About EDGAR Online | Login
 
Enter your Email for a Free Trial:
The following is an excerpt from a 10-K SEC Filing, filed by PAYCO AMERICAN CORP on 4/1/1998.
Next Section Next Section Previous Section Previous Section
OSI SUPPORT SERVICES INC - 10-K - 19980401 - PART_I

PART I

ITEM 1. BUSINESS

General

Outsourcing Solutions Inc., a Delaware Corporation (the "Company" or "OSI") was formed on September 21, 1995 to build, through a combination of acquisitions and sustained internal growth, one of the leading providers of accounts receivable management services.

In September 1995, OSI initiated this strategy with the acquisition of Atlanta-based Accounts Portfolios, L.P. ("API"), one of the largest purchasers and managers of non-performing accounts receivable portfolios. In January 1996, OSI acquired Continental Credit Services, Inc. ("Continental") and A.M. Miller & Associates ("Miller"), two industry leaders in the contingent fee business. Continental, which is headquartered in Seattle and operates in eight western states, provides contingent fee services to a wide range of end markets, with particular emphasis on public utilities and regional telecommunications. Miller, based in Minneapolis, provides contingent fee services to the student loan and bank credit card end markets.

In November 1996, OSI acquired Payco American Corporation ("Payco") with corporate offices in Brookfield, Wisconsin. Originally founded as a contingent fee service company, Payco has diversified into other outsourcing services such as student loan billing, health care accounts receivable billing and management, contract management of accounts receivable and teleservicing. Upon completion of the Payco acquisition, the Company became one of the largest providers of accounts receivable management services in the United States.

In October 1997, OSI acquired North Shore Agency, Inc. ("NSA"), a fee service company headquartered in Long Island, New York. NSA specializes in "letter series" collection services for direct marketers targeted at collecting small balance debts. The majority of NSA's revenues are generated from traditional contingent collections utilizing letters with the remaining revenues derived from fixed fee letter services.

In November 1997, OSI acquired Accelerated Bureau of Collections, Inc. ("ABC"). ABC is a Denver-based national fee service company. ABC specializes in credit card collections and derives approximately 25% of its revenues from early-out programs with the remaining 75% of revenues derived from standard contingent fee collections.

In December 1997, the Company entered into a Share Purchase Agreement and Plan of Merger (the "Merger Agreement") with The Union Corporation ("Union") pursuant to which Union will become a wholly-owned subsidiary of the Company. The Company expects to complete the transaction by April 1998.

Industry

As a result of the rapid growth of outstanding consumer credit and the corresponding increase in delinquencies, credit grantors have increasingly looked to third party service providers in managing the accounts receivable process. In addition, rapid consolidation in the largest credit granting industries, including banking, health care, telecommunications and utilities, has forced companies to focus on core business activities and to outsource ancillary functions, including some or all aspects of the accounts receivable management process. Contingent fee companies dominate the accounts receivable management industry, with the American Collectors Association estimating that in 1996 there were approximately 6,000 contingent fee agencies. The industry is currently characterized by a high degree of fragmentation with a corresponding trend in recent years toward consolidation. Over the past twenty years the number of contingent fee providers has decreased by approximately twenty percent and, between 1992 and 1995, the ten largest contingent fee providers increased their market share from 15% to over 42%.

The accounts receivable management industry has undergone rapid growth over the past fifteen years. According to the industry research firm of M. Kaulkin & Associates, account placements to servicers increased at a compounded annual growth rate of 13.1% from 1980 to 1994 and are projected to continue to grow at 8.5% from 1994 to 2000. New placements in 1994, the last year for which data is available, totaled $84.2 billion and are expected to grow to $137 billion in 2000. According to the Nilson Report, a leading expert in payment systems, the total amount of revenues generated by all contingent fee companies was approximately $5.0 billion in 1995. Two significant trends in the consumer credit industry are primarily responsible for this industry growth. First, consumer debt (a leading indicator of current and future business for accounts receivable management companies) has increased dramatically in recent years. Between 1990 and 1995, total consumer debt increased 37% from $3.6 trillion to almost $5.0 trillion. Second, in an effort to focus on core business activities and to take advantage of the economies of scale, better performance and lower cost structure offered by accounts receivable management companies, many credit grantors have chosen to outsource some or all aspects of the accounts receivable management process.

