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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 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 No.)
211 King Street, Charleston, South Carolina 29401
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (Area Code 803) 958-3800
145 Mason Street, Greenwich, CT 06830
------------------------------------------------------------
(former name, former address and former fiscal year,
if changed since last report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which Registered
------------------- ------------------------
Common Stock, 50 cents par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of September 12, 1997 the Company had outstanding 5,793,944 shares of
common stock. The aggregate market value (based upon the closing price of these
shares on The New York Stock Exchange) of these shares held by nonaffiliates was
approximately $130,316,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report for the year ended June 30, 1997
are incorporated by reference into Parts I and II.
Portions of the Company's Proxy Statement, in connection with its Annual
Meeting to be held on November 19, 1997, are incorporated by reference into Part
III. The Company's Proxy Statement will be filed within 120 days after June 30,
1997.
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THE UNION CORPORATION
Form 10-K Annual Report
For the Fiscal Year Ended June 30, 1997
Table of Contents
Page
----
PART I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 9
PART III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners
and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 11
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PART I
- ------
Item 1. Business
- -----------------
(A) General Development of Business
-------------------------------
The Union Corporation, which was reincorporated in Delaware in 1986, was
formed in 1938. Its principal executive offices are located at 211 King
Street, Charleston, South Carolina. When used herein, the "Company" means
The Union Corporation and its subsidiaries.
The Company conducts its business through subsidiaries which are
operationally decentralized. Matters pertaining to corporate strategy,
policy and finance are managed at Company headquarters.
The Company's operations are currently comprised of five financial services
companies, Transworld Systems Inc. ("Transworld"), Allied Bond & Collection
Agency, Inc. ("Allied Bond"), Capital Credit Corporation ("Capital Credit"),
Interactive Performance, Inc. ("Interactive Performance") and High
Performance Services, Inc. ("High Performance Services"), which furnish a
broad range of credit and receivables management outsourcing services, such
as credit authorization, customer service, credit usage management,
management and collection of accounts receivable, and a variety of related
inbound and outbound call-center services, to both large and small
businesses.
(C) Narrative Description Of Business
---------------------------------
During the year ended June 30, 1997, the Company, through its Capital
Credit, Allied Bond and Interactive Performance subsidiaries, recorded
aggregate revenues of approximately $12,816,000 from a single customer, AT&T
Corp. No other customer comprises more than 10% of the Company's
consolidated revenues. However, both Allied Bond and Capital Credit have
several large customers and the loss of any one of these customers could
have a material adverse effect on their respective results of operations;
Interactive Performance currently serves two customers and the loss of
either would have a material adverse effect on its results of operations;
and High Performance Services currently serves one customer and the loss of
that customer would have a material adverse effect on its results of
operations.
Revenues derived from the Company's accounts receivable management
operations have historically been higher in the third and fourth fiscal
quarters than those in the first and second fiscal quarters.
The debt collection industry is closely regulated by federal laws such as
the Fair Debt Collection Practices Act and similar state laws. The industry
is highly competitive and is comprised of companies serving large national
accounts and those that concentrate on local accounts in a particular
market. The Company, through its Transworld, Allied Bond and Capital Credit
subsidiaries, serves both national and local accounts. Accounts are placed
for collection based on collection performance, price and service provided.
The past-due consumer and commercial debt currently outstanding in the
United States includes among other obligations bad checks, delinquent credit
card and medical bills and uncollected loans and taxes owed to federal,
state and local governments. The key to collecting some of this bad debt is
"third-party" intervention. As a third party, the collection agency has an
advantage because
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debtors are far more concerned about their credit record when they are
contacted by an outside collection agency and, therefore, are more likely to
respond positively. The importance of national credit grantors and the
increased mobility of delinquent debtors have created a demand for national
collection firms like Transworld, Allied Bond and Capital Credit. These
companies have the financial and managerial resources to maintain and
upgrade sophisticated automated collection systems that operate nationally.
The Company has identified, as sales targets, companies in four large
markets, which represent the greatest opportunity to utilize one or more of
our services. These markets are large telecommunications, financial
services, power generation and distribution firms, and small and medium size
companies. The Company currently provides credit and/or accounts receivable
management services to 16 of the top 25 U.S. bankcard issuers, to six of the
ten largest telecommunications companies and to over 40,000 small and medium
size companies. This market focus permits the Company to capitalize on
strong client relationships, relevant economic trends, and its core
competencies.
The Union Corporation expanded its business base beyond that of its
traditional role of collecting past-due debt through "third-party
intervention" into "call-center outsourcing" services. The Company has
significant strengths in third-party collections such as: dedicated and
well-trained people, experienced operating management, a proven track record
of strong performance and service to our clients, and sophisticated
nationwide collections systems. It has become increasingly apparent that
many of those same resources can be of value to companies well before the
need for third-party collections.
The Company's objective to become an outsourcing "arm" of increasingly
competitive and cost-conscious companies in a deregulated environment is
supported by a solid infrastructure. With 133 sales offices, 27 "call-
centers," modern electric communications, and experienced operating
management, the Company is prepared to provide current and new customers
with a variety of credit and receivables management services to suit their
business needs.
Transworld Systems Inc.
-----------------------
Transworld, headquartered in Rohnert Park, California, offers the
combination of both fixed-fee and contingency fee collection services.
Transworld has a successful history which is attributable to the strength of
its marketing organization, a high recovery rate, cost-effectiveness and
quality of service.
Transworld's system reduces customers' in-house collection costs while
providing detailed monthly status reports for accounting and control
purposes. Its fixed-fee system, Phase I, is based on contacting the debtor
with a series of computer generated collection demands sent by mail. Unlike
companies whose revenues are derived from contingency collection,
Transworld's Phase I system charges a fixed fee currently ranging from $4.75
to $9.95 per account depending on the number of accounts placed.
Many customers with small-balance delinquent accounts, ranging between $50
and $100, have found Transworld's Phase I system to be the only economical
method of obtaining professional, third-party collection results.
Transworld's ability to get clients to make an early assignment of
delinquent accounts, usually forty-five to ninety days past-due, is possible
because of the low fixed-fee structure and its sophisticated computerized
management reporting system. Transworld also offers clients who purchase
systems for 300 or more accounts the option to electronically
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communicate the debtor information that is necessary to initiate collection
demands directly to Transworld's computer system. Many clients experience
collection costs as low as five to seven percent of the amount collected,
while at the same time eliminating a good deal of their normal billing
expenses. The combination of low cost and high recovery rates results in a
high customer renewal rate.
Transworld currently has well over 40,000 customers using its services, from
small companies that purchase a system for 45 accounts to major corporations
that purchase systems for 100,000 accounts.
Transworld's marketing organization, consisting of more than 700 independent
contractors, provides the sales effort and ongoing service essential to the
system. This group is highly trained and motivated, and is paid on a
commission basis. Transworld had 133 sales offices throughout the country
and Puerto Rico at year end and plans to open six new sales offices in
fiscal 1998.
Credit Management Services (CMS)
--------------------------------
Approximately 75% of the clients using Transworld's Phase I system assign
those accounts that were not collected during the fixed-fee program to CMS,
a division of Transworld, on a contingency fee basis (Phase II). Because a
CMS office is opened in a new location only after business has been
developed in that area by Transworld's Phase I division, historically it has
become profitable within the first month of operation.
CMS collectors are paid on a commission basis and perform collection
services at 19 branch offices, with one new branch office expected to be
opened in fiscal 1998. Branch managers, trained and promoted from within,
are compensated through a combination of commissions and profit incentives.
CMS has developed software packages and computer systems to handle fiduciary
reporting and interface with a client base of over 35,000. The average debt
assigned CMS is approximately $600 with an average payment collected in
excess of $200. CMS had record collections, revenues and profits in 1997.
Transworld employed approximately 390 persons at September 12, 1997, in
addition to the independent contractors. None of the employees are covered
under a collective bargaining agreement.
Interactive Performance, Inc.
-----------------------------
Interactive Performance, headquartered in North Charleston, South Carolina,
was formed in fiscal 1996 to provide a range of credit and receivables
management outsourcing services to telecommunications companies. Services
including credit authorization, customer service, usage management and
receivables management, are performed through call-centers in South Carolina
and Florida.
Interactive Performance began providing services to AT&T Corp. late in the
third quarter of fiscal 1996 at its newly created 50,000 square foot
facility in North Charleston, South Carolina. During fiscal 1997,
Interactive Performance opened a new 8,000 square foot facility, also in
North Charleston, South Carolina. Interactive Performance also began
providing services to Lucent Technologies late in the fourth quarter of
fiscal 1996 at a new 7,000 square foot facility in Jacksonville, Florida.
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Interactive Performance employed approximately 570 people at September 12,
1997, none of whom is covered under a collective bargaining agreement.
High Performance Services, Inc.
-------------------------------
High Performance Services, headquartered in Jacksonville, Florida, was
formed in fiscal 1996 to provide a full range of credit and receivables
management services to the financial services industry. High Performance
Services began providing customer services on an outsourcing basis for
Advanta Corp.'s credit card business late in the fourth quarter of fiscal
1996 at its new 15,000 square foot facility in Jacksonville, Florida, and
employed approximately 170 people at September 12, 1997, none of whom is
covered under a collective bargaining agreement.
Allied Bond & Collection Agency, Inc.
-------------------------------------
Allied Bond, headquartered in Trevose, Pennsylvania, is a third-party
contingency and fixed-fee basis collection and teleservicing company.
Allied Bond includes among its clients many of the larger consumer credit
grantors across a broad spectrum of industries such as banking, oil refining
and distribution companies, student loan servicing, retail, travel and
entertainment, utilities and telecommunications, and enjoys a significant
share in many of these markets. Collections are accomplished through a
combination of letters, telephone calls and litigation. Allied Bond earns
commissions that are generally in the range of 15 to 40 percent of the
amount collected.
Post charge-off collection work has long been outsourced by credit grantors.
More recently, however, the concept of outsourcing has been expanded to
include many aspects of the receivables management process that were
traditionally performed by credit grantors as an in-house operation. Allied
Bond has responded to these opportunities by developing innovative programs
for both its existing customer base and for new customers and markets.
These new programs, some on a fee-per-account basis, include early-out and
pre-charge-off intervention, as well as customer relations and service
calling missions. Allied Bond's philosophy consists of maintaining a highly
trained, well supervised collector staff committed to achieving positive
results in an efficient and professional manner for all of Allied Bond's
clients.
Allied Bond employed approximately 650 people at September 12, 1997, none of
whom is covered under a collective bargaining agreement.
Capital Credit Corporation
--------------------------
Capital Credit, headquartered in Jacksonville, Florida, provides contingency
and fixed-fee collection services to large national clients primarily in
four major market segments: bankcard, telecommunications, travel and
entertainment and government. Capital Credit earns commissions that are
generally in the range of 15 to 40 percent of the amount collected.
Capital Credit's computerized on-line collection system links its Regional
Collection Centers in Florida and Massachusetts and permits clients to
communicate electronically with the system for an instant exchange of
information. This system substantially decreases clerical effort and
increases collector productivity.
Capital Credit employed approximately 210 people at September 12, 1997, none
of whom is covered under a collective bargaining agreement.
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ENVIRONMENTAL MATTERS
Current commercial operations of the Company and its subsidiaries do not
involve activities affecting the environment. However, the Company is a
party in several pending environmental proceedings involving the federal
Environmental Protection Agency ("EPA") and comparable state agencies in
Indiana, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania, South
Carolina and Virginia. All of these matters relate to discontinued
operations of former divisions or subsidiaries for which the Company has
potential continuing responsibility.
One group of the Company's known environmental proceedings relates to
Superfund or other sites where the Company's liability arises from arranging
for the disposal of allegedly hazardous substances in the ordinary course of
prior business operations. In most of these "generator" liability cases,
the Company's involvement is considered to be de minimus (i.e. a volumetric
share of approximately 1% or less) and in each of these cases the Company is
only one of many potentially responsible parties. From the information
currently available, there are a sufficient number of other economically
viable participating parties so that the Company's projected liability,
although potentially joint and several, is consistent with its allocable
share of liability. At one "generator" liability site, the Company's
involvement is potentially more significant because of the volume of waste
contributed in past years by a currently inactive subsidiary. Insufficient
information is available regarding the need for or extent and scope of any
remedial actions that 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 that 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. The $8,000,000 loss provision recorded
during the third quarter of fiscal 1995 for costs related to certain of its
discontinued operations, all of which were terminated or otherwise disposed
of prior to fiscal 1990, included a provision of approximately $4,000,000
for environmental matters. 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 in fiscal
1998. Actual remediation costs cannot be computed until such remedial
action is completed.
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Some of the other sites involving the Company or an inactive subsidiary are
at a stage where an assessment of liability, if any, cannot reasonably be
made.
It is the Company's policy to comply fully with all laws regulating
activities affecting the environment and to meet its obligations in this
area. In many "generator" liability cases, reasonable cost estimates are
available on which to base reserves on the Company's likely allocated share
among viable parties. Where insufficient information is available regarding
projected remedial actions for these "generator" liability cases, the
Company has recorded what it believes to be reasonable estimates of its
potential liabilities. Reserves for liability for sites on which former
operations were conducted are based on cost estimates of remedial actions
projected for these sites. All known environmental claims are periodically
reviewed by the Company, where information is available, to provide
reasonable assurance that adequate reserves are maintained. Reserves
recorded for environmental liabilities are not net of insurance or other
expected recoveries. Other than the aforementioned loss provision that was
recorded by the Company during fiscal 1995, no significant expenses related
to environmental matters were recorded by the Company during the three years
ended June 30, 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. (See
Note 2 of Notes to Consolidated Financial Statements included in the
Company's 1997 Annual Report for additional information regarding
Discontinued Operations).
Employees
---------
The Company and its subsidiaries employed approximately 2,000 persons at
September 12, 1997. Employees of the Company who meet certain requirements
as to age and length of service are entitled to participate in a number of
employee benefit programs, including medical insurance and retirement plans.
The Company considers its relations with its employees to be good.
(D) Financial Information About Foreign and Domestic Operations and Export Sales
----------------------------------------------------------------------------
The Company has no foreign operations.
Item 2. Properties
- -------------------
The Company's operations are comprised of its Transworld, Allied Bond,
Capital Credit, Interactive Performance and High Performance Services
subsidiaries. The Company believes that the facilities of its operations are
suitable and adequate for its business.
Transworld owns its headquarters located in Rohnert Park, California. The
CMS division of Transworld operates out of 19 branch offices, all of which
are leased except for the office located at Transworld's headquarters in
Rohnert Park.
Allied Bond leases its main facility from a partnership, of which the
general partners are the co-chairmen of Allied Bond, pursuant to a lease
agreement that expires in July 2002. The terms of
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the lease are comparable to those that would have been obtained under
arrangements with unrelated third parties.
All offices for Capital Credit, Interactive Performance and High Performance
Services are leased.
See Item 1. Environmental Matters on pages 7 and 8 of this Form 10-K for
information regarding pending environmental proceedings involving properties
currently or formerly owned or operated by a subsidiary or division of the
Company.
Item 3. Legal Proceedings
- --------------------------
See Notes 2 and 7 of Notes to Consolidated Financial Statements included in
the Company's 1997 Annual Report, which notes are incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended June 30, 1997.
PART II
- -------
Item 5. Market for the Registrant's Common Stock and Related Security Holder
- -----------------------------------------------------------------------------
Matters
-------
See "Market for the Registrant's Common Stock and Related Security
Holder Matters" included on page 33 of the Company's 1997 Annual Report,
which is incorporated herein by reference.
Item 6. Selected Financial Data
- --------------------------------
See table entitled "Selected Financial Data" included on page 34 of the
Company's 1997 Annual Report, which table is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included on pages 28 through 33 of the Company's
1997 Annual Report, which pages are incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The financial statements and supplementary data contained in the
Company's 1997 Annual Report, as listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule on page 12 of this
Form 10-K, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
There have been no disagreements on accounting and financial disclosures
with the independent auditors.
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PART III
- --------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
See the section captioned "Election of Directors" included in the
Company's Proxy Statement, in connection with its Annual Meeting to be
held on November 19, 1997, which section is incorporated herein by
reference.
Information regarding the executive officers of the Company who are
also directors and the executive officers of the Company who are not
directors is contained in the material incorporated above. The term of
office of each of the Company's executive officers extends until either
the expiration of their employment contract, their resignation or
removal or until a successor is chosen by the Board of Directors.
Mr. Herbert Silver, a director of the Company who is also the co-
chairman of Allied Bond, is the brother of Mr. Bernard Silver, who is
also the co-chairman of Allied Bond. There are no family relationships
among any of the other directors or executive officers.
Item 11. Executive Compensation
- --------------------------------
See the section captioned "Executive Compensation" included in the
Company's Proxy Statement, in connection with its Annual Meeting to be
held on November 19, 1997, which section is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
See the section captioned "Voting Securities" included in the Company's
Proxy Statement, in connection with its Annual Meeting to be held on
November 19, 1997, which section is incorporated herein by reference.
(b) Security Ownership of Directors and Officers
--------------------------------------------
See the section captioned "Voting Securities" included in the Company's
Proxy Statement, in connection with its Annual Meeting to be held on
November 19, 1997, which section is incorporated herein by reference.
(c) Changes in Control
------------------
The Company knows of no contractual arrangements which may, at a
subsequent date, result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
See Item 2. Properties on pages 8 and 9 of this Form 10-K and the
section captioned "Certain Transactions" included in the Company's Proxy
Statement, in connection with its Annual Meeting to be held on November
19, 1997, which sections are incorporated herein by reference.
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PART IV
- -------
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
- ------------------------------------------------------------------------
(a) 1. Financial Statements
--------------------
See Index to Consolidated Financial Statements and Financial Statement
Schedule on page 12 of this Form 10-K.
2. Reports and Financial Statement Schedule
----------------------------------------
See Index to Consolidated Financial Statements and Financial Statement
Schedule on page 12 of this Form 10-K.
3. Exhibits
--------
See Index to Exhibits on pages 13 and 14 of this Form 10-K.
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed for the three months ended June
30, 1997.
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Index to Consolidated Financial
Statements and Financial Statement Schedule
<TABLE>
<CAPTION>
Annual Report
Page(s)
Item 14(a) (1) -------
- --------------
<S> <C>
Data incorporated by reference from
1997 Annual Report:
Consolidated Statements of Operations for the
Years Ended June 30, 1997, 1996 and 1995 12
Consolidated Balance Sheets at June 30, 1997 and 1996 13
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1997, 1996 and 1995 14
Consolidated Statements of Shareholders' Equity
for the Years Ended June 30, 1997, 1996 and 1995 15
Notes to Consolidated Financial Statements 16 - 25
Supplementary Information
Quarterly Data (Unaudited) 26
Report of Independent Auditors 27
<CAPTION>
Form 10-K
Page(s)
Item 14(a) (2) ------
- --------------
<S> <C>
Schedule for the years ended June 30, 1997, 1996 and 1995:
Schedule II Valuation and Qualifying Accounts and Reserves 15
</TABLE>
All other financial statements and schedules not listed have been omitted
because they are not applicable, or not required, or because the required
information is included in the Consolidated Financial Statements or notes
thereto.
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Index to Exhibits
Item 14(a) (3)
- --------------
3. Articles of Incorporation and By-laws.
(a) Certificate of Incorporation of The Union Corporation (13). Certificate
of Correction of Certificate of Incorporation of The Union
Corporation, dated March 12, 1990 (6).
(b) Certificate of Merger of The Union Corporation (a New Jersey
corporation) into The Union Corporation (a Delaware corporation), as
filed in New Jersey (8).
(c) Certificate of Ownership and Merger merging The Union Corporation (a New
Jersey corporation) into The Union Corporation (a Delaware corporation),
as filed in Delaware (13).
(d) By-laws of The Union Corporation, amended effective July 1, 1997 (filed
herewith).
10. Material Contracts
(a) Employment Agreement between The Union Corporation and Melvin L. Cooper,
dated as of January 1, 1986 (9). Amendment dated September 30, 1986
(8). Amendment dated November 10, 1988 (7). Amendment dated September
13, 1990 (6). Amendment dated September 1, 1992 (4). Amendment dated
March 15, 1995 (2).
(b) Rights Agreement dated March 14, 1988 between The Union Corporation and
Registrar and Transfer Company as Rights Agent (13). Amendment dated
May 23, 1990 (12). Amendment dated September 16, 1992 (13). Amendment
dated August 22, 1994 which established the First National Bank of
Boston as Rights Agent (14).
(c) Asset Purchase Agreement dated as of February 8, 1989 by and between the
Registrant and GSG Acquisition Corporation (11).
(d) Indemnification Agreement by and between The Union Corporation and each
member of the Board of Directors and each Executive Officer of the
Registrant (5).
(e) Employment Agreement by and between Transworld Systems Inc., The Union
Corporation and Gordon S. Dunn dated as of July 1, 1995 (2). Extension
of Employment Agreement by and between Transworld Systems Inc., The
Union Corporation and Gordon S. Dunn entered into as of November 14,
1996 (filed herewith).
(f) Employment Agreement by and between Transworld Systems Inc. and George
M. Macaulay dated as of July 1, 1995 (2). Extension of Employment
Agreement by and between Transworld Systems Inc. and George Macaulay
entered into as of November 14, 1996 (filed herewith).
