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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1999
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
NSC CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
-----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
NSC Logo
NSC CORPORATION
49 DANTON DRIVE
METHUEN, MASSACHUSETTS 01844
TELEPHONE: (978) 557-7300
May 24, 1999
Dear Stockholder:
You are cordially invited to attend a Special Meeting (the "Special
Meeting") of the stockholders of NSC Corporation ("NSC") to be held on June 22,
1999, at 10:00 a.m., Central time, at the offices of Jones, Day, Reavis & Pogue,
located at 77 West Wacker, Chicago, Illinois 60601.
As described in the accompanying Proxy Statement, at the Special Meeting
you will be asked to consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of February 12, 1999, as amended (the
"Merger Agreement"), by and among NSC Holdings, Inc. ("Holdings"), NSC
Acquisition, Inc. ("Merger Subsidiary"), NSC, and Waste Management, Inc. ("Waste
Management"), pursuant to which Merger Subsidiary will be merged with and into
NSC (the "Merger"), with NSC continuing as the surviving corporation. Neither
Holdings nor Merger Subsidiary has any prior affiliation with NSC or Waste
Management. Pursuant to the Merger Agreement, each share of common stock, $0.01
par value, of NSC (the "Common Stock") issued and outstanding at the effective
time of the Merger (other than shares held by NSC and stockholders, if any, who
properly exercise their appraisal rights under Delaware law) will be converted
into the right to receive $1.25 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. Waste Management 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 NSC so long as the voting
agreement remains in effect.
The Merger Agreement also contemplates that, immediately prior to the
effective time of the Merger, Waste Management will cause its affiliates to
exchange 996,420 shares of Common Stock (the "Exchanged Shares") for an interest
bearing subordinated promissory note issued by NSC in the principal amount of
$1,245,525, representing $1.25 per share times the number of Exchanged Shares.
All remaining shares of Common Stock owned by Waste Management and its
affiliates will be converted in the Merger into the right to receive $1.25 per
share in cash. In addition, the Merger Agreement contemplates that, immediately
prior to the effective time of the Merger, Waste Management will cause its
affiliate, Olshan Demolishing Company Inc., to sell certain machinery and
equipment to Olshan Demolishing Management, Inc., a wholly owned subsidiary of
NSC. In consideration for such assets, all of NSC's existing non-interest
bearing indebtedness (currently approximately $4.5 million) owed to Rust
International Inc., an affiliate of Waste Management, will be converted into an
interest bearing subordinated promissory note issued by NSC in the principal
amount of $2.4 million.
<PAGE> 3
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement and has determined that the Merger Agreement
and the Merger are advisable to and in the best interests of NSC and its
stockholders, and has approved and adopted the Merger Agreement. In making its
recommendation, the Board also considered the fact that Waste Management and the
directors and executive officers of NSC may have interests in the Merger that
are different from or in addition to the interests of the public stockholders.
The Board of Directors recommends that you vote "FOR" approval and adoption of
the Merger Agreement.
Please read the enclosed information carefully before completing and
returning the enclosed proxy card. Returning your proxy card as soon as possible
will assure your representation at the meeting, whether or not you plan to
attend. If you do attend the Special Meeting, you may, of course, withdraw your
proxy should you wish to vote in person. YOUR VOTE IS IMPORTANT REGARDLESS OF
THE NUMBER OF SHARES YOU OWN.
Sincerely,
[Schimeck Signature]
DARRYL G. SCHIMECK
President and Chief Executive Officer
<PAGE> 4
NSC CORPORATION
49 DANTON DRIVE
METHUEN, MASSACHUSETTS 01844
TELEPHONE: (978) 557-7300
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 22, 1999
To Our Stockholders:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of NSC Corporation, a Delaware corporation ("NSC"), will be held on
June 22, 1999, at 10:00 a.m., Central time, at the offices of Jones, Day, Reavis
& Pogue, located at 77 West Wacker, Chicago, Illinois 60601 for the following
purpose:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of February 12, 1999, as amended by
Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 10,
1999 (collectively, the "Merger Agreement"), by and among NSC Holdings,
Inc., a Delaware corporation ("Holdings"), NSC Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of Holdings ("Merger
Subsidiary"), NSC, and Waste Management, Inc., a Delaware corporation
("Waste Management"), pursuant to which (i) Merger Subsidiary will be
merged with and into NSC (the "Merger"), with NSC continuing as the
surviving corporation and (ii) each share of common stock, $.01 par value,
of NSC (the "Common Stock") issued and outstanding at the effective time of
the Merger, other than shares held by NSC and stockholders, if any, who
properly exercise their appraisal rights under Delaware law, will be
converted into the right to receive $1.25 per share in cash, without
interest.
2. To transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof.
May 21, 1999 has been fixed as the record date for the determination of
stockholders entitled to receive notice of and to vote at the Special Meeting or
any postponements or adjournments thereof. Only holders of record of Common
Stock at the close of business on that date will be entitled to receive notice
of and to vote at the Special Meeting or any postponements or adjournments
thereof.
Holders of Common Stock who do not vote in favor of approving and adopting
the Merger Agreement and who otherwise comply with the applicable statutory
procedures of Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL") will be entitled to appraisal rights under Section 262 of
the DGCL. A summary of the provisions of Section 262 of the DGCL, including a
summary of the requirements with which holders of Common Stock must comply in
order to assert appraisal rights, is set forth in the accompanying Proxy
Statement under the heading "The Merger -- Appraisal Rights." The entire text of
Section 262 of the DGCL is attached as Annex C to the Proxy Statement.
<PAGE> 5
The accompanying Proxy Statement describes the Merger Agreement, the
proposed Merger and certain actions to be taken in connection with the Merger.
To ensure that your vote will be counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope, whether or not you plan to attend the Special Meeting. You may revoke
your proxy in the manner described in the accompanying Proxy Statement at any
time before the vote at the Special Meeting. Executed proxies with no
instructions indicated thereon will be voted "FOR" approval and adoption of the
Merger Agreement.
By Order of the Board of Directors,
[Kouninis Signature]
EFSTATHIOS A. KOUNINIS
Vice President of Finance, Corporate
Controller, Treasurer and Secretary
Methuen, Massachusetts
May 24, 1999
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE MARK, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR CERTIFICATES.
<PAGE> 6
NSC CORPORATION
49 DANTON DRIVE
METHUEN, MASSACHUSETTS 01844
------------------------
PROXY STATEMENT
------------------------
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 22, 1999
This Proxy Statement is being furnished to holders of common stock, $.01
par value ("Common Stock"), of NSC Corporation, a Delaware corporation ("NSC"),
in connection with the solicitation of proxies by and on behalf of the Board of
Directors of NSC (the "Board") for use at a special meeting of stockholders to
be held at 10:00 a.m., Central time, on June 22, 1999, at the offices of Jones,
Day, Reavis & Pogue, located at 77 West Wacker, Chicago, Illinois 60601, and at
any postponements or adjournments thereof (the "Special Meeting"). This Proxy
Statement and the accompanying Notice and Proxy Card are first being mailed to
holders of Common Stock entitled to receive notice of, and to vote at, the
Special Meeting on or about May 24, 1999.
At the Special Meeting, holders of Common Stock will be asked to consider
and vote upon a proposal to approve and adopt an Agreement and Plan of Merger,
dated as of February 12, 1999 (the "Initial Merger Agreement"), as amended by
Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 10, 1999
("Amendment No. 1," the Initial Merger Agreement, as amended by Amendment No. 1,
the "Merger Agreement"), by and among NSC Holdings, Inc., a Delaware corporation
("Holdings"), NSC Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of Holdings ("Merger Subsidiary"), NSC, and Waste Management, Inc., a
Delaware corporation ("Waste Management"), pursuant to which Merger Subsidiary
will be merged with and into NSC (the "Merger"), with NSC continuing as the
surviving corporation (the "Surviving Corporation"). Neither Holdings nor Merger
Subsidiary has any prior affiliation with NSC or Waste Management. Pursuant to
the Merger Agreement, each share of Common Stock issued and outstanding at the
effective time of the Merger, other than shares held by NSC and stockholders, if
any, who properly exercise their appraisal rights under Delaware law, will be
converted into the right to receive $1.25 per share in cash, without interest.
The Merger Agreement also contemplates that, immediately prior to the
effective time of the Merger, Waste Management will cause its affiliates to
exchange 996,420 shares of Common Stock (the "Exchanged Shares") for an interest
bearing subordinated promissory note issued by NSC in the principal amount of
$1,245,525, representing $1.25 per share times the number of Exchanged Shares.
All remaining shares of Common Stock owned by Waste Management and its
affiliates will be converted in the Merger into the right to receive $1.25 per
share in cash. In addition, the Merger Agreement contemplates that, immediately
prior to the Effective Time of the Merger, Waste Management will cause its
affiliate, Olshan Demolishing Company Inc. ("ODC"), to sell certain machinery
and equipment to Olshan Demolishing Management, Inc. ("ODM"), a subsidiary of
NSC. In consideration for such assets, all of NSC's existing non-interest
bearing indebtedness (currently approximately $4.5 million) owed to Rust
International Inc. ("Rust"), an affiliate of Waste Management, will be converted
into an interest bearing subordinated promissory note issued by NSC in the
principal amount of $2.4 million.
Holders of Common Stock who do not vote in favor of approving and adopting
the Merger Agreement and who otherwise comply with the applicable statutory
procedures of Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL") will be entitled to appraisal rights under Section 262 of
the DGCL. See "The Merger -- Appraisal Rights."
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT.
All information contained in this Proxy Statement concerning Holdings and
Merger Subsidiary has been supplied by Holdings and has not been independently
verified by NSC. All information contained in this Proxy Statement concerning
Waste Management has been supplied by Waste Management and has not been
independently verified by NSC. Except as otherwise indicated, all other
information contained in this Proxy Statement (or, as permitted by applicable
rules and regulations of the Securities and Exchange Commission (the
"Commission"), incorporated by reference herein) has been supplied or prepared
by NSC.
The date of this Proxy Statement is May 24, 1999.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION....................................... 3
FORWARD-LOOKING STATEMENTS.................................. 4
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION................. 5
SUMMARY..................................................... 6
The Companies............................................. 6
The Special Meeting....................................... 6
SELECTED FINANCIAL DATA..................................... 9
THE SPECIAL MEETING......................................... 11
General................................................... 11
Matters to be Considered at the Special Meeting........... 11
Record Date; Voting at the Special Meeting................ 11
Proxies; Revocation of Proxies............................ 12
Solicitation of Proxies................................... 12
THE MERGER.................................................. 13
Background of the Merger.................................. 13
NSC's Reasons for the Merger; Recommendation of the Board
of Directors............................................ 21
Opinion of NSC's Financial Advisor........................ 22
Interests of Certain Persons in the Merger................ 28
Asset Purchase Agreement.................................. 29
Non-Competition Agreement................................. 29
Exchange Subordinated Promissory Note..................... 30
Voting Agreement.......................................... 30
Guaranty.................................................. 30
Financing the Merger...................................... 31
Accounting Treatment...................................... 31
Material Federal Income Tax Consequences.................. 31
Regulatory Approvals...................................... 31
Appraisal Rights.......................................... 32
THE MERGER AGREEMENT........................................ 35
General................................................... 35
Merger Consideration...................................... 35
Treatment of Stock Options................................ 35
Representations and Warranties............................ 36
Covenants................................................. 36
Additional Agreements..................................... 37
Conditions Precedent...................................... 38
Termination, Amendment and Waiver......................... 39
THE COMPANIES............................................... 41
NSC Corporation........................................... 41
NSC Holdings, Inc......................................... 41
NSC Acquisition, Inc...................................... 41
MARKET PRICES OF COMMON STOCK............................... 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 43
INDEPENDENT AUDITORS........................................ 44
STOCKHOLDER PROPOSALS....................................... 44
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 45
</TABLE>
<TABLE>
<S> <C>
LIST OF ANNEXES
Initial Merger Agreement.................................... ANNEX A-1
Amendment No. 1............................................. ANNEX A-2
Opinion of NSC's Financial Advisor.......................... ANNEX B
Section 262 of the DGCL..................................... ANNEX C
Voting Agreement............................................ ANNEX D
Annual Report on Form 10-K, as amended, for the fiscal year
ended December 31, 1998................................... ANNEX E
Quarterly Report on Form 10-Q, as amended, for the quarterly
period ended March 31, 1999............................... ANNEX F
</TABLE>
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<PAGE> 8
AVAILABLE INFORMATION
NSC is subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act") and in accordance therewith files periodic
reports, proxy statements and other information with the Commission. The
reports, proxy statements and other information filed by NSC with the Commission
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
also are available for inspection at the Commission's Regional Offices at Seven
World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also may be
obtained, at prescribed rates, from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, NSC
is required to file electronic versions of certain material with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
(EDGAR) system. The Commission maintains a site on the Internet's World Wide Web
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
NO PERSON IS AUTHORIZED TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY STATEMENT
OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH RESPECT TO SUCH MATTERS NOT
CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NSC. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF NSC SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT OR IN
THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THEREOF, AS THE CASE MAY BE.
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FORWARD-LOOKING STATEMENTS
The statements contained in this Proxy Statement and in the documents
incorporated herein by reference that are not historical facts are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Exchange Act. These forward-looking
statements are subject to certain risks and uncertainties described below, which
could cause actual results to differ materially from those reflected in the
forward-looking statements. These forward-looking statements reflect
management's analysis, judgment, belief or expectation only as of the date
hereof. NSC undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof
or to publicly release the results of any revisions to such forward-looking
statements that may be made to reflect events or circumstances after the date
hereof. In addition to the disclosure contained herein, readers should carefully
review any disclosure of risks and uncertainties contained in other documents
NSC files or has filed from time to time with the Commission pursuant to the
Exchange Act.
The forward-looking statements set forth or incorporated by reference in
this Proxy Statement are based upon various assumptions, many of which are
based, in turn, upon further assumptions, including, without limitation,
management's examination of historical operating trends, data contained in NSC's
records and other data available from third parties. Although NSC believes that
such assumptions were reasonable when made, because such assumptions are
inherently subject to significant uncertainties and contingencies which are
difficult or impossible to predict and are beyond NSC's control, there can be no
assurance, and no representation or warranty is made, that management's
expectations, beliefs or projections will result or be achieved or accomplished.
In addition to the other factors and matters discussed elsewhere herein and in
the documents incorporated by reference herein, factors that, in the view of
NSC, could cause actual results to differ materially from those discussed in the
forward-looking statements include, among others, (i) the satisfaction of the
closing conditions to the Merger Agreement (some of which are beyond NSC's
control) and (ii) the consummation of the Merger.
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<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q: Why are NSC and Merger Subsidiary proposing the Merger?
A: As a result of the Merger, stockholders of NSC will be able to dispose of
their shares of Common Stock at a price that the Board considers to be fair from
a financial point of view and that is in excess of recent trading prices without
incurring the costs typically associated with market transactions.
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the Special Meeting.
Q: What do I do if I want to change my vote?
A: You may change your vote at any time before it is voted by:
- Giving notice of your revocation to the Secretary of NSC in a proxy
bearing a later date;
- Signing and delivering to the Secretary of NSC a proxy bearing a later
date relating to the same shares; or
- Attending the Special Meeting and giving notice of revocation to the
Secretary of NSC or in open meeting (although attendance at the Special
Meeting without taking other affirmative action will not constitute a
revocation).
Any writing revoking a proxy should be sent to: NSC Corporation, 49 Danton
Drive, Methuen, Massachusetts, 01844, Attention: Secretary.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. Please tell your broker how you would like him or her to vote your shares.
If you do not tell your broker how to vote, your shares will not be voted by
your broker, which will have the effect of a vote against the transaction.
Q: Should I send in my stock certificates now?
A: No. After the Merger is completed, the paying agent for the Merger will send
stockholders written instructions for exchanging their stock certificates.
Q: What I will receive in the Merger?
A: If the Merger is completed, you will receive $1.25 in cash, without interest,
for each share of Common Stock you own.
Q: When do you expect the Merger to be completed?
A: We are working toward completing the Merger as quickly as possible. We hope
to complete the Merger by June 23, 1999.
Q: What are the tax consequences to stockholders of the Merger?
A: The Merger will be taxable to you and you will recognize a gain or loss in an
amount equal to the difference between your adjusted tax basis and the amount of
cash you receive in the Merger.
Q: Whom should I call with questions?
A: Call Efstathios A. Kouninis at NSC, at (978) 557-7300.
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<PAGE> 11
SUMMARY
This summary highlights selected information from this Proxy Statement and
may not contain all of the information that is important to you. To understand
the transaction fully and for a more complete description of the legal terms of
the transaction, you should read carefully this entire document, including the
information incorporated herein by reference and the Annexes hereto. Unless
otherwise defined herein, capitalized terms used in this summary have the
meanings assigned to them elsewhere in this Proxy Statement.
THE COMPANIES
NSC CORPORATION
49 Danton Drive
Methuen, Massachusetts 01844
(978) 557-7300
NSC, with headquarters in Methuen, Massachusetts, 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.
NSC's largest stockholder is Waste Management, which through its indirect
subsidiaries, Rust Industrial Services Inc. and Rust Remedial Services Holding
Company Inc., owns approximately 54% of the outstanding shares of Common Stock.
In addition, ODM, a subsidiary of NSC that operates NSC's demolition and
dismantling business, utilizes certain assets owned by ODC and manages the
business of ODC, an indirect subsidiary of Waste Management. The profits and
losses of ODC are shared by NSC and affiliates of Waste Management. Rust, an
indirect subsidiary of Waste Management, has provided financing to ODM in
connection with its operation of the demolition and dismantling business.
NSC HOLDINGS, INC.
5222 Royal Walk
Houston, Texas 77069
(281) 444-6056
Holdings is a newly formed Delaware corporation created by an investor
group solely for the purpose of engaging in the transactions contemplated by the
Merger Agreement. Neither Holdings nor any of its investors has any prior
affiliation with NSC or Waste Management.
NSC ACQUISITION, INC.
5222 Royal Walk
Houston, Texas 77069
(281) 444-6056
Merger Subsidiary, a wholly owned subsidiary of Holdings, is a newly formed
Delaware corporation created solely for the purpose of engaging in the
transactions contemplated by the Merger Agreement. Merger Subsidiary has no
prior affiliation with NSC or Waste Management.
THE SPECIAL MEETING
The Special Meeting will be held at 10:00 a.m., Central time, on June 22,
1999, at the offices of Jones, Day, Reavis & Pogue, located at 77 West Wacker,
Chicago, Illinois 60601. At the Special Meeting, stockholders will be asked to
approve and adopt the Merger Agreement.
Voting Rights; Votes Required for Approval
You are entitled to vote at the Special Meeting if you owned shares of
Common Stock as of the close of business on May 21, 1999 (the "Record Date"). On
the Record Date, there were 9,971,175 shares of Common Stock entitled to vote at
the Special Meeting. Stockholders will have one vote at NSC's Special Meeting
for each share of Common Stock they owned on the Record Date.
The affirmative vote of a majority of the shares of Common Stock
outstanding on the Record Date is required to approve the Merger Agreement.
Stock Ownership of Management and Certain Stockholders
On the Record Date, directors and executive officers owned 114,750
outstanding shares of Common Stock (approximately 1%). These directors and
officers have expressed an intention to vote in favor of the Merger Agreement.
In addition, Waste Management, which, through its affiliates, owns 5,380,670
6
<PAGE> 12
outstanding shares of Common Stock, 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 the shares of Common Stock held by Waste Management, through
its affiliates, 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 NSC so long as the voting agreement remains in effect.
THE MERGER
The Initial Merger Agreement and Amendment No. 1 are attached as Annex A-1
and Annex A-2, respectively, to this Proxy Statement. You should read the
Initial Merger Agreement and Amendment No. 1 as they are the legal documents
that govern the transaction.
Effects of the Merger; Merger Consideration
Upon consummation of the Merger,
- Merger Subsidiary will be merged with and into NSC, with NSC continuing
as the Surviving Corporation.
- Each share of Common Stock issued and outstanding at the date and time
the Merger becomes effective (the "Effective Time"), other than shares
held by (1) NSC and (2) stockholders, if any, who properly exercise their
appraisal rights under Delaware law, will be converted into the right to
receive $1.25 in cash, without interest (the "Merger Consideration").
- Immediately prior to the Effective Time, Waste Management will cause its
affiliates to exchange 996,420 shares of Common Stock for an interest
bearing subordinated promissory note issued by NSC in the principal
amount of $1,245,525, representing $1.25 per share times the number of
shares so exchanged. All remaining shares of Common Stock owned by Waste
Management and its affiliates will be converted in the Merger into the
right to receive the Merger Consideration.
- Immediately prior to the Effective Time, Waste Management will cause an
affiliate to sell certain machinery and equipment to a subsidiary of NSC.
In consideration for such assets, all of NSC's existing non-interest
bearing indebtedness (currently approximately $4.5 million) owed to a
Waste Management affiliate will be converted into an interest bearing
subordinated promissory note issued by NSC in the principal amount of
$2.4 million.
Recommendation to Stockholders
The Board believes that the Merger is in your best interest as a
stockholder and recommends that you vote FOR approval and adoption of the Merger
Agreement.
Conditions to the Transaction
The transaction will be completed if a number of conditions, including the
following material conditions, are met:
- The stockholders of NSC approve the Merger Agreement;
- All regulatory approvals, the non-receipt of which would reasonably be
expected to have a material adverse effect on the Surviving Corporation
and its subsidiaries, taken as a whole, having been received;
- The absence of legal restraints or prohibitions that prevent completion
of the Merger;
- The appropriate parties having executed the Non-Competition Agreement,
the Asset Purchase Agreement, the Exchange Subordinated Promissory Note,
and the Subordinated Promissory Note (each as defined herein); and
- Each of NSC and Holdings having performed in all material respects all
obligations to be performed by it under the Merger Agreement.
In some instances, the conditions to completion of the transaction can be
waived, but only if Holdings and NSC agree to waive them. NSC does not
anticipate that any party will waive any of these conditions.
Termination of the Merger Agreement
Holdings and NSC may agree to terminate the Merger Agreement at any time
prior
7
<PAGE> 13
to the Effective Time. In addition, either party may terminate the Merger
Agreement if:
- The parties do not complete the Merger by June 30, 1999;
- The NSC stockholders do not approve the Merger Agreement;
- A law or regulation makes the transaction illegal or any order or
injunction permanently prohibits the transaction; or
- The other party breaches its representations, warranties or obligations
under the Merger Agreement and does not or cannot cure the breach.
NSC may terminate the Merger Agreement if NSC receives an unsolicited
proposal for a business combination that the Board determines in good faith to
be more favorable to the NSC stockholders than the transaction with Holdings.
Payment of Fees
NSC must pay Holdings $100,000 plus up to $400,000 in the aggregate of
Holdings' documented out-of-pocket fees and expenses if:
- An Acquisition Proposal (as herein defined) is made known to NSC or its
stockholders and is not publicly withdrawn prior to the Special Meeting
and either party terminates the Merger Agreement on the grounds that the
stockholders of NSC failed to approve the Merger Agreement and thereafter
NSC enters into an Acquisition Agreement (as herein defined) or
consummates an Acquisition Proposal within 12 months of such termination;
or
- NSC receives an unsolicited proposal for a business combination that the
Board determines to be more favorable to the NSC stockholders and
thereafter terminates the Merger Agreement.
NSC must pay Holdings $100,000 if Holdings terminates the Merger Agreement
because NSC breaches the Merger Agreement.
Holdings must pay NSC $100,000 if NSC terminates the Merger Agreement
because Holdings breaches the Merger Agreement.
Opinion of Financial Advisor
In deciding to approve the transaction, the Board, among the numerous
factors discussed below in "The Merger -- Reasons for the Merger; Recommendation
of the Board of Directors," considered the February 12, 1999 opinion of NSC's
financial advisor, BT Alex. Brown Incorporated ("BT Alex. Brown"), that, as of
such date, the consideration of $1.12 per share payable to the public
stockholders of NSC pursuant to the Initial Merger Agreement (the "Initial
Merger Consideration") was fair from a financial point of view to such
stockholders. The Board, in connection with its review of Amendment No. 1, did
not obtain an updated opinion from BT Alex. Brown because, in the Board's
judgment, such an opinion was unnecessary and did not justify the additional
expense associated with such opinion given that (i) BT Alex. Brown had
previously opined that the Initial Merger Consideration was fair from a
financial point of view to NSC's public stockholders and (ii) the Merger
Consideration is in excess of the Initial Merger Consideration. BT Alex. Brown's
opinion, dated February 12, 1999, rendered in connection with the Initial Merger
Agreement is attached as Annex B to this Proxy Statement. We encourage you to
read this opinion.
Material Federal Income Tax Consequences
The receipt of cash by a stockholder of NSC pursuant to the Merger, or
pursuant to the exercise of appraisal rights in accordance with Section 262 of
the DGCL, will be a taxable transaction for federal income tax purposes and may
also be taxable under applicable state, local and foreign income and other tax
laws. A stockholder will recognize gain or loss in an amount equal to the
difference between the adjusted tax basis of his or her Common Stock and the
amount of cash received in exchange therefor in the Merger or pursuant to an
exercise of appraisal rights. Such gain or loss will be capital gain or loss if
the Common Stock is a capital asset in the hands of the stockholder and will be
long-term capital gain or loss if the holding period exceeds one year. See "The
Merger -- Certain Federal Income Tax Consequences."
Appraisal Rights
Under Delaware law, stockholders who properly exercise and perfect
appraisal rights will be entitled to receive payment of the fair value of their
shares in connection with the transaction. See "The Merger -- Appraisal Rights."
8
<PAGE> 14
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for NSC
and its subsidiaries for each of the five fiscal years ended December 31, 1994
through December 31, 1998 and the three months ended March 31, 1998 and March
31, 1999. The year-end data has been derived from, should be read in conjunction
with, and are qualified in their entirety by, the audited consolidated financial
statements of NSC, including the notes thereto, which are included in NSC's
Annual Report on Form 10-K, as amended, for the year ended December 31, 1998,
which is incorporated herein by reference and attached hereto as Annex E. The
interim data has been derived from, should be read in conjunction with, and are
qualified in their entirety by, the unaudited quarterly consolidated financial
statements of NSC, including the notes thereto, which are included in NSC's
Quarterly Report on Form 10-Q, as amended, for the period ended March 31, 1999,
which is incorporated herein by reference and attached hereto as Annex F.
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ---------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue................................. $25,331 $20,808 $99,711 $115,955 $129,043 $124,529 $132,218
Gross profit............................ 3,746 3,891 15,878 11,027 22,589 19,447 21,716
Write-down of assets held for sale...... -- -- (158) 2,843 830 -- --
Operating (loss) income................. (892) 15 650 (7,762) 3,531 1,859 5,101
Net (loss) income..................... (529) 23 446 (4,994) 1,861 715 2,566
Basic and diluted earnings per
share(1).............................. (0.05) 0.00 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 9,971 9,971
Cash dividends declared per common
share(2).............................. -- -- -- 0.15 0.15 0.15 0.15
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
----------------- ---------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............................ $73,660 $72,200 $72,200 $ 74,489 $ 85,560 $ 87,161 $ 88,287
Goodwill, net of accumulated
amortization(3)....................... 34,025 35,050 34,075 35,175 36,275 36,872 37,938
Assets held for sale.................... 313 1,665 313 1,653 475 -- --
Non current liabilities, including
current portion of long-term
debt(4)............................... 6,992 5,384 6,811 5,253 7,610 7,421 10,588
OTHER DATA
Book value per common share (5)......... $ 5.12
</TABLE>
- ---------------
(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 (loss) income 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.
(2) NSC declared and paid a cash dividend of $0.15 per common share in each
of December 1997, 1996, 1995 and 1994.
(3) As of March 31, 1999 and 1998, accumulated amortization was
approximately $9,359,000 and $8,259,000, respectively. As of December
31, 1998, 1997, 1996, 1995 and 1994, accumulated amortization was
approximately $9,084,000, $7,984,000, $6,884,000, $5,787,000 and
$4,721,000, respectively.
(4) On March 21, 1996 all outstanding amounts due to NSC's lenders under a
senior revolving credit facility were repaid in full.
(5) Book value per common share was computed by dividing stockholders'
equity by the outstanding shares of Common Stock as of March 31, 1999.
9
<PAGE> 15
CERTAIN PROJECTIONS
During the course of discussions among NSC and Holdings, which led to the
execution of the Merger Agreement, NSC provided Holdings with certain non-public
business and financial information about NSC. The information included a profit
and loss statement that projected for NSC, (a) for 1999, (i) revenues of
approximately $102.7 million, (ii) an operating loss of approximately $545,000,
(iii) a net loss of approximately $39,000, and (iv) a nominal loss per share;
(b) for 2000, (i) revenues of approximately $105.8 million, (ii) an operating
loss of approximately $1.1 million, (iii) a net loss of approximately $382,000,
and (iv) a loss per share of approximately $0.04; (c) for 2001, (i) revenues of
approximately $109.0 million, (ii) an operating loss of approximately $1.1
million, (iii) a net loss of approximately $376,000, and (iv) a loss per share
of approximately $0.04; (d) for 2002, (i) revenues of approximately $112.2
million, (ii) an operating loss of approximately $1.1 million, (iii) a net loss
of approximately $370,000, and (iv) a loss per share of approximately $0.04; and
(e) for 2003, (i) revenues of approximately $115.6 million, (ii) an operating
loss of approximately $1.1 million, (iii) a net loss of approximately $363,000,
and (iv) a loss per share of approximately $0.04. The profit and loss statements
for fiscal years 1999, 2000, 2001, 2002, and 2003 each assume an effective tax
rate of 47.0%.
These projections further assume that NSC would discontinue the industrial
services business because NSC was aware that Waste Management had expressed an
intent to sell or otherwise dispose of some or all of its industrial services
businesses and NSC believed that Waste Management, as part of such sale or
disposition, would likely be required to enter into a noncompetition agreement
pertaining to those businesses. This belief led NSC to the conclusion that,
assuming a sale of NSC was not completed, NSC would continue to be a majority
owned subsidiary of Waste Management and would, thus, likely be subject to any
noncompetition agreement to which Waste Management might become a party. As a
result, NSC's management concluded, for planning purposes, that the industrial
services business would no longer be a growth opportunity for NSC. In reaching
this conclusion, NSC's management reserved the right to revisit this issue
depending upon (i) whether Waste Management was successful in exiting its
industrial services businesses and (ii) the terms and conditions of any such
sale, including the possibility that a noncompetition agreement would not be
required or, if required, such agreement would not be binding on NSC. At the
present time and in light of these uncertainties, NSC is unable to specify how
and when, if at all, NSC would discontinue this business in the event that the
Merger is not consummated. In 1998, NSC's industrial services business accounted
for approximately $1.1 million in revenues and a gross margin of approximately
$243,000, recognizing that, in light of the possible discontinuation of the
industrial services business, these results may not be indicative of future
results of NSC. The assets employed by NSC in this business had a net book value
of approximately $382,000 at December 31, 1998. Although NSC has not attempted
to determine the fair market value of these assets, NSC does not believe that
the fair market value of such assets would materially differ from their net book
value. Assuming that the Merger is consummated, NSC will no longer be subject to
any such restrictions and will be able to pursue additional business lines,
including the industrial services business, which could possibly improve the
projections set forth above.
NSC does not as a matter of course make public any projections as to future
performance or earnings, and the projections set forth above are included in
this Proxy Statement only because the information was provided by NSC to
Holdings. The projections were not prepared with a view to public disclosure or
compliance with the published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections or forecasts. While presented with numerical specificity, these
forecasts are based upon a variety of assumptions (not all of which were stated
therein and not all of which were provided to Holdings) relating to the business
of NSC, industry performance, general business and economic conditions and other
matters. These assumptions may not be realized and are subject to significant
financial, market, economic and competitive uncertainties and contingencies that
are difficult or impossible to predict accurately, many of which are beyond the
control of NSC and Holdings. There can be no assurance that the forecasts will
be realized, and actual results may vary materially from those shown. The
inclusion of the projections should not be regarded as a representation by
Holdings or any of its affiliates or representatives or by NSC or any of its
affiliates or representatives that the projected results will be achieved.
10
<PAGE> 16
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of Common Stock in
connection with the solicitation of proxies by and on behalf of the Board for
use at the Special Meeting to be held at 10:00 a.m., Central time, on June 22,
1999, at the offices of Jones, Day, Reavis & Pogue, located at 77 West Wacker,
Chicago, Illinois 60601, and at any postponements or adjournments thereof. This
Proxy Statement and the accompanying Notice and Proxy Card are first being
mailed to holders of Common Stock entitled to notice of, and to vote at, the
Special Meeting, on or about May 24, 1999.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, stockholders will be asked to consider and vote
upon a proposal to approve and adopt the Merger Agreement. The Board has
determined that the Merger Agreement and the Merger are fair to and in the best
interests of NSC and its stockholders and has approved and adopted the Merger
Agreement. ACCORDINGLY, THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. See "The Merger -- Background of
the Merger" and "-- NSC's Reasons for the Merger; Recommendation of the Board of
Directors."
