-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gw0CkbakewwDa57Q9JLh2ri3mQwet6Tu9PPg26oFsoMr6Rkr4uFySTmXUzm2hZfg 80ozbytQFQmL5CMCTkIVlQ== 0000912057-96-011204.txt : 19960603 0000912057-96-011204.hdr.sgml : 19960603 ACCESSION NUMBER: 0000912057-96-011204 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960531 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION CORP CENTRAL INDEX KEY: 0000100817 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 250848970 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05371 FILM NUMBER: 96575127 BUSINESS ADDRESS: STREET 1: 145 MASON STREET CITY: GREEENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036290505 MAIL ADDRESS: STREET 1: 145 MASON STREET CITY: GREENWICH STATE: CT ZIP: 06830 FORMER COMPANY: FORMER CONFORMED NAME: SUPER ELECTRIC PRODUCTS INC DATE OF NAME CHANGE: 19661121 FORMER COMPANY: FORMER CONFORMED NAME: UNION SPRING & MANUFACTURING CO DATE OF NAME CHANGE: 19660921 10-Q/A 1 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A AMENDMENT NO. 1 [ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended DECEMBER 31, 1995 Commission File Number 1-5371 ----------------- ------ THE UNION CORPORATION ---------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 25-0848970 - ------------------------ --------------------------------------- (State of incorporation) (I.R.S. Employer Identification Number) 145 Mason Street, Greenwich, CT 06830 -------------------------------------- -------- (Address of principal executive offices) (Zip Code) (203) 629-0505 ------------------------------------------------- (Registrant's telephone number,including area code) Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --------- --------- 5,610,617 Common shares were outstanding as of February 7, 1996 ----------- ----------------- EXPLANATORY NOTE This Quarterly Report on Form 10-Q/A for the quarter ended December 31, 1995 is being filed in order to amend the initial Quarterly Report on Form 10-Q in the following respects: (i) Item 6(a) - to indicate that confidential treatment has been requested for portions of one of the exhibits listed in such item; and (ii) Cover Page to Exhibit 10(a) - to indicate more clearly that confidential treatment has been requested for portions of such exhibit and the use of the symbol "*" to mark those portions of the exhibit for which confidential treatment has been requested. THE UNION CORPORATION AND SUBSIDIARIES Index to Condensed Consolidated Financial Statements and Exhibits Part I. Financial Information: Page ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets, December 31, 1995 (Unaudited) and June 30, 1995 3 Condensed Consolidated Statements of Operations (Unaudited), for the Six Months Ended December 31, 1995 and 1994 4 Condensed Consolidated Statements of Operations (Unaudited), for the Three Months Ended December 31, 1995 and 1994 5 Condensed Consolidated Statements of Cash Flows (Unaudited), for the Six Months Ended December 31, 1995 and 1994 6 Condensed Consolidated Statement of Shareholders' Equity (Unaudited), for the Six Months Ended December 31, 1995 7 Notes to Condensed Consolidated Financial Statements (Unaudited) 8 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) 10 - 16 Part II. Other Information: Item 1. Legal Proceedings 17 - 20 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 6. Exhibits and Reports on Form 8-K 21 - 23 Signatures 24 THE UNION CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets December 31, 1995 (Unaudited) and June 30, 1995 (In thousands)
December 31, June 30, 1995 1995 ------------ -------- ASSETS ------ Current assets: Cash $ 15,267 $ 14,805 Short-term investments, at cost, which approximates market 22,716 21,930 Accounts receivable, trade, less allowance for doubtful accounts of $639 and $542 5,965 6,339 Prepaid expenses and other current assets 5,227 5,254 ------- ------- Total current assets 49,175 48,328 Property, buildings and equipment, net 8,328 9,283 Cost of intangible assets from businesses acquired, less accumulated amortization of $8,357 and $7,636 49,836 50,426 Other assets and deferred charges 3,185 2,300 Deferred income taxes 3,563 2,826 ------- ------- Total assets $114,087 $113,163 ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 2,872 $ 3,044 Accrued expenses 20,490 18,747 Income taxes payable 246 992 Current portion of long-term debt 218 213 ------- ------- Total current liabilities 23,826 22,996 Long-term debt 20,652 20,763 Other liabilities 12,295 12,200 ------- ------- Total liabilities 56,773 55,959 ------- ------- Shareholders' equity: Common stock, $.50 par value; authorized shares, 15,000; issued shares 8,521 and 8,521 4,261 4,261 Additional paid-in capital 43,412 43,412 Retained earnings 46,447 46,337 Less treasury stock, at cost, 2,941 and 2,941 shares (36,806) (36,806) ------- ------- Total shareholders' equity 57,314 57,204 ------- ------- Total liabilities and shareholders' equity $114,087 $113,163 ------- ------- ------- -------
3 THE UNION CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) For the Six Months Ended December 31, 1995 and 1994 (Dollars in thousands, except per share amounts)
1995 1994 ------- ------- Operating revenues $ 48,056 $ 47,286 ------- ------- Expenses: Operating expenses 32,458 30,671 Selling, general and administrative expenses 9,656 10,487 Depreciation and amortization 2,018 2,088 ------- ------- Total expenses 44,132 43,246 ------- ------- Operating income 3,924 4,040 Interest expense (788) (672) Interest income 748 529 ------- ------- Income from continuing operations before income taxes 3,884 3,897 Provision for income taxes 1,709 1,676 ------- ------- Income from continuing operations 2,175 2,221 Discontinued operations loss provision (net of tax benefit of $935) (2,065) - ------- ------- Net income $ 110 $ 2,221 ------- ------- ------- ------- Primary and fully diluted income per common share: Income from continuing operations $ .38 $ .39 Discontinued operations loss provision (.36) - ------- ------- Net income $ .02 $ .39 ------- ------- ------- ------- Average number of common and common equivalent shares outstanding: Primary 5,734,729 5,639,153 Fully diluted 5,789,605 5,671,058
4 THE UNION CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) For the Three Months Ended December 31, 1995 and 1994 (Dollars in thousands, except per share amounts)
1995 1994 ------- ------- Operating revenues $24,069 $23,917 ------ ------ Expenses: Operating expenses 16,332 15,476 Selling, general and administrative expenses 4,775 5,116 Depreciation and amortization 993 1,025 ------ ------ Total expenses 22,100 21,617 ------ ------ Operating income 1,969 2,300 Interest expense (381) (364) Interest income 374 295 ------ ------ Income from continuing operations before income taxes 1,962 2,231 Provision for income taxes 864 960 ------ ------ Income from continuing operations 1,098 1,271 Discontinued operations loss provision (net of tax benefit of $935) (2,065) - ------ ------ Net income (loss) $ (967) $ 1,271 ------ ------ ------ ------ Primary and fully diluted income per common share: Income from continuing operations $ .19 $ .22 Discontinued operations loss provision (.36) - ------ ------ Net income (loss) $ (.17) $ .22 ------ ------ ------ ------ Average number of common and common equivalent shares outstanding: Primary 5,747,793 5,675,750 Fully diluted 5,793,259 5,675,750
5 THE UNION CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended December 31, 1995 and 1994 (In thousands)
1995 1994 -------- -------- Cash Flows From Operating Activities: Net income $ 110 $ 2,221 Adjustments to reconcile net income to net cash provided by operations: Discontinued operations loss provision, net of tax benefit 2,065 - Depreciation and amortization 2,018 2,088 Deferred compensation expense 193 488 Provision for doubtful accounts 108 98 Provision for deferred income taxes 1,153 670 Changes in assets and liabilities: Accounts receivable - decrease (increase) 266 (820) Prepaid expenses and other current assets - (increase) decrease (863) 392 Other assets and deferred charges - (increase) decrease (885) 47 Accounts payable and accrued expenses - (decrease) (629) (1,389) Income taxes payable - (decrease) (746) (841) Other liabilities - (decrease) (963) (945) ------- ------- Net cash provided by operating activities 1,827 2,009 ------- ------- Cash Flows From Investing Activities: Capital expenditures (373) (385) Additional purchase price related to the purchase of Allied Bond & Collection Agency (131) (128) Other 31 - ------- ------- Net cash (used by) investing activities (473) (513) ------- ------- Cash Flows From Financing Activities: Principal payments on long-term debt (54) (50) Principal payments on capital lease obligations (52) (50) Purchase of treasury stock, at cost - (3,344) ------- ------- Net cash (used by) financing activities (106) (3,444) ------- ------- Net increase (decrease) in cash and short-term investments 1,248 (1,948) Cash and short-term investments at June 30 36,735 34,179 ------- ------- Cash and short-term investments at December 31 $ 37,983 $ 32,231 ------- ------- ------- ------- Supplemental disclosures of cash flow information: Interest paid $ 748 $ 598 Income taxes paid 1,302 1,847
6 THE UNION CORPORATION AND SUBSIDIARIES Condensed Consolidated Statement of Shareholders' Equity (Unaudited) For the Six Months Ended December 31, 1995 (Dollars in thousands)
Additional Common paid-in Retained Treasury stock capital earnings stock ------ ---------- -------- -------- Balance at June 30, 1995 $ 4,261 $ 43,412 $ 46,337 $(36,806) Net income - - 1,077 - ------ ------- ------- ------- Balance at September 30, 1995 4,261 43,412 47,414 (36,806) Net (loss) - - (967) - ------ ------- ------- ------- Balance at December 31, 1995 $ 4,261 $ 43,412 $ 46,447 $(36,806) ------ ------- ------- ------- ------ ------- ------- -------
7 THE UNION CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) The amounts set forth in this Form 10-Q have not been audited by independent auditors; however, in the opinion of the management of The Union Corporation (the "Company"), all adjustments (including normal recurring accruals) necessary for a fair statement of the results of such periods have been made. The financial statements included in this Form 10-Q are presented in accordance with the requirements of the form and may not include all disclosures required by generally accepted accounting principles. For additional information, reference is made to the Company's Annual Report for the year ended June 30, 1995. 1. DISCONTINUED OPERATIONS The Company reached tentative agreements with the federal government in January 1996, subject to certain agency approvals and final approval by the Court, to settle the previously reported matters involving false pricing information and claims made by certain senior officers of the Company's former Gichner Systems Group division (the "Division"). Under the agreements, which recognize the Company's co-operation in and substantial contribution to the investigation of these matters, the Company will fulfill its commitment to make compensation for the government's civil claims by paying $5,550,000. The Company also accepted responsibility for the actions of the officers of the former Division by entering a plea of guilty under the False Claims Act, 18 U.S.C. Section 287, although those actions were concealed from the management of the Company, and will pay a fine of $250,000. As a result, the Company recorded a $3,000,000 loss provision ($2,065,000 net of tax benefit) or $.36 loss per share during the second quarter of fiscal 1996 for its Discontinued Operations, which provision, combined with amounts previously reserved in connection with these matters, is expected to cover all costs of the above settlements, and includes an accrual for the estimated legal and accounting fees related to the government claims and other costs related to certain discontinued operations of the Company, all of which were terminated or otherwise disposed of prior to fiscal 1990. The net loss provision of $2,065,000 is included in the Condensed Consolidated Statements of Operations under the caption "Discontinued operations loss provision" for the three and six months ended December 31, 1995. The Condensed Consolidated Balance Sheet at December 31, 1995 includes "Accrued expenses" of $2,200,000 and "Other liabilities" of $800,000 comprising the $3,000,000 loss provision. 8 As previously reported, the Company recorded an $8,000,000 loss provision ($5,200,000 net of tax benefit) or $.92 loss per share during the third quarter of fiscal 1995 for costs related to certain of its discontinued operations, all of which were terminated or otherwise disposed of prior to fiscal 1990. This provision was recorded as a result of developments regarding previously reported matters involving the Company's former Gichner Systems Group division and environmental matters principally involving a site where an inactive subsidiary of the Company fully performed a settlement with the federal government which has reopened the matter. The net loss provision of $5,200,000 was included in the Condensed Consolidated Statements of Operations under the caption "Discontinued operations loss provision" beginning in the third quarter of fiscal 1995. The $8,000,000 loss provision included an accrual of $3,500,000 for estimated legal and accounting fees and settlement costs which were expected to be incurred as a result of government claims for the matter involving the former Gichner Systems Group division and the estimated legal costs to defend the Company against the claims asserted by Gichner Systems Group, Inc.. The $8,000,000 loss provision also included $4,000,000 for environmental matters and approximately $500,000 of costs incurred by the Company during the quarter ended March 31, 1995 for the aforementioned Gichner Systems Group division and environmental matters. See Part II, Item 1 of this Form 10-Q for additional information regarding these matters. