------- --------
Operating revenues $31,429 $28,741
------- -------
Expenses:
Operating expenses 20,659 19,165
Selling, general and administrative expenses 6,412 5,670
Depreciation and amortization 1,129 1,164
------- -------
Total expenses 28,200 25,999
------- -------
Operating income 3,229 2,742
Interest expense (366) (350)
Interest income 606 389
------- -------
Income before income taxes 3,469 2,781
Provision for income taxes 1,526 1,224
------- -------
Net income $ 1,943 $ 1,557
======= =======
Primary and fully diluted net income $ .33 $ .26
per common share ======= =======
Average number of common and common equivalent
shares outstanding:
Primary 5,963,644 5,909,201
Fully diluted 5,963,730 5,913,479
4
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended September 30, 1997 and 1996
(In thousands)
1997 1996
------- -------
Cash Flows From Operating Activities:
Net income $ 1,943 $ 1,557
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 1,129 1,164
Deferred compensation expense 103 108
Provision for doubtful accounts 72 173
Provision for deferred income taxes 250 900
Changes in assets and liabilities:
Accounts receivable - (increase) (628) (1,437)
Prepaid expenses and other current assets - (increase) (123) (151)
Other assets and deferred charges - (increase) (84) (18)
Accounts payable and accrued expenses - (decrease) (681) (6,031)
Income taxes payable - increase (decrease) 1,099 (294)
Other liabilities - increase 34 35
------- -------
Net cash provided by (used by) operating activities 3,114 (3,994)
------- -------
Cash Flows From Investing Activities:
Capital expenditures (711) (1,241)
Additional purchase price related to the
purchase of Allied Bond & Collection Agency - (67)
Other 4 6
------- -------
Net cash (used by) investing activities (707) (1,302)
------- -------
Cash Flows From Financing Activities:
Principal payments on long-term debt (32) (30)
Principal payments on capital lease obligations (39) (36)
Fair market value of shares of common stock received
from an optionee to satisfy withholding tax obligation - (868)
Proceeds from the exercise of stock options 534 332
------- -------
Net cash provided by (used by) financing activities 463 (602)
------- -------
Net increase (decrease) in cash and short-term investments 2,870 (5,898)
Cash and short-term investments at June 30 49,378 43,163
------- -------
Cash and short-term investments at September 30 $52,248 $37,265
======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 350 $ 351
Income taxes paid 177 618
5
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity (Unaudited)
For the Three Months Ended September 30, 1997
(Dollars in thousands)
Additional
Common paid-in Retained Treasury
stock capital earnings stock
------- ---------- -------- ----------
Balance at June 30, 1997 $4,348 $45,272 $58,887 $(36,895)
Net income - - 1,943 -
Proceeds from common stock issued
upon exercise of stock options
(45,834 shares) 23 693 - -
------ ------- ------- ---------
Balance at September 30, 1997 $4,371 $45,965 $60,830 $(36,895)
====== ======= ======= =========
6
<PAGE>
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, 1997.
1. Discontinued Operations
-----------------------
The Company reached agreements with the federal government in January
1996, subject to certain agency approvals and final approval by the Court, which
approvals were given in August 1996, to settle the previously reported matters
involving false pricing information and claims made by certain senior officers
of the Company's former Gichner Systems Group division (the "Gichner Division").
In accordance with the agreements, which recognize the Company's co-operation in
and substantial contribution to the investigation of these matters, the Company
fulfilled its commitment to make compensation for the government's civil claims
by paying $5,550,000 in September 1996. The Company also accepted
responsibility for the actions of the officers of the former Gichner Division by
entering a plea of guilty under the federal False Claims Act, although those
actions were concealed from the management of the Company, and paid a fine of
$250,000 in August 1996. As previously reported, the Company recorded a
$3,000,000 loss provision ($2,065,000 net of tax benefit), or $.36 loss per
share, during fiscal 1996 for its Discontinued Operations, which provision,
combined with amounts previously reserved in connection with these matters,
covered all costs of the above settlements with the government, and included an
accrual for the estimated legal and accounting fees related to the government
claims and other costs related to certain discontinued operations of the
Company, all of which were terminated or otherwise disposed of prior to fiscal
1990. See Part II, Item 1 of this Form 10-Q for additional information
regarding these discontinued operations and claims in connection with the sale
of the former Gichner Division.
2. Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which establishes new standards for computing and presenting earnings per
share. SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Management does not believe
that the implementation of SFAS 128 will have a material impact on the Company's
per share amounts.
7
<PAGE>
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
September 30, 1997 with cash and short-term investments totaling $52,248,000,
working capital of $44,224,000 and net worth of $74,271,000. During the three
months ended September 30, 1997, the net cash provided by operating activities
was $3,114,000 compared to a net cash used by operating activities of $3,994,000
a year ago. This increase was principally the result of the $5,800,000
aggregate payment made to the federal government in the prior year regarding the
matters involving the former Gichner Division of the Company (See Note 1 of
Notes to Condensed Consolidated Financial Statements and the section titled
"Gichner Systems Group Division" of Part II, Item 1 of this Form 10-Q for
additional information). Excluding the aggregate payment to the federal
government in the prior year, the net cash provided by operating activities
increased by $1,308,000 compared to a year ago. This increase was principally
the result of improved operating results, a year-over-year improvement of
approximately $800,000 in cash generated from accounts receivable from clients
and a decrease of approximately $450,000 in income taxes paid due to the timing
of the payments.
The Company's capital spending during the three months ended September
30, 1997 was $711,000 compared with $1,241,000 a year ago. This decrease was
principally attributable to the purchase of computer and office equipment and
leasehold improvements in the first fiscal quarter last year by Interactive
Performance, Inc. ("Interactive Performance") and High Performance Services,
Inc. ("High Performance Services"), primarily in connection with the start-up of
the new outsourcing businesses.
As of November 7, 1997, the Company holds approximately 2,945,000
shares of its common stock at an aggregate cost of approximately $36,895,000.
Future purchases, if any, by the Company of its common stock will be made with
currently available funds and/or funds generated from operations.
In December 1992, the Company completed the acquisition of Allied Bond
& Collection Agency ("Allied Bond") for an initial purchase price of
approximately $40,300,000. In addition, contingent payments not to exceed
approximately $8,300,000 may be payable by the Company based upon Allied Bond
attaining certain earnings levels over the five and one-half year period ending
June 30, 1998. As of September 30, 1997, approximately $1,131,000 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 revolving line of
credit furnished by a bank (the "Credit Agreement") that currently converts to a
three year term loan on December 31, 1998.
Under the current terms of the Credit Agreement, the aggregate
principal amount outstanding, which is limited to a maximum of $20,000,000,
under the revolving line of credit on December 31, 1998 must be repaid by the
Company in twelve quarterly installments commencing March 31, 1999
8
<PAGE>
and ending December 31, 2001. Each of the first eleven installments must be in
an amount equal to one-twentieth of the outstanding loan balance on December 31,
1998, with the twelfth installment equal to the amount necessary to repay the
then unpaid principal amount of the loan. The loans bear interest, at the
Company's option, at either the bank's base rate, which is announced by the bank
from time to time; or at 3/4% above the bank's Eurodollar rate during both the
revolving and term loan periods. The interest rate, which is reset periodically,
on the revolving term loan was approximately 6.8% at September 30, 1997.
The maximum amount of letters of credit that the bank will issue under
the Credit Agreement is currently limited to $8,000,000. As of November 7,
1997, the Company was contingently liable for outstanding letters of credit
aggregating approximately $3,725,000 which reduced the amount currently
available for letters of credit under the Credit Agreement to approximately
$1,275,000.
Pursuant to an amended and restated 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, together with certain other
amounts, be paid to the Chairman at the time of his retirement. The discounted
net present value of the deferred compensation at September 30, 1997 was
approximately $3,700,000, which amount is included in "Other liabilities" in the
Condensed Consolidated Balance Sheet. The Chairman's Employment Agreement
expires December 31, 1998 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 the
remainder of his life. The discounted net present value of the aggregate
consulting fees was approximately $3,700,000 at September 30, 1997, which will
be expensed as the services are rendered.
In accordance with the employment agreement dated July 1, 1995 with
the chairman of a subsidiary of the Company, the subsidiary deposited
approximately $1,500,000 into a trust during fiscal 1996, which represented the
deferred bonuses, and related interest, previously earned by the chairman. In
accordance with the agreement, the chairman withdrew $250,000 in January 1996
and may withdraw $250,000 each January thereafter until the entire amount
deposited in the trust, including all earnings and net of any losses, has been
paid. The chairman may also withdraw the balance remaining in the trust upon
retirement. As of September 30, 1997, $250,000 of the balance remaining in the
trust is included in the Condensed Consolidated Balance Sheet in "Prepaid
expenses and other current assets" and the remainder of the balance in the trust
is included in "Other assets and deferred charges".
The Company and its 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.
9
<PAGE>
Management believes that reserves established to meet known and
potential environmental liabilities for the pending environmental proceedings
referred to in the section titled "Environmental Matters" of Part II, Item 1 of
this Form 10-Q are adequate based on current information. 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
12 will have a material adverse impact on the Company's future results of
operations. However, there is no way to be certain that future developments
relating to the environmental matters, or the matters involving the Company's
former Gichner Systems Group division described in Part II, Item 1 of this Form
10-Q, will not involve additional substantial costs that may require future
charges to the Discontinued operations loss provision.
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, stock repurchases and capital
expenditure requirements.
Three Months Ended September 30, 1997 vs. Three Months Ended September 30, 1996
- --------------------------------------------------------------------------------
Operating Revenues
- ------------------
Operating revenues increased by 9% to $31,429,000 for the three months
ended September 30, 1997 compared with $28,741,000 for the three months ended
September 30, 1996 representing the highest first quarter revenues achieved by
the Company since it became a pure financial services company in fiscal 1989.
This increase was attributable to increases at Allied Bond, Interactive
Performance, High Performance Services and Capital Credit Corporation ("Capital
Credit"). Revenues at Transworld Systems Inc. ("Transworld Systems") were
$14,800,000 for the three months ended September 30, 1997 compared with
$14,885,000 a year ago. Allied Bond reported a 17% increase in revenues for the
three months ended September 30, 1997, compared with a year ago, which
represents the highest level of revenues achieved in the first quarter by Allied
Bond since it was acquired in December 1992. Revenues at Capital Credit
increased by 2% for the three months ended September 30, 1997, compared with a
year ago.
Operating Expenses
- ------------------
Operating expenses increased by $1,494,000 for the three months ended
September 30, 1997 compared with the three months ended September 30, 1996. The
increase was attributable to an increase in operating expenses at Allied Bond,
which expenses increased at a rate proportionately less than the rate of
increase in revenues at Allied Bond, and increases in operating expenses at
Interactive Performance and High Performance Services, which expenses increased
at rates that were proportionately the same as the rates of increases in
revenues at the respective subsidiaries. Operating expenses at Transworld
Systems and Capital Credit were essentially unchanged compared with a year ago.
10
<PAGE>
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased by $742,000 for
the three months ended September 30, 1997 compared with the three months ended
September 30, 1996. The increase was attributable to increases in expenses at
Transworld Systems, Allied Bond, Interactive Performance and the Corporate
office, partially offset by slight decreases in expenses at Capital Credit and
High Performance Services. The increase in Corporate office expenses primarily
resulted from increases in professional fees and expenses related to the
relocation of the Corporate office to South Carolina.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expenses decreased by $35,000 for the
three months ended September 30, 1997 compared with the three months ended
September 30, 1996 due to decreases in depreciation expense at Transworld
Systems and Capital Credit, partially offset by increases in depreciation
expense at Interactive Performance, Allied Bond and High Performance Services.
Operating Income
- ----------------
Operating income increased by 18% to $3,229,000 for the three months
ended September 30, 1997 compared with $2,742,000 for the three months ended
September 30, 1996 representing the highest first quarter operating income
achieved by the Company since it became a pure financial services company in
fiscal 1989. This increase was attributable to increases at Allied Bond,
Capital Credit, Interactive Performance and High Performance Services, partially
offset by an increase in Corporate office expenses. Transworld Systems reported
operating income, before amortization of goodwill, of $3,213,000 for the three
months ended September 30, 1997 compared with $3,314,000 a year ago and
continued to maintain a strong operating margin, which was approximately 21%,
after amortization of goodwill, for the three months ended September 30, 1997.
Operating income at Allied Bond increased significantly for the three months
ended September 30, 1997 and was more than 50% higher than any first quarter
level previously achieved by Allied Bond since it was acquired in December
1992. Operating income at Capital Credit also increased significantly for the
three months ended September 30, 1997 compared with a year ago and represents
the highest first quarter operating income ever reported by Capital Credit.
Interest Expense and Interest Income
- ------------------------------------
Interest expense increased by $16,000 for the three months ended
September 30, 1997 compared with a year ago. Interest income increased by
$217,000 for the three months ended September 30, 1997 compared with a year ago,
principally due to higher short-term investment balances. During the three
months ended September 30, 1997 and 1996, the Company primarily invested in
commercial paper with short-term maturities and overnight time deposits.
Income Taxes
- ------------
The Company's effective income tax rate was 44% for the three months
ended September 30, 1997 and 1996.
11
<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 certain subsidiaries are parties to a
number of lawsuits arising in the ordinary course of business.