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD TO NSC IN THE ENCLOSED POSTAGE-PAID ENVELOPE. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL
HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT.
RECORD DATE; VOTING AT THE SPECIAL MEETING
May 21, 1999 has been fixed as the Record Date for the determination of the
holders of Common Stock entitled to receive notice of, and to vote at, the
Special Meeting. Only stockholders of record at the close of business on the
Record Date will be entitled to receive notice of, and to vote at, the Special
Meeting. At the close of business on May 21, 1999, the most recent practicable
date prior to the date of this Proxy Statement, there were 9,971,175 shares of
Common Stock outstanding and entitled to vote at the Special Meeting, held by
approximately 532 stockholders of record.
Stockholders of record on the Record Date are entitled to one vote per
share, exercisable in person or by properly executed proxy, upon each matter
properly submitted for the vote of stockholders at the Special Meeting. The
presence, in person or by properly executed proxy, of the holders of a majority
of the outstanding shares of Common Stock is necessary to constitute a quorum at
the Special Meeting.
Holders of Common Stock on the Record Date who do not vote in favor of
approving and adopting the Merger Agreement and who otherwise comply with the
applicable statutory procedures of Section 262 of the DGCL will be entitled to
appraisal rights under the DGCL in connection with the Merger. Stockholders of
NSC who vote in favor of approving and adopting the Merger Agreement, however,
will thereby waive their appraisal rights. See "The Merger -- Appraisal Rights."
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to approve and adopt the Merger Agreement. Waste
Management has executed 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. Because these shares
represent approximately 54% of the outstanding Common Stock, the Merger
Agreement will be approved and adopted without any action by any other
stockholder of NSC so long as the voting agreement remains in effect.
Abstentions and broker non-votes will have the same effect as a vote "AGAINST"
the proposal to approve and adopt the Merger Agreement.
11
<PAGE> 17
The Board is not aware of any matters other than those set forth in the
Notice of Special Meeting of Stockholders transmitted with this Proxy Statement
that may be brought before the Special Meeting. If any other matters incidental
to the conduct of the Special Meeting properly come before the Special Meeting,
the persons named in the accompanying Proxy Card will vote the shares
represented by all properly executed proxies on such incidental matters in such
manner as shall be determined by a majority of the Board.
PROXIES; REVOCATION OF PROXIES
All shares of Common Stock which are represented at the Special Meeting by
properly executed proxies received and not duly and timely revoked will be voted
at the Special Meeting in accordance with the instructions contained therein. In
the absence of contrary instructions (other than in the case of broker
non-votes), such shares will be voted "FOR" the approval and adoption of the
Merger Agreement.
The required vote of the stockholders on the Merger Agreement is based upon
the total number of outstanding shares of Common Stock as of the Record Date.
Therefore, the failure to submit a Proxy Card (or to vote in person at the
Special Meeting), the abstention from voting by a stockholder and broker
non-votes will have the same effect as a vote "AGAINST" the approval and
adoption of the Merger Agreement.
A proxy may be revoked prior to its being voted by: (i) delivering to the
Secretary of NSC, at or before the Special Meeting, a written instrument bearing
a later date than the proxy which instrument, by its terms, revokes the proxy,
(ii) duly executing a subsequent proxy relating to the same shares and
delivering it to the Secretary of NSC at or before the Special Meeting or (iii)
attending the Special Meeting and giving notice of revocation to the Secretary
of NSC or in open meeting prior to the proxy being voted (although attendance at
the Special Meeting without taking other affirmative action as aforementioned
will not constitute a revocation of a proxy). Any written instrument revoking a
proxy should be sent to: NSC Corporation, 49 Danton Drive, Methuen,
Massachusetts 01844, Attention: Secretary.
Waste Management has executed a voting agreement pursuant to which it has
agreed, subject to the terms therein, to cause its affiliates to vote their
shares of Common Stock in favor of the Merger Agreement. Because these shares
represent approximately 54% of the outstanding Common Stock, it is anticipated
that a quorum will be obtained and sufficient shares of Common Stock will be
voted to approve and adopt the Merger Agreement. It is not anticipated that a
quorum will fail to be obtained, nor is it anticipated that the Special Meeting
will need to be postponed or adjourned to permit additional time to solicit and
obtain additional proxies or votes.
The obligations of NSC and Holdings to consummate the Merger are subject
to, among other things, the condition that the stockholders of NSC, by the
requisite vote thereof, approve and adopt the Merger Agreement. See "The Merger
Agreement -- Conditions Precedent."
STOCKHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES REPRESENTING COMMON STOCK
WITH THEIR PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, CERTIFICATES
SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF
TRANSMITTAL, WHICH WILL BE SENT TO STOCKHOLDERS PROMPTLY AFTER THE EFFECTIVE
TIME.
SOLICITATION OF PROXIES
NSC will bear the costs of soliciting proxies in the accompanying form from
stockholders. In addition to soliciting proxies by mail, directors, officers and
employees of NSC, without receiving additional compensation therefor, may
solicit proxies by telephone, by telegram, or in person. NSC has also retained
Morrow & Company at an estimated cost of $5,000, plus reimbursement of expenses,
to assist NSC in the solicitation of proxies from brokerage firms and other
custodians, nominees and fiduciaries. Arrangements will be made with brokerage
firms and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of shares of Common Stock held of record by
such persons, and NSC will reimburse such brokerage firms, custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith.
12
<PAGE> 18
THE MERGER
The discussion in this Proxy Statement of the Merger and the material terms
of the Merger Agreement is subject to, and qualified in its entirety by
reference to, the Initial Merger Agreement and Amendment No. 1, copies of which
are attached to this Proxy Statement as Annex A-1 and Annex A-2, respectively,
and are incorporated herein by reference.
BACKGROUND OF THE MERGER
On November 6, 1997, at a regular meeting of the Board, the Board
authorized NSC's management to retain the services of an investment banking firm
to assist and advise NSC in exploring strategic alternatives to enhance the
value of the business. Subsequent thereto, NSC's management met with various
financial advisors and eventually sought the services of BT Alex. Brown.
On February 12, 1998, BT Alex. Brown submitted a presentation to the Board
regarding various internal and external strategic options for enhancing
stockholder value, including internal growth of existing and new businesses,
accelerating growth through acquisitions, and the sale of NSC to a strategic or
financial buyer. The Board authorized management to retain formally BT Alex.
Brown to assist NSC with the exploration and pursuit of such options. During
this period, NSC and BT Alex. Brown entered into a formal agreement for BT Alex.
Brown to provide to NSC advisory and investment banking services with respect to
the exploration of strategic alternatives. The Board, with the assistance of BT
Alex. Brown, determined that the sale of NSC to a strategic or financial buyer
represented NSC's best alternative. The Board concluded that entering into new
business lines through acquisitions and the internal improvement of existing
operations would require significant new capital, which was not readily
available, and questioned the impact of such activities on stockholder value in
light of the inherent risks of such activities.
During the period from March 9, 1998 through October 23, 1998, BT Alex.
Brown prepared and revised a descriptive memorandum with respect to NSC's
business and approached approximately 15 financial sponsors and 28 strategic
parties to profile and discuss a potential transaction with NSC. BT Alex. Brown
distributed the descriptive memorandum to 18 parties, each of which executed a
confidentiality agreement with NSC. In addition, during such time period, NSC's
management conducted presentations for six parties that had expressed a
continuing interest in a potential transaction with NSC. Additional detailed
financial and operational information was provided to selected parties and
various interested parties conducted preliminary due diligence and discussions
of a potential transaction with NSC.
On July 6, 1998, Holdings submitted a proposal to acquire NSC for a price
per share of approximately $1.40, payable in cash, with Waste Management
receiving a subordinated promissory note in the amount of $4 million for a
proportionate percentage of its shares of Common Stock. Holdings' proposal of
July 6, 1998 also provided that Waste Management's affiliate, Rust, and NSC
would convert the existing working capital loan from Rust to NSC, in the
principal amount of approximately $4.5 million (the "Olshan Note"), into a
subordinated promissory note of like amount with all principal due in a single
payment on December 31, 2005 but which did not bear interest. Holdings' proposal
of July 6, 1998 was subject to due diligence and other specified conditions.
Subsequent to receipt of such proposal, BT Alex. Brown continued discussions
with Holdings and other interested parties.
On July 20, 1998, Holdings submitted a revised proposal for the acquisition
of NSC for a price per share of approximately $1.60, payable in cash, with Waste
Management receiving a subordinated promissory note in the amount of $2 million
for a proportionate percentage of its shares of Common Stock. The Holdings' July
20, 1998 proposal remained subject to due diligence and other specified
conditions. On or about the same time as Holdings' proposal of July 20, 1998, BT
Alex. Brown received written proposals or expressions of interest in the
acquisition of NSC from three other parties (such parties, the "Second Bidder,"
the "Third Bidder" and the "Fourth Bidder," respectively). The proposal
submitted by the Second Bidder provided for merger consideration of
approximately $1.80 per share, payable in cash, together with a discount of the
Olshan Note. The proposal submitted by the Third Bidder provided for merger
consideration of approximately $1.00 per share with the form of consideration
still to be
13
<PAGE> 19
determined. The proposal submitted by the Fourth Bidder provided for merger
consideration of approximately $2.00 per share, with the form of consideration
to be determined, but with specific indication that the proposed transaction
would include a combination of cash and stock in the entity resulting from the
merger. Each of these proposals was subject to due diligence and other specified
conditions.
On August 5, 1998, at a regular meeting of the Board, BT Alex. Brown
provided to the Board a presentation regarding the July 20, 1998 proposal of
Holdings and the proposals received from the other three bidders. BT Alex. Brown
reviewed in detail the process that had been followed in seeking to pursue
various strategic alternatives to maximize stockholder value and reviewed with
the Board the financial terms of each of the proposals, the relative strengths
of each of the proposals, and the potential capability of each of the interested
parties to finance the proposed transactions. While no decision was made to
accept any of the proposals, it was the consensus of the Board that each of the
interested parties should be directed to provide to the Board appropriate
evidence of each party's ability to obtain financing for the transaction. NSC
thereafter notified each of the interested parties in writing that the Board
would further consider each of the proposals submitted by the various interested
parties provided that each interested party could present to NSC appropriate
evidence of such party's ability to obtain financing for the proposed
transaction on or before September 21, 1998.
On August 10, 1998, Holdings forwarded a written communication to NSC
providing additional evidence of its ability to obtain financing for its offer
of July 20, 1998 in the form of a letter from a reputable third party bank
regarding the personal financial position of Holdings' principal investor and
indicating that it would move forward on the transaction only on an exclusive
basis through September 30, 1998. On or about August 11, 1998, NSC received
information that the Second Bidder would not be capable of obtaining the
necessary financing for its acquisition proposal.
On August 13, 1998, the Board held a special telephonic meeting to review
the current status of the discussions with the various interested parties and
the demand by Holdings for a period of exclusivity. NSC's financial and legal
advisors reviewed the status of each of the proposals with the Board, which
included information that the Second Bidder would not be able to obtain
financing for its acquisition proposal. In addition, the Board was informed that
the Fourth Bidder was still at a very preliminary stage and was not ready to
proceed with a transaction. The Board was also informed of the financial
credibility of Holdings' principal investor. Although the Board concluded that
such evidence was not sufficient for the Board to accept Holdings' offer at that
time, the Board recognized that Holdings had provided more evidence of
financing, had submitted a proposal economically superior to the proposal
submitted by the Third Bidder (the only remaining bidder at that time) and was
much further along in the financing and due diligence process than any other
interested party. After further consideration of these factors, and upon
receiving advice of NSC's financial and legal advisors, the Board authorized NSC
to enter into an exclusivity arrangement with Holdings for a period up to
September 30, 1998 to allow Holdings sufficient time to finalize an agreement
for the acquisition of NSC and to provide firm evidence of its ability to
finance the proposed transaction. On August 13, 1998, NSC and Holdings entered
into a letter agreement providing for this arrangement.
Subsequent to August 13, 1998, Holdings entered into its due diligence
investigation with respect to NSC's business and engaged in efforts to obtain a
firm financing commitment for the proposed transaction. On September 25, 1998,
legal counsel for Holdings submitted to legal counsel for NSC a draft merger
agreement for Holdings' acquisition of NSC. Immediately thereafter, NSC's
financial and legal advisors advised Holdings and its legal counsel that the
draft agreement was unacceptable in a variety of respects, and indicated that it
was imperative that Holdings and its legal counsel provide an acceptable
definitive agreement and sufficient evidence of Holdings' ability to finance the
transaction on or before September 30, 1998.
On September 28, 1998, the Board held a special telephonic meeting at which
time the Board received a status report from NSC's management and legal and
financial advisors as to the progress of the proposed transaction with Holdings.
After consideration of the issues presented by NSC's legal and financial
advisors, the Board determined that because Holdings had failed to provide
sufficient evidence of financing and an acceptable definitive agreement, the
exclusivity
14
<PAGE> 20
arrangement previously granted to Holdings would be allowed to expire on
September 30, 1998 without further extension and NSC should inform Holdings that
it would be willing to continue discussions with Holdings on a non-exclusive
basis. On October 1, 1998, NSC notified Holdings in writing that the exclusivity
arrangement was terminated, but indicated that NSC was willing to continue
negotiations and discussions with Holdings on a non-exclusive basis.
During the period from October 1, 1998 to November 5, 1998, BT Alex. Brown
continued to seek additional interested parties for a potential transaction with
NSC and continued discussions with Holdings and other parties that had
previously expressed an interest in pursuing a potential transaction with NSC.
On November 5, 1998, at a regular meeting of the Board, BT Alex. Brown provided
the Board with an update as to the status of the process and indicated that
negotiations and discussions were continuing with various interested parties and
that additional interested parties had become involved in the process. At that
time, BT Alex. Brown advised the Board that there were eight interested parties
that had been engaged in discussions with respect to a potential transaction
with NSC and reviewed the status of the discussions with each of the interested
parties. The Board directed BT Alex. Brown to advise each of the interested
parties that a deadline would be established for each of the interested parties
to submit indications of interest for a proposed transaction with NSC together
with evidence of the ability to finance any proposed transaction. On October 20,
1998, BT Alex. Brown forwarded written communications to each of the interested
parties requesting that each of the interested parties submit a good faith
non-binding indication of interest no later than November 10, 1998. Seven of the
interested parties executed, or had previously executed, confidentiality
agreements and were permitted to conduct due diligence. Each of the interested
parties, other than Holdings, however, conducted relatively limited due
diligence. Holdings was the only party that conducted extensive due diligence
during this period and, as a result, obtained the highest level of familiarity
with NSC and its business.
On November 10, 1998, Holdings submitted a revised proposal to acquire NSC
for a price per share of approximately $1.20 in cash payable to all of NSC's
stockholders. On or about November 10, 1998, NSC also received proposals from
four other interested parties. Two of these proposals (one of which was
submitted by the Third Bidder) offered to acquire NSC for merger consideration
of approximately $1.00 per share, payable in cash. The third of these proposals
was submitted by a new bidder (the "Fifth Bidder") and provided for merger
consideration of approximately $1.35 per share, payable in cash, together with a
restatement of the Olshan Note to a $3 million non-interest bearing promissory
note. The last of these proposals, which was submitted by the Fourth Bidder,
offered merger consideration of approximately $1.50 per share, to be paid
one-half in cash and one-half in stock in the newly combined entity that would
result from the proposed transaction except for Waste Management, which would
receive a promissory note in lieu of equity in the new entity.
On November 12, 1998, the Board held a special telephonic meeting during
which NSC's legal and financial advisors reviewed the proposals submitted by
Holdings and each of the other four interested parties. A representative of
Waste Management also participated in the meeting. The Board was also provided
with information regarding the terms and conditions of each of the proposals,
and the contingencies to which each proposal was subject as well as the ability
of each party to finance the proposed transaction. As part of its deliberations,
the Board determined that the proposal submitted by the Fourth Bidder was not
acceptable because (i) the proposal did not contain a sufficiently large cash
component, (ii) the value of the equity component of the proposal was uncertain,
(iii) the Fourth Bidder needed additional time to conduct due diligence, and
(iv) the Fourth Bidder had not provided evidence of financing capability. With
this determination having been made, the Board then focused on the offer
received from the Fifth Bidder, but the Board was advised that the Fifth Bidder
had completed only minimal due diligence to date, would need to complete further
due diligence before finalizing an agreement with respect to the proposed
transaction, and would need to take significant actions to obtain the necessary
financing for the transaction. The Board was advised by NSC's financial advisors
and management that Holdings still represented the best potential for completing
a transaction primarily because (i) Holdings had conducted extensive due
diligence on NSC far in excess of any other prospective purchaser, (ii) as a
consequence of this due diligence effort, Holdings had obtained a far greater
appreciation for the bonding, surety and letter of credit requirements that
confronted NSC, (iii) Holdings had taken account of these requirements in
developing a plan to finance the acquisition of NSC, (iv) two
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reputable third party lenders had delivered letters to NSC expressing an
interest in financing Holdings' proposal, and (v) Holdings had advised NSC that
a commitment letter from one or both of these lenders would be forthcoming in
the near future. As a consequence of these factors, the Board believed that
Holdings would be able to obtain financing for the acquisition of NSC, and that
NSC should continue discussions with Holdings, assuming Holdings would match the
proposal made by the Fifth Bidder.
The representative of Waste Management participating in the November 12
telephonic meeting of the Board indicated at the meeting that Waste Management
would be willing to consider accepting a note from Holdings for a portion of its
shares of Common Stock in order to facilitate the transaction and would agree to
restructure the Olshan Note. At the conclusion of this meeting of the Board, the
Board directed BT Alex. Brown to advise Holdings that Holdings would need to
meet a minimum purchase price of $1.35 per share and to further advise Holdings
of the manner in which Waste Management was willing to facilitate such a
transaction. The Board further directed BT Alex. Brown to inform both Holdings
and the Fifth Bidder that each party was in final consideration for a potential
transaction with NSC provided that each party could complete all necessary due
diligence, negotiate a definitive agreement, and obtain a firm financing
commitment by the end of the month. The Board imposed these conditions on
Holdings and the Fifth Bidder in an effort to create an incentive for them to
move quickly. The Board was concerned about the effect of further delay of the
sale process on NSC's business, especially in light of the fact that NSC's
selling efforts had been underway for more than one year.
Subsequent to the November 12, 1998 special telephonic meeting of the
Board, BT Alex. Brown advised both Holdings and the Fifth Bidder of the
directions received from the Board. On November 16, 1998, Holdings submitted a
revised offer to acquire NSC for a merger consideration of $1.35 per share,
payable in cash, with Waste Management to accept a subordinated promissory note
in the principal amount of $1,345,168 bearing interest at a fixed rate of
12 1/2% per annum, paid quarterly, with all principal due on December 31, 2005
in exchange for the surrender of 996,420 shares of Common Stock. Holdings' offer
of November 16, 1998 further proposed that the Olshan Note would be converted
into a subordinated promissory note in the principal amount of $5 million
bearing no stated interest with all principal due in a single payment on
December 31, 2005 with Waste Management causing all of the assets of ODC, an
affiliate of Waste Management, to be transferred to a subsidiary of NSC in
exchange for the increase in the Olshan Note. Shortly thereafter, the Fifth
Bidder informed BT Alex. Brown that one of its partners was no longer interested
in participating in the transaction and, as a result, the Fifth Bidder was not
interested in moving forward with a transaction.
On November 20, 1998, Holdings' legal counsel submitted a new draft of a
merger agreement to NSC's legal counsel and financial advisors, and thereafter
the respective legal counsel for NSC and Holdings engaged in negotiations with
respect to the draft merger agreement. This draft included, among other things,
a financing contingency. During this period, Holdings delivered to NSC a
financing commitment letter from a third party lender, and Holdings and Waste
Management agreed that the principal amount of the $4.5 million non-interest
bearing Olshan Note payable by ODM to Rust would be discounted at a rate of
12 1/2% to a principal amount of $2.4 million and that the restated unsecured
subordinated promissory note would then be changed to be an interest bearing
note in that amount with interest at a rate of 12 1/2% per annum, payable
quarterly.
On December 11, 1998, at a special telephonic meeting of the Board, the
Board was updated by NSC's legal and financial advisors. As part of this report,
BT Alex. Brown reported that the Fourth Bidder had submitted a new proposal to
acquire NSC for a merger consideration of $1.35 per share, payable in cash, with
Waste Management to accept a subordinated promissory note in the principal
amount of $6,263,904 bearing interest at a fixed rate of 6%. This note was
intended to compensate Waste Management for the surrender of the Olshan Note and
3,158,448 shares of Common Stock. Following discussion, the Board concluded that
the new proposal submitted by the Fourth Bidder was inferior to Holdings'
November 16, 1998 proposal from an economic standpoint. During this meeting,
NSC's legal counsel advised the Board as to the status of negotiations with
Holdings, including Holdings' request for a financing contingency and the fact
that Holdings' financing commitment letter included a number of contingencies.
After
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consultation, the Board determined that, despite the delays, Holdings still
represented the best potential for completing a transaction at the highest
possible price to stockholders, primarily because: (i) the Fifth Bidder had
withdrawn from the process; (ii) Holdings was substantially further along in due
diligence than the Fourth Bidder and had a far greater appreciation for the
financing requirements confronting NSC than did the Fourth Bidder; (iii)
Holdings' November 16 proposal was economically superior to the Fourth Bidder's
latest proposal in that Holdings' proposal included a significantly greater cash
component and the promissory note component included a significantly higher
interest rate; (iv) Holdings had delivered a financing commitment letter from a
reputable third party lender, albeit with a number of contingencies, which
appeared capable of being resolved in a timely fashion; and (v) the Fourth
Bidder had not provided any evidence of financing capability despite the fact
that it had been involved in this process for approximately six months. As a
result, the Board instructed NSC's legal counsel to advise Holdings of NSC's
position on the various issues discussed at the meeting, including that NSC
would (i) not agree to a transaction with a financing contingency and (ii)
require Holdings to deliver a firm financing commitment letter to NSC prior to
NSC's entering into a merger agreement.
Following this meeting, NSC's legal and financial advisors informed
Holdings of the Board's determination. Holdings, in turn, indicated that it
would require a further thirty day exclusivity period during which Holdings'
lender would be permitted to conduct due diligence in an effort to provide an
unqualified financing commitment.
On December 23, 1998, at a special telephonic meeting of the Board, the
Board was updated by NSC's legal and financial advisors as to the status of the
negotiations between Holdings and NSC and, after consideration, the Board
approved NSC entering into a thirty day exclusivity arrangement with Holdings to
expire on January 24, 1999 so long as Holdings would agree to (i) remove the
financing contingency from the draft merger agreement and (ii) provide NSC with
a firm financing commitment on or prior to January 24, 1999. The Board's
decision to grant Holdings this thirty day exclusivity arrangement was based
primarily on its view that (i) despite the delays, Holdings still represented
the best potential for completing a transaction at the highest possible price to
stockholders, (ii) Holdings had advised NSC that, in order to obtain a firm
financing commitment, lender due diligence would be required at a significant
cost to Holdings, and that Holdings was unwilling to incur this cost without
exclusivity, (iii) Holdings' proposal, at that time, was still the best proposal
received by NSC from an economic standpoint, and (iv) Holdings had made
meaningful progress towards obtaining financing while none of the other bidders
had done so. On December 24, 1998, NSC, Waste Management and Holdings entered
into letter agreements confirming the exclusivity arrangement.
During the period from December 24, 1998 to January 22, 1999, NSC's legal
and financial advisors continued negotiations of the definitive agreements for
the transaction and Waste Management's legal advisors became increasingly
involved in this process. It was also during this period that Holdings' lender
conducted its due diligence investigation of NSC and Holdings became aware of
certain identifiable contract losses that would adversely affect NSC's 1998
fourth quarter operating results, which were disappointing compared to NSC's
financial performance during the first three quarters of 1998 and in light of
NSC management's and Holdings' prior expectations. This disappointment was
compounded by the fact that these contract losses would adversely affect NSC's
cash balances as reflected on its 1998 year-end balance sheet.
On January 27, 1999, Holdings delivered a letter to NSC and BT Alex. Brown
in which Holdings proposed to reduce the merger consideration to $1.12 per
share, payable in cash, with Waste Management accepting a subordinated
promissory note (the "Initial Exchange Subordinated Promissory Note") in the
amount of $1,115,990 instead of the previously proposed note in the principal
amount of $1,345,168. Holdings' January 27 letter attributed this reduction to
NSC's disappointing fourth quarter financial performance. Holdings' letter of
January 27 included a copy of a financing commitment letter from a third party
lender, subject to certain contingencies.
On January 28, 1999, at a special telephonic meeting of the Board, the
Board discussed at length Holdings' letter of January 27. After consultation
with NSC's legal and financial advisors, the Board concluded that it was unable
to either accept or reject Holdings' revised proposal given the fact that
Holdings had not delivered a firm financing commitment letter and instructed
NSC's
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legal and financial advisors to continue discussions with Holdings in an effort
to better understand the basis for the proposed price reduction and to firm up
Holdings' financing commitment.
On February 2, 1999, representatives of Holdings, NSC, Waste Management and
their respective advisors met in Chicago to continue discussions. At the
conclusion of these discussions, NSC's management determined to present
Holdings' revised proposal to the Board and Holdings committed to endeavor to
remove certain contingencies contained in its financing commitment letter. As
part of these discussions, Holdings and Waste Management agreed to reduce the
interest rate payable on the Initial Exchange Subordinated Promissory Note to
11% and to reduce the maturity date to December 31, 2003.
On February 9, 1999, Holdings delivered a revised commitment letter to NSC,
which eliminated certain of the contingencies contained in Holdings' original
commitment letter.
On February 10-11, 1999, BT Alex. Brown received inquiries from two
separate parties who expressed an interest in pursuing an acquisition
transaction with NSC.
On February 11, 1999, a special telephonic meeting of the Board was held.
At this meeting, NSC's legal counsel reviewed the terms of the proposed
transaction with Holdings and the fiduciary duties of the Board in considering
such transaction. BT Alex. Brown thereafter made a presentation to the Board
regarding valuation, including a review of the analyses employed by BT Alex.
Brown, and conveyed an oral opinion (subsequently confirmed in writing) that, as
of February 11, 1999, the Holdings transaction would be fair to NSC's public
stockholders from a financial point of view. At the conclusion of these
presentations, the Board under took a lengthy discussions of the proposed
transaction, including valuation. As part of these deliberations, the Board
discussed the reasons to enter in to the proposed transaction despite the price
reduction proposed by Holdings, including (i) the fact that the proposed
transaction allows stockholders of NSC to dispose of their shares of Common
Stock at a price in excess of recent trading prices without incurring the costs
typically associated with market transactions, (ii) the exhaustive sale process
that had been ongoing for more than a year, (iii) NSC's operating results for
the fourth quarter of 1998, (iv) the price proposed to be paid by Holdings was
in excess of any other proposal received from a prospective suitor who had
completed meaningful due diligence on NSC, (v) the fact that no assurance could
be given by management or BT Alex. Brown that reopening the process would yield
a higher return to stockholders, (vi) the advice from BT Alex. Brown that the
proposed transaction would be fair to NSC's public stockholders, (vii) the fact
that The Nasdaq Stock Market may delist the Common Stock, and (viii) the
proposed transaction allows the Board, under certain circumstances, to consider
other offers for NSC should they arise subject to the payment of a relatively
small "break-up" fee. At the conclusion of this discussion, the Board determined
to adjourn the meeting until the following day to allow management and BT Alex.
Brown to respond to certain valuation related questions that had arisen during
the meeting. These questions related to the accuracy of certain assumptions
underlying management's projections that were used by BT Alex. Brown in its
fairness review.
On February 12, 1999, a special telephonic meeting of the Board was held.
At this meeting, BT Alex. Brown and management responded to the valuation
questions that had arisen on the prior day, and management confirmed the
accuracy of the assumptions underlying its projections. Following this
discussion, the Board unanimously approved the Initial Merger Agreement and
authorized its officers to execute it. On February 12, 1999, the Initial Merger
Agreement was executed and delivered. On February 15, 1999, a press release
announcing the Initial Merger Agreement was issued by NSC.
On February 26, 1999, NSC received a letter from a new bidder (the "Sixth
Bidder") proposing to acquire NSC for $1.25 per share payable in cash, with
Waste Management to receive a note for a portion of its shares of Common Stock.
The Board held a meeting on February 27, 1999 to discuss the proposal and
concluded that the February 26 letter was lacking in specificity in several
areas, including information regarding evidence of financing capability. As a
result, the Board concluded that the Sixth Bidder's proposal did not constitute
a Superior Proposal (as defined in the Initial Merger Agreement) and instructed
NSC's legal counsel to notify the Sixth Bidder that NSC could not take any
action with respect to its proposal. On March 5, 1999, NSC received a second
letter from the Sixth Bidder clarifying certain aspects of its February 26
letter.
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In response, the Board convened on March 7, 1999 to discuss the Sixth Bidder's
second letter and, with the advice of legal counsel, concluded that the Sixth
Bidder's proposal, as revised, remained insufficient to constitute a Superior
Proposal in that it did not contain any evidence of financing capability, and
instructed legal counsel to notify the Sixth Bidder that its proposal did not
constitute a Superior Proposal. NSC has received no further communication from
the Sixth Bidder.
On April 1, 1999, BT Alex. Brown received a letter from a new bidder (the
"Seventh Bidder") stating that it had formed a group of investors and was
preparing to make an offer for NSC, which would include a significantly higher
price than was contemplated under the Initial Merger Agreement. The Seventh
Bidder stated that it would provide a formal proposal shortly. On April 9, 1999,
NSC received a second letter from the Seventh Bidder proposing to acquire NSC
for $1.25 per share payable in cash, with Waste Management to receive a note for
a portion of its shares of Common Stock. The Board held a meeting on April 9,
1999 to discuss the Seventh Bidder's proposal and concluded that such April 9
letter did not constitute a Superior Proposal in that it did not contain any
evidence of financing capability, and the Board instructed legal counsel to
notify the Seventh Bidder that its proposal did not constitute a Superior
Proposal. On April 15, 1999, NSC's legal counsel received a third letter from
the Seventh Bidder's legal counsel supplementing the April 9 letter and
providing evidence of financing capability. On April 16, 1999, the Board
convened to discuss the Seventh Bidder's proposal, as supplemented, and
determined that the Seventh Bidder's proposal did constitute a Superior
Proposal. As a result of such determination, the Board authorized NSC to enter
into discussions and negotiations with the Seventh Bidder and allow the Seventh
Bidder to conduct due diligence examination of NSC. During the two-week period
that followed this determination, the Seventh Bidder conducted a due diligence
examination of NSC, counsel to NSC and the Seventh Bidder negotiated the terms
of various transaction documents and NSC issued a press release disclosing the
proposal that had been made by the Seventh Bidder.
During the week of May 3, 1999, the Seventh Bidder submitted copies of
definitive transaction documents which had been executed by the Seventh Bidder
to NSC providing for the acquisition of NSC by the Seventh Bidder for $1.25 per
share payable in cash, with Waste Management to receive a promissory note in the
aggregate principal amount of $1,245,525 in exchange for 996,420 shares of
Common Stock. Such documents also provided for a $250,000 termination fee to be
paid by (i) NSC to the Seventh Bidder in certain circumstances and (ii) the
Seventh Bidder to NSC in certain other circumstances. In response, the Board
approved NSC's entry into such transaction documents and NSC notified Holdings
that it intended to terminate the Initial Merger Agreement subject to Holdings'
rights thereunder. On May 7, 1999, NSC received a letter from Holdings proposing
to amend the Initial Merger Agreement to increase the consideration payable
thereunder to $1.25 per share on the condition that, in the event that NSC
terminated the Merger Agreement as a result of accepting a Superior Proposal,
NSC would reimburse Holdings, in addition to the $100,000 termination fee
already payable thereunder, for all documented out-of-pocket fees and expenses
incurred by Holdings in connection with the transactions contemplated thereby in
an amount not to exceed $400,000.
On May 10, 1999, NSC's Board convened to discuss Holdings' revised proposal
and concluded that the Seventh Bidder's proposal no longer constituted a
Superior Proposal in light of Holdings' revised offer. In this regard, the
Board's determination was based upon the following factors: (i) Holdings was
substantially further along in the acquisition process than was the Seventh
Bidder and, thus, Holdings was better positioned to close a transaction more
rapidly than the Seventh Bidder, (ii) the Seventh Bidder's proposal included
more potential obstacles to closing, including (a) the need to file new proxy
materials with the Commission, (b) the possible need to make a filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and (c) the
fact that the Seventh Bidder's lender (who had yet to be identified) and Waste
Management needed to negotiate the terms of an intercreditor agreement, (iii)
the proposals submitted by Holdings and the Seventh Bidder each contemplated
merger consideration of $1.25 per share and, thus, the proposal submitted by the
Seventh Bidder did not constitute a Superior Proposal within the meaning of the
Initial Merger Agreement, (iv) the Seventh Bidder remained free to submit a
revised proposal to NSC, (v) the Board's belief that the enhanced termination
fee payable to Holdings did not impose a significant impediment to any new
proposal that might be
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made by the Seventh Bidder, and (vi) Holdings' revised proposal included a
letter from its lender indicating that it would support the acquisition of NSC
at $1.25 per share. Shortly thereafter, NSC, Holdings, Merger Subsidiary and
Waste Management entered into Amendment No. 1. On May 11, 1999, NSC issued a
press release disclosing its entry into Amendment No. 1.