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) LIQUIDITY AND CAPITAL RESOURCES The Company's financial condition remained very strong and liquid at December 31, 1995 with cash and short-term investments totaling $37,983,000, working capital of $25,349,000 and net worth of $57,314,000. During the six months ended December 31, 1995, the net cash provided by operating activities was $1,827,000 compared to $2,009,000 a year ago. Net cash provided by operating activities included an increase in other current assets and other assets of $900,000 for cash deposited into a trust established to fund deferred bonuses for the chairman of a subsidiary of the Company, partially offset by a decrease of $545,000 in income taxes paid and a decrease of approximately $300,000 in cash outflows charged against Capital Credit Corporation's ("Capital Credit") restructuring provision related to the relocation of its headquarters in the first quarter of fiscal 1995. The Company's capital spending during the six months ended December 31, 1995 principally represents costs related to the purchase of computer, telecommunications and office equipment and was comparable to a year ago. The Company reached tentative agreements with the federal government in January 1996, subject to certain agency approvals and final approval by the Court, to settle the previously reported matters involving false pricing information and claims made by certain senior officers of the Company's former Gichner Systems Group division. Under the agreements, if approved, the Company will pay $5,800,000 to settle all civil and criminal claims involving the Company. The Company anticipates that it will make such payments to the government during fiscal 1996. (See "Gichner Systems Group Division" section of Part II, Item 1 of this Form 10-Q for additional information). As previously announced, Interactive Performance, Inc. ("Interactive"), a newly-formed, wholly-owned subsidiary of the Company, has been awarded a contract to provide accounts receivable management for AT&T Corp. Revenues under this three-year contract may reach $20,000,000 a year. The Company anticipates that Interactive will make capital expenditures of approximately $3,000,000 during the next twelve months. During the six months ended December 31, 1994 the Company purchased, with available funds, 55,200 shares of its common stock for approximately $514,000. The Company also paid $2,830,000 in July 1994 for 290,600 shares of its common stock that was purchased in June 1994. As of February 7, 1996, the Company holds approximately 2,941,000 shares of its common stock at an aggregate cost of approximately $36,806,000. Future purchases, if any, by the Company of its common stock will be funded with available funds. 10 In December 1992, the Company completed the acquisition of Allied Bond & Collection Agency ("Allied Bond"), a business engaged in providing collection services on a contingency fee basis throughout the United States, for an initial purchase price of approximately $40,300,000, which includes acquisition related costs. In addition, contingent payments not to exceed approximately $8,300,000 may be payable by the Company based upon Allied Bond attaining certain earnings levels over the five and one-half year period ending June 30, 1998. As of December 31, 1995, approximately $769,000 of such contingent payments have been made. The acquisition was financed in part from $20,000,000 borrowed under an existing unsecured $25,000,000 two year revolving line of credit furnished by a bank which was scheduled to convert to a three year term loan on December 31, 1994 (the "Credit Agreement"). During fiscal 1995 the bank extended the revolving line of credit until December 31, 1996, at which time the revolving line of credit will convert to a three year term loan. Under the terms of the Credit Agreement, the aggregate principal amount outstanding on December 31, 1996, which is limited to a maximum of $20,000,000 under the revolving line of credit, must be repaid by the Company in twelve quarterly installments commencing March 31, 1997 and ending December 31, 1999. Each of the first eleven installments must be in an amount equal to one-twentieth of the outstanding loan balance on December 31, 1996, with the twelfth installment equal to the amount necessary to repay the then unpaid principal amount of the loan. The loans bear interest, at the Company's option, at either the bank's base rate, which is announced by the bank from time to time; or at 3/4% above the bank's Eurodollar rate during both the revolving and term loan periods. The interest rate, which is reset periodically, on the revolving term loan was 6.375% at December 31, 1995. The maximum amount of letters of credit that the bank will issue under the Credit Agreement is $5,000,000. As of February 7, 1996, the Company was contingently liable for outstanding letters of credit aggregating approximately $1,621,000 which reduced the amount available for letters of credit under the Credit Agreement to approximately $3,379,000. Pursuant to a March 1995 amendment (the "Amendment") to the Company's employment agreement with the Chairman of the Company (the "Employment Agreement"), an amount equal to the discounted net present value of the deferred compensation payable to the Chairman under the Employment Agreement will be paid to the Chairman at the time of his retirement. The discounted net present value of the deferred compensation at December 31, 1995 was approximately $3,000,000, which amount is included in "Other liabilities" in the Condensed Consolidated Balance Sheet. The Amendment also extends the term of the Chairman's employment to December 31, 1997 and provides for the Company to deposit into a trust, at the time of the Chairman's retirement, an amount equal to the discounted net present value of the aggregate consulting fees to be paid by the Company to the Chairman for consulting services to be rendered by the Chairman for a period of up to ten years following his retirement. Previously such consulting services were to be 11 rendered for the life of the Chairman. The discounted net present value of the aggregate consulting fees was approximately $2,250,000 at December 31, 1995, which will be expensed as the services are rendered. The employment agreement dated July 1, 1995 with the chairman of a subsidiary of the Company provides for the subsidiary to deposit into a trust the aggregate amount of deferred bonuses, and related interest, earned by the chairman, which amount was approximately $1,500,000 at December 31, 1995. As of December 31, 1995, the subsidiary of the Company had deposited $900,000 of the $1,500,000 into a trust of which $250,000 is included in the Condensed Consolidated Balance Sheet in "Prepaid and other current assets" and $650,000 is included in "Other assets and deferred charges". The subsidiary will deposit the remaining $600,000 into the trust during the third quarter of fiscal 1996. The Company and certain subsidiaries are involved in litigation and administrative proceedings described in Part II, Item 1 of this Form 10-Q. The Company periodically reviews and updates the status of these matters and the past costs incurred with respect to each. Estimates of future costs are based upon currently available data. The Company recorded a $3,000,000 loss provision ($2,065,000 net of tax benefit) during the second quarter of fiscal 1996 and an $8,000,000 loss provision ($5,200,000 net of tax benefit) during the third quarter of fiscal 1995. The net loss provisions of $2,065,000 and $5,200,000 were included in the Condensed Consolidated Statements of Operations under the caption "Discontinued operations loss provision" in the second quarter of fiscal 1996 and in the third quarter of fiscal 1995, respectively. Management believes that reserves established to meet known and potential environmental liabilities for the pending environmental proceedings referred to above and the matters involving the Company's former Gichner Systems Group division also referred to above are adequate based on current information. However, there is no way to be certain that future developments relating to any of these matters will not involve additional substantial costs that may require future charges to the Discontinued operations loss provision. The Company does not anticipate, based on current information, that the resolution of the Legal Proceedings and the matters relating to Discontinued Operations described in Part II, Item 1 of this Form 10-Q will have a material adverse impact on the Company's overall financial condition given its available cash and short-term investments, nor that the resolution of the Legal Proceedings described on page 17 will have a material adverse impact on the Company's future results of operations. Management believes that current cash and short-term investments and the Company's future cash flows from operations are sufficient to provide for anticipated working capital, debt service and capital expenditure requirements. 12 SIX MONTHS ENDED DECEMBER 31, 1995 VS. SIX MONTHS ENDED DECEMBER 31, 1994 OPERATING REVENUES Operating revenues increased to $48,056,000 for the six months ended December 31, 1995 compared with $47,286,000 for the six months ended December 31, 1994. Revenues at Transworld Systems, Inc. ("Transworld Systems") were $27,990,000 compared with $28,531,000 a year ago. The decrease in revenues at Transworld Systems is partially due to the acceleration of customer orders in fiscal 1995 prior to a scheduled price increase in Transworld's fixed-fee letter service, which took effect in the second quarter of fiscal 1995. The Transworld Systems price increase was in response to the United States postal rate increase that took effect on January 1, 1995. Revenues at Capital Credit increased by 19% in the first six months of fiscal 1996 compared with a year ago, which was the result of the steady increase in the level of placements received from its clients. Allied Bond reported a modest increase in revenues despite changing market conditions such as reduced collectibility of accounts placed for collection and lower commission rates in certain key markets. Allied also reported an increase in the dollar value of accounts placed for collection from its clients and an increase in the amount collected on behalf of its clients during the six months ended December 31, 1995 compared to a year ago. OPERATING EXPENSES Operating expenses increased by $1,787,000 for the six months ended December 31, 1995 compared with 1994. The increase was attributable to increases in operating expenses at Transworld Systems, Capital Credit and Allied Bond. The increase in operating expenses at Transworld Systems was primarily the result of the increase in postal rates. The increase in operating expenses at both Capital Credit and Allied Bond resulted from increased collection costs and compensation expenses, which resulted in part from their respective increases in revenues and reflected changing market conditions such as reduced collectibility of accounts placed for collection. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased by $831,000 for the six months ended December 31, 1995 compared with 1994. The reduction was attributable to decreases in expenses at the Corporate office and Capital Credit, partially offset by increases at Transworld Systems and Allied Bond. The decrease in Corporate office expenses primarily resulted from a decrease of approximately $600,000 of legal fees related to discontinued operations of the Company and a decrease of approximately $300,000 in deferred compensation expense. During the six months ended December 31, 1995 such legal fees were charged against the reserves that were established for discontinued operations of the Company in the third quarter of fiscal 1995 (See Note 1). During the six months ended December 31, 1994 such legal fees were included in selling, general and administrative expenses. 13 DEPRECIATION AND AMORTIZATION Depreciation and amortization expense decreased by $70,000 for the six months ended December 31, 1995 compared with the six months ended December 31, 1994 principally due to a decrease at Allied Bond. OPERATING INCOME Operating income was $3,924,000 for the six months ended December 31, 1995 compared with $4,040,000 for the six months ended December 31, 1994. This decrease was due to decreases at Transworld Systems and Allied Bond, partially offset by a decrease in Corporate office expense and an increase in operating income at Capital Credit. The decrease in Corporate office expenses primarily resulted from a decrease of approximately $600,000 of legal fees related to discontinued operations of the Company and a decrease of approximately $300,000 in deferred compensation expense. During the six months ended December 31, 1995 such legal fees were charged against the reserves that were established for discontinued operations of the Company in the third quarter of fiscal 1995 (See Note 1). During the six months ended December 31, 1994 such legal fees were included in selling, general and administrative expenses. Transworld Systems reported operating income of $5,879,000, before amortization of goodwill, compared with $6,680,000 a year ago, principally reflecting the decrease in its revenues and the increase in postal rates, and an operating margin of 20%, after amortization of goodwill, for the first six months of fiscal 1996. Capital Credit's operating income was well ahead of last year during the six months ended December 31, 1995. Allied Bond continued to operate profitably before amortization of goodwill and depreciation expense related to its acquisition. INTEREST EXPENSE AND INTEREST INCOME Interest expense increased by $116,000 for the six months ended December 31, 1995 compared with December 31, 1994 principally due to an increase in the interest rate charged for the borrowings under the Credit Agreement. Interest income increased by $219,000 for the six months ended December 31, 1995 compared with a year ago, due to higher average short-term investment balances and interest rates. During the six months ended December 31, 1995, the Company primarily invested in commercial paper with short-term maturities and overnight time deposits. During the six months ended December 31, 1994, the Company primarily invested in commercial paper and U.S. government securities, both with short- term maturities, and overnight time deposits. INCOME TAXES The Company's effective income tax rate for continuing operations was 44% for the six months ended December 31, 1995 and 43% for the six months ended December 31, 1994. 