A lawsuit was brought in 1993 by three individuals engaged by
Transworld Systems as independent contractors, in which it was alleged that
Transworld Systems had improperly treated the plaintiffs as independent
contractors rather than employees. All of the asserted claims were dismissed by
the Court in 1996 with prejudice.
Some of the same persons and others have also brought suit against
Transworld Systems and certain of its directors and officers alleging breach of
contract and mental distress as a result of Transworld Systems' failure to
supply plaintiffs with certain business information, including copies of a
monthly publication distributed by Transworld Systems. Several persons have
also brought suit alleging wrongful termination. Transworld Systems prevailed
in a jury trial in 1997, and all of these claims have been dismissed.
Eight purported class actions are currently pending against Transworld
Systems, two of which also name the Company as a defendant, and one alleged
class action is currently pending against Allied Bond, which actions have been
brought by debtors who received written collection notices from either
Transworld Systems or its Credit Management Services division, or Allied Bond,
respectively. Plaintiffs in these actions allege that such letters violated
various provisions of the federal Fair Debt Collection Practices Act or
comparable state regulations. Allied Bond has agreed to settle the action
brought against it for an immaterial amount, subject to court approval. A
United States Magistrate Judge appointed in one of the alleged class actions
against Transworld Systems has, upon motion of Transworld Systems, recommended
that the District Court Judge in the case grant summary judgment in favor of
Transworld Systems. The claims in the seven other purported class actions
against Transworld Systems have been reviewed by counsel to Transworld Systems
and, based on their assessment, management has concluded that the claims are of
questionable merit. Transworld Systems intends to vigorously defend each of
these actions.
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.
12
<PAGE>
Gichner Systems Group Division:
In 1989 the Company sold the assets and business of the Company's
former Gichner Systems Group division (the "Gichner Division") to Gichner
Systems Group, Inc. (the "Purchaser") and, accordingly, reflected the Gichner
Division as a discontinued operation in the Company's Consolidated Statements of
Operations. In 1991 the Purchaser informed the Company that false pricing
information might have been supplied by former officers of the Gichner Division,
who were also members of the group that purchased the Gichner Division from the
Company and who were officers of the Purchaser, in connection with certain
government contracts negotiated prior to the sale. After investigation, those of
the former officers who were then working for the Purchaser were terminated for
cause by the Purchaser, and the Company and Purchaser tendered to the Department
of Defense a report of the results of their investigation.
The Purchaser, which pled guilty to obstruction of justice as a result
of its hindrance of the government's investigation and its destruction of
documents related to this matter, commenced suit against the Company in which it
alleged 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 and intends to vigorously defend this action.
Although management believes the reserve established for this matter is
adequate, based on current information, there is no way to be certain that
future developments will not involve additional substantial costs that may
require future charges to the Discontinued operations loss provision. The
Company does not anticipate, based on current information, that the resolution
of this matter will have a material adverse impact on the Company's overall
financial condition given its available cash and short-term investments.
Two former officers of the Gichner Division filed suit against the
Company for retirement benefits that the Company terminated when their alleged
misconduct was reported to the Company. All of their claims, and their refiled
claims, have been dismissed by the Court. The Company has counterclaimed for
damages resulting from the misconduct of the two former officers of the Gichner
Division. Appeals are pending in these matters. The estate of a third former
officer of the Gichner Division filed suit against the Company for similar
claims, all of which have been dismissed by the Court.
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.
13
<PAGE>
One group of the Company's known environmental proceedings relates to
Superfund or other sites where the Company's liability arises from arranging for
the disposal of allegedly hazardous substances in the ordinary course of prior
business operations. In most of these "generator" liability cases, the Company's
involvement is considered to be de minimus (i.e. a volumetric share of
approximately 1% or less) and in each of these cases the Company is only one of
many potentially responsible parties. From the information currently available,
there are a sufficient number of other economically viable participating parties
so that the Company's projected liability, although potentially joint and
several, is consistent with its allocable share of liability. At one "generator"
liability site, the Company's involvement is potentially more significant
because of the volume of waste contributed in past years by a currently inactive
subsidiary. Insufficient information is available regarding the need for or
extent and scope of any remedial actions which may be required. The Company has
recorded what it believes to be a reasonable estimate of its potential
liability, based on current information, for this site.
The second group of matters relates to environmental issues on
properties currently or formerly owned or operated by a subsidiary or division
of the Company. These cases generally involve matters for which the Company or
an inactive subsidiary is the sole or primary responsible party. In one such
case, however, although the affected subsidiary fully performed a settlement
with the federal government, the government has reopened the matter. A group of
financially solvent responsible parties has completed an extensive investigation
of this Superfund site under a consent order with the EPA and submitted Remedial
Investigation and Feasibility Study Reports (the "Reports") to the EPA, which
outline a range of various remedial alternatives for the site. The EPA issued a
proposed plan which was subject to public comment. The Company's environmental
counsel retained several reputable environmental consulting firms to review and
evaluate the Reports and proposed plan. The findings of these experts indicated
that many of the assumptions, purported facts and conclusions contained in the
Reports and proposed plan are significantly flawed. These findings have been
submitted to the EPA to challenge the perceived need for and the extent of the
proposed additional remediation. As previously reported, the Company recorded
an $8,000,000 loss provision during fiscal 1995 for costs related to certain of
its discontinued operations, all of which were terminated or otherwise disposed
of prior to fiscal 1990, which included a provision of approximately $4,000,000
for environmental matters. Notwithstanding the foregoing and the Company's
denial of liability because of the prior settlement with the government, the
provision for environmental matters included the estimated legal and consulting
costs for this and other sites involving the Company or an inactive subsidiary,
the estimated costs to defend the Company's aforementioned settlement with the
government regarding this site, and the estimated remediation costs that the
Company will incur, based on current information, if its prior settlement with
the government is not upheld in court. However, the Company may be exposed to
additional substantial liability for this site as additional information becomes
available over the long-term. A better estimate of costs associated with any
further remediation to be taken at the site cannot be made until a Record of
Decision is issued by the EPA, which is expected to be issued within the next
twelve months. 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.
14
<PAGE>
It is the Company's policy to comply fully with all laws regulating
activities affecting the environment and to meet its obligations in this area.
In many "generator" liability cases, reasonable cost estimates are available on
which to base reserves on the Company's likely allocated share among viable
parties. Where insufficient information is available regarding projected
remedial actions for these "generator" liability cases, the Company has recorded
what it believes to be reasonable estimates of its potential liabilities.
Reserves for liability for sites on which former operations were conducted are
based on cost estimates of remedial actions projected for these sites. All known
environmental claims are periodically reviewed by the Company, where information
is available, to provide reasonable assurance that adequate reserves are
maintained. Reserves recorded for environmental liabilities are not net of
insurance or other expected recoveries. Other than the aforementioned loss
provision that was recorded by the Company during fiscal 1995, no significant
expenses related to environmental matters were recorded by the Company during
the three months ended September 30, 1997 or the three years ended June 30, 1997
due to the adequacy of previously recorded reserve balances based on information
available at that time. Management believes that reserves established to meet
known and potential environmental liabilities are adequate based on current
information. The Company does not anticipate, based on current information, that
the resolution of these matters will have a material adverse impact on the
Company's overall financial condition given its available cash and short-term
investments. However, there is no way to be certain that future developments
relating to environmental matters will not involve additional substantial costs
that may require future charges to the Discontinued operations loss provision.
Item 6. Exhibits and Reports on Form 8-K:
- -----------------------------------------
(a) Exhibits:
--------
Exhibit No. 10(a) - Amended and Restated Employment Agreement between The
Union Corporation and Melvin L. Cooper, dated as of
July 1, 1997.
Exhibit No. 10(b) - Amendment to Employment Agreement between The Union
Corporation and William B. Hewitt, dated as of July
1, 1997.
Exhibit No. 10(c) - Amendment to Employment Agreement between The Union
Corporation and Nicholas P. Gill, dated as of July 1,
1997.
Exhibit No. 11 - Computation of Primary and Fully Diluted Earnings Per
Share (Unaudited)
Exhibit No. 27 - Financial Data Schedule (Unaudited)
(b) Reports on Form 8-K:
-------------------
There were no reports on Form 8-K filed for the three months ended
September 30, 1997.
15
<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: November 13, 1997 By: William B. Hewitt
--------------------------
William B. Hewitt
President
(Chief Executive Officer)
Date: November 13, 1997 By: Nicholas P. Gill
--------------------------
Nicholas P. Gill
Executive Vice President,
Treasurer and Secretary
(Chief Financial Officer)
16
<PAGE>
EXHIBIT 10 (a)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is made
and entered into as of the 1st day of July, 1997 by and between THE UNION
CORPORATION, a Delaware corporation (the "Company"), and MELVIN L. COOPER (the
"Employee"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Company and Employee are parties to an Amended and Restated
Employment Agreement dated as of November 10, 1988 (the "Amended Employment
Agreement"), pursuant to which, among other things, Employee agreed to serve as
Chairman of the Board and Chief Executive Officer of Company upon the terms set
forth therein; and
WHEREAS, Employee has continuously served as Chairman of the Board and
Chief Executive Officer of the Corporation until the date hereof; and
WHEREAS, said parties have further amended the Amended Employment Agreement
pursuant to Amendments dated September 13, 1990, September 1, 1992, March 15,
1995 and November 14, 1996; and
WHEREAS, Company and Employee desire to make certain further amendments
thereto as set forth herein and restate in its entirety the Amended Employment
Agreement;
NOW, THEREFORE, intending to be legally bound and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Company and Employee hereby amend and restate in its entirety the Amended
Employment Agreement as follows:
1. Employment and Duties.
---------------------
(a) From and after the date of this Agreement and continuing through the
Term of Active Employment (as hereinafter defined), Employee shall serve as
Chairman of the Board of Company and his duties hereunder shall consist of
presiding at all meetings of the Board of Directors of Company and its
stockholders, and he shall have such other powers and duties as from time to
time may be assigned to him by the Board of Directors.
(b) At the request of Employee and throughout the Term of Service (as
hereinafter defined), Company will provide Employee with an office and a private
secretary of his choosing in New York City (or other location in the United
States designated by him) commensurate with his responsibilities as determined
by Employee.
<PAGE>
2. Term of This Agreement; Term of Service; Term of Active Employment.
------------------------------------------------------------------
(a) Employee's employment under this Agreement commenced as of January 1,
1986 and shall continue hereunder until December 31, 1998 (hereinafter called
the "Term of Active Employment").
(b) The phrase "Term of Service" shall mean the Term of Active Employment,
together with the period thereafter in which Employee provides consulting
services hereunder pursuant to Section 7.
(c) The phrase "Term of this Agreement" shall mean that period ending at
the end of the Term of Service, or upon the termination of this Agreement in
accordance with any of its terms, whichever first occurs.
3. Place of Employment. Employee shall be employed in New York City (or other
-------------------
location in the United States designated by him), subject to necessary travel on
Company business as determined by Employee.
4. Directorships. During the Term of this Agreement, at Employee's request,
-------------
Employee shall be nominated by the management of Company for election as a
director of Company at each annual meeting of shareholders at which his term of
office as a director shall expire. At Employee's request, during the Term of
Active Employment, Company shall cause Employee to be elected to the Board of
Directors of each of its subsidiaries.
5. Restrictive Covenants.
---------------------
(a) Employee covenants and agrees that during the Term of this Agreement:
(i) and for a period of two (2) years thereafter he shall not (except to
the extent approved by the Board and except in the good faith performance of his
duties on behalf of Company or any Affiliate (as such term is hereinafter
defined)) disclose to any person, corporation, firm, partnership or other entity
whatsoever (except Company or any of its Affiliates) or any officer, director,
stockholder, partner, associate, employee, agent or representative of any such
covered person, corporation, firm, partnership or other entity, any
"Confidential Information". Confidential Information shall mean information
received by Employee during the course of his employment by Company relating to
the business and affairs of Company or any of its Affiliates, including, without
limitation, information concerning their customers, prospective customers,
facilities, equipment, lease arrangements, staff, trade secrets, discoveries,
ideas, methods, surveys, research and any other information relating to the
business and objectives of Company and its Affiliates. Confidential Information
shall not include information which (A) becomes generally available to the
public other than as a result of a disclosure by Employee, (B) was available to
Employee on a non-confidential basis prior to its disclosure to him by Company
or any of its Affiliates or (C) becomes available to Employee on a non-
confidential basis from a source other than Company or any of its Affiliates,
provided that such source is not bound by a confidentiality agreement with
Company and any of its Affiliates. "Affiliate" for purposes of this Agreement
shall mean, with respect to Company, any person, firm or corporation directly or
indirectly controlled by, controlling or under common control with Company.
-2-
<PAGE>
(ii) he shall exercise reasonable precautions to protect the integrity of
customer and prospective customers lists, agreements, contracts or any other
documents embodying any confidential information and, upon termination of the
Term of Service, he shall return to Company all such documents (and copies
thereof) in his possession or control.