On May 14, 1999, NSC received a letter from the Seventh Bidder indicating
that it would increase its merger consideration to $1.30 per share, with Waste
Management to accept a promissory note in the principal amount of $1,295,346 in
exchange for 996,420 shares of Common Stock. Such proposal was conditioned upon
NSC and Waste Management terminating all existing agreements with Holdings,
including rescinding the expense reimbursement provision included in Amendment
No. 1. Later that day, the Board convened and concluded that the Seventh
Bidder's revised proposal did not constitute a Superior Proposal, noting that
the Board could not take any action with respect to the Seventh Bidder's revised
proposal because it did not understand the purpose or intent of such proposal
insofar as it related to the request to rescind the expense reimbursement
provision included in Amendment No. 1. This determination was communicated to
the Seventh Bidder.
On May 20, 1999, NSC received a further letter from the Seventh Bidder
reiterating its willingness to acquire NSC on the terms outlined in its May 14
letter except that the May 20 letter suggested that the Seventh Bidder would no
longer require NSC and Waste Management to rescind the expense reimbursement
provision contained in Amendment No. 1. Later that day, the Board convened to
consider the Seventh Bidder's latest proposal. Following discussion, the Board
determined to proceed with the Merger despite the Seventh Bidder's latest
proposal. The Board's determination was based on its view that the relatively
modest increase in merger consideration proposed by the Seventh Bidder was
insufficient to outweigh certain other factors, including: (i) Holdings and NSC
had agreed to a June 22, 1999 closing date for the Merger and Holdings had
delivered firm evidence of its ability to finance the acquisition of NSC, while
the Seventh Bidder's proposal was uncertain as to timing, especially given (a)
the need to file new proxy materials with the Commission with respect to the
Seventh Bidder, (b) the possible need by the Seventh Bidder to make a filing
under the HSR Act, and (c) the fact that the Seventh Bidder still had not
identified a lender with whom Waste Management could negotiate the terms of an
intercreditor agreement, (ii) in the Board's judgment, the Seventh Bidder's
proposal contained a significantly greater risk of non-consummation given (a)
the obstacles described in (i) above, (b) that, while the Seventh Bidder had
demonstrated access to substantial capital to finance the acquisition of NSC,
the financing aspect of the Seventh Bidder's proposal remained uncertain in the
following respects: (1) the amount of such demonstrated capital was not
sufficient to finance the Seventh Bidder's latest proposal, (2) the Seventh
Bidder had not identified how the additional capital would be raised although a
representative of the Seventh Bidder had indicated that some amount of debt
financing would be employed but the Seventh Bidder had not identified a lender
for this purpose, and (3) NSC's management did not believe that the Seventh
Bidder's proposal adequately addressed NSC's need for a letter of credit
facility following the closing, and (c) that Holdings had expended far greater
time, energy, resources and money in completing a transaction with NSC and,
thus, had a far greater incentive to actually consummate a transaction with NSC
than did the Seventh Bidder who had invested relatively modest resources in such
transaction, (iii) NSC had sustained losses in each of its last two fiscal
quarters and the Board was concerned that further delay in consummating a
transaction would jeopardize the value of NSC and might ultimately result in a
reduction in the purchase price that any prospective purchaser might pay for
NSC, (iv) the professional fees that NSC had incurred during the process had
begun to adversely affect NSC's operating results and might further jeopardize
the value of NSC should such fees continue indefinitely, (v) NSC had been
advised by The Nasdaq Stock Market that its willingness to postpone the
delisting of the Common Stock would expire on May 31, 1999, (vi) NSC had been
advised by its lender that its existing letter of credit facility (which is
vital to NSC's on-going operations) would expire on August 30, 1999 and that
such lender would not extend such facility beyond that date, and (vii) Holdings
is permitted to terminate the Merger Agreement without liability or obligation
to NSC thereunder if the Merger is not consummated by June 30, 1999. This
determination was communicated to the Seventh Bidder.
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NSC'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board has determined that the Merger Agreement and the Merger are fair
to and in the best interest of NSC and its stockholders and has approved and
adopted the Merger Agreement. Accordingly, the Board recommends that
stockholders vote "FOR" approval and adoption of the Merger Agreement.
In reaching its determination that the Merger Agreement and the Merger are
fair to and in the best interests of NSC and its stockholders, the Board
considered a number of factors, including, without limitation, the following:
(i) With respect to the Initial Merger Agreement, NSC's discussions
with other parties who were believed to be most likely to have an interest
in acquiring NSC, the inability of other parties to provide NSC with a firm
financing commitment, and the fact that none of the other parties had
endeavored to engage in a meaningful due diligence effort in respect of
NSC.
(ii) With respect to the Initial Merger Agreement, the Board's belief
that the Merger is superior to the proposals submitted by the Fourth Bidder
given that each of the proposals submitted by the Fourth Bidder included
(a) an insufficiently large cash component, (b) a financing contingency,
which the Fourth Bidder was unable or unwilling to eliminate by
demonstrating an ability to finance the acquisition of NSC, and (c) a due
diligence contingency. In addition, the first two proposals submitted by
the Fourth Bidder included a large equity component, the value of which was
uncertain at best, and the last proposal submitted by the Fourth Bidder
included a promissory note component, the size of which was greater than
the promissory notes payable to Waste Management in the Merger and the
value of which was inferior to the value of the promissory notes payable to
Waste Management in the Merger.
(iii) With respect to the Initial Merger Agreement, the Board's belief
that the Merger represents the best alternative available to NSC given that
the Merger Consideration is in excess of any other proposal received by NSC
from a prospective purchaser who had completed meaningful due diligence on
NSC and who had demonstrated an ability to finance the acquisition of NSC.
(iv) With respect to the Initial Merger Agreement, the possibility of
discontinuing the selling efforts or restarting the selling process once
Holdings had failed to timely deliver a firm financing commitment and,
subsequently, had proposed a price reduction. In this regard, the Board
concluded that discontinuing the selling efforts would not be in the best
interests of stockholders. See "Selected Financial Data -- Certain
Projections." The Board also concluded that restarting the selling process
would be ill advised due to the fact that (a) NSC had been engaged in a
selling effort for more than one year and the Board was concerned that any
further delay might harm NSC's business and (b) no assurance could be given
by BT Alex. Brown or management that restarting the process would yield a
higher return to stockholders.
(v) The written opinion of BT Alex. Brown to the effect that, as of
the date of such opinion and based upon and subject to certain matters
stated therein, the Initial Merger Consideration of $1.12 per share was
fair, from a financial point of view, to the public stockholders of NSC,
and the Merger Consideration of $1.25 per share as reflected in Amendment
No. 1 is in excess of the Initial Merger Consideration. See "-- Opinion of
NSC's Financial Advisor."
(vi) With respect to the Initial Merger Agreement, the range of
implied per share equity values for NSC based on observed trading multiples
for selected public companies, transaction multiples for selected precedent
transactions and premiums received by stockholders of target companies for
the selected precedent transactions. See " -- Opinion of NSC's Financial
Advisor." In assessing this range, the Board observed that NSC generally
underperformed the selected public companies and target companies in the
selected precedent transactions based on key financial measures such as
revenue growth trends and profit margins.
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(vii) The current and prospective environment in which NSC operates,
including economic conditions and the competitive environment for the
asbestos-abatement industry generally.
(viii) The Board's view that the terms of the Merger Agreement, as
reviewed by the Board with its legal and financial advisors, are advisable
and fair to NSC and its stockholders and provide NSC with the flexibility
to, under certain circumstances, accept a Superior Proposal from, among
others, the Seventh Bidder and terminate the Merger Agreement. See "The
Merger Agreement -- Covenants -- No Solicitation" and "-- Additional
Agreements -- Fees and Expenses."
(ix) The Board's knowledge of the business, operations, properties,
assets, financial condition, prospects and operating results of NSC,
including NSC's operating results during the fourth quarter of 1998 and the
first quarter of 1999.
(x) The willingness of Waste Management to accept a portion of its
share of the Merger Consideration in the form of an interest bearing
subordinated promissory note.
(xi) The Board's knowledge of the possible delisting of the Common
Stock from The Nasdaq Stock Market National Market and the fact that the
proposed transaction allows stockholders of NSC to dispose of their shares
of Common Stock at a price in excess of recent trading prices without
incurring the costs typically associated with market transactions.
(xii) With respect to the proposal submitted by the Seventh Bidder on
April 9 as supplemented on April 15, the fact that (a) the Merger is likely
to be consummated more rapidly (and with fewer obstacles) than the
transaction proposed by the Seventh Bidder, (b) the proposals submitted by
Holdings and the Seventh Bidder were economically equivalent to NSC's
stockholders and, thus, the proposal submitted by the Seventh Bidder did
not constitute a Superior Proposal within the meaning of the Initial Merger
Agreement, and (c) Holdings' revised proposal included a letter from its
lender indicating that it would support the acquisition of NSC at $1.25 per
share.
(xiii) With respect to the proposal submitted by the Seventh Bidder on
May 14 as amended on May 20, the fact that (a) the Merger is likely to be
consummated more rapidly (and with fewer obstacles) than the transaction
proposed by the Seventh Bidder, (b) the Seventh Bidder's proposal included
a significantly greater risk of non-consummation than did the Merger, and
(c) further delay in completing a transaction could (i) jeopardize the
value of NSC and might ultimately result in a reduction in the purchase
price that any prospective purchaser might pay for NSC, (ii) result in the
delisting of the Common Stock from The Nasdaq Stock Market, (iii) result in
the expiration of NSC's existing letter of credit facility, and (iv) result
in Holdings terminating the Merger Agreement.
The foregoing discussion of the information and factors discussed by the
Board is not meant to be exhaustive but includes all material factors considered
by the Board. The Board did not quantify or attach any particular weight to the
various factors that it considered in reaching its determination that the Merger
Agreement and the Merger are fair to and in the best interests of NSC and its
stockholders. As a result of its consideration of the foregoing and other
relevant considerations, the Board determined that the Merger Agreement and the
Merger are advisable to and in the best interests of NSC and its stockholders
and approved and adopted the Merger Agreement. ACCORDINGLY, THE BOARD RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
NSC has been informed by Merger Subsidiary that the purpose of the Merger
is to enable Merger Subsidiary to acquire the entire equity interest in NSC.
OPINION OF NSC'S FINANCIAL ADVISOR
BT Alex. Brown has acted as financial advisor to NSC in connection with the
Merger. At the February 12, 1999 meeting of the Board, BT Alex. Brown delivered
its written opinion, dated as of February 12, 1999 to the Board to the effect
that, as of the date of such opinion, based upon and subject to the assumptions
made, matters considered and limits of the review undertaken by BT Alex. Brown,
the Initial Merger Consideration was fair, from a financial point of view, to
the public stockholders of NSC. The Board, in connection with its review of
Amendment No. 1, did not obtain an updated opinion from BT Alex. Brown because,
in the Board's judgment, such an
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opinion was unnecessary and did not justify the additional expense associated
with such opinion given that (i) BT Alex. Brown had previously opined that the
Initial Merger Consideration was fair from a financial point of view to NSC's
public stockholders and (ii) the Merger Consideration of $1.25 per share is in
excess of the Initial Merger Consideration.
THE FULL TEXT OF BT ALEX. BROWN'S WRITTEN OPINION, DATED FEBRUARY 12, 1999
(THE "BT ALEX. BROWN OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY BT
ALEX. BROWN IN CONNECTION WITH THE BT ALEX. BROWN OPINION, IS ATTACHED AS ANNEX
B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS
ARE URGED TO READ THE BT ALEX. BROWN OPINION IN ITS ENTIRETY. THE SUMMARY OF THE
BT ALEX. BROWN OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE BT ALEX. BROWN OPINION.
In connection with BT Alex. Brown's role as financial advisor to NSC, and
in arriving at its opinion, BT Alex. Brown has reviewed certain publicly
available financial and other information concerning NSC and certain internal
analyses and other information furnished to it by NSC. BT Alex. Brown has also
held discussions with members of the senior management of NSC regarding NSC's
business and prospects. In addition, BT Alex. Brown has (i) reviewed the
reported prices and trading activity of the Common Stock, (ii) compared certain
financial and stock market information for NSC with similar information for
certain other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations, (iv) reviewed the terms
of the Initial Merger Agreement and certain related documents, and (v) performed
such other studies and analyses and considered such other factors as it deemed
appropriate.
BT Alex. Brown has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning NSC, including, without limitation, any
financial information, forecasts or projections considered in connection with
the rendering of its opinion. Accordingly, for purposes of its opinion, BT Alex.
Brown has assumed and relied upon the accuracy and completeness of all such
information and BT Alex. Brown has not conducted a physical inspection of any of
the properties or assets, and has not prepared or obtained any independent
evaluation or appraisal of any of the assets or liabilities, of NSC. With
respect to the financial forecasts and projections made available to BT Alex.
Brown and used in its analyses, BT Alex. Brown has assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of NSC as to the matters covered thereby. In
rendering the BT Alex. Brown Opinion, BT Alex. Brown expresses no view as to the
reasonableness of such forecasts and projections or the assumptions on which
they are based. The BT Alex. Brown Opinion is necessarily based upon economic,
market and other conditions as in effect on, and the information made available
to it as of, the date thereof.
For purposes of rendering the BT Alex. Brown Opinion, BT Alex. Brown has
assumed that, in all respects material to its analysis, the representations and
warranties of Holdings, Waste Management and NSC contained in the Initial Merger
Agreement are true and correct, Holdings, Merger Subsidiary, Waste Management
and NSC will each perform all of the covenants and agreements to be performed by
it under the Initial Merger Agreement and all conditions to the obligations of
each of Holdings, Merger Subsidiary, Waste Management and NSC to consummate the
Merger will be satisfied without any waiver thereof. BT Alex. Brown has also
assumed that all material governmental, regulatory or other approvals and
consents required in connection with the consummation of the Merger will be
obtained and that in connection with obtaining any necessary governmental,
regulatory or other approvals and consents, or any amendments, modifications or
waivers to any agreements, instruments or orders to which either Holdings or NSC
is a party or is subject or by which it is bound, no limitations, restrictions
or conditions will be imposed or amendments, modifications or waivers made that
would have a material adverse effect on Holdings or NSC.
Set forth below is a brief summary of each material financial analyses
performed by BT Alex. Brown in connection with the BT Alex. Brown Opinion and
reviewed with NSC's Board at its meeting on February 11 and 12, 1999.
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Historical Financial Position. In rendering the BT Alex. Brown Opinion, BT
Alex. Brown reviewed and analyzed the historical and current financial condition
of NSC by assessing NSC's recent financial statements and analyzing NSC's
revenue, growth and operating performance trends.
Historical Stock Performance. BT Alex. Brown reviewed and analyzed the
daily closing per share market prices and trading volume for the Common Stock
during the period from February 9, 1998 to February 9, 1999 (the "Period"). In
addition, BT Alex. Brown also compared the movement, over the Period, of such
closing prices with the movement of (i) the Standard and Poor's 500 composite
average (the "S&P 500"), (ii) The Nasdaq Stock Market National Market composite
average (the "Nasdaq Composite"), and (iii) an index (the "Index") consisting of
the sum of the daily closing prices of eight publicly traded industrial services
companies (American Eco Corp., C.H. Heist Corp., EMCOR Group, Inc., ITEQ, Inc.,
Matrix Service Company, MYR Group, Inc., PDG Environmental, Inc., and REXX
Environmental Corp., collectively, the "Selected Companies"). BT Alex. Brown
noted that, on a relative basis, NSC underperformed each of the S&P 500, the
NASDAQ Composite and the Index over the Period. This information was presented
to give the Board background information regarding the stock price performance
of NSC over the Period.
Liquidity Analysis. BT Alex. Brown analyzed the liquidity of the Common
Stock and noted that the average number of shares of Common Stock traded during
the 30 trading days, three months, six months, and 12 months ended February 9,
1999 was 4,609 shares, 14,277 shares, 17,131 shares and 17,915 shares,
respectively.
Analysis Of Selected Publicly Traded Companies. BT Alex. Brown compared
certain financial information and commonly used valuation measurements for NSC
to corresponding information and measurements for the Selected Companies. Such
financial information and valuation measurements included, among other things,
(i) common equity market valuation; (ii) capitalization ratios; (iii) operating
performance; (iv) ratios of common equity market value as adjusted for debt and
cash ("Enterprise Value") to revenues, earnings before interest expense, income
taxes and depreciation and amortization ("EBITDA"), and earnings before interest
expense and income taxes ("EBIT"); (v) ratios of common equity market prices per
share ("Equity Value") to earnings per share ("EPS"); and (vi) ratios of Equity
Value times the total number of outstanding shares of common stock to book value
and tangible book value. To calculate the trading multiples for NSC and the
Selected Companies, BT Alex. Brown used publicly available information
concerning historical and projected financial performance, including published
historical financial information and earnings estimates reported by the
Institutional Brokers Estimate System ("IBES"). IBES is a data service that
monitors and publishes compilations of earnings estimates by selected research
analysts regarding companies of interest to institutional investors.
The number in parentheses following each multiple in this paragraph
represents the equity value per share for NSC implied by the preceding multiple.
BT Alex. Brown calculated that, on a trailing twelve month basis (based on
December 31, 1998 preliminary financial information), the multiple of Enterprise
Value to revenues was 0.1x for the Merger, compared to a range of 0.1x ($1.09)
to 0.5x ($5.09), with a mean of 0.3x ($3.09), for the Selected Companies; the
multiple of Enterprise Value to EBITDA for the twelve months ended December 31,
1998 was 3.8x for the Merger, compared to a range of 2.6x ($0.79) to 6.3x
($1.78), with a mean of 4.7x ($1.36), for the Selected Companies; and the
multiple of Enterprise Value to EBIT for the twelve months ended December 31,
1998 was 16.5x for the Merger, compared to a range of 3.1x ($0.29) to 8.6x
($0.63), with a mean of 6.9x ($0.52), for the Selected Companies. BT Alex, Brown
further calculated that the multiple of Equity Value to EPS for the twelve
months ended December 31, 1998 was 28.0x for the Merger, compared to a range of
6.3x ($0.22) to 12.5x ($0.44), with a mean of 9.3x ($0.33), for the Selected
Companies; the multiple of Equity Value to estimated calendar year 1999 EPS was
not meaningful for the Merger, using management's estimates for 1999 earnings
due to a lack of analyst coverage, compared to a range of 4.9x (NM) to 9.2x
(NM), with a mean of 7.4x (NM) for the Selected Companies; the multiple of
Equity Value times the total number of outstanding shares of common stock to
book value for the twelve months ended December 31, 1998 was 0.2x for the
Merger, compared to a range of 0.3x ($1.55) to 1.8x
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($9.32), with a mean of 1.0x ($5.18), for the Selected Companies; and the
multiple of Equity Value times the total number of outstanding shares of Common
Stock to tangible book value for the twelve months ended December 31, 1998 was
0.6x for the Merger, compared to a range of 0.4x ($0.70) to 2.6x ($4.58), with a
mean of 1.4x ($2.47), for the Selected Companies.
The number in parentheses following each multiple in this paragraph
represents the equity value per share for NSC implied by the preceding multiple.
BT Alex. Brown calculated that, on a trailing twelve month basis (based on
September 30, 1998 financial information), the multiple of Enterprise Value to
revenues was 0.1x for the Merger, compared to a range of 0.1x ($1.21) to 0.5x
($5.17), with a mean of 0.3x ($3.19), for the Selected Companies; the multiple
of Enterprise Value to EBITDA for the twelve months ended September 30, 1998 was
13.8x for the Merger, compared to a range of 2.6x ($0.42) to 6.3x ($0.69), with
a mean of 4.7x ($0.58), for the Selected Companies; and the multiple of
Enterprise Value to EBIT for the twelve months ended September 30, 1998 was not
meaningful for the Merger, compared to a range of 3.1x (Nil) to 8.6x (Nil), with
a mean of 6.9x (Nil), for the Selected Companies. BT Alex. Brown further
calculated that the multiple of Equity Value to EPS for the twelve months ended
September 30, 1998 was not meaningful for the Merger, compared to a range of
4.5x (Nil) to 13.3x (Nil), with a mean of 8.1x (Nil), for the Selected
Companies; the multiple of Equity Value to estimated calendar year 1999 EPS was
not meaningful for the Merger, using management's estimates for 1999 earnings
due to a lack of analyst coverage, compared to a range of 4.9x (NM) to 9.2x
(NM), with a mean of 7.4x (NM) for the Selected Companies; the multiple of
Equity Value times the total number of outstanding shares of common stock to
book value for the twelve months ended September 30, 1998 was 0.2x for the
Merger, compared to a range of 0.3x ($1.56) to 1.8x ($9.36), with a mean of 1.0x
($5.20), for the Selected Companies; and the multiple of Equity Value times the
total number of outstanding shares of Common Stock to tangible book value for
the twelve months ended September 30, 1998 was 0.6x for the Merger, compared to
a range of 0.4x ($0.70) to 2.6x ($4.56), with a mean of 1.4x ($2.45), for the
Selected Companies.
None of the companies utilized as a comparison are identical to NSC.
Accordingly, BT Alex. Brown believes the analysis of publicly traded comparable
companies is not simply mathematical. Rather, it involves complex considerations
and qualitative judgments, reflected in the BT Alex. Brown Opinion, concerning
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies.
Analysis of Selected Precedent Transactions. BT Alex. Brown reviewed the
financial terms, to the extent publicly available, of 16 proposed, pending or
completed mergers and acquisition transactions since August 1, 1994 involving
companies in the industrial services industry (the "Selected Transactions"). BT
Alex. Brown calculated various financial multiples based on certain publicly
available information for each of the Selected Transactions and compared them to
corresponding financial multiples for the Merger, based on the Initial Merger
Consideration. The transactions reviewed were: Fluor Daniel GTI, Inc. / The IT
Group, Inc. (announced 10/28/98), Underground Construction Company / Quanta
Services (announced 8/4/98), Atlantic Industrial Constructors / Group
Maintenance America Corp. (announced 6/12/98), Safety-Kleen Corp. / Laidlaw
Environmental Services, Inc. (announced 3/16/98), OHM Corp. / International
Technology Corp. (announced 1/15/98), Astrotech International Corp. / ITEQ Inc.
(announced 7/23/97), Scientific Ecology / GTS Duratek (announced 4/10/97),
Allwaste, Inc. / Philip Environmental, Inc. (announced 3/6/97), Serv-Tech, Inc.
/ Philip Environmental Inc. (announced 2/11/97), Chempower / American Eco Corp.
(announced 9/11/96), International Technology Corp. / The Carlyle Group
(announced 8/29/96), Groundwater Technology, Inc. / Fluor Daniel, Inc.
(announced 12/l/95), Nuclear Services Group / Thermo Remediation, Inc.
(announced 6/28/95), Rust-International Remediation Units / OHM Corp. (announced
12/6/94), Enserch Environmental Corp. / Foster Wheeler (announced 8/1/94).
The number in parentheses following each multiple in this paragraph
represents the equity value per share for NSC implied by the preceding multiple.
BT Alex. Brown calculated that on a trailing twelve month basis (based on
December 31, 1998 preliminary financial information), the multiple of Enterprise
Value to revenues was 0.1x for the Merger compared to a range of 0.3x ($3.16) to
1.9x ($19.16), with a mean of 0.7x ($7.16), for the Selected Transactions; the
multiple
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of Enterprise Value to trailing twelve month EBITDA was 3.8x for the Merger
compared to a range of 3.3x ($1.05) to 12.7x ($3.57), with a mean of 6.9x
($2.01), for the Selected Transactions; the multiple of Enterprise Value to
trailing twelve month EBIT was 16.5x for the Merger compared to a range of 3.8x
($0.40) to 22.1x ($1.53), with a mean of 13.5x ($1.00), for the Selected
Transactions. BT Alex. Brown further calculated that the multiple of Equity
Value times the total number of outstanding shares of common stock to trailing
twelve month net income was 28.0x for the Merger compared to a range of 4.5x
($0.16) to 42.6x ($1.50), with a mean of 21.0x ($0.74), for the Selected
Transactions; the multiple of Equity Value times the total number of outstanding
shares of common stock to book value was 0.2x for the Merger compared to a range
of 0.5x ($2.59) to 6.5x ($33.67), with a mean of 2.3x ($11.91), for the Selected
Transactions; and the multiple of Equity Value times the total number of
outstanding shares of common stock to tangible book value was 0.6x for the
Merger compared to a range of 0.9x ($1.59) to 9.6x ($16.92), with a mean of 3.4x
($5.99), for the Selected Transactions. All multiples for the Selected
Transactions were based on public information available at the time of
announcement of such transaction, without taking into account differing market
and other conditions during the five-year period during which the Selected
Transactions occurred.
The number in parentheses following each multiple in this paragraph
represents the equity value per share for NSC implied by the preceding multiple.
BT Alex. Brown calculated on a trailing twelve month basis (based on September
30, 1998 financial information), that the multiple of Enterprise Value to
revenues was 0.1x for the Merger compared to a range of 0.3x ($3.19) to 1.9x
($18.99), with a mean of 0.7x ($7.14), for the Selected Transactions; the
multiple of Enterprise Value to EBITDA for the twelve months ended September 30,
1998 was 13.8x for the Merger compared to a range of 3.3x ($0.47) to 12.7x
($1.17), with a mean of 6.9x ($0.74), for the Selected Transactions; the
multiple of Enterprise Value to EBIT for the twelve months ended September 30,
1998 was not meaningful for the Merger compared to a range of 3.8x (Nil) to
22.1x (Nil), with a mean of 13.5x (Nil), for the Selected Transactions. BT Alex.
Brown further calculated that the multiple of Equity Value times the total
number of outstanding shares of common stock to net income for the twelve months
ended September 30, 1998 was not meaningful for the Merger compared to a range
of 4.5x (Nil) to 42.6x (Nil), with a mean of 21.0x (Nil), for the Selected
Transactions; the multiple of Equity Value times the total number of outstanding
shares of common stock to book value was 0.2x for the Merger compared to a range
of 0.5x ($2.60) to 6.5x ($33.79), with a mean of 2.3x ($11.96), for the Selected
Transactions; and the multiple of Equity Value times the total number of
outstanding shares of common stock to tangible book value was 0.6x for the
Merger compared to a range of 0.9x ($1.58) to 9.6x ($16.83), with a mean of 3.4x
($5.96), for the Selected Transactions. All multiples for the Selected
Transactions were based on public information available at the time of
announcement of such transaction, without taking into account differing market
and other conditions during the five-year period during which the Selected
Transactions occurred.
Because the reasons for, and circumstances surrounding, each of the
precedent transactions analyzed were so diverse, and due to the inherent
differences between the operations and financial conditions of NSC and the
companies involved in the Selected Transactions, BT Alex. Brown believes that a
comparable transaction analysis is not simply mathematical. Rather, it involves
complex considerations and qualitative judgments, reflected in the BT Alex.
Brown Opinion, concerning differences between the characteristics of these
transactions and the Merger that could affect the value of the subject companies
and businesses and NSC.
Premiums Paid Analysis. BT Alex. Brown also calculated the premium of the
transaction price per share over the closing market price per share one day
prior to the announcement date was 19.5% for the Merger, and ranged from -6.4%
to 48.2%, with a mean of 22.2% for the Selected Transactions; the premium of the
transaction price per share over the closing market price per share for the four
weeks prior to the announcement date was 15.6% for the Merger, and ranged from
- -6.4% to 95.2%, with a mean of 40.8% for the Selected Transactions; the premium
for the transaction price per share over the highest closing market price per
share during the 52 weeks prior to the announcement date was -55.2% for the
Merger, and ranged from -68.9% to 48.1%, with a mean of 5.8% for the Selected
Transactions; and the premium for the transaction price per share over the
lowest closing market price per share during the 52 weeks prior to the
announcement date was 70.7% for the Merger, and ranged from -31.8% to 210.6%,
with a mean
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of 102.3% for the Selected Transactions. All multiples for the Selected
Transactions were based on public information available at the time of
announcement of such transaction, without taking into account differing market
and other conditions during the five-year period during which the Selected
Transactions occurred.
Discounted Cash Flow Analysis. BT Alex. Brown performed a discounted cash
flow analysis for NSC. BT Alex. Brown calculated the discounted cash flow values
for NSC as the sum of the net present values of (i) the estimated future cash
flow that NSC will generate for the years 1999 through 2003, plus (ii) the value
of NSC at the end of such period. The estimated future cash flows were based on
the financial projections for NSC for the years 1999 through 2003 prepared by
NSC's management. The terminal value of NSC was calculated based on projected
EBITDA for 2003 and a range of multiples of 6.0x and 8.0x. In determining the
appropriate range of discount rates for this analysis, BT Alex. Brown considered
a number of factors, including: (i) the average volatility of the stock prices
of NSC and the companies comprising the Index, (ii) the equity market
capitalization of NSC and the companies comprising the Index, (iii) the amount
of financial leverage employed by NSC and the companies comprising the Index,
(iv) the market rate of return on U.S. Treasury bonds, and (v) the difference in
expected rates of return on U.S. Treasury securities and equity securities for
publicly-traded companies. Using the capital asset pricing model, BT Alex. Brown
calculated that NSC's weighted average cost of capital was approximately 14%. BT
Alex. Brown therefore used a 12% to 16% range of discount rates for its
discounted cash flow analysis. This produced a range of values of $0.71 per
share (using a 16% discount rate) to $1.01 per share (using a 12% discount
rate). Using a 14% discount rate yielded a value of $0.85 per share.
Liquidation Analysis. BT Alex. Brown calculated NSC's liquidation value
based on management's estimates of the realizable values of assets and
liabilities for NSC's December 31, 1998 balance sheet. This analysis indicated a
range of values of $0.20 to $0.30 per share excluding liquidation costs. BT
Alex. Brown noted that liquidation of assets is a complex process and that the
actual liquidation value could differ materially from amounts shown on NSC's
balance sheet and from management's estimates.
The foregoing summary describes all analyses and factors that BT Alex.
Brown deemed material in its presentation to the Board, but is not a
comprehensive description of all analyses performed and factors considered by BT
Alex. Brown in connection with preparing its opinion. The preparation of a
fairness opinion is a complex process involving the application of subjective
business judgment in determining the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not readily susceptible to summary description.
BT Alex. Brown believes that its analyses must be considered as a whole and that
considering any portion of such analyses and of the factors considered without
considering all analyses and factors could create a misleading view of the
process underlying the BT Alex. Brown Opinion. In arriving at its fairness
determination, BT Alex. Brown did not assign specific weights to any particular
analyses.
In conducting its analyses and arriving at the BT Alex. Brown Opinion, BT
Alex. Brown utilized a variety of generally accepted valuation methods. The
analyses were prepared solely for the purpose of enabling BT Alex. Brown to
provide the BT Alex. Brown Opinion to the Board as to the fairness of the
Initial Merger Consideration to NSC's public stockholders and does not purport
to be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold, which are inherently subject to uncertainty. In
connection with its analyses, BT Alex. Brown made, and was provided by NSC
management with, numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond NSC's or Holdings' control. Analyses based on estimates or forecasts of
future results are not necessarily indicative of actual past or future values or
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of NSC, Holdings
or their respective advisors, neither NSC nor BT Alex. Brown nor any other
person assumes responsibility if future results or actual values are materially
different from these forecasts or assumptions.
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The terms of the Merger were determined through negotiations between NSC
and Holdings and were approved by the Board. Although BT Alex. Brown provided
advice to NSC during the course of these negotiations, the decision to enter
into the Merger was solely that of the Board. As described above, the BT Alex.
Brown Opinion and presentation of BT Alex. Brown to the Board were only one of a
number of factors taken into consideration by the Board in making its
determination to approve the Merger. The BT Alex. Brown Opinion was provided to
the Board to assist it in connection with its consideration of the Merger and
does not constitute a recommendation to any holder of the Common Stock as to how
to vote with respect to the Merger.
NSC selected BT Alex. Brown as financial advisor in connection with the
Merger based on BT Alex. Brown's qualifications, expertise, reputation and
experience in mergers and acquisitions. NSC has retained BT Alex. Brown pursuant
to a letter agreement dated March 5, 1998 (the "Engagement Letter"). As
compensation for BT Alex. Brown's services in connection with the Merger, NSC
has paid BT Alex. Brown a cash fee of $143,750 and has agreed to pay an
additional cash fee of $231,250 if the Merger is consummated. Regardless of
whether the Merger is consummated, NSC has agreed to reimburse BT Alex. Brown
for reasonable fees and disbursements of BT Alex. Brown's counsel and all of BT
Alex. Brown's reasonable travel and other out-of-pocket expenses incurred in
connection with the Merger or otherwise arising out of the retention of BT Alex.