The customer base for the accounts receivable management industry is dominated by credit issuers in four end-markets: banks/bankcard, health care, utilities and telecommunications. According to the American Collectors Association, these four industries accounted for $66.7 billion in account placements in 1994, or nearly 80% of the total placement volume. Other significant sources of account placements for the industry include retail, student loan agencies and oil companies. The Company believes that the ongoing consolidation in the banking, utilities, telecommunications and health care industries will create larger national customers seeking to place accounts with accounts receivable management companies that have the resources to offer national rather than local and regional coverage.

The accounts receivable management industry is closely regulated by federal laws such as the Fair Debt Collection Practices Act ("FDCPA") and similar state laws.

Contingent fee services are the traditional services provided in the accounts receivable management industry. Creditors typically place non-performing accounts after they have been deemed non-collectible, usually when 90 to 120 days past due. The commission rate is generally based on the collectability of the asset in terms of the costs, which the contingent fee servicer must incur to effect repayment. The earlier the placement (i.e., the less elapsed time between the past due date of the receivable and the date on which the debt is placed with the contingent fee servicer), the higher the probability of recovering the debt, and therefore the lower the cost to collect and the lower the commission rate. Creditors typically assign their charged-off receivables to contingent fee servicers for a six to twelve month cycle, and then reassign the receivables to other servicers as the accounts become further past due. There are three main types of placements in the contingent fee business, each representing a different stage in the cycle of account collection. Primary placements are accounts, typically 120 to 270 days past due, that are being placed with agencies for the first time and usually receive the lowest commission. Secondary placements, accounts 270 to 360 days past due, have already been placed with a contingent fee servicer and usually require a process including obtaining judgments, asset searches, and other more rigorous legal remedies to ensure repayment and, therefore, receive a higher commission. Tertiary placements, accounts usually over 360 days past due, involve legal judgments, and a successful collection receives the highest commission. Customers are increasingly placing accounts with accounts receivable management companies earlier in the collection cycle, often prior to the 120 days past due typical in primary placements, either under a contingent fee or fixed fee arrangement.

While contingent fee servicing remains the most widely used method by creditors in recovering non-performing accounts, portfolio purchasing has increasingly become a popular alternative. Beginning in the 1980's, the Resolution Trust Company and the Federal Deposit Insurance Company, under government mandate to do so, began to sell portfolios of non-performing loans. Spurred on by the success of these organizations in a selling charged-off debt, other creditors likewise began to sell portfolios of non-performing debt. Management estimates the total principal value of purchased portfolios at between $2.5 and $5.5 billion per year, and based on the Company's experience, the annual growth rate of the portfolio purchasing market segment for the period 1990 to 1995 was between 50% and 80%. The largest percentage of purchased portfolios originate from the bank card receivable and retail markets and are typically purchased at a deep discount from the aggregate principal value of the accounts, with an inverse correlation between purchase price and age of the delinquent accounts. Once purchased, traditional collection techniques are employed to obtain payment of non-performing accounts.

Accounts receivable management companies have responded to the increasing need of credit granting companies to outsource other related services as well. Due to the rapid growth in consumer credit, credit grantors need assistance in managing increasingly large and complex call centers and accounts receivable management companies have stepped in to provide a variety of services. These services include, among others, third-party billing services and customer teleservicing. Accounts receivable management companies have found that their traditional experience in managing a large staff in a telephone-based environment provides a solid base for entering into these relatively new and rapidly growing market segments.

The accounts receivable management industry has progressed in technological sophistication over the past several years with the advancement of new technology. Today, leading companies in this industry use proprietary databases, automated predictive dialers, automatic call distributors and computerized skip tracing capabilities to significantly increase the number of quality interactions with debtors. This technological advancement is helping to accelerate industry consolidation and facilitates providing related accounts receivable management outsourcing services. The firms which have the most efficient operating system and can best use credit information typically collect more funds per account dollar and thus are awarded disproportionately more new accounts.