(iii) and for two years thereafter he shall not, in any way, be engaged,
directly or indirectly, in the United States, as an employee, partner,
proprietor, officer, director, consultant, agent, or stockholder of any
corporation, partnership, proprietorship or other form of business entity, which
is engaged in substantially the same line of business as any business carried on
by Company at the time of such termination and thereafter continued during said
two year period. The foregoing notwithstanding, Employee may own, as an
inactive investor, securities of any competitor corporation of a class either
(1) listed on any United States securities exchange or (2) traded on the over-
the-counter market in the United States and listed on any generally accepted
quotation service, so long as his holdings in any one such corporation shall
not, in the aggregate, cost Employee in excess of $200,000 or constitute more
than 5% of the voting stock of such corporation;
(iv) and for two years thereafter he shall not seek to persuade any
director, officer or employee of Company or any Affiliate to discontinue such
person's status or employment with Company or such Affiliate, nor to become
employed in any activity similar to or competitive with the activities described
in (iii) above, nor will he hire or retain any such person, nor will he solicit
or cause or authorize, directly or indirectly, to be solicited, for or on behalf
of himself or any third party, any such business from others who are, at any
time within two years prior to the termination of this Agreement, customers of
Company; provided that the foregoing shall not be construed to derogate from
Employee's authority to terminate or otherwise deal with employees of Company or
its subsidiaries who are subordinate to him.
(b) The provisions of subsections 5 (a) (iii) and (iv) hereof to the
contrary notwithstanding, if this Agreement is terminated by reason of a breach
by Company, the restrictions contained therein shall end upon such termination.
(c) If any of the restrictions contained in this Section 5 shall for any
reason be held by a court of competent jurisdiction to be excessively broad as
to duration, geographical scope, activity or subject, such restrictions shall be
construed so as to thereafter be limited or reduced to be enforceable to the
extent compatible with the applicable law as it shall then appear; it being
understood that by the execution of this Agreement the parties hereto regard
such restrictions as reasonable and compatible with their respective rights.
(d) Employee acknowledges that were he to breach the provisions of this
Section 5, the damages to Company and its Affiliates would be irreparable, and
therefore he agrees that, in addition to provable damages and reasonable
attorneys' fees, Company and its Affiliates shall be entitled to seek equitable
relief to enforce their rights hereunder, provided, however, that in the event
-------- -------
of a breach of the provisions of this Section 5 by Employee subsequent to his
discharge Without Cause resulting from a Change of Control Event (as defined in
Section 10 (b) of this Agreement), the sole relief to which Company and its
Affiliates shall be entitled in respect of such breach is specific performance
by Employee.
-3-
<PAGE>
(e) Anything contained herein to the contrary notwithstanding, if Employee
is discharged Without Cause resulting from a Change of Control Event, the
restrictions and obligations imposed on Employee by this Section 5 shall remain
in effect until Employee's death, except that the provisions of subsection 5 (a)
(iv) shall not be deemed to prevent Employee from hiring or retaining any person
who was a director, officer or employee of Company on or before the date of
Employee's discharge.
6. Compensation.
-------------
(a) Commencing January 1, 1986 and continuing until December 31, 1998 or
the termination of the Term of Active Employment, whichever first occurs,
Company shall pay or cause to be paid to Employee an aggregate minimum annual
salary of $225,000 for all his services to Company and its subsidiaries. Such
salary shall increase each year by not less than the adjustment required to
match any increase in the Consumer Price Index or its equivalent. Such salary
shall be increased accordingly but shall not thereafter be decreased without the
written consent of Employee. As of 1 July 1997 Employee's annual salary is
$349,260, payable at the monthly rate of $29,105. As used herein, "Salary"
shall mean the salary at its rate at the time of measurement as it shall have
been increased pursuant hereto.
(b) In addition to the salary payable pursuant to subsection (a) hereof,
Employee shall be paid a bonus (the "Bonus") not later than 75 days after the
end of each fiscal year of Company (a fiscal year of the Company is a
consecutive twelve (12) month period ending on 30 June) (such ended fiscal year
herein called the "Bonus Year") equal to
(i) ten percent (10%) of the amount by which the Consolidated Pre-tax
Income of Company (as defined below) of the Bonus Year during the Term of Active
Employment exceeds the opening consolidated net worth of Company at the
commencement of the Bonus Year, times
(ii) the average coupon equivalent rate during the Bonus Year for 13 week
Treasury Bills of the United States Treasury Department based upon the rate
reported by the Treasury Department in the weekly auctions.
Consolidated Pre-tax Income of Company shall mean the consolidated pre-tax
income of the Company and all of its subsidiaries computed without regard to
unusual, nonrecurring gains or losses not resulting from current operations of
Company and its operating subsidiaries or charges or reserves for liabilities
attributable to discontinued operations.
The Bonus shall not exceed, in respect of any Bonus Year, 100% of the
compensation paid to Employee pursuant to subsection (a) above during such Bonus
Year. The Bonus shall be pro-rated if Employee is employed only during a
portion of a Bonus Year. If Employee is prevented from performing his duties
hereunder as a result of Disability (as hereinafter defined) for a period in
excess of 365 consecutive days, the Bonus shall be pro-rated by treating any
period of such excess as a period when Employee is not employed, but solely for
the purpose of computing the Bonus.
(c) As Employee has been employed pursuant to the Agreement for not less
than three (3) calendar years, Employee shall be entitled to an annual pension
(the "Pension") equal
-4-
<PAGE>
to fifty percent (50%) of the highest aggregate annual compensation paid and
credited to him pursuant to subsections 6(a) and (b) hereof during the last
three (3) calendar years of his Term of Active Employment. As used in Sections
6 (c) and 7 (b), aggregate annual compensation shall include Salary and Bonus as
described in subsections 6 (a) and (b) above, but shall not include fringe
benefits or income realized as a result of the exercise of stock options or
settlement rights. The Pension shall be payable as provided in subsection 11
(c) (iv) or Sections 13 and 14 of this Agreement.
(d) During the Term of Active Employment:
(i) Company authorizes Employee to incur such expenses as are reasonable
and proper in the conduct of Company's business, and Company shall reimburse him
monthly for such expenses upon submission of a reasonably detailed accounting
thereof, with appropriate substantiation.
(ii) Company shall provide to Employee at his request for his use one late
model luxury automobile and shall pay all expenses in connection therewith,
including garage, insurance, maintenance and repair, or shall reimburse him for
all business use of an automobile owned by him.
(iii) At Employee's request, Company shall pay for his membership in two
social clubs deemed by him to be useful for the conduct or enhancement of
Company business.
(iv) Company shall compensate Employee annually an amount not exceeding 10%
of his Salary for the cost of legal and accounting services rendered to him,
payment to be made on submission of statements for such services (the "Benefit
Amount").
(e) During the Term of Active Employment, Employee shall be entitled to
participate in all employee benefit plans which may be available on the date
hereof or in the future by Company to employees serving Company or its
subsidiaries in an executive capacity. Benefits for Employee under such plans
shall be at least as great as those offered to any other employee of Company and
its subsidiaries and to any other person who regularly performs substantial
services for Company other than in the capacity of director.
(f) Employee shall be entitled to vacation time of one month in each
calendar year during the Term of Active Employment. Vacation periods need not
be consecutive and shall carry over to extent unused or, at Employee's request,
shall be paid to Employee forthwith or upon termination of the Term of Active
Employment, as he shall elect.
7. Consulting.
----------
(a) Commencing upon the termination of the Term of Active Employment for
any reason other than "Cause" (as defined in Section 11(c)), and continuing
thereafter for the life of Employee, Employee shall make himself reasonably
available, except during periods when illness or disability make it impossible,
to render such advisory and consulting services to Company as it may reasonably
request (the "Consulting Services"). Consulting Services shall not require
travel, except with Employee's consent, and may be performed in person or by
telephone, mail or facsimile or electronic transmission, as appropriate.
-5-
<PAGE>
(b) In consideration for the Consulting Services, Employee shall be paid a
monthly consulting fee (the "Consulting Fee") equal to fifty percent (50%) of
the average monthly compensation paid and credited to him pursuant to
subsections 6 (a) and (b) hereof in any twelve (12) months during the thirty-six
(36) calendar months immediately preceding the termination of the Term of Active
Employment. The Consulting Fee shall be payable as provided in Sections 13 and
14 of this Agreement.
(c) Employee shall be reimbursed for his business, living and travel
expenses incurred in connection with Consulting Services when Employee has
consented to travel at Company's request. In the event of a breach by Employee
of his obligations under this Section 7 subsequent to a Change of Control Event,
the sole relief to which Company shall be entitled hereunder in respect of such
breach is specific performance. Following the expiration of the Term of Active
Employment and continuing throughout the Term of Service, Employee shall at his
election made from time to time be either an independent contractor or an
employee of Company.
8. Disability.
----------
(a) If Employee should suffer illness or disability rendering him incapable
of performing his duties hereunder (a "Disability") during the Term of Active
Employment, Company shall continue the payment of compensation to him during the
continuance of the Disability as follows:
(i) at the full Salary and Bonus for the first 365 consecutive days of the
Disability; and
(ii) at one-half of the Salary and Bonus (but with respect to Bonus, only
to the extent it was earned prior to or during the first 365 consecutive days of
the Disability) for the next succeeding 365 consecutive days.
(b) If Employee does not return to full-time, active employment prior to
the end of such 730 consecutive days period, then his Term of Active Employment
shall forthwith end upon notice to Employee by Company.
(c) If Employee returns to full-time, active employment prior to the end of
such 730 consecutive days period, Company shall resume the payment of Salary
and Bonus immediately upon Employee's return.
(d) The foregoing provisions shall apply to each separate Disability.
(e) A Disability for purposes hereof shall be determined by a physician
licensed to practice in the State of New York approved by Employee.
9. Insurance.
---------
(a) Subject to the provisions of subsection 9 (d), throughout the Term of
Service, Company shall:
-6-
<PAGE>
(i) include Employee and his spouse in its present group accident,
hospitalization, major medical, dental and life insurance plans, and provide to
Employee disability insurance on a non-cancelable basis, if available, and
attempt, in addition, to secure reasonable excess medical and hospitalization
insurance covering Employee and his spouse as beneficiaries; as Employee has
been employed hereunder for at least six (6) years, such hospitalization, major
medical and dental insurance shall be provided for the lives of the Employee and
his spouse.
(ii) provide life insurance on the life of Employee in the principal amount
of $1,000,000; the beneficiary or beneficiaries of said insurance shall be as
designated in writing to Company by Employee, and the owner of the policy shall
be Employee or his assigns.
(iii) provide travel and accident insurance in the amount of at least
$1,000,000, payable to persons designated from time to time by Employee.
Company shall pay all the premiums payable on all of the insurance described in
this subsection 9 (a) (hereinafter called "Insurance Coverages").
(b) As soon as practicable (but not more than thirty (30) days) after
receipt by Company of written notice to such effect from Employee, Company shall
transfer and assign to Employee any policy of life insurance then owned by
Company on his life. Upon such transfer, Employee shall be required to
reimburse Company for the cash surrender value, if any, of such policies. The
foregoing notwithstanding, Company shall continue to pay timely, or to reimburse
Employee for, as the case may be, the premiums in respect of such insurance for
the balance of the Term of Service.
(c) In the event of the termination of the Term of Active Employment for
any reason, Employee shall be entitled to
(i) elect either to
[A] continue coverage for himself and his spouse under Company's
medical, dental and hospitalization plans for their respective lives, provided
that such coverage shall, through their joint lives and the life of the
survivor, be at least equal to the coverage (as measured by the type and scope
of coverage and the level of benefits) in effect on the date of such
termination, or
[B] receive, within ten (10) business days following such
termination, the Actuarial Equivalent (as described in Subsection 14 (b), but
specifically pertaining to the medical, dental, and hospitalization coverage and
excess medical and hospitalization insurance described in subsection 9(a) (i))
of the total amount that would be sufficient to pay all premiums payable or to
become payable throughout the period in which such insurance is to remain
effective as provided in this Agreement for such medical, dental and
hospitalization coverage, based on
[I] the life expectancies of Employee and his spouse (based
on the 1983 Blended Group Annuity Mortality Table (hereafter the "1983 Table"),
-7-
<PAGE>
[II] the premiums that Employee and his spouse would have
to pay for comparable coverage at the time of such termination, and
[III] the applicable Discount Rate; and
(ii) elect either to
[A] receive, within ten (10) business days following such termination,
the Actuarial Equivalent (as described in Subsection 14(b), but specifically
pertaining to the life insurance, disability and travel and accident insurance
policies described in subsection 9(a) (ii) and (iii)) of the premiums payable
and to become payable throughout the period in which such insurance is to remain
effective as provided in this Agreement on such life insurance, disability and
travel and accident insurance policies then maintained by Company for Employee's
benefit, based on
[I] his life expectancy (based on the 1983 Table),
[II] the premiums that Employee would have to pay for
comparable coverage at the time of such termination , and
[III] the applicable Discount Rate; or
[B] have Company prepay all of such premiums so that such policies
shall remain in force for the life of Employee.
(d) Upon the occurrence of a Material Breach, if Employee does not elect
either of the options provided for in subsection 9 (c) (i), Company will
forthwith
(i) deposit with the applicable insurer or, if Company is self-insured
or its insurance program is administered by a third party, with an insurance
carrier selected by Employee, amounts sufficient to prepay all premiums for the
medical, dental and hospitalization insurance coverage to which Employee and his
spouse are entitled hereunder, or
(ii) if such prepayment arrangement cannot be made with a particular
insurer, deposit in a trust thereupon established by Company for the benefit of
Employee and his spouse, the amount that would reasonably be necessary to pay
the premiums as they become due on such policies, based on the actuarially
determined life expectancies of Employee and his spouse based on the 1983 Table,
and the premiums that Employee and spouse would have to pay for comparable
coverage; Company shall use its best efforts to structure such trust such that
Employee and spouse shall not be deemed to have received income by virtue of
such arrangement until such time, and only to the extent that, such premiums are
actually paid.
