SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________.
Commission file number 018597
NSC CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 31-1295113
(State of Incorporation) (IRS Employer Identification Number)
49 DANTON DRIVE, METHUEN, MA 01844
(Address of Principal Executive Offices) (ZIP Code)
(978) 557-7300
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
The aggregate market value of the common stock held by non-affiliates of the
registrant on March 19, 1999 was $4,660,397.
The number of shares of common stock outstanding on March 19, 1999 was
9,971,175.
<PAGE>
NSC Corporation
1998 Annual Report on Form 10-K
Table of Contents
Part I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Executive Officers of the Registrant 12
Part II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 34
Part III
Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial Owners and
Management 39
Item 13. Certain Relationships and Related Transactions 41
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 42
Signatures 45
<PAGE>
Part I
Item 1. Business
General
NSC Corporation (the "Company") is a leading provider of asbestos-abatement
and other specialty contracting services to a broad range of commercial,
industrial and institutional clients located throughout the United States.
The Company provides asbestos-abatement, lead paint abatement, indoor air
quality and industrial services through two of its wholly-owned subsidiaries,
National Surface Cleaning, Inc. ("NSCI") and National Service Cleaning
Corporation ("NSCC"); asbestos-abatement and decontamination and
decommissioning of government and commercial nuclear facilities through its
wholly-owned subsidiary, NSC Energy Services, Inc. ("NSCESI"); and demolition
and dismantling services through its wholly-owned subsidiary, Olshan
Demolishing Management, Inc. ("ODMI").
For financial information concerning the Company's two principal service
segments, asbestos-abatement (which includes indoor air quality,
decontamination and decommissioning and lead paint-abatement) and demolition
and dismantling, see Note 13 of the Notes to the Consolidated Financial
Statements included elsewhere herein.
The predecessor of the Company was founded in 1976 and initially provided
various cleaning services to commercial, industrial and residential real
estate properties. From the early 1980s and until the 1995 inclusion of
ODMI's activities, substantially all of the Company's revenue was derived from
asbestos-abatement services. OHM Corporation ("OHM") acquired NSCI and a
predecessor company to NSCC in June 1988. During 1989, NSCC was incorporated
in Connecticut to provide asbestos-abatement services to clients who generally
do not require the use of unionized labor. In June 1990, the Company
completed an initial public offering of its common stock.
On May 4, 1993 pursuant to a Purchase Agreement among the Company, NSC
Industrial Services Corp., a wholly owned subsidiary of the Company
("Industrial"), OHM, Waste Management, Inc. ("WMI"), and The Brand Companies,
Inc., an affiliate of WMI ("Brand"), the Company acquired the
asbestos-abatement division of Brand (the "Division") in exchange for the
issuance to an affiliate of WMI of 4,010,000 shares of the Company's common
stock (the "Common Stock") and all of the common stock of Industrial.
On April 20, 1995 the Company entered into an Interim Management and Operating
Agreement with Rust International Inc, an affiliate of WMI ("Rust"), under
which the Company, through ODMI, assumed the management of Olshan Demolishing
Company ("ODC"), a Rust subsidiary specializing in demolition and dismantling,
primarily in the industrial market.
As of December 31, 1997 and 1996, OHM and an affiliate of WMI each owned
approximately forty percent of the Common Stock.
Effective March 6, 1998, as a result of a transaction between OHM and
International Technology Corporation ("IT"), OHM distributed its shares of
Common Stock to its shareholders of record on February 24, 1998. As a result of
this transaction, WMI is the owner of approximately fifty-four percent of the
Common Stock.
The Company has entered into an Agreement and Plan of Merger dated as of
February 12, 1999 (the "Merger Agreement"), by and among NSC Holdings, Inc.
("Holdings"), NSC Acquisition, Inc. ("Merger Subsidiary"), the Company and WMI,
pursuant to which Merger Subsidiary will be merged with and into the Company
(the "Merger"), with the Company continuing as the surviving corporation.
Neither Holdings nor Merger Subsidiary has any prior affiliation with the
Company or WMI. Pursuant to the Merger Agreement, each share of the Common Stock
issued and outstanding at the effective time of the Merger (other than shares
held by the Company and stockholders, if any, who properly exercise their
appraisal rights under Delaware law) will be converted into the right to receive
$1.12 per share in cash. Consummation of the Merger is subject to certain
conditions, including approval and adoption of the Merger Agreement by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. WMI has entered into a voting agreement pursuant to which it has
agreed, subject to the terms set forth therein, to cause its affiliates to vote
their shares of Common Stock in favor of the Merger Agreement. Since these
shares represent approximately 54% of the outstanding shares of Common Stock,
the Merger Agreement will be approved and adopted without any action by any
other stockholder of the Company so long as the voting agreement remains in
effect.
The Merger Agreement also contemplates that, immediately prior to the
effective time of the Merger, WMI will cause its affiliates to exchange
996,420 shares of Common Stock (the "Exchanged Shares") for an interest
bearing subordinated promissory note issued by the Company in the principal
amount of $1,115,990, representing $1.12 per share times the number of
Exchanged Shares. All remaining shares of Common Stock owned by WMI and its
affiliates will be converted in the Merger into the right to receive $1.12 per
share in cash. In addition, the Merger Agreement contemplates that,
immediately prior to the effective time of the Merger, WMI will cause its
affiliate, ODC, to sell certain machinery and equipment to ODMI. In
consideration for such assets, all of the Company's existing non-interest
bearing indebtedness (currently approximately $4.5 million) owed to an
affiliate of WMI will be converted into an interest bearing subordinated
promissory note issued by the Company in the principal amount of $2.4 million.
The market for asbestos-abatement services has seen dramatic changes over the
past several years. In the mid-to-late 1980s, the demand in the marketplace
was extremely high, with many owners of buildings and facilities undertaking
large-scale abatement projects as a risk reduction measure. This demand,
coupled with low barriers to entry, provided the conditions for the
development of several large, national asbestos-abatement contractors.
Demand for asbestos-abatement services is dependent on the fluctuation of the
national economy and the finite amount of asbestos remaining to be removed.
There can be no assurance that such demand will remain steady. The Company,
nevertheless, is positioned to maintain its share of this market through a
focused sales and marketing effort. Furthermore, through diversification into
the demolition, indoor air quality and decontamination and decommissioning of
nuclear facilities markets, the Company is positioning to provide a full suite
of specialty contracting services to the performance-sensitive customer. The
market will continue to demand quality performance, and the Company will
strive to meet these demands through a unified focus on safety, customer
satisfaction, financial performance and personnel development.
Asbestos-Abatement and Demolition Operations
The Company provides asbestos-abatement and other specialty contracting
services through its network of 19 offices located throughout the United
States, and demolition and dismantling services through its Houston, Texas,
office. NSCI is licensed to conduct asbestos-abatement services in 35 states
and provides its services with unionized labor, while NSCC is licensed to
perform asbestos-abatement services in 40 states and provides its services
with non-unionized labor. ODMI is licensed to conduct demolition and
dismantling services in 24 states, the District of Columbia and Puerto Rico.
Generally, ODMI provides its services with non-unionized labor; NSCC and ODMI
often utilize subcontractor and temporary labor.
An asbestos-abatement or demolition and dismantling program is focused on
meeting the needs of the facility owner or operator to properly manage the
financial, regulatory and safety-related risks associated with a demolition or
asbestos project. The Company's removal and demolition services require the
coordination of several processes: marketing, bidding and contracting,
project management, health and safety programs, and the actual asbestos
removal or dismantling and demolition. The Company's management maintains
administrative and operational control over all phases of a project, from
estimating and bidding through project completion.
The Bidding and Contract Process
While some of the Company's contracts are directly entered into with its
clients without a formal bidding process, the Company receives a significant
portion of its asbestos-abatement and demolition and dismantling contracts
through a bidding process. The majority of the Company's projects are
contracted on a fixed-price basis, while the remainder is contracted either on
a time and materials or a unit-price basis. The Company obtains work and
performs services under contract, often on the basis of plans, specifications
or requirements prepared by the client or the client's agent. Contracting
opportunities are identified by telemarketing and the local sales force and
are entered into following competitive bidding or direct negotiations with the
customer or its agent. Generally, these contracts encompass supplying project
management, labor, tools, equipment and materials. In most cases, a
significant portion of the total costs incurred by the Company's
asbestos-abatement operations is attributable to labor while a significant
portion of the total costs of its demolition and dismantling operations is
attributable to equipment rental costs. While large abatement contracts may
last more than one year, the majority of the Company's projects are completed
within five months.
Project Management
Each project is coordinated and supervised by a project manager who selects
the requisite equipment, ensures contract compliance and supervises all
personnel. The Company employs a computerized job cost system which allows it
to track project profitability on an ongoing basis. The project manager
reviews the progress of the project on a regular basis with management. The
project manager continues to oversee the completion of the project, which
includes any subsequent change orders. The day-to-day documentation of air
testing, lead monitoring and final clean analysis is an important part of the
process and is generally provided by the client's consultants.
Health and Safety
The Company's written safety program, which is issued to all supervisory
personnel, contains specific outlines for all safety, health and regulatory
requirements associated with an asbestos-abatement project. In compliance with
the Environmental Protection Agency's ("EPA") Asbestos Hazard Emergency
Response Act ("AHERA") Model Accreditation Plan ("MAP"), all
asbestos-abatement supervisors and workers are required to attend and
satisfactorily pass a written examination both initially and during annual
refresher training. To meet the medical surveillance and respiratory
protection requirements of the Occupational Safety and Health Administration
("OSHA") standards, all personnel entering an asbestos or lead atmosphere must
first undergo an initial, and then annual, medical examination, which includes
a complete medical and work history, pulmonary function testing and a chest
roentgenogram. If an employee will be exposed to lead, a blood sample is
taken to determine blood lead levels before exposure to that environment.
Blood lead levels are then monitored periodically throughout the period the
employee is working in this environment. In addition to wearing required
protective clothing, respirators and other personal protective equipment, all
individuals leaving a contaminated area are required to undergo stringent
decontamination procedures. During the asbestos-abatement process, the
Company engages in daily personal air monitoring; during the demolition and
dismantling process, the Company engages in lead, heavy metal and other
contaminant testing. In either process, the Company strives to comply with
all regulatory and safety requirements. Comprehensive documentation is an
important part of the asbestos-abatement and demolition and dismantling
process. The Company maintains all required documentation.
The Abatement Process
The Company's workers remove asbestos in accordance with the regulations of
the EPA's National Emission Standards for Hazardous Air Pollutants - Asbestos
("NESHAPS"), OSHA and applicable state and local regulations. Before any removal
can begin, the work area must be sealed off from the interior building
environment as well as from the outdoor environment. The containment of the
work area requires the construction of barriers on the walls and floors made
of plastic sheeting sealed at the seams. Air locks are built for entry of
personnel and equipment, and a negative pressure air filtration system is
required to prevent the escape of any asbestos fibers from the work area. The
Company constructs a worker decontamination area which is generally comprised
of a contaminated area where workers leave their contaminated clothing and
equipment, an area where the workers shower after leaving the sealed-off work
area, and a clean area where workers prepare for the work shift. Workers are
fitted with respirators and disposable suits prior to entering the work area.
Throughout the abatement process, air samples are taken to indicate the level
of airborne fibers both inside and outside the work area to protect the
workers and the building occupants. An environmental consultant, engineer or
industrial hygienist tests air samples from the work area both during and upon
completion of the project to monitor compliance with job specifications.
A thorough cleaning of the work area is conducted after removal, which
includes high-efficiency particulate air filter vacuuming and wet mopping of
all surfaces. All barriers erected during the asbestos-abatement project are
dismantled and disposed of in the same manner as asbestos waste. The Company
encapsulates the area from which asbestos was removed by applying a
penetrating encapsulant to seal off any possible remaining fibers.
The Demolition and Dismantling Process
The Company performs commercial demolition and industrial dismantling for
public and private customers throughout the United States. All work is done
in accordance with the specifications prepared by the owner and in accordance
with all OSHA, EPA, and state and federal governmental regulations. The
Company is also subject to the regulations of the Mine Safety and Health Act
("MSHA") when it conducts demolition and dismantling projects at mining
locations.
The Company performs a site specific safety survey of every project prior to
beginning work. An engineering survey of the equipment, structures, or buildings
to be dismantled or demolished is prepared outlining potential hazards and
methods to be used to alleviate the hazards. During the course of the project,
daily safety meetings are conducted to discuss that day's activities, potential
problems and measures to overcome the problems. Industrial dismantling involves
removing structures and equipment in manufacturing facilities. The Company's
workers, utilizing specially designed equipment and attachments, carefully
dismantle the structures and equipment from the top down. All materials
dismantled are either recycled or disposed of in a licensed landfill. Commercial
demolition involves demolishing high-rise office buildings, hospitals, apartment
complexes, and other buildings. The Company's workers, utilizing specialized
equipment and occasionally explosives, demolish the buildings and remove the
debris off site. All materials generated from demolition activities are either
recycled or disposed of in a licensed landfill.
During dismantling and demolition operations, recyclable metals and reusable
equipment are generated. Typically, the Company takes title to these
materials and sells them to brokers and end users. Sales proceeds from the
recyclable metals and the reusable equipment are generally part of the
Company's compensation to perform the work. After equipment, structures, and
buildings are removed in accordance with the owner's specification, the
Company demobilizes its equipment and personnel from the area.
Markets and Customers
In 1998, the Company's primary markets for its asbestos-abatement, demolition
and dismantling and other specialty contracting services were the states of
California, Illinois, Massachusetts, Minnesota, New York, Ohio, Pennsylvania,
South Carolina and Texas and the District of Columbia. The Company's
headquarters is located in Methuen, Massachusetts.
The Company believes that its primary clients, which include large industrial
processing and manufacturing corporations, insurance companies, real estate
development companies and owners and tenants of large commercial and
governmental facilities, tend to emphasize quality and safety along with price
considerations in making their decision. The Company typically contracts
directly with owners, operators or tenants of properties and works closely
with the environmental consultant of the client in performing removal
services. No single customer accounted for more than 10% of the Company's
consolidated revenue during 1998.
Following its acquisition by OHM in June 1988, the Company began performing
asbestos-abatement services for OHM, principally in connection with certain
large industrial decontamination and demolition projects performed by OHM.
Following the acquisition of the Division in May 1993, the Company began
providing asbestos-abatement services on a subcontract basis for affiliates of
WMI in connection with certain large industrial decontamination and demolition
projects performed by the WMI affiliates. The Company provides such services
on a competitive basis. Revenue for these services to the WMI affiliates
amounted to approximately $22,000 in 1998.
<PAGE>
The Company divides the market for asbestos-abatement and demolition and
dismantling services into the following categories: (1) commercial/large
residential buildings; (2) industrial facilities; and (3) institutional, which
includes schools, government buildings, airports, hospitals and other
buildings not described by another category. The following table summarizes
the Company's gross revenues by category for the periods indicated:
Years Ended December 31,
1998 1997 1996
(In thousands, except percentages)
Commercial.............. $ 46,755 47% $ 55,408 48% $ 56,299 44%
Industrial.............. 28,130 28 43,835 38 53,929 42
Institutional........... 24,826 25 16,712 14 18,815 14
$ 99,711 100% $ 115,955 100% $ 129,043 100%
The Company markets its services directly to companies that are in need of
asbestos-abatement and demolition and dismantling services, to general
contractors who oversee large renovation projects and to asbestos-abatement
consulting firms from which the Company receives asbestos project referrals
because of its reputation and experience.