(g) Employment Agreement by and between Capital Credit Corporation, The
Union Corporation and William B. Hewitt dated as of July 1, 1995 (1).
(h) Employment Agreement by and between The Union Corporation and Nicholas
P. Gill dated as of March 22, 1995 (2). Extension dated August 27, 1996
(filed herewith).
(i) Asset Purchase Agreement dated December 1, 1992 by and between the
Registrant and Allied Bond & Collection Agency (10). Amendment dated
November 14, 1996 to the Asset Purchase Agreement by and between the
Registrant and Allied Bond & Collection Agency and to the Employment
Agreements by and between Allied Bond & Collection Agency, Inc., The
Union Corporation and Herbert R. Silver and Bernard Silver (filed
herewith).
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Index to Exhibits (Continued)
Item 14(a) (3)
- --------------
10. Material Contracts (Continued)
(j) Employment Agreement by and between Allied Bond & Collection Agency,
Inc., The Union Corporation and Herbert R. Silver dated as of December
1, 1992 (10) and amendment thereto (16).
(k) Employment Agreement by and between Allied Bond & Collection Agency,
Inc., The Union Corporation and Bernard Silver dated December 1, 1992
(10) and amendment thereto (16).
(l) Employment Agreement between Allied Bond & Collection Agency, Inc. and
Sheldon Zucker dated as of December 1, 1992 (4).
(m) Contract between AT&T Corp. and Interactive Performance, Inc. dated
January 19, 1996 (15). (Confidential treatment has been granted for
certain portions of this exhibit.)
(n) Contract between Advanta Corp. and High Performance Services, Inc. dated
August 16, 1996 (1). (Confidential treatment has been granted for
certain portions of this exhibit.)
11. Determination of primary and fully diluted income per common and common
equivalent share.
13. Annual Report to Shareholders for 1997.
(With the exception of the pages listed in the above index (on page
12) and the items incorporated by reference in Items 3, 5, 6, 7 and 8
of this Form 10-K, the Company's 1997 Annual Report is not deemed to
be filed as part of this Form 10-K.)
21. Subsidiaries of the registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule.
______________________________
Footnotes to Item 14 (a) (3); 3. and 10.
(1) Incorporated by reference to the Company's 1996 Form 10-K Report.
(2) Incorporated by reference to the Company's 1995 Form 10-K Report.
(3) Incorporated by reference to the Company's 1994 Form 10-K Report.
(4) Incorporated by reference to the Company's 1993 Form 10-K Report.
(5) Incorporated by reference to the Company's 1992 Form 10-K Report.
(6) Incorporated by reference to the Company's 1990 Form 10-K Report, Exhibit
No. 3(a) and 10(a), respectively (File No. 1-5371).
(7) Incorporated by reference to the Company's 1989 Form 10-K Report, Exhibit
No. 10(c) (File No. 1-5371).
(8) Incorporated by reference to the Company's 1987 Form 10-K Report, Exhibit
No. 3(b) and 10(c), respectively (File No. 1-5371).
(9) Incorporated by reference to the Company's 1986 Form 10-K Report, Exhibit
No. 10(d) (File No. 1-5371).
(10) Incorporated by reference to the Company's December 23, 1992 Form 8-K
Current Report.
(11) Incorporated by reference to the Company's February 15, 1989 Form 8-K
Current Report, Exhibit No. 1 (File No. 1-5371).
(12) Incorporated by reference to the Company's June 4, 1990 Form 8-K Current
Report, Exhibit No. 1 (File No. 1-5371).
(13) Incorporated by reference to the Company's Form 8-B/A Amendment to
Registration of Securities of Certain Successor Issuers filed on July 5,
1994.
(14) Incorporated by reference to the Company's Form S-8 filed on September 2,
1994.
(15) Incorporated by reference to the Company's March 31, 1996 Form 10-Q Report.
(16) Amendment dated November 14, 1996 to the Asset Purchase Agreement by and
between the Registrant and Allied Bond & Collection Agency and to the
Employment Agreements by and between Allied Bond & Collection Agency,
Inc., The Union Corporation and Herbert R. Silver and Bernard Silver
(filed herewith as part of Exhibit 10 (i)).
14
<PAGE>
THE UNION CORPORATION AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the years ended June 30, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ----------------------- -------- --------
Additions
-----------------------
Balance at Charged to Balance at
beginning cost and Other (A) close of
Description of period expenses Additions Deductions period
----------- ---------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1997 $700 $124 $ - $143 $681
==== ==== ==== ==== ====
1996 $542 $266 $ - $108 $700
==== ==== ==== ==== ====
1995 $552 $143 $ - $153 $542
==== ==== ==== ==== ====
</TABLE>
(A) Accounts receivable write-offs, net of recoveries.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, The Union Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE UNION CORPORATION
Melvin L. Cooper
----------------
Melvin L. Cooper
Chairman of the Board
Nicholas P. Gill
----------------
Nicholas P. Gill
Executive Vice President,
Treasurer and Secretary
(Chief Financial Officer)
DATE: September 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Melvin L. Cooper William B. Hewitt James C. Miller III
- ------------------------ ----------------------------- -----------------------
Melvin L. Cooper William B. Hewitt James C. Miller III
Chairman of the Board; President and Chief Executive Director
Director Officer; Director September 26, 1997
September 26, 1997 September 26, 1997
Robert A. Kerr
- ------------------------ ----------------------------- -----------------------
John E. Angle Robert A. Kerr Stuart J. Northrop
Director Director Director
September , 1997 September 26, 1997 September , 1997
Herbert A. Denton Robert A. Marshall Herbert R. Silver
- ------------------------ ----------------------------- -----------------------
Herbert A. Denton Robert A. Marshall Herbert R. Silver
Director Director Director
September 26, 1997 September 26, 1997 September 26, 1997
Gordon S. Dunn James M. McCormick
- ------------------------ -----------------------------
Gordon S. Dunn James M. McCormick
Director Director
September 26, 1997 September 26, 1997
16
<PAGE>
EXHIBIT 3(d)
THE UNION CORPORATION
---------------------
BY-LAWS
(Effective July 1, 1997)
ARTICLE I
OFFICES
-------
SECTION 1. OFFICES. The registered office of the Corporation in the
-------
State of Delaware shall be in the city of Dover, county of Kent, and the name of
the resident agent in charge thereof is United States Corporation Company. The
Corporation may also have offices at such other places as the Board of Directors
may from time to time appoint, or the business of the Corporation may require.
Said offices may be within or without the State of Delaware.
ARTICLE II
STOCKHOLDERS
------------
SECTION 1. PLACE OF MEETING. All meetings of the stockholders shall
----------------
be held at such place within or without the State of Delaware as may be fixed
from time to time by the Board of Directors and stated in the notice of meeting
or in a duly executed waiver of notice thereof.
<PAGE>
SECTION 2. ANNUAL MEETING. A meeting of the stockholders shall be
--------------
held annually on such date after the close of the Corporation's fiscal year
(June 30), and at such time as may be designated from time to time by the Board
of Directors for the purpose of electing directors, and for the transaction of
such other business as may properly come before the meeting.
SECTION 3. NOTICE OF THE ANNUAL MEETING. Written notice of the time,
----------------------------
place and purpose of the annual meeting of stockholders shall be given not less
than 10 nor more than 60 days before the date of the meeting, either personally
or by mail to each stockholder of record entitled to vote at the meeting.
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders
----------------
shall be held whenever called by the Chairman of the Board of Directors, or
whenever called by the Board of Directors pursuant to the majority vote of the
directors, voting at a duly convened meeting of the Board or pursuant to a
written instrument signed by a majority of the full Board, and a special meeting
of the stockholders shall likewise be called whenever persons holding 50% of the
total shares of stock issued and outstanding and entitled to vote, shall in
writing, make application therefor to the Chairman of the Board of Directors,
President or the Board of Directors, stating the object of such special meeting.
2
<PAGE>
SECTION 5. NOTICE OF SPECIAL MEETING. Written notice of the time,
-------------------------
place and purpose of special meetings of the stockholders shall be given not
less than 10 nor more than 60 days before the date of the meeting, either
personally or by mail to each stockholder of record entitled to vote at the
meeting.
SECTION 6. QUORUM. At any meeting of stockholders, the holders of a
------
majority of the issued and outstanding shares of the stock of the Corporation
present in person or represented by proxy, shall constitute a quorum for the
transaction of business, including the election of directors; the presence or
absence of a quorum shall be determined at the opening of a meeting, and if a
quorum is then present, and unless the law or certificate of incorporation
specifically provides to the contrary, all business properly before the meeting
may be thereafter transacted by a majority vote of the shares present or by
proxy, though less than a quorum as a result of abstentions or absences, after
the opening of the meeting.
SECTION 7. ADJOURNMENTS. At any annual or special meeting, including
------------
a meeting at which a fixed quorum may be required but fails to attend, a
majority in interest of the stockholders present, in person or by proxy, and
entitled to vote, may adjourn the meeting from time to time without further
notice, and at any such adjourned meeting, provided a quorum is
3
<PAGE>
present at the opening thereof, any business may be transacted at the meeting as
originally called had the same not been adjourned.
SECTION 8. ORGANIZATION. The Chairman of the Board of Directors, or
------------
in his absence, the President, the Executive Vice President or any Vice
President (in order of seniority) shall call the meeting of stockholders to
order and shall act as Chairman thereof. The Secretary of the Corporation shall
act as the secretary at all meetings of stockholders, and in his or her absence
the Chairman of the meeting may appoint any person to act as Secretary.
SECTION 9. VOTING. Directors shall be chosen by plurality of the
------
votes cast. On demand of any stockholder entitled to vote, or whenever required
by statute, the vote upon any question, at any meeting, shall be by ballot. At
each meeting of the stockholders, each stockholder entitled to vote may vote in
person or by proxy appointed by an instrument in writing, subscribed by such
stockholder, or by his duly authorized attorney, and delivered to the Secretary
of the meeting. Unless the transfer of books shall have been closed or a date
shall have been fixed as a record date for the determination of the stockholders
entitled to vote, no share of stock shall be voted on at any election for the
directors which shall have been transferred on the books of the Corporation
within twenty (20) days next preceding such election. Each holder of stock
entitled
4
<PAGE>
to vote shall be entitled to one (1) vote for each share of said stock
registered in such holder's name on the books of the Corporation. At any duly
constituted meeting of the stockholders, the vote of the holders of a majority
of the shares having voting powers and present in person or by proxy, shall
decide any question brought before such meeting, unless applicable statutes, the
certificates of incorporation or these by-laws specifically require otherwise.
SECTION 10. BUSINESS. Business transacted at all meetings of
--------
stockholders shall be as required by statute, these by-laws or the certificate
of incorporation or as specified in the notice of meeting.
SECTION 11. INSPECTORS. At all meetings of stockholders, whether the
----------
same be annual meetings or special meetings, the polls shall be opened and
closed by the Chairman of the meeting, and the said polls shall remain open for
a period not exceeding one (1) hour. The proxies shall be reviewed and all
questions touching the qualifications of votes and the validity of proxies and
the acceptance or rejection of votes shall be decided by one or more inspectors
of election. All ballots shall be received and counted by the inspector(s) of
elections and the inspector(s) shall certify the results in writing. Such
inspector(s) shall be appointed by the Chairman of
5
<PAGE>
the meeting. No candidate for election as director shall be appointed or shall
act as inspector.
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 1. NUMBER. The business, affairs and property of this
------
Corporation shall be managed and controlled by the Board of Directors. The
number of directors shall not be less than three nor more than twelve. Such
number may at any time and from time to time be increased or decreased by the
Board of Directors by resolution.
SECTION 2. CLASSIFICATION OF DIRECTORS. The Board of Directors shall
---------------------------
be divided into three classes, the members of each class to serve for three
years. The number of directors in each class shall be as nearly equal as
possible. At the first meeting of stockholders held for the election of members
of the Board so classified, the directors of a class shall be elected for a term
which shall expire at the first succeeding annual meeting thereafter; the
directors of a second class shall be elected for a term which shall expire at
the second succeeding annual meeting thereafter; and the directors of a third
class shall be elected for a term which shall expire at the third succeeding
annual meeting thereafter. At each successive annual meeting, directors of the
class whose term expires shall be
6
<PAGE>
elected for a term of three years and until their successors shall have been
duly elected and qualified, so that the term of office of one class of directors
shall expire in each year.
SECTION 3. VACANCIES. Vacancies shall be filled by a majority of the
---------
remaining directors, through less than a quorum, and newly created directorships
resulting from an increase in the number of directors shall be filled by a
majority of the Board as constituted prior to such increase, or by election by
the stockholders at any meeting thereof, and the directors so chosen shall hold
office until the annual election and until their successors shall be duly
elected and qualified, unless sooner displaced.
SECTION 4. PLACE OF MEETING. Directors may hold their meeting at
----------------
such place or places within or without the State of Delaware as they may from
time to time designate.
SECTION 5. FIRST MEETING OF THE BOARD OF DIRECTORS. After each
---------------------------------------
annual election of directors, the newly elected directors shall meet for the
purpose of organization, election of officers and the transaction of other
business at such place and time as shall be fixed by the directors.
7
<PAGE>
SECTION 6. SPECIAL MEETING. A special meeting of the Board of
---------------
Directors may be called by the Chairman of the Board of Directors, by the
President or by written notice from two or more members of the Board.
SECTION 7. NOTICE OF SPECIAL MEETING. The Secretary or Assistant
-------------------------
Secretary shall give notice to each director of each special meeting by mailing
the same at least two days before such meeting or on 24 hours' telegraphic (or
equivalent) notice. Notice of a meeting need not be given to any director who
submits a signed waiver of notice, whether before or after the meeting, or who
attends the meeting without protesting prior thereto or at its commencement, the
lack of notice. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
SECTION 8. QUORUM. At any meeting of the Board of Directors, a
------
majority of the number of Directors then in office shall constitute a quorum for
the transaction of business, except where otherwise expressly provided for by
statute, by the certificate of incorporation or by these by-laws. A majority of
those present at the time and place of any special or regular meeting, although
less than a quorum, may adjourn the meeting from time to time without further
notice until a quorum shall attend, and thereupon any business may be transacted
which would
8
<PAGE>
be transacted at the meeting as ordinarily called. The presence or absence of a
quorum shall be determined at the opening of the meeting, and if a quorum is
then present, and unless the law or the certificate of incorporation
specifically provides to the contrary, all business properly before the meeting
may thereafter be transacted by majority vote of the directors present.
SECTION 9. ORGANIZATION. At the first meeting of the Board of
------------
Directors a Chairman shall be elected by the Board who shall serve at the will
and pleasure of the Board. The Secretary of the Corporation, or in the event of
his absence, a temporary Secretary appointed by the Chairman, shall act as a
Secretary of the meeting.
SECTION 10. COMPENSATION. Directors who are not otherwise
------------
compensated as officers or employees of the Corporation or any of its
subsidiaries shall receive, by appropriate resolution of the Board of Directors,
compensation for services provided to the Corporation, provided, however, that
nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving additional
compensation therefor. Members of committees may also be granted such
compensation as the Board of Directors may determine. Directors fees may be
payable currently or be deferred. Compensation for services may be in such form
as the Board of Directors may determine.
9
<PAGE>
SECTION 11. INDEMNIFICATION. Every person who is an officer or
---------------
director of the Corporation, or of any corporation which he or she serves as
such at the request of the Corporation, shall be indemnified by the Corporation
to the fullest extent permitted by law against all expenses and liabilities
reasonably incurred by or imposed upon him or her in connection with any
proceeding to which he or she may be made, or threatened to be made, a party, or
in which he or she may become involved by reason of his or her being or having
been an officer or director of the Corporation, or of such other corporation,
whether or not he or she is an officer or director of the Corporation, or such
other corporation, at the time the expenses or liabilities are incurred. Such
right of indemnification shall not be deemed exclusive of any other rights to
which such person may be entitled apart from this provision. The Board of
Directors is authorized to provide for the discharge of the Corporation's
responsibilities under this Section by way of insurance or any other feasible
and proper means.
SECTION 12. ACTION BY WRITTEN CONSENT. Unless otherwise provided by
-------------------------
the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or any Committee
thereof may be taken without a meeting, if all the members of the Board of
Directors or committee, as the case may be, consent thereto in
10
<PAGE>
writing, the writing or writings to be filed with the minutes of proceedings of
the Board of Directors or committee.
ARTICLE IV
COMMITTEES
----------
SECTION 1. EXECUTIVE COMMITTEE. The Board of Directors, by
-------------------
resolution adopted by a majority of the entire Board, may appoint from among its
members an executive committee which shall have at least three members,
including the Chairman of the Board of Directors and the President. The
executive committee shall have and may exercise all of the authority of the
Board of Directors in the management of the Corporation, provided such committee
shall not have the authority of the Board of Directors to amend the certificate
of incorporation, adopt a plan of merger or adopt a plan of consolidation with
another corporation; recommend to the stockholders the sale, lease, exchange,
mortgage, pledge, or other disposition of all or substantially all of the
property and assets of the Corporation if not made in the usual and regular
course of its business; recommend to the stockholders a voluntary dissolution of
the Corporation or a revocation thereof; amend, alter, or repeal the by-laws of
the Corporation; elect or remove officers of the Corporation or members of the
executive committee; fix the compensation of any member of the executive
committee; declare dividends or amend, alter, or repeal any resolution of the
Board
11
<PAGE>
of Directors which by its terms provides that it shall not be amended, altered,
or repealed by the executive committee. The designation thereto of authority
shall not operate to relieve the Board of Directors, or any member thereof, of
any responsibility imposed by law.
SECTION 2. STANDING COMMITTEES. The Standing Committees shall be an
-------------------
Audit Committee, an Employee Compensation and Benefit Committee, and a Stock
Option Committee.
(a) The Audit Committee shall consist of not less than two directors.
No member of the Audit Committee shall also be an officer or employee of the
Corporation or any subsidiary thereof. The Audit Committee shall review, with
the public accountants and auditors who audit the books of the Corporation, the
scope of the audit for each fiscal year, the compensation payable to such
auditors, the results of all annual and any special audits, the management
letter prepared by the auditors, and such other matters as the members of the
Committee or the Board of Directors may determine are necessary or desirable for
the maintenance of proper books of account and records of the Corporation and
its subsidiaries.
(b) The Employee Compensation and Benefit Committee shall supervise
and make recommendations with respect to employee compensation levels and all
benefit plans involving employees of
12
<PAGE>
the Corporation and its subsidiaries. It shall, on the recommendation of the
President, or other appropriate officer, approve the terms of employment of all
officers of the Corporation except the Chairman of the Board and the President,
and shall recommend the terms of employment of the Chairman of the Board and the
President to the Board of Directors for approval. The Committee may include
such persons, not directors of the Corporation, as the Board of Directors may
determine from time to time.
(c) The Stock Option Committee shall consist of not less than three
persons, none of whom is or has been for at least one year prior to any action
taken by such member, eligible to receive an option under any of the
Corporation's employee stock option plans. It shall have the power to grant
stock options to all officers and employees of the Corporation and its
subsidiaries provided that, in the case of an officer who is also a director of
the Corporation, the grant of such option also must be approved by the Board of
Directors. The Chairman of the Committee shall have the authority to execute
stock option agreements on behalf of the Corporation, and such officers of the
Corporation as may be designated from time to time by the Stock Option Committee
or the Board of Directors shall also have such authority. The Committee shall
have the power to interpret all stock option plans and to make recommendations
with respect to all such plans. The Committee may also make recommendations to
13
<PAGE>
the Board of Directors for stock options not covered by any stock option plan.
(d) The members of all Committees shall be appointed by the Board of
Directors and shall serve on such Committee at the will and pleasure of the
Board. The members of Standing Committees shall be appointed at the first
meeting of the Board of Directors after the annual meeting of stockholders. One
person shall be designated as Chairman of each such Committee by the Board of
Directors, except that the Chairman of the Board shall be the Chairman of any
committee on which he serves. In the absence of the Chairman of the Committee,
the other members of the Committee may designate a Chairman pro tem. Minutes of
all meetings shall be prepared and signed by the Chairman of the meeting or the
Secretary. Such minutes shall be circulated to the Board of Directors or
delivered to the directors at the next meeting of the Board unless the Committee
meeting occurred within two days before the meeting of the Board of Directors,
in which event the Chairman of the Committee shall report verbally to the Board
of Directors at the next meeting of the Board, and minutes of the meeting shall
be delivered to the Board at its next subsequent meeting. Action by any
committee at a meeting may be taken by a majority of its members or without a
meeting by unanimous written consent.
14
<PAGE>
A meeting of any committee may be called by any member of the
committee. Notice of meeting shall be given by, or at the instance of, any
member of the committee or each member of the committee by mailing the same at
least two (2) days before such meeting or on 24 hours telegraphic (or
equivalent) notice. On unanimous written consent or waiver by all members of
the committee or if every member of the committee shall be present at the
meeting, a meeting may be held at any time or place without any previous notice.