10. Material Breaches by Company.
----------------------------
(a) It is a major premise of this Agreement that a "Material Breach" (as
described in subsections 10 (b) and (c) below of this Agreement by Company will
cause irreparable damage and harm to Employee and that such damage and harm will
be real and extensive but incapable or very difficult of accurate estimation
because, among other things, Employee will lose the
-8-
<PAGE>
compensation and other benefits payable hereunder, Employee will lose the
opportunity to gain additional valuable executive experience and the opportunity
to enhance his business and executive reputation by performing the duties of a
senior executive officer of a large corporation, the loss of which may damage
his reputation in the business community; furthermore, Employee's duty to
mitigate damages in the event of such a Material Breach may be subject to
controversy and disagreement in that an opportunity to mitigate damage may or
may not present itself, the opportunity may or may not be appropriate to
Employee or to one with his status, reputation and experience, and Employee's
diligence in pursuing or not pursuing such an opportunity may be subject to
dispute. Therefore, in the event of a Material Breach Employee shall;
(i) continue to be entitled to all benefits provided by this Agreement as
if he had continued to be employed hereunder for the full term hereof:
(ii) have no duty to mitigate damages; and
(iii) be entitled to terminate the Term of Active Employment.
(b) If, at any time after the date hereof and during the Term of Active
Employment, any of the following occur, such occurrence (each a "Change of
Control Event") shall be considered a Material Breach by Company of this
Agreement::
(i) Company contracts to or actually consummates a statutory merger or sale
of a substantial portion of its assets to another corporation or otherwise
consolidates or amalgamates with another corporation, the purpose or result of
which would be a change in either "control" of Company (as generally described
in subsection (vi) hereof) or Employee's mode or conditions of employment; or
(ii) more than 20% of Company's then issued and outstanding voting stock
shall have been purchased or acquired (or voting rights with respect thereto
shall have been acquired) by a person, corporation or group thereof acting in
concert, the purpose or result of which would be a change in either "control" of
Company (as generally described in subsection (vi) hereof) or Employee's mode or
conditions of employment; or
(iii) a majority of the Board of Directors of Company consists of persons
other than nominees of management of Company; or
(iv) Employee is not nominated for any directorship as provided by Section
4 hereunder or, if nominated, he is not elected by the shareholders or if there
appears to either Employee or Company to be a clear and reasonable probability
(judging, among other things, by proxy return, competitive proxy solicitations,
or adverse vote campaigns) that Employee may not be so elected; or
(v) there is mounted or carried on an effort, by way of litigation or
otherwise, by Company or others (including but not limited to other company
employees, shareholders or other third parties) to attack or substantially alter
any of the terms or conditions of this Agreement or to induce or force Employee
to change the mode or conditions
-9-
<PAGE>
of his employment hereunder or to resign or otherwise terminate or modify his
employment with Company; or
(vi) a transaction or circumstance occurs or eventuates which reasonably
may be construed as effecting or constituting a clear and present probability of
effecting a change in "control" of Company, as "control" is generally or
reasonably understood in the business community.
(c) Company commits a Material Breach of this Agreement if, without the
consent of Employee, it
(i) removes Employee from the position of Chairman of the Board prior to
the expiration of the Term of Active Employment, or
(ii) significantly changes Employee's duties.
11. Termination of the Term of Service and of the Term of Active Employment.
-----------------------------------------------------------------------
(a) The Term of Service and the Term of Active Employment may be terminated
in the following ways:
(i) By the Company "Without Cause" (as defined in subsection (b);
(ii) By virtue of Employee's death or Disability; or
(iii) By Employee by virtue of Employee's resignation,
and the Term of Active Employment may also be terminated for "Cause" (as
defined in subsection (c));
(b) Termination of the Term of Active Employment and of the Term of Service
"Without Cause":
(i) For the purposes of this Agreement, a Termination "Without Cause" shall
mean any termination other than that for Cause including, without limitation, a
termination
[A] for Employee's death, Disability or resignation;
[B] effected by Employee following a Material Breach, as hereinafter
described;
(ii) If Company commits a Material Breach of this Agreement, Employee may,
by written notice to Company, elect to treat such breach as a termination
Without Cause and terminate his active employment as an officer, employee and
director of Company and all subsidiaries, and receive from Company all of the
payments required to be made pursuant to Section 13 hereof.
-10-
<PAGE>
(iii) In the event of a termination Without Cause, all obligations of
Employee hereunder shall terminate except as set forth in subsection 5 (e) and
Section 7 hereof, and Employee shall be entitled to the benefits provided herein
in the event of termination Without Cause.
(c) Termination of the Term of Active Employment for Cause:
(i) For the purposes of this Agreement, "Cause" shall mean
[A] the willful and continued failure by Employee to substantially perform
his duties with Company (other than any such failure resulting from Employee's
Disability), after a demand for substantial performance is delivered to Employee
by its Board of Directors which specifically identifies the manner in which the
Board believes that Employee has not substantially performed his duties, or
[B] the willful and gross misconduct by Employee that is materially and
demonstrably injurious to Company; for purposes of this Section, no act, or
failure to act, on the part of Employee shall be considered "willful" unless
done, or omitted to be done, by Employee not in good faith and without
reasonable belief that his action or omission was in the best interest of
Company.
(ii) No termination of the Term of Active Employment shall be for Cause
hereunder unless and until there shall have been delivered to Employee a copy of
a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board called
and held for the purpose (after reasonable notice to Employee and counsel, to be
heard before the Board), finding that, in the good faith opinion of the Board,
Employee was guilty of conduct described above in subsections 11 (c) (i) [A] or
[B], and specifying the particulars thereof in detail.
(iii) Company shall have the burden of proof in demonstrating Cause as
justifying termination.
(iv) If this Agreement is terminated by Company for Cause, Employee shall
continue to be bound by all provisions hereof as herein provided and Company
shall have no obligation to Employee except
[A] promptly to pay him the Salary and Bonus through the Termination Date
(as defined in subsection 14 (a) (such Bonus to be calculated as provided in
subsection 6 (b) above);
[B] to provide the insurance coverage pursuant to subsection 9 (c) above
[C] to reimburse him for his business expenses properly incurred prior to
the Termination Date; and
[D] to pay him his accrued vacation pay and the Pension.
-11-
<PAGE>
12. Special Death Benefits. If Employee dies during the Term of Service,
----------------------
Special Death Benefits shall be paid by Company on account of Employee, as
follows:
(a) Within two weeks after notice of Employee's death is received by
Company ("Notice"), Company shall pay to such person or persons designated in
writing by Employee from time to time or, if no such designation is then in
effect, to his estate (either herein called the "Beneficiary") a lump sum
payment equal to the discounted present value of one year's Salary and Bonus or
Consulting Fee (whichever was in effect at the time of Employee's death). The
present value shall be determined using the "Applicable Discount Rate" (as
hereafter defined).
(b) Any Salary or Consulting Fee earned by, but unpaid and owing to,
Employee at the time of his death shall be paid to the Beneficiary, within three
business days after receipt by Company of the Notice.
(c) Any Bonus for the prior fiscal year remaining unpaid at the date of
Employee's death shall be paid, within three business days after receipt by
Company of the Notice, to the Beneficiary. Any Bonus earned for the Bonus Year
in which Employee dies shall be accrued pro rata on the basis of elapsed time
during the Bonus Year, and shall be paid when bonuses are paid generally to
other executive employees of Company for the Bonus Year in which Employee dies
and shall be payable to the Beneficiary.
13. Special Rights of Employee upon any Material Breach.
---------------------------------------------------
Employee shall be entitled to receive, within three (3) business days after the
date of the Material Breach, an amount equal to the sum of (a), (b), (c), (d),
(e) and (f) below
(a) The portion of the Salary and Bonus remaining unpaid through the
Termination Date, if any, plus the discounted present value of any and all
Salary and Bonus to which Employee is entitled for the period from the
Termination Date to 31 December 1998 (the total of such Salary and Bonus is
hereinafter referred to as the "Compensation Amount".
(i) "Salary" for purposes of this subsection shall be deemed the annual
salary rate in effect at the time of the Material Breach, increased by 5% for
each successive calendar year following the Material Breach during the remaining
Term of Active Employment.
(ii) ''Bonus" for purposes of this subsection shall mean, for any year, an
amount equal to 100% of the Salary payable to Employee for such year.
(iii) The discounted present value of the Compensation Amount for the
remaining Term of Active Employment shall be determined using the lowest of the
following rates (hereinafter, the "Applicable Discount Rate"):
[A] the average of the reference rate of Company's principal long-term
lender during the two years prior to the date of the Material Breach,
[B] 120% of the "Applicable Federal Rate" as determined pursuant to
Section 1274 of the Internal Revenue Code (the "Code"),
-12-
<PAGE>
[C] the 30 year Treasury bond rate in effect on the date of the Material
Breach,
[D] the rate which would be used in determining the cost of an annuity for
an amount equal to the sum of the amounts due, and
[E] the interest rate in effect on the date of the Material Breach
determined under the regulations of the Pension Benefit Guaranty Corporation for
determining the present value of a lump sum distribution of less than $25,000,
as such rates are determined under the rules in effect prior to the Retirement
Protection Act (the "PBGC Rate").
(b) The discounted present value of the Pension (the total amount of the
Pension payable hereunder referred to hereinafter as the "Pension Amount").
(i) For purposes of this subsection, the highest aggregate Salary and Bonus
used to determine the Pension Amount shall be the sum of the Salary and Bonus
payable to Employee for the calendar year ending December 31, 1998, utilizing
the formula for determining such Salary and Bonus set forth in subsection 13 (a)
above (but before the calculation of the net present value of such amount as
described in subsection 13 (a).
(ii) The discounted present value of the Pension Amount shall be determined
[A] using the Applicable Discount Rate
[B] Employee's actuarially determined life expectancy (based on the 1983
Table) at the time of the Material Breach, and
[C] assuming that payment of the Pension Amount would have commenced in
January 1999.
(c) The discounted present value of all amounts payable to Employee
pursuant to Section 7 of this Agreement, determined using the same assumptions
used to calculate the Pension Amount as set forth in (b) above (but before the
calculation of the net present value of such amount as described in subsection
13 (a).
(d) The discounted present value of the Benefit Amount. For purposes of
this subsection, it is assumed that the Benefit Amount shall equal 10% of the
annual salary payable for each remaining full or partial year during the Term of
Active Employment, and the discounted present value shall be determined by using
the Applicable Discount Rate.
(e) the discounted present value of the payments pursuant to subsections 9
(c) (i) [B] and 9 (c) (ii) [A], if Employee so elects (but if not, Company shall
provide the insurance coverages required under subsections 9 (c) (i) [A] and 9
(c) (ii) [B])
(f) 299% of Employee's "base amount", as such term is defined in Section
280G of the Code.
-13-
<PAGE>
14. Payment of Actuarial Equivalent Upon Termination of the Term of Active
----------------------------------------------------------------------
Employment.
- -----------
(a) Within ten (10) business days after the termination or expiration of
the Term of Active Employment for any reason other than Cause (including the
expiration of the Term of Active Employment due to the early retirement of
Employee) (hereinafter referred to as the "Termination Date"), and provided that
as of the Termination Date no Material Breach has occurred, Company will pay to
Employee (less applicable withholding and payroll taxes) in cash:
(i) all Salary and Bonus to which Employee is entitled under this Agreement
through the Termination Date; if the Termination Date occurs other than on 30
June, the Bonus shall be annualized and in an amount equivalent to what would
have been payable to Employee had the Termination Date been 30 June of the year
in which the Termination Date occurred and the average coupon rate had continued
to that date.
(ii) the amount required to reimburse Employee for business expenses
incurred through the Termination Date and the cost of the Benefit Amount for the
year in which the Termination Date occurs; and
(iii) The amount equal to the then "Actuarial Equivalent" (as hereinafter
defined) of all of the amounts to the receipt or benefit of which Employee is or
will become entitled during his lifetime following the Termination Date pursuant
to the provisions of subsections [A] and [B] next following (the
"Entitlements"):
[A] The Pension Amount; and
[B] The premiums payable and to become payable on the Insurance Coverages,
subject to the elections which may be made by Employee in subsection 9(c) above.
(b) For purposes hereof, the term "Actuarial Equivalent" shall mean the
value of the Entitlements, computed with respect to payments of amounts required
to be paid to Employee under
(i) subsection 14 (a) (iii) [A] above, as if such payments were paid to
Employee on the first day of each month commencing with the first month
immediately following the Termination Date, and
(ii) subsection 14 (a) (iii) [B] above, as if such payments were made on
the dates upon which such premiums first became due, using, for both subsections
14 (b) (i) and 14 (b) (ii) above
[A] the number of the years (to two decimal places) of Employee's life
expectancy (and for subsection 14 (a) (iii) [B] the respective life expectancies
of Employee and his spouse as applicable and pursuant to subsection 9 (c)) on
the Termination Date (based on the 1983 Table), and
-14-
<PAGE>
[B] a discount rate equal to the Applicable Discount Rate determined based
upon the Termination Date, and not the date of the Material Breach.