Seasonality
The Company's business is subject to variations in revenue and net income for
interim periods and from year to year, and increased revenue may not always
result in a corresponding increase in net income. These conditions are due to
a number of characteristics shared by the Company to varying degrees with most
other members of the industry, including the following: 1) its businesses are
seasonal (typically less activity during the winter months) and are affected
by the scheduling of work at commercial properties, fiscal funding of projects
by government entities, outages at utilities and shutdowns at other industrial
facilities; 2) its performance on a given project is often dependent on the
performance of other contractors, who are working on the same job, over which
the Company has no control; and 3) costs ultimately incurred by the Company on
a job may be materially affected by such factors as technical problems, labor
shortages and disputes, time extensions, weather, delays caused by external
sources and fluctuations in the prices of materials. Revenue and operating
results of asbestos-abatement activities may also be affected by the timing of
large contracts, especially if all or a substantial part of the performance of
such contracts occurs within one or two quarters. The revenue and operating
results of the demolition and dismantling activities may be affected by
fluctuations in the price of scrap metals. Accordingly, quarterly results or
other interim results should not be considered indicative of results to be
expected for any other quarter or for the full fiscal year.
Competition
The market for the Company's services is highly competitive. The Company's
ability to compete as a provider of asbestos-abatement and demolition and
dismantling services depends upon pricing its services competitively, having
the ability to respond promptly and with adequate amounts of resources, having
a reputation for quality and safety, being able to obtain appropriate bonding
and insurance, and hiring, training and retaining qualified personnel,
particularly in the areas of estimating and project management. While the
Company is a significant participant in the asbestos-abatement and demolition
and dismantling services market, it continues to experience competition from
national, regional and local firms, some of which have substantial resources
and experience.
Insurance and Bonding
The Company has established an insurance program that has been tailored to
meet the mutual risk management needs of its clients and the Company. The
primary package includes commercial general liability, automobile liability
and workers' compensation policies. This plan is written with an A. M. Best
Rated A+ XV carrier. The Company has an umbrella policy, which extends
coverage to $51,000,000 per occurrence and $52,000,000 in the general
aggregate. Effective November 1, 1998 the Company's liability per occurrence
under the general liability policy is $100,000, under the automobile liability
policy is $100,000 and under the workers' compensation policy is $250,000.
Public asbestos-abatement, demolition and dismantling projects require that
the Company post surety bonds as guarantees of performance of the Company's
contractual obligations. Under the federal Miller Act, bonds are required to
protect the interests of the general public, as public funding is utilized in
project financing. Additionally, surety bonds also guarantee that the Company
will pay all of its bills, including suppliers and subcontractors who are
working on projects for the Company. Similarly, many private projects also
require surety bonds to serve as protection and provide guarantees for private
owners.
The Company has existing surety relationships with The Insurance Company of
the State of Pennsylvania (American International Group) and United Pacific
Insurance Group (Reliance Insurance Group).
Employees
As of March 15, 1999, the Company had approximately 990 employees, of which
approximately 95 are employed as managers or executives, approximately 10
provide technical or engineering services, approximately 70 are employed in
sales, clerical and data processing activities and approximately 815 are
employed in other capacities, principally hourly labor. During 1998, the
number of hourly-rate employees ranged from 900 to 1,300. As of March 15,
1999, various unions represented approximately 470 of the Company's employees
under numerous collective bargaining agreements. The Company is a party to a
number of collective bargaining agreements with several unions, which
represent employees based upon geographic area or the nature of work performed
by such employees. Such collective bargaining agreements expire at various
times. The Company considers its relations with its employees to be
satisfactory and has not experienced any work stoppages or slowdowns.
Patents and Service Marks
The Company currently does not own any patents or service marks.
Government Regulation
The federal government through the EPA, OSHA and the Department of
Transportation ("DOT") regulates the asbestos-abatement and demolition and
dismantling processes. Additionally, the demolition and dismantling process
is regulated by MSHA when conducted at mining locations. EPA's NESHAPS
regulations establish standards for the control of asbestos fiber and airborne
lead emissions into the environment during removal and demolition projects.
EPA's AHERA mandates that public schools inspect for levels of asbestos
contamination and prepare a specific management plan for appropriate remedial
action if asbestos is found. OSHA regulations establish maximum airborne
asbestos fiber, airborne lead and heavy metal exposure levels applicable to
asbestos and demolition employees and set standards for employee protection
during the demolition, removal or encapsulation of asbestos, as well as
storage, transportation and final disposition of asbestos and demolition
debris.
EPA regulations under the Clean Air Act's NESHAPS include requirements for
wetting of the asbestos-containing material, using exhaust ventilation and
filtration systems meeting certain specifications, and following procedures
for transporting and disposing of asbestos-containing material. Prior to
commencing most removal projects, contractors are required to provide the EPA
with written notification containing certain information, including the
address of the project, the anticipated starting and completion dates, methods
to be used to comply with the emission standards, the amount of
asbestos-containing material involved in the project and the location of the
EPA-approved disposal site.
The Toxic Substances Control Act ("TSCA"), as amended by AHERA, and the
regulations promulgated pursuant thereto, require inspection of schools for
asbestos and public notice of the inspection results, which often leads to
demands for abatement. In addition, TSCA imposes asbestos exposure standards
for state and local government employees. The EPA has also adopted
regulations under AHERA which require schools to use accredited inspectors to
inspect school buildings for asbestos-containing materials. If
asbestos-containing materials are found and are damaged, the school must
develop an asbestos management plan, which outlines its management practices
for the materials. Response actions may include encapsulation, enclosure,
repair or removal of the asbestos-containing materials by an accredited
contractor. The AHERA regulations impose affirmative obligations on the
accredited contractor who performs the work on school building projects.
These obligations include proper worker, employee and occupant protections.
In addition, AHERA incorporated the NESHAPS standards for packaging,
transportation and disposal of asbestos waste. If the asbestos-containing
material is not damaged, continued inspection and monitoring by the school is
required.
OSHA regulations establish maximum airborne asbestos, airborne lead and heavy
metal exposure levels in the workplace for employees, including
asbestos-abatement and demolition and dismantling workers. Such regulations
require workplace air monitoring to ensure compliance with maximum exposure
levels and prescribe engineering controls and workplace practices intended to
reduce airborne asbestos, lead and heavy metal exposure in the workplace.
Included in the workplace practice provisions is the required use of
appropriate respirators, protective clothing and decontamination units for the
asbestos-abatement and demolition and dismantling worker exposed to certain
levels of asbestos or lead and heavy metals.
DOT regulations cover the management of the transportation of asbestos and
demolition debris and establish certain certification, labeling and packaging
requirements. In addition, under the Comprehensive Environmental Response
Compensation and Liability Act, also known as the Superfund Act, companies
which arrange for the transportation and disposal of asbestos waste materials
may be exposed to liability relating to the disposal of such material at sites
which are or may be designated as national priority list sites.
Each of the states in which the Company currently operates has adopted laws
and regulations governing the conduct of asbestos-abatement contractors. Such
laws and regulations generally require: 1) training and licensing of
asbestos-abatement contractors and their workers, 2) notice before the
commencement of any asbestos-abatement project and 3) standards of performance
for the asbestos removal process. In addition, some states authorize
municipalities to adopt more stringent standards.
The Company believes that additional state and local authorities may adopt
similar laws and regulations and that existing laws and regulations may become
more restrictive. The regulations concerning asbestos-abatement are primarily
promulgated on the state and local level. Although subject to change, OSHA
has adopted final regulations as law. Many of the regulations are complex and
frequently amended and, therefore, the Company is unable to predict what, if
any, impact such regulations will have on its results of operations or
financial condition. As a result of the extensive regulation, the Company and
its subsidiaries are, have been and may in the future be, subject to audits
and investigations by federal, state and local governmental agencies. Because
of the changing regulatory environment, there can be no assurance that
violations by the Company of federal, state or local laws and regulations
applicable to asbestos removal will not occur in the future or that changes in
such laws and regulations would not have an adverse effect on the Company's
business. Failure to comply with regulations could result in the imposition
of civil and criminal penalties, any of which could have a material adverse
effect upon the Company's business.
Licensing Requirements
Most states in which the Company operates require that the Company obtain
licenses to provide asbestos-abatement services, deleading services and
demolition/dismantling services. These licenses are generally subject to
annual renewal. The Company has been able to obtain the renewal of its
licenses without unusual difficulty or delay, and the Company believes that it
is in compliance with all current state licensing requirements in states where
the Company intends to conduct business. Furthermore, the Company is in
compliance in those states that have adopted regulations requiring
state-specific training, testing and licensing of employees engaging in
asbestos-abatement, deleading or demolition/dismantling activities.
Backlog
The majority of the Company's asbestos-abatement and demolition and
dismantling services are contracted on a fixed-price basis, while the
remainder is contracted either on a time and materials or a unit-price basis.
The unearned services portion of the Company's asbestos-abatement and
demolition and dismantling services contracts and unfilled orders was
approximately $35,696,000, $33,902,000 and $38,875,000 at December 31, 1998,
1997 and 1996 respectively. Up to $1,875,000 of the Company's backlog at
December 31, 1998 may not be earned during 1999. The remaining amount of the
Company's backlog at December 31, 1998 is expected to be completed in the
current calendar year.
<PAGE>
Item 2. Properties
The Company currently leases property to support its operations. These
facilities provide space for sales and marketing functions and operations
management and support. The Company believes that its existing facilities are
adequate to meet current requirements and that suitable additional or
substitute space will be available as needed to accommodate any expansion of
operations and for additional offices. The following table summarizes the
Company's properties:
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Square
Location Principal Use Footage
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Lombard, IL Offices and Warehousing 30,000
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Houston, TX Offices and Warehousing 24,240
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Aston, PA Offices and Warehousing 16,800
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Oakland, CA Offices and Warehousing 11,100
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San Antonio, FL Offices and Warehousing 10,800
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Methuen, MA Offices and Warehousing 10,000
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Arden Hills, MN Offices and Warehousing 9,654
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Methuen, MA Corporate Headquarters 9,500
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Denver, CO Offices and Warehousing 5,724
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Orange, CA Offices and Warehousing 5,530
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Salisbury, NC Offices 5,400
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Winfield, WV Offices and Warehousing 5,000
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Cincinnati, OH Offices and Warehousing 4,000
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Salem, NH Offices and Warehousing 3,850
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Wausau, WI Offices and Warehousing 2,400
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Baton Rouge, LA Offices and Warehousing 1,250
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Massena, NY Offices *
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Orange, TX Offices *
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Dallas, TX Offices *
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* These facilities consist of less than 1,000 square feet.
The Company's aggregate rental payments for leased office and warehouse space
approximated $900,000 in 1998.
<PAGE>
Item 3. Legal Proceedings
On or about September 4, 1998 the Company became aware of certain issues
relating to state licensing for its employees at an asbestos abatement project
in South Carolina. The Company has brought the matter to the attention of the
South Carolina Department of Health and Environmental Control. The Company is
cooperating with such agency. No civil or criminal charges have been filed
against the Company in this matter.
In addition to the above matter, the Company is subject to certain legal
proceedings, including those relating to regulatory compliance, in the
ordinary course of business. Management believes that such proceedings are
either adequately covered by insurance or if uninsured, will not, in the
aggregate, have a material adverse effect upon the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
Executive Officers of the Registrant
The executive officers of the Company as of March 19, 1999 are listed below:
Darryl G. Schimeck 38 Chairman, President and Chief Executive Officer
Efstathios A. Kouninis 37 Vice President of Finance, Corporate Controller,
Treasurer and Secretary
Darryl G. Schimeck has been Chairman, President and Chief Executive Officer
since May 4, 1998, President and Chief Operating Officer since December 5,
1996, President of NSCI since July 10, 1995 and Vice President, Sales and
Marketing since February 1995. Prior to joining the Company, Mr. Schimeck
served as Senior Vice President of Growth Environmental Services, Inc. from
August 1994 through January 1995. Prior to that, Mr. Schimeck was President
of Rust Scaffold Rental and Erection, Inc. from July 1993 through July 1994.
Efstathios A. Kouninis has been Vice President of Finance, Corporate
Controller, Treasurer and Secretary since December 11, 1997, Corporate
Controller, Treasurer and Secretary since August 7, 1997, Corporate Controller
since February 1996, and Director of Tax and Internal Audit since September
1994. Prior to joining the Company, Mr. Kouninis served in accounting
positions of increasing responsibility for Wheelabrator Technologies Inc.
since November 1991.
<PAGE>
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Common Stock is admitted for trading on the National Association of
Securities Dealers Automatic Quotation System, National Market System
("NASDAQ"). As of March 24, 1999 there were approximately 538 holders of
record of the Common Stock. The Company did not pay a dividend in 1998.
During December 1997, the Company declared and paid a cash dividend of $0.15
per share of Common Stock. Pursuant to the Company's revolving credit
facility, as amended, the Company must comply with certain financial covenants
for the declaration and payment of any cash dividends. Under the Merger
Agreement, the Company is not permitted to declare or pay any dividends on
the Common Stock so long as the Merger Agreement remains in effect. The
Common Stock does not have any preemptive rights.
NASDAQ has advised the Company that the Common Stock does not qualify for
continued listing for trading on the NASDAQ. The Company has been in
discussions with representatives of NASDAQ in an effort to postpone action by
NASDAQ in respect of this situation pending completion of the Merger. On
March 12, 1999 the continued listing of the Common Stock was considered in a
written hearing by a panel of representatives of NASDAQ. As of March 26, 1999
the Company has not been informed of the hearing panel's decision. If the
Company's efforts are unsuccessful, it is likely that the marketability of the
Common Stock would be materially and adversely affected.
The table below sets forth, for the calendar quarters indicated, the reported
high and low closing sales prices of the Common Stock as reported by NASDAQ
based on published financial sources:
1998 1997
Quarter Ended High Low High Low
December 31........ $1.00 $0.97 $ 2.88 $1.75
September 30....... 1.19 1.06 3.00 1.94
June 30............ 1.97 1.84 2.50 1.50
March 31........... 2.19 1.75 3.22 2.38
<PAGE>
Item 6. Selected Financial Data
(a) The Consolidated Five year Summary of Results of Operations for each of the
last five years ended December 31 is set forth below:
(In thousands, except per-share data)
Years Ended December 31, 1998 1997 1996 1995 1994
- ------------------------------------ ------- -------- -------- -------- --------
Revenue........................... $99,711 $115,955 $129,043 $124,529 $132,218
Gross profit...................... 15,878 11,027 22,589 19,447 21,716
Write-down of assets held for sale (158) 2,843 830 - -
Operating income (loss)........... 650 (7,762) 3,531 1,859 5,101
Net income (loss)................. $ 446 $(4,994) $ 1,861 $ 715 $ 2,566
Basic and diluted earnings per
share (1)........................ $ 0.04 $ (0.50) $ 0.19 $ 0.07 $ 0.26
Weighted average number of common
shares outstanding............... 9,971 9,971 9,971 9,971 9,971
Cash dividends declared per common
share (2)......................... $ - $ 0.15 $ 0.15 $ 0.15 $ 0.15
(b) The consolidated five year summary of financial position as of December 31,
is set forth below:
December 31, 1998 1997 1996 1995 1994
- ------------------------------------- -------- -------- ------- ------- --------
(In thousands)
Total assets....................... $ 72,200 $ 74,489 $85,560 $ 87,161 $88,287
Goodwill, net of accumulated
amortization...................... 34,075 35,175 36,275 36,872 37,938
Assets held for sale............... 313 1,653 475 - -
Non current liabilities, including
current portion of long-term
obligations....................... 6,811 5,253 7,610 7,421 10,588
(1) In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". SFAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share amounts for 1998, 1997, 1996, 1995 and
1994 have been computed by dividing net income (loss) by the
weighted-average number of common shares outstanding during the
respective periods. Diluted earnings per share, after applying the
treasury stock method, equals basic earnings per share and,
accordingly, have not been separately presented.