14 THREE MONTHS ENDED DECEMBER 31, 1995 VS. THREE MONTHS ENDED DECEMBER 31, 1994 OPERATING REVENUES Operating revenues increased to $24,069,000 for the three months ended December 31, 1995 compared with $23,917,000 for the three months ended December 31, 1994. Revenues at Transworld Systems were $14,174,000 compared with $14,560,000 a year ago. The decrease in revenues at Transworld Systems is partially due to the acceleration of customer orders in fiscal 1995 prior to a scheduled price increase in Transworld's fixed-fee letter service, which took effect in the second quarter of fiscal 1995. The Transworld Systems price increase was in response to the United States postal rate increase that took effect on January 1, 1995. Revenues at Capital Credit increased by 11% in the second quarter of fiscal 1996 compared with a year ago, which was the result of the steady increase in the level of placements received from its clients. Allied Bond reported a modest increase in revenues despite changing market conditions such as reduced collectibility of accounts placed for collection and lower commission rates in certain key markets. Allied also reported an increase in the dollar value of accounts placed for collection from its clients and an increase in the amount collected on behalf of its clients during the three months ended December 31, 1995 compared to a year ago. OPERATING EXPENSES Operating expenses increased by $856,000 for the three months ended December 31, 1995 compared with 1994. The increase was attributable to increases in operating expenses at Transworld Systems, Capital Credit and Allied Bond. The increase in operating expenses at Transworld Systems was primarily the result of the increase in postal rates. The increase in operating expenses at both Capital Credit and Allied Bond resulted from increased collection costs and compensation expenses, which resulted in part from their respective increases in revenues and reflected changing market conditions such as reduced collectibility of accounts placed for collection. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased by $341,000 for the three months ended December 31, 1995 compared with 1994. The reduction was attributable to a decrease in expenses at the Corporate office, partially offset by an increase at Allied Bond, while expenses at Transworld Systems and Capital Credit were essentially unchanged. The decrease in Corporate office expenses primarily resulted from a decrease of approximately $300,000 of legal fees related to discontinued operations of the Company and a decrease of approximately $150,000 in deferred compensation expense. During the three months ended December 31, 1995 such legal fees were charged against the reserves that were established for discontinued operations of the Company in the third quarter of fiscal 1995 (See Note 1). During the three months ended December 31, 1994 such legal fees were included in selling, general and administrative expenses. 15 DEPRECIATION AND AMORTIZATION Depreciation and amortization expense decreased by $32,000 for the three months ended December 31, 1995 compared with the three months ended December 31, 1994 principally due to a decrease at Allied Bond. OPERATING INCOME Operating income was $1,969,000 for the three months ended December 31, 1995 compared with $2,300,000 for the three months ended December 31, 1994. This decrease was due to decreases at Transworld Systems and Allied Bond, partially offset by a decrease in Corporate office expenses, while operating income at Capital Credit was essentially unchanged. The decrease in Corporate office expenses primarily resulted from a decrease of approximately $300,000 of legal fees related to discontinued operations of the Company and a decrease of approximately $150,000 in deferred compensation expense. During the three months ended December 31, 1995 such legal fees were charged against the reserves that were established for discontinued operations of the Company in the third quarter of fiscal 1995 (See Note 1). During the three months ended December 31, 1994 such legal fees were included in selling, general and administrative expenses. Transworld Systems reported operating income of $2,954,000, before amortization of goodwill, compared with $3,532,000 a year ago, principally reflecting the decrease in its revenues and the increase in postal rates, and an operating margin of 20%, after amortization of goodwill, for the second quarter of fiscal 1996. Allied Bond continued to operate profitably, before amortization of goodwill and depreciation expense related to its acquisition, and reported an increase in operating income and an improvement in its operating margin for the second quarter of fiscal 1996 compared to the first quarter of fiscal 1996. INTEREST EXPENSE AND INTEREST INCOME Interest expense increased by $17,000 for the three months ended December 31, 1995 compared with December 31, 1994 principally due to an increase in the interest rate charged for the borrowings under the Credit Agreement. Interest income increased by $79,000 for the three months ended December 31, 1995 compared with a year ago, due to higher average short-term investment balances and interest rates. During the three months ended December 31, 1995 and 1994, the Company primarily invested in commercial paper with short-term maturities and overnight time deposits. INCOME TAXES The Company's effective income tax rate for continuing operations was 44% for the three months ended December 31, 1995 and 43% for the three months ended December 31, 1994. 16 PART II - OTHER INFORMATION (UNAUDITED) ITEM 1. LEGAL PROCEEDINGS: In addition to the continuing environmental clean-up efforts and other matters described below, the Company and its subsidiaries are parties to a number of lawsuits arising in the ordinary course of business. In June 1991, two stockholder class actions were brought, and then consolidated, against the Company, Capital Credit, certain directors and current and former executive officers of the Company, and certain former directors and officers of Capital Credit, seeking damages under the securities laws in connection with the misstatement by the Company of certain quarterly financial statements in fiscal 1990 and 1991. The Company and the individual defendants denied any and all wrongdoing or liability and vigorously defended the action. In order to end the substantial expense and distraction of continued litigation, the Company settled the action, which settlement has been approved by the court. All claims against the Company and the other defendants have been dismissed with prejudice. The Company and its insurer each paid one-half of the $1,500,000 settlement amount in March 1995. That portion of the settlement amount which was not covered by insurance was charged against existing reserves, all of which had been recorded in prior fiscal years. In a lawsuit brought in 1993 by three individuals engaged by Transworld Systems as independent contractors, in which it was alleged that Transworld Systems has improperly treated the plaintiffs as independent contractors rather than employees, all of the asserted claims have been dismissed by the Court with prejudice. Some of the same persons and others have also brought suit against Transworld Systems and certain of its directors and officers, alleging breach of contract and mental distress as a result of Transworld Systems' failure to supply plaintiffs with copies of a monthly publication distributed by Transworld Systems. Several persons have also brought suit alleging wrongful termination. The claims in these actions against Transworld Systems have been reviewed by counsel and, based upon their assessment, management has concluded that the claims are without merit. Based on current estimates and information, the Company does not believe that the ultimate resolution of the above lawsuits will have a material adverse impact on the Company's overall financial condition or future results of operations. 17 Gichner Systems Group Division: The Company sold the assets and business of the Company's Gichner Systems Group division (the "Division") to Gichner Systems Group, Inc. (the "Purchaser") in 1989 and, accordingly, reflected the Division as a discontinued operation in the Company's Statements of Operations. In 1991 the Purchaser informed the Company that false pricing information might have been supplied by former officers of the Division, who were also members of the group that purchased the Division from the Company, in connection with certain government contracts negotiated prior to the sale. After investigation, those of the former officers who where then working for the Purchaser were terminated for cause, and the Company and Purchaser have tendered to the Department of Defense a report of the results of their investigation. The Company recorded a $8,000,000 loss provision ($5,200,000 net of tax benefit) during the third quarter of fiscal 1995, which included an accrual of $3,500,000 for estimated legal and accounting fees and settlement costs which were expected to be incurred as a result of government claims for this matter and the estimated legal costs to defend the Company against claims asserted by the Purchaser. The Company reached tentative agreements with the federal government in January 1996, subject to certain agency approvals and final approval by the Court, to settle the above matters. Under the agreements, which recognize the Company's co-operation in and substantial contribution to the investigation of these matters, the Company will fulfill its commitment to make compensation for the government's civil claims by paying $5,550,000. The Company also accepted responsibility for the actions of the officers of the former Division by entering a plea of guilty under the False Claims Act, 18 U.S.C. Section 287, although those actions were concealed from the management of the Company, and will pay a fine of $250,000. As a result, the Company recorded a $3,000,000 loss provision ($2,065,000 net of tax benefit) or $.36 loss per share during the second quarter of fiscal 1996 for its Discontinued Operations, which provision, combined with amounts previously reserved in connection with these matters, is expected to cover all costs of the above settlements, and includes an accrual for the estimated legal and accounting fees related to the government claims and other costs related to certain discontinued operations of the Company, all of which were terminated or otherwise disposed of prior to fiscal 1990. The Purchaser commenced suit against the Company in which it alleges misrepresentation and breach by the Company of the provisions of the Purchase Agreement and asserts claims for damages and indemnification. The Company denies each of the claims of the Purchaser and intends to vigorously defend against this action. Although management believes that reserves established for these matters are adequate based on current information there is no way to be certain that future developments will not involve additional substantial costs that may require future charges to the Discontinued operations loss provision. The Company does not anticipate, based on current information, that the resolution of these matters will have a material adverse impact on the Company's overall financial condition given its available cash and short-term investments. 18 Two former officers of the Division filed suit against the Company for retirement benefits which the Company terminated when their alleged misconduct was reported to the Company. All of their claims, and their refiled claims, have been dismissed by the Court. The Company has counterclaimed for damages resulting from the misconduct of the two former officers of the Division. The estate of a third former officer of the Division has filed suit against the Company for similar claims, which the Company denies and intends to vigorously defend against this action. Environmental Matters: Current commercial operations of the Company and its subsidiaries do not involve activities affecting the environment. However, the Company is a party in several pending environmental proceedings involving the federal Environmental Protection Agency ("EPA") and comparable state agencies in Indiana, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. All of these matters relate to discontinued operations of former divisions or subsidiaries for which the Company has potential continuing responsibility. One group of the Company's known environmental proceedings relates to Superfund or other sites where the Company's liability arises from arranging for the disposal of allegedly hazardous substances in the ordinary course of prior business operations. In most of these "generator" liability cases, the Company's involvement is considered to be DE MINIMUS (i.e. a volumetric share of approximately 1% or less) and in each of these cases the Company is only one of many potentially responsible parties. From the information currently available, there are a sufficient number of other economically viable participating parties so that the Company's projected liability, although potentially joint and several, is consistent with its allocable share of liability. At one "generator" liability site, the Company's involvement is potentially more significant because of the volume of waste contributed in past years by an inactive subsidiary. Insufficient information is available regarding the need for or extent and scope of any remedial actions which may be required. The Company has recorded what it believes to be a reasonable estimate of its potential liability, based on current information, for this site. The second group of matters relates to environmental issues on properties currently or formerly owned or operated by a subsidiary or division of the Company. These cases generally involve matters for which the Company or an inactive subsidiary is the sole or primary responsible party. In one such