Business Strategy

The Company's market position and breadth of services distinguishes it as one of the leading providers of accounts receivable management services in the United States. The Company's business strategy is to expand this position through the following initiatives:

FULL SERVICE PROVIDERS/CROSS-SELLING SERVICES TO EXISTING CUSTOMERS. The Company is a full service firm which currently offers its customers a wide array of accounts receivable management options beyond traditional contingent fee services, including letter series and higher margin portfolio purchasing, contract management of accounts receivable, billing and teleservicing. This range of services allows the Company to cross-sell its offerings within its existing customer base, as well as to potential customers in specifically targeted industries.

EXPANSION OF CUSTOMER BASE. Two of the most important determinants in selecting an accounts receivable management service provider are reputation and experience. As the Company develops expertise and recognition with customers in a particular industry, it markets that expertise to other credit grantors in the industry. In addition, consolidation in the bank, retail, utility, student loan, health care and telecommunications industries has created national customers who are moving part or all of their accounts receivable collection management business to national service providers. With the ability to offer its services in all 50 states and experience in successfully managing a high volume of placements on a national basis, the Company is well positioned to benefit from this consolidation trend. The Company is also focused on increasing its business with government agencies at the federal, state and local levels, many of which have begun to outsource accounts receivable functions for items such as taxes and student loans to private companies.

LEVERAGING TECHNOLOGY. The Company has invested aggressively in technological innovations to enhance its competitive advantages over smaller competitors. The Company has hardware and proprietary software, including debtor-scoring models and debtor databases, which the Company believes, provides it with a competitive advantage in pricing portfolios and collecting amounts from debtors. In addition, the Company utilizes automated predictive dialers and skip tracing databases in order to allow account representatives to work accounts more efficiently. Through interface with creditor computer systems, the Company can efficiently receive new account placements from customers daily and provide frequent updates to customers on the status of accounts collections. As the Company begins to provide more comprehensive outsourcing services, the Company becomes more integrated with its customers' systems, making switching vendors both costly and inefficient.

GROWTH THROUGH ACQUISITIONS. The Company has built its position through strategic acquisitions of accounts receivable service providers in each of the markets in which it participates. The Company plans to selectively pursue additional acquisitions which complement its existing services or increase its customer base.

Services

The Company is one of the largest providers of accounts receivable management services in the United States. The Company offers its customers contingent fee services, portfolio purchasing services and related outsourcing services.

CONTINGENT FEE SERVICES. The Company is one of the largest providers of contingent fee services in the United States. The Company offers a full range of contingent fee services, including early-out programs and letter series, to all consumer credit end-markets. The Company utilizes it sophisticated MIS and vast experience with locating, contacting and effecting payment from delinquent account holders in providing its core contingent fee services. With 53 call centers in 25 states and approximately 4,100 account representatives, the Company has the ability to service large volume of accounts with national coverage. In addition to traditional contingent fee services involving the placement of accounts over 120 days delinquent, creditors have begun to demand services in which accounts are outsourced earlier in the collection cycle. The Company has responded to this trend by developing "early-out" programs, whereby the Company receives placed accounts that are less than 120 days past due and earns a fixed fee per placed account rather than a percentage of realized collections. These programs require a greater degree of technological integration between the Company and it's customers, leading to higher switching costs. The Company primarily services consumer creditors although the Company has a growing presence in the commercial collection business, offering contingent fee services to commercial creditors as well.

PORTFOLIO PURCHASING SERVICES. The Company offers portfolio purchasing services to a wide range of educational institutions, financial institutions, government agencies and retailers. The Company purchases large and diverse portfolios of non-performing consumer receivables both on an individually negotiated basis as well as through "forward flow" agreements. Most individually negotiated transactions involve tertiary paper (i.e., accounts that are between 180 to 360 days past due). Under forward flow agreements, the Company agrees to purchase charged off receivables on a monthly basis as they become past due. Creditors selling portfolios to the Company realize a number of benefits, including increased predictability of cash flow, reduction in monitoring and administrative expenses and reallocation of assets from non-core business functions to core business functions.