(2) In December 1997, 1996, 1995 and 1994, the Company declared and paid a
cash dividend of $0.15 per common share.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In accordance with the Private Securities Litigation Reform Act of 1995, the
Company notes that statements that look forward in time, which include
everything other than historical information, involve risks and uncertainties
that may affect the Company's actual results of operation. Factors that
could cause actual results to differ materially include the following (among
others): regulatory changes, technological advances, labor shortages and
disputes, technical problems, time extensions and/or delays in projects caused
by external sources, weather conditions, the condition of the U.S economy, and
other factors listed from time to time in the Company's filings with the
Securities and Exchange Commission. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date of this report.
Results of Operations
1998 vs. 1997
Revenue. The Company's consolidated revenue for the year ended December 31,
1998 decreased 14% to $99,711,000 from $115,955,000 for the same period in
1997. This decrease was due to a $12,020,000 decrease in asbestos-abatement
related revenue and a $4,224,000 decrease in demolition related revenue. The
decrease in revenue was due to competitive pricing pressures in the bidding
process resulting in the Company's decreased success in securing new work.
The 1998 results are not indicative of results to be expected for any upcoming
year.
Gross Profit. Gross profit increased to $15,878,000 in 1998 from $11,027,000
for the same period in 1997. The increase in gross profit in 1998 is due to
recognition, in 1997, of losses on certain projects, the write down adjustment
of scrap process equipment and increased provision for general liability loss
related to the unfavorable resolution of one significant claim. Gross profit
as a percentage of revenue increased to 16% in 1998 from 10% in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the year ended December 31, 1998
decreased $1,109,000 or 7% to $14,624,000 from $15,733,000 for the same period
in 1997. The decrease in SG&A expenses was the result of a decrease in
salaries, legal expenses and other outside services, partially offset by
increases in provision for bad debt. SG&A expenses as a percentage of revenue
for 1998 increased to 15% from 14% in 1997 due to lower revenue activity.
Write Down of Assets Held for Sale. In 1998, the Company sold its Methuen,
Massachusetts headquarters property for $158,000 more than its adjusted
carrying value. As discussed below, the Company recorded a write down on this
asset in 1997.
Other Operating Income (Expenses). ODMI manages the business of ODC, an
affiliate of WMI, and is required to share with the WMI affiliate any operating
profits or losses. For 1998, the amount due from the WMI affiliate was $338,000
compared to $887,000 due from the WMI affiliate for the same period in 1997.
Equity Income of Unconsolidated Joint Venture. In 1998, the Company
recognized $75,000 as its share of the net income of a joint venture formed
during the year to pursue re-industrialization and decontamination and
decommissioning opportunities in the Department of Energy market.
Other Income. Other Income was $206,000 in 1998 compared to $189,000 in 1997.
This difference is mainly due to increased gains on sales of assets offset by
increased interest expense on assets under capital leases.
Net Income (Loss). Net income was $446,000 in 1998 compared to a net loss of
$4,994,000 in 1997. The change is attributable to increased gross profit,
lower SG&A expenses, a sale of real property at an amount higher than its
carrying value and the write down adjustment, in 1997, of the carrying value
of real property and scrap process equipment as discussed elsewhere herein.
Net income (loss) as a percentage of revenue was 0.5% compared to (4%) in 1997.
<PAGE>
1997 vs. 1996
Revenue. The Company's consolidated revenue for the year ended December 31,
1997 decreased 10% to $115,955,000 from $129,043,000 for the same period in
1996. This decrease was due to a $6,878,000 decrease in asbestos-abatement
related revenue and a $6,210,000 decrease in demolition related revenue. The
decrease in revenue was due to competitive pricing pressures in the bidding
process resulting in the Company's decreased success in securing new work.
The 1997 results are not indicative of results to be expected for any upcoming
year.
Gross Profit. Gross profit decreased to $11,027,000 in 1997 from $22,589,000
for the same period in 1996. The decrease in the gross profit was the result
of lower revenue, losses on certain projects, the write down adjustment of
scrap process equipment and an increased provision for general liability loss
related to the unfavorable resolution of one significant claim. Gross profit
as a percentage of revenue decreased to 10% in 1997 from 18% in 1996.
Selling, General and Administrative Expenses. SG&A expenses for the year ended
December 31, 1997 decreased $698,000 or 4% to $15,733,000 from $16,431,000 for
the same period in 1996. The decrease in SG&A costs was the result of a
decrease in salaries and legal expenses, partially offset by increases in the
bad debt reserves and consulting services associated with new software
implementation. SG&A expenses as a percentage of revenue for 1997 increased
to 14% from 13% in 1996 due to lower revenue.
Write Down of Assets Held for Sale. The Company wrote-down to market the value
of certain real property and equipment that no longer fit its strategic
plans. A certified independent appraiser was engaged to determine the market
value of the real property. The write-down of the properties and equipment
amounted to $2,843,000 and $830,000 in 1997 and 1996, respectively.
Other Operating Income (Expenses). For 1997, the amount due from the WMI
affiliate as a consequence of ODC was $887,000, compared to $700,000 due to
the WMI affiliate for the same period in 1996.
Other Income. Other Income was $189,000 in 1997 compared to $195,000 in 1996.
This difference is mainly due to the elimination of interest expense
associated with the Company's long-term debt, which was repaid in full on
March 21, 1996, partially offset by losses on sales of certain assets.
Net (Loss) Income. Net income decreased to net loss of ($4,994,000) from net
income of $1,861,000 in 1996. The decrease in net income is attributable to
lower revenue, losses on certain projects, the write down adjustment of scrap
process equipment and the recognition of non-recurring charges. These charges
amounted to $3,204,000 after tax and were related to the designation for sale
of certain real estate, the sale of idle equipment and an increase in the
reserves for self-insurance claims and taxes. Net (loss) income as a
percentage of revenue was (4%) compared to 1.4% in 1996.
Liquidity and Capital Resources
Working capital at December 31, 1998 was $20,395,000 compared to $16,826,000
at December 31, 1997. The current ratio was 2.5/1 compared to 1.9/1 at
December 31, 1997. Cash used in operating activities was $5,402,000 compared
to cash provided by operating activities of $7,155,000 for 1997. The increase
in cash used in operations is primarily due to timing issues in the billing
and collection process and accelerated vendor payments.
During 1998, cash of $1,553,000 was used for purchases of property and
equipment. Pursuant to the Olshan Business Operating Agreement, dated April
20, 1995, the Company has received to date a $4,520,000 interest-free working
capital loan. The loan is payable according to the provisions contained in
that agreement.
The Company believes that its cash flows from operations and funds available
under the existing senior revolving credit facilities (see Note 6 of the notes
to the consolidated financial statements included elsewhere herein), as
amended on March 23, 1999, will be sufficient through the date of the
consummation of the proposed Merger to finance its working capital needs and
planned capital expenditures. In the event that the Merger is not
consummated, the Company will endeavor to obtain financing for its capital
expenditure needs and may, among its alternatives, seek a new debt facility.
WMI will assist the Company in this regard by guaranteeing some or all of the
Company's outstanding debt obligations.
As discussed further in Note 11, the nature and scope of the Company's
business bring it into regular contact with the general public and a variety
of businesses and government agencies. Such activities inherently subject the
Company to the hazards of litigation, which are defended in the normal course
of business. While the outcome of all claims is not clearly determinable at
the present time, management has recorded an estimate of any losses it expects
to incur in connection with the resolution of the claims, including but not
exclusively workers' compensation and general liability claims, at December
31, 1998 of $5,013,000 and at December 31, 1997 of $6,403,000.
Year 2000
In 1996, the Company began upgrading its financial and decision support
systems to, in part, comply with Year 2000 requirements. This process is now
complete and the Company believes that such systems are Year 2000 compliant.
In addition to $820,000 of capital costs for new hardware and software
incurred project-to-date, consulting and training expenses of $264,000,
$223,000 and $135,000 were incurred with respect to system upgrades, including
Year 2000 compliance, in 1998, 1997 and 1996, respectively. The Company
believes that these expenditures will adequately address any Year 2000 issues
associated with the Company's operations. The Company has been in contact
with its bank and several of its more significant customers and vendors to
determine the extent to which the Company's interface systems are vulnerable
to those third parties' failure to remedy their own Year 2000 issues. There
is no guarantee that the systems of other companies on which the Company's
systems rely will be converted. Even assuming that such conversions do not
occur, the Company does not believe that any such third party system failures
will have a material adverse effect on the Company given the nature of the
Company's business, which is not computer dependent in any material aspect.
Market Risk Factors
The Company's exposure to interest changes is limited to its revolving credit
facility which bears interest at a variable rate based on the Eurodollar rate.
At December 31, 1998, the Company had no outstanding borrowings under the
revolving credit facility; however, the Company's borrowing capacity was reduced
by letters of credit outstanding as of March 23, 1999 in the amount of
$4,725,000. The Company has no plans for future borrowings under the facility
but may use the facility if cash flow circumstances warrant. The Company's
working capital loan from an affiliate is non-interest bearing and its capital
leases have fixed payment terms. The Company does not enter into derivative or
interest rate transactions. Based on the above, the Company believes that
changes in interest rates would not have a significant effect on net income or
cash flow.
Except for the working capital loan described above, the fair values of the
Company's financial instruments approximate their respective carrying
amounts. The Company estimates the fair value of the working capital loan to
be $2,815,000, compared to a carrying value of $4,520,000, based on a
discounted cash flow analysis using the Company's incremental borrowing rate.
Inflation
Historically, inflation has not had a significant impact upon the Company or
its cost of operations.
<PAGE>
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and supplementary consolidated quarterly
financial data of the Company and its subsidiaries for the years ended December
31, 1998, 1997 and 1996 are set forth on pages 19 through 22.
<PAGE>
NSC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
December 31,
----------------------
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents........................ $ 3,634 $ 8,781
Accounts receivable, net......................... 22,146 20,590
Costs and estimated earnings on contracts
in process in excess of billings................ 4,270 1,969
Inventories...................................... 1,058 1,157
Prepaid expenses and other current assets........ 2,425 1,565
Deferred income taxes............................ 758 844
---------- ---------
34,291 34,906
Property and equipment, net........................ 3,296 2,755
Other noncurrent assets:
Assets held for sale ............................ 313 1,653
Investment in unconsolidated joint venture....... 225 -
Goodwill, net of accumulated amortization of
$9,084 and $7,984 in 1998 and 1997, respectively 34,075 35,175
---------- ---------
34,613 36,828
---------- ---------
Total assets $ 72,200 $ 74,489
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 2,471 $ 4,942
Billings in excess of costs and estimated
earnings on contracts in process................ 4,369 3,274
Accrued compensation and related costs........... 2,141 1,760
Federal, state and local taxes................... (776) 273
Other accrued liabilities........................ 569 1,428
Reserve for self insurance claims and other
contingencies................................... 5,013 6,403
Current portion of long-term obligations......... 109 -
---------- ---------
13,896 18,080
Noncurrent liabilities:
Long-term obligations............................ 288 -
Payable to affiliate............................. 4,520 4,520
Deferred income taxes............................ 1,894 733
Stockholders' equity:
Preferred stock $.01 par value, 10,000,000 shares
authorized, none issued and outstanding......... - -
Common stock $.01 par value, 20,000,000 shares
authorized, 9,971,175 shares issued and
outstanding in both 1998 and 1997............... 100 100
Additional paid-in capital....................... 56,079 56,079
Accumulated deficit.............................. (4,577) (5,023)
---------- ---------
51,602 51,156
---------- ---------
Total liabilities and stockholders' equity $ 72,200 $ 74,489
========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NSC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
Years Ended December 31,
-----------------------------------
1998 1997 1996
---------- --------- ----------
Revenue..................................... $ 99,711 $115,955 $129,043
Cost of services............................ 83,833 104,928 106,454
--------- --------- ---------
Gross profit............................... 15,878 11,027 22,589
Selling, general and administrative expenses (14,624) (15,733) (16,431)
Write down of assets held for sale.......... 158 (2,843) (830)
Other operating income (expense)............ 338 887 (700)
Goodwill amortization....................... (1,100) (1,100) (1,097)
--------- --------- ---------
Operating income (loss).................... 650 (7,762) 3,531
--------- --------- ---------
Equity in income of unconsolidated joint
venture.................................... 75 - -
Other:
Interest expense........................... (51) (23) (112)
Other income............................... 257 212 307
--------- --------- ---------
206 189 195
--------- --------- ---------
Income (loss) before income taxes.......... 931 (7,573) 3,726
Income tax expense (benefit)................ 485 (2,579) 1,865
--------- --------- ---------
Net income (loss).......................... $ 446 $ (4,994) $ 1,861
========= ========= =========
Basic and diluted earnings per share........ $ 0.04 $ (0.50) $ 0.19
========= ========= =========
Weighted-average number of common shares
outstanding................................ 9,971 9,971 9,971
======== ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except per-share data)
Common Stock
---------------
Number Additional Total
of Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------- ------- --------- --------- ------------
Balance at January 1, 1996 9,971 $ 100 $56,079 $ 1,102 $ 57,281
------- ------- --------- --------- ------------
Net income................. - - - 1,861 1,861
Cash dividend declared
($0.15 per share)......... - - - (1,496) (1,496)
------- ------- --------- --------- ------------
Balance at December 31, 1996 9,971 $ 100 $56,079 $ 1,467 $ 57,646
------- ------- --------- --------- ------------
Net loss................... - - - (4,994) (4,994)
Cash dividend declared
($0.15 per share)......... - - - (1,496) (1,496)
------- ------- --------- --------- ------------
Balance at December 31, 1997 9,971 $ 100 $56,079 $(5,023) $ 51,156
------- ------- --------- --------- ------------
Net income................. - - - 446 446
------- ------- --------- --------- ------------
Balance at December 31, 1998 9,971 $ 100 $56,079 $(4,577) $ 51,602
======= ======= ========= ========= ============
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
------------------------------
1998 1997 1996
--------- -------- ---------
Cash flows from operating activities:
Net income (loss)............................. $ 446 $(4,994) $ 1,861
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation............................... 958 1,284 1,716
Goodwill amortization...................... 1,100 1,100 1,097
Deferred income taxes...................... 1,247 (2,866) (996)
(Gain) loss on disposition of property and
equipment................................. (9) 145 194
(Gain) loss on impairment of assets held for
sale...................................... (158) 2,843 830
Equity in income of unconsolidated joint
venture................................... (75) - -
Changes in assets and liabilities, net of
effects of acquired business:
Accounts receivable, net..................... (1,556) 6,269 266
Costs and estimated earnings on contracts
in process in excess of billings............ (2,301) 5,770 155
Other current assets......................... (761) (172) 235
Accounts payable............................. (2,471) 1,494 385
Billings in excess of costs and estimated
earnings on contracts in process............ 1,095 (1,963) 1,305
Other current liabilities.................... (2,917) (1,755) (296)
--------- -------- ---------
Net cash (used in) provided by operating
activities (5,402) 7,155 6,752
--------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment........... (1,156) (929) (2,024)
Proceeds from sale of property and equipment.. 1,561 76 268
Investment in joint venture................... (150) - (718)
--------- -------- ---------
Net cash used in investing activities 255 (853) (2,474)
--------- -------- ---------
Cash flows from financing activities:
Payments on long-term debt.................... - - (5,850)
Proceeds of loan from affiliate............... - - 2,949
Cash dividend paid............................ - (1,496) (1,496)
--------- -------- ---------
Net cash provided by (used in) financing
activities - (1,496) (4,397)
--------- -------- ---------
Net (decrease) increase in cash and cash
equivalents............................... (5,147) 4,806 (119)
Cash and cash equivalents at beginning of periods 8,781 3,975 4,094
--------- -------- ---------
Cash and cash equivalents at end of periods...... $ 3,634 $ 8,781 $ 3,975
========= ======== =========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NSC Corporation
Notes to Consolidated Financial Statements
December 31, 1998
Note 1 - Organization and Summary of Significant Accounting Policies
Organization and Basis of Presentation. The accompanying consolidated financial
statements include the accounts of NSC Corporation (the "Company") and its
wholly-owned subsidiaries, National Surface Cleaning, Inc. ("NSCI"), National
Service Cleaning Corp. ("NSCC"), NSC Energy Services, Inc. ("NSCESI"), NSC
Specialty Coatings, Inc. ("NSCSCI") and Olshan Demolishing Management, Inc.