SECTION 3. OTHER COMMITTEES. The Board of Directors may, by
----------------
resolution or resolutions, passed by a majority of the whole Board, designate
one or more other committees, each of said committees to consist of two (2) or
more of the directors of the Corporation with such powers as may be provided in
the respective resolutions establishing such committees.
ARTICLE V
OFFICERS
--------
SECTION 1. EXECUTIVE OFFICERS. The executive officers of the
------------------
Corporation shall be chosen by the Board of Directors and shall be a Chairman of
the Board, a President, an Executive Vice President, one or more Vice
Presidents, a Secretary, and a Treasurer. Any two or more of the aforesaid
offices may be held by the same person, except that the same person shall not be
15
<PAGE>
Chairman of the Board or President and Secretary. Subject to contract, the
executive officers of the Corporation shall hold office at the will and pleasure
of the Board of Directors.
SECTION 2. SUBORDINATE OFFICERS. The Board of Directors may elect
--------------------
such other officers subordinate to the above executive officers as it shall deem
necessary, who shall have such authority and shall perform such duties as from
time to time may be prescribed by the Board of Directors.
SECTION 3. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
----------------------------------
Board of Directors shall preside at all meetings of the Board of Directors and
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.
SECTION 4. PRESIDENT. The President shall be chosen from among the
---------
directors. He shall have such powers and duties as from time to time may be
assigned to him by the Board of Directors. Subject to the control and direction
of the Board of Directors, the President shall be the Chief Executive Officer of
the Corporation, and in such capacity, he shall have general authority over all
affairs of the Corporation and over all officers, employees and agents of the
Corporation, other than the Chairman of the Board, and shall have all of those
powers usually pertaining to the office of Chief Executive Officer.
16
<PAGE>
SECTION 5. VICE PRESIDENT. Each Vice President shall perform such
--------------
duties as may be assigned to him by the Board of Directors. The Board of
Directors may appoint an Executive Vice President who shall be senior to all
other officers of the Corporation and its subsidiaries except the Chairman of
the Board and the President. Vice Presidents other than the Executive Vice
President shall rank in order of seniority in position, except as the Board of
Directors may otherwise determine.
SECTION 6. TREASURER. The Treasurer shall have custody of all the
---------
funds and securities of the Corporation. He shall endorse, on behalf of the
Corporation, for collection, checks, notes and other obligations and shall
deposit the same and all moneys and other valuable effects belonging to the
Corporation to the credit of the Corporation in such bank or banks or
depositories as the Board of Directors may designate. Whenever required by the
Board, he shall render a statement of the Corporation's cash accounts. He shall
perform all duties normally incident to the position of Treasurer.
SECTION 7. SECRETARY. The Secretary shall be sworn to the faithful
---------
discharge of his duty. He shall record all the proceedings of the meetings of
the Corporation and the Board of Directors, and also (unless otherwise directed
by such committee) the minutes of each committee in books to be kept for that
purpose. He shall attend to the giving and serving of all
17
<PAGE>
notices for the Corporation. He shall affix the seal of the Corporation to all
contracts or other documents as required and shall attest the same. He shall
have charge of the stock certificate books and other papers and books of the
Corporation in such manner as the Board may direct; and he shall in general
perform all the duties incident to the office of Secretary.
SECTION 8. ASSISTANTS. There may be one or more Assistant
----------
Secretaries or Assistant Treasurers who shall act in the absence or inability to
act of the Secretary or Treasurer, as the case may be, in order of seniority in
position, and perform such other duties as may be determined by the Board of
Directors.
SECTION 9. OTHER OFFICERS. The Board of Directors may appoint a
--------------
Controller, an Assistant Controller or other officers from time to time to
perform such duties as the Board may determine.
SECTION 10. REMOVAL. The Board of Directors may remove any officer
-------
or member of a committee by a majority vote of those directors attending a duly
constituted meeting of the Board, at any time with or without cause.
18
<PAGE>
SECTION 11. BONDING. The Board of Directors may require that the
-------
Treasurer or any Assistant Treasurer be bonded in such form and amount and with
such surety or sureties as the Board may require for the faithful discharge of
his duties.
ARTICLE VI
CAPITAL STOCK
-------------
SECTION 1. FORM AND EXECUTION OF CERTIFICATES. The certificates of
----------------------------------
shares of the capital stock of the Corporation shall be in such form as shall be
approved by the Board of Directors. The certificates shall be signed by the
Chairman of the Board or the President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary.
SECTION 2. CERTIFICATES TO BE ENTERED. All certificates shall be
--------------------------
consecutively numbered and names of the owners and numbers of shares and the
date of issue shall be entered in the Corporation's books.
SECTION 3. TRANSFER OF SHARES. Shares shall be transferable upon the
------------------
books of the Corporation in person or by attorney, upon surrender of
certificates for a like number of shares. Surrendered certificates shall be
cancelled.
19
<PAGE>
SECTION 4. FIXING RECORD DATE. For the purpose of determining the
------------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or allotment of any right, or for the purpose of
any other action, the Board of Directors may fix, in advance, a date as the
record date for any such determination of stockholders. Such date shall be not
more than 60 days nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
SECTION 5. LOST CERTIFICATES. No new certificates shall be issued
-----------------
upon a transfer of stock until the former certificates for a like number of
shares shall have been surrendered and cancelled; and in case the former
certificates shall have been lost or destroyed, no new certificates shall be
issued except upon the receipt of a satisfactory bond, the giving of which bond,
however, may be waived by the Board of Directors in its discretion.
SECTION 6. TRANSFER AGENT AND REGISTRAR. The Board may make such
----------------------------
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of certificates of stock of the Corporation.
20
<PAGE>
ARTICLE VII
SECTION 1. BOARD OF DIRECTORS. The Board of Directors in its
------------------
discretion, from time to time, may declare and pay dividends upon the shares of
the capital stock of the Corporation, as and to the extent permitted by
applicable law and by any agreements to which the Corporation is a party or by
which it may be bound; and may fix and change the dates for the declaration and
payment thereof.
SECTION 2. VOTING OF STOCK. Unless otherwise ordered by the Board of
---------------
Directors, the Chairman of the Board or such officers as he may designate shall
have full power and authority to attend, act and vote or give proxies to vote at
any meeting of stockholders of any corporation in which the Corporation may hold
stock and may exercise any and all rights and powers incident to such ownership
for and on behalf of the Corporation.
ARTICLE VIII
SEAL
----
SECTION 1. SEAL. The seal of the Corporation shall be a printed,
----
engraved, stamped or embossed impression, either in form, containing the name of
the Corporation, year of its creation, and the words "Corporate Seal, Delaware",
or other
21
<PAGE>
appropriate words. The Secretary shall cause to be prepared a suitable seal
press bearing such design.
ARTICLE IX
FISCAL YEAR
-----------
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation, unless
-----------
otherwise determined by the Board of Directors, shall begin on the first day of
July of each year.
ARTICLE X
NEGOTIABLE INSTRUMENTS
----------------------
SECTION 1. NEGOTIABLE INSTRUMENTS. All promissory notes issued in
----------------------
the name of the Corporation shall be signed, and all promissory notes made to
the order of the Corporation, if negotiated, shall be endorsed and all checks,
drafts and orders for the payment of money issued in the name of the Corporation
shall be signed by such officer, officers, employee, employees, agent or agents
of the Corporation as the Board of Directors may from time to time direct.
22
<PAGE>
ARTICLE XI
NOTICE AND WAIVER OF NOTICE
---------------------------
SECTION 1. NOTICE. Any notice required to be given by these by-laws,
------
except such published notice as may be required by statute, may be given by
mailing the same addressed to the person entitled thereto, at his or her address
as shown on the Corporation's books, unless he or she shall have filed with the
Secretary of the Corporation a written request that notices intended for him or
her be mailed to some other address, in which case it shall be mailed to the
address designated in such request. Any such notice shall be deemed to be given
at the time of such mailing.
SECTION 2. WAIVER OF NOTICE. Any stockholder, director or officer
----------------
may waive, in writing, any notice required to be given by these by-laws.
ARTICLE XII
AMENDMENTS
----------
SECTION 1. AMENDMENTS. By-laws may be made, altered, amended,
----------
suspended or rescinded at any duly convened meeting of the stockholders upon the
affirmative vote of the holders of a majority of the stock present and voting at
such meeting. At a special meeting of the stockholders, such action can only be
23
<PAGE>
taken if the substance of the proposed change is set forth in the notice of the
meeting. By-laws may also be made, altered, amended, suspended or rescinded by
the Board of Directors, at any duly convened meeting thereof upon the
affirmative vote of a majority of the directors present at such meeting, subject
to the right of the stockholders, by proper action to alter, amend or repeal the
by-laws.
ARTICLE XIII
SECTION 1. The Corporation hereby elects not to be governed by the
provisions of Section 203 of the General Corporation Law of Delaware.
SECTION 2. Notwithstanding the provisions of Article XII of these by-
laws, Section 1 of this Article XIII may not be further amended by the Board of
Directors.
24
<PAGE>
EXHIBIT 10(e)
EXTENSION OF EMPLOYMENT AGREEMENT
This extension agreement is made and entered into as of November 14, 1996,
by and between Transworld Systems Inc., a California Corporation (the "Company")
and Gordon Dunn ("Dunn").
WHEREAS, on July 1, 1995 Dunn entered into an Employment Agreement with the
Company, (the "Employment Agreement") to which Employment Agreement The Union
Corporation, a Delaware corporation is also a party; and
WHEREAS, Dunn and the Company both wish to extend the Employment Agreement
for an additional one year from July 1, 1997 through June 30, 1998,
NOW THEREFORE, the parties agree as follows:
FIRST: The Employment Agreement is extended for an additional period of
one year so that the termination date as set forth in paragraph (A)(1) of
Article SECOND of the Employment Agreement shall be June 30, 1998 instead of
June 30, 1997.
SECOND: The first sentence of paragraph (B)(1) of Article THIRD is amended
to read as follows: "The Company shall also pay production/incentive bonuses to
Dunn for each full twelve (12) month period commencing July 1, 1995, July 1,
1996, and July 1, 1997 as set forth in Schedule 1 annexed hereto."
THIRD: The references in paragraphs (B)(2), (B)(3), (E) and (F) of Article
THIRD to "June 30, 1997" are amended to read "June 30, 1998" and the references
in paragraphs (E) and (F) of Article THIRD to "June 30, 2000" are amended to
read "June 30, 2001."
FOURTH: Paragraph (A) of Article FOURTH of the Employment
<PAGE>
Agreement is amended in full to read as follows:
"FOURTH: A. The Company has paid the premiums on a split dollar policy of
life insurance in the face amount of $2 million, with Transamerica Occidental
Life Insurance Company, Policy Number 92520289 (the "Policy"). The insureds
under this Policy are Gordon Dunn and his wife Joanne Dunn. The Policy is
currently owned as follows:
"TRANSWORLD SYSTEMS, INC. except the owner of the right to designate the
------------------------
beneficiary for any proceeds in excess of the greater of the accumulation
value or its total premiums paid on this policy from the date of issue to
the date of death of the insured, shall be JOANNE C. DUNN."
--------------
The cost of all premiums payable on the Policy shall be borne by the Company
until the termination of Dunn's employment with the Company under the
circumstances set forth below. Upon termination of this Agreement on or after
June 30, 1998, or upon termination by reason of his mental or physical
incapacity as provided in paragraph (B)(2) of Article SECOND or pursuant to the
provisions of paragraph (C) of Article SECOND or paragraph (D) of Article THIRD,
the Company shall thereupon have no further obligation to pay any premiums on
the policy and cause ownership of the Policy, or any replacement policy, to be
transferred to the individual owner(s), subject only to the Company's right to
return of the premiums that the Company has paid from the proceeds of the Policy
when such proceeds are paid, or from the cash value of the Policy if it should
be cashed in before the death of the insured. The Company shall have the right
to receive reasonable assurances (including an irrevocable endorsement if
appropriate/available) from the
2
<PAGE>
individual owner(s) that the Company will be paid such amounts. 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 policy and the
transfer of the ownership of the policy as provided herein. The Company shall
have no further obligations with respect to the policy and it shall be Dunn's
responsibility to take whatever actions may be necessary to keep the policy in
effect.
FIFTH: Paragraph (A) of Article FIFTH is clarified and amended as
follows: Dunn hereby acknowledges that (i) all bonuses referred to in paragraph
(A) of Article FIFTH of the Employment Agreement have, as of the date of this
extension agreement, been contributed to a Rabbi Trust, and all of the amounts
of assumed interest thereon prior to the date or dates of contribution (based
upon United States Treasury obligations) have also been contributed to the Rabbi
Trust, (ii) the amount of deferred compensation hereafter due to Dunn under
paragraph (A) of Article FIFTH of the Employment Agreement shall be based upon
the actual income, earnings and losses of the amounts held by the Rabbi Trust
and (iii) subject to the provisions of paragraphs (B), (C) and (D) of Article
FIFTH and Dunn's rights in the event of the Company's Insolvency (as defined in
the Rabbi Trust Agreement), the Company and Union have no further obligation
whatsoever to Dunn related to the bonuses described in paragraph (A) of Article
FIFTH.
The last sentence in paragraph (A) of Article FIFTH is hereby deleted.
SIXTH: The references in paragraphs (A)(1), (B) and (C) of
3
<PAGE>
Article SIXTH to "fifth (5th)" are amended to read "sixth (6th)."
SEVENTH: Paragraph (C)(7) of Article THIRD and paragraph (B) of Article
FIFTH of the Employment Agreement are clarified and modified as set forth in
this Section SEVENTH. The Company shall contribute all amounts previously
accrued under paragraph (C)(7) of Article THIRD (the non-qualified retirement
plan) including accrued interest, to the Rabbi Trust established pursuant to
paragraph (A) of Article FIFTH and as described in Section FIFTH above. With
respect to amounts payable under paragraph (C)(7) of Article THIRD, the parties
agree that the Employee must be employed by the Company on June 30 of each
fiscal year to earn the non-qualified retirement plan contribution for the
applicable fiscal year. Subject to the foregoing, the Company agrees to
contribute, for the fiscal years ending June 30, 1997 and 1998, amounts earned
under paragraph (C) (7) of Article THIRD to the Rabbi Trust no later than July
15 following the end of the fiscal year for which it is earned. The Trustee
shall be instructed to retain separate records with respect to such
contributions and any income, gains, losses and expenses with respect thereto.
A. The administrative costs and expenses with respect to
establishing and maintaining such Rabbi Trust shall be paid by the Company and
shall not be deducted from the Rabbi Trust. However, the Company shall not be
obligated to pay for any costs, expenses or losses relating to the purchases,
sales or holding of assets and investments by the Rabbi Trust, which costs,
expenses and losses shall be borne solely by the Rabbi Trust.
B. Subject to the Employee satisfying the employment
4
<PAGE>
requirements hereunder, the Company's only obligations to the Employee and his
beneficiaries, heirs and estate regarding paragraph (C)(7) of Article THIRD is
to (i) establish and maintain the Rabbi Trust, (ii) contribute to the Rabbi
Trust all amounts previously earned, including all accrued interest due thereon,
(iii) contribute $30,000 to the Rabbi Trust no later than each July 15th during
the remaining term of the Employment Agreement and (iv) pay the administration
costs and expenses in accordance with paragraph A. of this Section SEVENTH. The
Employee and Company hereby acknowledge and agree that all gains, losses,
earnings and expenses relating to the purchases, sales or holding of assets and
investments of the Rabbi Trust shall enure to the benefit or detriment of the
Employee and that, subject to the Employee's rights in the event of the
Company's Insolvency (as defined in the Rabbi Trust Agreement), the payment by
the Company of the administrative expenses described in paragraph A. above and
the payment of the applicable annual contribution(s) to the Rabbi Trust in
accordance with this paragraph B. shall relieve the Company of any and all of
its obligations under paragraph (C)(7) of Article THIRD and this Section
SEVENTH. The amounts that the Company contributes to the Rabbi Trust shall be
an asset of the Company and shall be subject to the claims of the Company's
general creditors.
C. The words "sum retained by the Company" set forth in paragraph
(B)(1) of Article FIFTH shall hereinafter mean "amounts contributed into the
Rabbi Trust pursuant to this Agreement."
EIGHTH: Except as amended above, all of the terms and conditions of the
Employment Agreement shall remain in full force
5
<PAGE>
and effect.
Dated ____________________ TRANSWORLD SYSTEMS, INC.
/s/ GORDON S. DUNN By:/s/ GEORGE MACAULAY
- ------------------------------ -----------------------
Gordon S. Dunn George Macaulay
President
THE UNION CORPORATION
By:/s/ MELVIN L. COOPER
-----------------------
Melvin L. Cooper
Chairman of the Board and
Chief Executive Officer
6
<PAGE>
EXHIBIT 10(f)
EXTENSION OF EMPLOYMENT AGREEMENT
This extension agreement is made and entered into as of November 14, 1996,
by and between Transworld Systems Inc., a California Corporation (the "Company")
and George Macaulay (the "Employee").
WHEREAS, the Employee is currently employed by the Company under a contract
dated July 1, 1995 (the "Employment Agreement"); and
WHEREAS, the Company and the Employee have agreed (a) to extend the
Employment Agreement for an additional two (2) years and (b) to amend the
Employment Agreement as extended in the manner hereafter set forth,
NOW THEREFORE, in consideration of the premises and mutual promises and
agreements hereinafter set forth, the parties hereby agree that the Employment
Agreement is extended and amended as follows:
1. The first line of paragraph (B) of Article FIRST is amended to read as
follows:
"(B) The Employee shall serve as the President and Chief Executive
Officer".
2. The date "June 30, 1997" in paragraphs (A) and (C) of Article SECOND
and paragraphs (F) and (G) of Article THIRD is amended to read "June 30, 1999."
3. The following sentence is added to paragraph (B)(i) of Article THIRD:
"Subject to the terms of this Employment Agreement, for each of the
Fiscal Years of the Company ending June 30, 1998 and June 30, 1999, the
Employee also shall be entitled to receive bonuses as set forth in Schedule
2, annexed hereto."
<PAGE>
4. Paragraph (B)(ii) of Article THIRD is amended to read in full as
follows:
"(ii) For purposes hereof, "Adjusted Pretax Income" shall mean the
net income of the Company and its subsidiaries, if any, as reported to
Union for the twelve (12) months ended June 30, before Federal and state
income taxes, and before (a) goodwill amortization expense, (b) bonus
expense for Gordon Dunn, (c) Employee's bonus expense in respect of periods
after July 1, 1995, (d) mortgage interest expense, if any, related to the
land and buildings that are currently owned by the Company in Rohnert Park,
California, and (e) any payment made by the Company to Gordon Dunn pursuant
to Article FOURTH (C) of Gordon Dunn's Employment Agreement with the
Company."
5. The following is added to paragraph (B)(iii) of Article THIRD:
",except that the Company shall contribute for each full fiscal year
after June 30, 1997 during which Employee is employed hereunder Thirty
Thousand Dollars ($30,000) to such non-qualified retirement plan
established for him."
6. Paragraph (D) of Article THIRD is amended to read in full as follows:
"(D) The Company shall procure and keep in force during the term of
this Agreement for the benefit of the Employee a policy of term, "split
dollar" or other life insurance, to be determined at the sole discretion of
the chief executive officer of The Union Corporation, in the face amount of
$1,000,000, provided that such insurance can be obtained by the Company at
a commercially reasonable cost. The Company shall pay all of the premiums
payable on such insurance, provided that the Company shall only be required
to pay the normal rate for "non-rated" males of the Employee's age, and all
or portion of the cost of such premiums shall be additional compensation to
the Employee. Any such compensation shall not be deemed to be "Base
Salary" for the purposes of this Agreement. The beneficiary of such
insurance shall be designated by the Employee, and the owner of the
insurance policy shall be the Employee or his assigns. The Employee agrees
to submit to any physical examination required by any prospective insurer,
and will otherwise cooperate with the Company in connection with any
insurance on the Employee which the Company may wish to obtain. If a
"split dollar" policy has been obtained, the Company shall have the right
to return of the premiums that the Company has paid from the proceeds of
the policy when such proceeds are paid or from the cash value of the
policy, if any, if the policy shall be cashed in before the death of the
insured, and the Company
2
<PAGE>
shall have the right to receive reasonable assurances (including an
irrevocable endorsement if appropriate/available) from the owner of the
policy that the Company will be paid such amounts. 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 policy as provided herein.
The Company shall have no further obligations with respect to the policy
and it shall be Employee's responsibility to take whatever actions may be
necessary to keep the policy in effect."
7. In each place where the date "June 30, 1999" appears in paragraphs (F)
and (G) of Article THIRD, it shall be replaced with the date "June 30, 2001."
8. The following paragraphs (H) and (I) shall be added to Article THIRD:
"(H) Upon the Employee's retirement from regular employment with the
Company, he will receive at the Company's expense medical insurance
coverage comparable to the present plan of the Company for the remainder of
his life; provided that if the cost of such coverage exceeds the normal
rate for non-rated males of the Employee's age, the Employee will be
required to reimburse the Company for the amount of such excess."
"(I) The Union Corporation will recommend to its Stock Option
Committee that Employee be granted an option to purchase Twenty-Five
Thousand (25,000) shares of The Union Corporation common stock. If such
option is granted by the Stock Option Committee, the exercise price and
other terms and conditions of such option shall be determined by the
Committee at the time of grant."