(c) (i) Provided that no Material Breach has occurred prior to the
Termination Date, promptly following the Termination Date, Company, Employee and
either an independent corporate trustee (such as a bank trust department that
may be granted corporate trustee powers under the law of the state of its
incorporation) or, if legally permissible, an individual selected by Employee
(the "Trustee") reasonably satisfactory to Company and Employee, shall enter
into a trust agreement (the "Trust Agreement") in the form annexed to Amendment
No. 3 to the Amended Employment Agreement dated as of November 10, 1988 between
Company and Employee, and Company shall deliver to the Trustee within ten (10)
business days after execution of the Trust Agreement funds sufficient to pay to
Employee the compensation payable to him under Section 7 of this Agreement using
the number of the years (to two decimal places) of Employee's life expectancy on
the Termination Date (based on the 1983 Table). The Trustee shall be designated
by Employee subject to the approval of Company, which approval shall not be
unreasonably withheld or delayed, and the fees and expenses of the Trustee shall
be paid as provided in the Trust Agreement.
(ii) To the extent any of the said payments are not made by the Trustee for
any reason, such payments shall be timely made by Company. If such payments are
suspended during insolvency, each payment made after suspension shall include
interest at a current rate for 30 day Treasury bills for the period from the
time such suspended payment should have been made until such payment is actually
made; and the compensation payable pursuant to Section 7 of this Agreement shall
be increased by the amount of such interest.
(iii) If a Change of Control Event occurs after the Termination Date,
Employee shall be entitled to receive from the Trustee in a lump sum, within
three (3) business days, all of the remaining amounts payable to him under
subsections 13 (c) and 13 (e) above.
(d) The determination of any disputes regarding the calculation of the
amounts payable pursuant to Sections 13 or 14 shall be referred to the primary
public accounting firm engaged as of the Termination Date to audit the books and
records of Company (the "Auditors"), whose determination shall be final.
(e) The foregoing notwithstanding, to the extent that payments have been
made to or for the benefit of Employee pursuant to Section 13, no additional
payments shall be required to be made under this Section 14.
(f) If Employee dies before the occurrence of a Material Breach and the
termination of the Term of Active Employment, an amount equal to ten (10) times
the net present value, using the Applicable Discount Rate, of the Pension shall
be made in one lump sum to the beneficiary or beneficiaries who are to receive
such amount in case of his death or, failing such designation, to his estate.
Employee may, from time to time, designate any beneficiary or beneficiaries who
are to receive amounts hereunder in case of his death, and may amend or revoke
such designations, in each case by written notice to Company. He may declare any
designation to be irrevocable, in which case he shall have no power to revoke or
amend such
-15-
<PAGE>
designation. If no such designation has been made, or if a designee shall
predecease Employee (and no successor designee has been provided), payment shall
be made to his estate.
(g) Employee may elect early retirement at any time without loss of
benefits as and to the extent provided hereby. The date of such retirement
shall be deemed the Termination Date.
15. Golden Parachute.
----------------
The parties agree that it is their intent to comply with the "safe harbor"
provisions of Section 280G of the Code. In order that the amounts payable
pursuant to this Agreement do not constitute "excess parachute payments" within
the meaning of said Section 280G, the payments and other consideration provided
for hereunder shall, to the extent necessary, be reduced accordingly so that no
such payment shall constitute an excess parachute payment. Employee shall repay
any amounts determined by the Auditors to be necessary to ensure such
compliance, which determination shall be final, binding and conclusive for all
purposes hereunder. If and to the extent that any payment or other
consideration provided for hereunder is determined by the Internal Revenue
Service to be an "excess parachute payment" within the meaning of said Section
280G of the Code and either a determination is reasonably made by Employee not
to challenge such determination or the challenge to such determination is not
successful, Employee shall, promptly upon the written request of Company, repay
such amount to Company as is necessary so that no such payment or other
consideration will constitute an "excess parachute payment". If Employee elects
to challenge such determination, Company shall cooperate with Employee in making
such challenge and shall pay all costs and expenses, including, without
limitation, all accounting and attorneys' fees, thereby incurred.
16. Binding Effect and Governing Law.
--------------------------------
(a) The rights and obligations under this Agreement shall inure to the
benefit of and shall be binding upon Company and its successors and assigns,
including any corporation with which Company shall merge or consolidate or to
which it shall sell all or substantially all of its assets. This Agreement is
otherwise nonassignable.
(b) The interpretation and construction of this Agreement shall be governed
by the laws of the State of New York.
17. Arbitration.
-----------
Disputes between the parties arising under or with respect to this
Agreement shall be submitted to arbitration in the City of New York by a single
arbitrator under the rules of the American Arbitration Association (or any
successor or similar organization) and the arbitration award shall be binding
upon the parties and enforceable in any court of competent jurisdiction. The
cost of arbitration including counsel fees, shall be borne by Company unless the
arbitrator specifically determines that Employee's position was frivolous and
without reasonable foundation.
-16-
<PAGE>
18. Miscellaneous.
--------------
(a) This Agreement may not be modified, amended or rescinded except by a
writing duly signed by the parties hereto.
(b) All notices or other communications described herein or contemplated
hereby shall be in writing and shall be deemed to have been duly given if
delivered personally, by reputable overnight courier service or by telecopier
(with proof of delivery) or mailed by registered or certified mail, return
receipt requested,
(i) if to Company, directed to The Union Corporation at 145 Mason Street,
Greenwich, Connecticut 06830, and
(ii) if to Employee, directed to Mr. Melvin L. Cooper at 745 Fifth Avenue,
New York, New York 10022, with a copy to Harry R. Hauser, Esq., Gadsby & Hannah
LLP, 225 Franklin Street, 22nd Floor, Boston, MA 02110, or to such other address
as the parties may in writing establish by notice in accordance herewith.
(c) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original.
19. Severability.
------------
If any provision herein shall, by competent legal authority, that is, by
arbitration or court proceedings, be determined to be invalid or contrary to
law, then that provision alone shall be deemed deleted herefrom and the
remainder hereof shall survive.
20. Litigation.
----------
All litigation or inquiries by third parties (for example, but not limited
to, those by shareholders - direct or derivative - or government agencies)
arising out of or in connection with this Agreement or Employee's performance
hereunder, against either Company or Employee or both, shall be defended or
opposed by the parties hereto, as the case may be, to support this Agreement,
and counsel for the parties and the costs, fees and expenses thereof shall be
borne by Company. Company further undertakes to indemnify Employee for all acts
or omissions as an officer or director or employee of Company or any subsidiary
thereof, to the full extent provided or permitted under Delaware law, against
all damages, expenses and costs (including reasonable counsel fees) in any
action or proceeding commenced during, or at any time after, the Term of
Service.
21. Other Obligations
-----------------
In addition to other liabilities and obligations of Company that survive
the Termination of Active Employment and, under circumstances described in this
Agreement, the Term of Service, the following liabilities and obligations of
Company shall remain in full force and effect thereafter:
-17-
<PAGE>
(a) those to indemnify Employee as provided in the Certificate of
Incorporation and the By-laws of Company;
(b) those under that certain Indemnification Agreement dated as of August
27, 1990, as amended, between Employee and Company; and
(c) those under any stock option agreements between Employee and Company.
IN WITNESS WHEREOF, Company has caused this Amended and Restated Employment
Agreement to be signed and sealed by its undersigned officer, hereunto duly
authorized, and Employee has set his hand hereto, all as of the day and year
first above written.
ATTEST: THE UNION CORPORATION
By:/s/ William B. Hewitt
- -------------------------- --------------------------
William B. Hewitt
President and Chief
Executive Officer
/s/ Melvin L. Cooper
- -------------------------- -----------------------------
Witness Melvin L. Cooper
-18-
<PAGE>
EXHIBIT 10(b)
Amendment to Employment Agreement
---------------------------------
Reference is made to the Employment Agreement dated as of July 1, 1995
(the "Agreement") by and between The Union Corporation (the "Company") and
William B. Hewitt (the "Employee"). It is hereby agreed that the Agreement is
amended effective July 1, 1997 as follows:
1. Article FIRST (B) is amended to read in its entirety as follows:
"(B) Effective July 1, 1997, the Employee shall serve as President and
Chief Executive Officer of the Company. In addition, the Employee shall serve
as the Chief Executive Officer and/or as a director of any Affiliates (as
hereinafter defined in Article FOURTH (A)(i)) of the Company as the Board of
Directors of the Company shall determine, without any compensation other than
that provided for in Article THIRD hereof. All officers, employees and agents
of the Company and its subsidiaries (other than the Chairman of the Board) shall
be subordinate to the Employee and shall report to him or as he shall direct."
2. Article FIRST (F) is deleted as unnecessary.
3. Article SECOND of the Agreement is amended to read in its
entirety as follows:
"SECOND: (A) The term of this Agreement and the Employee's employment
hereunder shall commence effective as of July 1, 1995 (the "Effective Date")
and, unless extended by the written agreement of the parties, shall terminate on
the earlier to occur of (i) June 30, 2000 or (ii) termination in accordance with
Paragraphs (B), (C), (D) or (E) of this Article SECOND, in any of which events
this Agreement shall terminate on such date and shall be of no further force and
effect (except as provided herein), it being acknowledged and agreed that in the
event of any termination pursuant to said Paragraphs (B) or (D) below, the
Company shall have no further liability or obligation to the Employee, except
that if his employment is terminated under Paragraph B(ii) or (iii), Employee
shall be entitled to a pro rata bonus for the Fiscal Year of termination
pursuant to Article THIRD(B), and in the event of any termination pursuant to
Paragraph (C) or (E) below, the Employee shall be entitled to receive only the
payments required to be made under such paragraphs and Article TENTH.
Not withstanding anything stated herein to the contrary, if the Employee's
employment is terminated pursuant to Article SECOND (B)(ii), B(iii), (C), (D) or
(E), the liabilities and obligations of the Company (i) to make the payments
required to be made pursuant to such paragraphs, (ii) to indemnify the Employee
as provided in the
<PAGE>
Certificate of Incorporation and By-laws of the Company and Article ELEVENTH of
the Agreement, (iii) under that certain Indemnification Agreement dated as of
September 16, 1991 (and any amendment thereof) between Employee and the Company
(the "Indemnification Agreement"), (iv) under any written stock option
agreements between Employee and the Company (the "Option Agreements"), and (v)
to pay all reasonable attorney's fees and other costs incurred by him in
enforcing his rights under this Agreement, shall remain in full force and effect
following such termination. The liabilities and obligations under (i), (ii),
(iii), (iv) and (v) above shall each or collectively be referred to as the
"Continuing Obligations."
(B) The Company shall be entitled to terminate the Employee's services
in any of the following circumstances:
(i) For "Cause" by reason of the occurrence of any of the following:
(a) the chronic failure, refusal or neglect of the Employee fully and faithfully
to perform his obligations hereunder, (b) the failure, refusal or neglect of the
Employee to use all reasonable efforts in good faith to implement any lawful
directions or policy (not inconsistent with this Agreement) of the Board of
Directors of the Company, or (c) unless it can be shown that Employee acted in
good faith and reasonably believed he was acting in the best interest of the
Company or any subsidiary, the taking of any actions, or the omission to take
any actions, by the Employee which bring public obloquy upon the Company or any
Affiliate or (d) the conviction of, or nolo contendere plea by, the Employee in
---- ----------
respect of any crime or offense committed by the Employee and involving the
property, operations or activities of the Company or any Affiliate, or moral
turpitude.
(ii) Mental or physical incapacity or inability of the Employee to
perform his duties for a consecutive period of 150 days or a non-consecutive
period of 180 days during any twelve month period; or
(iii) The death of the Employee.
(C) In addition to termination pursuant to Article SECOND (A) and (B),
the Company shall at any time also be entitled to terminate the Employee's
services for any other reason, provided that in the event of termination
pursuant to this Article SECOND (C): (a) the Employee shall be eligible to
receive the Pro-rata Bonus(as herein defined), (b) the Company shall provide the
medical, dental and hospitalization insurance for the lives of the Employee and
his spouse pursuant to Article THIRD (F)(ii), (c) the Employee shall, subject to
the terms and conditions of Article TENTH, receive the payments required to be
made under Article TENTH, (d) the Employee shall be paid in a lump sum payment
on the date of such termination his Base Salary
2
<PAGE>
for twelve months, and (e) in consideration of the Employee's agreements under
Article FOURTH (A), (B) and (C) and provided that Employee has complied with
Article FOURTH (A), (B) and (C), the Company shall continue to pay to the
Employee his then current Base Salary pursuant to Article THIRD (A) for a period
from the date of such termination through twenty-four months from the date of
such termination (the Non-Compete Consideration). In the event of termination
pursuant to this Article SECOND (C), the Employee shall not be entitled to any
damages by reason of such termination other than as set forth in this Article
SECOND (C). In the event the Employee is indicted for any crime or offense
(other than traffic infractions and similar minor matters), the Company shall
have the right to suspend the Employee's services hereunder during the period
after indictment and until proceedings against the Employee are terminated.
Unless this Agreement is otherwise terminated pursuant to Article SECOND (B),
(D) or (E) or expires on June 30, 2000, the Employee shall continue to receive
his Base Salary during such suspension period; and upon the end of such
suspension, if this Agreement is still in effect, the Employee shall resume
performance hereunder. Such suspension shall not extend the term of this
Agreement. Provided Employee would be entitled to resume performance hereunder,
without regard to the date, Employee shall be entitled to any bonus earned
pursuant to Article THIRD (B) in respect of the Fiscal Year in which such
suspension commenced.