The Company's purchased portfolios consist primarily of consumer loans and credit card receivables, student loan receivables and health club receivables, including portfolios purchased under forward flow agreements. Consumer loans purchased include automobile receivables, mobile home receivables and commercial real estate receivables. The Company's most recent portfolio acquisitions have been primarily purchases pursuant to the Company's health club and bank card forward flow agreements. The Company continues to pursue acquisitions of portfolios in various industries for individually negotiated purchases.

The Company has recently established a sourcing relationship with Sherman Financial Group, L.L.C. ("Sherman"). Sherman's focus is singularly on developing a distressed debt business on behalf of the Company. The Company expects to benefit from Sherman's existing client relationships, industry marketing expertise, pricing technology and negotiating expertise with illiquid products in "one-off" transactions.

RELATED OUTSOURCING SERVICES. As the volume of consumer credit has expanded across a number of industries, credit grantors have begun demanding a wider range of outsourcing services. In response, the Company has developed a number of other accounts receivable management services. The Company leverages its operational expertise and call and data management technology by offering the following services: (1) contract management, through which the Company performs a range of accounts receivable management services at the customer's location,
(2) student loan billing, whereby the Company provides billing, due diligence and customer service services, (3) health care accounts receivable management, whereby the Company assumes responsibility for managing third-party billing, patient pay resolution, inbound and outbound patient communication services and cash application functions, and (4) teleservicing, whereby the company offers inbound and outbound calling programs to perform sales, customer retention programs, market research and customer service.

Sales and Marketing

The Company has a sales force of approximately 130 sales representatives providing comprehensive geographic coverage of the United States on a local, regional and national basis. The Company also markets its services in Puerto Rico and Mexico. Each of the operating companies maintain its own sales force and have a marketing strategy closely tailored to the credit-granting markets that it serves. The Company's primary sales and marketing objective is to expand its customer base in those customer industries in which it has a particular expertise and to target new customers in high growth end markets. The Company, through its established operating company brand names, emphasizes its industry experience and reputation--two key factors considered by creditors when selecting an accounts receivable service provider. Increasingly, the Company will focus on cross-selling its full range of outsourcing services to its existing customers and will use its product breadth as a key selling point in creating new business. The Company's overall sales and marketing strategies are coordinated by the corporate office Chesterfield, Missouri, which is also responsible for monitoring the sales performance of each of the operating entities.

Customers

The Company's customer base includes a full range of local, regional and national creditors. The company's customers include American Express, Citicorp, Bally's, Time Warner, Discover Card, Ameritech, US West, AT&T, First USA, Columbia House, New Jersey Department of Treasury, and various student loan guaranty agencies (including the California Student Aid Commission, USA Group Guaranty Services Inc. and the Great Lakes Higher Education Corporation). The Company's largest customer accounted for less than 10% of 1997 revenues.

Employees

The company employs approximately 5,000 people, of which 4,100 are account representatives, 130 are sales representative and 770 work in corporate/supervisory and administrative functions. None of the Company's employees are unionized, and the Company believes its relations with employees are satisfactory.

The Company is committed to providing continuous training and performance improvement plans to increase the productivity of its account representatives. Account representatives receive extensive training in a classroom environment for several days on Company procedures, information systems and regulations regarding contact with debtors. The training includes technical topics, such as use of on-line collection systems and skip-tracing techniques and tools, as well as instruction regarding the Company's approach to the collection process and listening, negotiation and problem-solving skills, all of which are essential to efficient and effective collections.

Account representatives are then assigned to work groups for a training period. Initially, the trainees only screen incoming calls. This allows less experienced account representatives to communicate with debtors in a less confrontational environment than may be experienced with outgoing calls. Additionally, the trainees are assigned accounts, which based upon scoring by the Company's information systems, have a higher likelihood of collection. After the training period, the account representatives begin working accounts directly.

Competition

The accounts receivable management industry is highly fragmented and competitive. According to the American Collectors Association, there are approximately 6,000 contingent fee service companies in the United States, with the 15 largest agencies currently receiving 33% of all accounts placed with outside collection agencies. Competition is based largely on recovery rates, industry experience and reputation and service fees. Large volume creditors typically employ more than one accounts receivable management company at one time, and often compare performance rate and rebalance account placements towards higher performing servicers. The largest competitors include Deluxe Corporation, Equifax Corporation, FCA International and G.C. Services.