9. The attached Schedule 2 is added to the Employment Agreement.
10. Paragraph (B)(iii) of Article THIRD is clarified and modified as set
forth in this Section 10. The Company shall contribute all amounts previously
earned, including all accrued interest, under paragraph (B)(iii) of Article
THIRD to a Rabbi Trust. With respect to amounts hereafter payable under
paragraph
3
<PAGE>
(B)(iii) of Article THIRD the parties agree that the Employee must be employed
by the Company on June 30 of each fiscal year to earn the non-qualified
retirement plan contribution for the applicable fiscal year. Subject to the
foregoing, the Company agrees to contribute beginning with the fiscal year
ending June 30, 1997, amounts earned under paragraph (B)(iii) of Article THIRD
to the Rabbi Trust no later than July 15 following the end of the fiscal year
for which it is earned. The Trustee shall be instructed to retain separate
records with respect to such contributions and any income, gains, losses and
expenses with respect thereto.
A. The administrative costs and expenses with respect to
establishing and maintaining such Rabbi Trust shall be paid by the Company and
shall not be deducted from the Rabbi Trust. However, the Company shall not be
obligated to pay for any costs, expenses or losses relating to the purchases,
sales or holding of assets and investments by the Rabbi Trust, which costs,
expenses and losses shall be borne solely by the Rabbi Trust.
B. Subject to the Employee satisfying the employment requirements
hereunder, the Company's only obligations to the Employee and his beneficiaries,
heirs and estate regarding paragraph (B)(iii) of Article THIRD is to (i)
establish and maintain the Rabbi Trust, (ii) contribute to the Rabbi Trust all
amounts previously earned, including all accrued interest due thereon, (iii)
contribute $15,000 to the Rabbi Trust no later than July 15, 1997 and to
contribute $30,000 to the Rabbi Trust by each July 15th thereafter during the
term of this Employment Agreement
4
<PAGE>
and (iv) pay the administration costs and expenses in accordance with paragraph
A. above. The Employee and Company hereby acknowledge and agree that all gains,
losses, earnings and expenses relating to the purchases, sales or holding of
assets and investments of the Rabbi Trust shall enure to the benefit or
detriment of the Employee and that, subject to the Employee's rights in the
event of the Company's Insolvency (as defined in the Rabbi Trust Agreement), the
payment by the Company of the administrative expenses described in paragraph A.
of this Section 10 and the payment of the applicable annual contribution(s) to
the Rabbi Trust in accordance with this paragraph B. shall relieve the Company
of any and all of its obligations under paragraph (B)(iii) of Article THIRD and
this Section 10. The amounts that the Company contributes to the Rabbi Trust
shall be an asset of the Company and shall be subject to the claims of the
Company's general creditors.
C. The Employee shall have the right to designate a beneficiary of
all of the amounts payable pursuant to paragraph (B)(iii) of Article THIRD and
this Section 10 in the event of his death and to change any beneficiary
previously designated by him. Such designation shall be made by delivering to
the Chief Financial Officer of the Company a writing dated and signed by the
Employee setting forth the name and address of the person or persons so
designated. Upon the death of the Employee, any amounts payable from the Rabbi
Trust shall be paid in accordance with such Trust Agreement and this paragraph
C. to the beneficiary or beneficiaries designated by the Employee, or, failing
such designation, to his
5
<PAGE>
estate. Upon the termination of the Employee's regular employment with the
Company, the entire amount then allocated to his account in the Rabbi Trust,
including all earnings and accretions thereto, net of all losses and expenses
required to be borne by the Rabbi Trust pursuant to paragraph A. of this Section
10, shall be paid to the Employee (or his beneficiary or beneficiaries if such
termination occurs as a result of the death of the Employee) under one of the
following options that the Employee or such beneficiary or beneficiaries, or
failing a designated beneficiary or beneficiaries, the Employee's legal
representatives, shall select within thirty (30) days after said termination of
employment:
1. Such amount shall be paid in monthly installments as nearly
equal as practicable over a designated number of months as specified by the
person entitled to select the option, not exceeding thirty-six (36) months,
commencing thirty (30) days after the termination of the Employee's regular
employment with the Company, provided that no monthly installment except the
last shall be less than $1,000; or
2. Such amount may be applied to the purchase of an immediate
or deferred life annuity contract on the sole life of the Employee, or jointly
on the lives of the Employee and the beneficiary designated by the Employee
pursuant to this paragraph C; or
3. Such amount may be paid forthwith in a lump sum.
If more than one beneficiary is designated and the Employee's
6
<PAGE>
spouse is a beneficiary, the option shall be selected by her if she survives
him, and otherwise by a majority of the beneficiaries.
IN WITNESS WHEREOF, each of the parties hereto has executed this Extension
of Employment Agreement as of the day and year first above written.
TRANSWORLD SYSTEMS INC.
/s/ GEORGE MACAULAY By:/s/ GORDON S. DUNN
- ------------------------------ -----------------------
George Macaulay Gordon S. Dunn
Chairman
7
<PAGE>
SCHEDULE 2
GEORGE MACAULAY EMPLOYMENT AGREEMENT BONUS SCHEDULE
FOR FISCAL YEARS ENDED JUNE 30, 1998 AND 1999
I. The maximum bonus for the Employee for any fiscal year is Six Hundred
Thousand Dollars ($600,000).
II. For fiscal years ending in 1998 and 1999, there are four components to
the Employee's bonus, two Adjusted Pretax Income ("API") components and two
other components, as follows:
A. First API Component:
-------------------
If Transworld's The minimum bonus
API equals or exceeds based on the API
Fiscal Years the following amount: component is:
- ------------ -------------------- -------------
1998 & 1999 $14,000,000 $300,000
B. Second API Component:
--------------------
If API increases
by the following %
amounts over the API The additional bonus
for the preceding based on the
Fiscal Years fiscal year: API component is:
- -------------- -------------------- --------------------
1998 & 1999 10.0% $105,000
15.0% $157,500
20.0% $210,000
C. Pretax Margin Component (Maximum $45,000)
-----------------------------------------
If Transworld's consolidated Pretax Margin is 20.0% or more, then the
Employee will be paid an additional bonus of $45,000. "Pretax Margin"
for purposes hereof shall mean, for any fiscal year, the percentage
derived by dividing the annual pretax income reported by Transworld to
Union (which will differ from Transworld's API for such year) by the
revenues of Transworld for such year. "Annual pretax income" shall
mean the net income of Transworld and its subsidiaries, if any, as
reported to Union before Federal and state income taxes and before (a)
goodwill amortization expense, (b) mortgage interest expense, if any,
related to the land and buildings that are currently owned by the
Company in Rohnert Park, California, and (c) any expense related to
the
8
<PAGE>
payment, if any, made by the Company to Gordon Dunn pursuant to
Article FOURTH (C) of Gordon Dunn's Employment Agreement with the
Company.
D. Discretionary Component (Maximum $45,000)
-----------------------------------------
Each year George Macaulay and the CEO of Union Corporation will agree
on the factors that will constitute the discretionary component.
9
<PAGE>
EXHIBIT 10(h)
August 27, 1996
Reference is made to the Employment Agreement dated as of March 22,
1995 ("Agreement") between you and The Union Corporation (the "Company").
It is hereby agreed that the Agreement is hereby amended to extend the
term of the Agreement, as provided in Article SECOND (A), from June 30, 1997 to
June 30, 2000.
In all other respects, the Agreement, as amended, shall continue in
full force and effect.
Please signify your agreement with the foregoing by countersigning
this letter in the space provided below.
Very truly yours,
THE UNION CORPORATION
By /s/ Melvin L. Cooper
---------------------------------
Melvin L. Cooper
Chairman
ACCEPTED AND AGREED:
/s/ Nicholas P. Gill
- -----------------------------
Nicholas P. Gill
<PAGE>
EXHIBIT 10(i)
November 14, 1996
Reference is made to: (i) the Asset Purchase Agreement dated as of
December 1, 1992 and Amendment to Asset Purchase Agreement dated July 30, 1993
(collectively, the "Purchase Agreement") by and among Allied Bond & Collection
Agency, a Pennsylvania general partnership, Bernard Silver and Herbert R. Silver
(collectively referred to in this letter as the "Partners"), The Union
Corporation, a Delaware corporation ("Union"), and Allied Bond & Collection
Agency, Inc., a Delaware corporation (the "Company"), and (ii) the employment
agreements dated as of December 1, 1992 (the "Employment Agreements") by and
among the Company, Union and each of the Partners. Unless otherwise defined
herein, the capitalized terms used herein shall have the meaning ascribed
thereto in the Purchase Agreement and/or Employment Agreements.
<PAGE>
-2-
This will confirm that, effective as of the date hereof, the Purchase
Agreement and the Employment Agreements shall be deemed amended in the following
respects:
(1) The parties hereto agree that, for purposes of determining Tier-
One Additional Consideration and Tier-Two Additional Consideration payable to
the Partners pursuant to Section 1.5 of the Purchase Agreement, as well as
calculation of the bonus payable to each of the Partners pursuant to Section (B)
of Article THIRD of the respective Employment Agreements, Adjusted Pretax Income
of the Company for any fiscal period commencing on and after July 1, 1995 shall
include the pretax income of Interactive Performance, Inc. ("IPI"), a wholly-
owned subsidiary of Union incorporated in connection with the performance of
certain services on behalf of AT&T Corp. ("AT&T"), adjusted to exclude (A)
revenues and profits generated by IPI in connection with all non-accounts
receivable collection activities performed on behalf of AT&T ("Non-ARC
Services") and (B) the results of IPI's wholly-owned subsidiary, Interactive
Performance of Florida, Inc. ("IP of Florida"), and any other subsidiary of IPI
unless otherwise agreed to in writing by Union (as adjusted, such pretax income
shall hereinafter be referred to as "IPI Pretax Income"). IPI Pretax Income for
any period shall include, in addition to all income and expenses which are
included in the general ledger or other books and records of IPI (excluding
those
<PAGE>
-3-
of IP of Florida and revenues and expenses associated with Non-ARC Services),
(i) all reasonable and proportional costs incurred by Union and/or any
affiliates of Union on behalf of IPI during such period in connection with the
performance of services by IPI on behalf of AT&T, including but not limited to
insurance, tax preparation, travel and auditing services , (ii) an interest
charge with respect to any funds of Union and/or any affiliates of Union
advanced to or on behalf of, or otherwise utilized by, IPI, which charge will be
calculated utilizing the interest rate charged to Union (as may be adjusted from
time to time) on amounts which Union has borrowed under that certain Amended and
Restated Revolving Credit Agreement dated as of December 31, 1994 (the "Credit
Agreement") between Union and The First National Bank of Boston, as amended, or
amounts borrowed under whatever may be Union's principal working capital lending
facility if First National Bank of Boston is no longer the principal lender to
Union (or, in the event Union has no borrowings outstanding under the Credit
Agreement or successor working capital facility during any period for which an
interest calculation is required under this Agreement, the parties shall utilize
the interest rate that would have been applied under the Credit Agreement or
successor facility had borrowings been outstanding during such period), (iii)
12.5% of the cost of all compensation and benefits payable by Union and any of
its affiliated companies to William B. Hewitt during such period, excluding the
non-discretionary
<PAGE>
-4-
bonus which may be earned by Mr. Hewitt during such period pursuant to Paragraph
(B)(i) of Article THIRD of the employment agreement dated as of July 1, 1995 by
and among Union, Capital Credit Corporation and Mr. Hewitt (and any similar
bonus which may be earned by Mr. Hewitt in any subsequent employment agreement
entered into by him with Union and/or any of its affiliated companies), but in
no event shall the charge required by this clause (iii) exceed $50,000 in any
year, and (iv) 5% of the cost of all compensation and benefits payable by Union
and any of its affiliated companies to Nicholas P. Gill, but in no event shall
the charge required by this clause (iv) exceed $10,000 in any year.
(2) Paragraph (B)(i) of Article THIRD of each of the respective
Employment Agreements shall be amended to read in its entirety as follows:
"(B) (i) Employee shall receive a bonus for each fiscal year
ended June 30 ("Fiscal Year") commencing with the Fiscal Year ending
in 1993, calculated as a percent of Base Salary in accordance with the
table attached hereto as Exhibit A. Such percent shall be determined
by comparing the Company's current Fiscal Year Adjusted Pretax Income
with the greater of (a) the highest Adjusted Pretax Income in any
Fiscal Year during the period of employment hereunder and
(b) $4,621,452, which is the annual income of Allied Bond & Collection
Agency ("AB&CA") for the calendar year 1992 on which the purchase
price for the acquisition of the business and assets of AB&CA (the
"Acquisition") is based ("1992 AB&CA Adjusted Pretax Income"). For
purposes of the first Fiscal Year hereunder, the basis of comparison
will be such portion of the 1992 AB&CA Adjusted Pretax Income as is
<PAGE>
-5-
determined by multiplying the 1992 AB&CA Adjusted Pretax Income by a
fraction, the numerator of which shall be the number of days from and
after the date of closing of the Acquisition through and including
June 30, 1993 and the denominator of which is 365.
"Adjusted Pretax Income" for purposes of this Agreement (other
than 1992 AB&CA Adjusted Pretax Income) shall be determined in
accordance with the provisions applicable to the determination of
Adjusted Pretax Income of Purchaser set forth in the Asset Purchase
Agreement dated as of December 1, 1992 by and among Union, Purchaser,
Employee, the Co-Chairman and AB&CA (the "Asset Purchase Agreement")
relating to the Acquisition as amended for Fiscal Years beginning on
and after July 1, 1992 by the provisions of that certain letter
agreement dated November 14, 1996 by and among Union, Purchaser,
Employee and the Co-Chairman, except that any bonus expense payable to
Employee and the Co-Chairman hereunder shall not be deducted for
purposes of determining Adjusted Pretax Income under this Agreement."
Each of the Partners acknowledges that no bonus has been earned by him under
Section (B) of Article THIRD of his respective employment agreement for any
fiscal year beginning with the fiscal year ended June 30, 1993.
(3) Exhibit A shall be amended to read in its entirety as follows:
"EXHIBIT A
Each principal will receive an annual bonus which is calculated as a
percent of his base salary. The bonus percent will be based on the
percent increase in the Company's current year Adjusted Pretax Income
versus the greater of (a) the highest Adjusted Pretax Income for each
fiscal year during the period ending June 30, 1998, and (b)
$4,621,452, which is the 1992 AB&CA Adjusted Pretax Income. (See
table below.)
<PAGE>
-6-
=====================================================
INCREASE IN % OF BASE SALARY TO BE PAID
ADJUSTED PRETAX INCOME AS BONUS
- -----------------------------------------------------
less than 10% 0%
- -----------------------------------------------------
10% to 20% 2 x Increase %
- -----------------------------------------------------
21% to 25% 4 X Increase %
- -----------------------------------------------------
26% to 30% 6 X Increase %
- -----------------------------------------------------
greater than 30% 7 X Increase %"
=====================================================
(4) Herbert R. Silver acknowledges that the Company and Union have
satisfied their obligation to him to provide the life and disability insurance
required to be furnished to him pursuant to Section (F) of Article THIRD of his
Employment Agreement by offering to make such insurance available to him, he has
elected to forego such insurance through the remainder of the term of the
Employment Agreement and is waiving any and all rights he had or has, now or in
the future, under the Employment Agreement to such insurance. Bernard Silver
acknowledges that the Company and Union have satisfied their obligation to him
to provide the disability insurance required to be furnished to him pursuant to
Section (F) of Article THIRD of his Employment Agreement by offering to make
such insurance available to him, he has elected to forego such insurance through
the remainder of the term of the Employment Agreement and is waiving any and all
rights he had or has, now or in the future, under the Employment Agreement to
such insurance. Concerning the life insurance
<PAGE>
-7-
benefit to which he is still entitled under the Employment Agreement, Bernard
Silver acknowledges that the obligations of Union and the Company with respect
to such insurance only relate to the payment of the premiums in respect of such
insurance, and it shall be Bernard Silver's responsibility to take whatever
actions may be necessary to keep such insurance in effect.
(5) The parties hereto agree that, for a period of five years
following termination of their respective employment with the Company (except if
such termination is by the Company for Cause), each Partner and his spouse will
continue to be covered, at the Company's expense, under the Company's group
medical insurance coverage in which they are participants at the time of
termination (which coverage will be an indemnity-based, fee-for-service medical
plan and will not utilize a "gatekeeper" primary care physician component common
in health maintenance organizations), provided they are eligible for inclusion
in such group coverage. In addition, each of the Partners (or if such Partner
dies during the five year period referred to above, his respective spouse),
shall have the right to elect to discontinue participation in the Company's
group medical plan and arrange for medical insurance of his or her own choosing.
In the event (i) a Partner or spouse either (a) is not eligible or becomes
ineligible for participation in the Company medical insurance plan or (b) elects
to discontinue participation in the plan, or
<PAGE>
-8-
(ii) the Company terminates such group medical insurance plan, the only
obligation of the Company under this Section 5 will be to pay the applicable
Partner or spouse (as the case may be) an amount equal to the monthly insurance
premium paid by the Company in respect of the Partner (and/or spouse) under the
Company plan at the time of the occurrence of either (i) or (ii), as the case
may be, which amount shall be fixed at the time of such occurrence and shall be
paid each month thereafter to the Partner or spouse, as the case may be, for the
remainder of the five year period referred to above.
In all other respects, the Purchase Agreement and Employment
Agreements shall remain in full force and effect.
<PAGE>
-9-
Please acknowledge your agreement with the foregoing by countersigning
this letter in the space provided below.
THE UNION CORPORATION
By:/s/ MELVIN L. COOPER
-------------------------
Name: Melvin L. Cooper
Title: Chairman
ALLIED BOND & COLLECTION
AGENCY, INC.
By:/s/ SHELDON ZUCKER
-------------------------
Name: Sheldon Zucker
Title: Executive Vice
President
AGREED:
/s/ BERNARD SILVER
- -----------------------
Bernard Silver
/s/ HERBERT R. SILVER
- -----------------------
Herbert R. Silver
<PAGE>
EXHIBIT 11
THE UNION CORPORATION AND SUBSIDIARIES
Determination of Primary and Fully Diluted Income Per Common and Common
Equivalent Share
(In thousands, except per share amounts)
For the Year Ended June 30,
---------------------------
<TABLE>
<CAPTION>
1997 1996
---------------------------------- -----------------------------------
Number of Income Per Share Number of Income Per Share
Shares Net of Taxes Amount Shares Net of Taxes Amount
--------- ------------ --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Primary:
- --------
Average common shares (based on weighted
average number of shares outstanding) 5,720 5,611
Common stock equivalents (stock options) 186 180
----- -----
Income from continuing operations 5,906 $8,096 $1.37 5,791 $ 6,519 $1.13
===== =====
Discontinued operations loss provision
(net of $935 and $2,800 tax benefit) - - - 5,791 (2,065) (.36)
===== ------ ----- ===== ------- -----
Net income 5,906 $8,096 $1.37 5,791 $ 4,454 $ .77
===== ====== ===== ===== ======= =====
Fully Diluted:
- --------------
Average common shares (based on weighted
average number of shares outstanding) 5,720 5,611
Common stock equivalents (stock options) 236 225
----- -----
Income from continuing operations 5,956 $8,096 $1.36 5,836 $ 6,519 $1.12
===== =====
Discontinued operations loss provision
(net of $935 and $2,800 tax benefit) - - - 5,836 (2,065) (.35)
===== ------ ----- ===== ------- -----
Net income 5,956 $8,096 $1.36 5,836 $ 4,454 $ .77
===== ====== ===== ===== ======= =====
<CAPTION>
1995
----------------------------------
Number of Income Per Share
Shares Net of Taxes Amount
--------- ------------ ---------
<S> <C> <C> <C>
Primary:
- --------
Average common shares (based on weighted
average number of shares outstanding) 5,558
Common stock equivalents (stock options) 99
-----
Income from continuing operations 5,657 $5,707 $1.01
=====
Discontinued operations loss provision
(net of $935 and $2,800 tax benefit) 5,657 (5,200) (.92)
===== ------ -----
Net income 5,657 $ 507 $ .09
===== ====== =====
Fully Diluted:
- --------------
Average common shares (based on weighted
average number of shares outstanding) 5,558
Common stock equivalents (stock options) 168
-----
Income from continuing operations 5,726 $5,707 $1.00
=====
Discontinued operations loss provision
(net of $935 and $2,800 tax benefit) 5,726 (5,200) (.91)
===== ------ -----
Net income 5,726 $ 507 $ .09
===== ====== =====
</TABLE>
<PAGE>
EXHIBIT 13
1997 ANNUAL REPORT
THE UNION
CORPORATION
[Photo omitted of a teleservice representative.]
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
COMPANY PROFILE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A leader in its field, The Union Corporation furnishes a broad range of credit
and receivables management outsourcing services to large and small businesses,
and is positioned for greater growth as companies increasingly seek benefits
that "outsourcing" provides.
Through its subsidiaries -- Transworld Systems, Interactive Performance, High
Performance Services, Allied Bond & Collection Agency, and Capital Credit -- The
Union Corporation fills demanding clients' needs. Among them are: credit
authorization, customer service, credit usage management, management and
collection of accounts receivable, and a variety of related inbound and outbound
call-center services.