(D) The Employee shall at any time be entitled to terminate his
services hereunder by submitting his written resignation to the Company, to be
effective 90 days thereafter (unless an Event, as hereinafter defined, has
occurred, in which case such resignation shall be effective immediately or on
such other date acceptable to and approved by Employee). Notwithstanding
anything to the contrary herein contained, upon receipt of such notice, the
Company may terminate Employee's employment at any time thereafter, and from and
after Employee's termination under this Article SECOND (D), the Company shall
have no further liability or obligation to the Employee except (i) for the
Continuing Obligations, (ii) to provide the medical, dental and hospitalization
insurance for the lives of the Employee and spouse pursuant to Article THIRD
(F)(i), (iii) to pay the Non-Compete Consideration and (iv) make the payments
required to be made pursuant to Article TENTH hereof.
(E) If, at any time after the date hereof, any of the following events
(an "Event") occurs;
(i) more than 20% of the Company's then issued and outstanding
voting stock shall have been purchased or acquired (or voting rights with
respect thereto shall have been acquired) by a person, corporation or group
thereof acting in concert, the purpose or result of which would be a change in
3
<PAGE>
either "control" of the Company (as generally described in subparagraph (ii)
hereof); or
(ii) a transaction or circumstance occurs or eventuates which
reasonably may be construed as effecting or constituting a clear and present
probability of effecting a change in "control" of the Company, as "control" is
generally or reasonably understood in the business community;
then, upon the occurrence of any such Event, from which it is agreed that the
Employee would suffer irreparable damage and harm which will be incapable or
very difficult to accurately estimate, the Employee may elect, by written notice
to the Company, to treat the Event as a constructive termination of his
employment hereunder and, whether or not the Employee so elects to actually
terminate his employment, Employee shall receive and the Company will pay to
Employee within three days of such Event, subject to Article SECOND (F), an
amount equal to the sum of (1) 299% of the Employee's "base amount", as such
term is defined in Section 280G of the Internal Revenue Code of 1986, as
amended, and regulations pursuant thereto in effect at the time of termination
of the Employee's employment (collectively, the "Code"); and if Employee elects
to terminate his employment as a result of an Event, (2) the Pro Rata Bonus (as
hereinafter defined), (3) the Non-Compete Consideration, (4) the Actuarial
Equivalent (as hereinafter defined) amount payable pursuant to Article THIRD
(F)(ii)(2) provided that Employee elects such option (otherwise Employer shall,
subject to Article THIRD (F)(i), continue to provide the insurance coverages
required under Article THIRD (F)(ii)(1); and (5) the discounted present value of
all payments payable to Employee pursuant to Article TENTH, such discounted
present value to be determined using the lowest of the following rates (the
lowest of the following rates shall be referred to as the "Applicable Discount
Rate"): (v) the average of the reference rate of the Company's principal long-
term lender during the two years prior to the Event, (w) 120% of the "Applicable
Federal Rate" as determined pursuant to Section 1274 of the Internal Revenue
Code, (x) the 30 year Treasury bond rate at the date of the Event, and (y) the
rate which would be used in determining the cost of an annuity for an amount
equal to the sum of the amounts due, and (z) the interest rate determined under
the regulations of the Pension Benefit Guaranty Corporation for determining the
present value of a lump sum distribution of less than $25,000, as such rates are
determined under the rules in effect prior to the Retirement Protection Act. In
the event of a dispute as to the amount, the matter shall be referred to the
independent public accountants and auditors who were the auditors for the
Company at the time of the occurrence of the Event (the "Auditors"), and their
determination shall be final, binding and conclusive.
4
<PAGE>
(F) The parties agree that it is their intent to comply with the "safe
harbor" provisions of Section 280G of the Code. In order that the amounts
payable pursuant to this Agreement do not constitute "excess parachute payments"
within the meaning of said Section 280G, the payments and other consideration
provided for hereunder shall, to the extent necessary, be reduced accordingly so
that no such payment shall constitute an excess parachute payment. Employee
shall repay any amounts determined by the Auditors to be necessary to ensure
such compliance, which determination shall be final, binding and conclusive for
all purposes hereunder. If and to the extent that any payment or other
consideration provided for hereunder is determined by the Internal Revenue
Service to be an "excess parachute payment" within the meaning of said Section
280G and either a determination is reasonably made by Employee not to challenge
such determination or the challenge to such determination is not successful,
Employee shall, promptly upon the written request of the Company, repay such
amount to the Company as is necessary so that no such payment or other
consideration will constitute an "excess parachute payment". If the Employee
elects to challenge such determination, the Company shall fully cooperate with
Employee and support such challenge and shall pay all costs, expenses and
professional fees related to same."
4. Article THIRD (A) is amended to read in its entirety as follows:
"THIRD (A) The Employee shall receive, during his employment hereunder in
accordance with the terms hereof, a salary (the "Base Salary"), commencing on
the Effective Date, computed at the rate of $300,000 per annum, for each of the
fiscal years ending June 30, 1996, 1997 and 1998, and $350,000 for the fiscal
year ending June 30, 1999 and $400,000 for the fiscal year ending June 30, 2000,
payable in such installments as shall accord with normal pay practices of the
Company, but not less often than monthly."
5. Article THIRD paragraphs (B) and (B)(i) are amended to read in
their entirety as follows:
"(B) subject to the terms of this Agreement, for each of the Fiscal
Years ending June 30, 1996 ("FY 96"), 1997 ("FY 97"), 1998 ("FY 98"), 1999 ("FY
99") and 2000 ("FY 00"), Employee shall receive a bonus which shall be the sum
of (1) a pretax income component ("PI Component"), (2) a pretax margin component
("PM Component") and (3) a discretionary component ("Discretionary Component"),
each of which shall be determined as set forth below.
(i) The PI Component for each Fiscal Year during the term of this
Agreement shall be determined as provided in
5
<PAGE>
(a), (b), (c), (d) or (e) below, as applicable. The maximum PI Component
payable in respect of any Fiscal Year shall be $225,000 through FY 98, $262,500
in FY 99 and $300,000 in FY 00."
6. The following paragraphs (d) and (e) shall be inserted in Article
THIRD (B)(i) following paragraph (c):
"(d) FY 99. The PI Component payable in FY 99 shall be based on
-----
the extent to which Consolidated Pretax Income of the Company for such Fiscal
Year exceeds the highest Consolidated Pretax Income of the Company for each of
FY 95, FY 96, FY 97 and FY 98 (such highest amount hereinafter referred to as
the "Base FY 99 PI"), in accordance with the following:
If FY 99 Consolidated PI Component will be
Pretax Income is: --------------------
- ----------------------------------------
equal to or greater than 110.0% of the $197,000
Base FY 99 PI but less than 112.5% of
the Base FY 99 PI
equal to or greater than 112.5% of the $236,250
Base FY 99 PI but less than 115.0% of
the Base FY 99 PI
equal to or greater than 115.0% of the $262,500
Base FY 99 PI
In no event will any PI Component be payable in respect of FY 99 if Consolidated
Pretax Income for such Fiscal Year is less than 110.0% of the Base FY 99 PI.
(e) FY 00. The PI Component payable in FY 00 shall be based on the
-----
extent to which Consolidated Pretax Income of the Company for such Fiscal Year
exceeds the highest Consolidated Pretax Income of the Company for each of FY 95,
FY 96, FY 97, FY 98 and FY 99 (such highest amount hereinafter referred to as
the "Base FY 00 PI"), in accordance with the following:
If FY 00 Consolidated PI Component will be
Pretax Income is: --------------------
- ----------------------------------------
equal to or greater than 110.0% of the $225,000
Base FY 00 PI but less than 112.5% of
the Base FY 00 PI
equal to or greater than 112.5% of the $270,000
Base FY 00 PI but less than 115.0% of
the Base FY 00 PI
equal to or greater than 115.0% of the $300,000
Base FY 00 PI
6
<PAGE>
In no event will any PI Component be payable in respect of FY 00 if Consolidated
Pretax Income for such Fiscal Year is less than 110% of the Base FY 00 PI."
7. Article THIRD (B)(ii) of the Agreement is amended to read in its
entirety as follows:
"(ii) The PM Component payable in respect of any Fiscal Year shall be
based on the extent to which the Pretax Margin (as hereinafter defined) for such
Fiscal Year equals or exceeds 9.0%. The amount of the PM Component shall be
calculated as follows:
If Pretax Margin for any Fiscal PM Component will be
Year through FY 98 is: --------------------
- -----------------------------------
equal to or greater than 9.0% but $ 84,000
less than 11.0%
equal to or greater than 11.0% $ 98,000
but less than 13.0%
equal to or greater than 13.0% $112,500
If Pretax Margin for PM Component will be
FY 99 is: --------------------
- -----------------------------------
equal to or greater than 9.0% but $ 98,000
less than 11.0%
equal to or greater than 11.0% $114,000
but less than 13.0%
equal to or greater than 13.0% $131,250
If Pretax Margin for PM Component will be
FY 00 is: --------------------
- -----------------------------------
equal to or greater than 9.0% but $112,500
less than 11.0%
equal to or greater than 11.0% $130,500
but less than 13.0%
equal to or greater than 13.0% $150,000
In no event will any PM Component be payable in respect of any Fiscal Year if
the Pretax Margin for such Fiscal Year is less than 9.0% and in no event will
the PM Component payable in respect of any Fiscal Year exceed $112,500 through
FY 98, $131,250 in FY 99 and $150,000 in FY 00. "Pretax Margin" shall mean, for
purposes of this Agreement, the percentage derived (a) for FY 96, by dividing FY
96 Adjusted Pretax Income by the sum of
7
<PAGE>
the FY 96 revenues of Capital and the Outsourcing Subsidiaries, and (b) for each
of FY 97, FY 98, FY 99 and FY 00, by dividing Consolidated Pretax Income of the
Company for such Fiscal Year by the aggregate revenues for the Company on a
consolidated basis for such Fiscal Year."
8. Article THIRD (B)(iii) shall be amended to read in its entirety
as follows:
"(iii) The Discretionary Component in respect of any Fiscal Year shall
be paid at the sole discretion of the Board of Directors and shall be based
upon objectives established by the Board of Directors for such Fiscal Year. The
maximum amount of the Discretionary Component which may be payable in respect of
any Fiscal Year shall be $112,500 through FY 98, $131,250 in FY 99 and $150,000
in FY 00."
9. Article THIRD (B)(v) shall be amended to read in its entirety as
follows:
"(v) Notwithstanding anything to the contrary contained herein, if
the Company terminates Employee's employment hereunder at any time for Cause or
if the Employee resigns other than by reason of the occurrence of an Event, no
bonus shall be payable in respect of the Fiscal Year of termination. In the
event Employee's employment is terminated for any other reason, Employee shall
be entitled to a pro rata share of the PI and PM Components that would have been
payable in respect of such Fiscal Year had Employee remained employed for the
full year (based on the number of days in the Fiscal Year during which Employee
was actually employed), and a Discretionary Component may, at the discretion of
the Board of Directors, also be paid (the "Pro-Rata Bonus"). In the event this
Agreement terminates on June 30, 2000 and is not renewed or extended beyond that
date, Employee shall nevertheless be entitled to the PI and PM Components
payable in respect of FY 00, if any, and the Discretionary Component for FY 00
may, at the discretion of the Board of Directors, also be paid."
10. The following paragraphs (d) and (e) shall be added to Article
THIRD (C)(i) following paragraph (c):
8
<PAGE>
"(d) For FY 99:
----------
If FY 99 Consolidated Option for Number of
Pretax Income is: Shares to be Granted
- ----------------------------------------- --------------------
equal to or greater than 110.0% of the 22,500 shares
Base FY 99 PI but less than 112.5% of
the Base FY 99 PI
equal to or greater than 112.5% of the 27,000 shares
Base FY 99 PI, but less than 115.0% of
the Base FY 99 PI
equal to or greater than 115.0% of the 30,000 shares
Base FY 99 PI
(e) For FY 00:
----------
If FY 00 Consolidated Option for Number of
Pretax Income is: Shares to be Granted
- ----------------------------------------- --------------------
equal to or greater than 110.0% of the 22,500 shares
Base FY 00 PI but less than 112.5% of
the Base FY 00 PI
equal to or greater than 112.5% of the 27,000 shares
Base FY 00 PI, but less than 115.0% of
the Base FY 00 PI
equal to or greater than 115.0% of the 30,000 shares"
Base FY 00 PI
11. Article THIRD (C)(iii) shall be amended as
follows:
Replace "June 30, 1998", which appears twice in the third sentence and
once in the fourth sentence, with "June 30, 2000"; and
Replace "clause (c)", which appears in the third sentence with
"clause (e)".
12. The following shall be added to Article THIRD (E) immediately
after the last sentence of such paragraph:
"It is acknowledged and agreed that the obligations of the Company
under this paragraph only relate to the payment of the premiums in respect of
the policies as provided herein. The Company shall have no further obligations
with respect to the policies and it shall be Employee's responsibility to take
whatever actions may be necessary to keep the policies in effect."