case, however, although the affected subsidiary fully performed a settlement with the federal government, the government has reopened the matter. A group of financially solvent responsible parties has completed an extensive investigation of the Superfund site under a consent order with the EPA and submitted Remedial Investigation and Feasibility Study Reports (the "Reports") to the EPA, which outline a range of various remedial alternatives for the site. The EPA has issued a proposed plan which is subject to public comment. The Company's environmental counsel retained two environmental consulting firms to review and evaluate the Reports and proposed plan. The findings 19 of these consulting firms indicate that many of the assumptions, purported facts and conclusions contained in the Reports and proposed plan are significantly flawed and such findings have been recently submitted to the EPA. Notwithstanding the foregoing and the Company's denial of liability because of the prior settlement with the government, the $8,000,000 loss provision recorded during the third quarter of fiscal 1995 includes a provision of approximately $4,000,000 for environmental matters. The provision for environmental matters includes the estimated legal and consulting costs for this and other sites involving the Company or an inactive subsidiary, the estimated costs to defend the Company's aforementioned settlement with the government, and the estimated remediation costs that the Company will incur, based on current information, if its prior settlement with the government is not upheld in court. However, the Company may be exposed to additional substantial liability for this site as additional information becomes available over the long-term. A better estimate of costs associated with any further remediation to be taken at the site cannot be made until a Record of Decision is issued by the EPA, which is expected to be issued in fiscal 1996. Actual remediation costs cannot be computed until such remedial action is completed. Some of the other sites involving the Company or an inactive subsidiary are at a stage where an assessment of liability, if any, cannot reasonably be made. It is the Company's policy to comply fully with all laws regulating activities affecting the environment and to meet its obligations in this area. In many "generator" liability cases, reasonable cost estimates are available on which to base reserves on the Company's likely allocated share among viable parties. Where insufficient information is available regarding projected remedial actions for these "generator" liability cases, the Company has recorded what it believes to be reasonable estimates of its potential liabilities. Reserves for liability for sites on which former operations were conducted are based on cost estimates of remedial actions projected for these sites. All known environmental claims are periodically reviewed by the Company, where information is available, to provide reasonable assurance that adequate reserves are maintained. Reserves recorded for environmental liabilities are not net of insurance or other expected recoveries. Other than the aforementioned loss provision that was recorded by the Company during the third quarter of fiscal 1995, no significant expenses related to environmental matters were recorded by the Company during the six months ended December 31, 1995 or the three years ended June 30, 1995 due to the adequacy of recorded reserve balances based on prior available information. Management believes that reserves established to meet known and potential environmental liabilities are adequate based on current information. The Company does not anticipate, based on current information, that the resolution of these matters will have a material adverse impact on the Company's overall financial condition given its available cash and short-term investments. However, there is no way to be certain that future developments relating to environmental matters will not involve additional substantial costs that may require future charges to the Discontinued operations loss provision. 20 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: On November 16, 1995, the Company held its Annual Meeting of Stockholders. The following matter was voted on and approved by the stockholders: Messrs. John E. Angle, James C. Miller III and Herbert R. Silver were re- elected to the Board of Directors and Messrs. Melvin L. Cooper, Gordon S. Dunn, William B. Hewitt, Robert A. Kerr and Stuart J. Northrop continued to serve as members of the Board of Directors after the meeting. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibits: Exhibit No. 10(a) Agreement between Interactive Performance, Inc., a wholly- owned subsidiary of The Union Corporation, and AT&T Corp. (Confidential treatment has been requested for certain portions of this Exhibit.) Exhibit No. 11 Computation of Primary and Fully Diluted Earnings Per Share (Unaudited) Exhibit No. 27 Financial Data Schedule (b) REPORTS ON FORM 8-K: There were no reports on Form 8-K filed for the six months ended December 31, 1995. 21 THE UNION CORPORATION AND SUBSIDIARIES Item 6 Computation of Primary and Fully Diluted Earnings Per Share (Unaudited) Exhibit 11 ---------- (Dollars in thousands, except per share amounts)
Six Months Ended December 31, -------------------------------------------------------------------- 1995 1994 -------------------------------- -------------------------------- Income Income Number of Net of Per Share Number of Net of Per Share Shares Taxes Amount Shares Taxes Amount --------- ------ --------- ---------- ------ --------- PRIMARY EARNINGS: Average common shares (based on weighted average number of shares outstanding) 5,580,617 5,536,814 Common stock equivalents (stock options) 154,112 102,339 --------- --------- Income from continuing operations 5,734,729 $ 2,175 $ .38 5,639,153 $ 2,221 $ .39 --------- --------- --------- --------- Discontinued operations loss provision (net of tax) 5,734,729 (2,065) (.36) 5,639,153 - - --------- ------ ---- --------- ------ ---- --------- --------- Net income 5,734,729 $ 110 $ .02 5,639,153 $ 2,221 $ .39 --------- ------ ---- --------- ------ ---- --------- ------ ---- --------- ------ ---- FULLY DILUTED EARNINGS: Average common shares (based on weighted average number of shares outstanding) 5,580,617 5,536,814 Common stock equivalents (stock options) 208,988 134,244 --------- --------- Income from continuing operations 5,789,605 $ 2,175 $ .38 5,671,058 $ 2,221 $ .39 --------- --------- --------- --------- Discontinued operations loss provision (net of tax) 5,789,605 (2,065) (.36) 5,671,058 - - --------- ------ ---- --------- ------ ---- --------- --------- Net income 5,789,605 $ 110 $ .02 5,671,058 $ 2,221 $ .39 --------- ------ ---- --------- ------ ---- --------- ------ ---- --------- ------ ----
22 THE UNION CORPORATION AND SUBSIDIARIES Item 6 Computation of Primary and Fully Diluted Earnings Per Share (Unaudited) Exhibit 11 ---------- (Dollars in thousands, except per share amounts)
Three Months Ended December 31, -------------------------------------------------------------------- 1995 1994 -------------------------------- -------------------------------- Income Income Number of Net of Per Share Number of Net of Per Share Shares Taxes Amount Shares Taxes Amount --------- ------ --------- ---------- ------ --------- PRIMARY EARNINGS: Average common shares (based on weighted average number of shares outstanding) 5,580,617 5,535,340 Common stock equivalents (stock options) 167,176 140,410 --------- --------- Income from continuing operations 5,747,793 $ 1,098 $ .19 5,675,750 $ 1,271 $ .22 --------- --------- --------- --------- Discontinued operations loss provision (net of tax) 5,747,793 (2,065) (.36) 5,675,750 - - --------- ------ ---- --------- ------ ---- --------- --------- Net income (loss) 5,747,793 $ (967) $(.17) 5,675,750 $ 1,271 $ .22 --------- ------ ---- --------- ------ ---- --------- ------ ---- --------- ------ ---- FULLY DILUTED EARNINGS: Average common shares (based on weighted average number of shares outstanding) 5,580,617 5,535,340 Common stock equivalents (stock options) 212,642 140,410 --------- --------- Income from continuing operations 5,793,259 $ 1,098 $ .19 5,675,750 $ 1,271 $ .22 --------- --------- --------- --------- Discontinued operations loss provision (net of tax) 5,793,259 (2,065) (.36) 5,675,750 - - --------- ------ ---- --------- ------ ---- --------- --------- Net income (loss) 5,793,259 $ (967) $(.17) 5,675,750 $ 1,271 $ .22 --------- ------ ---- --------- ------ ---- --------- ------ ---- --------- ------ ----
23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE UNION CORPORATION (Registrant) Date: May 30, 1996 By: Nicholas P. Gill -------------------------------- Nicholas P. Gill Vice President, Treasurer and Secretary (Chief Financial Officer) 24 EX-10.(A) 2 EXHIBIT 10(A) [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT, WHICH PORTIONS ARE INDICATED BY THE SYMBOL "*".] Exhibit 10(a) AGREEMENT NO. LF9099D PAGE 1 OF 23 ACCEPTANCE SHALL BE INDICATED BY SIGNING AND RETURNING DUPLICATE TO: Interactive Performance, Inc. AT&T Corp. c/o The Union Corporation 188 Mt. Airy Road, Room A135 145 Mason Street Basking Ridge, NJ 07920 Greenwich, CT 06830 Attention: Betty I. Brown Attention: William B. Hewitt Subject to the terms and conditions stated in this Agreement, Interactive Performance, Inc. agrees to perform the teleservices described, hereinafter "Work", and AT&T Corp. ("AT&T") agrees to pay the charges stated. Whenever the terms "you", "your" or "Contractor" are used in this Agreement, the same shall mean Interactive Performance, Inc. Contractor is a wholly-owned subsidiary of The Union Corporation ("Union"). STATEMENT OF WORK Contractor shall perform services in anticipation of or following execution of this Agreement and this Agreement shall expire 36 months from the date Contractor notifies AT&T that the facility where the Work will be performed (described in Section VI below) has become operational, which such term is defined in Exhibit B, however under no circumstances continuing beyond May 31, 1999. The services shall include but are not necessarily limited to the following: I. Contractor shall render live account teleservices to AT&T and such services shall be performed as described hereunder and in Exhibits A, B, C, D and E, attached hereto and hereby made a part of this Agreement. Contractor shall provide AT&T, its Agents and/or its affiliates with live account teleservices for AT&T's Portfolio of active and usage threshold exceeded accounts (not in default). For purposes of this Agreement, an account is in default when it is charged off by AT&T. AT&T will remove from Contractor's portfolio of accounts any accounts which are in default. Contractor shall request and accept payment arrangements from customers and enter these arrangements and other account updating information into the AT&T-licensed CACSPLUS-TM- and AT&T's Resident Account Management Platform ("RAMP") collection system. All such payments made by customers shall be made to AT&T. *___________________________________________________________________________. Contractor shall provide these services in accordance with the highest professional industry standards (and will follow, as near as may be, AT&T's guidelines for telephone contacts). Contractor shall be responsible for hiring and training the required management, administrative, teleservice representatives and technical staff to support this project within the timeframes agreed upon. II. Contractor's teleservice representatives may perform the Work by utilizing AT&T's Credit Management Center Methods and Procedures and the AT&T Credit and Collection Policies as revised and updated by AT&T from time to time. Contractor will be notified of said changes within a reasonable period of time to allow for sufficient training of Contractor's teleservices representatives. * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 2 OF 23 AT&T shall have up to four AT&T personnel, including the on-site Manager, co- located with Contractor employees performing the Work, and such personnel shall be a liaison to the Contractor on behalf of AT&T. Contractor shall share information with on-site and visiting AT&T representatives in order to educate such AT&T representatives regarding industry policy for services performed under this Agreement, practices and technology involved in performing the Work. Such representatives will not be employees or agents of persons performing services which are the same or substantially the same as those performed by Contractor._ AT&T and Contractor will establish an Executive Committee on which the parties hereto are equally represented, consisting only of employees of the parties or employees of the parties' affiliates, which will address and resolve all issues affecting the Contractor's performance specified in this Agreement. For purposes of this clause, employees of AT&T may include management consultants approved by Contractor in writing. Such approval shall not be unreasonably withheld. In the event of a deadlock regarding the establishment of performance standards, AT&T will cast the deciding vote, unless it pertains to the Liquidated Damages and Incentive Payment clause. This committee will assure effective communications, planning of work, review of performance standards and volumes covered by this Agreement. This committee will meet at least quarterly or more often , if warranted. III. Contractor shall transfer the knowledge of strategies, methodologies, risk management related information, recommended variances in campaign strategies, expected learnings, marketing impacts, teleservice scenario impacts, dialer campaigns and other data Contractor deems pertinent in connection with the Work, to AT&T-selected employees through means of day-to-day interaction, oral presentations, and reports. Such interaction, presentations and reports shall not unreasonably interfere with the normal conduct of the Work. When transferring knowledge described herein, if Contractor incorporates any of its proprietary information as provided in the CONTRACTOR'S INFORMATION clause, AT&T shall