Brown under the Engagement Letter. NSC has also agreed to indemnify BT Alex.
Brown and certain related persons to the full extent lawful against certain
liabilities, including certain liabilities under the federal securities laws
arising out of its engagement or the Merger.
BT Alex. Brown is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. In February 1998, BT Alex. Brown acted as financial
advisor to OHM Corporation ("OHM"), a former affiliate of NSC, in its
acquisition by International Technology Corporation, for which OHM paid to BT
Alex. Brown advisory fees equal to $1.75 million. Prior to the Merger, Waste
Management, Inc. beneficially owned 35% of the outstanding shares of common
stock of OHM. BT Alex. Brown and its affiliates may actively trade securities of
NSC for their own account or the account of their customers and, accordingly,
may from time to time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the Merger,
stockholders of NSC should be aware that Waste Management and the directors and
executive officers of NSC have certain interests in the Merger that may be
different from or in addition to the interests of stockholders of NSC generally.
The Board was aware of these interests and considered them, among other factors,
in approving the Merger Agreement. These interests are summarized below.
Interest in Common Stock. As of March 31, 1999, the executive officers and
directors of the Company owned an aggregate of 114,750 shares of Common Stock.
The aggregate consideration that would be received in the Merger by the
executive officers and directors of NSC in respect of such shares would be
$143,437.50.
Employment Agreements. Darryl Schimeck, NSC's President and Chief Executive
Officer, and Efstathios A. Kouninis, NSC's Vice President of Finance, Corporate
Controller, Treasurer and Secretary, are each party to an employment agreement
with NSC that entitle each of Mr. Schimeck and Mr. Kouninis to receive, among
certain other benefits, 12 months salary as severance pay upon termination of
employment with NSC or any successor corporation, without cause, within one year
after a change in control of NSC, including the Merger. Holdings and Mr.
Schimeck have entered into an agreement to become effective at the Effective
Time, pursuant to which Mr. Schimeck will remain as President and Chief
Executive Officer of NSC following the completion of the Merger. The terms of
this agreement provide for an initial two year term, an annual salary of
$210,000, and an annual bonus of up to 50% of Mr. Schimeck's annual salary,
among other things. It is not anticipated that Mr. Kouninis will remain with NSC
following the Merger. In such event he will receive, pursuant to the terms of
his employment
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agreement, $146,000 and the right to one year of continued coverage under NSC's
medical and dental insurance plans at the rate applicable to active employees.
Indemnification and Insurance. Pursuant to the Merger Agreement, the
Surviving Corporation will indemnify and hold harmless from liability for acts
or omissions occurring at or prior to the Effective Time each person who, prior
to or at the time of the Effective Time, is an officer, director or employee of
NSC or any of NSC's subsidiaries. The Surviving Corporation's certificate of
incorporation and by-laws will provide that the directors and officers of NSC
who become directors and officers of the Surviving Corporation will be entitled
to the same indemnification. The Merger Agreement also provides that for six
years after the Effective Time, the Surviving Corporation will maintain
liability insurance covering acts or omissions occurring prior to the Effective
Time with respect to those persons who were covered by NSC's directors' and
officers' liability insurance policy on terms with respect to such coverage and
amounts no less favorable than those in effect on December 31, 1998.
ASSET PURCHASE AGREEMENT
As a condition precedent to the Merger and immediately prior to the
Effective Time, ODC, an affiliate of Waste Management, will enter into an asset
purchase agreement (the "Asset Purchase Agreement") with ODM and NSC. Pursuant
to the Asset Purchase Agreement, ODC will sell to ODM, and ODM will buy from
ODC, certain machinery and equipment of ODC. In consideration for such assets,
the Olshan Note, which represents all of NSC's existing non-interest bearing
indebtedness (currently approximately $4.5 million) to Rust, an affiliate of
Waste Management, will be converted into an unsecured subordinated promissory
note (the "Subordinated Promissory Note"), issued to Waste Management or its
designee by NSC, in the principal amount of $2.4 million and bearing interest at
12 1/2% per annum payable quarterly with the entire principal amount due on
December 31, 2005. The Subordinated Promissory Note is an unsecured obligation
of Holdings and is subordinated in interest to the rights of Holdings' primary
lender. The Asset Purchase Agreement also provides that the operating agreement
under which ODM manages the business of ODC will be terminated. Pursuant to such
operating agreement, Waste Management and its affiliates incurred losses of
$338,000 and $887,000 in 1998 and 1997, respectively. The foregoing summary of
the material terms of the Asset Purchase Agreement is qualified in its entirety
by reference to the complete text of both the Asset Purchase Agreement, which is
incorporated herein and attached as Exhibit B to the Initial Merger Agreement
attached hereto as Annex A-1, and the interest bearing Subordinated Promissory
Note, which is incorporated herein and attached as Exhibit C to the Initial
Merger Agreement attached hereto as Annex A-1.
As a consequence of the Asset Purchase Agreement, Waste Management and its
affiliates will (i) receive approximately $4.4 million on account of the
Subordinated Promissory Note assuming that all principal and interest on the
Subordinated Promissory Note is paid in full, (ii) forego the opportunity to
share in the profits and losses of ODC as managed by ODM, (iii) surrender the
right to receive an aggregate of $4.5 million due and payable on September 5,
2005 under the Olshan Note, and (iv) sell all of the assets of ODC to ODM. All
of the above amounts were arrived at through arms-length negotiations between
Holdings, on the one hand, and NSC and Waste Management, on the other hand.
NON-COMPETITION AGREEMENT
As a condition precedent to the Merger and immediately prior to the
Effective Time, Waste Management will enter into a non-competition agreement
(the "Non-Competition Agreement"), pursuant to which Waste Management will not,
for three years following the anniversary of the Effective Time, and subject to
certain limitations set forth in the Non-Competition Agreement, enter into any
business which currently competes with NSC in the asbestos-abatement, lead paint
abatement, indoor air quality or demolition and dismantling services business
anywhere in the continental United States. The foregoing summary of the material
terms of the Non-Competition Agreement is qualified in its entirety by reference
to the complete text of the Non-Competition Agreement, which is incorporated
herein and attached as Exhibit A to the Initial Merger Agreement attached hereto
as Annex A-1.
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EXCHANGE SUBORDINATED PROMISSORY NOTE
As a condition precedent to the Merger and immediately prior to the
Effective Time, Waste Management will exchange the Exchanged Shares for the
Exchange Subordinated Promissory Note, issued to Waste Management by NSC, in the
principal amount of $1,245,525, representing $1.25 per share times the number of
Exchanged Shares. The Exchange Subordinated Promissory Note bears interest at
11% per annum payable quarterly with the entire principal amount due on December
31, 2003. The Exchange Subordinated Note is an unsecured obligation of Holdings
and is subordinated in interest to the rights of Holdings' primary lender. All
remaining shares of Common Stock owned by Waste Management and its affiliates
will be converted into the right to receive the Merger Consideration. As a
result, the aggregate consideration to be received by Waste Management on
account of its shares of Common Stock will be, including payments of principal
and interest on the Exchange Subordinated Promissory Note and cash received in
consideration for its remaining shares, assuming that all principal and interest
on the Exchange Subordinated Promissory Note is paid in full, approximately $7.3
million or $1.36 per share. The total consideration to be received by Waste
Management, $1.36 per share, exceeds the Merger Consideration solely as a result
of the 11% per annum interest on the outstanding principal amount of the
Exchange Subordinated Promissory Note, which reflects Waste Management's
agreement to defer receipt of the principal amount of the Exchange Subordinated
Promissory Note until December 31, 2003. The foregoing summary of the material
terms of the Exchange Subordinated Promissory Note is qualified in its entirety
by reference to the complete text of the Exchange Subordinated Promissory Note,
which is incorporated herein and attached as Annex A to Amendment No. 1 attached
hereto as Annex A-2.
VOTING AGREEMENT
In connection with the Merger Agreement, Waste Management entered into a
voting agreement with Holdings, dated as of February 12, 1999 (the "Voting
Agreement"). Pursuant to the Voting Agreement, Waste Management has agreed to
vote any shares of Common Stock held by it, in its own capacity or through its
affiliates, in favor of the Merger Agreement. Since these shares represent
approximately 54% (or 5,380,670 shares) of the outstanding shares of Common
Stock, the Merger Agreement will be approved and adopted without any action by
any other stockholder of NSC so long as the Voting Agreement remains in effect.
The Voting Agreement will terminate upon the earlier of the consummation of
the Merger or the termination of the Merger Agreement without consummation of
the Merger. The foregoing summary of the material terms of the Voting Agreement
is qualified in its entirety by reference to the complete text of the Voting
Agreement, which is incorporated by reference herein and attached hereto as
Annex D.
Waste Management has expressed strategic reasons for wanting to dispose of
its shares of Common Stock, and, accordingly, Waste Management's interest in
obtaining maximum value for its shares of Common Stock may be compromised by its
intention to monetize assets that are outside of its core waste management
services operations and/or that do not provide a desired level of return.
However, Waste Management advised NSC's management throughout the sale process
that it would not support any transaction in which Waste Management would be
required to dispose of its shares of Common Stock at less than fair value.
GUARANTY
In connection with the Merger Agreement, the stockholders (the
"Stockholders") of Holdings executed a guaranty in favor of NSC, dated as of
February 12, 1999 (the "Guaranty"). The terms of the Merger Agreement require
that Holdings, within two days of a termination of the Merger Agreement by NSC
because Holdings breaches in any material respect any representation, warranty,
covenant or other agreement made by Holdings in the Merger Agreement and such
breach is not cured within 30 days after written notice or is incapable of being
cured by Holdings, pay NSC a fee equal to $100,000. See "The Merger
Agreement -- Additional Agreements -- Fees and Expenses." Under the terms of the
Guaranty, the Stockholders have agreed to jointly and severally guaranty the
performance by Holdings of all obligations of Holdings arising under such
provision of the Merger Agreement.
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FINANCING THE MERGER
The total amount required to pay the Merger Consideration to NSC's
stockholders, refinance NSC's existing indebtedness and pay estimated fees,
expenses and other transaction costs in connection with the Merger will be
approximately $20.8 million. It is anticipated that Holdings will be capitalized
through a combination of debt and equity financing. Holdings has obtained a
commitment from its lender for such debt financing, and the Merger Agreement
does not contain a financing contingency.
ACCOUNTING TREATMENT
The Merger will be accounted for by Merger Subsidiary as a "purchase" in
accordance with generally accepted accounting principles. Therefore, the
aggregate consideration paid by Merger Subsidiary in connection with the Merger
will be allocated to NSC's assets and liabilities based upon their fair values,
with any excess being treated as goodwill.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the material United States federal
income tax consequences relevant to the Merger. The discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury regulations promulgated thereunder, rulings, administrative
pronouncements and judicial decisions, changes to which could materially affect
the tax consequences described herein and could be made on a retroactive basis.
The receipt of cash in exchange for Common Stock pursuant to the Merger, or
pursuant to the exercise of appraisal rights in accordance with Section 262 of
the DGCL, will be a taxable transaction for federal income tax purposes and may
also be a taxable transaction under applicable state, local and foreign income
and other tax laws. The tax consequences of such receipt may vary depending
upon, among other things, the particular circumstances of the stockholder. In
general, a stockholder will recognize gain or loss for federal income tax
purposes equal to the difference between the adjusted tax basis of his or her
Common Stock and the amount of cash received in exchange therefor in the Merger
or pursuant to the exercise of appraisal rights. Such gain or loss will be
capital gain or loss if the Common Stock is a capital asset in the hands of the
stockholder and will be long-term gain or loss if the holding period for the
Common Stock is more than one year at the Effective Time.
The receipt of cash by a stockholder of NSC pursuant to the Merger or
pursuant to the exercise of appraisal rights may be subject to backup
withholding at the rate of 31% unless the stockholder (i) is a corporation or
comes within certain other exempt categories, or (ii) provides a certified
taxpayer identification number on Form W-9 and otherwise complies with the
backup withholding rules. Backup withholding is not an additional tax; any
amounts so withheld may be credited against the federal income tax liability of
the stockholder subject to the withholding.
The foregoing discussion does not address all aspects of federal income
taxation that may be relevant to a stockholder and may not apply to stockholders
(i) who acquired their Common Stock pursuant to the exercise of employee stock
options or other compensation arrangements with NSC or (ii) who are not citizens
or residents of the United States or (iii) who are subject to special tax
treatment under the Code (such as dealers in securities, insurance companies,
other financial institutions, regulated investment companies and tax-exempt
entities).
DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR FOREIGN INCOME OR
OTHER TAX LAWS.
REGULATORY APPROVALS
NSC, Holdings, Waste Management, and Merger Subsidiary are not aware of any
governmental consents or approvals that are required prior to the parties'
consummation of the Merger. It is presently contemplated that if such
governmental consents and approvals are required, such consents and approvals
will be sought. There can be no assurance that any such consents and approvals
would be obtained.
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APPRAISAL RIGHTS
Under the DGCL, any stockholder who does not wish to accept the Merger
Consideration for his or her shares of Common Stock as provided in the Merger
Agreement has the right to dissent from the Merger and to seek an appraisal of,
and to be paid the fair value (exclusive of any element of value arising from
the accomplishment or expectation of the Merger) for the shares of Common Stock,
provided that the stockholder complies with the provisions of Section 262 of the
DGCL.
Holders of record of Common Stock who do not vote in favor of the Merger
Agreement and who otherwise comply with the applicable statutory procedures
summarized herein will be entitled to appraisal rights under Section 262 of the
DGCL. A person having a beneficial interest in shares of Common Stock held of
record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect appraisal rights.
THE FOLLOWING DISCUSSION COVERS ALL MATERIAL PROVISIONS OF THE LAW
PERTAINING TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY
BY THE FULL TEXT OF SECTION 262 OF THE DGCL WHICH IS REPRINTED IN ITS ENTIRETY
AS ANNEX C. ALL REFERENCES IN SECTION 262 OF THE DGCL AND IN THIS SUMMARY TO A
"STOCKHOLDER" OR "HOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF COMMON STOCK
AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
Under Section 262 of the DGCL, holders of shares of Common Stock
("Appraisal Shares") who follow the procedures set forth in Section 262 of the
DGCL will be entitled to have their Appraisal Shares appraised by the Delaware
Chancery Court and to receive payment in cash of the "fair value" of such
Appraisal Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court.
Under Section 262 of the DGCL, where a proposed merger is to be submitted
for approval at a meeting of stockholders, the corporation, not less than 20
days prior to the meeting, must notify each of its stockholders who was a
stockholder on the record date for such meeting with respect to shares for which
appraisal rights are available, that appraisal rights are so available, and must
include in such notice a copy of Section 262 of the DGCL.
This Proxy Statement constitutes such notice to the holders of Appraisal
Shares and the applicable statutory provisions of the DGCL are attached to this
Proxy Statement as Annex C. Any stockholder who wishes to exercise such
appraisal rights or who wishes to preserve his or her right to do so should
review the following discussion and Annex C carefully, because failure timely
and properly to comply with the procedures therein specified will result in the
loss of appraisal rights under the DGCL.
A holder of Appraisal Shares wishing to exercise such holder's appraisal
rights (a) must not vote in favor of the Merger Agreement and (b) must deliver
to NSC prior to the vote on the Merger Agreement at the Special Meeting, a
written demand for appraisal of such holder's Appraisal Shares. This written
demand for appraisal must be in addition to and separate from any proxy or vote
abstaining from or against the Merger. This demand must reasonably inform NSC of
the identity of the stockholder and of the stockholder's intent thereby to
demand appraisal of his or her Appraisal Shares. A holder of Appraisal Shares
wishing to exercise such holder's appraisal rights must be the record holder of
such Appraisal Shares on the date the written demand for appraisal is made and
must continue to hold such Appraisal Shares until the consummation of the
Merger. Accordingly, a holder of Appraisal Shares who is the record holder of
Appraisal Shares on the date the written demand for appraisal is made, but who
thereafter transfers such Appraisal Shares prior to consummation of the Merger,
will lose any right to appraisal in respect of such Appraisal Shares.
Only a holder of record of Appraisal Shares is entitled to assert appraisal
rights for the Appraisal Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificates. If
the Appraisal Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
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capacity, and if the Appraisal Shares are owned of record by more than one owner
as in a joint tenancy or tenancy in common, the demand should be executed by or
on behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for such
owner or owners. A record holder such as a broker who holds Appraisal Shares as
nominee for several beneficial owners may exercise appraisal rights with respect
to the Appraisal Shares held for one or more beneficial owners while not
exercising such rights with respect to the Appraisal Shares held for other
beneficial owners; in such case, the written demand should set forth the number
of Appraisal Shares as to which appraisal is sought. When no number of Appraisal
Shares is expressly mentioned, the demand will be presumed to cover all
Appraisal Shares in brokerage accounts or other nominee forms and those who wish
to exercise Appraisal Rights under Section 262 of the DGCL are urged to consult
with their brokers to determine the appropriate procedures for the making of a
demand for appraisal by such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO NSC
CORPORATION, 49 DANTON DRIVE, METHUEN, MASSACHUSETTS 01844, ATTENTION:
SECRETARY.
Within ten days after the consummation of the Merger, NSC will notify each
stockholder who has properly asserted appraisal rights under Section 262 of the
DGCL and has not voted in favor of the Merger Agreement of the date the Merger
became effective.
Within 120 days after the consummation of the Merger, but not thereafter,
NSC or any stockholder who has complied with the statutory requirements
summarized above may file a petition in the Delaware Chancery Court demanding a
determination of the fair value of the Appraisal Shares. NSC is under no
obligation to and has no present intention to file a petition with respect to
the appraisal of the fair value of the Appraisal Shares. Accordingly, it is the
obligation of stockholders wishing to assert appraisal rights to initiate all
necessary action to perfect their appraisal rights within the time prescribed in
Section 262 of the DGCL.
Within 120 days after the consummation of the Merger, any stockholder who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from NSC a statement setting forth
the aggregate number of Appraisal Shares not voted in favor of adoption of the
Merger Agreement and with respect to which demands for appraisal have been
received and the aggregate number of holders of such Appraisal Shares. Such
statements must be mailed within ten days after a written request therefor has
been received by NSC.
If a petition for an appraisal is filed timely, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the "fair value" of their Appraisal
Shares, exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. Stockholders considering
seeking appraisal should be aware that the fair value of their Appraisal Shares,
as determined under Section 262 of the DGCL, could be more than, the same as or
less than the value of the consideration they would receive pursuant to the
Merger Agreement if they did not seek appraisal of their Appraisal Shares and
that investment banking opinions as to fairness from a financial point of view
are not necessarily opinions as to fair value under Section 262 of the DGCL. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings.
The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by stockholders whose Appraisal
Shares have been appraised. The costs of the action may be determined by the
Delaware Chancery Court and taxed upon the parties as the Delaware Chancery
Court deems equitable. The Delaware Chancery Court may also order that all or a
portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the Appraisal Shares entitled to appraisal.
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Any holder of Appraisal Shares who has duly demanded an appraisal in
compliance with Section 262 of the DGCL will not, after the consummation of the
Merger, be entitled to vote the Appraisal Shares subject to such demand for any
purpose or be entitled to the payment of dividends or other distributions on
those Appraisal Shares (except dividends or other distributions payable to
holders of record of Appraisal Shares as of a record date prior to the
consummation of the Merger).
If any stockholder who properly demands appraisal of his or her Appraisal
Shares under Section 262 of the DGCL fails to perfect, or effectively withdraws
or loses, his or her right to appraisal, as provided in Section 262 of the DGCL,
the Appraisal Shares of such stockholder will be converted into the right to
receive the Merger Consideration. A stockholder will fail to perfect, or
effectively lose or withdraw, his or her right to appraisal if, among other
things, no petition for appraisal is filed within 120 days after the
consummation of the Merger, or if the stockholder delivers to NSC a written
withdrawal of his or her demand for appraisal. Any such attempt to withdraw an
appraisal demand more than 60 days after the consummation of the Merger will
require the written approval of NSC.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH
EVENT A STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE MERGER CONSIDERATION WITH
RESPECT TO HIS OR HER APPRAISAL SHARES.
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THE MERGER AGREEMENT
The following summary of all the material provisions of the Merger
Agreement is qualified in its entirety by reference to the complete text of the
Initial Merger Agreement and Amendment No. 1, which are incorporated by
reference herein and attached hereto as Annex A-1 and Annex A-2, respectively.
Capitalized terms used in this section and not otherwise defined in this Proxy
Statement have the meaning ascribed them in the Merger Agreement. Stockholders
are urged to review the Merger Agreement carefully.
GENERAL
Pursuant to the Merger Agreement, at the Effective Time, Merger Subsidiary
will merge with and into NSC and the separate corporate existence of Merger
Subsidiary will thereupon cease. Following the Effective Time, NSC will be the
Surviving Corporation.
MERGER CONSIDERATION
At the Effective Time, by virtue of the Merger and without any action on
the part of any stockholder, each issued and outstanding share of Common Stock
(other than shares to be canceled as described below and shares ("Dissenting
Shares") as to which dissenters' rights are perfected by a dissenting
stockholder ("Dissenting Stockholder")) held by NSC stockholders will be
converted into the right to receive $1.25 in cash, without interest (the "Merger
Consideration").
Each share of Common Stock held by NSC will be automatically canceled and
retired at the Effective Time and will cease to exist, and no consideration will
be delivered in exchange for such shares.
As of the Effective Time, all shares of Common Stock will no longer be
outstanding, will automatically be canceled and retired and will cease to exist.
Each holder of shares of Common Stock will cease to have any rights with respect
to those shares, except the right to receive the Merger Consideration in
accordance with the terms of the Merger Agreement.
As of the Effective Time, each share of common stock of Merger Subsidiary
issued and outstanding immediately prior to the Effective Time will be converted
into one share of common stock of the Surviving Corporation.
No Dissenting Stockholder will be entitled to any portion of the Merger
Consideration or other distributions unless and until the Dissenting Stockholder
fails to perfect or otherwise effectively withdraws or loses its dissenters'
rights under the DGCL. Shares of Common Stock in respect of which dissenters'
rights have been exercised will be treated in accordance with Section 262 of the
DGCL. If any person who otherwise would be deemed a Dissenting Stockholder fails
to properly perfect or effectively loses the right to dissent with respect to
any Common Stock, such shares of Common Stock will thereupon be treated as
though they had been converted as of the Effective Date into the right to
receive the Merger Consideration. See "The Merger -- Appraisal Rights."
TREATMENT OF STOCK OPTIONS
Prior to or as of the Effective Time, NSC will cause all outstanding
options to purchase shares of Common Stock ("Options") issued pursuant to NSC's
1990 Stock Option Plan, as amended (the "Stock Option Plan") held by the
directors and executive officers of NSC, and will use its reasonable best
efforts to cause all other Options issued pursuant to the Stock Option Plan to
be (i) exercised, exchanged and converted into Common Stock, or (ii) surrendered
and canceled without cost to NSC. There are outstanding options to purchase
655,250 shares of Common Stock under the Stock Option Plan, at exercise prices
ranging from $2.00 to $6.00, of which options to purchase 190,000 shares of
Common Stock are held by directors and executive officers of NSC. The directors
and executive officers have indicated a willingness to surrender all such
options in connection with the Merger without the payment of any consideration
therefor. Any such options not exercised or surrendered for cancellation prior
to the Merger will remain outstanding.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary mutual representations and
warranties by NSC, Holdings and Waste Management relating to, among other
things, (1) the corporate organization, standing and power of each of NSC,
Holdings and Merger Subsidiary; (2) the subsidiaries of NSC; (3) the capital
structure of NSC; (4) each of NSC's, Waste Management's, Holdings' and Merger
Subsidiary's authority to enter, and noncontravention of certain agreements and
documents upon entrance, into the Merger Agreement; (5) documents filed by NSC
with the Commission and other regulatory entities and the accuracy of
information contained therein; (6) the absence of certain material changes or
events with respect to NSC since September 30, 1998; (7) litigation pending or
threatened against NSC and NSC's compliance with applicable laws; (8) the
absence of changes in NSC's benefit plans since September 30, 1998; (9) matters
relating to NSC's compliance with the Employee Retirement Income Security Act of
1974, as amended; (10) NSC tax matters; (11) the vote required by the
stockholders of NSC in connection with the Merger Agreement; (12) NSC's,
Holdings' and Merger Subsidiary's satisfaction of certain state takeover
statutes; (13) NSC's and Holdings' engagement of and payment of fees to brokers,
investment bankers, finders and financial advisors in connection with the Merger
Agreement; (14) ownership by Waste Management of NSC Common Stock; (15) the
absence of certain claims of Waste Management, Rust and ODC against any
subsidiary of NSC; (16) the availability to Holdings of sufficient resources to
consummate the transactions contemplated by the Merger Agreement; and (17)
environmental matters affecting NSC.
COVENANTS
Conduct of Business. Pursuant to the Merger Agreement, NSC has agreed that,
except as otherwise expressly contemplated by the Merger Agreement or as
consented to by Holdings (such consent not to be unreasonably withheld or
delayed), during the period from the date of the Merger Agreement to the
Effective Time, NSC will carry on its business in the ordinary course consistent
with past practice and in compliance in all material respects with all
applicable laws and regulations and, to the extent consistent therewith, to use
all reasonable efforts to keep available the services of its current officers
and other key employees and preserve its relationships with those persons having
business dealings with NSC.
The Merger Agreement provides that NSC and its subsidiaries will not, among
other things and with certain exceptions, declare or pay dividends or
recapitalize or redeem its capital stock; issue, sell or encumber any shares of
capital stock or options to acquire any shares of such capital stock; amend its
organizational documents or merge with any person; sell, lease or encumber
property or assets (except in the ordinary course of business consistent with
past practice); enter into any employment agreements; incur any indebtedness
(except in the ordinary course of business); commit capital of more than $10,000
except as necessary for maintenance and repairs in the ordinary course of
business; fail to maintain its insurance; or take any action that would
reasonably be expected to result in any of the conditions to the Merger not
being satisfied.
In addition, Holdings covenants that it will not take any action that would
reasonably be expected to result in any of the conditions to the Merger not
being satisfied.
No Solicitation. The Merger Agreement provides that NSC will not, nor will
NSC permit any of its subsidiaries to, nor will NSC authorize or permit any of
its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it to,
directly or indirectly through another person, (i) solicit, initiate, or
encourage (including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any Acquisition Proposal
(as defined below) or (ii) participate in any discussions or negotiations
regarding any Acquisition Proposal; provided, however, that if the Board
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to act in a manner consistent with its fiduciary
duties to NSC's stockholders under applicable law, NSC, in response to a
Superior Proposal (as defined below), and subject to providing written notice of
its decision to take such action to Holdings and comply with its obligation
under the Merger Agreement to advise Holdings of any request for information or
of any Acquisition Proposal, may (a) pursuant to a customary confidentiality
agreement (as determined by NSC, based on the advice of its outside counsel),
furnish information with respect
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to it and its subsidiaries to any person making a Superior Proposal and (b)
participate in discussions or negotiations regarding such Superior Proposal. An
"Acquisition Proposal" means any inquiry, proposal or offer from any person
relating to any (1) direct or indirect acquisition or purchase of all or
substantially all of the business or assets of NSC, (2) direct or indirect
purchase of 50% or more of any class of equity securities of NSC, (3) tender
offer or exchange offer that if consummated would result in any person
beneficially owning 50% or more of any class of equity securities of NSC, or (4)
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving NSC.
Except as expressly permitted by the Merger Agreement, neither the Board
nor any committee thereof will (1) withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to Holdings, the approval or
recommendation by the Board or such committee of the Merger or the Merger
Agreement, (2) approve or recommend or propose publicly to approve or recommend
any Acquisition Proposal or (3) cause NSC to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement related
to any Acquisition Proposal (an "Acquisition Agreement"). Notwithstanding the
foregoing, the Board, to the extent that it determines in good faith, after
consultation with outside counsel, that in light of a Superior Proposal it is
necessary to do so in order to act in a manner consistent with its fiduciary
duties to NSC's stockholders under applicable law, the Board may terminate the
Merger Agreement in order to enter into an Acquisition Agreement with respect to
any Superior Proposal, but only at a time that is after the third business day
following Holdings' receipt of written notice advising it that the Board is
prepared to accept a Superior Proposal and only if, during such three day
period, NSC has cooperated with Holdings to change the terms of the Merger
Agreement to enable the parties to proceed with the Merger, and at the end of
such three day period, NSC continues reasonably to believe that the Acquisition
Proposal constitutes a Superior Proposal. A "Superior Proposal" means any
proposal made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction,
for consideration consisting of cash and/or securities, or all or substantially
all the assets of NSC and otherwise on terms which the Board determines in its
good faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to NSC's stockholders than the
Merger and for which financing, to the extent required, is then committed or
which, in the good faith judgment of the Board, is reasonably capable of being
obtained by such third party. NSC has agreed to immediately advise Holdings of
any request for information or any Acquisition Proposal and to keep Holdings
informed of the status of any such request or Acquisition Proposal.
ADDITIONAL AGREEMENTS
Indemnification and Insurance. Pursuant to the Merger Agreement, the
Surviving Corporation will indemnify and hold harmless from liability for acts
or omissions occurring at or prior to the Effective Time each person who, prior
to or at the time of the Effective Time, is an officer, director or employee of
NSC or any of NSC's subsidiaries, and directors and officers of NSC who become
directors and officers of the combined company following the Merger will be
entitled to the same indemnification under the Surviving Corporation's
certificate of incorporation and by-laws. The Merger Agreement also provides
that for six years after the Effective Time, the Surviving Corporation will
maintain liability insurance covering acts or omissions occurring prior to the
Effective Time with respect to those persons who were covered by NSC's
directors' and officers' liability insurance policy on terms with respect to
such coverage and amounts no less favorable than those in effect on December 31,
1998.
Fees and Expenses. Except as provided herein, whether or not the Merger is
completed, all fees and expenses incurred in connection with the Merger, the
Merger Agreement and the transactions contemplated thereby will be paid by the
party incurring such fees or expenses.
NSC will pay Holdings a fee equal to $100,000 and reimburse Holdings for up
to $400,000 in the aggregate of Holdings' documented out-of-pocket fees and
expenses incurred in connection with the Merger Agreement in the event that (1)
the Merger Agreement is terminated by NSC in order to allow NSC to enter into a
Superior Proposal, or (2) an Acquisition Proposal is made known to NSC and not
publicly withdrawn prior to the Special Meeting, either party terminates
37
<PAGE> 43
the Merger Agreement on the grounds that the stockholders of NSC failed to
approve the Merger Agreement, and thereafter NSC enters into an Acquisition
Agreement or consummates an Acquisition Proposal within 12 months after such
termination. NSC must pay the amounts due within two days of the termination,
entrance into an Acquisition Agreement, or consummation of an Acquisition
Proposal, as the case may be. Notwithstanding the foregoing, in no event will
NSC be required to pay Holdings any out-of-pocket fees or expenses unless and
until Holdings shall have provided NSC with invoices or other evidence of such
amounts.
In the event that the Merger Agreement is terminated by NSC because
Holdings breaches in any material respect any representation, warranty, covenant
or other agreement made by Holdings in the Merger Agreement and such breach is
not cured within 30 days after written notice or is incapable of being cured by
Holdings, Holdings will, within two days of such termination, pay NSC a fee
equal to $100,000.
In the event that the Merger Agreement is terminated by Holdings because
NSC breaches in any material respect any representation, warranty, covenant or
other agreement made by NSC in the Merger Agreement and such breach is not cured
within 30 days after written notice or is incapable of being cured by NSC, NSC
will, within two days of such termination, pay Holdings a fee equal to $100,000.
CONDITIONS PRECEDENT
NSC's and Holdings' obligation to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of various conditions,
which include, in addition to other customary closing conditions, the following:
(1) the NSC stockholders having approved the Merger Agreement;
(2) all consents, approvals and actions of, filings with and notices
to any Governmental Entity required of Holdings, NSC or any of NSC's
subsidiaries to consummate the Merger and the other transactions
contemplated by the Merger Agreement, the failure of which to be obtained
or taken is reasonably expected to have a material adverse effect on the
Surviving Corporation and its subsidiaries, taken as a whole, having been
obtained in form and substance reasonably satisfactory to each of Holdings
and NSC; and
(3) no Restraints (as defined in the Merger Agreement) being in effect
(a) preventing the consummation of the Merger, (b) prohibiting or limiting
the ownership or operation by NSC and its subsidiaries of any material
portion of the business or assets of NSC and its subsidiaries taken as a
whole as a result of the Merger or (c) which otherwise is reasonably likely
to have a Material Adverse Effect (as defined below); provided, however,
that each of the parties will have used its reasonable best efforts to
prevent the entry of any such Restraints and to appeal as promptly as
possible any such Restraints that may be entered.