- --------------------------------------------------------------------------------
[Map omitted of the continental United States that shows the location of
Transworld Systems' 133 Sales Offices and the Company's 27 Call-Centers.]
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
1....................................Financial Highlights
2....................................Report to Shareholders
5....................................Business Overview
11...................................Financials
- --------------------------------------------------------------------------------
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company's financial performance was impressive in fiscal 1997. Operating
profits rose 22%, revenues grew 17%, and earnings per share increased 21%.
Equally important, the Company achieved a firm foothold during the year in a
burgeoning new business known as "call-center outsourcing."
[Graph omitted that shows the Revenues of the Company based on the following
data:
- -----------------------------------------
REVENUES
Fiscal Years 1993-1997 ($ in millions)
93* 80.5
94 92.1
95 97.6
96** 103.7
97 121.7
- -----------------------------------------
* Fiscal year 1993 includes results of Allied Bond following its acquisition
in December 1992.
** Fiscal year 1996 includes the results of Interactive Performance and High
Performance Services since the commencement of their operations during the
third and fourth fiscal quarters, respectively.]
[Graph omitted that shows the Operating Income* of the Company's Subsidiaries
based on the following data:
- ----------------------------------------
OPERATING INCOME*
FROM SUBSIDIARIES
Fiscal Years 1993-1997 ($ in millions)
93** 12.0
94 14.2
95 16.9
96 17.3
97 21.3
- ----------------------------------------
* Represents operating income of Union's subsidiaries before goodwill and
depreciation expenses related to purchase accounting adjustments. Also
excludes Union's corporate office expenses.
** Fiscal year 1993 includes the results of Allied Bond following its
acquisition in December 1992.]
[Graph omitted that shows the Cash Generated* by the Company's Subsidiaries
based on the following data:
- ----------------------------------------
CASH GENERATED*
BY SUBSIDIARIES
Fiscal Years 1993-1997 ($ in millions)
93** 13.9
94 16.4
95 18.9
96 19.4
97 24.0
- ----------------------------------------
* Represents cash generated by Transworld Systems, Allied Bond, Capital
Credit, Interactive Performance and High Performance Services, as measured
by profit before taxes, amortization of goodwill and depreciation expense,
and Union's corporate office expenses.
** Fiscal year 1993 includes the results of Allied Bond following its
acquisition in December 1992.]
- --------------------------------------------------------------------------------
1
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
REPORT TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Fiscal 1997 was a pivotal year in the evolution of The Union Corporation; a year
of change.
- --------------------------------------------------------------------------------
The Company's financial performance was impressive. Operating profits
rose 22%, earnings before interest, taxes, depreciation and amortization expense
increased 20%, revenues grew 17%, and earnings per share increased 21%. Equally
important, the Company achieved a firm foothold in a burgeoning new business
known as "call-center outsourcing." It is a development for which we began to
lay the foundation two years ago.
Our 1995 annual report mentioned that the Company was "exploring"
opportunities to provide outsourcing services to major corporations. Last year,
we noted that contractual agreements had been signed with "three major
outsourcing clients." Today, after more than a year of successful operation
under those contracts, we are pleased to report that the Company has exceeded
the expectations of our clients, in terms of both cost and performance, as
evidenced by the comments of our two largest call-center clients, AT&T Corp. and
Advanta Corp. (pages 7 and 10).
With its well-established and respected position as a leader in the
business of credit and accounts receivable management outsourcing, The Union
Corporation is ideally positioned to benefit as the industry flourishes. To
provide shareholders with a full appreciation of the Company's strategic
objectives, it is worthwhile to look briefly at where outsourcing has been and
where it is today.
AN EXPANDED OBJECTIVE.
The concept of outsourcing has been in place for years. The emphasis has
recently changed, however, from reducing a company's in-house costs by hiring an
outside provider to perform non-core business functions, rather than handling
those functions within its own organization.
Today it is recognized that in addition to helping to lower costs, a
provider of specialized outsourced services can often do a better and more
effective job than the company might do itself. For example, The Union
Corporation's expertise in credit and accounts receivable management results in
improved receivables recoveries and portfolio performance for companies that
turn to us. These clients benefit from reduced write-offs and other savings that
are in the aggregate a multiple of the operational cost savings. We refer to
this as "portfolio leverage," and it has been a key to our success with a number
of clients.
[Graphic text box omitted that contains the following statement: The Company's
financial performance was impressive. Operating profits rose 22%, earnings
before interest, taxes, depreciation and amortization expense increased 20%,
revenues grew 17%, and earnings per share increased 21%. Equally important, the
Company achieved a firm foothold during the year in a burgeoning new business
known as "call-center outsourcing."]
- --------------------------------------------------------------------------------
2
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Such rewards for existing and new clients were envisioned when your
Company's management devised the new strategy to broaden our business base
beyond traditional third-party accounts receivable management. It was seen that
as deregulation affects telecommunications companies and firms in such fields as
financial services and utilities, they would have to compete in a new,
unfettered marketplace. Consequently, there will be a growing demand for the
"portfolio leverage," improved customer care and lower costs that a specialized
outsourcing firm can deliver.
In addition, a new relationship develops between a company that turns to
outsourcing to meet its objectives and the company that provides the needed
services. The traditional relationship most likely would have been merely one of
buyer and seller. Now it is more of a partnership, as each company works closely
with the other toward the achievement of mutual goals.
Currently serving as a provider of outsourced call-center services to
such major clients as AT&T Corp., Lucent Technologies and Advanta Corp., Union
is well on its way toward a principal goal: achieving a strong position in the
growing outsourcing industry -- one that some forecasters believe will be a $100
billion market before the end of the 1990s.
A STRONG FOUNDATION.
Much of the foregoing emphasizes The Union Corporation's success in
broadening its value as an outsourcing provider of services related to our
traditional business. There should be no doubt, however, that a fundamental
strength of the Company lies in the marketplace's acknowledgment of our
leadership role in third-party accounts receivable management.
Our expertise and proven skills in accounts receivable management --
furnished to long-term clients and an increasing number of new ones by our
Transworld Systems, Allied Bond & Collection and Capital Credit subsidiaries --
contributed significantly to the improved financial results in fiscal
1997.
IMPRESSIVE FINANCIAL PERFORMANCE.
. The operating results for fiscal 1997 represent the highest revenue,
operating income and earnings per share ever reported by the Company for any
fiscal year since Union became a pure financial services company in 1989.
. Consolidated revenue increased 17% to $121.7 million in fiscal 1997, compared
with the prior year, reflecting record revenues at Transworld Systems, a 10%
increase in revenues at Capital Credit and the inclusion of revenues from
Union's call-center outsourcing services subsidiaries.
. Operating income was $14.2 million in fiscal 1997, an increase of 22%,
compared with the prior year. Fiscal 1997 primary earnings per share for
Income from continuing operations increased to $1.37 per share, compared with
$1.13 per share in fiscal 1996.
. Cash generated* by the Company's operating subsidiaries, as measured by
profit before taxes, amortization of goodwill and depreciation expense, and
Union's corporate office expenses, was a record $24 million.
. Union's financial condition remained strong and liquid at June 30, 1997, with
cash and short-term investments of approximately $49 million, working capital
of approximately $41 million and net worth of approximately $72 million.
[Graphic text box omitted that contains the following statement: Cash generated*
by the Company's operating subsidiaries was a record $24 million.]
- --------------------------------------------------------------------------------
3
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
STRENGTHENED MANAGEMENT.
In other developments, your Company announced the appointment of Bill
Hewitt as Chief Executive Officer in July 1997 and welcomed three new members to
the Board of Directors. Mr. Hewitt, who joined The Union Corporation in 1991 as
Chairman of Capital Credit, has served as President and Chief Operating Officer
of Union since 1995. With skills and strengths that complement those of your
Chairman, he is the architect of the Company's new expansion strategy and played
a major role in establishing the High Performance and Interactive Performance
subsidiaries.
The Board of Directors elected Nicholas Gill Executive Vice President in
recognition of his many contributions to the success of Union. Mr. Gill
continues to serve as the Company's Chief Financial Officer.
Joining the board are Herbert A. Denton, Robert A. Marshall, and James
M. McCormick. Mr. Denton is the president and co-founder of Providence Capital,
Inc. Mr. Marshall, a consultant to the financial services industry, formerly
headed Advanta National Bank and was an executive vice president at its parent,
Advanta Corp. Mr. McCormick is president and a founder of First Manhattan
Consulting Group. Each new director has a well-earned reputation for his
diligent efforts to increase shareholder value, and we are proud that they have
chosen to work with us. In welcoming them, we take this opportunity to
acknowledge the inestimable contributions made over years of long service by
retiring board members John E. Angle and Stuart J. Northrop. The Union
Corporation's management, shareholders, and employees have benefitted from their
guidance and untiring efforts on behalf of the Company. We shall miss them both.
ADDING IT UP.
In view of what you have read to this point, it seems natural to have
settled on the theme for this report that The Union Corporation is well-
positioned for sustained growth ...
. Well-positioned to continue to provide demanding clients with the superior
results, high-quality performance, and variety of services they rely on in
these increasingly competitive times ...
. Well-positioned by its leadership status, top-flight operating management,
and sound financial condition to expand successfully into new related areas
of opportunity ...
. Well-positioned to further maximize value for shareholders.
We are confident of the Company's future, and we will continue to
pursue strategies that will strengthen your Company and increase shareholder
value in the years ahead.
Respectfully,
MELVIN L. COOPER WILLIAM B. HEWITT
Melvin L. Cooper William B. Hewitt
Chairman of the Board President and Chief Executive Officer
September 16, 1997
- --------------------------------------------------------------------------------
4
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Business Overview
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Beginning in fiscal 1995, The Union Corporation undertook to expand its business
base beyond that of its traditional role of collecting past-due debt through
"third-party intervention" into "call-center outsourcing" services. The Company
has significant strengths in third-party collections such as: dedicated and
well-trained people, experienced operating management, a proven track record of
strong performance and service to our clients, and sophisticated nationwide
collection systems. It has become increasingly apparent that many of those same
resources can be of value to companies well before the need for third-party
collections.
. For example, our expertise in telephonic "call-center" communications can
serve credit grantors early on to ascertain customers' creditworthiness, to
gather data to maintain their account records, and to provide customer
service.
. Also, our accounts receivable management skills can be applied to perform
"usage management." These skills come into play in advance of delinquency to
determine whether select customers' credit usage and credit worthiness are
cause for concern. Thus, a "warning flag" can be raised at any sign of
trouble.
. At the same time, our recognized proficiency in our core business continues
to give credit grantor clients assurance of full control over the important
element of accounts receivable management and collection.
The Union Corporation has identified, as sales targets, companies in
four large markets, which represent the greatest opportunity to utilize one or
more of our services. These markets are large telecommunications, financial
services, power generation and distribution firms, and small and medium size
companies. Indicative of our successful efforts is the fact that the Company at
present provides credit and/or accounts receivable management services to 16 of
the top 25 U.S. bankcard issuers, to six of the ten largest telecommunications
companies and to over 40,000 small and medium size companies. This market focus
permits The Union Corporation to capitalize on strong client relationships,
relevant economic trends, and its core competencies.
Our aim to become an outsourcing "arm" of increasingly competitive and
cost-conscious companies in a deregulated environment is supported by a solid
infrastructure. With 133 sales offices, 27 "call-centers," modern electronic
communications, and experienced operating management, the Company is prepared to
provide current and new customers with a variety of credit and receivables
management services to suit their business needs.
Combined with management's attention toward increasing productivity and
controlling costs, a successful marketing effort of our credit and receivables
management outsourcing services can be expected to result in earnings growth.
[Graphic text box omitted that contains the following statement: Beginning in
fiscal 1995, The Union Corporation undertook to expand its business base beyond
that of its traditional role of collecting past-due debt through "third-party
intervention" into "call-center outsourcing" services.]
<TABLE>
<CAPTION>
TARGET MARKETS
- --------------
+ STRONG CORRELATIONS
# WEAK CORRELATION
LARGE CORPORATE
----------------------------------------------------------------------
ATTRACTIVENESS ATTRIBUTE TELECOMMUNICATIONS FINANCIAL SERVICES POWER UTILITIES SMALL CORPORATE
- ------------------------------------------------------------------------------------------------------------------------
SIZE $4 BILLION $12 BILLION $2 BILLION $4 BILLION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEREGULATION + + + #
- ------------------------------------------------------------------------------------------------------------------------
INDEPENDENT
SALES FORCE # # # +
- ------------------------------------------------------------------------------------------------------------------------
CALL-CENTER
USAGE + + + #
- ------------------------------------------------------------------------------------------------------------------------
UNION CORPORATION
RELATIONSHIPS + + # +
- ------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
The market-focused subsidiaries, described below, bring to bear all the
resources of The Union Corporation, with the knowledge and experience needed to
serve each client well.
TRANSWORLD SYSTEMS INC.
Transworld, headquartered in Rohnert Park, California, offers the
combination of both fixed-fee and contingency fee collection services. As the
leading company of its type in the industry, Transworld has a successful history
of growth that is attributable to the strength of its nationwide marketing
organization, a high recovery rate, cost-effectiveness and quality of service.
Transworld's system reduces customers' in-house collection costs while providing
detailed monthly status reports for accounting and control purposes. Its fixed-
fee system, Phase I, is based on contacting the debtor with a series of computer
generated collection demands sent by mail. Unlike companies whose revenues are
derived from contingency collection, Transworld's Phase I system charges a fixed
fee currently ranging from $4.75 to $9.95 per account, depending on the number
of accounts placed.
Many customers with small-balance delinquent accounts, ranging
between $50 and $100, have found Transworld's Phase I system to be the only
economical method of obtaining professional, third-party collection results.
Transworld's ability to get clients to make an early assignment of delinquent
accounts, usually 45 to 90 days past due, is possible because of the low fixed-
fee structure and its sophisticated computerized management reporting system.
Transworld also offers clients who purchase systems for 300 or more accounts the
option to electronically communicate the debtor information that is necessary to
initiate collection demands directly to Transworld's computer system. Many
clients experience collection costs as low as 5 to 7 percent of the amount
collected, while at the same time eliminating a good deal of their normal
billing expenses. The combination of low cost and high recovery rates results in
a high customer renewal rate.
Transworld currently has well over 40,000 customers using its services,
from small companies that purchase a system for 45 accounts to major
corporations that purchase systems for 100,000 accounts. The potential market in
the United States includes more than 5 million companies and businesses with
revenues greater than $50,000.
Transworld's outstanding marketing organization, consisting of more than
700 independent contractors, provides the sales effort and ongoing service
essential to the system. This group is highly trained and motivated, and is paid
on a commission basis. The building of such a sales force is a formidable
barrier to entry for potential competitors. Transworld had 133 sales offices
throughout the country and Puerto Rico at year end and plans to open six new
sales offices in fiscal 1998.
CREDIT MANAGEMENT SERVICES (CMS)
Approximately 75% of the clients using Transworld's Phase I system
assign those accounts that were not collected during the fixed-fee program to
CMS, a division of Transworld, on a contingency fee basis (Phase II). Because a
CMS office is opened in a new location only after business has been developed in
that area by Transworld's Phase I division, historically it has become
profitable within the first month of operation.
CMS collectors are paid on a commission basis and perform collection
services at 19 branch offices, with one new branch office expected to be opened
in fiscal 1998. Branch managers, trained and promoted from within, are
compensated through a combination of commissions and profit incentives. CMS has
developed software packages and computer systems to handle fiduciary reporting
and interface with a client base of over 35,000. The average debt assigned to
CMS is approximately $600 with an average payment collected in excess of $200.
CMS completed another very strong year and had record collections, revenues and
profits.
Transworld's fiscal 1997 consolidated revenues and operating income
represent the highest levels ever achieved in any fiscal year. Transworld also
continued to maintain its strong operating margin, which was 24% in fiscal 1997,
and is well positioned for future growth.
INTERACTIVE PERFORMANCE, INC.
Interactive Performance, Inc. (IPI) is headquartered in North
Charleston, South Carolina. IPI provides a range of credit and receivables
management outsourcing services to telecommunications companies. Services
including credit authorization, customer service, usage management and
receivables management are provided through call centers in South Carolina and
Florida. All IPI services-
[Graphic text box omitted that contains the following statement: Transworld's
fiscal 1997 consolidated revenues and operating income represent the highest
levels ever achieved in any fiscal year.]
- --------------------------------------------------------------------------------
6
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
i.e., receiving or making phone calls and related functions, are performed in
the client's name.
IPI's three call-centers total nearly 65,000 square feet of
space and contain in excess of 650 work stations.
The IPI management team is focused on building long-term relationships
with large telecommunications clients. Accordingly, it is anticipated that IPI
contracts will include most, if not all, of the following characteristics:
. Performance targets
. Multi-year term
. Cost plus markup and incentive
. Dedicated facilities and/or staff
. Enhancement/integration of client systems.
IPI is a performance-driven company and during fiscal 1997 its strong
performance was recognized by:
. Being asked by a client to build a 97-seat call-center
. Receiving a substantial bonus for work performed for a client
IPI strives to establish an excellent working environment for its
employees by:
. Offering attractive wages and benefits
. State-of-the-art technology
. Three weeks or more of paid training
. Attractive facilities
. Promotion opportunities and ongoing employee
motivation, training and support.
Management believes IPI is well positioned for continued growth.
[Graphic text box omitted that contains the following statement: "The Union
Corporation has fully met--or exceeded--our expectations in providing
receivables management outsourcing services." Brent Bostick, Vice President,
AT&T, Credit and Receivables Mgt.]
[Photo omitted of an AT&T customer statement.]
[Photo omitted of the interior of Interactive Performance, Inc.'s North
Charleston, SC Call-Center facility.]
[Graphic text box omitted that contains the following statement: For well over a
year, Union's Interactive Performance, Inc. subsidiary has successfully handled
receivables management services for AT&T's Consumer Markets Division at a new
North Charleston, SC facility. Working closely with the client, Union built-out
and staffed the entire operation, getting the center up and running on schedule
and within budget.]
- --------------------------------------------------------------------------------
7
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
HIGH PERFORMANCE SERVICES, INC.
High Performance Services, Inc. (HPSI) serves the financial services
industry. HPSI, headquartered in Jacksonville, Florida, provides a full range of
credit and receivables management services in the name of its clients.
Currently providing customer service for a leading credit card issuer,
HPSI is negotiating with another major financial services firm to provide a
usage management capability.
HPSI is in most respects (e.g., long-term client relationship focus,
performance emphasis, management style) analogous to IPI, but with financial
services industry knowledge and expertise.
Management believes that this industry focus, coupled with strong
performance, positions HPSI for continued growth.
ALLIED BOND & COLLECTION AGENCY, INC.
Allied Bond & Collection Agency, headquartered in Trevose, Pennsylvania,
is a well-managed third-party contingency and fixed-fee basis collection and
teleservicing company with a nationally recognized reputation for superior
performance and service. Allied includes among its clients many of the larger
consumer credit grantors across a broad spectrum of industries such as banking,
oil refining and distribution companies, student loan servicing, retail, travel
and entertainment, utilities and telecommunications, and enjoys a significant
share in many of these markets. Through superior performance and service, Allied
has been able to increase its market share in several of these areas.
Additionally, the Company reported record placements in both dollars and the
number of accounts processed; and by focusing on col-
[Graphic text box omitted that contains the following statement: Allied
achieved a 38% increase in operating income over fiscal 1996.]
- --------------------------------------------------------------------------------
The Ingredients for Delivering Excellence...
[Graphic image omitted that contains the following photos:
- the exterior of Interactive Performance, Inc.'s North Charleston, SC
Call-Center facility; and
- a training class room.]
An attractive
facility...
...with thorough
training...
- --------------------------------------------------------------------------------
8
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
lector productivity and cost control, Allied achieved a 38% improvement in
operating income over the prior year.
Post charge-off collection work has long been outsourced by credit
grantors. More recently, however, the concept of outsourcing has been expanded
to include many aspects of the receivables management process that were
traditionally performed by credit grantors as an in-house operation. Allied Bond
has responded to these opportunities by developing innovative programs for both
its existing customer base and for new customers and markets. These new
programs, some on a fee-per-account basis, include early-out and pre-charge-off
intervention, as well as customer relations and service calling missions.
Through its strong, in-depth management, Allied has employed a consistent
philosophy that has served both it and its clients well throughout Allied's 39-
year history. The foundation of that philosophy consists of maintaining a highly
trained, well-supervised collector staff committed to achieving positive results
in an efficient and professional manner for all of Allied's clients.
By being flexible and innovative in its collection services, techniques,
and technology employed, Allied has kept its leadership position and retains a
solid basis upon which it will continue to improve its financial and operational
performance.
CAPITAL CREDIT CORPORATION
Capital Credit provides third-party contingency and fixed-fee collection
services to large national clients primarily in four major market segments:
. Bankcard . Travel and Entertainment
. Telecommunications . Government
[Graphic text box omitted that contains the following statement: Capital Credit
increased operating income by 28% in fiscal 1997 compared with the prior year.]
- --------------------------------------------------------------------------------
.. The Union Corporation Way.