("ODMI") - see Note 9 - "Transactions with Affiliates". All intercompany
transactions have been eliminated in consolidation. The Company is a Delaware
corporation and was a seventy percent-owned subsidiary of OHM Corporation
("OHM") through May 3, 1993. On May 4, 1993, pursuant to a Purchase Agreement
among the Company, NSC Industrial Services Corp., a wholly owned subsidiary of
the Company ("Industrial"), OHM, Waste Management Inc. ("WMI") and The Brand
Companies Inc., an affiliate of WMI ("Brand") the Company acquired the
asbestos-abatement division of Brand (the "Division") in exchange for 4,010,000
shares of the Company's common stock and all of the common stock of Industrial.
On April 20, 1995 the Company entered into an Interim Management and Operating
Agreement with Rust International Inc, an affiliate of WMI ("Rust"), under
which the Company, through ODMI, assumed the management of Olshan Demolishing
Company ("ODC"), a Rust subsidiary specializing in demolition and dismantling,
primarily in the industrial market. As of December 31, 1997 and 1996, OHM and
the WMI affiliate each owned approximately forty percent of the Company's common
stock. Effective March 6, 1998, as a result of a transaction between OHM and
International Technology Corporation ("IT"), OHM distributed its shares of the
Company's common stock to its shareholders of record on February 24, 1998. As
a result of this transaction, WMI is the owner of approximately fifty-four
percent of the Company's common stock.
The Company has entered into an Agreement and Plan of Merger dated as of
February 12, 1999, by and among NSC Holdings, Inc.("Holdings"), NSC Acquisition,
Inc. ("Merger Subsidiary"), the Company and WMI pursuant to which Merger
Subsidiary will be merged with and into the Company, with the Company continuing
as the surviving corporation. Neither Holdings nor Merger Subsidiary has any
prior affiliation with the Company or WMI. Pursuant to the Merger Agreement,
each share of the Company's common stock issued and outstanding at the effective
time of the Merger (other than shares held by the Company and stockholders, if
any, who properly exercise their appraisal rights under Delaware law) will be
converted into the right to receive $1.12 per share in cash. Consummation of the
Merger is subject to certain conditions, including approval and adoption of the
Merger Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock.
The Merger Agreement also contemplates that, immediately prior to the effective
time of the Merger, WMI will cause its affiliates to exchange 996,420 shares of
the Company's Common Stock (the "Exchanged Shares") for an interest bearing
subordinated promissory note issued by the Company in the principal amount of
$1,115,990, representing $1.12 per share times the number of Exchanged Shares.
All remaining shares of the Company's common stock owned by WMI and its
affiliates will be converted in the Merger into the right to receive $1.12 per
share in cash. In addition, the Merger Agreement contemplates that, immediately
prior to the effective time of the Merger, WMI will cause ODC to sell certain
machinery and equipment to ODMI. In consideration for such assets, all of the
Company's existing non-interest bearing indebtedness (currently approximately
$4.5 million) owed to an affiliate of WMI will be converted into an interest
bearing subordinated promissory note issued by the Company in the principal
amount of $2.4 million.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those estimates, and
such differences may or may not be material.
Revenue and Cost Recognition. The Company derives its revenues primarily from
providing asbestos-abatement, demolition and dismantling and other specialty
contracting services under fixed-price, time and materials and unit price
contracts. In addition, certain revenue is derived from the sale of scrap
metals and processing equipment removed from demolition sites. The Company
recognizes revenues and related income from its fixed- and unit-price
contracts in process using the percentage-of-completion method of accounting.
The Company determines the percentage-of-completion of its contracts by
comparing costs incurred to date to total estimated costs. Revenues from time
and material-type contracts are recorded based on costs incurred. Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Revenues are recognized for amounts under pending
claims when management believes it is probable the claim will result in
additional contract revenues and the amount can be reliably estimated.
Contract costs include all direct labor, material, per diem, subcontract and
other direct and indirect costs related to the contract performance. Selling,
general and administrative expenses are charged to expense as incurred. The
asset "costs and estimated earnings on contracts in process in excess of
billings" represents revenues recognized in excess of amounts billed. The
liability "billings on contracts in process in excess of costs and estimated
earnings" represents billings in excess of revenues recognized.
Direct Subcontract Costs. The Company incurs a substantial amount of direct
subcontract costs, which are passed through to its clients. These costs
result from the use of subcontractors on projects for labor, transportation
and disposal of asbestos materials, analytical and restoration services, and
other removal-related services. The direct subcontract costs were
$21,952,000, $30,319,000, and $25,240,000 for 1998, 1997 and 1996,
respectively, and are included in Costs of Services in the Consolidated
Statement of Operations for each year.
Inventories. Inventories consist primarily of operating supplies and are
stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is provided over the estimated useful lives (3 to 30 years) of
the respective assets using the straight-line method.
Goodwill. Goodwill is amortized, generally on a straight-line basis, over a
40-year life and is reviewed on an ongoing basis by the Company's management
based on several factors, including the Company's projection of undiscounted
operating cash flows. If an impairment of the carrying value were to be
indicated by this review, the Company would adjust the carrying value of
goodwill to its estimated fair value.
Long Lived Assets. The adoption by the Company in 1996 of SFAS No. 121,
"Accounting for the impairment of Long Lived Assets to be Disposed Of" did not
materially affect the Company's consolidated financial statements. In the
event that facts and circumstances indicate that any of the Company's
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If after such evaluation it is determined that an asset is
impaired, the carrying value of the asset would be reduced to fair value.
SFAS No. 121 requires that assets held for sale or disposal are carried at the
lower of carrying amount or fair value less costs to sell, and prohibits
depreciation from being recorded during the periods in which the asset is
being held for sale or disposal.
Income Taxes. The Company provides for income taxes based upon earnings
reported for financial statement purposes. Deferred tax assets and
liabilities are determined based on temporary differences between the
financial reporting and tax base of assets and liabilities.
Stock Compensation. Effective January 1, 1996, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No.123 requires the
recognition of, or disclosure of, compensation expense for grants of stock
options or other equity instruments issued to employees based on the fair
value at the date of grant. As permitted by SFAS No. 123, the Company elected
the disclosure requirements instead of recognition of compensation expense and
therefore will continue to apply existing accounting rules.
Cash Equivalents and Cash Flow Information. The Company considers all highly
liquid investments having a maturity of three months or less when purchased to
be cash equivalents. Cash equivalents are stated at cost, which approximates
fair market value. Cash paid for income taxes was $223,000, $1,211,000, and
$2,007,000 for 1998, 1997, and 1996, respectively. No interest was paid,
under the credit facility, in 1998 and 1997; $112,000 was paid in 1996.
Earnings Per Share. In 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share". SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Basic earnings per share amounts for 1998, 1997 and 1996 have been
computed by dividing net income (loss) by the weighted-average number of
common shares outstanding during the respective periods. Diluted earnings per
share, after applying the treasury stock method, approximates basic earnings
per share and, accordingly, have not been separately presented.
New Accounting Pronouncements. The Financial Accounting Standards Board has
issued Financial Accounting Standards Board Statement No. 130 "Reporting
Comprehensive Income" ("FAS 130") and Statement No. 131 "Disclosure about
Segments of an Enterprise and Related Information" ("FAS 131") in 1997 and
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133") in 1998. FAS 130 and FAS 131 were adopted for the
Company's 1998 financial statements. FAS 130 and FAS 131 had no impact on the
Company's financial condition or results of operations. FAS 133 must be
adopted for the Company's year 2000 financial statements. The Company
anticipates that FAS 133 will have no impact on the Company's reported
financial condition or results of operations.
Reclassifications. Certain reclassifications have been made to prior year
financial statements to conform to the current year presentation.
<PAGE>
Note 2 - Accounts Receivable
Accounts receivable are summarized as follows:
December 31,
-----------------
1998 1997
------- -------
(In thousands)
Accounts billed and due currently................ $19,586 $18,066
Retained......................................... 3,054 3,235
22,640 21,301
Allowance for uncollectible accounts............. (494) (711)
$22,146 $20,590
The retained receivables at December 31, 1998 are expected to be collected
within one year.
Note 3 - Costs and Estimated Earnings on Contracts in Process
The consolidated balance sheets include the following amounts:
December 31,
------------------
1998 1997
-------- --------
(In thousands)
Costs incurred on contracts in process............. $ 83,833 $104,928
Estimated earnings................................. 16,039 13,603
99,872 118,531
Less billing to date............................... 99,971 119,836
$ (99) $ (1,305)
Costs and estimated earnings on contracts in
process in excess of billings..................... $ 4,270 $ 1,969
Billings on contracts in process in excess of
costs and estimated earnings...................... (4,369) (3,274)
$ (99) $ (1,305)
Costs and estimated earnings on contracts in process in excess of billings
included $1,264,000 at December 31, 1998 attributable to contracts which have
not been yet finalized or to change orders in the process of being negotiated
and are net of reserves for contract revenue adjustments of $32,000 and
$363,000 at December 31, 1998 and 1997, respectively. The Company recognizes
revenue from its fixed and unit price contracts in process using the
percentage of completion method of accounting, which requires the use of
estimates. Such estimates are subject to changes throughout the duration of
the contract, as a result of factors such as technical problems, disputes,
weather, delays caused by external sources and fluctuations in the prices of
materials and scrap metals.
<PAGE>
Note 4 - Properties and Equipment
Properties and equipment were as follows:
December 31,
-----------------
1998 1997
------- -------
(In thousands)
Land ..................................... $ - $ -
Buildings and improvements ............... 300 355
Machinery and equipment .................. 8,302 6,527
Projects in progress ..................... 21 641
8,623 7,523
Accumulated depreciation.................. (5,327) (4,768)
Properties and equipment, net ............ $3,296 $2,755
In 1997, the Company wrote-down to market the carrying value of its Methuen,
MA headquarters property, which no longer fits in its strategic plans. In
1998, the Company sold this property realizing $158,000 more than its adjusted
carrying value. In 1996, properties in Hammond, IN and Windsor, CT were
written down to market. The write-down of properties held for sale amounted to
$2,712,000 and $830,000 in 1997 and 1996, respectively. The Windsor, CT
property was sold in 1997. Also, in 1997, the Company wrote down equipment
and recognized a loss of $131,000. Expenditures of $444,000 and $306,000 were
incurred towards the implementation of new software technology in 1998 and
1997, respectively.
Machinery and equipment at December 31, 1998 includes assets with an aggregate
carrying value of $506,773 (net of accumulated amortization of $59,754)
recorded under capital leases. Amortization of assets recorded under capital
leases is included in depreciation expense. Future minimum lease payments for
assets under capital leases at December 31, 1998 are as follows:
(In thousands)
1999.......................... $139
2000.......................... 139
2001.......................... 125
2002.......................... 50
2003.......................... 6
Total $459
Amounts representing interest 62
Present value of minimum lease payments $397
Note 5 - Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1998
and 1997 are as follows:
December 31,
-----------------
1998 1997
------- -------
(In thousands)
Deferred tax assets:
Accrued liabilities........................... $ 2,180 $ 2,847
Allowance for uncollectible accounts.......... 198 285
Assets held for sale.......................... 320 1,281
Book over tax depreciation.................... 192 185
Total deferred tax assets.................. 2,890 4,598
<PAGE>
Deferred tax liabilities:
Goodwill...................................... 3,667 3,861
Contract revenue recognition.................. - -
Prepaid expenses and other assets............. 359 626
Total deferred tax liabilities............. 4,026 4,487
Net deferred tax (liabilities) assets...... $(1,136) $ 111
Significant components of the provision for income tax expenses (benefit) are as
follows:
Years Ended December 31,
------------------------
1998 1997 1996
------- -------- -------
(In thousands)
Current:
Federal................................. $ (927) $ (45) $ 2,269
State................................... 165 332 367
Total current taxes................... (762) 287 2,636
Deferred:
Federal................................. 966 (2,221) (825)
State................................... 281 (645) 54
Total deferred tax provision (benefit) 1,247 (2,866) (771)
Total income tax provision (benefit)....... $ 485 $(2,579) $ 1,865
The reasons for differences between income taxes attributable to continuing
operations and the amount computed by applying the federal statutory tax rate
(34% is the statutory tax rate for companies that have less than $10 million
of taxable income) to income from continuing operations before income taxes
are:
Years Ended December 31,
------------------------
Liability Method
------------------------
1998 1997 1996
------- -------- -------
(In thousands)
Federal statutory rate................ 34.0% (34.0)% 34.0%
Add (deduct):
State income taxes, net of federal tax
benefit............................. 11.7 (2.7) 7.4
Goodwill amortization................ 19.0 2.3 4.8
IRS audit contingency................ (14.9) - -
Other................................ 2.3 0.3 3.9
52.1% (34.1)% 50.1%
Note 6 - Credit Facility
On March 23, 1999, the Company amended its May 4, 1993 revolving credit
facility, reducing its available line from $25,000,000 to $6,000,000, and
extending its expiration from April 30 to June 30, 1999. The amended
revolving credit facility contains debt service coverage, leverage and
interest covenants and allows for payment of dividends subject to certain
conditions. Amounts outstanding under the facility bear interest of 150 to
225 basis points above the Eurodollar rate (the 90 day Eurodollar rate at
December 31, 1998 was 5.13%) and are secured by substantially all of the
Company's assets. There were no borrowings outstanding under this facility as
of December 31, 1998 and December 31, 1997. As of March 23, 1999, the Company
had outstanding $4,725,000 in letters of credit.
Note 7 - Capital Stock
The Company's Certificate of Incorporation authorizes the Board of Directors
to issue up to 10,000,000 shares of preferred stock, $0.01 par value, without
any further vote or action by the stockholders. As of December 31, 1998 no
preferred stock has been issued.
Pursuant to an agreement among the Company, an affiliate of WMI and OHM dated
May 4, 1993, the WMI affiliate has the right to demand registration of all or
a portion of its shares of the Common Stock of the Company. This agreement is
subject to certain conditions and limitations, including limitations as to the
frequency of exercise and the WMI affiliate's right to participate in other
registrations of the Company.
Note 8 - Stock Option Plan
The Company has a stock option plan (the "1990 Plan") which provides for the
granting of options to acquire up to 860,000 shares of the Company's common
stock. The options are issuable to directors, officers and key employees at
an exercise price not less than the fair market value of the Company's common
stock on the date of grant. The stock options granted under the 1990 Plan are
exercisable in either cumulative ratable annual installments over a four-year
period or altogether three years after the date of grant, and expire ten years
thereafter. Shares available for grants of additional stock options, under
the 1990 Plan, were 201,750, 48,750, and 151,250 for the years ended December
31, 1998, 1997, and 1996 respectively.
The following tables summarize information about the Company stock options.