treat such information in accordance with requirements set forth in such clause. IV. The following Exhibits are attached hereto as part of this Agreement. Definitions hereunder apply to the Exhibits unless the Agreement otherwise requires: EXHIBIT A describes the operational requirements for the Work to be performed by the Contractor on behalf of AT&T. EXHIBIT B describes AT&T's Performance Measurements. Contractor agrees to manage and perform the Work under this Agreement in a way that insures that such services are monitored and managed to adhere to such Performance Measurements. EXHIBIT C describes the systems and interfaces, Contractor's access rights to such systems, and the Equipment *___________________ and to be used by the Contractor for the Work. EXHIBIT D describes the volume-forecast process to be used by Contractor under this Agreement. EXHIBIT E describes Contractor's compensation for Work performed under this Agreement. V. Unless Contractor obtains AT&T customer's names for purpose of solicitation through a means other than through AT&T-provided information, Contractor shall not solicit AT&T customers nor shall * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 3 OF 23 Contractor use AT&T customer names and/or customer databases for any purpose other than those expressly allowed under this Agreement. The Published/Non- Published numbers shall not be matched or stored in any Contractor database. This Section V is pursuant to requirements set forth in the USE OF INFORMATION clause. VI. * VII. Union shall provide to AT&T its consolidated audited annual financial statements and copies of the following SEC filings: A. "Annual Report" filed on Form 10-K B. "Quarterly Report" filed on Form 10-Q C. "Current Report" filed on Form 8-K D. "Notice of Proposed Sale of Securities" filed on Form 144, where applicable Union shall submit such statements and filings to the AT&T Technical Representative within 30 days after filing with the SEC. If AT&T gives notice to Contractor that any financial statement gives undue risk to AT&T, Union shall promptly submit corrective action plans to AT&T for approval by AT&T in writing to mitigate impact to AT&T. In the event Union does not submit such documents to AT&T within thirty days after filing with the SEC, AT&T shall have the right to terminate this Agreement in accordance with the TERMINATION/EXPIRATION clause. AT&T acknowledges receipt of the Annual Report of Union for the fiscal year ended June 30, 1995, and all subsequent filings called for by this Agreement to the date of execution of this Agreement and agrees that they do not give undue risk to AT&T. ARBITRATION If a dispute arises out of or relates to this Agreement, or its breach, and the parties have not been successful in resolving such dispute through negotiation, the parties agree to attempt to resolve the dispute through arbitration by submitting the dispute to a sole arbitrator selected by the parties or, at any time at the option of a party, to arbitration by the American Arbitration Association ("AAA") or any other arbitrator opted by a party. Each party shall bear its own expenses and an equal share of the expenses of the arbitrator and the fees of the AAA. The parties, their representatives, other participants and the arbitrator shall hold the existence, content and result of arbitration in confidence, except as may be required by applicable law or regulation. All defenses based on passage of time shall be tolled pending the termination of the arbitration. Nothing in this clause shall be construed to * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 4 OF 23 preclude any party from seeking injunctive relief in order to protect its rights pending arbitration. A request by a party to a court for such injunctive relief shall not be deemed a waiver of the obligation to arbitrate. ASSIGNMENT AND SUBCONTRACTING Contractor shall not assign any right or interest under this Agreement (excepting monies due or to become due) or delegate or subcontract any Work or other obligation to be performed or owed under this Agreement without the prior written consent of AT&T. Any attempted assignment, delegation or subcontracting in contravention of the above provisions shall be void and ineffective. Any assignment of monies shall be void and ineffective to the extent that (1) Contractor shall not have given AT&T at least thirty (30) days prior written notice of such assignment or (2) such assignment attempts to impose upon AT&T obligations to the assignee additional to the payment of such monies, or to preclude AT&T from dealing solely and directly with Contractor in all matters pertaining to this Agreement including the negotiation of amendments or settlements or charges due. All Work performed by Contractor's subcontractor(s) at any time shall be deemed Work performed by Contractor. In addition, Contractor shall not assign this Agreement, without the prior written consent of AT&T, to an affiliate or to a successor whether by stock transfer, operation of law, or merger or to an unaffiliated acquiror of all or any portion of Contractor's business, stock or assets. ASSIGNMENT BY AT&T AT&T shall have the right to assign this Agreement and to assign its rights and delegate its duties under this Agreement either in whole or in part (an "Assignment"), including, but not limited to, software licenses and other grants of intellectual property rights, at any time and without Contractor's consent, to (i) any present or future affiliate (including any subsidiary or affiliated entity thereof) of AT&T or (ii) any unaffiliated new entities that may be formed by AT&T pursuant to a corporate reorganization, including any subsidiary or affiliated entity thereof. AT&T shall give Contractor prior written notice of any Assignment, including (i) the effective date of the Assignment ("Effective Date"), and (ii) the entity or entities receiving rights and/or assuming obligations thereunder ("Entities"). Such assignment shall not relieve AT&T from its obligations hereunder. AUDIT * * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 5 OF 23 Notwithstanding the above, AT&T-designated auditors shall have the right to review any operational item, and the right to receive audits reports prepared by or for the Contractor, covering any aspect of the Work under this Agreement. In the event AT&T or any government authority conducts an audit of Contractor as a result of misconduct by Contractor that required such an audit, Contractor shall incur all costs associated with such audit, including, but not limited to reimbursement to AT&T for reasonable out-of-pocket expenses incurred for such audit. CARE AND CUSTODY OF PROPERTY Contractor shall have the care, custody and control of all AT&T's Equipment and any other AT&T records or materials (hereinafter in this clause referred to as "Materials") as described hereunder in the possession of Contractor pursuant to this Agreement, and shall be fully responsible for any and all damage to or loss of such Materials, other than damage attributable to AT&T and other than normal wear and tear during the time they are in Contractor's care, custody and control. When AT&T orders the Materials for delivery to Contractor or delivers Materials in its possession to Contractor, Contractor's responsibility hereunder shall commence upon delivery and installation (in good working order) by AT&T and shall continue uninterrupted until the Materials are repossessed by AT&T or its designees at no cost to Contractor. The liability of Contractor for any and all damage to or loss of Materials of AT&T in Contractor's possession shall be based on the full replacement value of the Materials as determined. Equipment supplied by AT&T shall be maintained by AT&T. CHANGES AT&T may at any time during the progress of the Work require additions to or alterations of or deductions or deviations (all hereinafter referred to as a "Change") from the Work described herein. No Change shall be considered as an addition or alteration to or deduction or deviation from the Work nor shall Contractor be entitled to any compensation for work done pursuant to or in contemplation of a Change, unless made pursuant to a written Change Order issued by AT&T. Within thirty (30) days after a request for a Change, Contractor shall submit a proposal to AT&T which includes estimated increases or decreases in Contractor's costs or changes in the Work schedule necessitated by the Change. AT&T shall within thirty (30) days of receipt of the proposal, either (i) accept the proposal, in which event AT&T shall issue a written Change Order directing Contractor to perform the Change or (ii) advise Contractor not to perform the Change in which event Contractor shall proceed with the original Work. CHOICE OF LAW The construction, interpretation and performance of this Agreement and all transactions under it shall be governed by the laws of the State of New Jersey excluding its choice of laws rules and excluding the Convention for the International Sale of Goods. The parties agree that the provisions of the New Jersey Uniform Commercial Code apply to this Agreement and all transactions under it, including agreements and transactions relating to the furnishing of services, the lease or rental of equipment or material, and the license of software. Contractor agrees to submit to the jurisdiction of any court AGREEMENT NO. LF9099D PAGE 6 OF 23 wherein an action is commenced against AT&T based on a claim for which Contractor has agreed to indemnify AT&T under this Agreement. COMPENSATION Contractor's invoices for fees established in Exhibit E shall be paid to Contractor for Work, and are to include *_______________________________________ ________________________________________________________________________________ ____________________________________. AT&T agrees to pay Contractor following receipt by AT&T of invoices, for Work performed hereunder. Payment shall be made thirty (30) days after invoices are received by the designated AT&T Representative. AT&T may withhold from payment that portion of any invoice which is disputed in good faith until the dispute is resolved by the parties. COMPLIANCE WITH LAWS Contractor and all persons furnished by Contractor shall comply with all applicable federal, state, local and foreign laws, ordinances, regulations and codes, including those relating to the use of chlorofluorocarbons, and including the identification and procurement of required permits, certificates, licenses, insurance, approvals and inspections in performance under this Agreement. Contractor agrees to indemnify, defend (at AT&T's request) and save harmless AT&T, its affiliates, its and their customers and each of their officers, directors and employees pursuant to the INDEMNITY clause of this Agreement from and against any losses, damages, claims, demands, suits, liabilities, fines, penalties and expenses (including reasonable attorney's fees) that arise out of or result from Contractor's failure to do so. Without limiting the generality of any of the foregoing, with respect to live account teleservices performed by Contractor on behalf of AT&T, Contractor shall comply with all applicable laws for such services, including but not limited to all regulations or requirements as may be lawfully imposed by governmental authorities such as the Securities & Exchange Commission (SEC), Federal Trade Commission (FTC), Federal Communications Commission (FCC), Department of Justice (DOJ), Internal Revenue Service (IRS) and State regulatory bodies. Contractor must notify AT&T within 24 hours of any changes, cancellation, non-renewal, or claims against a bond or license. Contractor agrees to indemnify AT&T, pursuant to the clause INDEMNITY of this Agreement, and its customers for any loss or damage that may be sustained by reason of Contractor's failure to do so. CONTRACTOR'S INFORMATION Except as provided hereunder, Contractor shall not provide under, or have provided in contemplation of, this Agreement any idea, data, program, technical, business or other intangible information, however conveyed, or any document, print, tape, disk, semiconductor memory or other information- conveying tangible article, unless Contractor has the right to do so, and Contractor shall not view any of the foregoing as confidential or proprietary. Subject to the foregoing, AT&T, may desire to have Contractor disclose to AT&T, certain specifications, designs, plans, drawings, software, data, prototypes, or other business and/or technical information related to performing live account teleservices for AT&T information (hereinafter in this clause shall be referred to as "INFORMATION") which is proprietary to the Contractor. In such * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 7 OF 23 event, AT&T, for two years from the effective date of receipt by AT&T of INFORMATION under this Agreement, shall hold the INFORMATION in confidence, shall use the INFORMATION only for the purpose of its internal business, shall reproduce the INFORMATION only to the extent necessary for such purpose, shall restrict disclosure of the INFORMATION to its employees (and employees of its affiliated companies) and consultants with a need to know (and advise the employees of the obligations assumed herein) and shall not disclose the INFORMATION to any third party without prior without written approval of the Contractor, provided that the foregoing shall not apply to information previously known to AT&T free of obligation, or made public through no fault imputable to AT&T. All INFORMATION shall be furnished only to the on-site Manager at the *__________________________ facility and the following representative of AT&T, or a successor representative of each as AT&T may designate in writing: Name: Norene Buckstine Title: Staff Manager Address: 295 North Maple Avenue - Room 6147F3 Basking Ridge, New Jersey 07920 Telephone: 908-221-8920 AT&T shall not be liable for the inadvertent or accidental disclosure of INFORMATION, if the disclosure occurs despite the exercise of the same degree of care as AT&T normally takes to preserve its own proprietary information of a similar nature. INFORMATION shall be subject to the restrictions