[Graphic image omitted that contains the following photos:
- a teleservice representative;
- telecommunications equipment; and
- a group of teleservice representatives at work.]
...state-of-the-art
technology...
...and ongoing
motivation, training
and support.
Knowledgeable, skilled,
Union Corporation
Teleservice Representatives
- --------------------------------------------------------------------------------
9
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Capital Credit, headquartered in Jacksonville, Florida, had a strong
year in fiscal 1997 with some notable accomplishments:
. Revenues increased 10%
. Operating income increased 28%
. A major credit card issuer selected Capital Credit as its Agency of the
Year, for the second year in a row
. Capital Credit won and has performed well on several pre-charge-off
outsourcing projects.
Capital Credit's strategy for growth is premised upon the following
principles:
. Being a top quartile performer for clients in recovery rate, compliance and
customer service will yield increases in market share from existing clients
and will facilitate the acquisition of new clients within the four market
segments listed above.
. The client base should be expanded and new services offered to existing
clients.
. Maintaining state-of-the-art technology is essential in maximizing staff
productivity.
Based upon strong client performance, management believes Capital Credit
is well positioned for continued growth.
- --------------------------------------------------------------------------------
[Graphic text box omitted that contains the following statement: "We set our
time, cost, and quality targets -- and HPSI responded quickly and effectively to
meet them!" Jim Allhusen, President, Advanta Personal Payment Services]
[Photo omitted of two Advanta Corp. credit cards.]
[Graphic text box omitted that contains the following statement: When Advanta
Corp. management determined that the company's strong growth called for an
external partner, it turned to Union's High Performance Services, Inc. Currently
handling approximately 10% of Advanta's credit card customer service calls the
HPSI subsidiary once again is proving the value of outsourcing.]
[Photo omitted of a teleservice representative.]
- --------------------------------------------------------------------------------
10
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
FINANCIAL REVIEW
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12........................ Consolidated Statements of Operations
13........................ Consolidated Balance Sheets
14........................ Consolidated Statements of Cash Flows
15........................ Consolidated Statements of Shareholders' Equity
16........................ Notes to Consolidated Financial Statements
27........................ Management's Report
27........................ Report of Independent Auditors
28........................ Management's Discussion and Analysis of Financial
Condition and Results of Operations
34........................ Selected Financial Data
35........................ Corporate Information
- -------------------------------------------------------------------------------
11
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Consolidated Statements of Operations
- -------------------------------------------------------------------------------
For the years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $121,709 $103,732 $97,649
- --------------------------------------------------------------------------------------
Expenses:
Operating expenses 79,311 67,877 63,482
Selling, general and administrative expenses 23,635 20,190 19,759
Depreciation and amortization 4,562 4,058 4,101
- --------------------------------------------------------------------------------------
Operating costs and expenses 107,508 92,125 87,342
- --------------------------------------------------------------------------------------
Operating income 14,201 11,607 10,307
Interest expense (1,417) (1,475) (1,450)
Interest income 1,673 1,509 1,242
- --------------------------------------------------------------------------------------
Income from continuing operations before income taxes 14,457 11,641 10,099
Provision for income taxes 6,361 5,122 4,392
- --------------------------------------------------------------------------------------
Income from continuing operations 8,096 6,519 5,707
Discontinued operations loss provision
(net of tax benefits of $935 and $2,800) - (2,065) (5,200)
- --------------------------------------------------------------------------------------
Net income $ 8,096 $ 4,454 $ 507
======================================================================================
Primary income per common share:
Income from continuing operations $ 1.37 $ 1.13 $ 1.01
Discontinued operations loss provision - (.36) (.92)
- --------------------------------------------------------------------------------------
Net income $ 1.37 $ .77 $ .09
======================================================================================
Fully diluted income per common share:
Income from continuing operations $ 1.36 $ 1.12 $ 1.00
Discontinued operations loss provision - (.35) (.91)
- --------------------------------------------------------------------------------------
Net income $ 1.36 $ .77 $ .09
======================================================================================
Average number of common shares outstanding:
Primary 5,906 5,791 5,657
Fully diluted 5,956 5,836 5,726
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
12
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
June 30, 1997 and 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 11,574 $ 18,634
Short-term investments, at cost, which approximates market 37,804 24,529
Accounts receivable, trade, less allowance for doubtful accounts
of $681 and $700 10,214 9,135
Prepaid expenses and other current assets 3,842 5,860
- -------------------------------------------------------------------------------------------
Total current assets 63,434 58,158
Property, buildings and equipment, net 8,323 9,168
Cost of intangible assets from businesses acquired, less accumulated
amortization of $10,532 and $9,080 48,023 49,248
Other assets and deferred charges 3,490 3,526
Deferred income taxes 2,749 2,886
- -------------------------------------------------------------------------------------------
Total assets $126,019 $122,986
===========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,406 $ 3,531
Accrued expenses 18,015 22,065
Income taxes payable 866 1,448
Current portion of long-term debt 259 277
- -------------------------------------------------------------------------------------------
Total current liabilities 22,546 27,321
Long-term debt 20,379 20,634
Other liabilities 11,482 12,038
- -------------------------------------------------------------------------------------------
Total liabilities 54,407 59,993
- -------------------------------------------------------------------------------------------
Commitments and contingent liabilities
Shareholders' equity:
Common stock, $.50 par value; authorized shares, 15,000;
issued shares, 8,696 and 8,601 4,348 4,300
Additional paid-in capital 45,272 44,708
Retained earnings 58,887 50,791
Less treasury stock, at cost, 2,945 shares and 2,941 shares (36,895) (36,806)
- -------------------------------------------------------------------------------------------
Total shareholders' equity 71,612 62,993
- -------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $126,019 $122,986
===========================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
13
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
For the years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 8,096 $ 4,454 $ 507
Adjustments to reconcile income to net cash provided by operations:
Discontinued operations loss provision, net of tax benefit - 2,065 5,200
Depreciation and amortization 4,562 4,058 4,101
Deferred compensation expense 432 432 723
Non-cash compensation expense 31 434 -
Provision for doubtful accounts 124 266 143
Provision for deferred income taxes 2,043 1,161 1,334
Changes in assets and liabilities:
Accounts receivable - (increase) (1,203) (3,062) (1,822)
Prepaid expenses and other current assets - decrease (increase) 218 (696) 282
Other assets and deferred charges - decrease (increase) 36 (1,226) (165)
Accounts payable and accrued expenses - (decrease) increase (4,876) 805 220
Income taxes payable - increase (decrease) 215 506 (183)
Other liabilities - (decrease) (393) (790) (2,847)
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,285 8,407 7,493
- ------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Capital expenditures (2,286) (2,383) (1,177)
Additional purchase price related to the purchase of
Allied Bond & Collection Agency (227) (266) (260)
Other 21 46 42
- ------------------------------------------------------------------------------------------------------
Net cash (used by) investing activities (2,492) (2,603) (1,395)
- ------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Purchase of treasury stock, at cost (89) - (3,344)
Principal payments on long-term debt (120) (110) (102)
Principal payments on capital lease obligations (153) (117) (99)
Fair market value of shares of common stock received from
an optionee to satisfy withholding tax obligations (868) - -
Proceeds from exercise of stock options 652 851 3
- ------------------------------------------------------------------------------------------------------
Net cash (used by) provided by financing activities (578) 624 (3,542)
- ------------------------------------------------------------------------------------------------------
Net increase in cash and short-term investments 6,215 6,428 2,556
Cash and short-term investments at beginning of year 43,163 36,735 34,179
- ------------------------------------------------------------------------------------------------------
Cash and short-term investments at end of year $49,378 $43,163 $36,735
======================================================================================================
Supplemental disclosures of cash flow information:
Interest paid $ 1,275 $ 1,751 $ 1,308
Income taxes paid 4,103 3,455 3,241
Supplemental disclosures of noncash investing and financing activities:
Capitalized equipment lease obligations $ - $ 162 $ -
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
14
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
- -------------------------------------------------------------------------------
For the years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Additional
Common paid-in Retained Treasury
(Dollars in thousands) stock capital earnings stock
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1994 $4,238 $43,225 $45,830 $(36,292)
Net income - - 507 -
Proceeds from common stock issued upon exercise of
stock option (45,277 shares, net) 23 187 - -
Purchase of treasury stock, at cost (55,200 shares) - - - (514)
- ------------------------------------------------------------------------------------------
Balance at June 30, 1995 4,261 43,412 46,337 (36,806)
Net income - - 4,454 -
Proceeds from common stock issued upon exercise of
stock options (79,116 shares, net) 39 1,296 - -
- ------------------------------------------------------------------------------------------
Balance at June 30, 1996 4,300 44,708 50,791 (36,806)
Net income - - 8,096 -
Proceeds from common stock issued upon exercise of
stock options (95,377 shares, net) 48 564 - -
Purchase of treasury stock, at cost (4,000 shares) - - - (89)
- ------------------------------------------------------------------------------------------
Balance at June 30, 1997 $4,348 $45,272 $58,887 $(36,895)
==========================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------
15
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of The Union
Corporation and its subsidiaries (the "Company"). All intercompany transactions
and accounts have been eliminated.
REVENUE RECOGNITION:
Revenue is generally recorded upon the performance of services.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND SHORT-TERM INVESTMENTS:
The Company primarily invests excess cash balances in commercial paper with
short-term maturities and overnight time deposits. The Company considers its
cash and short-term investments with an original maturity or redemption date of
three months or less to be cash equivalents.
PROPERTY, BUILDINGS AND EQUIPMENT:
Property, buildings and equipment are stated at cost. The Company uses the
straight-line method to provide for depreciation and amortization over the
following estimated useful lives of the assets or terms of leases: buildings and
leasehold improvements, three to 30 years; equipment and furniture and fixtures,
three to 10 years; computer software, three to five years.
ACCOUNTING FOR INTANGIBLES:
The net cost of intangible assets of businesses acquired amounting to
$47,103,000 and $48,328,000 at June 30, 1997 and 1996, respectively, is being
amortized on a straight-line basis over a 40 year period. Such amortization
amounted to $1,452,000, $1,444,000 and $1,437,000 during the years ended June
30, 1997, 1996 and 1995, respectively. Certain intangible assets from
acquisitions made prior to October 31, 1970, amounting to $920,000, are not
being amortized since, in the opinion of management, there has been no
diminution in value.
INCOME TAXES:
The Company accounts for income taxes in accordance with the liability method
(See Note 10) whereby deferred tax assets and liabilities are determined based
on the differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
PER SHARE DATA:
Income per common share is computed on the basis of the weighted average number
of common shares and dilutive common share equivalents outstanding during the
year.
LONG-LIVED ASSETS:
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of", impairment of long-lived assets is reviewed annually by the
Company by comparing the estimated future undiscounted cash flows associated
with the asset to the asset's carrying value to determine if an impairment
exists. The adoption of SFAS No. 121 in fiscal 1997 did not require an
adjustment to the results of operations or the financial position of the
Company.
STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") became effective in fiscal 1997 and allows companies
to elect to account for stock- based compensation plans using a fair-value based
method or continue measuring compensation expense for those plans using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations. The Company has elected to continue using the intrinsic value
method to account for its stock-based compensation plans. SFAS 123 requires
companies electing to continue using the intrinsic value method to make certain
pro forma disclosures (See Note 8).
- -------------------------------------------------------------------------------
16
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
2. DISCONTINUED OPERATIONS:
The Company reached agreements with the federal government in January 1996,
subject to certain agency approvals and final approval by the Court, which
approvals were given in August 1996, to settle the previously reported matters
involving false pricing information and claims made by certain senior officers
of the Company's former Gichner Systems Group division (the "Gichner Division").
In accordance with the agreements, which recognize the Company's co-operation in
and substantial contribution to the investigation of these matters, the Company
fulfilled its commitment to make compensation for the government's civil claims
by paying $5,550,000 in September 1996. The Company also accepted
responsibility for the actions of the officers of the former Gichner Division by
entering a plea of guilty under the federal False Claims Act, although those
actions were concealed from the management of the Company, and paid a fine of
$250,000 in August 1996. As previously reported, the Company recorded a
$3,000,000 loss provision ($2,065,000 net of tax benefit), or $.36 loss per
share, during the second quarter of fiscal 1996 for its Discontinued Operations,
which provision, combined with amounts previously reserved in connection with
these matters, covered all costs of the above settlements with the government,
and included an accrual for the estimated legal and accounting fees related to
the government claims and other costs related to certain discontinued operations
of the Company, all of which were terminated or otherwise disposed of prior to
fiscal 1990. The net loss provision of $2,065,000 was included in the
Consolidated Statements of Operations under the caption "Discontinued operations
loss provision" for the year ended June 30, 1996.
As previously reported, the Company also recorded an $8,000,000 loss provision
($5,200,000 net of tax benefit), or $.92 loss per share, during the third
quarter of fiscal 1995 for costs related to certain of its discontinued
operations, all of which were terminated or otherwise disposed of prior to
fiscal 1990. This provision was recorded as a result of developments regarding
the former Gichner Division (discussed in the preceding paragraph) and
environmental matters, principally involving a site where an inactive subsidiary
of the Company fully performed a settlement with the federal government, which
has reopened the matter. The net loss provision of $5,200,000 was included in
the Consolidated Statements of Operations under the caption "Discontinued
operations loss provision" for the year ended June 30, 1995.
The $8,000,000 loss provision included an accrual of $3,500,000 for estimated
legal and accounting fees and settlement costs that were expected to be incurred
as a result of government claims for the matter involving the former Gichner
Division and the estimated legal costs to defend the Company against the claims
asserted by the purchaser of the Gichner Division. The $8,000,000 loss
provision also included $4,000,000 for environmental matters and approximately
$500,000 of costs incurred by the Company during the quarter ended March 31,
1995 for the Gichner Division and environmental matters.
GICHNER SYSTEMS GROUP DIVISION:
In 1989 the Company sold the assets and business of 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 has pled guilty to obstruction of justice as a result of
its hindrance of the government's investigation and its destruction of documents
related to this matter, commenced suit against the Company in which it alleges
misrepresentation and breach by the Company of provisions of the Purchase
Agreement and asserts claims for damages and indemnification. The Company
denies each of the claims and intends to vigorously defend this action.
Although management believes the reserve established for this matter is adequate
based on current information, there is no way to be certain that future
developments will not involve additional substantial costs that may require
future charges to the Discontinued operations loss provision.
- -------------------------------------------------------------------------------
17
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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.
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 that 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 that 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. The $8,000,000 loss provision recorded during
the third quarter of fiscal 1995 for costs related to certain of its
discontinued operations, all of which were terminated or otherwise disposed of
prior to fiscal 1990, included a provision of approximately $4,000,000 for
environmental matters. 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
- -------------------------------------------------------------------------------
18
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
be made until a Record of Decision is issued by the EPA, which is expected to be
issued in fiscal 1998. Actual remediation costs cannot be computed until such
remedial action is completed. Some of the other sites involving the Company or
an inactive subsidiary are at a stage where an assessment of liability, if any,
cannot reasonably be made.
It is the Company's policy to comply fully with all laws regulating activities
affecting the environment and to meet its obligations in this area. In many
"generator" liability cases, reasonable cost estimates are available on which to
base reserves on the Company's likely allocated share among viable parties.
Where insufficient information is available regarding projected remedial actions
for these "generator" liability cases, the Company has recorded what it believes
to be reasonable estimates of its potential liabilities. Reserves for liability
for sites on which former operations were conducted are based on cost estimates
of remedial actions projected for these sites. All known environmental claims
are periodically reviewed by the Company, where information is available, to
provide reasonable assurance that adequate reserves are maintained. Reserves
recorded for environmental liabilities are not net of insurance or other
expected recoveries. Other than the aforementioned loss provision that was
recorded by the Company during fiscal 1995, no significant expenses related to
environmental matters were recorded by the Company during the three years ended
June 30, 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.
3. PROPERTY, BUILDINGS AND EQUIPMENT:
Property, buildings and equipment, at cost, are summarized below:
June 30,
- -------------------------------------------
(In thousands) 1997 1996
- -------------------------------------------
Land $ 1,488 $ 1,488
Buildings and leasehold
improvements 4,838 4,486
Equipment and furniture
and fixtures 14,217 13,634
Computer software 3,200 3,200
- -------------------------------------------
Subtotal 23,743 22,808
Less accumulated
depreciation 15,420 13,640
- -------------------------------------------
Net property, buildings
and equipment $ 8,323 $ 9,168
===========================================
4. ACCRUED EXPENSES:
Accrued expenses are summarized below:
June 30,
- ------------------------------------------------
(In thousands) 1997 1996
- ------------------------------------------------
Compensation and benefits $ 6,721 $ 4,976
Accrued collection costs 3,262 3,271
Accrued commissions 1,668 1,788
Accrued liabilities retained
from discontinued
operations 1,593 8,169
Current portion of
restructuring provision - 250
Other 4,771 3,611
- ------------------------------------------------
Total $18,015 $22,065
================================================
5. LONG-TERM DEBT:
Long-term debt obligations are summarized below:
June 30,
- ------------------------------------------
(In thousands) 1997 1996
- ------------------------------------------
Senior debt:
Collateralized notes
at 8.25% $ 465 $ 585
Capitalized lease
obligations 173 326
Unsecured revolving
line of credit 20,000 20,000
- ------------------------------------------
Total debt 20,638 20,911
Less current portion 259 277
- ------------------------------------------
Total long-term debt $20,379 $20,634
==========================================
- -------------------------------------------------------------------------------
19
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In December 1992, the Company borrowed $20,000,000 under an existing $25,000,000
unsecured Revolving Credit Agreement, as amended (the "Credit Agreement"),
furnished by a bank. Pursuant to the terms of the Credit Agreement, the Company
borrowed the $20,000,000 under a revolving line of credit that currently
converts to a three year term loan on December 31, 1998.
Under the terms of the Credit Agreement, the aggregate principal amount
outstanding, which is limited to a maximum of $20,000,000, under the revolving
line of credit on December 31, 1998 must be repaid by the Company in twelve
quarterly installments commencing March 31, 1999 and ending December 31, 2001.
Each of the first eleven installments must be in an amount equal to one-
twentieth of the outstanding loan balance on December 31, 1998, with the twelfth
installment equal to the amount necessary to repay the then unpaid principal
amount of the loan. The loans bear interest, at the Company's option, at either
the bank's base rate, which is announced by the bank from time to time; or at
3/4% above the bank's Eurodollar rate during both the revolving and term loan
periods. The interest rate, which is reset periodically, on the revolving term
loan was approximately 6.8% at June 30, 1997.
The maximum amount of letters of credit that the bank will issue under the
Credit Agreement is $8,000,000. At June 30, 1997, the Company was contingently
liable for outstanding letters of credit aggregating approximately $3,725,000,
which reduced the amount available for letters of credit under the Credit
Agreement to approximately $1,275,000.
Under the terms of the Credit Agreement, the Company is precluded from paying
cash dividends on common stock, is limited to capital expenditures of $8,500,000
per year and is required to meet certain financial tests, all of which were met
at June 30, 1997.
The aggregate amount of long-term debt, excluding capitalized leases (See Note
7), which becomes due during each of the next five years ending June 30, is as
follows: 1998, $130,000; 1999, $2,141,000; 2000, $4,154,000; 2001, $4,040,000;
2002, $10,000,000.
6. OTHER LIABILITIES:
Other liabilities are summarized below:
June 30,
- ------------------------------------------------
(In thousands) 1997 1996
- ------------------------------------------------
Compensation and benefits $ 6,304 $ 6,743
Noncurrent liabilities
retained from discontinued
operations 4,160 3,720
Net noncurrent deferred
state tax liability 535 429
Other 483 1,146
- ------------------------------------------------
Total $11,482 $12,038
================================================
7. COMMITMENTS AND CONTINGENT LIABILITIES:
LEASES:
The Company leases equipment and facilities with terms ranging from one to seven
years with renewal options generally being available.
Property, buildings and equipment includes $671,000, before accumulated
depreciation, of fixed assets held under capitalized leases at June 30, 1997 and
1996. Related accumulated depreciation was $514,000 and $357,000 at June 30,
1997 and 1996, respectively.
Future minimum lease payments under long-term leases as of June 30, 1997 are as
follows:
Capitalized Operating
Leases Leases
- -----------------------------------------------
1998 $143,000 $ 5,198,000
1999 44,000 4,469,000
2000 - 3,847,000
2001 - 2,785,000
2002 - 1,516,000
2003 and thereafter - 390,000
- -----------------------------------------------
Total minimum
lease payments 187,000 $18,205,000
Amount representing
interest 14,000
- -----------------------------------------------
Present value of
minimum lease
payments $173,000
===============================================
Rental expense included in Operating income amounted to $5,313,000 in 1997,
$4,370,000 in 1996 and $4,045,000 in 1995.
- -------------------------------------------------------------------------------
20
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Allied Bond leases its main facility from a partnership, of which the general
partners are the co-chairmen of Allied Bond, pursuant to a lease agreement that
expires in July 2002. The terms of the lease are comparable to those that would
have been obtained under arrangements with unrelated third parties. Allied Bond
paid approximately $566,000, $539,000 and $513,000 in 1997, 1996 and 1995,
respectively, pursuant to such lease.