1990 Plan
-------------------------
Number Option Price
of Range Per
Options Share
--------- --------------
Outstanding at January 1, 1996............ 47,250 $4.00 - $8.50
Granted................................ 690,000 2.00 - 2.06
Canceled............................... (184,500) 4.00 - 8.50
Outstanding at December 31, 1996.......... 552,750 4.00 - 6.00
Granted................................ 102,500 2.00 - 2.63
Outstanding at December 31, 1997.......... 655,250 2.00 - 6.00
Canceled............................... (153,000) 2.00 - 6.00
Outstanding at December 31, 1998.......... 502,250 2.00 - 6.00
Number of Number of
Shares Shares
Outstanding at Exercisable at Remaining
Option December 31, December 31, Contractual Option
Grant Date 1998 1998 Life Price Range
--------------------------------------------------------------------------
March 1991 2,000 2,000 2.0 years $6.00
May 1991 10,000 10,000 2.2 years $6.00
November 1991 250 250 2.5 years $4.00
May 1993 10,000 10,000 4.2 years $4.50
February 1996 57,500 32,500 6.1 years $2.00
December 1996 320,000 35,000 6.8 years $2.06
February 1997 17,500 4,375 7.1 years $2.63
August 1997 30,000 7,500 7.6 years $2.00
November 1997 55,000 13,750 7.8 years $2.38
Effective January 1, 1996 the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 requires the recognition of, or
disclosure of, compensation expenses for grants of stock options or other
equity instruments issued to employees based on the fair value at the date of
grant. Although SFAS No. 123 requires the presentation of pro forma
information to reflect the fair value method of accounting for employee stock
option grants, such information has not been presented because the pro forma
effects are not material. The initial impact on pro forma net income may not
be representative of compensation expense in future periods when the effect of
amortization of multiple awards would be reflected in the pro forma
calculation. The fair value of these options was estimated at the date of the
grant using the "Black-Scholes" method prescribed by SFAS No. 123. The
following weighted-average assumptions were used to determine the fair value:
market price of the Company's common stock of $1.00, a risk-free rate of 5%
and 6%, an expected dividend yield of 6% and a weighted-average expected life
of the option of 5 years.
Note 9 - Transactions with Affiliates
In April 1995, the Company entered into an Interim Management Agreement and
Operating Agreement (the "Agreement") with an affiliate of WMI under which the
Company, through ODMI, assumed the management of ODC, an affiliate of WMI
specializing in demolition and dismantling, primarily in the industrial
market. The term of the Operating Agreement extends through April 2005,
although the occurrence of certain conditions or events could trigger early
termination. Pursuant to the provisions of the Operating Agreement, an
affiliate of WMI provided the Company with a non-interest bearing working
capital loan, payable upon termination of the Operating Agreement, with a
possible maximum of $4,520,000 by transferring to the Company current assets
of $3,062,000 and current liabilities of $1,491,000. In 1996, the WMI
affiliate paid an additional $2,949,000 to the Company, raising the
outstanding balance of the working capital loan to $4,520,000. The results of
operations of ODMI are consolidated with the Company's results of operations.
ODMI is required to share with the WMI affiliate any operating profits or
operating losses in exchange for the right to operate ODC. For the year ended
December 31, 1998, the amount due from the WMI affiliate was $338,000,
compared to $887,000 for the same period in 1997. In 1996, $700,000 was due
to the WMI affiliate.
The Company has, from time to time, provided asbestos-abatement and related
services to OHM and its affiliates on a subcontract basis. Revenues
recognized from these affiliates for such services were $237,000 and $40,000
for 1997, and 1996, respectively. Also, in 1996 OHM provided removal and
cleaning services of waste material to the Company on a subcontract basis.
The cost for such services was $121,000.
In addition, the Company has, from time to time, provided asbestos-abatement
and related services to WMI and certain of its affiliates on a subcontract
basis. Revenues recognized for such services were $22,000, $7,000, and $84,000
for the years ended December 31, 1998, 1997, and 1996, respectively. Also,
WMI and certain of its affiliates provided scaffolding, disposal, demolition
and other related services to the Company on a subcontract basis. The cost
for such services was $770,000 and $1,503,000 for the years ended December 31,
1997 and 1996, respectively. A WMI affiliate rented demolition equipment to
the Company for which it was charged $302,000, $418,000 and $527,000 for the
years ended December 31, 1998, 1997, and 1996, respectively.
Note 10 - Employee Benefit Plans
Effective October 1, 1992, the Company adopted the NSC Corporation Retirement
Savings Plan (the "Plan"). The Plan allows employees with one year and 1,000
hours of service, from their date of hire, to make contributions, up to a
certain limit, to a trust on a tax-deferred basis under section 401(k) of the
Internal Revenue Code. The Company may, at its discretion, make profit-sharing
contributions to the Plan out of its profits for the plan years. The Company
made matching contributions of $81,000, $97,000 and $105,000 for 1998, 1997,
and 1996, respectively.
The Company's subsidiary, NSCI, has certain union employees, which are covered
by union-sponsored, collectively-bargained, multi-employer retirement plans.
Contributions to the plans were $1,113,000, $1,983,000, and $1,828,000 for
1998, 1997, and 1996, respectively.
Note 11 - Litigation, Commitments and Contingencies
The nature and scope of the Company's business bring it into regular contact
with the general public and a variety of businesses and government agencies.
Such activities inherently subject the Company to the hazards of litigation,
which are defended in the normal course of business.
The Company effectively self-insures its auto, commercial general liability
and workers' compensation risks up to $150,000, $100,000 and $250,000 per
occurrence, respectively. For claims that may exceed the self-insured
amounts, the Company has obtained commercial/excess umbrella and excess
workers' compensation stop loss coverage on a fully-insured basis. Factors
affecting the ultimate resolution of these claims against the Company,
particularly those claims related to personal injuries, are to some degree
outside the control of the Company and include, among other items,
determination of the extent of an injury or disability, the amount of ongoing
medical expenses that are necessary to treat the injury or disability, and the
uncertainty associated with damages that may be awarded in the event of a jury
trial.
In connection with the claims described in the preceding paragraphs, the
Company has an accrual balance of $5,013,000 and $6,403,000 at December 31,
1998 and 1997, respectively, which represents its estimate of loss associated
with the resolution of these claims. However, the ultimate outcome of these
claims cannot presently be determined.
The Company occupies office and warehouse space and utilizes equipment in
various locations under operating leases, the last of which expires in 2003.
Rental expense under operating leases for properties and equipment amounted to
$1,039,000, $952,000, and $956,000 for 1998, 1997 and 1996, respectively. The
lease agreements generally contain renewal provisions and escalation clauses.
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1998 are: 1999, $855,000; 2000, $643,000; 2001, $294,000; 2002,
$165,000; and 2003 $39,000.
Note 12 - Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates their fair value.
Accounts receivable and accounts payable: The carrying amounts reported in the
balance sheet for accounts receivable and accounts payable approximate their
fair value.
Long-term debt: The fair value of the Company's long-term debt is estimated
using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1998, and 1997, respectively are as follows:
1998 1997
Carrying Fair Carrying Fair
Amount Value Value Value
---------------------------------------
(In thousands)
Cash and cash equivalents.......... $ 3,634 $ 3,634 $ 8,781 $ 8,781
Accounts receivable................ 22,146 22,146 20,590 20,590
Accounts payable................... (2,471) (2,471) (4,942) (4,942)
Long-term debt..................... (4,520) (2,815) (4,520) (2,631)
<PAGE>
Note 13- Industry Segment Data
The Company operates in two principal industries - asbestos-abatement services
and demolition and dismantling services. The Company's asbestos-abatement
divisions provide asbestos and lead removal, insulation, restoration and indoor
air quality primarily to private sector clients at commercial and industrial
properties, while the Company's demolition and dismantling division provides
industrial dismantling and commercial demolition for public and private sector
customers. Intersegment sales are generally priced on a basis comparable to
sales to unaffiliated companies.
For the Years Ended December 31,
1998 1997 1996
------- ------- --------
(In thousands)
Revenue
Asbestos-Abatement....................... $87,514 $ 98,801 $105,381
Intersegment - Demolition and Dismantling 1,210 1,943 2,241
Demolition and Dismantling............... 10,522 15,183 21,251
Intersegment - Asbestos-Abatement........ 465 28 170
Total revenue....................... $99,711 $115,955 $129,043
Operating profit
Asbestos-Abatement....................... $ 5,704 $ 370 $ 6,625
Demolition and Dismantling............... (338) (1,638) 1,101
Total operating profit (loss)....... 5,366 (1,268) 7,726
Corporate expenses.......................... (4,641) (6,494) (4,195)
Interest expense............................ (51) (23) (112)
Other....................................... 257 212 307
Income (loss) before income taxes... $ 931 $ (7,573) $ 3,726
Depreciation
Asbestos-Abatement....................... $ 523 $ 1,016 $ 1,407
Demolition and Dismantling............... 221 186 63
Corporate................................ 214 82 246
Total depreciation.................. $ 958 $ 1,284 $ 1,716
Amortization
Asbestos-Abatement....................... $ 1,100 $ 1,100 $ 1,097
Demolition and Dismantling............... - - -
Corporate................................ - - -
Total amortization.................. $ 1,100 $ 1,100 $ 1,097
December 31,
------------------------------
1998 1997 1996
------- -------- -------
(In thousands)
Identifiable assets
Asbestos-Abatement....................... $56,733 $ 54,147 $ 66,919
Demolition and Dismantling............... 4,895 5,676 8,681
61,628 59,823 75,600
Corporate assets......................... 10,572 14,666 9,960
Total assets........................ $72,200 $ 74,489 $ 85,560
Capital expenditures
Asbestos-Abatement....................... $ 1,280 $ 456 $ 394
Demolition and Dismantling............... 22 358 699
Corporate................................ 251 115 931
Total capital expenditures.......... $ 1,553 $ 929 $ 2,024
<PAGE>
Note 14 - Quarterly Financial Data (Unaudited)
The following is an analysis of certain items in the consolidated statements
of operations by quarter for 1998 and 1997:
1998 First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per-share data)
Revenue............................. $ 20,808 $ 25,252 $ 28,017 $ 25,634
Gross profit........................ 3,891 3,970 4,262 3,755
Net income (loss)................... 23 379 272 (228)
Basic and diluted earnings per share $ - $ 0.04 $ 0.03 $ (0.02)
1997 First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands, except per-share data)
Revenue............................. $ 29,815 $ 31,082 $ 30,643 $ 24,415
Gross profit........................ 4,991 3,843 487 1,706
Net income (loss)................... 459 1 (2,119) (3,335)
Basic and diluted earnings per share $ 0.05 $ - $ (0.21) $ (0.34)
The Company's results of operations for the fourth quarter of 1997 reflect
additional provisions for workers' compensation losses and the write-down to
market of the carrying value of its Methuen, MA property, as well as the write
down of certain equipment. The write-down of the properties amounted to
$2,843,000 in the fourth quarter of 1997. A $158,000 adjustment of the
Methuen property impairment was recorded in the second quarter of 1998. See
Note 4 "Properties and Equipment". The loss in the fourth quarter of 1998 is
attributable to losses on certain asbestos-abatement projects.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
NSC Corporation
We have audited the accompanying consolidated balance sheets of NSC
Corporation and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule listed in the Index
at Item 14 (a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NSC Corporation
and subsidiaries at December 31, 1998 and 1997, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Boston, Massachusetts
February 12, 1999,
except for Note 6,
as to which the date is
March 23, 1999
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant
The directors of the Company are set forth below:
Positions and Other
Name Age Relationships with the Company
and Business Experience
Eugene L. Barnett 70 Director. Mr. Barnett is retired and was Vice
President of Pittway Corp., a diversified
conglomerate, from 1976 to 1992. He was
formerly Chairman and Chief Executive Officer of
Brand from 1976 through February 1991. Mr.
Barnett is a Director of Aptar Group, Inc. and
Pittway Corp.
Herbert A. Getz 43 Director. Mr. Getz is a private investor and
was formerly Senior Vice President and General
Counsel of WMI from May 1995 to July 1998.
Prior to this position, he was Vice President
and General Counsel of WMI since August 1992 and
Secretary of WMI since January 1988. Mr. Getz
also served as the Vice President, General
Counsel and Secretary of Wheelabrator
Technologies, Inc. from November 1990 to May
1993.
William P. Hulligan 55 Director. Mr. Hulligan served as Vice President
of WMI from February 1997 until his retirement
in November 1997 and now serves as a consultant
to WMI. Prior to this position, he was
Executive Vice President of Waste Management -
North America from January 1996, President of
Waste Management - Midwest from March 1993 and
President of Waste Management - East from
September 1992.
William M. R. Mapel 67 Director. Mr. Mapel is a private investor and
was formerly a Senior Vice President of
Citibank, N.A. from 1969 to 1988, where he was
employed for more than 30 years. Mr. Mapel is a
Director of Brundage, Churchill Capital
Partners, Galey & Lord, Atlantic Salmon
Federation, Quebec-Labrador Foundation and
USLIFE Income Fund, Inc.
Darryl G. Schimeck 38 Director. Mr. Schimeck has been Chairman,
President and Chief Executive Officer since May
4, 1998 and has been President and Chief
Operating Officer of the Company since December
5, 1996. Mr. Schimeck has also served as
President of NSCI since July 10, 1995.
Directors' Fees
Directors of the Company who are not employees of the Company or WMI or their
affiliates receive $22,000 per annum.
<PAGE>
Item 11. Executive Compensation
The following table shows, for the fiscal years ended December 31, 1998, 1997
and 1996, the cash compensation paid by the Company and its subsidiaries, as
well as certain other compensation paid or accrued for those years, to each of
the most highly compensated executive officers of the Company, including the
Chief Executive Officer of the Company, in all capacities in which they served:
SUMMARY COMPENSATION TABLE
Long-term
Compensation
Securities All Other
Name and Annual Compensation Underlying Compensation
Principal Position(s) Year Salary ($) Bonus($)(1) Options (#) ($) (4)
Victor J. Barnhart 1998 258,858 - - 34,784
Former Chairman of 1997 248,093 - - 9,526
the Board and Chief 1996 - - 250,000 (2) -
Executive Officer
Darryl G. Schimeck 1998 204,144 15,000 - -
Chairman of the Board, 1997 180,003 15,000 - -
President and Chief 1996 137,954 79,519 100,000 (3) 20,340
Executive Officer
Efstathios A. Kouninis 1998 127,669 22,500 - -
Vice President of 1997 99,429 37,163 57,500 (3) -
Finance, Corporate 1996 87,464 45,000 12,500 (3) -
Controller, Treasurer
and Secretary
(1) Messrs. Schimeck and Kouninis received incentive payments for continued
employment, per the terms of their respective employment agreements, of
$15,000 and $7,500, respectively, for 1998 and 1997, and $20,000 and
$15,000, respectively, for 1996. Mr. Schimeck received the full 1996
bonus and half of the 1995 bonus amounts deferred for 1996, including one
year interest on this deferred amount, in 1997.
(2) The options granted to Mr. Barnhart vest after December 5, 1999 and are
exercisable at the fair market value of the underlying securities at the
date of the grant.
(3) The options granted to Messrs. Schimeck and Kouninis vest proportionately
over a four year period and are exercisable at the fair market value of the
underlying securities at the date of the grant.
(4) "All Other Compensation" includes $20,340 for the tax gross-up associated
with relocation expenses of $44,451 reimbursed to Mr. Schimeck in 1995 and
$25,000 of relocation expenses paid to Mr. Barnhart in 1998 according to
his separation agreement. The remaining amounts in "All Other
Compensation" represent vehicle allowances.