herein, if it is in writing or other tangible form, only if clearly marked as proprietary when disclosed to AT&T or, if not in tangible form, its proprietary nature must first be announced; and it must be reduced to writing, with a copy of the writing being furnished to AT&T within thirty (30) days of the disclosure of the intangible information. Contractor shall endeavor to keep to a minimum the amount of INFORMATION that is furnished to AT&T upon which restrictions are imposed. DISASTER RECOVERY On or before 120 days after execution of this Agreement, Contractor shall submit a contingency plan for AT&T's Work in the event of a disaster, described as a force majeure condition in the clause FORCE MAJEURE or extended outage at Contractor's site where AT&T Work is being performed and shall submit such plan to AT&T for review and approval by AT&T and such approval shall be provided in writing by AT&T to Contractor. The plan shall include, but shall not be limited to modification of outbound and inbound calling requirements in the event of a disaster and how Contractor will operationally support AT&T's internal collections operation in the event of major system and/or infrastructure outages and its capability in support of its facility, systems, infrastructure and data. Costs incurred in connection with the establishment, maintenance, implementation and performance of the plan shall be *______________________________________________________________ _____________________________________. Within 120 days after execution of this Agreement, AT&T shall provide Contractor with a disaster recovery plan for AT&T as it relates to Work under this Agreement. * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 8 OF 23 In the event any telecommunications services or processes are not operating properly, Contractor shall take immediate and appropriate action in accordance with Contractor's business continuity plan to rectify the malfunction and shall immediately notify the AT&T on-site manager within one (1) hour after Contractor becomes aware of the service-affecting situation and of remedial action taken. AT&T shall take immediate and appropriate action to remedy any malfunction involving its Equipment. ENTIRE AGREEMENT This Agreement shall constitute the entire agreement between the parties with respect to the subject matter of this Agreement and shall not be modified or rescinded, except in writing signed by Contractor and AT&T. Additional or different terms inserted in this Agreement by Contractor, or deletions thereto, whether by alterations, addenda, or otherwise, shall be of no force and effect, unless expressly consented to by AT&T in writing. Estimates or forecasts furnished by AT&T or Contractor shall not constitute commitments. The provisions of this Agreement supersede all contemporaneous oral agreements and all prior oral and written quotations, communications, agreements and understandings of the parties with respect to the subject matter of this Agreement. The term "Work" as used in this Agreement may also be referred to as "services". All approvals or consents by the parties in this Agreement or the Exhibits hereto shall not be unreasonably withheld or unreasonably delayed. EQUIPMENT Except for the communications and computer equipment ("Equipment") as provided for in this Agreement *________________________________________________________ _____________________________________________________. *______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________. The Equipment shall be provided and maintained in accordance with the following requirements. A. * 1. * * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 9 OF 23 2. Contractor shall use the Equipment in accordance with all applicable OSHA requirements and other safety requirements, codes or standards, and keep in force a policy of Workers' Compensation insurance as prescribed by the law of the state in which the work is performed. Contractor may procure whatever additional insurance Contractor deems appropriate. Contractor agrees that it, its insurer(s) and anyone claiming by, through, under, or in Contractor's behalf shall have no claim, right of action, or right of subrogation against AT&T or AT&T's customers based on any loss or liability insured against under any policy of insurance. Contractor agrees to indemnify and hold harmless AT&T and AT&T's customers from and against any and all losses, damages, claims, demands, suits, and liabilities (including reasonable attorney's fees) of any kind and nature whatsoever (including but not limited to claims resulting from injuries or death to person or damage to property) in any way arising out of or resulting from the operation, use or storage of the Equipment or any accident in connection therewith unless such claims are based on defects in the Equipment or its operation not the fault of Contractor. 3. *___________________________________________________________________________ ________________________________________________________________________________ __________________________________________________. Contractor shall promptly notify AT&T of any equipment operational issues as it so becomes aware. 4. Contractor shall keep the Equipment in the location where services are being performed for AT&T by Contractor, and, in case of removal by Contractor or any of its employees of all or any part of it from one building to another, Contractor's responsibility for loss or damage shall continue. 5. * 6. * * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 10 OF 23 B. The data stored in the computer Equipment *__________________________________ and is pursuant to the terms and conditions set forth in the Title to Work Products and Use of Information clauses set forth hereunder. *_________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ FORCE MAJEURE Neither party shall be held responsible for any delay or failure in performance of any part of this Agreement to the extent such delay or failure is caused by fire, flood, explosion, war, strike, embargo, government requirement, civil or military authority, act of God, or other similar causes beyond its control and without the fault or negligence of the delayed or nonperforming party or its subcontractors ("force majeure conditions"). Notwithstanding the foregoing, Contractor's liability for loss or damage to AT&T's Materials as defined the CARE AND CUSTODY OF PROPERTY clause in Contractor's possession or control shall not be modified by this clause. If any force majeure condition occurs, the party delayed or unable to perform shall give immediate notice to the other party, stating the nature of the force majeure condition and any action being taken to avoid or minimize its effect. Once the force majeure condition ceases, the parties will resume performance under this Agreement with an option by either party to extend the period of this Agreement up to the length of time the force majeure condition endured, not to exceed ninety (90) days. GOVERNMENT CONTRACT PROVISIONS The following provisions regarding equal opportunity, and all applicable laws, rules, regulations and executive orders specifically related thereto, including applicable provisions and clauses from the Federal Acquisition Regulation and all supplements thereto are incorporated in this Agreement as they apply to work performed under specific U.S. Government contracts: 41 CFR 60-1.4, Equal Opportunity; 41 CFR 60-1.7, Reports and Other Required information; 41 CFR 60- 1.9, Segregated Facilities; 41 CFR 60-250.4, Affirmative Action For Disabled Veterans and Veterans of the Vietnam Era (if in excess of $10,000); and 41 CFR 60-741.4, Affirmative Action for Disabled Workers (if in excess of $2,500), "contractor" and "subcontractor" shall mean "Contractor". In addition, orders placed under this Agreement containing a notation that the material or services are intended for use under Government contracts shall be subject to such other Government provisions printed, typed or written thereon, or on the reverse side thereof, or in attachments thereto. HEADINGS The headings contained in this Agreement are for convenience of reference only and shall not affect the interpretation or meaning of this Agreement. IDENTIFICATION Contractor shall not, without AT&T's prior written consent, engage in advertising, promotion or publicity related to this Agreement, or make public use of any identification in any circumstances related to this Agreement, except as may be required by applicable law, "Identification" means any * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 11 OF 23 copy or semblance of any trade name, trademark, service mark, insignia, symbol, logo, or any other product, service or organization designation, or any specification or drawing of AT&T or its affiliates, or evidence of inspection by or for any of them. Contractor shall remove or obliterate any identification prior to any use or disposition of any material rejected or not purchased by AT&T, and shall indemnify, defend (at AT&T's request) and save harmless AT&T and its affiliates and each of their officers, directors and employees from and against any losses, damages, claims, demands, suits, liabilities, fines, penalties and expenses (including reasonable attorney's fees) arising out of Contractor's failure to so remove or obliterate. Subject to the foregoing AT&T's Agreement Representative shall provide to Contractor, after this Agreement is executed, a letter establishing Contractor's rights in advertising for hiring of persons for performance of this Agreement. Contractor shall have the right to disclose that AT&T is a client of Contractor. Any further information referencing AT&T as client of Contractor must have prior written approval from the AT&T Agreement Representative. IMPLEADER Contractor shall not implead or bring an action against AT&T or its customers or the employees of either based on any claim by any person for personal injury or death to an employee of AT&T or its customers occurring in the course or scope of employment and that arises out of Material (as defined in the CARE AND CUSTODY OF PROPERTY clause) or services to maintain that Material furnished under this Agreement. INDEMNITY 1. All persons furnished by Contractor shall be considered solely Contractor's employees or agents, and Contractor shall be responsible for payment of all unemployment, social security and other payroll taxes, including contributions when required by law. Contractor agrees to indemnify and save harmless AT&T, its affiliates, its and their customers, and each of their officers, directors, employees, successors and assigns (all hereinafter referred to in this clause as "AT&T") from and against any losses, damages, claims, demands, suits, liabilities, and expenses (including reasonable attorney's fees) that arise out of or result from third party actions which relate to or are based upon acts or omissions of Contractor, including but not limited to the following: (1) injuries or death to persons or damage to property, including theft, in any way arising out of or occasioned by, caused or alleged to have been caused by or on account of the performance of the Work or services performed by Contractor or persons furnished by Contractor; (2) assertions under Workers' Compensation or similar acts made by persons furnished by Contractor or by any subcontractor of Contractor, or by reason of any injuries to such persons for which AT&T would be responsible under Workers' Compensation or similar acts if the persons were employed by AT&T; (3) any failure on the part of Contractor to satisfy all valid claims *________________________________________________________________ ___________________________________________________________________ or (4) any failure by Contractor to perform Contractor's obligations under this clause or the INSURANCE clause. Contractor agrees to defend AT&T, at AT&T's request, against any such claim, demand or suit. AT&T agrees to notify Contractor within a reasonable time of any written claims or demands against AT&T for which Contractor is responsible under this clause. * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 12 OF 23 2. Except as limited by paragraph (3) following, AT&T shall indemnify and save harmless Contractor, its affiliates, and the officers, directors and employees of each (all hereinafter referred to in this clause as "Contractor") from and against any losses, damages, claims, demands, suits, liabilities, and expenses (including reasonable attorney's fees) that arise out of or result from acts or omissions of AT&T or its affiliates or assigns or the employees or agents of any of them in connection with its performance under this Agreement. AT&T agrees to defend Contractor, at Contractor's request, against any such claim, demand or suit. Contractor agrees to notify AT&T within a reasonable time of any written claims or demands against Contractor for which AT&T is responsible under this clause. 