9
<PAGE>
13. Article THIRD (F) of the Agreement is amended to read in its
entirety as follows:
"(F) (i) Subject to subparagraph (ii) of this paragraph, during
the term of employment, the Company shall continue to include Employee and his
spouse in its present group accident, hospitalization, major medical and dental
insurance plans, and, subject to paragraph (E) of Article THIRD, include
Employee in its group life insurance plan and provide disability insurance on a
non-cancelable basis to Employee, if available, and attempt, in addition, to
secure reasonable excess medical and hospitalization insurance covering Employee
and his spouse as beneficiary, all at no cost of Employee. Such accident,
medical, dental and hospitalization insurance shall be provided for the
respective lives of the Employee and his spouse. Provided the Employee does not
elect either of the options provided for in subparagraph (ii) of this paragraph,
(a) the Company will, in the event of an Event, deposit with the applicable
insurer at the time of discharge or, if the Company is self-insured or its
insurance program is administered by a third-party administrator, an insurance
carrier selected by Employee, amounts sufficient to prepay all premiums for the
accident, medical, dental and hospitalization insurance coverage to which
Employee and his spouse are entitled hereunder, or (b) in the event such
prepayment arrangement cannot be made with a particular insurer, the Company
agrees to deposit in a trust established for the benefit of Employee and his
spouse at the time of discharge the amount that would reasonably be necessary to
pay the premiums as they become due, based on the actuarially determined life
expectancies of Employee and his spouse (based on the 1983 Group Mortality
Table) and the premiums that Employee and spouse would have to pay for
comparable coverage at the time of discharge, and the Company shall use its best
efforts to structure such trust such that Employee and spouse shall not be
deemed to have received income by virtue of such arrangement until such time,
and only to the extent that, such premiums are actually paid.
(ii) In the event the Employee's employment hereunder is terminated
for any reason, including but not limited to an Event, the Employee shall be
entitled to elect to either (1) continue coverage for himself and his spouse
under the Company's accident, medical, dental and hospitalization plans, which
are then currently or thereafter in force (collectively, the "Plan") for their
respective lives, and such coverage shall, until the death of the second of them
to die, be required to provide coverage at least equal to the coverage (as
measured by the type and scope of coverage and the level of benefits,
(collectively, the "Level of Coverage")) in effect on the date of termination of
employment, or (2) receive, within three (3) business days following such
termination, the "Actuarial Equivalent" (as herein defined) of the total amount
sufficient to pay all premiums payable or to become payable for such accident,
10
<PAGE>
medical, dental and hospitalization coverage, based on the premiums that
Employee and his spouse would have to pay for comparable coverage at the time of
termination of the Employee's employment. For purposes hereof, the term
Actuarial Equivalent shall mean the value of such premiums as if such payments
were made on the dates upon which such premiums first became due, using the
number of the years (to two decimal places) of Employee's and his spouse's
respective life expectancies on the Termination Date (based on the 1983 Group
Mortality Table) and the Applicable Discount Rate." If the Employee elects to
continue coverage pursuant to Section (1) of this subparagraph (ii) and
thereafter, either (x) the Employee sends written notice that he is electing to
terminate such coverage as a result of an adverse change in the Level of
Coverage or, following the Company's good faith efforts to require the
applicable insurance carriers of the Company and its Affiliates to continue or
to provide such coverage; (y) the insurance carriers providing such coverage to
the Company and its Affiliates deny coverage to Employee and/or his spouse; or
(z) the Company terminates the Plan and neither the Company nor any of its
Affiliates offer or can obtain comparable coverage for Employee and his spouse,
then the Company shall be required to pay to Employee the amount that would then
be payable to Employee pursuant to Article THIRD (F) (ii) (2).
14. A new Article TENTH shall be added to the Agreement as follows:
"TENTH: Commencing upon the termination of the Employee's employment for
any reason except for Cause, and continuing for a period of ten years, Employee
shall make himself reasonably available, except during periods when illness or
disability make it impossible, to render such advisory and consulting services
to the Company as it may reasonably request. The services of Employee during
this consulting period shall not be such as will require travel, except with his
consent, or interfere with Employee's other business or vacation arrangements.
Service may be performed by telephone, mail or facsimile transmission, as
appropriate. For such services, Employee shall be paid a monthly consulting fee
equal to one-half of Employee's highest average aggregate monthly compensation
paid and credited to him by the Company and its subsidiaries in any 12 months
during the 36 calendar months immediately preceding the termination of his
employment hereunder, such payments to be made monthly, subject to Article
SECOND (E). Such payments shall be in addition to payments, if any, made
pursuant to Article SECOND (C) hereof. Compensation for purposes of such
calculation shall include salary and bonus but shall not include fringe benefits
or income realized as a result of the exercise of stock options. Employee shall
be reimbursed for his business, living and travel expenses incurred in
connection with said consulting when Employee has consented to travel at the
Company's request. If an Event shall
11
<PAGE>
occur at any time after the Employee begins to provide consulting services
pursuant to this Article TENTH, the Employee shall be entitled to receive within
three (3) business days, the net present value of the remaining aggregate amount
payable to Employee using the Applicable Discount Rate. In the event of a
breach or an alleged breach by Employee of his obligations under this Article
TENTH subsequent to an Event, the sole relief to which the Company shall be
entitled hereunder in respect of such breach is specific performance. In the
event of the termination of Employee's employment for Cause, this Article TENTH
shall be of no force or effect."
15. A new Article ELEVENTH shall be added to the Agreement as
follows:
"ELEVENTH: Litigation. All litigation or inquiries by third parties (for
----------
example, but not limited to, those by shareholders -direct or derivative - or
government agencies) arising out of or in connection with this Agreement or
Employee's performance hereunder, against either the Company, its Affiliates or
the Employee or any of them, shall be defended or opposed by the parties hereto,
as the case may be, to support this Agreement and the Employee's performance
hereunder, and counsel for the parties and the costs, fees and expenses thereof
shall be borne by the Company. The Company further undertakes to indemnify
Employee for all acts or omissions as an officer or director or employee of the
Company or any subsidiary thereof, to the full extent provided or permitted
under Delaware law, against all damages, liabilities, expenses and costs
(including reasonable counsel fees) in any action, claim or proceeding commenced
(a) during (i) the term of this Agreement or (ii) the period Employee is
providing consulting services, or (b) at any time after the termination of
employment or consulting services or the expiration of this Agreement."
In all other respects, the Agreement shall continue in full force and
effect.
12
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment to the Agreement as of the day and year first above written.
THE UNION CORPORATION
/s/ Melvin L. Cooper
----------------------------
By: Melvin L. Cooper
Chairman of the Board
/s/ William B. Hewitt
----------------------------
William B. Hewitt
13
<PAGE>
EXHIBIT 10(c)
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
Reference is made to the Employment Agreement dated as of March 22,
1995, as thereafter amended on August 27, 1996 (the "Agreement") by and between
The Union Corporation (the "Company") and Nicholas P. Gill (the "Employee"). It
is hereby agreed that the Agreement is to be further amended effective July 1,
1997 as follows:
1. Article FIRST (B) shall be amended as follows:
Replace "Vice President", which appears in the first sentence,
with "Executive Vice President".
2. Article FIRST (D) of the Agreement is amended to read in its
entirety as follows:
"(D) The Employee shall be entitled to vacation time of four
weeks per Fiscal Year, which need not be taken consecutively."
3. Article SECOND of the Agreement is amended to read in its
entirety as follows:
"SECOND: (A) Unless extended by the written agreement of the
parties, the term of this Agreement and the Employee's employment hereunder
shall commence effective as of January 1, 1995 ("Commencement Date"), and shall
terminate on the earlier to occur of (a) June 30, 2000 or (b) termination in
accordance with Paragraphs (B), (C), (D) or (E) of this Article SECOND, in any
of which events this Agreement shall terminate on such date and shall be of no
further force and effect (except as provided herein), it being acknowledged and
agreed that in the event of any termination pursuant to said Paragraphs (B),
(C), (D) or (E) below, the Company shall have no further liability or obligation
to the Employee (i) except for the payments required to be made under such
Paragraphs; (ii) except for any obligation to indemnify Employee as provided in
the Certificate of Incorporation and By-laws of the Company and Article ELEVENTH
of the Agreement; (iii) except as provided in the Indemnification Agreement
dated August 27, 1990, as amended, between the Company and Employee (the
"Indemnification Agreement"); (iv) except for obligations of the Company and
rights of Employee under various stock option agreements (the "Stock Option
Agreements"); (v) except that if Employee's employment is terminated under
Article SECOND B(ii), Employee shall be paid, from the date of termination, his
Base Salary for the longer of the balance of the term of this Agreement or
twelve months; (vi) except for the obligations of the Company under Article
TENTH; (vii) except the Company hereby agrees to pay all reasonable attorneys'
fees and
<PAGE>
-2-
other costs incurred by him in enforcing his rights under the Agreement; and
(viii) except pursuant to the Release Agreement dated June 10, 1997. The
liabilities and obligations under Article SECOND (A)(b) (i), (ii), (iii), (iv),
(vi), (vii) and (viii) above shall each and collectively be considered the
"Continuing Obligations". If termination occurs by reason of the death of
Employee, his surviving spouse (or such other person or persons as he may
designate in writing to the Company from time to time) shall receive in a lump
sum an amount equal to his Base Salary for six months. The foregoing payments
to be made by the Company if Employee is terminated by reason of death or
disability shall be in addition to those required under Article THIRD (D). In
the event of any termination pursuant to Paragraph (E) below, Employee shall be
entitled to receive the payments required to be made under this Agreement.
Notwithstanding anything stated in this Agreement to the contrary, if the
Employee's employment is terminated pursuant to Article SECOND (B)(ii),
(B)(iii), (C), (D) or (E) or if this Agreement shall expire on June 30, 2000, or
any extension thereof, the Continuing Obligations shall remain in full force and
effect following such termination or expiration.
(B) The Company shall be entitled to terminate the Employee's services
in any of the following circumstances:
(i) For "Cause" by reason of the occurrence of any of the following:
(a) the chronic failure, refusal or neglect of the Employee fully and faithfully
to perform his obligations hereunder, (b) the failure, refusal or neglect of the
Employee to use all reasonable efforts in good faith to implement any lawful
directions or policy (not inconsistent with this Agreement) of the Board of
Directors of the Company or of the CEO of the Company, or (c) unless it can be
shown that Employee acted in good faith and reasonably believed he was acting in
the best interest of the Company, or any Affiliate, the taking of any actions,
or the intentional omission to take any actions, by the Employee which bring
public obloquy upon the Company or any Affiliate or (d) the conviction of, or
nolo contendere plea by, the Employee in respect of any crime or offense
- ---- ----------
committed by the Employee and involving the property, operations or activities
of the Company or any Affiliate, or moral turpitude.
(ii) Mental or physical incapacity or inability of the Employee to
perform his duties for a consecutive period of 150 days or a non-consecutive
period of 180 days during any twelve month period; or
(iii) The death of the Employee.
<PAGE>
-3-
(C) In addition to termination pursuant to Article SECOND (A) and (B),
the Company shall at any time also be entitled to terminate the Employee's
services for any other reason, provided that in the event of termination
pursuant to this Article SECOND (C): (a) the Employee shall be paid in a lump
sum payment on the date of such termination his Base Salary for twelve months,
(b) the Employee shall receive a pro-rata bonus, on the date of such
termination, based on the amount of the most recent annual bonus paid to
Employee (the "Previous Annual Bonus"), if the Employee's employment is
terminated under this paragraph or if Employee elects to terminate his
employment as a result of an Event (with such bonus to be calculated based on
the number of days between the date that the Previous Annual Bonus was approved
by the Compensation Committee of the Board of Directors of the Company and the
date of such termination) (such amount shall be the "Pro-Rata Bonus"), (c) the
Company shall provide the medical, dental and hospitalization insurance to the
Employee and his spouse pursuant to Article THIRD (E)(ii), (d) the Employee
shall receive the payments required to be made under Article TENTH, and (e) in
consideration of the Employee's agreements under Article FOURTH (A), (B) and (C)
and provided that Employee has complied with Article FOURTH (A), (B) and (C),
the Company shall continue to pay to the Employee his then current Base Salary
pursuant to Article THIRD (A) for a period from the date of such termination
through twenty-four months from the date of such termination (the "Non-Compete
Consideration"). In the event of termination pursuant to this Article SECOND
(C), the Employee shall not be entitled to any payments or damages by reason of
such termination other than as set forth in this Article SECOND (C). In the
event the Employee is indicted for any crime or offense (other than traffic
infractions and similar minor matters), the Company shall have the right to
suspend the Employee's services hereunder during the period after indictment and
until proceedings against the Employee are terminated. Unless this Agreement is
otherwise terminated pursuant to Article SECOND (B), (D) or (E) or expires on
June 30, 2000, the Employee shall continue to receive his Base Salary during
such suspension period; and upon the end of such suspension, if this Agreement
is still in effect, the Employee shall resume performance hereunder. Such
suspension shall not extend the term of this Agreement.
(D) (i) The Employee shall at any time be entitled to terminate his
services hereunder by submitting his written resignation to the Company, to be
effective 90 days thereafter (unless an Event, as hereinafter defined, has
occurred). Notwithstanding anything to the contrary herein contained, upon
receipt of such notice, the Company may terminate Employee's employment at any
time thereafter, and from and after Employee's termination under this Article
SECOND (D), the Company shall have
<PAGE>
-4-
no further liability or obligation to the Employee, except (I) for the
Continuing Obligations, (II) to pay the Non-Compete Consideration, and (III) the
obligations pursuant to Article THIRD (E); all of such obligations of the
Company and rights of Employee shall survive the termination or expiration of
this Agreement.