<PAGE>
The following table sets forth information with respect to the named
executives concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value Realized Number of Securities Value of Unexercised
Shares (Market Price at Underlying Unexercised in the Money
Acquired on Exercise Less Options at FY-End($) Optons at FY-End (#)
Exercise (#) Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Victor J. Barnhart - - - 250,000 $ - $ -
Darryl G. Schimeck - - 57,500 42,500 - -
Efstathios A. Kouninis - - 33,750 36,250 - -
</TABLE>
Stock Options Granted in Last Fiscal Year
No stock options granted by the Company to the named executive officers during
1998.
Employment Agreements
The Company entered into Employment Security Agreements with each of Messrs.
Schimeck and Kouninis dated October 2, 1996, as amended on November 5, 1998.
These agreements provide the Company with the benefit of certain
non-competition provisions, and assure Messrs. Schimeck and Kouninis that each
of their base salaries as of the date of execution of the agreements will not
be reduced below that level during the period ending on December 31, 1999.
The agreements also provide that Messrs. Schimeck and Kouninis will receive
supplemental incentive payments for continued employment through 1997 and 1998
which, for Mr. Schimeck, will be the greater of 35% of his actual earned
incentive payment under applicable incentive plans or $15,000 and, for Mr.
Kouninis, a lump sum of $7,500. If the executive is terminated without cause,
he is entitled to the greater of the amount of the base salary remaining to be
paid before December 31, 1999, or one year of base salary.
The Company entered into an Employment Agreement with Mr. Barnhart dated March
12, 1997, under which the Company agreed to employ Mr. Barnhart as CEO and
Chairman of the Board until December 31, 1999. On May 4, 1998, Mr. Barnhart
resigned from the Company. In connection with his resignation, Mr. Barnhart
and the Company entered into a Separation Agreement, dated May 6, 1998. Under
this agreement, the Company receives the benefit of certain non-competition
covenants and consulting services from Mr. Barnhart. The agreement provides
Mr. Barnhart with his base salary and certain insurance benefits until
December 31, 1999 unless there is a change in control of the Company, such as
the Merger. In that case, Mr. Barnhart is entitled to the present value of
his remaining base salary. The agreement also provides Mr. Barnhart with a
$25,000 reimbursement for relocation expenses and the Company's agreement to
continue stock options previously granted to Mr. Barnhart until December 31,
1999.
Compensation Committee Interlocks and Insider Participation
Messrs. Getz, Blackwell and Mapel were members of the Compensation Committee
of the Board of Directors during 1998, none of whom are officers or former
officers of the Company.
Board Compensation Committee Report *
The primary function of the Compensation Committee is to review and approve
salaries and other benefits for executive officers of the Company and to make
recommendations to the Board of Directors with respect to the adoption of
employee benefit programs. The Compensation Committee is currently composed
of two directors, Messrs. Getz and Mapel, who are not executive officers of
the Company. Mr. Getz, however, was an executive officer of WMI, which
currently, through ownership of Rust, is the owner of approximately 54% of the
issued and outstanding Common Stock of the Company. Set forth below is a
report of Messrs. Getz and Mapel in their capacity as the Board's Compensation
Committee addressing the Company's compensation policies for 1998 as they
affected the executive officers who, for 1998, were the Company's most highly
paid executive officers.
Compensation Policies Towards Executive Officers. The majority of the
compensation received by the executive officers of the Company, as reflected
in the compensation table, consisted of a base salary, and an incentive
payment for 1998 as determined under the 1994 Management Incentive
Compensation Plan (the "Incentive Plan").
The base salaries of the executive officers were generally set at levels
recommended by the Chairman and Chief Executive Officer of the Company and
approved by the Compensation Committee. Each of the executive officers had
the opportunity to earn incentive payments under the Incentive Plan based on
the achievement of certain performance goals determined by the Compensation
Committee in conjunction with the Company's annual business plan. The amount
of incentive payment is targeted at a percentage of each executive's base
salary and can be increased or decreased depending on whether the operating
cash flow and operating income of the Company meet, exceed or fall below the
targeted operating cash flow and operating income set by the Compensation
Committee. In addition, the Compensation Committee, from time to time, grants
stock options to executive officers under the Company's 1990 Stock Option Plan
to reward past performance and encourage future performance.
Mr. Barnhart. Mr. Barnhart became Chairman and Chief Executive Officer on
December 5, 1996. The Company entered into an Employment Agreement dated
March 12, 1997 with Mr. Barnhart, and the Employment Agreement set his base
salary of $250,000 per year with the intention that future increases would be
tied to both the future performance of the Company and to his personal
performance as assessed by the Compensation Committee. In addition, in
connection with Mr. Barnhart's Employment Agreement, he was granted options
for 250,000 shares of the Company's common stock, which vest in full at the
expiration of the Employment Agreement on December 31, 1999. On May 4, 1998,
Mr. Barnhart resigned his position as Chairman and Chief Executive Officer of
the Company.
Mr. Schimeck. On May 4, 1998, upon Mr. Barnhart's resignation, Mr. Schimeck was
appointed Chairman and Chief Executive Officer of the Company. The Compensation
Committee considered Mr. Schimeck's importance and substantial past
contributions to the Company and the additional responsibilities he would assume
as Chairman and Chief Executive Officer. Following discussions, the Compensation
Committee resolved to increase Mr. Schimeck's base salary to $210,000, his
incentive compensation target to 50% from 40% of his base salary, and to ratify
and confirm Mr. Schimeck's Employment Agreement (discussed further below)
incorporating his new base salary in any calculation of a severance payment
following a termination without cause.
Messrs. Schimeck and Kouninis. In an effort to retain the services of key
employees, the Company entered into Employment Security Agreements with
Messrs. Schimeck and Kouninis dated October 2, 1996, as amended on November 5,
1998, which included execution bonuses of $20,000 and $15,000, respectively,
and provided for certain supplemental incentive payments.
Section 162(m) of the Internal Revenue Code of 1986, as amended, prohibits a
publicly held corporation, such as the Company, from claiming a deduction on
its federal income tax return for compensation in excess of $1,000,000 paid
for a given fiscal year to certain executives. The Compensation Committee
does not believe it is likely that the deductibility of compensation paid by
the Company will be limited by the operation of Section 162(m).
HERBERT A. GETZ
WILLIAM R. MAPEL
* Note: This report is not incorporated by reference in any prior or future
Commission filing, directly or by reference to the incorporation of the
proxy statements of the Company, unless such filing specifically
incorporates this report.
<PAGE>
Performance Graph *
Set forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on the Company's common stock against the
cumulative total return for S&P Composite-500 Stock Index and a peer group of
companies selected by the Company consisting of companies in which significant
amounts of revenues are derived from the asbestos-abatement business (the "Peer
Group") for the period of five years commencing December 31, 1993 and ending
December 31, 1998. The Peer Group includes American ECO Group, Inc., Foster
Wheeler Corporation, PDG Environmental, Inc., Philip Environmental, Inc.
("Philips"), which went public February 1993, and Sevenson Environmental
Services, Inc. ("Sevenson"). Allwaste, Inc. ("Allwaste"), which was included in
the Peer Group for the Performance Graph contained in the Proxy Statement for
the Company's 1997 Annual Meeting, was excluded from the following Performance
Graph as a result of its purchase by Philips. Sevenson was added to the Peer
Group to replace Allwaste.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN ON
COMMON STOCK, S&P 500 AND PEER GROUP
(Market Value of $100 Invested on December 31, 1993)
[typeset representation of line chart]
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
NSC Corporation 100.00 52.20 42.68 56.10 67.07 39.84
S&P 500 100.00 111.56 152.47 186.46 244.28 281.19
Peer Group 100.00 85.45 95.83 140.76 248.96 89.64
* Note: This report is not incorporated by reference in any prior or future
Commission filing, directly or by reference to the incorporation of the
proxy statements of the Company, unless such filing specifically
incorporates this report.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of the Company
The following table sets forth certain information as of March 19, 1999,
except as otherwise indicated, with respect to the beneficial ownership of the
Company's common stock (i) by holders of 5% or greater, (ii) each director of
the Company, (iii) each executive officer of the Company, and (iv) by all
directors and executive officers of the Company as a group. Except as
otherwise indicated, information with respect to beneficial ownership is based
on information furnished to the Company by each stockholder included in this
table. Except as otherwise indicated in the notes to the table, each
stockholder included in the table has sole voting investment power with
respect to the shares shown to be beneficially owned.
Amount and
Name of Nature of
Beneficial Beneficial Percentage
Owner (1) Ownership (2) of Class
Waste Management, Inc. 5,380,670 54.0%
3003 Butterfield Road
Oakbrook, IL 60521
Franklin Resources, Inc. (1) 800,000 8.0%
One Parker Plaza, 16th Floor
Fort Lee, New Jersey 07024
Kennedy Capital Management, Inc. (2) 621,645 6.2%
10829 Olive Boulevard
St. Louis, Missouri 63141
FMR Corp. (3) 550,400 5.5%
82 Devonshire Street
Boston, MA 02109-3614
Dimensional Fund Advisors, Inc. (4) 518,300 5.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Eugene L. Barnett (5) 10,000 *
Herbert A. Getz 500 *
William P. Hulligan - -
William M. R. Mapel (5) 11,000 *
Darryl G. Schimeck (5) 59,500 *
Efstathios A. Kouninis (5) 33,750 *
All directors and executive officers
as a group (7 persons) (5) 114,750 *
* Less than 1%
(1) According to Schedule 13G, dated January 29, 1999, Franklin Resources,
Inc. ("FRI"), a registered investment advisor, is deemed to have beneficial
ownership of 800,000 shares of the Company's common stock, all of which
shares are held in open or closed-end investment companies or other managed
accounts which are advised by direct or indirect investment subsidiaries of
FRI. FRI disclaims beneficial ownership of all such shares.
(2) According to Schedule 13G, dated February 5, 1999, Kennedy Capital
Management, Inc., a registered investment advisor, is deemed to have
beneficial ownership of 621,645 shares of Common Stock.
(3) According to Amendment No. 1 to Schedule 13G, dated February 14, 1998, FMR
Corp. has sole or shared voting power as to none of such shares of Common
Stock and sole investment power as to 550,400 shares of Common Stock.
(4) According to Schedule 13G, dated February 6, 1998, Dimensional Fund
Advisors, Inc. ("Dimensional") has sole voting power with respect to 351,900
shares of Common Stock and sole investment power with respect to 518,300
shares of Common Stock. Dimensional, a registered investment advisor, is
deemed to have beneficial ownership of 418,300 shares of Common Stock as of
December 31, 1997, all of which shares are held in portfolios of DFA
Investment Dimensions Group, Inc., a registered open-end investment company,
or in series of the DFA Investment Trust Company, a Delaware business trust,
or the DFA Group Trust and DFA Participation Group Trust investment vehicles
for qualified employee benefit plans, all of which Dimensional serves as
investment advisor. Dimensional disclaims beneficial ownership of all such
shares.
(5) Assumes the exercise of options, presently exercisable or exercisable within
60 days, to purchase up to 10,000, 10,000, 57,500 and 33,750 shares of
Common Stock by Messrs. Barnett, Mapel, Schimeck and Kouninis, respectively
granted pursuant to the Company's 1990 Stock Option Plan.
<PAGE>
Item 13. Certain Relationships and Related Transactions
Other
The Company has, from time to time, provided asbestos-abatement and related
services to WMI and its affiliates on a subcontract basis. Revenues earned
from these affiliates for such services were $22,000 for the year ended
December 31, 1998. An affiliate of WMI also rented demolition equipment to
the Company for which it was charged $302,000 for the year ended December 31,
1998.
In connection with the Merger, WMI has entered into a voting agreement
pursuant to which it has agreed, subject to the terms set forth therein, to
cause its affiliates to vote their shares of Common Stock in favor of the
Merger Agreement. Since these shares represent approximately 54% of the
outstanding shares of Common Stock, the Merger Agreement will be approved and
adopted without any action by any other stockholder of the Company so long as
the voting agreement remains in effect.
The Merger Agreement also contemplates that, immediately prior to the effective
time of the Merger, WMI will cause its affiliates to exchange the Exchanged
Shares for an interest bearing subordinated promissory note issued by the
Company in the principal amount of $1,115,990, representing $1.12 per share
times the number of Exchanged Shares. All remaining shares of Common Stock owned
by WMI and its affiliates will be converted in the Merger into the right to
receive $1.12 per share in cash. In addition, the Merger Agreement contemplates
that, immediately prior to the effective time of the Merger, WMI will cause its
affiliate, ODC, to sell certain machinery and equipment to ODMI. In
consideration for such assets, all of the Company's existing non-interest
bearing indebtedness (currently approximately $4.5 million) owed to an affiliate
of WMI, will be converted into an interest bearing subordinated promissory note
issued by the Company in the principal amount of $2.4 million.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The following consolidated financial statements of the Company and its
subsidiaries for the years ended December 31, 1998, 1997 and 1996 are included
at the pages indicated below:
Page
Consolidated Balance Sheets 19
-As of December 31, 1998 and 1997
Consolidated Statements of Operations 20
-For the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity 21
-For the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows 22
-For the Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements 23
(a)(2) The following consolidated financial statement schedule is included
herein at the page indicated below:
Page
Schedule II
Valuation and Qualifying Accounts 46
-For the Years Ended December 31, 1998, 1997 and 1996
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable, and therefore have been
omitted.
(a)(3) The following Exhibits are included in this Annual Report on Form 10-K:
Exhibit Exhibit
Number Description
3(i)(a) Amended and Restated Certificate of Incorporation of the Registrant
dated April 24, 1990 [incorporated by reference to Exhibit
3(a) to the Registrant's Form S-1, Registration Statement No.
33-34702].
3(ii)(a) By-Laws of the Registrant [incorporated by reference to Exhibit 3(b)
to the Registrant's Form S-1, registration Statement No. 33-34702].
4 Specimen Common Stock Certificate [incorporated by reference to
Exhibit 4 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1990].
4(a) Agreement and Plan of Merger, dated as of February 12, 1999 by and
among NSC Holdings, Inc., NSC Acquisition, Inc., NSC Corporation and
Waste Management, Inc. [incorporated by reference to Exhibit 2.1 to
the Registrant's Report on Form 8-K dated February 17, 1999].
* 10(a) NSC Corporation 1990 Stock Option Plan, as amended and restated
[incorporated by reference to Exhibit 10(a) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991].
* Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of Form 10-K.
<PAGE>
* 10(b) NSC Corporation Retirement Savings Plan and NSC Corporation
Retirement Savings Plan Trust Agreement [incorporated by reference
to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1992].
* 10(c) Indemnification Agreement, dated as of May 1, 1990 by and between the
Registrant and William M. R. Mapel [incorporated by reference t
Exhibit 10(I) of the Registrant's Form S-1, Registration Statement No.
33-34702].
10(d) Purchase Agreement, dated as of December 23, 1992 and related
amendments made thereto, by and among OHM Corporation, NSC
Corporation, NSC Industrial Services Corp., The Brand Companies,
Inc., Chemical Waste Management, Inc. and Waste Management, Inc.
[incorporated by reference to Exhibit 10(ff) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992].
* 10(e) NSC Corporation 1993 Restricted Stock Plan [incorporated by reference
to Exhibit 10(gg) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992].
10(f) Revolving Credit Agreement, dated as of May 4, 1993 by and among NSC
Corporation, its Subsidiaries named therein, The First National Bank
of Boston and Fleet Bank of Massachusetts [incorporated by reference
to Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993].
10(g) Second Amendment to Revolving Credit Agreement, dated as of May 1,
1996 by and among NSC Corporation, its Subsidiaries named therein,
The First National Bank of Boston and Fleet National Bank, formerly
known as Fleet Bank of Massachusetts [incorporated by reference to
Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996].