Governmental Regulatory Matters

Certain of the Company's operations are subject to compliance with the FDCPA and comparable statutes in many states. Under the FDCPA, a third-party collection agency is restricted in the methods it uses to collect consumer debt. For example, a third-party collection agency is limited in communicating with persons other than the consumer about the consumer's request. Requirements under state collection agency statutes vary, with most requiring compliance similar to that required under the FDCPA. In addition, most states and certain municipalities require collection agencies to be licensed with the appropriate authorities before collecting debts from debtors within those jurisdictions. It is the Company's policy to comply with the provisions of the FDCPA, comparable state statues and applicable licensing requirements. The Company has established policies and procedures to reduce the likelihood of violations of the FDCPA and related state statutes. All account representatives receive extensive training on these policies and must pass a test on the FDCPA. Each account representative's desk has a list of suggested and prohibited language by the telephone. The agents work in an open environment which allows managers to monitor interaction with debtors, and the system automatically alerts managers of potential problems if calls extend beyond a certain duration.

There have been no further developments in the Federal Trade Commission ("FTC") inquiry at API. The FTC is conducting an informal inquiry to determine if API has violated any provision of the FDCPA. The Company is fully cooperating with the FTC and responding to any and all inquiries. The Company believes that the ultimate resolution of the FTC's inquiry will not have a material adverse effect on the financial position or results of operations of the Company.

Subsequent Event

On January 23, 1998, the Company acquired approximately 77% of the outstanding shares of Union common stock for $31.50 per share. Pursuant to the Merger Agreement, the Company agreed to acquire any of the remaining outstanding shares of Union pursuant to a second-step merger in which holders of such shares will receive $31.50 per share. The Company expects to complete the merger by April 1998. The aggregate purchase price of the common stock will be approximately $192.0 million. The acquisition will be accounted for under the purchase accounting method.

Union was originally a conglomerate involved in businesses ranging from electronic and industrial components to financial services. Today, Union is a leading provider of a range of outsourcing services to both large and small clients. Union provides contingent and fixed fee collection services and other related outsourcing services.

Union provides fee services through the following wholly-owned subsidiaries:
Allied Bond & Collection Agency, Inc. ("Allied"), Capital Credit Corporation ("Capital Credit"), and Transworld Systems, Inc. ("Transworld"). Allied, headquartered in Trevose, Pennsylvania, provides contingent and fixed fee collection services for large clients across a broad spectrum of industries. Capital Credit, headquartered in Jacksonville, Florida, also provides contingent and fixed fee collection services for large national clients primarily serving the bankcard, telecommunications, travel and entertainment and government sectors. Transworld, headquartered in Rohnert Park, California, is the largest prepaid, fixed fee outsourcer of delinquent account management services. Transworld's clients are primarily small companies with low balance delinquent accounts. Transworld provides clients with a two phase system. Phase I is a fixed fee, computer generated "letter series". Phase II is a traditional contingent fee collection system designed to collect those accounts that are not collected during Phase I. Union provides related outsourcing services through its Interactive Performance, Inc. ("IPI") and High Performance Services, Inc. ("HPSI") subsidiaries. IPI, headquartered in North Charleston, South Carolina, provides a range of credit and receivables management outsourcing services to telecommunications companies primarily in the form of teleservicing. IPI's services include inbound and outbound calling programs for credit authorization, customer service, usage management and receivables management. HPSI, headquartered in Jacksonville, Florida, provides services similar to IPI for clients in the financial services industry.

Environmental Matters

Current operations of OSI and its subsidiaries do not involve activities affecting the environment. However, Union is party to several pending environmental proceedings involving the Environmental Protection Agency ("EPA") and comparable state environmental 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 of Union for which it has potential continuing responsibility. Upon completion of the Union acquisition, OSI will establish reserves that it believes will be adequate for the ultimate settlement of these environmental proceedings.