(ii) All reimbursements and other payments to be made to him, or on
his behalf, hereunder shall be payable to him on demand, subject only to receipt
of reasonable supporting documentation and shall be on a "grossed-up" basis to
also include reimbursement for any and all income and employment taxes arising
from the reimbursement or payments provided hereby (excluding only the Non-
Compete Consideration).
(E) If, at any time after the date hereof, any of the following events
(an "Event") occurs;
(i) more than 20% of the Company's then issued and outstanding
voting stock shall have been purchased or acquired (or voting rights with
respect thereto shall have been acquired) by a person, corporation or group
thereof acting in concert, the purpose or result of which would be a change in
either "control" of the Company (as generally described in subparagraph (ii)
hereof); or
(ii) a transaction or circumstance occurs or eventuates which
reasonably may be construed as effecting or constituting a clear and present
probability of effecting a change in "control" of the Company, as "control" is
generally or reasonably understood in the business community; then, upon the
occurrence of any such Event (from which it is agreed that the Employee would
suffer irreparable damage and harm which will be very difficult or impossible to
estimate), the Employee may elect, by written notice to the Company, to treat
the Event as constructive termination of his employment hereunder and a material
breach of this Agreement and whether or not the Employee so elects to actually
terminate his employment as an officer and director of the Company and its
Affiliates, the Employee shall receive and the Company will pay to the Employee,
within three days of such Event, subject to Article SECOND (F), an amount equal
to the sum of (1) 299% of the Employee's "base amount", as such term is defined
in Section 280G of the Internal Revenue Code of 1986, as amended, and
regulations pursuant thereto in effect at the time of termination of the
Employee's employment (collectively, the "Code"); and if Employee elects to
terminate his employment as a result of an Event, (2) the Pro-Rata Bonus, (3)
the Non-Compete Consideration, (4) the amount payable pursuant to Article THIRD
(E)(ii)(2) provided that the Employee
<PAGE>
-5-
elects such option (otherwise Employer shall continue to provide the insurance
coverages required under Article THIRD (E) (ii); and (5) all amounts payable
under Article TENTH. In the event of a dispute as to the amount, the matter
shall be referred to the independent public accountants and auditors who were
the auditors for the Company at the time of the occurrence of the Event (the
"Auditors"), and their determination shall be final, binding and conclusive.
(F) The parties agree that it is their intent to comply with the "safe
harbor" provisions of Section 280G of the Code. In order that the amounts
payable pursuant to this Agreement do not constitute "excess parachute payments"
within the meaning of said Section 280G, the payments and other consideration
provided for hereunder shall, to the extent necessary, be reduced accordingly so
that no such payment shall constitute an excess parachute payment. Employee
shall repay any amounts determined by the Auditors to be necessary to ensure
such compliance, which determination shall be final, binding and conclusive for
all purposes hereunder. If and to the extent that any payment or other
consideration provided for hereunder is determined by the Internal Revenue
Service to be an "excess parachute payment" within the meaning of said Section
280G and either a determination is reasonably made by Employee not to challenge
such determination or the challenge to such determination is not successful,
Employee shall, promptly upon the written request of the Company, repay such
amount to the Company as is necessary so that no such payment or other
consideration will constitute an "excess parachute payment". If the Employee
elects to challenge such determination, the Company shall fully cooperate with
Employee and support such challenge and shall pay all costs, expenses and
professional fees related to same."
4. Article THIRD (A) of the Agreement is amended to read in its
entirety as follows:
"THIRD:
(A) The Employee shall receive, during his employment hereunder in
accordance with the terms hereof, as salary commencing on the Commencement Date,
computed at the rate of not less than $170,000 per annum ("Base Salary"),
payable in such installments as shall accord with normal pay practices of the
Company, but not less often than monthly. The Base Salary may be increased but
shall not thereafter be decreased. As of July 1, 1997, Employee's Base Salary
is $200,000."
<PAGE>
-6-
5. Article THIRD (E) of the Agreement is amended to read in its
entirety as follows:
"(E) (i) Subject to subparagraph (ii) of this paragraph, during
the term of employment, the Company shall continue to include Employee and his
family in its group accident, hospitalization, major medical and dental
insurance plans, and, subject to paragraph (D) of Article THIRD, include
Employee in its group life insurance plan and provide disability insurance on a
non-cancelable basis to Employee, if available, and attempt, in addition, to
secure reasonable excess medical and hospitalization insurance covering Employee
and his spouse as beneficiary all at no cost to Employee.
(ii) In the event the Employee's employment hereunder is terminated
for any reason, including but not limited to an Event, the Employee shall be
entitled to elect to either (1) continue coverage for himself and his family
under the Company's accident, medical, dental and hospitalization plans which
are then currently or thereafter in force (collectively, the "Plan") for a
period of two years, and such coverage shall be required to provide coverage at
least equal to the coverage (as measured by the type and scope of coverage and
the level of benefits) (collectively, the "Level of Coverage") in effect on the
date of termination or (2) receive, within three (3) business days following
such termination, the discounted present value of the total amount sufficient to
pay all premiums payable or to become payable for such medical and
hospitalization coverage for a period of two years based on the premiums that
would have to be paid for comparable coverage, such discounted present value to
be determined using the lowest of the following: (v) the average of the
reference rate of the Company's principal long-term lender during the two years
prior to the Termination Date, (w) 120% of the "Applicable Federal Rate" as
determined pursuant to Section 1274 of the Internal Revenue Code, (x) the 30
year Treasury bond rate at the Termination Date, (y) the rate which would be
used in determining the cost of an annuity for an amount equal to the sum of the
Entitlements and (z) the interest rate determined under the regulations of the
Pension Benefit Guaranty Corporation for determining the present value of a lump
sum distribution of less than $25,000, as such rates are determined under the
rules in effect prior to the Retirement Protection Act."
6. A new Article TENTH shall be added to the Agreement as follows:
"TENTH: (a) In the event the Company's principal place of business
is, or is expected or planned to be, moved to Charleston, South Carolina during
the term of the Agreement, and
<PAGE>
-7-
(I) Employee elects to remain employed by the Company and move to South
Carolina in connection therewith, or (II) if Employee incurs any costs in
contemplation or anticipation of such a move, the Company will reimburse
Employee for all reasonable expenses incurred by Employee in connection with or
in anticipation of relocating Employee's residence to South Carolina, including
but not limited to (i) all expenses of three round trips to the Charleston area
for Employee and Employee's wife for house-hunting purposes, (ii) the cost of
temporary lodging for Employee's wife and Employee prior to relocation and, if
necessary, following Employee's relocation, (iii) if the Employee relocates to
South Carolina, the cost of transportation of Employee and Employee's spouse and
all furnishings, household goods and autos to Employee's new residence and (iv)
the cost of the real estate broker's fees, if any, and other out-of-pocket costs
incurred by Employee as a result of leasing a new residence. In addition, the
Company shall reimburse Employee for any loss Employee may incur as a result of
the sale of Employee's residence in Connecticut. The determination of whether
Employee has incurred a loss and the size of the loss, if any, resulting from
the sale of Employee's residence will include, but not be limited to, any
selling expenses Employee incurs in connection with such sale, including but not
limited to attorney's fees and broker's charges.
(b) In the event that Employee acquires or commits to acquire a
residence in the Charleston area, or signs a lease for a residence in South
Carolina, and during the term of this Agreement Employee's employment with the
Company terminates for any reason whatsoever, the Company will, (i) if Employee
and/or Employee's spouse (if Employee is not then living) thereafter relocates
from South Carolina to New York, New Jersey or Connecticut within four months
following the later of such termination or Employee's notice of resignation,
reimburse Employee and/or his spouse for all reasonable expenses incurred by
Employee and/or his spouse in connection with such relocation, to the same
extent as provided in Article TENTH (a) above, and (ii) reimburse Employee for
any loss Employee may incur in connection with the sale of Employee's residence
(or any and all costs and expenses which Employee incurs as a result of the
termination of any lease for rental property, if applicable, including but not
limited to the payment of all rent and utilities for the remaining term of the
lease) in South Carolina, with the existence and amount of such loss to be
calculated in the same manner as provided in Article TENTH (a) above with
respect to the sale of Employee's Connecticut residence. Notwithstanding the
foregoing, in the event Employee relocates from South Carolina in connection
with obtaining new employment and Employee's new employer agrees to reimburse
Employee for some
<PAGE>
-8-
or all of the expenses which the Company would otherwise be required to
reimburse Employee under this Article TENTH (b), the Company's obligation under
this Article TENTH (b) will be reduced, dollar-for-dollar, by the amount of
reimbursement to be received by Employee from Employee's new employer.
(c) Notwithstanding anything stated in this Agreement to the contrary,
if the Employee enters into a lease agreement for a residence in South Carolina,
the Company hereby agrees to reimburse the Employee for all rent, utilities,
insurance, maintenance, fees, deposits and all other costs and expenses related
to such lease that are paid or incurred by Employee (collectively, the "Lease
Expenses") prior to his relocation to South Carolina, and further, if the
Employee's employment is terminated for any reason whatsoever, including but not
limited to Employee's resignation, the Company hereby acknowledges and agrees
that the Employee shall be entitled to assign such lease to the Company, and the
Company will promptly take all actions necessary to complete and accomplish such
assignment (or pay all costs, expenses and fees necessary or required by the
lessor to terminate said lease with a full release to Employee), and, in any
event, the Company will pay and/or reimburse Employee for all Lease Expenses and
indemnify, defend and hold harmless the Employee and his spouse from any and all
direct and indirect costs, expenses, liabilities and damages in any way related
to or resulting from said lease or the assignment or termination of same.
(d) All reimbursements to be made to Employee under this Article TENTH
shall be payable to Employee on demand and subject only to receipt of reasonable
supporting documentation and all such reimbursements and all costs and expenses
incurred by Company on behalf of Employee shall be on a "grossed-up" basis to
also include reimbursement for any and all income and employment taxes arising
from the reimbursement provided or costs incurred hereby."
5. A new Article ELEVENTH shall be added to the Agreement as
follows:
"ELEVENTH: Litigation. All litigation or inquiries by third parties
----------
(for example, but not limited to, those by shareholders - direct or derivative -
or government agencies) arising out of or in connection with this Agreement or
Employee's performance hereunder, against either the Company, its Affiliates or
the Employee or any of them, shall be defended or opposed by the parties hereto,
as the case may be, to support this Agreement and the Employee's performance
hereunder, and counsel for the parties and the costs, fees and expenses thereof
shall be borne
<PAGE>
-9-
by the Company. The Company further undertakes to indemnify Employee for all
acts or omissions as an officer or director or employee of the Company or any
subsidiary thereof, to the full extent provided or permitted under Delaware law,
against all damages, liabilities, expenses and costs (including reasonable
counsel fees) in any action, claim or proceeding commenced (a) during (i) the
term of this Agreement or (ii) the period Employee is providing consulting
services, or (b) at any time after the termination of employment or consulting
services or the expiration of this Agreement."
In all other respects the Agreement, as amended, shall continue in
full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Amendment to the Agreement as of the day and year first above written.
THE UNION CORPORATION
By: /s/ William B. Hewitt
-----------------------
William B. Hewitt
President and Chief
Executive Officer
ACCEPTED AND AGREED:
/s/ Nicholas P. Gill
- -------------------------
Nicholas P. Gill
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES Item 6
Computation of Primary and Fully Exhibit 11
Diluted Earnings Per Share (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------
1997 1996
----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number Income Number Income
of Net of Per Share of Net of Per Share
Shares Taxes Amount Shares Taxes Amount
--------- ------- --------- --------- ------- ----------
Primary Earnings:
- ------------------------------
Average common shares (based
on weighted average number
of shares outstanding) 5,771,839 5,683,499
Common stock equivalents
(stock options) 191,805 225,702
--------- ---------
Net income 5,963,644 $1,943 $.33 5,909,201 $1,557 $.26
========= ======= ===== ========= ======= =====
Fully Diluted Earnings:
- ------------------------------
Average common shares (based
on weighted average number
of shares outstanding) 5,771,839 5,683,499
Common stock equivalents
(stock options) 191,891 229,980
--------- ---------
Net income 5,963,730 $1,943 $.33 5,913,479 $1,557 $.26
========= ====== ===== ========= ======= =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,902
<SECURITIES> 41,346
<RECEIVABLES> 11,507
<ALLOWANCES> 737
<INVENTORY> 0
<CURRENT-ASSETS> 66,983
<PP&E> 24,260
<DEPRECIATION> 15,996
<TOTAL-ASSETS> 128,980
<CURRENT-LIABILITIES> 22,759
<BONDS> 20,331
0
0
<COMMON> 4,371
<OTHER-SE> 69,900
<TOTAL-LIABILITY-AND-EQUITY> 128,980
<SALES> 0
<TOTAL-REVENUES> 31,429
<CGS> 0
<TOTAL-COSTS> 20,659
<OTHER-EXPENSES> 1,129<F1>
<LOSS-PROVISION> 72
<INTEREST-EXPENSE> 366
<INCOME-PRETAX> 3,469
<INCOME-TAX> 1,526
<INCOME-CONTINUING> 1,943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,943
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<FN>
<F1>Represents the total depreciation and amortization expense, but does not
include S,G&A expenses of $6,412.
</FN>
</TABLE>