10(h) Third Amendment to Revolving Credit Agreement, dated as of May 9,
1997 by and among NSC Corporation, its Subsidiaries named therein,
and BankBoston, formerly known as The First National Bank of Boston
and Fleet National Bank.
10(i) Fourth Amendment to Revolving Credit Agreement, dated as of December
22, 1997 by and among NSC Corporation, its Subsidiaries named
therein, and BankBoston, formerly known as The First National Bank of
Boston and Fleet National Bank.
10(j) Fifth Amendment to Revolving Credit Agreement, dated as of March 23,
1999 by and among NSC Corporation, its Subsidiaries named therein,
and BankBoston, formerly known as The First National Bank of Boston
and Fleet National Bank.
10(k) Registration Rights Agreement, dated as of May 4, 1993 by and between
NSC Corporation, OHM Corporation and The Brand Companies, Inc., as
succeeded by Rust International Inc. [incorporated by reference to
Exhibit 10(p) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993].
10(l) Olshan Interim Management and Operating Agreements dated January 1,
1995 and April 20, 1995 [incorporated by reference to Exhibit 10(a)
to the Registrant's Annual Report on Form 10-Q for the quarter ended
June 30, 1995].
* 10(m) NSC Corporation's 1994 Management Incentive Compensation Plan
[incorporated by reference to Exhibit 10(q) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994].
* 10(n) Employment Agreement, dated March 12, 1997 by and between Victor J.
Barnhart and NSC Corporation [incorporated by reference to Exhibit
10(p) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996].
* 10(o) Separation Agreement, dated May 6, 1998 by and between Victor J.
Barnhart and NSC Corporation.
* Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of Form 10-K.
<PAGE>
* 10(p) Employment Security Agreement, dated October 2, 1996 by and between
Darryl G. Schimeck and NSC Corporation [incorporated by reference to
Exhibit 10(p) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996].
* 10(q) Amendment of Employment Security Agreement, dated November 5, 1998 by
and between Darryl G. Schimeck and NSC Corporation.
* 10(r) Employment Security Agreement, dated October 2, 1996 by and between
Efstathios A. Kouninis and NSC Corporation [incorporated by reference
to Exhibit 10(o) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997].
* 10(s) Amendment of Employment Security Agreement, dated June 3, 1998 by and
between Efstathios A. Kouninis and NSC Corporation.
* 10(t) Amendment of Employment Security Agreement, dated November 5, 1998 by
and between Efstathios A. Kouninis and NSC Corporation.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney of certain directors of the Registrant.
27 Financial Data Schedule, Article 5
(b) The Company filed no report on Form 8-K during the three month period
ended December 31, 1998.
Note: None of the Exhibits listed in the foregoing index are included with this
Annual Report on Form 10-K. A copy of these Exhibits may be obtained
without charge by writing to Efstathios A. Kouninis, Vice President of
Finance, Corporate Controller, Treasurer and Secretary, NSC Corporation,
49 Danton Drive, Methuen, Massachusetts 01844.
* Indicates a management contract or compensatory plan or arrangement required
to be filed pursuant to Item 14(c) of Form 10-K.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NSC CORPORATION
By /s/ EFSTATHIOS A. KOUNINIS
Efstathios A. Kouninis, Vice President of
Finance, Corporate Controller, Treasurer and
Secretary
March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date
* DARRYL G. SCHIMECK March 29, 1999
Darryl G. Schimeck - Chairman, President and Chief
Executive Officer (Principal Executive Officer)
/s/ EFSTATHIOS A. KOUNINIS March 29, 1999
Efstathios A. Kouninis, Vice President of Finance,
Corporate Controller, Treasurer and Secretary
(Principal Financial and Accounting Officer)
* EUGENE L. BARNETT March 29, 1999
Eugene L. Barnett - Director
* HERBERT A. GETZ March 29, 1999
Herbert A. Getz - Director
* WILLIAM P. HULLIGAN March 29, 1999
William P. Hulligan - Director
* WILLIAM M. R. MAPEL March 29, 1999
William M. R. Mapel - Director
* The undersigned, by signing his name hereto does sign and execute this
report pursuant to Powers of Attorney executed on behalf of the
above-named officers and directors and contemporaneously herewith filed
with the Securities and Exchange Commission.
/s/ EFSTATHIOS A. KOUNINIS March 29, 1999
Efstathios A. Kouninis - Attorney-in-Fact
<PAGE>
NSC CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
- --------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------
Balance at Charged to
Beginning Costs and Deductions Balance at
Description of Period Expenses(2) Describe (1) End of Period
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
Deducted from assets accounts:
Allowance for uncollectible
accounts $ 711 $ 334 $ 551 $ 494
Reserve for contract revenue
adjustments 363 283 614 32
- --------------------------------------------------------------------------------
Year Ended December 31, 1997
Deducted from assets accounts:
Allowance for uncollectible
accounts $ 557 $ 253 $ 99 $ 711
Reserve for contract revenue
adjustments 152 311 100 363
- --------------------------------------------------------------------------------
Year Ended December 31, 1996
Deducted from assets accounts:
Allowance for uncollectible
accounts $ 549 $ 67 $ 59 $ 557
Reserve for contract revenue
adjustments 442 111 401 152
- --------------------------------------------------------------------------------
(1) Uncollectible accounts written off and adjustments to unbilled
revenues on contracts in process.
(2) Reduction of revenues on contracts in process and amounts charged to
bad debt expense.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________________
FORM 10-K
ANNUAL REPORT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
December 31, 1998
____________________
NSC CORPORATION
(Exact name of registrant as specified in its charter)
_____________________
Exhibits
_____________________
<PAGE>
EXHIBIT INDEX
The following Exhibits are included in this Annual Report on Form 10-K:
Exhibit Exhibit Exhibit
Number Description Page
10(j) Fifth Amendment to Revolving Credit Agreement, dated as 49
of March 29, 1999 by and among NSC Corporation, its
Subsidiaries named therein, and BankBoston, formerly known
as The First National Bank of Boston and Fleet National Bank.
* 10(o) Separation Agreement, dated May 6, 1998 by and between Victor 53
J. Barnhart and NSC Corporation.
* 10(q) Amendment of Employment Security Agreement, dated November 5, 55
1998 by and between Darryl G. Schimeck and NSC Corporation.
* 10(s) Amendment of Employment Security Agreement, dated June 3, 57
1998 by and between Efstathios A. Kouninis and NSC Corporation.
* 10(t) Amendment of Employment Security Agreement, dated November 5, 59
1998 by and between Efstathios A. Kouninis and NSC Corporation.
21 Subsidiaries of the Registrant. 61
23 Consent of Independent Auditors. 62
24 Powers of Attorney of certain directors of the Registrant. 63
27 Financial Data Schedule, Article 5 64
* Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14(c) of Form 10-K.
<PAGE>
FIFTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Fifth
Amendment") is made and entered into as of the __ day of March, 1999, by and
among NSC CORPORATION, a Delaware corporation (the "Parent"), its Subsidiaries
listed on the signature pages hereto (the "Subsidiaries," the Parent and such
Subsidiaries collectively referred to herein as the "Borrowers" and
individually as a "Borrower"), each of which Borrowers having its principal
place of business at 49 Danton Drive, Methuen, Massachusetts 01844,
BANKBOSTON, N.A. ("BKB", formerly known as The First National Bank of Boston),
a national banking association having its principal place of business at 100
Federal Street, Boston, Massachusetts 02110, FLEET NATIONAL BANK ("Fleet",
formerly known as Fleet Bank of Massachusetts, N.A., and together with BKB,
the "Banks"), a national banking association with its principal place of
business at One Federal Street, Boston, Massachusetts 02111, and BKB, as Agent
for the Banks (the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent entered into a Revolving
Credit Agreement dated as of May 4, 1993 and amended as of December 2, 1993,
May 1, 1996, May 9, 1997 and December 22, 1997 (the "Credit Agreement")
pursuant to which the Banks extended credit to the Borrowers on the terms and
conditions set forth therein;
WHEREAS, the Banks, the Borrowers, and the Agent have agreed to amend
the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
I. AMENDMENT TO THE CREDIT AGREEMENT
A. Amendments to 1.1 of the Credit Agreement. Section 1.1 of the
Credit Agreement is hereby amended by deleting the following definitions in
their entirety and substituting the following in place thereof:
"Maturity Date. June 30, 1999."
"Total Commitment. $6,000,000, as such amount may be reduced pursuant
to 2.1 or 2.2 hereof."
B. Amendment to 9.4 of the Credit Agreement. Section 9.4 of the
Credit Agreement is hereby amended by deleting such Section in its entirety
restating it as follows:
"9.4. Profitable Operations. The Borrowers will not permit Consolidated
Net Income to be less than $0 for any fiscal quarter."
II. PROVISIONS RELATING TO THIS FIFTH AMENDMENT
A. Definitions. Capitalized terms used herein without definition
have the meanings ascribed to them in the Credit Agreement.
B. Ratification, etc.
Except as expressly amended or waived hereby, the Credit Agreement, the
other Loan Documents and all documents, instruments and agreements related
thereto are hereby ratified and confirmed in all respects and shall continue
in full force and effect. This Fifth Amendment and the Credit Agreement shall
hereafter be read and construed together as a single document, and all
references in the Credit Agreement or any related agreement or instrument to
the Credit Agreement shall refer to the Credit Agreement as amended by this
Fifth Amendment.
<PAGE>
C. GOVERNING LAW.
THIS FIFTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL TAKE EFFECT AS A
SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
D. Counterparts. This Fifth Amendment may be executed in any number
of counterparts and by different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument. Complete sets of counterparts shall be lodged with the Banks.
E. Effectiveness. This Fifth Amendment shall become effective upon
the satisfaction of each of the following:
(i) This Fifth Amendment shall have been executed and delivered
by the respective parties hereto; and
(ii) The Agent shall have received an amendment fee of $25,000 to
be shared pro rata among the Banks in accordance with their respective
Commitment Percentages.
F. Entire Agreement. THE CREDIT AGREEMENT AND THE SECURITY DOCUMENTS
AS AMENDED BY THIS FIFTH AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Fifth
Amendment under seal as of the date first set forth above.
THE BORROWERS:
NSC CORPORATION
By: /s/ EFSTATHIOS A. KOUNINIS
Title: Vice President of Finance
NATIONAL SERVICE CLEANING CORP.
By: /s/ EFSTATHIOS A. KOUNINIS
Title: Vice President of Finance
NATIONAL SURFACE CLEANING
CORP.
By: /s/ JOANNA DUNN
Title: Assistant Secretary & Assistant
Treasurer
OLSHAN DEMOLISHING
MANAGEMENT, INC.
By: /s/ EFSTATHIOS A. KOUNINIS
Title: Vice President of Finance
NSC ENERGY SERVICES, INC.
By: /s/ EFSTATHIOS A. KOUNINIS
Title: Vice President of Finance
THE BANKS:
BANKBOSTON, N.A.
(formerly known as The First National Bank
of Boston)
By: /s/ ARTHUR J. OBERHEIM
Title: Vice President
FLEET NATIONAL BANK
By: /s/ THOMAS F. BRENNAN
Title: Vice President
<PAGE>
SEPARATION AGREEMENT
Agreement made this 6th of May, 1998, by and between NSC CORPORATION, a
corporation duly organized and existing under the laws of the State of
Delaware, with a principal place of business at 49 Danton Drive, Methuen,
Massachusetts 01844 (hereinafter referred to as "NSC") and VICTOR J.
BARNHART, an individual residing at 10 Tartan Lakes, Westmont, Illinois 60559
(hereinafter referred to as "Executive").
WHEREAS, NSC and Executive entered into and executed that certain
Employment Agreement dated March 12, 1997, effective as of January 1, 1997
(the "Employment Agreement") for a term commencing on January 1, 1997 and
ending on December 31, 1999 (the "Term of Employment") whereby NSC employed
Executive as Chairman and Chief Executive Officer; and
WHEREAS, NSC and Executive have mutually agreed that it is in their
respective interest to terminate the Employment Agreement and Executive's
employment thereunder upon the terms and conditions set forth herein; and
WHEREAS, NSC desires to acknowledge Executive's service and contribution
to NSC;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Severance Benefits. As severance benefits, NSC shall pay to Executive
the Base Salary as provided for in Section 1.3(a) of the Employment Agreement
and provide to Executive all of the benefits provided for in Sections 1.3(b)
and 1.3(c), and the health, life, and disability insurance benefits provided
for in Section 1.3(d), all for the remainder of the Term of Employment. Any
payment of such Base Salary and provisions of such benefits shall be in
accordance with and payable in the same manner as provided for in the relevant
sections of the Employment Agreement. Upon the expiration of the Term of
Employment on December 31, 1999, NSC shall have no further obligation to pay
Executive any Base Salary or to provide any further benefits, except with
respect to COBRA benefits relating to health and dental insurance.
Notwithstanding the foregoing, in the event of the occurrence of a "Change in
Control," as defined in the Employment Agreement, in lieu of, and in
satisfaction of the foregoing obligations of NSC, NSC shall pay to Executive
the total sum of the then remaining amounts of the Base Salary payable under
Section 1.3(a) and the benefits payable under Section 1.3(c) for the then
remaining Term of Employment, reduced to present value utilizing a discount
rate of six (6%) percent. Upon such payment, NSC shall have no further
obligation to pay Executive any Base Salary or to provide any other benefits
as set forth herein.
2. Relocation Expense. In full and complete satisfaction of NSC's
obligations under the Employment Agreement, NSC shall, within thirty (30) days
after the date of the execution of this Agreement, pay to Executive the sum of
Twenty-Five Thousand ($25,000.00) Dollars for Executive's relocation to South
Carolina.
3. Stock Options. NSC agrees to continue, for the remainder of the Term of
Employment, those stock options granted to executive under that certain Stock
Option Agreement dated December 5, 1996 (the "Grant") to the extent such stock
options are currently exercisable or shall become exercisable during the
remainder of the Term of Employment. Such stock options shall continue to
vest and become exercisable during the remainder of the Term of Employment in
accordance with and subject to the terms and conditions of the Grant.
Notwithstanding anything to the contrary contained herein, upon the expiration
of the Term of Employment, the Grant and all rights of Executive thereunder
shall immediately expire and shall be null and void and of no further force
and effect.
4. Cooperation and Assistance. In consideration of the obligations of NSC
hereunder, Executive agrees that he will without additional remuneration, from
time to time, upon request of NSC, provide such consulting services and
cooperation to NSC and its counsel as may be reasonably requested by NSC from
time to time (i) with respect to any matter (including any contracts, bids,
projects, litigation, investigation, or governmental proceeding) which relates
to any matter with which Executive was involved during the Term of Employment
with NSC or (ii) with respect to the general business and operations of NSC.
Executive agrees to render such consulting services and cooperation at such
times and in such manner as shall be mutually agreeable to the parties hereto.