In addition, Holdings' and Merger Subsidiary's obligation to effect the
Merger is subject to the satisfaction or waiver of the following conditions:
(1) the representations and warranties of both NSC and Waste
Management set forth in the Merger Agreement being true and correct as of
the date of the Merger Agreement and as of the Closing Date as if made at
and as of the Closing Date (except to the extent expressly made as of an
earlier date, in which case as of such date), except where the failure of
such representations and warranties to be so true and correct would not
have, individually or in the aggregate, a Material Adverse Effect;
(2) NSC having performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to
the Closing Date;
(3) Waste Management and NSC having executed the Non-Competition
Agreement;
(4) Waste Management and NSC, or their respective affiliates, having
executed the Asset Purchase Agreement;
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<PAGE> 44
(5) the promissory note made by NSC in favor of Rust having been
renewed and restated as the Subordinated Promissory Note by NSC in favor of
Waste Management or its designee; and
(6) the execution of the Exchange Subordinated Promissory Note.
In addition, NSC's obligation to effect the Merger is subject to the
satisfaction or waiver of the following conditions:
(1) the representations and warranties of Holdings set forth in the
Merger Agreement being true and correct as of the date of the Merger
Agreement and as of the Closing Date as if made at and as of the Closing
Date (except to the extent expressly made as of an earlier date, in which
case as of such date), except where the failure of such representations and
warranties to be so true and correct would not have, individually or in the
aggregate, a material adverse effect; and
(2) Holdings having performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to
the Closing Date.
"Material Adverse Effect" means any change, effect, event, occurrence or
state of facts that has, or would reasonably be expected to have, a material
adverse effect on the condition (financial or otherwise), business, assets or
results of operations of NSC, NSC's subsidiaries, and ODC, taken as a whole.
TERMINATION, AMENDMENT AND WAIVER
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval by the stockholders of NSC:
(a) by mutual written consent of Holdings and NSC;
(b) by either Holdings or NSC:
(1) if the Merger has not been completed by June 30, 1999;
provided, however, that the right to terminate the Merger Agreement will
not be available to any party whose failure to perform any of its
obligations under the Merger Agreement results in the failure of the
Merger to be completed by such time;
(2) if approval of the stockholders of NSC has not been obtained;
or
(3) if any Restraint that has any of the effects set forth in
clause (iii) of " -- Conditions to the Consummation of the Merger" above
will be in effect and will have become final and nonappealable;
provided, that the party seeking to terminate the Merger Agreement will
have used reasonable best efforts to prevent and remove such Restraint;
(c) by Holdings, if NSC breaches or fails to perform in any material
respect any of its representations, warranties, covenants or other
agreements contained in the Merger Agreement, which breach or failure to
perform would give rise to a material adverse change relating to Holdings
and (A) is not cured within 30 days after written notice thereof or (B) is
incapable of being cured by NSC; or
(d) by NSC, if Holdings has breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in the Merger Agreement, which breach or failure to
perform would give rise to a material adverse change relating to NSC and
(A) is not cured within 30 days after written notice thereof or (B) is
incapable of being cured by Holdings (it being understood that Holdings'
inability to finance the transactions contemplated by the Merger Agreement
shall not be curable).
In the event of termination of the Merger Agreement by either NSC or
Holdings, the Merger Agreement will become void and have no effect, without any
liability or obligation on the part of Holdings, NSC, or Waste Management, other
than (a) in connection with any brokerage or advisory fees of any kind incurred
by NSC or Holdings, (b) the obligation of NSC and Holdings to keep all nonpublic
information connected with the Merger confidential, (c) except as otherwise
39
<PAGE> 45
set forth in " -- Additional Agreements -- Fees and Expenses," the agreement
between NSC and Holdings to each pay their own fees, and, in certain
circumstances, pay to one another a termination fee, (d) Holdings' and NSC's
agreement to consult one another prior to issuing any public statement regarding
the transactions contemplated by the Merger Agreement, and (e) the effects of
termination as described in this paragraph, which provisions survive such
termination.
Amendment. The Merger Agreement may be amended by the parties at any time
before or after the approval of the Merger Agreement by the NSC stockholders;
provided that, after approval, the parties may not make any amendment that by
law requires further approval by the NSC stockholders. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties.
Extension; Waiver. At any time prior to the Effective Time, a party may (1)
extend the time for the performance of any of the obligations or other acts of
the other party, (2) waive any inaccuracies in the representations and
warranties of the other party contained in the Merger Agreement or in any
document delivered pursuant to the Merger Agreement or (3) subject to the
proviso of the first sentence of the immediately preceding paragraph, waive
compliance by the other party of the agreements or conditions contained in the
Merger Agreement. Any agreement on the part of a party to any such extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to assert any of its rights under
the Merger Agreement or otherwise will not constitute a waiver of such rights.
40
<PAGE> 46
THE COMPANIES
NSC CORPORATION
NSC is a leading provider of specialty contracting services to a broad
range of commercial, industrial and institutional clients located throughout the
United States. Asbestos-abatement (which includes lead paint abatement, indoor
air quality services, and decontamination and decommissioning of government and
commercial nuclear facilities) and demolition and dismantling are NSC's two
principal service segments. Although demand for asbestos-abatement services is
dependent on the fluctuation of the national economy and a finite amount of
asbestos remaining to be removed, NSC's focused sales and marketing efforts
promise to maintain NSC's share of this market. In addition, NSC's
diversification into the demolition, indoor air quality and decontamination and
decompression markets positions NSC to provide a full suite of specialty
contracting services to the performance-sensitive customer.
NSC's principal executive offices are located at 49 Danton Drive, Methuen,
Massachusetts 01844, and its telephone number is (978) 557-7300.
For a more detailed description of the business and properties of NSC, see
the descriptions thereof set forth in NSC's Annual Report on Form 10-K, as
amended, for the year ended December 31, 1998, which is incorporated herein by
reference and attached hereto as Annex E. See "Incorporation of Certain
Documents by Reference."
NSC's largest stockholder is Waste Management, which through its indirect
subsidiaries, Rust Industrial Services Inc. and Rust Remedial Services Holding
Company Inc., owns approximately 54% of the outstanding shares of Common Stock.
In addition, ODM, a subsidiary of NSC that operates NSC's demolition and
dismantling business, utilizes certain assets owned by ODC and manages the
business of ODC, an indirect subsidiary of Waste Management. The profits and
losses of ODC are shared by NSC and affiliates of Waste Management. Rust, an
indirect subsidiary of Waste Management, has provided financing to ODM in
connection with its operation of the demolition and dismantling business.
NSC HOLDINGS, INC.
Holdings is a newly formed Delaware corporation, created solely for the
purpose of engaging in the transactions contemplated by the Merger Agreement.
Neither Holdings nor any of its investors has any prior affiliation with NSC or
Waste Management.
Holdings' principal executive offices are located at 5222 Royal Walk,
Houston, Texas 77069, and its telephone number is (281) 444-6056.
NSC ACQUISITION, INC.
Merger Subsidiary, a wholly owned subsidiary of Holdings, is a newly formed
Delaware corporation, created solely for the purpose of engaging in the
transactions contemplated by the Merger Agreement.
Merger Subsidiary's principal executive offices are located at 5222 Royal
Walk, Houston, Texas 77069, and its telephone number is (281) 444-6056.
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<PAGE> 47
MARKET PRICES OF COMMON STOCK
The Common Stock (NASDAQ symbol: NSCC) is admitted for trading on The
Nasdaq Stock Market. On February 12, 1999, the last trading date prior to public
announcement of the Merger, the high and low sales prices of the Common Stock on
The Nasdaq Stock Market were $0.9375 and $0.8125 per share, respectively.
The following table sets forth, for the calendar quarters indicated, the
high and low sales prices of the Common Stock as reported by The Nasdaq Stock
Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999 Quarter Ended
March 31.................................................. $1 1/16 $ 13/16
1998 Quarter Ended
December 31............................................... 1 7/32 5/8
September 30.............................................. 1 31/32 1
June 30................................................... 2 13/16 1 27/32
March 31.................................................. 3 1/4 1 1/4
1997 Quarter Ended
December 31............................................... 2 7/8 1 3/4
September 30.............................................. 3 1 15/16
June 30................................................... 2 1/2 1 1/2
March 31.................................................. 3 7/32 2 3/8
1996 Quarter Ended
December 31............................................... 2 1/2 1 3/8
September 30.............................................. 2 1 1/2
June 30................................................... 2 1/2 1 1/4
March 31.................................................. 2 1/2 1 1/8
</TABLE>
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE COMMON
STOCK PRIOR TO MAKING ANY DECISION WITH RESPECT TO THE MERGER.
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<PAGE> 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1999,
except as otherwise indicated, with respect to the beneficial ownership of the
Common Stock (i) by holders of 5% or greater, (ii) each director of NSC, (iii)
each executive officer of NSC, and (iv) by all directors and executive officers
of NSC as a group. Except as otherwise indicated, information with respect to
beneficial ownership is based on information furnished to NSC 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 and
investment power with respect to the shares shown to be beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------ ---------- --------
<S> <C> <C>
Waste Management, Inc. (1).................................. 5,380,670 54.0%
1001 Fannin, Suite 4000
Houston, Texas 77002
Franklin Resources, Inc. (2)................................ 800,000 8.0%
One Parker Plaza, 16th Floor
Fort Lee, New Jersey 07024
Kennedy Capital Management, Inc. (3)........................ 621,645 6.2%
10829 Olive Boulevard
St. Louis, Missouri 63141
FMR Corporation (4)......................................... 550,400 5.5%
82 Devonshire Street
Boston, Massachusetts 02109-3614
Eugene L. Barnett (5)....................................... 10,000 *
Herbert A. Getz............................................. 500 *
William P. Hulligan......................................... 0 *
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 (5)......... 114,750 *
</TABLE>
- ---------------
* Less than 1%
(1) Waste Management's wholly owned subsidiaries, Chemical Waste
Management, Inc. ("CWM") and Wheelabrator Technologies Inc. ("WTI") own
all of the outstanding shares of common stock of Rust. Rust's two
wholly owned subsidiaries, Rust Remedial Services Holding Company Inc.
("Remedial Services") and Rust Industrial Services Inc. ("Rust
Services") beneficially own approximately 1,370,671 shares of Common
Stock, representing approximately 14% of the outstanding shares of NSC,
and approximately 4,010,000 shares, representing approximately 41% of
the outstanding shares of Common Stock of NSC, respectively. Because of
their direct or indirect ownership of Rust Services' and Remedial
Services' common stock, Rust, CWM, WTI and Waste Management may be
deemed to beneficially own, and have shared voting power and investment
power over, approximately 5,380,670 shares of Common Stock,
representing approximately 54% of the outstanding shares of Common
Stock of NSC. Remedial Services has the exclusive right to receive
dividends from or the proceeds from the sale of all of the 1,370,671
shares of Common Stock it holds.
(2) According to Schedule 13G, dated January 29, 1999, as of December 31,
1998 Franklin Resources, Inc. ("FRI"), a registered investment advisor,
may be deemed to be the beneficial owner of 800,000 shares of Common
Stock. All 800,000 shares are beneficially owned by one or more open or
closed-end investment companies or other managed accounts which are
advised by direct or indirect investment advisory subsidiaries of FRI.
Because advisory contracts grant to such advisory subsidiaries all
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<PAGE> 49
investment and/or voting power over the Common Stock, the advisory
subsidiaries, and therefore FRI, may be deemed to be the beneficial
owners of 800,000 shares of Common Stock. In addition, Charles B.
Johnson and Rupert H. Johnson, Jr. (together, the "Principal
Shareholders"), each an owner in excess of 10% of the outstanding
common stock of FRI, may be deemed to be the beneficial owners of the
Common Stock held by persons and entities advised by the advisory
subsidiaries. FRI, the advisory subsidiaries and the Principal
Shareholders disclaim beneficial ownership in any of such shares.
(3) According to Schedule 13G, dated February 5, 1999, as of December 31,
1998 Kennedy Capital Management, Inc., a registered investment advisor,
is deemed to have beneficial ownership of 621,645 shares of Common
Stock.
(4) According to Amendment No. 1 to Schedule 13G, dated February 14, 1998,
as of December 31, 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.
(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 Stock Option Plan.
INDEPENDENT AUDITORS
Ernst & Young LLP has been NSC's independent auditor since May 1990. A
representative of Ernst & Young LLP is expected to be present at the Special
Meeting with an opportunity to make a statement if Ernst & Young LLP desires to
do so and to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Due to the contemplated completion of the Merger, NSC does not currently
intend to hold a 1999 Annual Meeting of Stockholders. In the event that such a
meeting is held, any proposals of stockholders intended to be included in NSC's
proxy statement for the 1999 Annual Meeting of Stockholders under Rule 14a-8
under the Exchange Act must have been received by the Secretary of NSC no later
than December 18, 1998. Any proposals of stockholders submitted outside the
processes of Rule 14a-8 under the Exchange Act in connection with the 1999
Annual Meeting of Stockholders, if held, must have been received by the
Secretary of NSC no later than February 28, 1999 or the proposal will be
considered untimely. NSC's proxy statement for the 1999 Annual Meeting of
Stockholders, if held, will give discretionary authority to the proxy holders to
vote with respect to all proposals outside the processes of Rule 14a-8 under the
Exchange Act and received after February 28, 1999.
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<PAGE> 50
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference the documents set forth
below that have been previously filed with the Commission (the "Incorporated
Documents").
<TABLE>
<CAPTION>
NSC SEC FILINGS (FILE NO. 0-18597) PERIOD
- ---------------------------------- ------
<S> <C>
Annual Report on Form 10-K, as amended by Fiscal year ended December 31, 1998
Form 10-K/A filed on April 28, 1999, filed
pursuant to Section 13 of the Exchange Act
Quarterly Report on Form 10-Q, as amended by Quarterly period ended March 31, 1999
Form 10-Q/A filed on May 18, 1999, filed
pursuant to Section 13 of the Exchange Act
Current Report on Form 8-K, filed pursuant to February 12, 1999
Section 13 of the Exchange Act
Current Report on Form 8-K, filed pursuant to May 11, 1999
Section 13 of the Exchange Act
</TABLE>
All statements contained herein relating to NSC are qualified in their
entirety by reference to the more detailed information set forth in the
Incorporated Documents.
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for all purposes to the extent that a statement contained
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to constitute
a part of this Proxy Statement. A copy of NSC's Annual Report on Form 10-K, as
amended, for the fiscal year ended December 31, 1998 (other than exhibits), and
NSC's Quarterly Report on Form 10-Q, as amended, for the quarterly period ended
March 31, 1999 are attached to this Proxy Statement as Annex E and Annex F,
respectively.
Holdings has supplied all information contained or incorporated by
reference in this Proxy Statement relating to Holdings, Merger Subsidiary has
supplied all information contained or incorporated by reference in this Proxy
Statement relating to Merger Subsidiary, NSC has supplied all such information
relating to NSC, and Waste Management has supplied all such information relating
to Waste Management.
Stockholders may obtain, upon written or oral request, without charge, by
first class mail or other equally prompt means within one business day of
receiving a request, a copy of the Incorporated Documents, excluding all
exhibits unless an exhibit has been specifically incorporated by reference in
this Proxy Statement. Stockholders may obtain Incorporated Documents by
requesting them at the following address and telephone number:
NSC Corporation
49 Danton Drive
Methuen, Massachusetts 01844
Attention: Secretary
Telephone: (978) 557-7300
Please request documents by June 14, 1999 to receive them before the
Special Meeting.
45
<PAGE> 51
You should rely only on the information contained or incorporated by
reference in this Proxy Statement to vote on the Merger Agreement. We have not
authorized anyone to provide you with information that is different from what is
contained in this Proxy Statement. This Proxy Statement is dated May 24, 1999.
You should not assume that the information contained in the Proxy Statement is
accurate as of any date other than such date, and the mailing of this Proxy
Statement to stockholders will not create any implication to the contrary.
Dated: May 24, 1999
By Order of the Board of Directors,
[Kouninis Signature]
EFSTATHIOS A. KOUNINIS
Vice President of Finance, Corporate
Controller,
Treasurer and Secretary
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<PAGE> 52
ANNEX A-1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NSC HOLDINGS, INC.
NSC ACQUISITION, INC.
WASTE MANAGEMENT, INC.
AND
NSC CORPORATION
DATED AS OF FEBRUARY 12, 1999
<PAGE> 53
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1
THE MERGER
Section 1.1 The Merger.................................................. A1-1
Section 1.2 Closing..................................................... A1-1
Section 1.3 Effective Time.............................................. A1-1
Section 1.4 Effects of the Merger....................................... A1-2
Section 1.5 Certificate of Incorporation and By-Laws.................... A1-2
Section 1.6 Directors and Officers of the Surviving Corporation......... A1-2
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
SURRENDER OF CERTIFICATES AND PAYMENT
Section 2.1 Effect on Capital Stock..................................... A1-2
(a) Cancellation of Treasury Stock.............................. A1-2
(b) Conversion of Common Stock.................................. A1-2
(c) Capital Stock of Merger Subsidiary.......................... A1-2
Section 2.2 Conversion of Options....................................... A1-2
Section 2.3 Payment and Surrender of Certificates....................... A1-3
(a) Paying Agent................................................ A1-3
(b) Payment Procedures for Stockholders......................... A1-3
(c) Stock Transfer Books........................................ A1-3
(d) Termination of Payment Fund................................. A1-3
(e) No Liability................................................ A1-3
(f) Lost Certificates........................................... A1-3
Section 2.4 Dissenters' Rights.......................................... A1-4
Section 2.5 Assets and Liabilities of Merging Corporations Become Those
of Surviving Corporation.................................... A1-4
Section 2.6 Further Assurances.......................................... A1-4
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of NSC....................... A1-4
(a) Organization, Standing and Corporate Power.................. A1-4
(b) Subsidiaries................................................ A1-5
(c) Capital Structure........................................... A1-5
(d) Authority; Noncontravention................................. A1-5
(e) SEC Reports................................................. A1-6
(f) Absence of Certain Changes or Events........................ A1-6
(g) Compliance with Applicable Laws; Litigation................. A1-7
(h) Absence of Changes in Benefit Plans......................... A1-7
(i) ERISA Compliance............................................ A1-7
(j) Taxes....................................................... A1-8
(k) Voting Requirements......................................... A1-8
(l) State Takeover Statutes..................................... A1-8
(m) Brokers..................................................... A1-8
(n) Environmental Matters....................................... A1-9
Section 3.2 Representations and Warranties of Waste Management.......... A1-10
(a) Authority; Noncontravention................................. A1-10
(b) Ownership of Waste Management Shares........................ A1-10
(c) ODC Management Claims....................................... A1-10
</TABLE>
i
<PAGE> 54
<TABLE>
<S> <C> <C>
Section 3.3 Representations and Warranties of Holdings.................. A1-10
(a) Organization, Standing and Corporate Power.................. A1-10
(b) Authority; Noncontravention................................. A1-10
(c) Holding Resources........................................... A1-11
(d) State Takeover Statutes..................................... A1-11
(e) Brokers..................................................... A1-11
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business......................................... A1-11
(a) Conduct of Business by NSC.................................. A1-11
(b) Other Actions............................................... A1-12
(c) Advice of Changes........................................... A1-12
Section 4.2 No Solicitation............................................. A1-12
ARTICLE 5
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Proxy Statement; Stockholders Meeting........ A1-14
Section 5.2 Access to Information; Confidentiality...................... A1-14
Section 5.3 Reasonable Best Efforts; Cooperation........................ A1-14
Section 5.4 Indemnification............................................. A1-15
Section 5.5 Fees and Expenses........................................... A1-16
Section 5.6 Public Announcements........................................ A1-16
Section 5.7 Repurchase of Waste Management Shares....................... A1-16
ARTICLE 6
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A1-17
(a) Stockholder Approval........................................ A1-17
(b) Governmental and Regulatory Approvals....................... A1-17
(c) No Injunctions or Restraints................................ A1-17
(d) HSR Act..................................................... A1-17
Section 6.2 Conditions to Obligations of Holdings and Merger
Subsidiary.................................................. A1-17
(a) Representations and Warranties.............................. A1-17
(b) Performance of Obligations of NSC........................... A1-17
(c) Waste Management Non-Competition Agreement.................. A1-17
(d) Asset Purchase Agreement.................................... A1-17
(e) Rust Note................................................... A1-17
(f) Repurchase of Shares........................................ A1-17
Section 6.3 Conditions to Obligations of NSC............................ A1-18
(a) Representations and Warranties.............................. A1-18
(b) Performance of Obligations of Holdings...................... A1-18
Section 6.4 Frustration of Closing Conditions........................... A1-18
</TABLE>
ii
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<TABLE>
<S> <C> <C>
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination................................................. A1-18
Section 7.2 Effect of Termination....................................... A1-19
Section 7.3 Amendment................................................... A1-19
Section 7.4 Extension; Waiver........................................... A1-19
Section 7.5 Procedure for Termination, Amendment, Extension or Waiver... A1-19
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 Nonsurvival of Representations and Warranties............... A1-19
Section 8.2 Notices..................................................... A1-19
Section 8.3 Interpretation.............................................. A1-20
Section 8.4 Counterparts................................................ A1-20
Section 8.5 Entire Agreement: No Third-Party Beneficiaries.............. A1-21
Section 8.6 Governing Law............................................... A1-21
Section 8.7 Assignment.................................................. A1-21
Section 8.8 Consent to Jurisdiction..................................... A1-21
Section 8.9 Headings.................................................... A1-21
Section 8.10 Severability................................................ A1-21
</TABLE>
<TABLE>
<S> <C>
Non-Competition Agreement................................... Exhibit A
Asset Purchase Agreement.................................... Exhibit B
Subordinated Promissory Note................................ Exhibit C
Subordinated Promissory Note................................ Exhibit D
</TABLE>
iii
<PAGE> 56
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Acquisition Agreement....................................... 4.2(b)
Acquisition Proposal........................................ 4.2(a)
Affiliate................................................... 8.3
Agreement................................................... Recitals
Holdings.................................................... Recitals
Certificates................................................ 2.3(b)
Certificate of Merger....................................... 1.3
Cleanup..................................................... 3.1(n)(iv)
Closing..................................................... 1.2
Closing Date................................................ 1.2
Code........................................................ 3.1(i)(i)
Common Stock................................................ Recitals
Confidentiality Agreement................................... 5.2
Disclosure Letters.......................................... 3.1
Dissenting Shares........................................... 2.2(b)
Dissenting Stockholders..................................... 2.2(b)
Effective Time.............................................. 1.3
Environmental Claim......................................... 3.1(n)(v)
Environmental Laws.......................................... 3.1(n)(vi)
ERISA....................................................... 3.1(i)(i)
ERISA Affiliate............................................. 3.1(i)(iii)
Exchange Act................................................ 3.1(e)
Governmental Entity......................................... 3.1(d)
Hazardous Materials......................................... 3.1(n)(vii)
HSR Act..................................................... 3.1(d)
Knowledge................................................... 8.3
Liens....................................................... 3.1(b)
Material Adverse Effect..................................... 3.1(a)
Merger...................................................... Recitals
Merger Consideration........................................ 2.2(b)
Merger Subsidiary........................................... Recitals
Notice...................................................... 4.2(a)
ODC......................................................... 3.1(b)
ODM......................................................... 3.1(b)
Options..................................................... 2.3(c)
Payment Agent............................................... 2.3(a)
Paying Fund................................................. 2.3(a)
Person...................................................... 8.3
Preferred Stock............................................. 3.1(c)
Proxy Statement............................................. 3.1(d)
Release..................................................... 3.1(n)(viii)
Restraints.................................................. 6.1(c)
SEC......................................................... 3.1(d)
SEC Documents............................................... 3.1(e)
Securities Act.............................................. 3.1(e)
Stock Option Plan........................................... 2.2(c)
Stockholder Approval........................................ 3.1(k)
Stockholders Meeting........................................ 5.1(b)
Subordinated Note........................................... 2.1
Superior Proposal........................................... 4.2(b)
Surviving Corporation....................................... 1.1
Takeover Statute............................................ 3.1(l)
NSC......................................................... Recitals
NSC Benefit Plans........................................... 3.1(h)
NSC Entity(ies)............................................. 3.1(b)
NSC Subsidiary(ies)......................................... 3.1(b)
Taxes....................................................... 3.1(j)
Waste Management............................................ Recitals
</TABLE>
iv
<PAGE> 57
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of February 12,
1999, by and among NSC Holdings, Inc., a Delaware corporation ("Holdings"), NSC
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of
Holdings ("Merger Subsidiary"), Waste Management, Inc., a Delaware corporation
("Waste Management") and NSC Corporation, a Delaware corporation ("NSC") .
W I T N E S S E T H:
WHEREAS, the parties hereto desire to cause Merger Subsidiary to merge with
and into NSC on the terms and conditions herein set forth and in accordance with
the Delaware General Corporation Law (the "DGCL");
WHEREAS, the Board of Directors of NSC has determined that the merger is
fair to the stockholders of NSC and is in the best interest of such
stockholders, and has approved and adopted this Agreement and the transactions
contemplated hereby and recommended approval and adoption of this Agreement by
the stockholders of NSC;
WHEREAS, the Boards of Directors of each of Holdings and Merger Subsidiary
have determined that the merger of Merger Subsidiary with and into NSC is in the
best interest of their respective stockholders, and have approved and adopted
this Agreement and the transactions contemplated hereby;
WHEREAS, each issued and outstanding share of common stock, par value $0.01
per share, of NSC ("Common Stock"), other than Dissenting Shares (as defined in
Section 2.1(b)) and any shares of Common Stock held in the treasury of NSC, will
be converted into the right to receive the Merger Consideration (as defined in
Section 2.1(b));
WHEREAS, simultaneously with the execution and delivery hereof Waste
Management is entering into a voting agreement for the benefit of Holdings with
respect to the shares of Common Stock beneficially owned by Waste Management
upon the terms and conditions specified therein; and
WHEREAS, Holdings, NSC and Waste Management desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, Merger Subsidiary
shall be merged with and into NSC at the Effective Time (as defined in Section
1.3) and the separate corporate existence of Merger Subsidiary shall thereupon
cease. Following the Effective Time, NSC shall be the surviving corporation (the
"Surviving Corporation").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver (subject to
applicable law) of the conditions (excluding conditions that, by their terms,
cannot be satisfied until the Closing Date) set forth in Article 6, unless
another time or date is agreed to by the parties hereto. The Closing will be
held at the offices of Porter & Hedges, L.L.P. in Houston, Texas or such other
location as the parties hereto shall agree to in writing. The date on which the
Closing occurs is hereinafter referred to as the "Closing Date."
Section 1.3 Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on or after the Closing Date, the parties shall (i) file a
certificate of merger (the "Certificate of Merger") in such form as is required
by and executed in accordance with the
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relevant provisions of the DGCL and (ii) make all other filings or recordings
required under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware, or at such subsequent date or time as NSC and Holdings shall agree and
specify in the Certificate of Merger (the date and time the Merger becomes
effective being hereinafter referred to as the "Effective Time").
Section 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of NSC and Merger Subsidiary shall be vested in the Surviving
Corporation, and all debts, liabilities and duties of NSC and Merger Subsidiary
shall become the debts, liabilities and duties of the Surviving Corporation.
Section 1.5 Certificate of Incorporation and By-Laws. The certificate of
incorporation and by-laws of NSC shall be the certificate of incorporation and
by-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
Section 1.6 Directors and Officers of the Surviving Corporation. From and
after the Effective Time, until the earlier of their death, resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be, (a) the directors of the Merger Subsidiary at the Effective
Time shall be the directors of the Surviving Corporation, and (b) the officers
of the NSC at the Effective Time shall be the officers of the Surviving
Corporation.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
SURRENDER OF CERTIFICATES AND PAYMENT
Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
capital stock of NSC or Merger Subsidiary:
(a) Cancellation of Treasury Stock. Each share of Common Stock held in
the treasury of NSC shall automatically be canceled and retired and shall
cease to exist, and no consideration shall be delivered in exchange
therefor.
(b) Conversion of Common Stock. Each issued and outstanding share of
Common Stock (other than shares to be canceled in accordance with Section
2.1(a) and shares of Common Stock ("Dissenting Shares") that are owned by
stockholders ("Dissenting Stockholders") that have properly exercised
appraisal rights pursuant to Section 262 of the DGCL) shall be converted
into the right to receive $1.12 in cash, without interest (the "Merger
Consideration"). All such shares of Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of
Common Stock shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration upon surrender of such
certificate in accordance with Section 2.3.
(c) Capital Stock of Merger Subsidiary. Each share of common stock of
Merger Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into one share of common stock of the Surviving
Corporation and shall constitute the only outstanding shares of capital
stock of the Surviving Corporation.
Section 2.2 Conversion of Options. NSC shall cause all outstanding options
to purchase shares of Common Stock ("Options") held by directors and executive
officers of NSC issued pursuant to NSC's 1990 Stock Option Plan, as amended (the
"Stock Option Plan"), and shall use its reasonable best efforts to cause all
other Options issued pursuant to the Stock Option Plan as set forth in the
Disclosure Letter, prior to or as of the Effective Time, to be (i) exercised,
exchanged and converted into Common Stock, or (ii) surrendered and canceled
without cost to NSC.
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Section 2.3 Payment and Surrender of Certificates.
(a) Paying Agent. Prior to the Effective Time, Holdings shall appoint a
United States bank or trust company reasonably acceptable to NSC to act as
paying agent (the "Paying Agent") for the payment of the Merger Consideration,
and Holdings shall deposit or shall cause to be deposited with the Paying Agent
in a separate fund established for the benefit of the holders of shares of
Common Stock, for payment in accordance with this Article 2, through the Paying
Agent (the "Payment Fund"), in immediately available funds in amounts necessary
to make the payments pursuant to Section 2.1(b) and this Section 2.3 to holders
of shares of Common Stock entitled thereto pursuant to Section 2.1(b).
(b) Payment Procedures for Stockholders. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall deliver to each holder of
record of a certificate or certificates which at the Effective Time represented
outstanding shares of Common Stock (the "Certificates") whose shares were
converted into the right to receive the Merger Consideration pursuant to Section
2.1(b), (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such form and
have such other provisions as NSC and Holdings may reasonably specify) and (ii)
instructions for use in surrendering the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent, together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor cash in an amount
equal to the product of (i) the number of shares of Common Stock represented by
such Certificate and (ii) the Merger Consideration, and the Certificate so
surrendered shall forthwith be canceled. No interest shall be paid or accrued on
the Merger Consideration payable upon the surrender of any Certificate. If
payment is to be made to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment, shall pay any
transfer or other taxes required by reason of the payment to a person other than
the registered holder of the surrendered Certificate or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.3, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration that the
holder thereof has the right to receive in respect of such Certificate pursuant
to the provisions of this Article 2.
(c) Stock Transfer Books. After the Effective Time, there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Common Stock. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Paying Agent for
any reason, they shall be canceled and exchanged as provided in this Article 2,
except as otherwise provided by law.
(d) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to the Surviving Corporation, upon demand,
and any holders of the Certificates who have not theretofore complied with this
Article 2 shall thereafter look only to the Surviving Corporation for payment of
their claim for the Merger Consideration.
(e) No Liability. None of Holdings, Merger Subsidiary, NSC, the Surviving
Corporation or the Paying Agent shall be liable to any person in respect of any
amount properly delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(f) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying Agent
shall issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration due to such person pursuant to this Agreement.
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<PAGE> 60
Section 2.4 Dissenters' Rights. No Dissenting Stockholder shall be entitled
to any portion of the Merger Consideration pursuant to this Article 2 unless and
until the holder thereof shall have failed to perfect or shall have effectively
withdrawn or lost such holder's right to dissent from the Merger under the DGCL,
and any Dissenting Stockholder shall be entitled to receive only the payment
provided by Section 262 of the DGCL with respect to Common Stock owned by such
Dissenting Stockholder. If any person who otherwise would be deemed a Dissenting
Stockholder shall have failed to properly perfect or shall have effectively
withdrawn or lost the right to dissent with respect to any Common Stock, such
shares of Common Stock shall thereupon be treated as though such Common Stock
had been converted into the right to receive the Merger Consideration with
respect to such Common Stock as provided in this Article 2. NSC shall give
Holdings (i) prompt notice of any written demands for appraisal, attempted
withdrawals of such demands and any other instruments served pursuant to
applicable law received by NSC relating to stockholders' rights of appraisal and
(ii) the opportunity to participate in all negotiations and proceedings with
respect to demand for appraisal under the DGCL. NSC shall not, except with the
prior written consent of Holdings, voluntarily make any payment with respect to
any demands for appraisals of Dissenting Shares, offer to settle or settle any
such demands or approve any withdrawal of any such demands.