LITIGATION:
In June 1991, two stockholder class actions were brought, and then consolidated,
against the Company, Capital Credit, certain directors and current and former
executive officers of the Company, and certain former directors and officers of
Capital Credit, seeking damages under the securities laws in connection with the
misstatement by the Company of certain quarterly financial statements in fiscal
1990 and 1991. The Company and the individual defendants denied any and all
wrongdoing or liability and vigorously defended the action. In order to end the
substantial expense and distraction of continued litigation, the Company settled
the action, which settlement was approved by the court. All claims against the
Company and the other defendants have been dismissed with prejudice. The
Company and its insurer each paid one-half of the $1,500,000 settlement amount
in March 1995. That portion of the settlement amount that was not covered by
insurance was charged against existing reserves, all of which had been recorded
in prior fiscal years.
In a lawsuit brought in 1993 by three individuals engaged by Transworld Systems
as independent contractors, in which it was alleged that Transworld Systems 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 prevailed in a jury
trial in 1997 and all of these claims have been dismissed.
Seven 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 judgement in favor of Transworld Systems. The
claims in the six 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.
In addition, the Company and certain subsidiaries are also parties to a number
of lawsuits arising in the ordinary course of business.
Based on current estimates and information, the Company does not believe that
the ultimate resolution of the above matters will have a material adverse impact
on the Company's overall financial condition or future results of operations.
OTHER:
The Company is a party in a lawsuit involving its former Gichner Systems Group
division. The Company is also a party in several pending environmental
proceedings involving the federal Environmental Protection Agency and comparable
agencies in various states. All of these environmental matters relate to
discontinued operations of former divisions or subsidiaries for which the
Company has potential continuing responsibility. See Note 2 of Notes to
Consolidated Financial Statements for additional information regarding these
matters.
- --------------------------------------------------------------------------------
21
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. STOCK OPTION PLANS:
At June 30, 1997, 816,713 shares of the Company's common stock were reserved for
issuance to officers, key employees and directors under various stock option
plans as summarized below:
Number of Shares
- -------------------------------------------------------------------------
1994 1984 1991
Incentive Stock Non-Employee
Stock Option Directors' Stock
Plan Plan Option Plan
- -------------------------------------------------------------------------
Under option (1) 424,462 282,701 42,000
Available for
future grants (2) 67,550 - -
Exercised to date 7,988 621,362 -
Expired - 340,937 7,000
- -------------------------------------------------------------------------
Authorized shares 500,000 1,245,000 49,000
=========================================================================
Total reserved (1) + (2) 492,012 282,701 42,000
=========================================================================
The 1994 Incentive Stock Plan ("1994 Plan"), which was approved by the
stockholders at the Annual Meeting in November 1994, provides for the issuance
of options, stock appreciation rights and other securities to purchase, in the
aggregate, up to 500,000 shares of the Company's common stock to employees of
the Company or its subsidiaries. Options granted under the 1994 Plan are granted
at an exercise price equal to the fair market value of the stock on the date of
such grant and generally expire approximately ten years after the date of grant.
Options that are forfeited without exercise are available for future grants
through the date the plan expires. On September 10, 1997, the Board of Directors
authorized an increase in the number of shares available under the 1994 Plan by
250,000 shares, subject to stockholder approval at the Annual Meeting of
Stockholders to be held on November 19, 1997. The 1994 Plan expires on August
24, 2004.
On September 10, 1997, the Board of Directors also adopted, subject to
stockholder approval at the Annual Meeting of Stockholders to be held on
November 19, 1997, the 1997 Non-Employee Directors' Stock Option Plan ("1997
Directors' Plan"), which provides for the issuance of options up to an aggregate
of 100,000 shares to Non-Employee Directors. Under the 1997 Directors' Plan,
Non-Employee Directors will receive an option on the day of each Annual Meeting
of Stockholders to purchase 5,000 shares of common stock at an exercise price
$5.00 below the fair market value on the date of the grant, in lieu of receiving
an annual cash retainer. Options vest over two years and expire ten years after
the date of grant.
The 1991 Non-Employee Directors' Stock Option Plan ("1991 Directors' Plan"),
which expired on December 31, 1995, provided for the issuance of options to
purchase up to an aggregate of 49,000 shares of the Company's common stock to
Non-Employee Directors. Options granted under the 1991 Directors' Plan were
granted at an exercise price equal to the fair market value of the stock on the
date of such grant and generally expire approximately ten years after the date
of grant.
Options under the 1984 Stock Option Plan ("1984 Plan") were granted through
September 17, 1994, the date that the plan expired, at such prices and upon such
terms as the Stock Option Committee of the Board of Directors fixed as to each
optionee. Options granted under the 1984 Plan generally expire approximately
ten years after the date of grant.
The Company applies APB 25 in accounting for stock options issued under all of
its plans described above and, accordingly, recognizes compensation expense for
the difference, if any, between the fair value of the underlying common stock
and the grant price of the option on the date of grant. If compensation cost
had been determined based upon the fair value method prescribed under SFAS 123,
the pro forma net income and primary earnings per share for fiscal 1997 and 1996
would have been $7,860,000, or $1.36 per share, and $4,390,000, or $.76 per
share, respectively. The pro forma effect on net income and earnings per share
for fiscal 1997 and 1996 may not be representative of the pro forma effect on
net income and earnings per share of future years because the SFAS 123 method of
accounting for pro forma compensation expense has not been applied to options
granted prior to July 1, 1995.
Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the "Black-Scholes" option pricing model with the following
weighted-average assumptions for grants in fiscal 1997 and 1996, respectively;
risk-free interest rates of 6.7% and 6.0%; expected volatility of 23.7% and
22.3%; and expected option life of five years for both years. For each year it
was further assumed that no
- -------------------------------------------------------------------------------
22
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
cash dividend would be issued since the Company is precluded from paying cash
dividends under the terms of its Credit Agreement (See Note 5). The weighted-
average fair value of options granted was $7.91 and $5.11 for the years ended
June 30, 1997 and 1996, respectively.
The following table summarizes information about shares under option at June 30,
1997:
Outstanding Exercisable
-------------------------- -------------------
Weighted Weighted
No. of No. Of Average No. of Average
Exercise Shares Years Exercise Shares Exercise
Price Range (000's) (a) Price (000's) Price
- ------------------------------------------------------------------------
$ 7.375 - $13.750 209 4.9 $10.776 187 $10.647
14.125 - 17.625 141 8.0 15.232 72 14.936
19.250 - 26.156 399 8.9 22.126 150 21.168
- ------------------------------------------------------------------------
$ 7.375 - $26.156 749 7.6 $17.662 409 $15.271
========================================================================
(a) Weighted average remaining contractual life in years.
A summary of all shares under option for the three years ended June 30, 1997 is
as follows:
Weighted
Average Number
Exercise of
Price Shares
- --------------------------------------------------
Outstanding at June 30, 1994 $13.280 766,003
Granted 12.727 101,583
Exercised 4.620 (69,000)
Exchanged 18.371 (124,168)
Forfeited 11.875 (11,000)
- --------------------------------------------------
Outstanding at June 30, 1995 $13.166 663,418
Granted 15.724 90,023
Exercised 12.643 (100,110)
Expired 22.440 (30,000)
- --------------------------------------------------
Outstanding at June 30, 1996 $13.173 623,331
Granted 22.664 313,427
Exercised 11.078 (185,928)
Forfeited 14.088 (1,667)
- --------------------------------------------------
Outstanding at June 30, 1997 $17.662 749,163
==================================================
During fiscal 1997, options were exercised to purchase 131,000 shares of common
stock of the Company and the optionee elected to pay the aggregate exercise
price of these options by surrendering to the Company 56,050 shares of common
stock of the Company, previously acquired by the optionee, that had a fair
market value on the date of exercise equal to the aggregate exercise price. In
addition, the optionee elected to satisfy the withholding tax obligations
resulting from such exercise by surrendering 12,977 shares of common stock of
the Company previously acquired by the optionee and 21,524 shares of common
stock of the Company acquired by the optionee in conjunction with the exercise
of the options. The shares surrendered to satisfy the withholding tax
obligations were valued at the fair market value on the date of the exercise of
the options.
During fiscal 1996, certain optionees elected to pay for a portion or all of the
exercise price of the options they exercised by surrendering a total of 20,994
shares of common stock of the Company that were previously acquired by the
optionees or were acquired by the optionees in conjunction with the exercise of
the options.
During fiscal 1995, an option was exercised to purchase 69,000 shares of common
stock of the Company and the optionee elected to pay for these shares by
surrendering 23,723 shares of common stock of the Company, previously acquired
by the optionee, that had a fair market value on the date of exercise equal to
the exercise price.
On August 25, 1994, the Board of Directors approved a plan that offered all
optionees under the 1984 Stock Option Plan, other than members of the Executive
Management Group of the Company, the opportunity to voluntarily exchange all of
their unexercised options granted during calendar 1990, 1991 and 1992 for a new
option to purchase one-half of the number of shares subject to the above
unexercised options at the exercise price of $11.875 per share, the fair market
value on August 25, 1994. Under the plan, options covering 124,168 shares that
were exercisable at prices ranging from $14.125 to $23.625 per share were
exchanged for options to purchase 62,083 shares at the lower price.
The tax benefits that the Company realized as a result of the exercise of
nonincentive stock options are included in "Additional paid-in capital" in the
Consolidated Balance Sheets.
- -------------------------------------------------------------------------------
23
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
9. RETIREMENT PLANS:
The Company has defined contribution plans covering substantially all of its
employees. The contributions to these plans generally represent a percentage of
employee salary. The costs of the plans, which are funded currently, amounted
to $540,000, $479,000 and $494,000 in the years ended June 30, 1997, 1996 and
1995, respectively.
Certain officers, directors and key employees of the Company have agreements
that provide for deferred compensation after termination of active employment.
The Company accrues the estimated total deferred compensation under each
agreement over the expected period of active employment. Deferred compensation
expense during the years ended June 30, 1997, 1996 and 1995 was $432,000,
$432,000 and $723,000, respectively.
10. INCOME TAXES:
The provision for income taxes on continuing operations is comprised of the
following:
Year ended June 30,
- ---------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------
Current:
Federal $2,637 $2,725 $1,936
State 1,681 1,236 1,122
- ---------------------------------------------
Total current 4,318 3,961 3,058
- ---------------------------------------------
Deferred:
Federal 1,980 1,040 1,244
State 63 121 90
- ---------------------------------------------
Total deferred 2,043 1,161 1,334
- ---------------------------------------------
Total income taxes $6,361 $5,122 $4,392
=============================================
As described in Note 2, the Company recorded deferred tax benefits of $935,000
and $2,800,000 in fiscal 1996 and fiscal 1995, respectively, as a result of loss
provisions recorded for discontinued operations.
The tax effects of temporary differences and tax loss carryforwards that give
rise to significant components of the Company's deferred tax assets and
liabilities are as follows:
June 30,
- --------------------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------
Deferred Tax Assets:
Compensation
and benefits $ 3,747 $ 3,562 $ 3,479
Restructuring provision - 105 1,322
Accrued liabilities
retained from
discontinued
operations 2,019 4,059 4,010
Book depreciation in
excess of tax
depreciation 825 350 -
Net state operating
loss carryforwards 1,214 1,263 886
Other 642 519 374
- --------------------------------------------------------
Total deferred tax assets 8,447 9,858 10,071
Valuation allowance for
deferred tax assets (2,130) (2,191) (2,095)
- --------------------------------------------------------
Deferred tax assets, net
of valuation allowance 6,317 7,667 7,976
- --------------------------------------------------------
Deferred Tax Liabilities:
Tax goodwill
amortization in
excess of book
amortization (3,103) (2,410) (1,726)
Tax depreciation in
excess of book
depreciation - - (767)
- --------------------------------------------------------
Total deferred tax
liabilities (3,103) (2,410) (2,493)
- --------------------------------------------------------
Net deferred tax assets $ 3,214 $ 5,257 $ 5,483
========================================================
The valuation allowance for deferred tax assets relates to certain deferred
state tax assets, including the net state operating loss carryforwards, as
management currently believes that the realization of the deferred state tax
assets do not meet the "more likely than not" criteria outlined in Statement of
Financial Accounting Standards No. 109.
Net current deferred federal tax assets of $1,000,000 and $2,800,000 are
included in "Prepaid expenses and other current assets" in the Consolidated
Balance Sheets at June 30, 1997 and 1996, respectively. Also, net noncurrent
deferred state tax liabilities of $535,000 and $429,000 are included in "Other
liabilities" in the Consolidated Balance Sheets at June 30, 1997 and 1996,
respectively.
- -------------------------------------------------------------------------------
24
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
A reconciliation of the provision for income taxes on continuing operations
computed at the U.S. federal statutory income tax rate, 34%, to the tax
provision as reported for 1997, 1996 and 1995 is as follows:
Year ended June 30,
- ---------------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------
Provision computed
at U.S. federal
statutory income
tax rate $4,915 $3,958 $3,434
Increases (reductions)
in taxes resulting from:
State income taxes,
net of federal income
tax benefit 1,151 896 800
Nondeductible
amortization of
intangibles 182 182 182
Other 113 86 (24)
- ----------------------------------------------------
Total $6,361 $5,122 $4,392
====================================================
11. RIGHTS AGREEMENT:
During fiscal 1988, the Board of Directors of the Company (the "Board") declared
a dividend distribution of one common stock purchase right (a "Right") for each
outstanding share of the common stock of the Company. The Rights expire at the
close of business on December 31, 1998, unless earlier redeemed by the Company.
Each Right entitles the registered holder to purchase one-half of one share of
common stock, at the exercise price as declared by the Board, subject to
adjustment. The exercise price is currently $30 per whole share. The Rights
will not be exercisable until the Distribution Date, which will occur when a
person (other than a certain former shareholder or any shareholder who has filed
a Schedule 13G pursuant to Regulation 13d-1(b) or 13d-2(b) and remains eligible
to do so) becomes and remains the beneficial owner of 15% or more of the
Company's outstanding common stock or announces an offer that would result in
such person acquiring 30% or more of the Company's common stock.
After the Distribution Date, Rights Certificates will be mailed to holders of
record of the common stock as of the close of business on the Distribution Date.
After the Rights become exercisable, if the Company is a party to certain merger
or business combination transactions or transfers 50% or more of its assets or
earnings power, or if the acquiring person engages in certain self-dealing
transactions, each holder of a Right will receive, upon exercise of each Right,
that number of shares of common stock, of either the Company or the acquiring
company, having a market value equal to two times the exercise price of the
Right.
Pursuant to certain provisions of the Rights Agreement, the Company may redeem
the Rights in whole and the Board of Directors may amend the Rights Agreement.
12. TREASURY STOCK:
During fiscal 1997 the Company purchased, with available funds, 4,000 shares of
the Company's common stock for approximately $89,000. During fiscal 1995 the
Company purchased, with available funds, 55,200 shares of the Company's common
stock for approximately $514,000 and paid $2,830,000 for 290,600 shares of the
Company's common stock that were purchased at the end of fiscal 1994. All
purchases were under share repurchase authorizations previously announced.
13. MAJOR CUSTOMER:
During the year ended June 30, 1997, the Company, through its Capital Credit,
Allied Bond and Interactive Performance subsidiaries, recorded aggregate
revenues of approximately $12,816,000 from a single customer.
- -------------------------------------------------------------------------------
25
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
14. QUARTERLY DATA (UNAUDITED):
(In thousands, except per share amounts)
First Second Third Fourth
1997 quarter quarter quarter quarter
- -------------------------------------------------------------------------------
Operating revenues $28,741 $28,977 $32,174 $31,817
Operating income 2,742 2,561 4,474 4,424
Income before income taxes 2,781 2,572 4,515 4,589
Provision for income taxes 1,224 1,131 1,989 2,017
Net income 1,557 1,441 2,526 2,572
Primary net income per common share .26 .24 .43 .44
Fully diluted net income per common share .26 .24 .43 .43
First Second Third Fourth
1996 quarter quarter quarter quarter
- ------------------------------------------------------------------------------
Operating revenues $23,987 $24,069 $27,237 $28,439
Operating income 1,955 1,969 3,696 3,987
Income from continuing operations before
income taxes 1,922 1,962 3,737 4,020
Provision for income taxes 845 864 1,644 1,769
Income from continuing operations 1,077 1,098 2,093 2,251
Discontinued operations loss provision
(net of tax benefit of $935) - (2,065) - -
Net income (loss) 1,077 (967) 2,093 2,251
Primary and fully diluted income (loss)
per common share:
Income from continuing operations .19 .19 .36 .38
Discontinued operations loss provision - (.36) - -
Net income (loss) .19 (.17) .36 .38
- -------------------------------------------------------------------------------
26
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Management's Report and Report of Independent Auditors
- --------------------------------------------------------------------------------
MANAGEMENT'S REPORT
Management is responsible for the integrity and objectivity of the data included
in this report. The financial statements have been prepared in accordance with
generally accepted accounting principles. Where necessary, they reflect
estimates based on management judgment.
Established accounting procedures and related systems of internal control are
designed to provide reasonable assurance that assets are safeguarded and that
transactions are executed in accordance with management's authorizations and are
recorded properly in the books and records. The accounting and control systems
are continually reviewed.
The Audit Committee, composed of four members of the Board of Directors who are
not employees of the Company, meets regularly with representatives of
management, the independent auditors and the internal auditor to monitor the
functioning of the accounting and control systems, to determine the scope of the
annual audit by the independent auditors, and to review the results of the
independent and internal auditing activities. The Audit Committee recommends
independent auditors for appointment by the Board. The independent auditors and
internal auditor have direct access to the Audit Committee.
The independent auditors conduct an objective, independent audit of the
financial statements. Their report appears at right.
NICHOLAS P. GILL
Nicholas P. Gill
Executive Vice President,
Chief Financial Officer
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Union Corporation
We have audited the accompanying consolidated balance sheets of The Union
Corporation and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Union
Corporation and subsidiaries at June 30, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
August 15, 1997
- -------------------------------------------------------------------------------
27
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------
(Years referred to are Fiscal Years)
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition remained strong and liquid at June 30, 1997
with cash and short-term investments totaling $49,378,000, working capital of
$40,888,000 and net worth of $71,612,000. During the twelve months ended June
30, 1997 the net cash provided by operating activities was $9,285,000, compared
to $8,407,000 a year ago. During fiscal 1997, the Company made payments
aggregating $5,800,000 to the federal government regarding the matters involving
the former Gichner Division of the Company (See Note 2 of Notes to Consolidated
Financial Statements for additional information). Excluding the above aggregate
payment to the federal government, the net cash provided by operating activities
was $15,085,000, an increase of $6,678,000 compared to a year ago. This
increase was principally the result of improved year-to-date operating results
at the accounts receivable management companies and the inclusion of a full year
of operating results from the call-center outsourcing companies.
As of September 12, 1997, the Company held approximately 2,945,000 shares of its
common stock at an aggregate cost of $36,895,000. Future purchases, if any, by
the Company of its common stock will be funded with available funds.
Capital expenditures, excluding capital lease obligations, were $2,286,000 in
fiscal 1997 compared to $2,383,000 in fiscal 1996. The fiscal 1997 capital
expenditures principally represent costs related to the purchase of computer,
telecommunications and office equipment by Transworld Systems, Allied Bond and
Capital Credit and office equipment and leasehold improvements by High
Performance and Interactive Performance. The Company anticipates that capital
expenditures of approximately $4,000,000 will be made during fiscal 1998.
In December 1992, the Company completed the acquisition of Allied Bond for an
initial purchase price of approximately $40,300,000. In addition, contingent
payments not to exceed approximately $8,300,000 may be payable by the Company
based upon Allied Bond attaining certain earnings levels over the five and one-
half year period ending June 30, 1998. As of June 30, 1997, $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 two year revolving
line of credit furnished by a bank which is scheduled to convert to a three year
term loan on December 31, 1998.
Under the terms of the Credit Agreement, the aggregate principal amount
outstanding, which is limited to a maximum of $20,000,000, under the revolving
line of credit on December 31, 1998 must be repaid by the Company in twelve
quarterly installments commencing March 31, 1999 and ending December 31, 2001.
Each of the first eleven installments must be in an amount equal to one-
twentieth of the outstanding loan balance on December 31, 1998, with the twelfth
installment equal to the amount necessary to repay the then unpaid principal
amount of the loan. The maximum amount of letters of credit that the bank will
issue under the Credit Agreement is $8,000,000. At June 30, 1997, the Company
was contingently liable for outstanding letters of credit aggregating
approximately $3,725,000, which reduced the amount available for letters of
credit under the Credit Agreement to approximately $1,275,000.
Pursuant to a March 1995 amendment (the "Amendment") to the Company's employment
agreement with the Chairman of the Company (the "Employment Agreement"), an
amount equal to the discounted net present value of the deferred compensation
payable to the Chairman under the Employment Agreement will, 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 June 30, 1997
was approximately $3,700,000, which amount is included in "Other liabilities" in
the Consolidated Balance Sheets. 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 a period of up to ten
years following his retirement; previously such consulting services were to be
rendered by the Chairman for the remainder of his life. The discounted net
present value of the aggregate consulting fees was approximately $2,900,000 at
June 30, 1997, which will be expensed as the services are rendered.