One group of Union's known environmental proceedings relates to Superfund or other sites where Union'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, Union's involvement is considered to be de minimus (i.e., a volumetric share of approximately 1% or less) and in each of these cases Union 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 Union's projected liability, although potentially joint and several, is consistent with its allocable share of liability. At one "generator" liability site, Union's involvement is potentially more significant because of the volume of waste contributed in past years by a currently inactive subsidiary. Insufficient information is available regarding the need for or extent and scope of any remedial actions which may be required.
Union has recorded what it believes to be a reasonable estimate of its ultimate 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 Union. These cases generally involve matters for which Union 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 subsequently reopened the matter. A group of financially solvent responsible parties has completed an extensive investigation of this Superfund site under a consent order with the EPA and submitted Remedial Investigation and Feasibility Study Reports (the "Reports") to the EPA, which outline a range of various remedial alternatives for the site. The EPA issued a proposed plan which was subject to public comments. Union's environmental counsel retained several reputable environmental consulting firms to review and evaluate the Reports and proposed plan. The findings of these experts indicated that many of the assumptions, purported facts and conclusions contained in the Reports and proposed plan are significantly flawed. These findings were submitted to the EPA to challenge the perceived need for and the extent of the proposed additional remediation. As previously reported by Union, a better estimate of costs associated with any further remediation to be taken at the site could not be made until a Record of Decision was issued by the EPA. The EPA issued such Record of Decision for this site on February 6, 1998 and, notwithstanding the information contained in the findings submitted by Union, the cost to perform the remediation selected by the EPA for the site is estimated by the EPA to be approximately $17.3 million. Notwithstanding the foregoing and Union's denial of liability because of the prior settlement with the government, the aggregate amounts reserved by Union for this site is $13.8 million, which represents Union's best estimate of the ultimate legal and consulting costs for this site, costs to defend its aforementioned settlement with the government regarding this site, and its portion of the remediation costs that will ultimately be incurred by them, based on current information, if Union's prior settlement with the government is not upheld in court. However, Union may be exposed to additional substantial liability for this site as additional information becomes available over the long-term. Actual remediation costs cannot be computed until such remedial action is completed. Some of the other sites involving Union or an inactive subsidiary are at a state where an assessment of ultimate liability, if any, cannot reasonably be made at this time.

It is Union'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 Union's likely allocated share among viable parties. Where insufficient information is available regarding projected remedial actions for these "generator" liability cases, Union 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 Union, 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.

ITEM 2. PROPERTIES

As of December 31, 1997, the Company and its subsidiaries operated 65 facilities in the U.S., all of which are leased. The Company believes that such facilities are suitable and adequate for its business. The Company's facilities are strategically located across the U.S. to give effective broad geographic coverage for customers.

ITEM 3. LEGAL PROCEEDINGS

At December 31, 1997, the Company was involved in a number of legal proceedings and claims that were in the normal course of business and routine to the nature of the Company's business. The Company has provided for the estimated uninsured amounts and costs of defense for pending suits and management believes that reserves established for the ultimate settlement of such suits are adequate at December 31, 1997.

Payco and its wholly owned subsidiary Payco-General American Credits, Inc. were party to a class-action lawsuit filed in July 1995 in the Circuit Court of Etowah County, Alabama. The suit alleged that Payco-General American Credits, Inc., which was performing contingent fee services on behalf of co-defendant Transamerica Business Credit Corporation ("Transamerica"), committed violations of the federal FDCPA and Alabama state law. In January 1996, Transamerica filed a cross-claim against Payco-General American Credits, Inc., seeking judgment against Payco-General American Credits, Inc., for any liability, loss cost or expense Transamerica has or will incur. Payco-General American Credits, Inc., has, in turn, filed a similar claim against Transamerica. Payco negotiated a settlement with the plaintiff class, and on November 18, 1997, the Circuit Court approved the class settlement. Under the class settlement, Payco agreed to pay $1.3 million in cash to fund attorneys' fees to class counsel and to make credit counseling services available to individual class members.

The Company believes that it has meritorious defenses to the cross-claim in the Transamerica suit and believes that the outcome of that litigation will not have a material adverse effect on the operations or the financial condition of the Company.

In addition, Union is party to various legal proceedings and claims that were in the normal course of business and routine to the nature of its business. Upon completion of the Union acquisition, OSI will establish reserves that it believes will be adequate for the ultimate settlement of these legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1997.


BROKERAGE PARTNERS