Section 2.5 Assets and Liabilities of Merging Corporations Become Those of
Surviving Corporation. At the Effective Time, all rights, privileges, powers,
immunities, and franchises of each of Merger Subsidiary and NSC, both of a
public and private nature, and all property, real, personal, and mixed, and all
debts due on whatever account, and all other chooses or things in action, and
all and every other interest of or belonging to or due to either of Merger
Subsidiary and NSC, shall be taken by and deemed to be transferred to and shall
be vested in the Surviving Corporation without further act or deed pursuant to
Section 259 and other provisions of the DGCL.
Section 2.6 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of NSC or Merger Subsidiary, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of NSC or Merger Subsidiary, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of NSC. Except as disclosed in
the SEC Documents (as defined in Section 3.1(e)) or as set forth in the
Disclosure Letter delivered by NSC to Holdings prior to the execution of this
Agreement (the "Disclosure Letter"), NSC hereby represents and warrants to
Holdings as follows:
(a) Organization, Standing and Corporate Power. NSC and each of the
NSC Subsidiaries (as defined in Section 3.1(b)) is a corporation or other
legal entity duly organized, validly existing and in good standing (with
respect to jurisdictions which recognize such concept) under the laws of
the jurisdiction in which it is organized and has the requisite corporate
or other power, as the case may be, and authority to carry on its business
as now being conducted, except for those jurisdictions where the failure to
be so organized, existing or in good standing individually or in the
aggregate would not have a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of the
NSC Entities (as defined in Section 3.1(b)) taken as a whole (a "Material
Adverse Effect"). NSC and each of the NSC Subsidiaries is duly qualified or
licensed to do business and is in good standing (with respect to
jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, except for
those jurisdictions where the failure to be so qualified or licensed or to
be in good standing individually or in the aggregate would not have a
Material Adverse Effect.
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<PAGE> 61
(b) Subsidiaries. NSC has no subsidiaries, interests in any joint
ventures or partnerships, or interest in any other entity other than
National Surface Cleaning, Inc., National Service Cleaning Corp., Olshan
Demolishing Management, Inc. ("ODM") and NSC Energy Services, Inc. (each a
" NSC Subsidiary," collectively, the "NSC Subsidiaries") (Olshan
Demolishing Company ("ODC"), together with NSC and the NSC Subsidiaries,
the "NSC Entities"). All the outstanding shares of capital stock of, or
other equity interests in, each NSC Subsidiary (i) have been validly issued
and are fully paid and nonassessable, (ii) are owned directly or indirectly
by NSC, free and clear of all pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively,
"Liens") and (iii) are free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests), except in the case of clauses (ii) and
(iii) for any Liens or restrictions that individually or in the aggregate
would not have a Material Adverse Effect.
(c) Capital Structure. The authorized capital stock of NSC consists of
(i) 20,000,000 shares of Common Stock and (ii) 10,000,000 shares of
preferred stock, par value $.01 per share, of NSC ("Preferred Stock"). As
of the date hereof: (i) 9,971,175 shares of Common Stock were issued and
outstanding; (ii) no shares of Preferred Stock were issued or outstanding;
and (iii) 655,250 shares of Common Stock were reserved for issuance upon
the exercise of outstanding Options granted under Stock Option Plan. All of
the outstanding shares of capital stock of NSC are, and all shares which
may be issued will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights. Except as set
forth in Schedule 3.1(c) of the Disclosure Letter and except as provided in
this Agreement there are not issued, reserved for issuance or outstanding
(A) any shares of capital stock or other voting securities of NSC, (B) any
securities of NSC convertible into or exchangeable or exercisable for
shares of capital stock or voting securities of NSC, (C) any warrants,
calls, options or other rights to acquire from NSC, and no obligation of
NSC to issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of NSC or (D) any debt securities of NSC not set forth on the
face of the financial statements or in the notes thereto under the caption
"Long-Term Debt," or any other similar caption, included in the SEC
Documents (as hereinafter defined) (the items in clauses (A), (B), (C), and
(D) of this section are collectively referred to as "NSC Securities").
There are no outstanding obligations of NSC to repurchase, redeem or
otherwise acquire any NSC Securities other than as contemplated by Section
6.2(f) of this Agreement. Other than the Options, there are no outstanding
obligations of NSC to issue, deliver or sell, or cause to be issued,
delivered or sold, any NSC Securities.
(d) Authority; Noncontravention. NSC has all requisite corporate power
and authority to enter into this Agreement and, subject to the Stockholder
Approval (as defined in Section 3.1(k)), to consummate the transactions
contemplated by this Agreement. The execution and delivery of this
Agreement by NSC and the consummation by NSC of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of NSC, subject, in the case of the Merger, to the
Stockholder Approval. This Agreement has been duly executed and delivered
by NSC and, assuming the due authorization, execution and delivery by
Holdings and Waste Management, constitutes a legal, valid and binding
obligation of NSC, enforceable against NSC in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of
creditors generally and general principles of equity. The execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, (i) conflict with the certificate of
incorporation or by-laws of NSC, (ii) result in any default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
benefit under, or result in the creation of any Lien upon any of the
properties or assets of the NSC Entities under any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license or similar authorization
applicable to the NSC Entities or their respective properties or assets or
(iii) subject to the governmental filings and other matters referred to in
the following sentence, violate any
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<PAGE> 62
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the NSC Entities or their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses or Liens that individually or in the
aggregate would not have a Material Adverse Effect. No consent, approval,
order or authorization of, action by or in respect of, or registration,
declaration or filing with, any federal, state, local or foreign
government, any court, administrative, regulatory or other governmental
agency, commission or authority or any non-governmental U.S. or foreign
self-regulatory agency, commission or authority or any arbitral tribunal
(each, a "Governmental Entity") is required by NSC in connection with the
execution and delivery of this Agreement by NSC or the consummation by NSC
of the transactions contemplated hereby, except for: (i) the filing with
the Securities and Exchange Commission (the "SEC") of a proxy statement
relating to the Stockholders Meeting (as defined in Section 5.1(b)) (such
proxy statement, as amended or supplemented from time to time, the "Proxy
Statement"); (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware; (iii) compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended ("HSR Act"); and (iv) such consents, approvals, orders
or authorizations the failure of which to be made or obtained individually
or in the aggregate would not have a Material Adverse Effect.
(e) SEC Reports. NSC has timely filed all required reports, schedules,
forms, statements and other documents (including exhibits and all other
information incorporated therein) under the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with the SEC between January 1, 1996 and the
date of this Agreement (as such reports, schedules, forms, statements and
documents have been amended since the time of their filing, collectively
the "SEC Documents"). As of their respective dates, or if amended, as of
the date of the last such amendment, the SEC Documents complied in all
material respects with the requirements of the Securities Act, or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Documents, and none of the
SEC Documents when filed, or as amended, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of NSC included in the SEC Documents comply as to form, as of
their respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects
the consolidated financial position of NSC and its consolidated
subsidiaries as of the dates thereof and the consolidated statement of
earnings, cash flows and stockholders' equity for the periods then ended
(subject, in the case of unaudited statements, to normal recurring year-end
audit adjustments).
(f) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, since September 30, 1998, NSC and each of the NSC Subsidiaries have
conducted their business only in the ordinary course or as disclosed in any
SEC Document, and there has not been (i) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of NSC's capital stock, (ii) any split,
combination or reclassification of any of NSC's capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of NSC's capital
stock, (iii) (A) any granting by NSC or any NSC Subsidiary to any current
or former director, executive officer or other key employee of NSC or any
NSC Subsidiary of any increase in compensation, bonus or other benefits,
except for normal increases in the ordinary course of business or as was
required under any employment agreements in effect as of the date of the
most recent audited financial statements included in the SEC Documents
filed and publicly available prior to the date of this Agreement, (B) any
granting by NSC or any NSC Subsidiary to any such current or former
director, executive officer or key employee of any
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<PAGE> 63
increase in severance or termination pay, except in the ordinary course of
business, or (C) any entry by NSC or any NSC Subsidiary into, or any
amendment of, any employment, deferred compensation, consulting, severance,
termination or indemnification agreement with any such current or former
director, executive officer or key employee, other than in the ordinary
course of business, or (iv) except insofar as may have been disclosed in
the SEC Documents or required by a change in generally accepted accounting
principles, any change in accounting methods, principles or practices by
NSC materially affecting its assets, liabilities or business.
(g) Compliance with Applicable Laws; Litigation. As of the date of
this Agreement, except as disclosed in the SEC Documents, no action,
demand, requirement or investigation by any Governmental Entity and no
suit, action or proceeding by any person, in each case with respect to NSC
or any NSC Subsidiary or any of their respective properties is pending or,
to the knowledge (as defined in Section 8.3 of NSC, threatened, other than,
in each case, those the outcome of which individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect.
(h) Absence of Changes in Benefit Plans. Except as set forth on
Schedule 3.1(h) of the Disclosure Letter, since September 30, 1998, there
has not been any (i) adoption by NSC of any collective bargaining agreement
or any material bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical, life, severance or other plan, arrangement or
understanding providing benefits to any current or former employee, officer
or director of NSC (collectively, the "NSC Benefit Plans") to which any of
NSC's executive officers is a participant or (ii) amendment to any NSC
Benefit Plan that resulted in a material increase in the benefits received
or to be received thereunder by any executive officer of NSC.
(i) ERISA Compliance.
(i) With respect to the NSC Benefit Plans, no event has occurred
and, to the knowledge of NSC, there exists no condition or set of
circumstances, in connection with which NSC could be subject to any
liability that individually or in the aggregate would have a Material
Adverse Effect under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), the Internal Revenue Code of 1986, as
amended (the "Code") or any other applicable law.
(ii) Each NSC Benefit Plan has been administered in accordance with
its terms, all applicable laws, including ERISA and the Code, and the
terms of all applicable collective bargaining agreements, except for any
failures so to administer any NSC Benefit Plan that individually or in
the aggregate would not reasonably be expected to have a Material
Adverse Effect. NSC and all NSC Benefit Plans are in compliance with the
applicable provisions of ERISA, the Code and all other applicable laws
and the terms of all applicable collective bargaining agreements, except
for any failures to be in such compliance that individually or in the
aggregate would not reasonably be expected to have a Material Adverse
Effect. Each NSC Benefit Plan that is intended to be qualified under
Section 401(a) or 401(k) of the Code is so qualified and each trust
established in connection with any NSC Benefit Plan that is intended to
be exempt from federal income taxation under Section 501(a) of the Code
is so exempt. To the knowledge of NSC, no fact or event has occurred
which is reasonably likely to affect adversely the qualified status of
any such NSC Benefit Plan or the exempt status of any such trust, except
for any occurrence that individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect, and to the
knowledge of NSC, all contributions to, and payments from, such NSC
Benefit Plans which are required to be made in accordance with such NSC
Benefit Plans, ERISA or the Code have been timely made other than any
failures that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect.
(iii) Except as any of the following either individually or in the
aggregate would not reasonably be expected to have a Material Adverse
Effect, neither NSC nor any
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trade or business, whether or not incorporated (an "ERISA Affiliate"),
which together with NSC would be deemed to be a "single employer" within
the meaning of Section 4001(b) of ERISA, has incurred any liability
under Title IV of ERISA and no condition exists that presents a risk to
NSC or any ERISA Affiliate of NSC of incurring any such liability (other
than liability for benefits or premiums to the Pension Benefit Guaranty
Corporation arising in the ordinary course).
(iv) As of the date of this Agreement, there is no labor dispute,
strike or work stoppage against NSC or any NSC Subsidiary pending or, to
the knowledge of NSC, threatened which may interfere with the respective
business activities of NSC or any NSC Subsidiary, except where such
dispute, strike or work stoppage individually or in the aggregate would
not reasonably be expected to have a Material Adverse Effect.
(v) No NSC Benefit Plan provides medical benefits (whether or not
insured) with respect to current or former employees after retirement or
other termination of service the cost of which would reasonably expected
to have a Material Adverse Effect.
(vi) The consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event,
(A) entitle any current or former employee, officer or director of NSC
to severance pay, unemployment compensation or any other payment or (B)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee, officer or director.
(vii) Except as set forth on Schedule 3.1(i) to the Disclosure
Letter, no NSC Subsidiary is a party to any agreement, contract or
arrangement that could result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
(j) Taxes. NSC and each NSC Subsidiary has filed all material tax
returns and reports required to be filed by it and all such returns and
reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file, to
be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a Material Adverse Effect.
NSC and each NSC Subsidiary has paid (or NSC has paid on its behalf) all
taxes (as defined below) shown as due on such returns. As used in this
Agreement, "taxes" shall include all federal, state, local or foreign net
and gross income, alternative or add-on minimum, environmental, gross
receipts, ad valorem, value added, goods and services, capital stock,
profits, license, single business, employment, severance, stamp,
unemployment, customs, property, sales, excise, use, occupation, service,
transfer, payroll, franchise, withholding and other taxes or similar
governmental duties, charges, fees, levies or other assessments including
any interest, penalties or additions with respect thereto.
(k) Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock at the Stockholders
Meeting to adopt this Agreement (the "Stockholder Approval") is the only
vote of the holders of any class or series of NSC's capital stock necessary
to adopt and approve this Agreement and the Merger and the transactions
contemplated hereby. The Board of Directors of NSC has duly and validly
approved and taken all corporate action required to be taken by the Board
of Directors of NSC for the consummation of the transactions contemplated
by this Agreement.
(l) State Takeover Statutes. The Board of Directors of NSC has taken
all necessary action so that no "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation (each, a
"Takeover Statute") is applicable to the Merger and the transactions
contemplated by this Agreement.
(m) Brokers. Except for BT Alex. Brown Incorporated, no broker,
investment banker, financial advisor or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of NSC.
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(n) Environmental Matters.
(i) During the three-year period immediately preceding the date of
this Agreement, neither NSC nor any NSC Subsidiary has received any
written communication from a Governmental Entity alleging that NSC or
any NSC Subsidiary is not in compliance with applicable Environmental
Laws, other than those instances of alleged noncompliance which
individually or in the aggregate would not reasonably be expected to
have a Material Adverse Effect.
(ii) There is no Environmental Claim pending or, to the knowledge
of NSC, threatened, against NSC or any NSC Subsidiary or, to the
knowledge of NSC, against any person whose liability for any
Environmental Claim NSC or any NSC Subsidiary has or may have retained
or assumed either contractually or by operation of law other than those
Environmental Claims which individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
(iii) There are no Releases of any Hazardous Material at any
property that could reasonably be expected to result in liability under
any Environmental Law for NSC or any NSC Subsidiary or, to the knowledge
of NSC, for any person whose liability for any Environmental Claim NSC
or any NSC Subsidiary has or may have retained or assumed either
contractually or by operation of law other than those liabilities which
individually or in the aggregate would not reasonably be expected to
have a Material Adverse Effect.
(iv) As used herein, the term "Cleanup" means all actions required
to (A) cleanup, remove, treat, manage or remediate Hazardous Materials
in the indoor or outdoor environment; (B) prevent the Release of
Hazardous Materials so that they do not migrate, endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment;
(C) perform preremedial studies and investigations and post-remedial
monitoring and care; or (D) respond to any government requests for
information or documents in any way relating to cleanup, removal,
treatment or remediation or potential cleanup, removal, treatment or
remediation of Hazardous Materials in the indoor or outdoor environment.
(v) As used herein, the term "Environmental Claim" means any claim,
action, cause of action, investigation or written notice by any person
alleging potential liability or responsibility (including, without
limitation, potential liability for investigatory costs, Cleanup costs,
governmental response costs, natural resources damages, property
damages, personal injuries, fines or penalties) arising out of, based on
or resulting from (A) the presence or Release of any Hazardous Materials
at any location, whether or not owned or operated by NSC or any NSC
Subsidiary or (B) circumstances forming the basis of any violation of
any Environmental Law.
(vi) As used herein, the term "Environmental Laws" means all
federal, state, local and foreign laws and regulations relating to
pollution or protection of the environment, including, without
limitation, laws relating to Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials.
(vii) As used herein, the term "Hazardous Materials" means all
substances defined as Hazardous Substances, Hazardous Waste, Oils,
Pollutants or Contaminants in the National Oil and Hazardous Substances
Pollution Contingency Plan, 40 C.F.R. sec.300.5, or defined as such by,
or regulated as such under, any Environmental Law, including all matters
adversely affecting air, ground, ground water and/or environmental
quality or safety, including, without limitation, petroleum,
petroleum-derived products, underground storage tanks and asbestos.
(viii) As used herein, the term "Release" means any release, spill,
emission, discharge, leaking, pumping, injection, deposit, disposal,
dispersal, leaching or migration into the environment (including,
without limitation, ambient air, surface water, groundwater and surface
or subsurface strata).
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Section 3.2 Representations and Warranties of Waste Management. Waste
Management hereby represents and warrants to Holdings as follows:
(a) Authority; Noncontravention. Waste Management has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Waste Management and the consummation by
Waste Management of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Waste
Management. This Agreement has been duly executed and delivered by Waste
Management and, assuming the due authorization, execution and delivery by
Holdings and NSC, constitutes a legal, valid and binding obligation of
Waste Management, enforceable against Waste Management in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
rights of creditors generally and general principles of equity. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, (i) conflict with the certificate of
incorporation or by-laws of Waste Management, (ii) result in any default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or
loss of a benefit under, or result in the creation of any Lien upon the
Waste Management Shares (as defined in Section 3.2(b)) under any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license or similar
authorization applicable to the Waste Management Shares or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, violate any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Waste Management Shares, other than,
in the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights, losses or Liens that individually or in the aggregate
would not have a Material Adverse Effect. No consent, approval, order or
authorization of, action by or in respect of, or registration, declaration
or filing with, any Governmental Entity is required by Waste Management in
connection with the execution and delivery of this Agreement by Waste
Management or the consummation by Waste Management of the transactions
contemplated hereby, except for (i) compliance with any applicable
requirements of the HSR Act and (ii) such consents, approvals, orders or
authorizations the failure of which to be made or obtained individually or
in the aggregate would not have a Material Adverse Effect.
(b) Ownership of Waste Management Shares. As of the date hereof, Waste
Management is the beneficial owner of 5,380,670 shares of Common Stock (the
"Waste Management Shares"), all of which shares are owned of record by
affiliates (as defined in Section 8.3) of Waste Management as set forth in
Schedule 3.2(b) of the Disclosure Letter. Except as set forth in this
Agreement, neither Waste Management nor any of its affiliates is a party to
any option, warrant, purchase right, or other contract or commitment that
could require any such entity to sell, transfer or otherwise dispose of any
of the Waste Management Shares.
(c) ODC Management Claims. Except as set forth in the SEC Documents,
neither Waste Management, Rust International Inc., ODC nor any of their
affiliates have any claims against any NSC Subsidiary that would reasonably
be expected to have a Material Adverse Effect.
Section 3.3 Representations and Warranties of Holdings. Except as set forth
in the Disclosure Letter delivered by Holdings to NSC prior to the execution of
this Agreement (the "Holdings Disclosure Letter"), Holdings hereby represents
and warrants to NSC and Waste Management as follows:
(a) Organization, Standing and Corporate Power. Each of Holdings and
Merger Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) Authority; Noncontravention. Holdings and Merger Subsidiary have
all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement
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and the consummation of the transactions contemplated hereby by Holdings
and Merger Subsidiary have been duly authorized by all necessary corporate
action. This Agreement has been duly executed and delivered by Holdings and
Merger Subsidiary and, assuming the due authorization, execution and
delivery by NSC and Waste Management, constitutes a legal, valid and
binding obligation of Holdings and Merger Subsidiary, enforceable against
Holdings and Merger Subsidiary in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting the rights of creditors generally and
general principles of equity. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not (i)
conflict with the certificate of incorporation or by-laws of Holdings or
Merger Subsidiary, (ii) result in any default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under,
or result in the creation of any Lien upon any of the properties or assets
of Holdings or Merger Subsidiary under any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license or similar authorization applicable to
Holdings, Merger Subsidiary or their respective properties or assets or
(iii) subject to the governmental filings and other matters referred to in
the following sentence, violate any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Holdings, Merger Subsidiary or
their respective properties or assets. No consent, approval, order or
authorization of, action by, or in respect of, or registration, declaration
or filing with, any Governmental Entity is required by Holdings or Merger
Subsidiary in connection with the execution and delivery of this Agreement
by Holdings and Merger Subsidiary or the consummation by Holdings and
Merger Subsidiary of the transactions contemplated hereby, except for: (i)
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware; and (ii) compliance with any applicable requirements of
the HSR Act.
(c) Holdings Resources. At the Effective Time, Holdings will have
sufficient funds on hand or available to consummate the transactions
contemplated by this Agreement and to pay all transaction related fees and
expenses.
(d) State Takeover Statutes. The Board of Directors of Holdings and
Merger Subsidiary have taken all necessary action so that no Takeover
Statute is applicable to the Merger and the other transactions contemplated
by this Agreement.
(e) Brokers. Except for Cobb Capital Corp., no broker, investment
banker, financial advisor or other person is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Holdings.
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business.
(a) Conduct of Business by NSC. Except as set forth in Section 4.1(a) of
the Disclosure Letter, otherwise contemplated by this Agreement or consented to
by Holdings, consent not to be unreasonably withheld or delayed, during the
period from the date of this Agreement to the Effective Time, NSC shall carry on
its businesses in the ordinary course consistent with past practice and in
compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to keep
available the services of its current officers and other key employees and
preserve its relationships with those persons having business dealings with
them. Without limiting the generality of the foregoing (but subject to the above
exceptions), during the period from the date of this Agreement to the Effective
Time, NSC shall not, and shall not permit any NSC Subsidiary to:
(i) other than dividends and distributions by a direct or indirect
wholly owned subsidiary of NSC to its parent (x) declare, set aside or pay
any dividends on, or make any
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other distributions in respect of, any of its capital stock, (y) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, except for issuances of the
Common Stock upon the exercise of the Options under the Stock Option Plan;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any shares of its capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities,
other than the issuance of Common Stock upon the exercise of the Options
under the Stock Option Plan;
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents, or merge or consolidate with any
person;
(iv) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets other
than in the ordinary course of business consistent with past practice;
(v) enter into any written contracts of employment;
(vi) incur any indebtedness except under its existing revolving credit
facilities or trade payables incurred in the ordinary course of business;
(vii) enter into commitments for capital expenditures involving more
than $10,000.00 in the aggregate except as may be necessary for the
maintenance of existing facilities, machinery and equipment in good
operating condition and repair in the ordinary course of business;
(viii) fail to maintain insurance in accordance with past practice; or
(ix) authorize, or commit or agree to take, any of the foregoing
actions;
provided, however, that the limitations set forth in this Section
4.1(a) (other than clause (iii)) shall not apply to any transaction to
which the only parties are NSC or NSC Subsidiaries.
(b) Other Actions. Except as required by law, NSC and Holdings shall not,
and, in the case of NSC, shall not permit any NSC Subsidiary to, voluntarily
take any action that would reasonably be expected to result in any of the
conditions to the Merger set forth in Article 6 not being satisfied.
(c) Advice of Changes. NSC and Holdings shall promptly advise the other
party orally and in writing to the extent it has knowledge of any change or
event having, or which, insofar as can reasonably be foreseen, would reasonably
be expected to have a material adverse effect on such party or on the truth of
their respective representations and warranties or the ability of the conditions
set forth in Article 6 to be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto) or the conditions
to the obligations of the parties under this Agreement.
Section 4.2 No Solicitation.
(a) NSC shall not, nor shall it permit any NSC Subsidiary, nor shall it
authorize or permit any of its directors, officers or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it, to directly or indirectly through another person,
(i) solicit, initiate or encourage (including by way of furnishing information),
or take any other action designed to facilitate, any inquiries or the making of
any proposal which constitutes any Acquisition Proposal (as defined below) or
(ii) participate in any discussions or negotiations regarding any Acquisition
Proposal; provided, however, that if, at any time, the Board of Directors of NSC
determines in good faith, after consultation with outside counsel, that it is
necessary to do so in order to act in a manner consistent with its fiduciary
duties to NSC's stockholders under applicable law, NSC may, in response to a
Superior Proposal (as defined in Section 4.2(b)) which was not solicited by it
or which did not otherwise result from a breach of this Section 4.2(a) and
subject to providing prior written notice of its decision to take such action to
Holdings (the
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"Notice") and compliance with Section 4.2(c), following delivery of the Notice
(x) furnish information with respect to NSC and the NSC Subsidiaries to any
person making a Superior Proposal pursuant to a customary confidentiality
agreement (as determined by NSC after consultation with its outside counsel) and
(y) participate in discussions or negotiations regarding such Superior Proposal.
For purposes of this Agreement, "Acquisition Proposal" means any inquiry,
proposal or offer from any person relating to any (w) direct or indirect
acquisition or purchase of all or substantially all of the business or assets of
NSC, (x) direct or indirect acquisition or purchase of 50% or more of any class
of equity securities of NSC, (y) tender offer or exchange offer that if
consummated would result in any person beneficially owning 50% or more of any
class of equity securities of NSC, or (z) merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving NSC, other than the transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.2, neither the Board of
Directors of NSC nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to Holdings, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any Acquisition Proposal or (iii) cause NSC enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement (each, an "Acquisition Agreement") related to any Acquisition
Proposal. Notwithstanding the foregoing, in the event that the Board of
Directors of NSC determines in good faith, after consultation with outside
counsel, that in light of a Superior Proposal it is necessary to do so in order
to act in a manner consistent with its fiduciary duties to NSC's stockholders
under applicable law, the Board of Directors of NSC may (subject to this and the
following sentences) terminate this Agreement in order to concurrently enter
into such Acquisition Agreement with respect to a Superior Proposal; provided,
however, that NSC may not terminate this Agreement pursuant to this Section
4.2(b) unless and until (i) three business days have elapsed following the
delivery to Holdings of a written notice of such determination by the Board of
Directors of NSC and (x) NSC has delivered to Holdings the written notice
required by Section 4.2(c) below, and (y) during such three business day period,
NSC otherwise cooperates with Holdings with respect to an Acquisition Proposal
that constitutes a Superior Proposal with the intent of enabling Holdings to
engage in good faith negotiations so that the transactions contemplated hereby
may be effected and (ii) at the end of such three business day period the Board
of Directors of NSC continues reasonably to believe that the Acquisition
Proposal constitutes a Superior Proposal. For purposes of this Agreement, a
"Superior Proposal" means any proposal made by a third party to acquire,
directly or indirectly, including pursuant to a tender offer, exchange offer,
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of cash and/or
securities, or all or substantially all the assets of NSC and otherwise on terms
which the Board of Directors of NSC determines in its good faith judgment (based
on the advice of a financial advisor of nationally recognized reputation) to be
more favorable to NSC's stockholders than the Merger and for which financing, to
the extent required, is then committed or which, in the good faith judgment of
the Board of Directors of NSC, is reasonably capable of being obtained by such
third party.
(c) In addition to the obligations of NSC set forth in paragraphs (a) and
(b) of this Section 4.2, NSC shall immediately advise Holdings orally and in
writing of any request for information or of any Acquisition Proposal, the
material terms and conditions of such request or Acquisition Proposal and the
identity of the person making such request or Acquisition Proposal. NSC will
keep Holdings reasonably informed of the status and details (including
amendments and proposed amendments) of any such request or Acquisition Proposal.
(d) Nothing contained in this Section 4.2 shall prohibit NSC from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to NSC's
stockholders if, in the good faith judgment of the Board of Directors of NSC,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however, that,
except as expressly permitted by paragraph (a) of this Section 4.2 in connection
with a Superior Proposal, neither NSC nor its Board of Directors nor any
committee thereof shall withdraw or modify, or propose
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publicly to withdraw or modify, its position with respect to this Agreement or
the Merger or approve or recommend, or propose publicly to approve or recommend,
an Acquisition Proposal.
ARTICLE 5
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Proxy Statement; Stockholders Meeting.
(a) As soon as practicable following the date of this Agreement, NSC shall
prepare and file with the SEC a proxy statement (the "Proxy Statement"). NSC
will use all reasonable best efforts to cause the Proxy Statement to be mailed
to NSC's stockholders as promptly as practicable after the Proxy Statement is
cleared by the staff of the SEC for mailing to NSC's stockholders.
(b) NSC shall, as soon as practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its stockholders (the
"Stockholders Meeting") for the purpose of obtaining Stockholder Approval and
shall, through its Board of Directors, recommend to its stockholders the
approval and adoption of this Agreement, the Merger and the other transactions
contemplated hereby. Without limiting the generality of the foregoing, but
subject to its rights pursuant to Section 4.2 and Section 7.1(e), NSC agrees
that its obligations pursuant to the first sentence of this Section 5.1(b) shall
not be affected by the commencement, public proposal, public disclosure or
communication to NSC of any Acquisition Proposal.
Section 5.2 Access to Information; Confidentiality. To the extent permitted
by applicable law and subject to the agreement dated April 16, 1998, between NSC
and Holdings (the "Confidentiality Agreement"), each of NSC and Holdings shall
afford to the other party and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such other party, reasonable
access during normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and all other information concerning its business,
properties and personnel as such other party may reasonably request. Any review
pursuant to this Section 5.2 shall be for the purposes of confirming the
accuracy of any representation or warranty contained in this Agreement given by
Holdings to NSC or by NSC to Holdings and facilitating transition planning. Each
of NSC and Holdings will hold, and will cause its respective officers,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to hold, any nonpublic information in accordance with the terms
of the Confidentiality Agreement.
Section 5.3 Reasonable Best Efforts; Cooperation.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Nothing set forth in this Section 5.3(a) will limit or affect actions
permitted to be taken pursuant to Section 4.2.
(b) In connection with and without limiting the foregoing, NSC and Holdings
shall (i) take all action necessary to ensure that no state takeover statute or
similar statute or regulation is or becomes applicable to the Merger, this
Agreement or any of the other transactions contemplated hereby and (ii) if any
state takeover statute or similar statute or regulation becomes applicable to
the Merger, this Agreement or any of the other transactions contemplated hereby,
take all action
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necessary to ensure that the Merger and the other transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
by this Agreement and otherwise to minimize the effect of such statute or
regulation on the Merger and the other transactions contemplated by this
Agreement.
Section 5.4 Indemnification.
(a) From and after the Effective Time, the Surviving Corporation shall, to
the fullest extent not prohibited by applicable law, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof, or who becomes prior to the Effective Time, an officer, director or
employee of NSC or any NSC Subsidiary (each, an "Indemnified Party" and
collectively, the "Indemnified Parties") against (i) all losses, expenses
(including reasonable attorneys' fees and expenses), claims, damages or
liabilities or, subject to the proviso of the next succeeding sentence, amounts
paid in settlement, arising out of actions or omissions occurring at or prior to
the Effective Time (and whether asserted or claimed prior to, at or after the
Effective Time) that are, in whole or in part, based on or arising out of the
fact that such person is or was a director, officer or employee of NSC or any
NSC Subsidiary or served as a fiduciary under or with respect to any employee
benefit plan (within the meaning of Section 3(3) of ERISA) at any time
maintained by or contributed to by NSC or any NSC Subsidiary ("Indemnified
Liabilities"), and (ii) all Indemnified Liabilities to the extent they are based
on or arise out of or pertain to the transactions contemplated by this
Agreement. In the event of any such loss, expense, claim, damage or liability
(whether or not arising before the Effective Time), (i) the Surviving
Corporation shall pay the reasonable fees and expenses of counsel selected by
the Indemnified Parties, which counsel shall be reasonably satisfactory to the
Surviving Corporation, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement of
expenses reasonably incurred, (ii) the Surviving Corporation and NSC will
cooperate in the defense of such matter and (iii) any determination required to
be made with respect to whether an Indemnified Party's conduct complies with the
standards set forth under applicable law and the certificate of incorporation or
by-laws shall be made by independent counsel mutually acceptable to the
Surviving Corporation and the Indemnified Party; provided, however, that the
Surviving Corporation shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld or
delayed). In the event that any Indemnified Party is required to bring any
action to enforce rights or to collect moneys due under this Agreement and is
successful in such action, the Surviving Corporation shall reimburse such
Indemnified Party for all of its expenses in bringing and pursuing such action.
Each Indemnified Party shall be entitled to the advancement of expenses to the
full extent contemplated in this Section 5.4(a) in connection with any such
action. In addition, from and after the Effective Time, directors and officers
of NSC who become directors or officers of the Surviving Corporation will be
entitled to indemnification under the Surviving Corporation's certificate of
incorporation and by-laws, as the same may be amended from time to time in
accordance with their terms and applicable law, and to all other indemnity
rights and protections as are afforded to other directors and officers of the
Surviving Corporation.
(b) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision will be made so
that the successors and assigns of the Surviving Corporation assume the
obligations set forth in this Section 5.4.