5. Release. NSC and Executive each hereby covenants and agrees that the
terms and conditions of this Separation Agreement shall be deemed to be in
full and complete satisfaction of any and all obligations of each party under
the Employment Agreement, and therefore each of NSC and Executive hereby
releases and discharges the other from any and all further obligations of any
nature under the Employment Agreement or otherwise relating to the Executive's
employment with NSC. Executive hereby specifically releases and discharges
NSC and all of its subsidiaries and affiliates, and all of their predecessors,
successors, assigns, directors, officers, stockholders, managers, supervisors,
employees, representatives, servants, agents, attorneys, and all persons
acting by, through, under, or in concert with NSC, both personally and as its
agents, or any of them of and from any and all claims, demands, and
liabilities of any nature whatsoever which the Executive now has or ever had,
including, but not limited to (a) any and all claims, demands or liabilities
in any manner relating to or arising out of Executive's employment with and/or
separation of employment from, NSC, (b) any and all rights or benefits to
which Executive is entitled or claims to be entitled to under the terms and
conditions of the Employment Agreement or as a result of his separation of his
employment with NSC, and (c) any and all claims for relief or causes of action
under any federal, state, or local statute, ordinance, or regulation dealing
in any respect with discrimination in employment (including the Age
Discrimination Employment Act of 1967, as amended, 29 U.S.C. 61 et seq.) and
any claims, demands, or actions based upon alleged or wrongful discharge,
retaliatory discharge, or breach of contract under any state or federal law.
The foregoing release by Executive shall not be deemed to in any manner waive
or release any of NSC's obligations under this Separation Agreement.
6. Survival. Notwithstanding the termination of the Employment Agreement
and the termination of Executive's employment, NSC and Executive hereby
acknowledge, confirm, and agree that Sections 2, 3, and 4 of the Employment
Agreement shall remain in full force and effect and shall survive the
termination of the Employment Agreement.
7. Miscellaneous.
a. This Agreement shall cease and terminate upon Executive's death,
and, in such event, NSC shall have no further obligation to make any payments
to or provide any benefits hereunder to Executive.
b. For purposes of the Separation Agreement, Section 6 of the
Employment Agreement, including all of the subsections thereof, are hereby
incorporated as if fully set forth herein.
8. Acknowledgment. Executive hereby acknowledges and agrees that he has
been given twenty-one (21) days after receipt of this Separation Agreement to
consider its terms before signing it and has elected to waive the remaining
days of that period, if any, and Executive is hereby provided seven (7)
calendar days from the date of signing this Separation Agreement to terminate
and revoke this Separation Agreement, and upon such revocation, this
Separation Agreement shall be unenforceable, null, and void. Executive
further acknowledges and agrees that the Separation Agreement shall not become
effective or enforceable until the aforementioned revocation period is
expired, and no severance benefits will be paid by NSC until the expiration of
said revocation period. Executive acknowledges and recites that (a) he has
entered into this Separation Agreement knowingly and voluntarily; (b) he has
read and understands the Separation Agreement in its entirety; (c) he has been
advised orally and is hereby advised in writing to consult with an attorney
with respect to this Separation Agreement before signing it; (d) he has not
been forced to sign this Separation Agreement by any employee or agent of NSC;
and (e) he has fully reviewed the terms of this Separation Agreement,
acknowledges that he understands the terms of this Separation Agreement, and
states that he is entering into this Separation Agreement knowingly,
voluntarily, and in full settlement of all claims that he may have as a result
of his employment with or separation of employment from NSC.
WITNESS: NSC CORPORATION
By: /s/ DARRYL G. SCHIMECK
Name: Darryl G. Schimeck
Title: Chief Executive Officer and
President
WITNESS: EXECUTIVE
/s/ VICTOR J. BARNHART
Victor J. Barnhart
f:\common\corp\agreemnt\employmt\barn-sep.doc
<PAGE>
November 5, 1998
Mr. Darryl G. Schimeck
c/o NSC Corporation
160 Eisenhower Lane, North
Lombard, IL 60148
Re: Amendment of Employment Security Agreement
Dear Darryl:
In light of the recent developments at NSC Corporation ("NSC"), NSC
wishes to amend your Employment Security Agreement dated October 2, 1996 (the
"Employment Security Agreement"). In consideration of the continuation of your
employment with NSC and your continued cooperation and assistance to NSC, the
Employment Security Agreement shall be and hereby is amended as follows:
1. Extension of Term. Upon the expiration of the original Term of
the Employment Security Agreement, the Term of the Employment Security
Agreement shall be automatically extended for an additional period of one (1)
year, ending on December 31, 1999.
2. Change in Control. In the event that a "Terminating Event", as
defined hereinafter, shall occur within one (1) year after a "Change in
Control", as defined hereinafter, then NSC shall pay all severance benefits to
you in accordance with Section 7(a) of the Employment Security Agreement and
provide to you all other benefits to which you are entitled in accordance with
the terms and conditions of the Employment Security Agreement upon the event
of the termination of your employment without Cause.
For purposes hereof, a Change in Control shall be deemed to have
occurred in the following events: (a) as a direct result of any tender or
exchange, offer, merger, reorganization, consolidation, or other business
combination, sale of assets or contested election or any combination of the
foregoing transactions (i) the persons who are the directors of NSC
immediately before such transaction shall cease to constitute a majority of
the Board of Directors of NSC (or of any successor entity), (ii) NSC is not
the surviving corporation in the transaction, or (iii) Waste Management, Inc.
and its affiliates do not hold immediately after such transaction a majority
in the aggregate of the outstanding common shares of the surviving entity; or
(b) the sale or other disposition of all or substantially all of the assets of
NSC (in one transaction or in a series of transactions).
Further, for purposes hereof, a Terminating Event shall mean (i)
termination by NSC (or by any successor entity) of your employment with NSC
(or any such successor entity) for any reason other than (a) death or (b) for
Cause, as defined in the Employment Security Agreement; or (ii) your
resignation from your employment with NSC (or any such successor entity)
within ninety (90) days after the occurrence of any of the following events:
(a) a reasonable determination by you in good faith that there has been a
significant and substantial reduction in the scope of your responsibilities,
authorities, powers, functions, or duties from the responsibilities,
authorities, powers, functions, or duties exercised by you immediately prior
to a Change in Control; (b) a ten (10%) percent reduction in your total
monetary compensation, including base salary, bonuses, incentive compensation,
material benefit plans, and non-cash personal benefits and perquisites which
are susceptible of accurate and objective measurement, as all of the same
shall be in effect on the date of this Amendment or as the same may be
increased from time to time; (c) NSC, or its successor, requiring your
relocation from the office where you are principally employed immediately
prior to the date of the Change in Control to a location more than fifty (50)
miles away from the location where you are principally employed immediately
prior to the date of the Change in Control; or (d) the failure of NSC to
obtain a satisfactory agreement from any successor to assume and agree to
perform the obligations of NSC under the Employment Security Agreement.
3. General Provisions. In the event that you are required to
commence or bring any legal action or proceeding to enforce your rights under
the Employment Security Agreement, as amended, or to collect any benefits due
to you thereunder, you shall be entitled to recover from NSC, or its
successor, any and all costs and expenses incurred by you, including
reasonable attorney's fees, in connection therewith. This Amendment shall be
subject to and governed by the laws of the Commonwealth of Massachusetts
without regard to its choice of law principles. Except as expressly amended
herein, the Employment Security Agreement shall remain in full force and
effect, unaltered and unaffected hereby.
NSC CORPORATION
By: /s/ EFSTATHIOS A. KOUNINIS
Name: Efstathios A. Kouninis
Title: Vice President of Finance
ACCEPTANCE
Agreed to and accepted this 5th day of November, 1998.
/s/ DARRYL G. SCHIMECK
Darryl G. Schimeck
G:\CORP\AGREEMNT\EMPLOYMT\schim-am.doc
<PAGE>
AMENDMENT
Agreement made this 3rd day of June , 1998 by and between NSC Corporation,
a duly organized Delaware corporation (hereinafter "NSC") and Efstathios A.
Kouninis ("Employee").
WHEREAS, NSC and Employee entered into a certain Employment Security
Agreement dated October 8, 1996, a copy of which is attached hereto as Exhibit A
(the "Employment Security Agreement"); and
WHEREAS, NSC and Employee now desire to amend the terms and conditions of
the Employment Security Agreement as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Section 6(b) of the Employment Security Agreement entitled
"Severance" shall be and hereby is amended to read as follows:
If you are terminated by NSC without Cause after the expiration of the
Term of this Agreement, you shall be entitled to receive severance pay for a
period of one (1) year at the rate of your annual base salary then in effect,
payable in the same manner as your regular salary, together with one (1) years
continued coverage under NSC's medical and dental plans at the rate applicable
to active employees.
2. The following provision shall be and hereby is added to the
Employment Security Agreement:
In the event of a sale of NSC during the Term to an entity unrelated to NSC or
its major shareholder, Rust International, Inc., if you remain employed with
NSC through the closing of a sale, NSC will pay you a transaction bonus equal
to two (2) times your monthly base salary for your assistance and cooperation
in facilitating the closing of the sale. NSC will pay said transaction bonus
to you as soon as reasonably practicable following the date of the closing.
Payment of such bonus will be subject to normal withholding.
3. Except as expressly amended herein, the Employment Security
Agreement is hereby ratified and confirmed and shall remain in full force and
effect and shall not be otherwise affected or altered hereby.
<PAGE>
4. This Amendment shall be subject to and governed by the laws of
the Commonwealth of Massachusetts without regard to its choice of law
principles.
IN WITNESS WHEREOF, the parties hereto have executed this document as of
the date first above written, intending this document to take effect as a sealed
instrument.
WITNESS: NSC CORPORATION
By: /s/ DARRYL G. SCHIMECK
Darryl G. Schimeck, Chairman,
Chief Executive Officer and President
WITNESS:
/s/ EFSTATHIOS A. KOUNINIS
Efstathios A. Kouninis
g:\common\corp\agreemnt\employmt\koun-amd.doc
<PAGE>
November 5, 1998
Mr. Efstathios A. Kouninis
c/o NSC Corporation
49 Danton Drive
Methuen, MA 01844
Re: Amendment of Employment Security Agreement
Dear Stathis:
In light of the recent developments at NSC Corporation ("NSC"), NSC
wishes to amend your Employment Security Agreement dated October 8, 1996, as
previously amended by that certain Amendment dated June 3, 1998 (collectively
the "Employment Security Agreement"). In consideration of the continuation of
your employment with NSC and your continued cooperation and assistance to NSC,
the Employment Security Agreement shall be and hereby is amended as follows:
4. Extension of Term. The Term of the Employment Security Agreement
as referred to in Section 1 thereof shall be and hereby is extended for an
additional period commencing on the expiration of the original Term and ending
on December 31, 1999; provided however that the amount of severance payable to
you in accordance with Section 6(a) of the Employment Security Agreement shall
in no event exceed one (1) year of base salary.
5. Change in Control. In the event that a "Terminating Event", as
defined hereinafter, shall occur within one (1) year after a "Change in
Control", as defined hereinafter, then NSC shall pay all severance benefits to
you in accordance with Section 6(a) of the Employment Security Agreement and
provide to you all other benefits to which you are entitled in accordance with
the terms and conditions of the Employment Security Agreement upon the event
of the termination of your employment without Cause.
For purposes hereof, a Change in Control shall be deemed to have
occurred in the following events: (a) as a direct result of any tender or
exchange, offer, merger, reorganization, consolidation, or other business
combination, sale of assets or contested election or any combination of the
foregoing transactions (i) the persons who are the directors of NSC
immediately before such transaction shall cease to constitute a majority of
the Board of Directors of NSC (or of any successor entity), (ii) NSC is not
the surviving corporation in the transaction, or (iii) Waste Management, Inc.
and its affiliates do not hold immediately after such transaction a majority
in the aggregate of the outstanding common shares of the surviving entity; or
(b) the sale or other disposition of all or substantially all of the assets of
NSC (in one transaction or in a series of transactions).
Further, for purposes hereof, a Terminating Event shall mean (i)
termination by NSC (or by any successor entity) of your employment with NSC
(or any such successor entity) for any reason other than (a) death or (b) for
Cause, as defined in the Employment Security Agreement; or (ii) your
resignation from your employment with NSC (or any such successor entity)
within ninety (90) days after the occurrence of any of the following events:
(a) a reasonable determination by you in good faith that there has been a
significant and substantial reduction in the scope of your responsibilities,
authorities, powers, functions, or duties from the responsibilities,
authorities, powers, functions, or duties exercised by you immediately prior
to a Change in Control; (b) a ten (10%) percent reduction in your total
monetary compensation, including base salary, bonuses, incentive compensation,
material benefit plans, and non-cash personal benefits and perquisites which
are susceptible of accurate and objective measurement, as all of the same
shall be in effect on the date of this Amendment or as the same may be
increased from time to time; (c) NSC, or its successor, requiring your
relocation from the office where you are principally employed immediately
prior to the date of the Change in Control to a location more than fifty (50)
miles away from the location where you are principally employed immediately
prior to the date of the Change in Control; or (d) the failure of NSC to
obtain a satisfactory agreement from any successor to assume and agree to
perform the obligations of NSC under the Employment Security Agreement.
6. General Provisions. In the event that you are required to
commence or bring any legal action or proceeding to enforce your rights under
the Employment Security Agreement, as amended, or to collect any benefits due
to you thereunder, you shall be entitled to recover from NSC, or its
successor, any and all costs and expenses incurred by you, including
reasonable attorney's fees, in connection therewith. This Amendment shall be
subject to and governed by the laws of the Commonwealth of Massachusetts
without regard to its choice of law principles. Except as expressly amended
herein, the Employment Security Agreement shall remain in full force and
effect, unaltered and unaffected hereby.
NSC CORPORATION
By: /s/ DARRYL G. SCHIMECK
Name: Darryl G. Schimeck
Title: Chairman, CEO and President
ACCEPTANCE
Agreed to and accepted this 5th day of November, 1998.
/s/ EFSTATHIOS A. KOUNINIS
Efstathios A. Kouninis
G:\CORP\AGREEMNT\EMPLOYMT\kouni-am2.doc
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State of Other
Name of Subsidiary Jurisdiction of Incorporation
- ---------------------------------- --------------------------------
National Surface Cleaning, Inc. New Hampshire
National Service Cleaning Corp. Connecticut
Olshan Demolishing Management, Inc. Delaware
NSC Energy Services, Inc. Delaware
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-35986) pertaining to the 1990 Stock Option Plan of NSC
Corporation and in the related Prospectus of our report dated February 12,
1999, except for Note 6 as to which the date is March 23, 1999, with respect
to the consolidated financial statements and schedule of NSC Corporation
included in its Annual Report (Form 10-K) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
EXHIBIT 24
DIRECTORS AND OFFICERS OF NSC CORPORATION
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned directors and officers of NSC Corporation, a Delaware
corporation (the Company"), do hereby make, constitute and appoint Darryl G.
Schimeck, Efstathios A. Kouninis and Charles W. Hardin, and each of them, with
full power of substitution and resubstitution, as attorneys or attorney of
the undersigned, to execute and file, under the Securities Exchange Act of
1934, as amended, the Company's Annual Report on Form 10-K, for the year
ended December 31, 1998 and all amendments or exhibits thereto, and any or
all applications or other documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever
necessary, appropriate or desirable to be done in the premises, or in the
name, place and stead of the said directors and officers, hereby
ratifying and approving the acts of said attorneys and any of them and any
substitute.
This power of attorney may be executed in counterpart.
IN WITNESS WHEREOF, the undersigned have subscribed these presents as of
the 29th day of March 1998.
/s/ DARRYL G. SCHIMECK /s/ EUGENE L. BARNETT
Darryl G. Schimeck, Chairman, CEO and Eugene L. Barnett, Director
President(Principal Executive Officer)
/s/ EFSTATHIOS A. KOUNINIS /s/ HERBERT A. GETZ
Efstathios A. Kouninis, Vice President Herbert A. Getz, Director
of Finance, Corporate Controller, Treasurer
and Secretary
(Principal Financial and Accounting Officer) /s/ WILLIAM P. HULLIGAN
William P. Hulligan, Director
/s/ WILLIAM M. R. MAPEL
William M. R. Mapel, Director
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-END> DEC-31-1998
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