3. Contractor has agreed herein to perform certain tasks that are or may be subject to federal law or regulation. The parties agree that Contractor undertakes these obligations under federal law and regulation freely and solely. Accordingly, AT&T's indemnification specifically shall not apply with respect to any obligation or requirement to which Contractor may be claimed to be or held to be liable which arises under such federal law or regulation, except for instructions from AT&T to contact customers (1) for accounts subject to bankruptcy proceedings, or (2) at the business telephone number of a person regarding a home account, or (3) at a number causing a third party disclosure, or (4) at a frequency that involves a violation of applicable law. INFRINGEMENT Contractor shall indemnify and save harmless AT&T, its affiliates, its and their customers, and each of their officers, directors, employees, successors and assigns (all hereinafter referred to in this clause as AT&T) from and against any losses, damages, liabilities, fines, penalties, and expenses (including reasonable attorney's fees) that arise out of or result from any proved or unproved claim (1) of infringement of any patent, copyright, trademark or trade secret right, or other intellectual property right, private right, or any other proprietary or personal interest, and (2) related by circumstances to the existence of this agreement or performance under or in contemplation of it (an Infringement Claim). If the Infringement Claim arises solely from Contractor's adherence to AT&T's written instructions regarding services or tangible or intangible goods provided to Contractor (Items) and if the Items are not (1) commercial items available on the open market or the same as such items, or (2) items of Contractor's designated origin, design or selection, AT&T shall indemnify Contractor. AT&T or Contractor shall defend or settle, at its own expense, any demand, action or suit on any Infringement Claim against the other for which it is indemnitor under the preceding provisions and each shall timely notify the other of any assertion against it of any Infringement Claim and shall cooperate in good faith with the other to facilitate the defense of any such Claim. INSPECTION AT&T's Representatives shall at all times have access to any and all Work and work related data and facilities containing such work and data for the purpose of inspection or Quality Review and Contractor shall provide safe and proper facilities for such purpose. Such inspection shall not unreasonably interfere with performance of the Work. INSURANCE AGREEMENT NO. LF9099D PAGE 13 OF 23 Contractor shall maintain and cause Contractor's subcontractors to maintain during the term of this Agreement: (1) Workers' Compensation insurance as prescribed by the law of the state or nation in which the Work is performed; (2) employer's liability insurance with limits of at least $300,000 for each occurrence; (3) comprehensive automobile liability insurance if the use of motor vehicles is required, with limits of at least $1,000,000 combined single limit for bodily injury and property damage for each occurrence; (4) Comprehensive General Liability ("CGL") insurance, including Blanket Contractual Liability and Broad Form Property damage, with limits of at least $1,000,000 combined single limit for bodily injury and property damage for each occurrence, (5) All Risk Property Insurance (including flood and earthquake coverage), and (6) Errors and Omissions professional liability insurance, with limits of at least $3,000,000. All CGL, automobile liability and All Risk Property insurance shall designate AT&T Corp., its affiliates, and their officers, directors and employees (all hereinafter referred to in this clause as "AT&T") as an additional insured. All such insurance must be primary and required to respond and pay prior to any other available coverage. Contractor agrees that Contractor, Contractor's insurer(s) and anyone claiming by, through, under or in Contractor's behalf shall have no claim, right of action or right of subrogation against AT&T and its customers based on any loss or liability insured under the foregoing insurance. Contractor and Contractor's subcontractors shall furnish prior to the start of Work certificates or adequate proof of the foregoing insurance including, if specifically requested by AT&T, copies of the endorsements and insurance policies. AT&T shall be notified in writing at least thirty (30) days prior to cancellation of or any change in the policy. INVOICING Contractor's invoices shall be rendered upon completion of the Work or at other times expressly provided for in the Agreement, and shall be payable when the Work has been performed. Contractor shall mail invoices with copies of any supporting documentation required by AT&T to the address shown in this Agreement. The Work shall be delivered free from all claims, liens, and charges whatsoever. *___________________________________________________________________ _____________________________________________________________________________. Contractor's invoices shall be rendered and paid in accordance with the clause COMPENSATION contained herein and shall reference Agreement No. LF9099D. Contractor's invoices shall be sent to AT&T by the 10th calendar day of the month for Work performed in the proceeding month and such invoices shall be in the format provided for in Attachment V to Exhibit E, attached hereto and hereby made a part of this Agreement. *________________________________________________ _______________________________________________________________________________ _____________________________________________________________________________. Contractor shall submit an original and duplicate copy of each invoice to the following address or to an address to be mutually agreed upon by the parties in writing: Norene C. Buckstine AT&T Room 6147F1 295 North Maple Avenue * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 14 OF 23 Basking Ridge, New Jersey 07920 LABOR RELATIONS Contractor shall be responsible for its own labor relations with any trade or union represented among its employees and shall negotiate and be responsible for adjusting all disputes between itself and its employees or any union representing such employees. Contractor shall immediately notify AT&T's Technical and Agreement Representatives if Contractor has knowledge of any actual or potential labor dispute which is delaying or could delay the timely performance of this Agreement. If any dispute, work stoppage or strike should occur, Contractor shall notify AT&T's Technical and Agreement Representatives and agrees to make all reasonable efforts and take all reasonable action necessary to immediately settle the matter. LICENSE TO MEDIA AT&T hereby grants to Contractor a non-exclusive license to copy, distribute, display and use the AT&T media for the purpose of training its employees to perform Work under this Agreement and such media shall be for CACSPLUS training, Collector training and Intelligent Work Station ("IWS") training, whether such AT&T media is fixed in any documentary material, photograph, tape, diskette or other tangible medium of expression furnished under this Agreement by AT&T to Contractor, and which act would, if unlicensed, constitute or contribute to or induce an infringement of any copyright or patent licensable by AT&T for its works of authorships. Such license is, however, restricted to the extent that it shall be exercised solely to further educational or training programs conducted by Contractor to aid the implementation of training the employees of Contractor that are solely performing Work under this Agreement. The foregoing license does not include the right of Contractor to grant sublicenses of the same scope to its affiliates or elsewhere. As used in this paragraph, an affiliate of a party hereto is a corporation or other legal entity controlled by or controlling or under common control with that party. Title to any such documentary material, photograph, tape or other tangible medium of expression furnished hereunder to Contractor will remain with AT&T and shall be returned to AT&T upon expiration of this Agreement (if a renewal agreement is not executed by the parties), termination and/or upon request by AT&T. LIMITATION OF LIABILITY A. Except as otherwise provided in this Agreement, each party's liability to the other (as distinct from a party's obligation to pay for services provided pursuant to this Agreement) for any loss, cost, claim, injury, liability, or expense, including reasonable attorneys' fees, relating to or arising out of any act or omission in its performance under this Agreement, shall be limited to the amount of direct damages actually incurred. B. In no event shall either party be liable to the other for consequential damages in the nature of lost profits or lost revenue arising under this Agreement or punitive damages unless imposed by regulatory authority. C. Neither party shall be liable to the other for any loss or damage resulting from acts or omissions of the other, or based on information supplied or omitted by the other. AGREEMENT NO. LF9099D PAGE 15 OF 23 LIQUIDATED DAMAGES AND INCENTIVE PAYMENTS AT&T and Contractor agrees to enter into good faith negotiations for development of the Quality Performance Measurement Standards, incorporating applicable damages to be determined, incentive payments related to such standards, and such standards shall be developed in final form within twelve months after execution of this Agreement. In the event no agreement can be settled between the parties at the end of twelve months, AT&T shall have final decision as to the Direct Measures of Quality (DMOQs) and the AT&T Standards for performance of the Work under this Agreement. If the parties do not agree on liquidated damages and/or incentives to be applied in conjunction with these standards, no such damages or incentives shall apply and that result shall not be subject to arbitration under this Agreement. Such standards shall be incorporated in this Agreement by the AT&T Agreement Representative. MARKET RIGHTS It is expressly understood and agreed that this Agreement does not grant to Contractor an exclusive right or privilege to sell to AT&T any services of the type described in this Agreement. It is, therefore, understood that AT&T may contract with other Contractors for the procurement of comparable services. In addition, AT&T shall at its sole discretion, decide the extent to which AT&T will market, advertise, promote, support, or otherwise assist in further offerings of the material or services; however nothing in this sentence shall be deemed to grant to AT&T further rights than set forth in CONTRACTOR'S INFORMATION clause. It is further expressly understood and agreed that Union nor any of its affiliates shall provide like services to *____________________________________ _______________________________________________________________________________ _______________________________________________________________________________ ______________________________, and such notification shall be made to AT&T at the time Union or any of its appropriate affiliates are selected as a supplier for such services. In the event of provision of like teleservice activities *_______________________________________, not only shall Contractor provide a separate physical teleservice center, but it shall also provide separate and different local management and teleservice representatives for such services. Contractor's employees and/or contracted teleservice representatives performing Work under this Agreement shall not concurrently perform teleservices for *___________________________________. * * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 16 OF 23 NOTICES Any notice or demand which under the terms of this Agreement or under any statute must be given or made by Contractor or AT&T shall be in writing and shall be given or made by telegram, confirmed facsimile, or similar communication or by certified or registered mail addressed to the respective parties as follows: To AT&T: Betty I. Brown AT&T Corp. Room A135 188 Mount Airy Road Basking Ridge, New Jersey 07920 With a copy to: Norene C. Buckstine AT&T Room 6147F1 295 North Maple Avenue Basking Ridge, New Jersey 07920 To Contractor: William B. Hewitt Interactive Performance, Inc. c/o The Union Corporation 145 Mason Street Greenwich, CT 06830 With a copy to: Bernard Silver Allied Bond 1 Allied Drive Neshaminy Interplex Trevose, Pennsylvania 19053 The above addresses may be changed at any time by giving prior written notice as above provided. ORDERLY TRANSITION In the event of expiration or termination of this Agreement, in whole or in part, wherein all or some portion of the Work will be performed by AT&T itself or elsewhere, Contractor agrees to provide its full cooperation in the orderly transition of the Work to AT&T or elsewhere, including, but not necessarily limited to packing and preparing for shipment of any materials or other inventory to be transferred, provision of reports, files and similar media necessary for continuation of the Work transferred, continuation of Work at reducing levels if necessary during a transition period and at reduced levels if Work is transferred in part. Contractor shall not be responsible for packing or shipment *_________________________________________. Contractor shall within sixty (60) days after notice by AT&T of a decision to effect a transition, develop and submit to AT&T for approval by AT&T an orderly transition plan of the Work to AT&T itself or otherwise and such approval by AT&T shall be provided to Contractor in writing. * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 17 OF 23 RELATIONSHIP It is understood and agreed that all employees hired by Contractor to perform the services under this Agreement are Contractor's employees. Contractor shall exercise full control and direction over the employees of Contractor performing the Work covered by this Agreement. Any changes in personnel that may be reasonably requested by AT&T through its authorized representative shall be made as soon as reasonably possible. Neither Contractor nor its employees or agents shall be deemed to be AT&T's employees or agents. It is understood that Contractor is an independent contractor engaged to service AT&T's accounts not in default. Contractor is wholly responsible for withholding and payment of all applicable federal, state and local income and other payroll taxes with respect to its employees, including contributions from them as required by law. Without limiting any other requirements in this Agreement for complying with laws, Contractor shall, when hiring personnel for performing the Work hereunder comply with applicable legislation and government agency orders and regulations prohibiting discrimination against any employee or applicant for employment because of race, color, religion, sex, national origin, age or handicap, and Contractor shall comply with the provisions of the Fair Labor Standards Act of 1938, as amended, and all other applicable Federal, state and local law governing employment. Where required by law, certificates of compliance shall be provided. None of Contractor's employees assigned to perform Work under this Agreement shall be assigned to any other activities, unless Contractor submits a plan of the work and time