(c) For six years after the Effective Time, the Surviving Corporation shall
maintain in effect the directors' and officers' liability tail insurance
identified on Schedule 4.1 with respect to those persons who are currently
covered by NSC's directors' and officers' liability insurance policy on terms
with respect to such coverage and amount no less favorable than those of such
policy in effect on December 31, 1998. In addition, for six years after the
Effective Time, the Surviving Corporation shall maintain in effect the NSC's
current fiduciary liability insurance policies for employees who serve or have
served as fiduciaries under or with respect to any employee benefit plans
described in Section 5.4(a) with coverages and in amounts no less favorable than
those of such policy in effect on the date hereof.
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(d) The provisions of this Section 5.4 are (i) intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) in addition to, and not in substitution
for, any other rights to indemnification or contribution that any such person
may have by contract or otherwise.
Section 5.5 Fees and Expenses.
(a) Except as provided in this Section 5.4, all fees and expenses incurred
in connection with the Merger, this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees or expenses, whether or
not the Merger is consummated.
(b) In the event that (i) this Agreement is terminated by NSC pursuant to
Section 7.1(e), then NSC shall promptly, but in no event later than two days
after the date of termination pursuant to this clause (i), pay Holdings a fee
equal to $100,000.00 (the "Termination Fee"), payable by wire transfer of same
day funds, or (ii)(x) an Acquisition Proposal shall have been made known to NSC
or has been made directly to its stockholders generally or any person shall have
publicly announced an intention (whether or not conditional) to make an
Acquisition Proposal which, in any such case, has not been publicly withdrawn
prior to the Stockholders Meeting, (y) thereafter, this Agreement is terminated
by either NSC or Holdings pursuant to Section 7.1(b)(ii), and (z) within 12
months of such termination NSC enters into any Acquisition Agreement or
consummates any Acquisition Proposal, then NSC shall pay Holdings the
Termination Fee, payable by wire transfer of same day funds, no later than two
days after the first to occur of the execution of an Acquisition Agreement or
the consummation of an Acquisition Takeover Proposal. NSC acknowledges that the
agreements contained in this Section 5.5(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Holdings would not enter into this Agreement.
(c) In the event that this Agreement is terminated by NSC pursuant to
Section 7.1(d), then Holdings shall promptly, but in no event later than two
days after the date of termination pursuant to this clause, pay NSC liquidated
damages equal to $100,000 (the "NSC Termination Fee"), payable by wire transfer
of same day funds.
(d) In the event this Agreement is terminated by Holdings pursuant to
Section 7.1(c), the NSC shall promptly, but in no event later than two days
after the date of termination pursuant to this clause, pay Holdings liquidated
damages equal to $100,000 (the "Holdings Termination Fee"), payable by wire
transfer of same day funds.
Section 5.6 Public Announcements. Holdings and NSC will consult with each
other before issuing, and provide each other the opportunity to review, comment
upon and concur with, any press release or other public statements with respect
to the transactions contemplated by this Agreement, including the Merger, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as either party may determine is required by
applicable law, court process or by obligations pursuant to any rules and
regulations of the Nasdaq Stock Market.
Section 5.7 Repurchase of Waste Management Shares. Immediately prior to the
Effective Time Waste Management will sell to NSC and NSC will purchase from
Waste Management 996,420 shares of Common Stock to NSC in exchange for a
subordinated promissory note in the principal amount of $1,115,990, bearing
interest at 11% per annum, in the form attached hereto as Exhibit D.
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ARTICLE 6
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Stockholder Approval shall have been
obtained.
(b) Governmental and Regulatory Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental Entity required of
Holdings, NSC or any NSC Subsidiary to consummate the Merger and the other
transactions contemplated hereby, the failure of which to be obtained or
taken is reasonably expected to have a material adverse effect on the
Surviving Corporation and its subsidiaries, taken as a whole, shall have
been obtained in form and substance reasonably satisfactory to each of
Holdings and NSC.
(c) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced
or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the
Merger, (ii) prohibiting or limiting the ownership or operation by NSC and
the NSC Subsidiaries of any material portion of the business or assets of
the NSC Entities taken as a whole, or compelling NSC and the NSC
Subsidiaries to dispose of or hold separate any material portion of the
business or assets of the NSC Entities taken as a whole, as a result of the
Merger or any of the other transactions contemplated by this Agreement or
(iii) which otherwise is reasonably likely to have a Material Adverse
Effect; provided, however, that each of the parties shall have used its
reasonable best efforts to prevent the entry of any such Restraints and to
appeal as promptly as possible any such Restraints that may be entered.
(d) HSR Act. Any applicable waiting period (including any extension
thereof) under the HSR Act relating to the Merger shall have expired or
been terminated.
Section 6.2 Conditions to Obligations of Holdings and Merger
Subsidiary. The obligations of Holdings and Merger Subsidiary to effect the
Merger is further subject to satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties
of NSC and Waste Management set forth herein shall be true and correct both
when made and at and as of the Closing Date, as if made at and as of such
time (except to the extent expressly made as of an earlier date, in which
case as of such date), except where the failure of such representations and
warranties to be so true and correct would not have, individually or in the
aggregate, a Material Adverse Effect.
(b) Performance of Obligations of NSC. NSC shall have performed in all
material respects all of its obligations required to be performed by it
under this Agreement at or prior to the Closing Date.
(c) Waste Management Non-Competition Agreement. Waste Management and
NSC shall have executed a non-competition agreement for a three-year term,
in substantially the form of Exhibit A attached hereto.
(d) Asset Purchase Agreement. Waste Management and NSC, or their
respective affiliates, shall have executed an asset purchase agreement
relating to the sale of all or substantially all of the assets of ODC, in
substantially the form of Exhibit B attached hereto.
(e) Rust Note. The promissory note in the principal amount of
$4,520,000 made by NSC in favor of Rust International Inc. will be canceled
and a subordinated promissory note in the principal amount of $2,400,000,
bearing interest at 12 1/2% per annum, in substantially the form of Exhibit
C attached hereto will be issued to Waste Management or its designee.
(f) Repurchase of Shares. NSC shall have repurchased from Waste
Management 996,420 shares of Common Stock in exchange for a subordinated
promissory note in the
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principal amount of $1,115,990, bearing interest at 11% per annum, in the
form attached hereto as Exhibit D.
Section 6.3 Conditions to Obligations of NSC. The obligation of NSC to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Holdings set forth herein shall be true and correct both when made and
at and as of the Closing Date, as if made at and as of such time (except to
the extent expressly made as of an earlier date, in which case as of such
date), except where the failure of such representations and warranties to
be so true and correct would not have, individually or in the aggregate, a
Material Adverse Effect.
(b) Performance of Obligations of Holdings. Holdings shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date.
Section 6.4 Frustration of Closing Conditions. Neither Holdings nor NSC may
rely on the failure of any condition set forth in Sections 6.1, 6.2 or 6.3, as
the case may be, to be satisfied if such failure was caused by such party's
failure to use reasonable best efforts to consummate the Merger and the other
transactions contemplated by this Agreement, as required by and subject to
Section 5.3.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after the Stockholder Approval.
(a) by mutual written consent of Holdings and NSC.
(b) by either Holdings or NSC:
(i) if the Merger shall not have been consummated by June 30, 1999;
provided, however, that the right to terminate this Agreement pursuant to
this Section 7.1(b)(i) shall not be available to any party whose failure to
perform any of its obligations under this Agreement results in the failure
of the Merger to be consummated by such time;
(ii) if the Stockholder Approval shall not have been obtained at the
Stockholders Meeting duly convened therefor or at any adjournment or
postponement thereof, or
(iii) if any Restraint having any of the effects set forth in Section
6.1(c) shall be in effect and shall have become final and nonappealable;
provided, that the party seeking to terminate this Agreement pursuant to
this Section 7.1(b)(iii) shall have used its reasonable best efforts to
prevent the entry of and to remove such Restraint;
(c) by Holdings, if NSC shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform would
give rise to a material adverse change relating to NSC and (A) is not cured
within 30 days after written notice thereof or (B) is incapable of being cured
by NSC;
(d) by NSC, if Holdings shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, and such breach or failure to perform
(A) is not cured within 30 days after written notice thereof or (B) is incapable
of being cured by Holdings (it being understood that Holdings' inability to
finance the transactions contemplated hereby shall not be curable); or
(e) by NSC in accordance with Section 4.2(b); provided that, in order for
the termination of this Agreement pursuant to this Section 7.1(e) to be deemed
effective, NSC shall have complied with all provisions of Section 4.2, including
the notice provisions therein, and the applicable requirements, including the
payment of the Termination Fee, of Section 5.5.
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Section 7.2 Effect of Termination. In the event of termination of this
Agreement by either NSC or Holdings as provided in Section 7.1, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Holdings, NSC or Waste Management, other than the
provisions of Section 3.1(m), Section 3.3(e), the last sentence of Section 5.2,
Section 5.5, Section 5.6, this Section 7.2 and Article 8, which provisions
survive such termination.
Section 7.3 Amendment. This Agreement may be amended by the parties at any
time before or after the Stockholder Approval; provided, however, that after
such approval, there shall not be made any amendment that by law requires
further approval by the stockholders of NSC without further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
Section 7.4 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
7.3, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
Section 7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1 shall, in order to be
effective, require, in the case of Holdings or NSC, action by its Board of
Directors or, with respect to any amendment to this Agreement, the duly
authorized committee of its Board of Directors to the extent permitted by law.
The approval of the Board of Directors of Waste Management shall not be required
for any such action referred to in this Section 7.5.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
Section 8.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
<TABLE>
<S> <C>
(a) if to NSC, to: NSC Corporation
49 Danton Drive
Methuen, Massachusetts 01844
Telecopy No.: (978) 557-7380
Attention: Darryl Schimeck
with copies to: Devine, Millimet & Branch P.A.
12 Essex Street
Andover, Massachusetts 01810
Telecopy No.: (978) 684-5054
Attention: Aaron A. Gilman, Esq.
</TABLE>
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<TABLE>
<S> <C>
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Telecopy No.: (216) 579-0212
Attention: Charles W. Hardin, Jr., Esq.
(b) if to Holdings or Merger Subsidiary, to: NSC Holdings, Inc.
6049 Heards Drive
Atlanta, Georgia 30328
Telecopy No.: (770) 541-1930
Attention: Martin O'Halloran
with a copy to: Porter & Hedges L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy No.: (713) 228-1331
Attention: John M. Ransom, Esq.
(c) if to Waste Management, to: Waste Management, Inc.
1001 Fannin Street, Suite 4000
Houston, Texas 77002
Telecopy No.: (713) 209-9711
Attention: Gregory T. Sangalis, Esq.
with a copy to: Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street, Suite 4200
Chicago, Illinois 60603
Telecopy No.: (312) 269-8869
Attention: Thomas A. Witt, Esq.
</TABLE>
Section 8.3 Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference shall be to an Article or Section
of, or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. For purposes of this Agreement, (i) "person"
means an individual, corporation, partnership, limited liability company, joint
venture, association, trust, unincorporated organization or other entity,
(including its permitted successors and assigns), (ii) "knowledge" of any person
which is not an individual means the knowledge of such person's executive
officers, and (iii) an "affiliate" of any person means another person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first person, where
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management policies of a person, whether through
the ownership of voting securities, by contract or otherwise.
Section 8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
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Section 8.5 Entire Agreement: No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein), and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement and (b) except for the
provisions of Article 2 and Section 5.4, are not intended to confer upon any
person other than the parties any rights or remedies.
Section 8.6 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
Section 8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 8.8 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of Delaware or a Delaware state court.
Section 8.9 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.10 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
NSC CORPORATION
By: /s/ Darryl G. Schimeck
--------------------------------
Name: Darryl G. Schimeck
Title: President and Chief Executive
Officer
WASTE MANAGEMENT, INC.
By: /s/ Gregory T. Sangalis
--------------------------------
Name: Gregory T. Sangalis
Title: Senior Vice President and
Secretary
NSC HOLDINGS, INC.
By: /s/ Martin O'Halloran
--------------------------------
Name: Martin O'Halloran
Title: Chairman
NSC ACQUISITION, INC.
By: /s/ Martin O'Halloran
--------------------------------
Name: Martin O'Halloran
Title: Chairman
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<PAGE> 79
EXHIBIT A
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement"), dated as of ________ __,
1999, is by and between NSC Corporation, a Delaware corporation (the "Company"),
and Waste Management, Inc., a Delaware corporation ("Waste Management").
W I T N E S S E T H:
WHEREAS, NSC Holdings, Inc. ("Holdings"), NSC Acquisition, Inc. ("Merger
Subsidiary"), Waste Management and the Company are parties to that certain
Agreement and Plan of Merger, dated as of February 12, 1999 (the "Merger
Agreement"), which provides, among other things, upon the terms and subject to
the conditions thereof, that Merger Subsidiary will be merged with and into the
Company (the "Merger");
WHEREAS, Waste Management owns, through its affiliates, approximately 54%
of the outstanding shares of common stock, par value $.01 per share, of the
Company; and
WHEREAS, in order to induce Holdings to enter into the Merger Agreement,
and as a condition to the consummation of the Merger, Waste Management has
agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, Waste
Management and the Company hereby agree as follows.
1. Non-Competition.
a. Conduct. From and after the date of this Agreement and ending on
the third anniversary thereof, Waste Management shall not:
(i) enter into or engage in any business that currently competes
with the Business (as defined below) within the Restricted Territory (as
defined below);
(ii) solicit customers, active prospects, business or patronage for
any business wherever located that competes with the Business within the
Restricted Territory or sell any services for any business, wherever
located, that competes with the Business within the Restricted
Territory; or
(iii) solicit, divert, entice or otherwise take away any customers,
former customers, active prospects, business, patronage or orders of the
Business or attempt to do.
b. Business. "Business" shall mean the asbestos abatement, lead
paint abatement, indoor air quality or demolition and dismantling
services business currently conducted by the Company, excluding waste
management services, which shall include, without limitation,
collection, transportation, transfer, processing, treatment, recycling
and disposal, and on-site technical services, which shall include,
without limitation, identification and packaging.
c. Restricted Territory. "Restricted Territory" means the
continental United States.
d. Non-Competition -- Direct or Indirect. Waste Management will be
in violation of this Section 1 if it engages in any or all of the
activities set forth in this Section 1 directly on its own account, or
indirectly for any other Person and whether as partner, joint venturer,
agent and/or director of any Person or as an equity holder of any Person
in which Waste Management owns, directly or indirectly, any of the
outstanding equity interests; provided, however,that (i) the direct or
indirect ownership by Waste Management of an interest constituting no
more than ten percent in the aggregate of the outstanding voting capital
stock in any Person which has a class of voting securities listed for
trading on a national securities exchange or on an inter-dealer
automated quotation system shall not be a violation of this Section 1;
(ii) the direct or indirect ownership by Waste Management of any
interest in any Person that derives less than ten percent of its annual
gross revenues from any operation that competes with the Business
A-1
<PAGE> 80
shall not be a violation of this Section 1; and (iii) Waste Management
may engage, directly or indirectly, in the business of asbestos
abatement, lead paint abatement, indoor air quality or demolition and
dismantling services without restriction hereunder to the extent such
business is incidental to other businesses or projects from time to time
conducted by Waste Management. For purposes of this Agreement, "Person"
means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization
or other entity.
2. Remedies. If Waste Management breaches, or fails to comply with,
the terms of Section 1 and such breach or failure causes serious and
substantial damage to the Company, the Company shall be entitled to an
injunction restraining Waste Management from any such breach or failure.
All remedies expressly provided for in this Section 2 are cumulative of any
and all other remedies now existing at law or in equity. The Company shall,
in addition to the remedies provided in this Agreement, be entitled to
avail itself of all such other remedies as may now or hereafter exist at
law or in equity for compensation, and for the specific enforcement of the
covenants contained in this Agreement. Resort to any remedy provided for
hereunder or provided for by law shall not preclude or bar the concurrent
or subsequent employment of any other appropriate remedy or remedies, or
preclude the recovery by the Company or monetary damages and compensation.
3. Severability. In the event that any provision of this Agreement
shall finally be judicially determined to be invalid, ineffective or
unenforceable, such determination shall apply only in the jurisdiction in
which such adjudication is made and every other provision of this Agreement
shall remain in full force and effect. The invalid, ineffective or
unenforceable provision shall, without further action by the parties, be
automatically amended to effect the original purpose and intent of the
invalid, ineffective or unenforceable provision; provided, however, that
such amendment shall apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is
made.
4. Amendment; Assignment. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto. No party may assign any of its
rights or obligations under this Agreement without the prior written
consent of the other party.
5. Expenses. Each party shall bear its own expenses and costs in
connection with this Agreement and the transactions contemplated hereby.
6. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and permitted
assigns, and nothing in this Agreement, express or implied, is intended to
or shall confer upon any other person any rights, benefits or remedies of
any nature whatsoever under or by reason of this Agreement.
7. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return
receipt requested), to the other party as follows:
<TABLE>
<C> <S> <C>
(i) If to Waste Management, to: Waste Management, Inc.
1001 Fannin
Suite 4000
Houston, Texas 77002
Telecopy No.: (713) 209-9711
Attention: Gregory T. Sangalis, Esq.
with a copy to: Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Suite 420
Chicago, Illinois 60603
Telecopy No.: (312) 269-8899
Attention: Thomas A. Witt, Esq.
</TABLE>
A-2
<PAGE> 81
<TABLE>
<C> <S> <C>
(ii) If to the Company, to: NSC Corporation
49 Danton Drive
Methuen, Massachusetts 01844
Telecopy No.: (978) 557-7380
Attention: Darryl Schimeck
with a copy to: Porter & Hedges L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy No.: (713) 228-1331
Attention: John M. Ransom, Esq.
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Delaware, without regard to the
principles of conflicts of law thereof.
9. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
10. Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-3
<PAGE> 82
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its representatives thereunto duly authorized, all as
of the day and year first above written.
WASTE MANAGEMENT, INC.
By:
-----------------------------------
Name:
Title:
NSC CORPORATION
By:
-----------------------------------
Name:
Title:
A-4
<PAGE> 83
EXHIBIT B
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated ________ __, 1999 (this "Agreement"),
is by and between Olshan Demolishing Company Inc., a Texas corporation ("ODC"),
NSC Corporation, a Delaware corporation ("NSC") and Olshan Demolishing
Management, Inc., a Delaware corporation and wholly owned subsidiary of NSC
("ODM").
W I T N E S S E T H:
WHEREAS, Waste Management, Inc. ("Waste Management") owns, through its
affiliates, all of the outstanding capital stock of ODC;
WHEREAS, NSC, Waste Management, NSC Holdings, Inc. ("Holdings"), and NSC
Acquisition, Inc. ("Merger Subsidiary") have entered into an Agreement and Plan
of Merger dated as of February 12, 1999 (the "Merger Agreement"), which
provides, among other things, upon the terms and subject to the conditions
thereof, that Merger Subsidiary will be merged with and into NSC (the "Merger");
WHEREAS, in order to induce Holdings to enter into the Merger Agreement,
and as a condition to the consummation of the Merger, Waste Management has
agreed to cause ODC to enter into this Agreement; and
WHEREAS, ODC desires, and Waste Management desires to cause ODC, to sell to
ODM, and ODM desires, and NSC desires to cause ODM, to purchase from ODC, all of
ODC's right, title and interest in and to the Assets (as hereinafter defined).
NOW, THEREFORE, in consideration of the mutual promises and
representations, warranties, covenants and agreements hereinafter set forth and
other good and valuable consideration, ODC, ODM and NSC hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Assets to be Transferred. Simultaneously with the execution and
delivery hereof, ODM shall purchase from ODC, and ODC shall sell, transfer,
assign, convey and deliver to ODM all right, title and interest of ODC in and to
all of the assets and properties owned by ODC associated with the Business (as
defined in the Operating Agreement as hereinafter defined), including, without
limitation, (a) the assets identified on Schedule I attached hereto, (b) all of
ODC's goodwill, if any, and (c) all of ODC's right, title and interest in and to
the name "Olshan Demolishing" and any variations thereof (collectively, the
"Assets").
1.2 Purchase Price. In consideration for the Assets, simultaneously with
the execution and delivery hereof, NSC shall deliver to ODC, or its designee, a
Subordinated Promissory Note, in substantially the form of Exhibit A attached
hereto, in the amount of $2,400,000, payable to ODC or its designee (the
"Note"). The purchase price (and all other capitalizable costs) shall be
allocated $230,400 to the Assets and $2,169,600 to the Note for all purposes
(including financial accounting and tax purposes).
ARTICLE 2
DELIVERIES
2.1 Deliveries by ODC. Simultaneously with the execution and delivery
hereof, ODC shall deliver to ODM the following items:
(a) an executed copy of the Bill of Sale, substantially in the form of
Exhibit B attached hereto;
B-1
<PAGE> 84
(b) certificates of title for all motor vehicles, if any, included in
the Assets;
(c) evidence satisfactory to ODM and NSC establishing the cancellation
of, and the discharge of any indebtedness under, that certain working
capital loan from Rust International Inc., an affiliate of ODC and Waste
Management, in the original principal amount of $4,520,000;
(d) such documents and instruments satisfactory to ODM and NSC
establishing the termination of that certain Business Operating Agreement,
dated April 20, 1995 (the "Operating Agreement") among Rust Engineering &
Construction Inc., ODC, ODM and NSC, which shall provide that Sections 4.4
and 9.2 of the Operating Agreement are specifically rendered void (such
that all new accounts, new contracts, subcontracts and purchase agreements
referenced in the Operating Agreement shall remain in the sole ownership
and for the sole benefit of ODM); provided, however, that the
indemnification provisions set forth in Section 10 of the Operating
Agreement shall survive such termination in accordance with their terms;
and
(e) such other documents and instruments as NSC shall reasonably
request to consummate the transactions contemplated hereby.
2.2 Deliveries by NSC. Simultaneously with the execution hereof, NSC shall
deliver to ODC the following items:
(a) an executed copy of the Note as set forth in Section 1.2;
(b) such documents and instruments satisfactory to ODC establishing
the termination of the Operating Agreement as set forth above; and
(c) such other documents and instruments as ODC shall reasonably
request to consummate the transactions contemplated hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ODC
3.1 Existence and Good Standing. ODC is a corporation duly incorporated,
validly existing and in good standing under the laws of Texas.
3.2 Due Authorization and Execution; No Conflict. ODC has all of the
requisite power and authority to enter into and perform this Agreement. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action by ODC. This Agreement has been duly and validly executed
and delivered by ODC and constitutes the valid and legally binding obligation of
ODC enforceable against ODC in accordance with its terms. The execution,
delivery and performance of this Agreement does not conflict with or violate the
Certificate of Incorporation or By-Laws of ODC, or any provision of any
applicable law or result in the creation or imposition of any lien in favor of
any third party with respect to any of the Assets.
3.3 Consents. The execution, delivery and performance of this Agreement by
ODC, and the consummation of the transactions contemplated hereby does not (i)
result in a breach of, conflict with, violate or constitute a default (whether
upon the giving of notice or the passage of time or both) under, any term or
provision of any agreement or instrument to which ODC is a party, or by which
ODC or any of its properties or assets is bound, or (ii) require the consent or
approval of, or notice to, or filing with, any other person or entity,
including, without limitation, any governmental authority.
3.4 Title, Etc. Except for its interest in the name "Olshan Demolishing" as
to which no representation or warranty is made, ODC has good and marketable
title to all of the Assets free and clear of any and all liens, claims, charges,
assessments, security interests and other encumbrances of any kind whatsoever
other than liens for current taxes, assessments, fees and other charges by
governmental authorities which are not due and payable as of the date of this
Agreement. The Assets listed on Schedule I constitute all of the operating
assets owned by ODC.
B-2
<PAGE> 85
3.5 Brokers. No person has acted directly or indirectly as a broker, finder
or financial advisor for ODC in connection with the negotiations relating to the
transactions contemplated by this Agreement, and no person is entitled to any
fee or commission or like payment in respect thereof based in any way on any
agreement, arrangement or understanding made by or on behalf of ODC.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ODM AND NSC
4.1 Existence and Good Standing. Each of ODM and NSC is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware.
4.2 Due Authorization and Execution; No Conflict. Each of ODM and NSC has
all of the requisite power and authority to enter into and perform this
Agreement. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary action by ODM and NSC. This Agreement has been duly
and validly executed and delivered by ODM and NSC and constitutes the valid and
legally binding obligation of ODM and NSC enforceable against ODM and NSC in
accordance with its terms. The execution, delivery and performance of this
Agreement does not conflict with or violate the Certificate of Incorporation or
By-Laws of ODM or NSC.
4.3 Consents. The execution, delivery and performance of this Agreement by
ODM and NSC, and the consummation of the transactions contemplated hereby does
not (i) result in a breach of, conflict with, violate or constitute a default
(whether upon the giving of notice or the passage of time or both) under, any
term or provision of any agreement or instrument to which ODM or NSC is a party,
or by which ODM or NSC is bound, or (ii) require the consent or approval of, or
notice to, or filing with, any other person or entity, including, without
limitation, any governmental authority.
4.4 Brokers. No person has acted directly or indirectly as a broker, finder
or financial advisor for ODM or NSC in connection with the negotiations relating
to the transactions contemplated by this Agreement, and no person is entitled to
any fee or commission or like payment in respect thereof based in any way on any
agreement, arrangement or understanding made by or on behalf of ODM or NSC.
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification. ODM and NSC will jointly and severally indemnify and
hold harmless ODC, its affiliates (including Waste Management) and all officers,
directors, employees and agents of any of them (individually, an "ODC
Indemnitee") from and against any and all Damages arising from any and all
Claims in which ODC Indemnitee may be involved or threatened to be involved, as
a party or otherwise, arising out of, in connection with, or otherwise relating
to, the operation of the business following the termination of the Operating
Agreement, regardless of whether the ODC Indemnitee continues to be an
affiliate, or an officer, director, employee or agent of ODC or its affiliates
at the time any such Claims are made or Damages incurred; provided that the
foregoing indemnity shall not apply to any Claims or Damages incurred due to the
negligence or willful misconduct of any ODC Indemnitee. The terms "Claims" and
"Damages" shall have the same meaning herein as in the Operating Agreement
notwithstanding its termination.
5.2 Conditions of Indemnification. The respective obligations and
liabilities of an indemnifying party (the "Indemnifying Party") to the other
(the "Indemnified Party") under Section 5.1 hereof with respect to Claims
resulting from the assertion of liability by third parties shall be subject to
the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required to avoid
prejudicing the Indemnifying Party's position) after receipt of notice of
commencement of any action
B-3
<PAGE> 86
evidenced by service of process or other legal pleading, or with reasonable
promptness after the assertion in writing of any claim by a third party,
the Indemnified Party shall give the Indemnifying Party written notice
thereof together with a copy of such Claim, process or other legal
pleading, and the Indemnifying Party shall undertake the defense thereof by
representatives of its own choosing and at its own expense; provided,
however, that the Indemnified Party may participate in the defense with
counsel of its own choice and at its own expense. The failure or
delinquency in providing notice pursuant to this subsection (a) shall not
relieve the Indemnifying Party from any liability except and only to the
extent that the Indemnifying Party is prejudiced thereby.
(b) In the event that the Indemnifying Party fails to defend against
such Claim, the Indemnified Party will (upon further notice to the
Indemnifying Party) have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of the
Indemnifying Party and at the Indemnifying Party's expense, subject to the
right of the Indemnifying Party to assume the defense of such Claim at any
time prior to settlement, compromise or final determination thereof upon
reimbursement to the Indemnified Party of all costs and expenses incurred
by the Indemnified Party in conjunction with such defense to that date.
(c) Anything in this Section 5.2 to the contrary notwithstanding, the
Indemnifying Party shall not settle any Claim without the consent of the
Indemnified Party unless such settlement involves only the payment of money
and the claimant provides to the Indemnified Party a release from all
liability in respect of such Claim. If the settlement of the Claim involves
more than the payment of money, the Indemnifying Party shall not settle the
Claim without the prior consent of the Indemnified Party.
(d) The Indemnified Party and the Indemnifying Party will each
cooperate with all reasonable requests of the other.
ARTICLE 6
MISCELLANEOUS
6.1 Further Assurances. ODC at the request of ODM or NSC, at or after the
date hereof, shall, without further consideration, promptly execute and deliver,
or cause to be executed and delivered, to ODM or NSC such deeds, assignments,
bills of sale, consents and other instruments in addition to those required by
this Agreement, in form and substance satisfactory to ODM and NSC, and take all
such other actions, as ODM or NSC may reasonably deem necessary or desirable to
implement any provision of this Agreement and to more effectively transfer to
and vest in ODM and to put ODM in possession of, all of the Assets, free and
clear of all liens.
6.2 Amendment; Assignment. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto. No party may assign any of its rights
or obligations under this Agreement without the prior written consent of the
other party.
6.3 Expenses. Each party shall bear its own expenses and costs in
connection with this Agreement and the transactions contemplated hereby.
6.4 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and permitted
assigns, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
6.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt)
B-4
<PAGE> 87
by delivery in person, by facsimile or by registered or certified mail (postage
prepaid, return receipt requested), to the other party as follows:
<TABLE>
<S> <C>
(a) If to ODC, to: Waste Management, Inc.
1001 Fannin, Suite 4000
Houston, Texas 77002
Telecopy No.: (713) 209-9711
Attention: Gregory T. Sangalis, Esq.
with a copy to: Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Suite 4200
Chicago, Illinois 60603
Telecopy No.: (312) 269-8869
Attention: Thomas A. Witt, Esq.
(b) If to ODM or NSC, to: NSC Corporation
49 Danton Drive
Methuen, Massachusetts 01844
Telecopy No.: (978) 557-7380
Attention: Darryl Schimeck
with a copy to: Porter & Hedges L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy No.: (713) 228-1331
Attention: John M. Ransom, Esq.
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
6.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of Delaware, without regard to the
principles of conflicts of law thereof.
6.7 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity and enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid and unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, or shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
6.8 Entire Agreement. This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
B-5
<PAGE> 88
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
OLSHAN DEMOLISHING COMPANY INC.
By:
-----------------------------------------
Name:
Title:
OLSHAN DEMOLISHING MANAGEMENT, INC.
By:
-----------------------------------------
Name:
Title:
NSC CORPORATION
By:
-----------------------------------------
Name:
Title:
B-6
<PAGE> 89
EXHIBIT C
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNLESS SUCH SALE, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION SHALL HAVE BEEN
REGISTERED UNDER SAID ACT, OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE,
AND THEN ONLY IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
ALL INDEBTEDNESS EVIDENCED HEREBY AND REFERENCED HEREIN IS SUBORDINATED IN
RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL INDEBTEDNESS OWED TO FINOVA
CAPITAL CORPORATION AS SET FORTH IN THAT CERTAIN SUBORDINATION AND STANDSTILL
AGREEMENT ON OR ABOUT THE DATE HEREOF AMONG FINOVA CAPITAL CORPORATION, THE
PAYEE OF THIS NOTE AND THE OTHER PARTIES NAMED THEREIN (THE "FINOVA
SUBORDINATION AGREEMENT")
SUBORDINATED PROMISSORY NOTE
$2,400,000.00 Methuen, Massachusetts
________ __, 1999
FOR VALUE RECEIVED, the undersigned, NSC Corporation, a Delaware
corporation ("Borrower"), hereby promises to pay to the order of Waste
Management, Inc., a Delaware corporation ("Payee"), in lawful money of the
United States of America, in immediately available funds at the principal
business address of Payee, 1001 Fannin, Suite 4000, Houston, Texas 77002, or at
such other location as the holder hereof may designate from time to time in
writing, the principal amount of TWO MILLION FOUR HUNDRED THOUSAND DOLLARS AND
NO CENTS ($2,400,000.00), together with interest from the date hereof, at a rate
of 12 1/2% per annum (computed on the basis of a 365-day year and based upon the
number of days actually elapsed), payable in arrears on the fifteenth day of
each August, November, February and May commencing August 15, 1999. The
principal amount hereof and any and all accrued but unpaid interest thereon
shall be due and payable on December 31, 2005.
If any amount of principal or interest payable hereunder is not paid when
due (whether at stated maturity, by acceleration or otherwise), the then entire
outstanding principal amount hereof, together with all overdue interest, shall
automatically and immediately accrue interest until such default is cured,
payable on demand, at a rate per annum equal to the lesser of (i) 5% per annum
above the interest rate otherwise in effect, or (ii) the maximum interest rate
permitted under applicable law.
Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day (as hereinafter defined), such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest. As used herein, the term
"Business Day" means any day of the year on which banks are not required or
authorized to close in New York, New York.
This Note is executed and delivered pursuant to the Agreement and Plan of
Merger, dated as of February 12, 1999, by and among Borrower, Payee, NSC
Holdings, Inc. and NSC Acquisition, Inc..
Borrower shall be in default under this Note upon the occurrence of any of
the following events of default ("Events of Default"):
(a) default in the payment of the principal of or any installment of
interest on this Note when due, which default continues for a period of ten (10)
days after notice of such default is delivered by Payee to Borrower;
(b) any "event of default," "default" or similar event or occurrence that
results in the acceleration of indebtedness of Borrower to any other person
under any note, indenture, agreement or undertaking; or
C-1
<PAGE> 90
(c) the dissolution, voluntary or involuntary bankruptcy, termination of
existence, insolvency, business failure or appointment of a receiver of any part
of the property of Borrower or any guarantor or surety of any of the obligations
of Borrower.