- -------------------------------------------------------------------------------
28
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
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 June 30, 1997, $250,000 of the balance remaining in the trust is included
in the 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".
In 1989 the Company sold the assets and business of the Gichner Division to
Gichner Systems Group, Inc. (the "Purchaser"). 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 has pled guilty to obstruction of justice as a result of
its hindrance of the government's investigation and its destruction of documents
related to this matter, commenced suit against the Company in which it alleges
misrepresentation and breach by the Company of provisions of the Purchase
Agreement and asserts claims for damages and indemnification. The Company
denies each of the claims and intends to vigorously defend this action.
Although management believes the reserve established for this matter is adequate
based on current information, there is no way to be certain that future
developments will not involve additional substantial costs that may require
future charges to the Discontinued operations loss provision. The Company does
not anticipate, based on current information, that the resolution of this matter
will have a material adverse impact on the Company's overall financial condition
given its available cash and short-term investments.
Current commercial operations of the Company and its subsidiaries do not involve
activities affecting the environment. However, the Company is a party in
several pending environmental proceedings involving the federal Environmental
Protection Agency ("EPA") and comparable state agencies in Indiana, Maryland,
Massachusetts, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. All
of these matters relate to discontinued operations of former divisions or
subsidiaries for which the Company has potential continuing responsibility.
One group of the Company's known environmental proceedings relates to Superfund
or other sites where the Company's liability arises from arranging for the
disposal of allegedly hazardous substances in the ordinary course of prior
business operations. In most of these "generator" liability cases, the
Company's involvement is considered to be de minimus (i.e. a volumetric share of
approximately 1% or less) and in each of these cases the Company is only one of
many potentially responsible parties. From the information currently available,
there are a sufficient number of other economically viable participating parties
so that the Company's projected liability, although potentially joint and
several, is consistent with its allocable share of liability. At one
"generator" liability site, the Company's involvement is potentially more
significant because of the volume of waste contributed in past years by a
currently inactive subsidiary. Insufficient information is available regarding
the need for or extent and scope of any remedial actions that 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
- -------------------------------------------------------------------------------
29
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------
Reports (the "Reports") to the EPA, which outline a range of various remedial
alternatives for the site. The EPA issued a proposed plan that 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. The $8,000,000 loss provision recorded during the third quarter of
fiscal 1995 for costs related to certain of its discontinued operations, all of
which were terminated or otherwise disposed of prior to fiscal 1990, included a
provision of approximately $4,000,000 for environmental matters.
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 in fiscal 1998. Actual remediation
costs cannot be computed until such remedial action is completed. Some of the
other sites involving the Company or an inactive subsidiary are at a stage
where an assessment of liability, if any, cannot reasonably be made.
It is the Company's policy to comply fully with all laws regulating activities
affecting the environment and to meet its obligations in this area. In many
"generator" liability cases, reasonable cost estimates are available on which to
base reserves on the Company's likely allocated share among viable parties.
Where insufficient information is available regarding projected remedial actions
for these "generator" liability cases, the Company has recorded what it believes
to be reasonable estimates of its potential liabilities. Reserves for liability
for sites on which former operations were conducted are based on cost estimates
of remedial actions projected for these sites. All known environmental claims
are periodically reviewed by the Company, where information is available, to
provide reasonable assurance that adequate reserves are maintained. Reserves
recorded for environmental liabilities are not net of insurance or other
expected recoveries. Other than the aforementioned loss provision that was
recorded by the Company during fiscal 1995, no significant expenses related to
environmental matters were recorded by the Company during the three years ended
June 30, 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.
In a lawsuit brought in 1993 by three individuals engaged by Transworld Systems
as independent contractors, in which it was alleged that Transworld Systems has
improperly treated the plaintiffs as independent contractors rather than
employees, all of the asserted claims were dismissed by the Court in 1996 with
prejudice.
Some of the same persons and others have also brought suit against Transworld
Systems and certain of its directors and officers, alleging breach of contract
and mental distress as a result of Transworld Systems' failure to supply
plaintiffs with certain business information including copies of a monthly
publication distributed by Transworld Systems. Several persons have also
brought suit alleging wrongful termination. Transworld prevailed in a jury
trial in 1997 and all of these claims have been dismissed.
Seven 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
- -------------------------------------------------------------------------------
30
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
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 judgement in favor of Transworld Systems. The claims in the six
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.
Management believes that current cash and short-term investments and its future
cash flows from operations are sufficient to provide for anticipated working
capital, debt service and capital expenditure requirements.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
OPERATING REVENUES
Operating revenues increased by 17% to $121,709,000 in 1997 compared with
$103,732,000 in 1996 reflecting record revenues at Transworld Systems, a 10%
increase in revenues at Capital Credit and the inclusion of a full year of
revenues from the Company's wholly-owned call-center outsourcing services
subsidiaries, Interactive Performance and High Performance Services. Revenues
at Transworld Systems were $61,413,000 in 1997 compared with $59,553,000 in
1996, and represent the highest level ever achieved in any fiscal year.
Revenues at Capital Credit increased by 10% compared with a year ago, which
resulted from a continued high level of performance and service that contributed
to an increase in the level of placements received from its clients. Revenues
at Allied Bond were essentially unchanged in fiscal 1997 compared with a year
ago. However, Allied Bond reported an increase in the dollar value and number
of accounts placed with Allied Bond for collection by its clients in 1997
compared with a year ago.
OPERATING INCOME
Operating income increased 22% to $14,201,000 in 1997 compared with $11,607,000
in 1996 due to increases at Transworld Systems, Allied Bond and Capital Credit
and the inclusion of a full year of operating results of Interactive Performance
and High Performance Services, partially offset by an increase in Corporate
office expenses. Transworld Systems reported an 8% increase in operating income
to $14,941,000, before amortization of goodwill, compared with $13,866,000 a
year ago and an operating margin of 24% after amortization of goodwill.
Transworld Systems' fiscal 1997 operating income also represents the highest
level ever achieved in any fiscal year. Capital Credit reported a 28% increase
in operating income compared to a year ago. Allied Bond reported a 38% increase
in operating income compared to a year ago, which reflects the operational
changes that were made by Allied's management to meet changing market
conditions.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense decreased $58,000 to $1,417,000 in 1997 from $1,475,000 in 1996
due to decreases in the interest rates charged for borrowings under the Credit
Agreement.
Interest income increased $164,000 to $1,673,000 in 1997 from $1,509,000 in 1996
due to higher average short-term investment balances. During the years ended
June 30, 1997 and 1996, the Company primarily invested its excess cash balances
in commercial paper with short-term maturities and overnight time deposits.
INCOME TAXES
The Company's effective income tax rate for continuing operations was 44% in
1997 and 1996.
- -------------------------------------------------------------------------------
31
<PAGE>
The Union Corporation and Subsidiaries
- ------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
OPERATING REVENUES
Operating revenues increased to $103,732,000 in 1996 compared with $97,649,000
in 1995 due to increases in revenues at Transworld Systems and Capital Credit
and the inclusion of revenues from the Company's recently formed Interactive
Performance and High Performance Services subsidiaries, which began operations
in the third and fourth quarters of fiscal 1996, respectively. Revenues at
Transworld Systems were $59,553,000 in 1996 compared with $57,144,000 in 1995.
Revenues at Capital Credit increased by 18% compared with a year ago, which
resulted from the increase in the level of placements received from its clients
during fiscal 1996. Revenues at Allied Bond decreased 2% in fiscal 1996
compared with a year ago due to changing market conditions previously reported
such as reduced collectibility of accounts placed for collection and lower
commission rates in certain key markets. However, Allied Bond also reported an
increase in the dollar value of accounts placed with Allied Bond for collection
by its clients in 1996 compared with a year ago, and increases in the average
amount collected per collector and in the total amount collected on behalf of
its clients during fiscal 1996 compared with a year ago.
OPERATING INCOME
Operating income increased 13% to $11,607,000 in 1996 compared with $10,307,000
in 1995 due to increases at Transworld Systems and Capital Credit, the inclusion
of the operating results of Interactive Performance and High Performance
Services and a decrease in Corporate office expenses, partially offset by a
decrease in operating income at Allied Bond. Transworld Systems reported a 6%
increase in operating income to $13,866,000, before amortization of goodwill,
compared with $13,057,000 a year ago and an operating margin of 22% after
amortization of goodwill. Capital Credit reported a 57% increase in operating
income compared to a year ago. Although Allied Bond reported a decrease in
operating income compared with a year ago, it continued to operate profitably,
after amortization of goodwill and depreciation expense related to its
acquisition, in spite of the changing market conditions described above. In
fiscal 1995, Corporate office expenses included legal fees of approximately
$700,000 related to discontinued operations of the Company. These legal fees
were expensed prior to the third quarter of fiscal 1995, at which time the
Company recorded the $8,000,000 pretax loss provision for discontinued
operations.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense increased $25,000 to $1,475,000 in 1996 from $1,450,000 in 1995
due to increases in the interest rates charged for borrowings under the Credit
Agreement.
Interest income increased $267,000 to $1,509,000 in 1996 from $1,242,000 in 1995
due to higher average short-term interest rates. During the year ended June 30,
1996, the Company primarily invested its excess cash balances in commercial
paper with short-term maturities and overnight time deposits. During the year
ended June 30, 1995, the Company primarily invested its excess cash balances in
commercial paper and U.S. government securities, both with short-term
maturities, and overnight time deposits.
INCOME TAXES
The Company's effective income tax rate for continuing operations was 44% in
1996 compared to 43% in 1995.
DISCONTINUED OPERATIONS LOSS PROVISION
The Company recorded a $3,000,000 loss provision ($2,065,000 net of tax
benefit), or $.36 loss per share, during the second quarter of fiscal 1996 for
its Discontinued Operations, which provision, combined with amounts previously
reserved in connection with the previously reported matters involving the
Company's former Gichner Systems Group division, covered all costs of the
settlements with the government, and included an accrual for the estimated legal
and accounting fees related to the government claims and other costs related to
certain discontinued operations of the Company, all of which were terminated or
otherwise disposed of prior to fiscal 1990. The net loss provision of
$2,065,000 is included in the Consolidated Statements of Operations under the
caption "Discontinued operations loss provision" for the year ended June 30,
1996.
- -------------------------------------------------------------------------------
32
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this report constitute "forward-looking statements" as
defined in the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended. These forward-looking statements rely on a number of assumptions
concerning future events, and are subject to a number of risks and uncertainties
and other factors, many of which are outside the control of the Company, that
could cause actual results to differ materially from such statements.
Readers are cautioned not to put undue reliance on such forward-looking
statements, each of which speaks only as of the date hereof. Factors and
uncertainties that could affect the outcome of such forward-looking statements
include, among others, market and industry conditions, increased competition,
changes in governmental regulations, general economic conditions, pricing
pressures, loss of a large client, and the Company's ability to continue its
growth and expand successfully into new markets and services. The Company
disclaims any intention or obligation to update publicly or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's common stock is listed and traded on the New York Stock Exchange.
The following table shows the quarterly high and low sales prices as reported
for the years ended June 30, 1997 and 1996, respectively.
Fiscal Year
1997
-------------------
Quarter Ending: High Low
- ------------------------------------------
September 30, 1996 25 3/8 19 7/8
December 31, 1996 23 3/4 20 1/2
March 31, 1997 24 3/4 20 7/8
June 30, 1997 26 7/16 18 3/4
Fiscal Year
1996
------------------
Quarter Ending: High Low
- ------------------------------------------
September 30, 1995 16 1/2 14 3/8
December 31, 1995 18 3/4 15 1/4
March 31, 1996 21 1/4 16 1/4
June 30, 1996 22 1/8 17 5/8
The last reported sales price of the Company's common stock on September 12,
1997 as reported on the New York Stock Exchange, was $23.50 per share.
The approximate number of holders of record of common stock as of September 12,
1997 was 2,650.
Under the terms of the Credit Agreement, the Company is precluded from paying
cash dividends on its common stock (See Note 5 of Notes to Consolidated
Financial Statements for additional information).
- -------------------------------------------------------------------------------
33
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Selected Financial Data
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------------
For the years ended June 30: 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $121,709 $103,732 $ 97,649 $ 92,109 $ 80,499
Total operating costs and
expenses 107,508 92,125 87,342 84,167 72,871
- --------------------------------------------------------------------------------------
Operating income 14,201 11,607 10,307 7,942 7,628
Interest expense (1,417) (1,475) (1,450) (1,048) (687)
Interest income 1,673 1,509 1,242 723 1,074
- --------------------------------------------------------------------------------------
Income from continuing
operations
before income taxes 14,457 11,641 10,099 7,617 8,015
Provision for income taxes 6,361 5,122 4,392 3,138 3,345
- --------------------------------------------------------------------------------------
Income from continuing
operations 8,096 6,519 5,707 4,479 4,670
Discontinued operations
loss provision (net of
tax benefits of $935
and $2,800) (Note 2) - (2,065) (5,200) - -
- --------------------------------------------------------------------------------------
Income before cumulative
effect of change
in accounting for income
taxes 8,096 4,454 507 4,479 4,670
Cumulative effect of
change in accounting
for income taxes - - - 1,068 -
- --------------------------------------------------------------------------------------
Net income $ 8,096 $ 4,454 $ 507 $ 5,547 $ 4,670
======================================================================================
Primary income per common
share:
Income from continuing
operations $ 1.37 $ 1.13 $ 1.01 $ .72 $ .71
Discontinued operations
loss provision - (.36) (.92) - -
Cumulative effect of
change in accounting
for income taxes - - - .17 -
- --------------------------------------------------------------------------------------
Net income $ 1.37 $ .77 $ .09 $ .89 $ .71
======================================================================================
Fully diluted income per
common share:
Income from continuing
operations $ 1.36 $ 1.12 $ 1.00 $ .72 $ .71
Discontinued operations
loss provision - (.35) (.91) - -
Cumulative effect of
change in accounting
for income taxes - - - .17 -
- --------------------------------------------------------------------------------------
Net income $ 1.36 $ .77 $ .09 $ .89 $ .71
======================================================================================
At June 30:
Current assets $ 63,434 $ 58,158 $ 48,328 $ 42,685 $ 40,169
Current liabilities 22,546 27,321 22,996 20,930 18,201
- --------------------------------------------------------------------------------------
Working capital $ 40,888 $ 30,837 $ 25,332 $ 21,755 $ 21,968
======================================================================================
Property, buildings and
equipment, net $ 8,323 $ 9,168 $ 9,283 $ 10,812 $ 12,737
Total assets 126,019 122,986 113,163 110,195 110,085
Long-term debt (excluding
current portion) 20,379 20,634 20,763 20,973 21,036
Treasury stock, at cost 36,895 36,806 36,806 36,292 29,233
- --------------------------------------------------------------------------------------
</TABLE>
Note: The fiscal 1993 amounts include the results of Allied Bond following its
acquisition in December 1992. Additionally, under the terms of the Credit
Agreement, the Company is precluded from paying cash dividends on its common
stock (See Note 5 of Notes to Consolidated Financial Statements for additional
information).
- -------------------------------------------------------------------------------
34
<PAGE>
The Union Corporation and Subsidiaries
- -------------------------------------------------------------------------------
Corporate Information
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Union Corporation
211 King Street
Charleston, SC 29401
Telephone (803)958-3800
Registrar and Transfer Agent
Boston EquiServe
150 Royall Street
Canton, MA 02021
Telephone (800)733-5001
Securities Listings
New York Stock Exchange, Inc.
(Symbol UCO) Common Stock
Annual Meeting
The annual meeting of shareholders of the Company will be held on Wednesday,
November 19, 1997.
Form 10-K
A copy of The Union Corporation's Annual Report to the Securities and Exchange
Commission on Form 10-K is available to shareholders on request. For a copy of
Form 10-K, please write to The Union Corporation at the above address.
OPERATING COMPANIES
Transworld Systems Inc.
5880 Commerce Boulevard
Rohnert Park, CA 94928
Capital Credit Corporation
8000 Arlington Expressway
Jacksonville, FL 32211
Allied Bond & Collection Agency, Inc.
One Allied Drive
Neshaminy Interplex
Trevose, PA 19047
Interactive Performance, Inc.
4275 Bridgeview Drive
North Charleston, SC 29405
High Performance Services, Inc.
8000 Arlington Expressway
Jacksonville, FL 32211
EXECUTIVE OFFICERS
Melvin L. Cooper
Chairman of the Board
William B. Hewitt
President and Chief Executive Officer
Nicholas P. Gill
Executive Vice President, Treasurer,
Secretary and Chief Financial Officer
DIRECTORS
Melvin L. Cooper
Chairman of the Board
Herbert A. Denton
President
Providence Capital, Inc.
Gordon S. Dunn
Chairman
Transworld Systems Inc.
William B. Hewitt
President and Chief Executive Officer
Robert A. Marshall
Consultant: Formerly Corporate Executive
Vice President
Advanta Corp.
James M. McCormick
President
First Manhattan Consulting Group
Robert A. Kerr
Retired: Formerly Chairman and Chief
Executive Officer
Banc One, Dayton, Ohio
James C. Miller III
Counselor, Citizens for a Sound Economy and
formerly Director of the Federal Office of Management and Budget
Herbert R. Silver
Co-Chairman
Allied Bond & Collection Agency, Inc.
EXECUTIVE MANAGEMENT GROUP /1/
Melvin L. Cooper George M. Macaulay /2/
Gordon S. Dunn Bernard Silver /3/
Nicholas P. Gill Herbert R. Silver
William B. Hewitt Sheldon Zucker /4/
1. Members of the Executive Management Group are considered "executive
officers" for purposes of reporting under Section 16 and Regulation 14A of
the Securities Exchange Act of 1934, as amended.
2. George M. Macaulay is President and Chief Executive Officer of Transworld
Systems Inc.
3. Bernard Silver is Co-Chairman of Allied Bond & Collection Agency, Inc. and
President of Interactive Performance, Inc.
4. Sheldon Zucker is President and Chief Executive Officer of Allied Bond &
Collection Agency, Inc.
- -------------------------------------------------------------------------------
35
<PAGE>
The Union Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Notes
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
THE UNION
CORPORATION
211 King Street
Charleston, SC 29401
Tel: (803) 958-3800
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the principal subsidiaries of the Company. Such
subsidiaries are incorporated or organized in the jurisdictions indicated.
State or Jurisdiction
of Incorporation
---------------------
The Union Corporation (Registrant) Delaware
Name of Subsidiary (1)
- ------------------
Allied Bond & Collection Agency, Inc. (2) Delaware
Capital Credit Corporation Delaware
High Performance Services, Inc. (3) Delaware
Interactive Performance, Inc. (4) Delaware
Transworld Systems Inc. California
UCO Properties, Inc. Delaware
Union Financial Services Group, Inc. Nevada
(1) Does not include inactive subsidiaries.
(2) Allied Bond & Collection Agency, Inc. has the following wholly-owned
subsidiary:
American Child Support Service Bureau Inc. (Pennsylvania).
(3) High Performance Services, Inc. has the following wholly-owned subsidiary:
High Performance Services of Florida, Inc. (Delaware).
(4) Interactive Performance, Inc. has the following wholly-owned subsidiary:
Interactive Performance of Florida, Inc. (Delaware).
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Union Corporation of our report dated August 15, 1997 included in the
1997 Annual Report to Shareholders of The Union Corporation.
Our audits also included the consolidated financial statement schedule of The
Union Corporation listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the consolidated financial statement schedule,
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
We also consent to the incorporation by reference in the Registration Statements
on Form S-8 (Nos. 33-88204, 33-33615, 33-83608, 2-98930, 2-52439, 2-89570 and 2-
65720) and Form S-3 (Nos. 33-25818 and 33-13625) of The Union Corporation and in
the related prospectuses of our report dated August 15, 1997, with respect to
the consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the consolidated
financial statement schedule included in this Annual Report (Form 10-K) of The
Union Corporation.
ERNST & YOUNG LLP
New York, New York
September 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS INCLUDED AS EXHIBIT 13 TO THE FORM 10-K FOR THE YEAR
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> $ 11,574
<SECURITIES> 37,804
<RECEIVABLES> 10,895
<ALLOWANCES> 681
<INVENTORY> 0
<CURRENT-ASSETS> 63,434
<PP&E> 23,743
<DEPRECIATION> 15,420
<TOTAL-ASSETS> 126,019
<CURRENT-LIABILITIES> 22,546
<BONDS> 20,379
0
0
<COMMON> 4,348
<OTHER-SE> 67,264
<TOTAL-LIABILITY-AND-EQUITY> 126,019
<SALES> 0
<TOTAL-REVENUES> 121,709
<CGS> 0
<TOTAL-COSTS> 79,311
<OTHER-EXPENSES> 4,562<F1>
<LOSS-PROVISION> 124
<INTEREST-EXPENSE> 1,417
<INCOME-PRETAX> 14,457
<INCOME-TAX> 6,361
<INCOME-CONTINUING> 8,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,096
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.36
<FN>
<F1>REPRESENTS THE TOTAL DEPRECIATION AND AMORTIZATION EXPENSE, BUT DOES NOT
INCLUDE S, G&A EXPENSES OF $23,635.
</FN>
</TABLE>