involved for such work to AT&T for approval by AT&T. In no event shall any of Contractor's local employees and local contracted teleservice representatives performing Work under this Agreement concurrently participate in like Work for *______________________________________. RELEASES VOID Neither party shall require (i) waivers or releases of any personal rights or (ii) execution of documents which conflict with the terms of this Agreement, from employees, representatives or customers of the other in connection with visits to its premises and both parties agree that no such releases, waivers or documents shall be pleaded by them or third persons in any action or proceeding. REPRESENTATIVES AT&T's Technical Representative is Norene C. Buckstine and AT&T's Agreement Representative is Betty I. Brown or such other persons as may be designated in writing by AT&T from time to time. Contractor's Representative is Bernard Silver or such other person as may be designated in writing by Contractor from time to time. RIGHT OF ENTRY AND PLANT RULES Each shall have the right to enter the premises of the other party during normal business hours with respect to the performance of this Agreement, subject to all plant rules and regulations, security * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 18 OF 23 regulations and procedures of which such party is informed and U.S. Government clearance requirements if applicable. AT&T is not responsible for the safekeeping of Contractor's property on AT&T premises. Contractor shall provide and maintain sufficient covering and take any other precautions necessary to protect AT&T's stock, equipment and other property from damage due to Contractor's performance of the Work . Visitations at Work site shall not unreasonably interfere with performance of the Work. Contractor shall initiate and maintain strict building security for the protection of AT&T's information while in Contractor's control and shall limit access to operating areas and information to those with a need for such access. Within 90 days of execution of this Agreement, Contractor shall establish and provide in writing to AT&T its security procedures for approval by AT&T. SERVICE CONTINUITY Contractor shall use exclusively, and AT&T shall provide at its expense telecommunications services for the Work hereunder for inbound and outbound calling. Contractor shall also use exclusively, and AT&T shall provide at its expense telecommunications circuits in appropriate states for local calling in the event such local services are offered and allowed by law for AT&T to provide. SEVERABILITY If any of the provisions of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not invalidate or render unenforceable the entire agreement, but rather the entire agreement shall be construed as if not containing the particular invalid or unenforceable provision or provisions, and the rights and obligations of Contractor and AT&T shall be construed and enforced accordingly. SURVIVAL OF OBLIGATIONS The obligations of the parties under this Agreement which by their nature would continue beyond the termination, cancellation or expiration of this Agreement, including, by way of illustrations only and not limitation, those in the clauses "COMPLIANCE WITH LAWS, IDENTIFICATION, IMPLEADER, INDEMNITY, INFRINGEMENT, INSURANCE, RELEASES VOID, USE OF INFORMATION and WARRANTY, shall survive termination, cancellation or expiration of this Agreement. TAXES * * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 19 OF 23 TERMINATION/EXPIRATION Termination provisions under this Agreement shall be in accordance with the following: A. Termination for Convenience: AT&T may at any time terminate this Agreement, in whole or in part, by providing reasonable written notice to Contractor. In such case, AT&T's liability shall be limited to payment of the amount due for Work performed, up to and including the date of termination, and no further work will be rendered by Contractor after the effective date of termination. In the event of such termination for convenience AT&T may *____________________ ___________________________________________________, but in any case under such termination: (1) AT&T shall assume *_________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ ______________________________________________________________________, and (2) if such termination is less than *______ years, AT&T shall pay *____________ ____________________________________________, and (3) AT&T shall pay *____________________________________________________________ ___________________________________________________, and (4) AT&T shall pay*_____________________________________________________________ ____________________________________________________________________________. Such payment shall constitute a full and complete discharge of AT&T's obligations to Contractor, subject to the SURVIVAL OF OBLIGATIONS clause. B. Breach by Contractor: AT&T may terminate this Agreement at any time, without waiving other rights herein, and shall be entitled to obtain all such remedies as injunctive or equitable relief, as well as attorneys' fees, as may be deemed proper by a court of competent jurisdiction at any time if Contractor is in material breach of this Agreement. In such breach case, AT&T shall provide Contractor ninety (90) days to cure such breach prior to termination after notice specifying the alleged breach. During the period of such alleged breach, AT&T may elect to *__ ________________________________________________________________________________ ___________________________________________. If such breach is cured within the ninety (90) day period *____________________________________________. In the event of such termination AT&T's liability to Contractor shall be for *________. * Portion deleted - confidential treatment requested AGREEMENT NO. LF9099D PAGE 20 OF 23 C. Termination for Default: AT&T may terminate this Agreement at any time for willful misconduct, gross negligence, fraud or bankruptcy by Contractor. In such case, AT&T's liability shall be limited to payment of the amount due for Work performed, up to and including the date of termination, and no further work will be rendered by Contractor after the effective date of termination. Such payment shall constitute AT&T full and complete discharge of AT&T's obligations, subject to the SURVIVAL OF OBLIGATIONS clause. If AT&T elects to assume the operations of the facility, AT&T shall be responsible for all remaining obligations under the lease. D. The parties agree that a failure to achieve performance standards established under the Agreement is not considered a breach for purposes of this Termination/Expiration clause. E. AT&T shall notify Contractor on or about six (6) months prior to expiration of this Agreement of its intention to exercise its option to renew or: (1) Decide not to renew this Agreement and exit the location facility with the AT&T-provided tools and equipment. In such case AT&T's liability shall be limited to requirements set forth in Section A of this clause, and Contractor shall be returned the security deposit under the lease. (2) Decide not to renew this Agreement and cause the operation of such facility, including all furnishing, tools and equipment and obligations of the lease required to perform services of this Agreement to be transferred to AT&T itself or otherwise in accordance with the ORDERLY TRANSITION clause herein. Contractor shall have no further obligations under the lease of the facility and shall have its security deposit returned. TITLE TO WORK PRODUCTS All right, title and interest in and to all tangible and intangible work and work products developed or produced under this Agreement by or on behalf of Contractor for AT&T, whether comprising or incorporated in campaign strategies, specifications, drawings, sketches, models, samples, data, computer programs, reports, documentation or other technical or business information, and all right, title and interest in and to patents, copyrights, trade secrets, trademarks and other intellectual property derived from such work and work products are hereby assigned by Contractor to AT&T and are hereby agreed by Contractor to be transferred to AT&T or otherwise vested therein, effective when first capable of being so assigned, transferred or vested. Contractor shall obligate its employees, subcontractors and others to provide, and shall supply to AT&T at no extra cost, all such assignments, rights and covenants as AT&T deems appropriate to assure and perfect such transfer or other vesting. All work and work products shall be provided to AT&T as required herein or upon termination or completion of this Agreement, whichever is earlier, unless Contractor is requested in writing to do otherwise. All such work and work products shall be considered and arranged to be a "work made for hire" to the extent allowed by law. The work and work products developed or produced under this Agreement shall be the original work of Contractor, unless AT&T's Technical Representative has consented in writing to the inclusion of work or work products owned or copyrighted by others (hereafter "included works"). In requesting such AGREEMENT NO. LF9099D PAGE 21 OF 23 consent, Contractor shall notify AT&T of the scope of the rights and permissions Contractor intends to obtain for AT&T with respect to such included works and modify the scope of same as requested by AT&T. Copies of all rights and permissions, clearly identifying the included works to which they apply, shall be supplied to AT&T promptly after their acquisition. AT&T shall not acquire title hereunder to any intangible work or work products preexisting execution of this Agreement and not developed or produced in anticipation hereof. Contractor agrees, for itself and its affiliates, not to assert patents and copyrights owned or controlled by Contractor or any parent thereof or subsidiary of either against AT&T, its affiliates, and its or their direct or indirect customers, in connection with any work product or other subject matter directly or indirectly derived from Work done hereunder. USE OF INFORMATION Contractor shall view as AT&T's property any idea, data, program, technical, business or other intangible information, however conveyed, and any document, print, tape, disk, tool, or other tangible information-conveying or performance- aiding article owned or controlled by AT&T, and provided to, or acquired by, Contractor under or in contemplation of this Agreement ("Information"). Contractor shall and as AT&T directs, destroy or surrender to AT&T promptly at its request any such article or any copy of such Information. Contractor shall keep Information confidential and use it only in performing Work under this Agreement and obligate its employees, subcontractors and others working for it to do so, provided that the foregoing shall not apply to information previously known to Contractor free of obligation, or made public through no fault imputable to Contractor. Without limiting the generality of any of the foregoing, all Work under this Agreement shall be considered proprietary. AT&T's name shall not be used as a reference or in promotional materials, except as provided for in the IDENTIFICATION clause. Third party tours of the dedicated facility for this Agreement are prohibited without written permission by AT&T. Contractor may not distribute, transmit, store, destroy, or disclose proprietary AT&T Information without the express written permission of AT&T. Guidelines and procedures for safeguarding AT&T proprietary Information can be found in Corporate Security Instruction 3.01, and such instructions shall be provided to Contractor by AT&T. Given that the highly proprietary and confidential nature of the business information, customer account data, software, plans and other items of the Work under this Agreement is critical to AT&T's overall marketing and collection strategy, Contractor acknowledges that monetary damages may not be a sufficient remedy if there occurs unauthorized disclosure of AT&T's proprietary Information to anyone other than those with a need to know to perform this Agreement. WAIVER The failure of either party at any time to enforce any right or remedy available to it under this Agreement or otherwise with respect to any breach or failure by the other party shall not be construed to be a waiver of such right or remedy with respect to any other breach or failure by the other party. AGREEMENT NO. LF9099D PAGE 22 OF 23 WARRANTY Contractor warrants that the Work will proceed with promptness and diligence and shall be executed in a first class workmanlike manner, in accordance with the highest professional standards in the field. WORK DONE BY OTHERS If any part of the Work is dependent upon Work done by others, Contractor shall inspect and promptly report to AT&T's Representative any defect that renders such other Work unsuitable for Contractor's proper performance. Contractor's silence shall constitute approval of such other Work as fit and suitable for Contractor's performance. IN WITNESS WHEREOF, Contractor and AT&T have executed this Agreement in duplicate on the day and year below written. INTERACTIVE PERFORMANCE, INC. AT&T CORP. By: /s/ Bernard Silver By: /s/ P.A. Cox --------------------------- ----------------------------------- (Signature) (Signature) President Global Procurement Director Bernard Silver P.A. Cox _________________________________ ________________________________________ (Name & Title Typed or Printed) (Name & Title Typed or Printed) January 19, 1996 December 29, 1995 _________________________________ ________________________________________ (Date) (Date) AGREEMENT NO. LF90990 PAGE 23 OF 23 The Union Corporation hereby guarantees the performance of all obligations, services and duties of Interactive Performance, Inc. under and in connection with this Agreement and the Exhibits annexed hereto. THE UNION CORPORATION By: /s/ Melvin L. Cooper ----------------------------- (Signature) Melvin L. Cooper, Chairman --------------------------------- (Name & Title Typed or Printed) January 19, 1996 --------------------------------- (Date) -----END PRIVACY-ENHANCED MESSAGE-----