Upon the occurrence of any Event of Default, and at any time thereafter as
long as any such Event of Default shall be continuing, Payee may declare all
liabilities and obligations of Borrower to Payee immediately due and payable and
the same shall thereupon become immediately due and payable without any further
action on the part of Payee, and upon the occurrence of any Event of Default
mentioned in clause (c) hereof, all liabilities and obligations of Borrower to
Payee shall become due and payable without any action upon the part of Payee.
Borrower shall have the right at any time and from time to time to prepay
the unpaid principal amount hereof, in whole or in part, without premium or
penalty. In the case of any such prepayment, Borrower shall also pay in full all
accrued but unpaid interest in respect of the entire outstanding principal
amount hereof and all overdue interest, if any.
The indebtedness evidenced by this Note is subordinated to all Senior
Indebtedness of Borrower as set forth in the FINOVA Subordination Agreement.
Until all liabilities and obligations of Borrower to Payee are paid, such Senior
Indebtedness, together with all other indebtedness of Borrower for money
borrowed to which the indebtedness evidenced by this Note may be subordinated,
shall not exceed $22,000,000 in the aggregate, as provided in that certain
Memorandum of Understanding, dated February 12, 1999, between Payee and
Borrower.
Borrower hereby waives presentment, demand, protest or notice of any kind
in connection with this Note.
Borrower shall pay Payee, on demand, any reasonable out-of-pocket expenses
(including reasonable legal fees) arising out of or in connection with any
action or proceeding (including any action or proceeding arising in or related
to any insolvency, bankruptcy or reorganization involving or affecting Borrower)
taken to protect, enforce, determine or assert any right or remedy under this
Note.
This Note shall bind Borrower and its successors and assigns, and the
benefits hereof shall inure to the benefit of Payee and its successors and
assigns. All references herein to "Borrower" and "Payee" shall be deemed to
apply to Borrower and Payee, respectively, and to their respective successors
and assigns.
This Note and any other documents delivered in connection herewith and the
rights and obligations of the parties hereto and thereto shall for all purposes
be governed by and construed and enforced in accordance with the substantive law
of Delaware without giving effect to its conflict of laws principles.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
officers thereunto duly authorized, as of the date first above written.
NSC CORPORATION
By:
-----------------------------------
Name:
Title:
C-2
<PAGE> 91
EXHIBIT D
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNLESS SUCH SALE, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION SHALL HAVE BEEN
REGISTERED UNDER SAID ACT, OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE,
AND THEN ONLY IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
ALL INDEBTEDNESS EVIDENCED HEREBY AND REFERENCED HEREIN IS SUBORDINATED IN
RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL INDEBTEDNESS OWED TO FINOVA
CAPITAL CORPORATION AS SET FORTH IN THAT CERTAIN SUBORDINATION AND STANDSTILL
AGREEMENT ON OR ABOUT THE DATE HEREOF AMONG FINOVA CAPITAL CORPORATION, THE
PAYEE OF THIS NOTE AND THE OTHER PARTIES NAMED THEREIN (THE "FINOVA
SUBORDINATION AGREEMENT")
SUBORDINATED PROMISSORY NOTE
$1,115,990.00 Methuen, Massachusetts
________ __, 1999
FOR VALUE RECEIVED, the undersigned, NSC Corporation, a Delaware
corporation ("Borrower"), hereby promises to pay to the order of Waste
Management, Inc., a Delaware corporation ("Payee"), in lawful money of the
United States of America, in immediately available funds at the principal
business address of Payee, 1001 Fannin, Suite 4000, Houston, Texas 77002, or at
such other location as the holder hereof may designate from time to time in
writing, the principal amount of ONE MILLION ONE HUNDRED FIFTEEN THOUSAND NINE
HUNDRED NINETY DOLLARS AND NO CENTS ($1,115,990.00 ), together with interest
from the date hereof, at a rate of 11% per annum (computed on the basis of a
365-day year and based upon the number of days actually elapsed), payable in
arrears on the fifteenth day of each August, November, February and May
commencing August 15, 1999. The principal amount hereof and any and all accrued
but unpaid interest thereon shall be due and payable on December 31, 2003.
If any amount of principal or interest payable hereunder is not paid when
due (whether at stated maturity, by acceleration or otherwise), the then entire
outstanding principal amount hereof, together with all overdue interest, shall
automatically and immediately accrue interest until such default is cured,
payable on demand, at a rate per annum equal to the lesser of (i) 5% per annum
above the interest rate otherwise in effect, or (ii) the maximum interest rate
permitted under applicable law.
Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day (as hereinafter defined), such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest. As used herein, the term
"Business Day" means any day of the year on which banks are not required or
authorized to close in New York, New York.
This Note is executed and delivered pursuant to the Agreement and Plan of
Merger, dated as of February 12, 1999, by and among Borrower, Payee, NSC
Holdings, Inc. and NSC Acquisition, Inc.
Borrower shall be in default under this Note upon the occurrence of any of
the following events of default ("Events of Default"):
(a) default in the payment of the principal of or any installment of
interest on this Note when due, which default continues for a period of ten
(10) days after notice of such default is delivered by Payee to Borrower;
(b) any "event of default," "default" or similar event or occurrence
that results in the acceleration of indebtedness of Borrower to any other
person under any note, indenture, agreement or undertaking; or
D-1
<PAGE> 92
(c) the dissolution, voluntary or involuntary bankruptcy, termination
of existence, insolvency, business failure or appointment of a receiver of
any part of the property of Borrower or any guarantor or surety of any of
the obligations of Borrower.
Upon the occurrence of any Event of Default, and at any time thereafter as
long as any such Event of Default shall be continuing, Payee may declare all
liabilities and obligations of Borrower to Payee immediately due and payable and
the same shall thereupon become immediately due and payable without any further
action on the part of Payee, and upon the occurrence of any Event of Default
mentioned in clause (c) hereof, all liabilities and obligations of Borrower to
Payee shall become due and payable without any action upon the part of Payee.
Borrower shall have the right at any time and from time to time to prepay
the unpaid principal amount hereof, in whole or in part, without premium or
penalty. In the case of any such prepayment, Borrower shall also pay in full all
accrued but unpaid interest in respect of the entire outstanding principal
amount hereof and all overdue interest, if any.
The indebtedness evidenced by this Note is subordinated to all Senior
Indebtedness of Borrower as set forth in the FINOVA Subordination Agreement.
Until all liabilities and obligations of Borrower to Payee are paid, such Senior
Indebtedness, together with all other indebtedness of Borrower for money
borrowed to which the indebtedness evidenced by this Note may be subordinated,
shall not exceed $22,000,000 in the aggregate, as provided in that certain
Memorandum of Understanding, dated February 12, 1999, between Payee and
Borrower.
Borrower hereby waives presentment, demand, protest or notice of any kind
in connection with this Note.
Borrower shall pay Payee, on demand, any reasonable out-of-pocket expenses
(including reasonable legal fees) arising out of or in connection with any
action or proceeding (including any action or proceeding arising in or related
to any insolvency, bankruptcy or reorganization involving or affecting Borrower)
taken to protect, enforce, determine or assert any right or remedy under this
Note.
This Note shall bind Borrower and its successors and assigns, and the
benefits hereof shall inure to the benefit of Payee and its successors and
assigns. All references herein to "Borrower" and "Payee" shall be deemed to
apply to Borrower and Payee, respectively, and to their respective successors
and assigns.
This Note and any other documents delivered in connection herewith and the
rights and obligations of the parties hereto and thereto shall for all purposes
be governed by and construed and enforced in accordance with the substantive law
of Delaware without giving effect to its conflict of laws principles.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
officers thereunto duly authorized, as of the date first above written.
NSC CORPORATION
By:
-----------------------------------
Name:
Title:
D-2
<PAGE> 93
ANNEX A-2
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment No. 1"),
dated as of May 10, 1999, by and among NSC Holdings, Inc., a Delaware
corporation ("Holdings"), NSC Acquisition, Inc., a Delaware corporation and a
wholly owned subsidiary of Holdings ("Merger Subsidiary"), Waste Management,
Inc., a Delaware corporation ("Waste Management") and NSC Corporation, a
Delaware corporation ("NSC"). Unless otherwise indicated, capitalized terms used
herein without definition shall have the respective meanings set forth in the
Merger Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, Holdings, Merger Subsidiary, Waste Management and NSC are parties
to that certain Agreement and Plan of Merger, dated as of February 12, 1999 (the
"Merger Agreement"); and
WHEREAS, Holdings, Merger Subsidiary, Waste Management and NSC desire to
amend the Merger Agreement as set forth in this Amendment No. 1;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Amendment No. 1, the parties agree as
follows:
1. Section 2.1(b) of the Merger Agreement shall be deleted in its
entirety and the following substituted in place thereof:
"(b) Conversion of Common Stock. Each issued and outstanding share
of Common Stock (other than shares to be canceled in accordance with
Section 2.1(a) and shares of Common Stock ("Dissenting Shares") that are
owned by stockholders ("Dissenting Stockholders") that have properly
exercised appraisal rights pursuant to Section 262 of the DGCL) shall be
converted into the right to receive $1.25 in cash, without interest (the
"Merger Consideration"). All such shares of Common Stock shall no longer
be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares of Common Stock shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration upon
surrender of such certificate in accordance with Section 2.3."
2. Section 5.5(b) of the Merger Agreement shall be deleted in its
entirety and the following substituted in place thereof:
"(b) In the event that (i) this Agreement is terminated by NSC
pursuant to Section 7.1(e), then NSC shall promptly, but in no event
later than two days after the date of termination pursuant to this
clause (i), pay Holdings a fee equal to the sum of (A) $100,000 and (B)
all documented out-of-pocket fees and expenses incurred by Holdings' in
connection with the transactions contemplated hereby (including, without
limitation, fees and expenses of Holdings' legal and financial advisors)
not to exceed $400,000 in the aggregate (collectively, the "Termination
Fee"), payable by wire transfer of same day funds, or (ii)(x) an
Acquisition Proposal shall have been made known to NSC or has been made
directly to its stockholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make an
Acquisition Proposal which, in any such case, has not been publicly
withdrawn prior to the Stockholders Meeting, (y) thereafter, this
Agreement is terminated by either NSC or Holdings pursuant to Section
7.1(b)(ii), and (z) within 12 months of such termination NSC enters into
any Acquisition Agreement or consummates any Acquisition Proposal, then
NSC shall pay Holdings the Termination Fee, payable by wire transfer of
same day funds, no later than two days after the first to occur of the
execution of an Acquisition Agreement or the consummation of an
Acquisition Takeover Proposal. Notwithstanding the foregoing, in no
event shall (1) the Termination Fee be payable by NSC more than once and
(2) NSC have any obligation to pay Holdings the amounts contemplated by
A2-1
<PAGE> 94
clause (i)(B) above unless and until Holdings shall have provided NSC
with invoices or other reasonable evidence of such amounts. NSC
acknowledges that the agreements contained in this Section 5.5(b) are an
integral part of the transactions contemplated by this Agreement, and
that, without these agreements, Holdings would not enter into this
Agreement."
3. Section 5.7 of the Merger Agreement shall be deleted and the
following substituted in place thereof:
"Repurchase of Waste Management Shares. Immediately prior to the
Effective Time Waste Management will sell to NSC and NSC will purchase
from Waste Management 996,420 shares of Common Stock to NSC in exchange
for a subordinated promissory note in the principal amount of
$1,245,525, bearing interest at 11% per annum, in the form attached
hereto as Exhibit D."
4. Section 6.2(f) of the Merger Agreement shall be deleted and the
following substituted in place thereof:
"(f) Repurchase of Shares. NSC shall have repurchased from Waste
Management 996,420 shares of Common Stock in exchange for a subordinated
promissory note in the principal amount of $1,245,525, bearing interest
at 11% per annum, in the form attached hereto as Exhibit D."
5. Exhibit D attached to the Merger Agreement shall be deleted in its
entirety and Annex A to this Amendment No. 1 substituted in place thereof.
6. Holdings and Merger Subsidiary hereby acknowledge receipt of a
revised Disclosure Letter delivered by NSC prior to the execution of this
Amendment No. 1. Such revised Disclosure Letter shall be substituted in
place of the Disclosure Letter delivered by NSC in connection with the
execution of the Merger Agreement.
7. All references to the Merger Agreement contained in the Voting
Agreement, that certain Memorandum of Understanding, dated February 12,
1999, by and between NSC and Waste Management and any exhibits to the
Merger Agreement, shall mean the Merger Agreement, as amended by this
Amendment No. 1.
8. Except as herein modified, all other provisions of the Merger
Agreement shall be and remain in full force and effect.
9. This Amendment No. 1 may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall
become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
A2-2
<PAGE> 95
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
Agreement and Plan of Merger to be signed by their respective officers thereunto
duly authorized, all as of the date first written above.
NSC CORPORATION
By: /s/ Darryl G. Schimeck
-----------------------------------
Name: Darryl G. Schimeck
Title: President and Chief
Executive
WASTE MANAGEMENT, INC.
By: /s/ Gregory T. Sangalis
-----------------------------------
Name: Gregory T. Sangalis
Title: Senior Vice President and
Secretary
NSC HOLDINGS, INC.
By: /s/ Martin O'Halloran
-----------------------------------
Name: Martin O'Halloran
Title: Chairman
NSC ACQUISITION, INC.
By: /s/ Martin O'Halloran
-----------------------------------
Name: Martin O'Halloran
Title: Chairman
A2-3
<PAGE> 96
ANNEX A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNLESS SUCH SALE, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION SHALL HAVE BEEN
REGISTERED UNDER SAID ACT, OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE,
AND THEN ONLY IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
ALL INDEBTEDNESS EVIDENCED HEREBY AND REFERENCED HEREIN IS SUBORDINATED IN
RIGHT OF PAYMENT TO THE PRIOR PAYMENT IN FULL OF ALL INDEBTEDNESS OWED TO FINOVA
CAPITAL CORPORATION AS SET FORTH IN THAT CERTAIN SUBORDINATION AND STANDSTILL
AGREEMENT ON OR ABOUT THE DATE HEREOF AMONG FINOVA CAPITAL CORPORATION, THE
PAYEE OF THIS NOTE AND THE OTHER PARTIES NAMED THEREIN (THE "FINOVA
SUBORDINATION AGREEMENT")
SUBORDINATED PROMISSORY NOTE
$1,245,525.00 Methuen, Massachusetts
________ __, 1999
FOR VALUE RECEIVED, the undersigned, NSC Corporation, a Delaware
corporation ("Borrower"), hereby promises to pay to the order of Waste
Management, Inc., a Delaware corporation ("Payee"), in lawful money of the
United States of America, in immediately available funds at the principal
business address of Payee, 1001 Fannin, Suite 4000, Houston, Texas 77002, or at
such other location as the holder hereof may designate from time to time in
writing, the principal amount of ONE MILLION TWO HUNDRED FORTY FIVE THOUSAND
FIVE HUNDRED TWENTY FIVE DOLLARS AND NO CENTS ($1,245,525.00), together with
interest from the date hereof, at a rate of 11% per annum (computed on the basis
of a 365-day year and based upon the number of days actually elapsed), payable
in arrears on the fifteenth day of each August, November, February and May
commencing August 15, 1999. The principal amount hereof and any and all accrued
but unpaid interest thereon shall be due and payable on December 31, 2003.
If any amount of principal or interest payable hereunder is not paid when
due (whether at stated maturity, by acceleration or otherwise), the then entire
outstanding principal amount hereof, together with all overdue interest, shall
automatically and immediately accrue interest until such default is cured,
payable on demand, at a rate per annum equal to the lesser of (i) 5% per annum
above the interest rate otherwise in effect, or (ii) the maximum interest rate
permitted under applicable law.
Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day (as hereinafter defined), such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest. As used herein, the term
"Business Day" means any day of the year on which banks are not required or
authorized to close in New York, New York.
This Note is executed and delivered pursuant to the Agreement and Plan of
Merger, dated as of February 12, 1999, by and among Borrower, Payee, NSC
Holdings, Inc. and NSC Acquisition, Inc.
Borrower shall be in default under this Note upon the occurrence of any of
the following events of default ("Events of Default"):
(a) default in the payment of the principal of or any installment of
interest on this Note when due, which default continues for a period of ten
(10) days after notice of such default is delivered by Payee to Borrower;
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<PAGE> 97
(b) any "event of default," "default" or similar event or occurrence
that results in the acceleration of indebtedness of Borrower to any other
person under any note, indenture, agreement or undertaking; or
(c) the dissolution, voluntary or involuntary bankruptcy, termination
of existence, insolvency, business failure or appointment of a receiver of
any part of the property of Borrower or any guarantor or surety of any of
the obligations of Borrower.
Upon the occurrence of any Event of Default, and at any time thereafter as
long as any such Event of Default shall be continuing, Payee may declare all
liabilities and obligations of Borrower to Payee immediately due and payable and
the same shall thereupon become immediately due and payable without any further
action on the part of Payee, and upon the occurrence of any Event of Default
mentioned in clause (c) hereof, all liabilities and obligations of Borrower to
Payee shall become due and payable without any action upon the part of Payee.
Borrower shall have the right at any time and from time to time to prepay
the unpaid principal amount hereof, in whole or in part, without premium or
penalty. In the case of any such prepayment, Borrower shall also pay in full all
accrued but unpaid interest in respect of the entire outstanding principal
amount hereof and all overdue interest, if any.
The indebtedness evidenced by this Note is subordinated to all Senior
Indebtedness of Borrower as set forth in the FINOVA Subordination Agreement.
Until all liabilities and obligations of Borrower to Payee are paid, such Senior
Indebtedness, together with all other indebtedness of Borrower for money
borrowed to which the indebtedness evidenced by this Note may be subordinated,
shall not exceed $22,000,000 in the aggregate, as provided in that certain
Memorandum of Understanding, dated February 12, 1999, between Payee and
Borrower.
Borrower hereby waives presentment, demand, protest or notice of any kind
in connection with this Note.
Borrower shall pay Payee, on demand, any reasonable out-of-pocket expenses
(including reasonable legal fees) arising out of or in connection with any
action or proceeding (including any action or proceeding arising in or related
to any insolvency, bankruptcy or reorganization involving or affecting Borrower)
taken to protect, enforce, determine or assert any right or remedy under this
Note.
This Note shall bind Borrower and its successors and assigns, and the
benefits hereof shall inure to the benefit of Payee and its successors and
assigns. All references herein to "Borrower" and "Payee" shall be deemed to
apply to Borrower and Payee, respectively, and to their respective successors
and assigns.
This Note and any other documents delivered in connection herewith and the
rights and obligations of the parties hereto and thereto shall for all purposes
be governed by and construed and enforced in accordance with the substantive law
of Delaware without giving effect to its conflict of laws principles.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
officers thereunto duly authorized, as of the date first above written.
NSC CORPORATION
By:
-----------------------------------
Name:
Title:
A-2
<PAGE> 98
ANNEX B
[LOGO]
February 12, 1999
Board of Directors
NSC Corporation
49 Danton Drive
Methuen, MA 01844
Attention: Mr. Darryl G. Schimeck
Gentlemen:
BT Alex. Brown Incorporated ("BT Alex. Brown") has acted as financial
advisor to NSC Corporation ("Client") in connection with the proposed merger of
Client and NSC Acquisition, Inc. ("Merger Sub"), a Delaware corporation and a
wholly owned subsidiary of NSC Holdings, Inc. ("NSC Holdings"), a Delaware
corporation, pursuant to the Agreement and Plan of Merger, dated February 12,
1999, among Client, NSC Holdings, Merger Sub, and Waste Management, Inc.
("WMI"), a Delaware corporation (the "Merger Agreement"), which provides, among
other things, for the merger of Merger Sub with and into Client (the
"Transaction"), as a result of which Client will become a wholly owned
subsidiary of NSC Holdings. As a condition precedent to the consummation of the
transaction, the Merger Agreement provides that (i) WMI shall cause its
affiliates to surrender 996,420 shares of Client common stock to Client in
exchange for a $1,115,990 subordinated note from Client having an interest rate
of 11.00% per annum and a maturity of December 31, 2003 ("the Note"), and (ii)
Olshan Demolishing Company, Inc., a Texas corporation ("ODC"), and Olshan
Demolishing Management, Inc., a Delaware corporation, ("ODM") shall enter into
an agreement to transfer certain assets of ODC to ODM, and to cause the
$4,520,000 zero interest note held by Rust Engineering & Construction, Inc., a
Delaware corporation and an affiliate of WMI, to be extinguished in exchange for
a $2,400,000 subordinated note from Client having an interest rate of 12.50% per
annum and a maturity of December 31, 2005. As set forth more fully in the Merger
Agreement, as a result of the Transaction, each share of the Common Stock, par
value $0.01 per share, of Client issued and outstanding at the effective time of
the Transaction ("Client Common Stock") not owned directly or indirectly by
Client or NSC Holdings will be converted into the right to receive $1.12 cash
(the "Consideration"). The terms and conditions of the Transaction are more
fully set forth in the Merger Agreement.
You have requested BT Alex. Brown's opinion, as investment bankers, as to
the fairness, from a financial point of view, to Client's shareholders,
excluding WMI (the "Public Shareholders") of the Consideration.
In connection with BT Alex. Brown's role as financial advisor to Client,
and in arriving at its opinion, BT Alex. Brown has reviewed certain publicly
available financial and other information concerning Client and certain internal
analyses and other information furnished to it by Client. BT Alex. Brown has
also held discussions with members of the senior management of Client regarding
Client's business and prospects. In addition, BT Alex. Brown has (i) reviewed
the reported prices and trading activity for Client Common Stock, (ii) compared
certain financial and stock market information for Client with similar
information for certain other companies whose securities are publicly traded,
(iii) reviewed the financial terms of certain recent business combinations, (iv)
reviewed the terms of the Merger Agreement and certain related documents
including the Subordination and Standstill Agreement relating to the Note, and
(v) performed such other studies and analyses and considered such other factors
as it deemed appropriate.
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<PAGE> 99
BT Alex. Brown has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning Client, including, without limitation,
any financial information, forecasts or projections considered in connection
with the rendering of its opinion. Accordingly, for purposes of its opinion, BT
Alex. Brown has assumed and relied upon the accuracy and completeness of all
such information and BT Alex. Brown has not conducted a physical inspection of
any of the properties or assets, and has not prepared or obtained any
independent evaluation or appraisal of any of the assets or liabilities, of
Client. With respect to the financial forecasts and projections made available
to BT Alex. Brown and used in its analyses, BT Alex. Brown has assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of Client as to the matters covered
thereby. In rendering its opinion, BT Alex. Brown expresses no view as to the
reasonableness of such forecasts and projections or the assumptions on which
they are based. BT Alex. Brown's opinion is necessarily based upon economic,
market and other conditions as in effect on, and the information made available
to it as of, the date hereof.
For purposes of rendering its opinion, BT Alex. Brown has assumed that, in
all respects material to its analysis, the representations and warranties of NSC
Holdings, Merger Sub, WMI and Client contained in the Merger Agreement are true
and correct, NSC Holdings, Merger Sub, WMI and Client will each perform all of
the covenants and agreements to be performed by it under the Merger Agreement
and all conditions to the obligations of each of NSC Holdings, Merger Sub, WMI
and Client to consummate the Transaction will be satisfied without any waiver
thereof. BT Alex. Brown has also assumed that all material governmental,
regulatory or other approvals and consents required in connection with the
consummation of the Transaction will be obtained and that in connection with
obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either NSC Holdings or Client is a party or is
subject or by which it is bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on NSC Holdings or Client.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Client and is not a recommendation to the stockholders of Client to
approve the Transaction. This opinion is limited to the fairness, from a
financial point of view, to the Public Shareholders of the Consideration, and BT
Alex. Brown expresses no opinion as to the merits of the underlying decision by
Client to engage in the Transaction.
BT Alex. Brown (together with its affiliates, the "BT Group") is a
registered broker-dealer and member of the New York Stock Exchange. BT Alex.
Brown will be paid a fee for its services as financial advisor to Client in
connection with the Transaction, a substantial portion of which is contingent
upon consummation of the Transaction. One or more members of the BT Group have,
from time to time, provided investment banking services and other financial
services to Client or its affiliates for which it has received compensation BT
Alex. Brown acted as financial advisor to OHM Corporation in their acquisition
by International Technology Corporation. Prior to the merger, Waste Management,
Inc. beneficially owned 35% of OHM's outstanding shares of common stock. In the
ordinary course of business, members of the BT Group may actively trade in the
securities and other instruments and obligations of Client for their own
accounts and for the accounts of their customers. Accordingly, the BT Group may
at any time hold a long or short position in such securities, instruments and
obligations.
Based upon and subject to the foregoing, it is BT Alex. Brown's opinion as
investment bankers that the Consideration is fair, from a financial point of
view, to the Public Shareholders.
Very truly yours,
[signature logo]
BT Alex. Brown Incorporated
B-2
<PAGE> 100
ANNEX C
THE GENERAL CORPORATION LAW
OF
THE STATE OF DELAWARE
SECTION 262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to (S) 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's shares
of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title, (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective data of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation
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that is required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name
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appears on the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair market value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertified stock forthwith, and the case
of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
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<PAGE> 104
ANNEX D
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Voting Agreement"), dated as of February 12,
1999, is by and between NSC Holdings, Inc., a Delaware corporation ("Holdings"),
and Waste Management, Inc., a Delaware corporation ("Waste Management").
W I T N E S S E T H:
WHEREAS, NSC Corporation, a Delaware corporation ("NSC"), Waste Management,
Holdings and NSC Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of Holdings ("Merger Subsidiary") are, concurrently with the
execution of this Agreement, entering into an Agreement and Plan of Merger (the
"Merger Agreement"), which provides, among other things, upon the terms and
subject to the conditions thereof, that Merger Subsidiary will be merged with
and into NSC in accordance with the General Corporation Law of the State of
Delaware (the "Merger"), whereby each share of common stock, par value $.01 per
share, of NSC (the "Common Stock") issued and outstanding immediately prior to
the effective time of the Merger (other than Dissenting Shares (as defined in
the Merger Agreement) and any shares of Common Stock held in the treasury of
NSC) will be converted into the right to receive the Merger Consideration (as
defined in the Merger Agreement);
WHEREAS, Waste Management currently owns, through its affiliates,
approximately 54% of the outstanding shares of Common Stock (the "Waste
Management Shares"); and
WHEREAS, in order to induce Holdings to enter into the Merger Agreement,
Waste Management has agreed to enter into this Voting Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, Waste
Management and Holdings hereby agree as follows.
1. Representations and Warranties of Waste Management. Waste Management
represents and warrants to Holdings as follows:
(a) Waste Management is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) Waste Management has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions
contemplated by this Agreement.
(c) The execution and delivery of this Agreement by Waste Management
and the consummation by Waste Management of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of Waste Management.
(d) This Agreement has been duly executed and delivered by Waste
Management and constitutes a legal, valid and binding obligation of Waste
Management, enforceable against Waste Management in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting the rights of
creditors generally and general principles of equity.
Section 2. Voting of the Waste Management Shares. For so long as this
Agreement is at effect, at any meeting of the stockholders of NSC called to
consider and vote to approve the Merger and the Merger Agreement and the
transactions contemplated thereby, Waste Management shall vote or cause to be
voted all of the Waste Management Shares in favor thereof.
Section 3. Termination. This Agreement shall terminate upon the earlier to
occur of the consummation of the Merger or the termination of the Merger
Agreement without the consummation of the Merger.
Section 4. Amendment; Assignment. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto. No party may assign any of its
rights or obligations under this Agreement without the prior written consent of
the other party.
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<PAGE> 105
Section 5. Expenses. Each party shall bear its own expenses and costs in
connection with this Agreement and the transactions contemplated hereby.
Section 6. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 7. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
or by registered or certified mail (postage prepaid, return receipt requested),
to the other party as follows:
<TABLE>
<S> <C>
(a) If to Waste Management, to: Waste, Management, Inc.
1001 Fannin
Suite 4000
Houston, Texas 77002
Telecopy No.: (713) 209-9711
Attention: Gregory T. Sangalis, Esq.
with a copy to: Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Suite 4200
Chicago, Illinois 60603
Telecopy No.: (312) 269-8869
Attention: Thomas A. Witt, Esq.
(b) If to Holdings, to: NSC Holdings, Inc.
6049 Heards Drive
Atlanta, Georgia 30328
Telecopy No.: (770) 541-1930
Attention: Martin O'Halloran
with a copy to: Porter & Hedges L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002
Telecopy No.: (713) 228-1331
Attention: John M. Ransom, Esq.
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
Section 8. Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the State of Delaware, without regard to the
principles of conflicts of law thereof.
Section 9. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity and enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid and unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, or shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
Section 10. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
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<PAGE> 106
Section 11. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its representatives thereunto duly authorized, all as
of the day and year first above written.
WASTE MANAGEMENT, INC.
By: /s/ Gregory T. Sangalis
-----------------------------------
Name: Gregory T. Sangalis
Title: Senior Vice President and
Secretary
NSC HOLDINGS, INC.
By: /s/ Martin O'Halloran
-----------------------------------
Name: Martin O'Halloran
Title: Chairman
D-3
<PAGE> 107
ANNEX E
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
<TABLE>
<S> <C>
DELAWARE 31-1295113
(State of Incorporation) (IRS Employer Identification Number)
49 DANTON DRIVE, METHUEN, MA 01844
(Address of Principal Executive Offices) (ZIP Code)
</TABLE>
(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> 108
NSC CORPORATION
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
ITEM 1. Business.................................................... E-1
ITEM 2. Properties.................................................. E-8
ITEM 3. Legal Proceedings........................................... E-8
ITEM 4. Submission of Matters to a Vote of Security Holders......... E-9
Executive Officers of the Registrant.................................. E-9
PART II
ITEM 5. Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... E-10
ITEM 6. Selected Financial Data..................................... E-10
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... E-11
ITEM 8. Financial Statements and Supplementary Data................. E-14
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... E-31
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... E-31
ITEM 11. Executive Compensation...................................... E-31
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. E-35
ITEM 13. Certain Relationships and Related Transactions.............. E-37
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... E-37
Signatures............................................................ E-40
</TABLE>
<PAGE> 109
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 Interim Management and Operating
Agreements 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 an 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 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
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<PAGE> 110
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
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<PAGE> 111
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.
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<PAGE> 112
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, 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
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basis. Revenue for these services to the WMI affiliates amounted to
approximately $22,000 in 1998.
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
-------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
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%
============== =============== ===============
</TABLE>
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
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<PAGE> 114
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.
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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
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<PAGE> 116
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.
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:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL USE SQUARE FOOTAGE
- -------- ----------------------- --------------
<S> <C> <C>
Lombard, IL.......................... Offices and Warehousing 30,000
Houston, TX.......................... Offices and Warehousing 24,240
Aston, PA............................ Offices and Warehousing 16,800
Oakland, CA.......................... Offices and Warehousing 11,100
San Antonio, FL...................... Offices and Warehousing 10,800
Methuen, MA.......................... Offices and Warehousing 10,000
Arden Hills, MN...................... Offices and Warehousing 9,654
Methuen, MA.......................... Corporate Headquarters 9,500
Denver, CO........................... Offices and Warehousing 5,724
Orange, CA........................... Offices and Warehousing 5,530
Salisbury, NC........................ Offices 5,400
Winfield, WV......................... Offices and Warehousing 5,000
Cincinnati, OH....................... Offices and Warehousing 4,000
Salem, NH............................ Offices and Warehousing 3,850
Wausau, WI........................... Offices and Warehousing 2,400
Baton Rouge, LA...................... Offices and Warehousing 1,250
Massena, NY.......................... Offices *
Orange, TX........................... Offices *
Dallas, TX........................... Offices *
</TABLE>
- ---------------
* 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.
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
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<PAGE> 117
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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 19, 1999 are listed
below:
<TABLE>
<S> <C> <C>
Darryl G. Schimeck 38 Chairman, President and Chief Executive Officer
Efstathios A. 37 Vice President of Finance, Corporate Controller,
Kouninis Treasurer and Secretary
</TABLE>
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.
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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:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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(b) The consolidated five year summary of financial position as of December
31, is set forth below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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.
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 which 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
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<PAGE> 120
$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.
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.
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<PAGE> 121
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
E-13
<PAGE> 122
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.
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.
E-14
<PAGE> 123
NSC CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
E-15
<PAGE> 124
NSC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
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
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
E-16
<PAGE> 125
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
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
===== ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
E-17
<PAGE> 126
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 446 $(4,994) $ 1,861
Adjustments to reconcile net income to net cash
provided by (used in) 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 provided by (used in) investing
activities.................................... 255 (853) (2,474)
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term obligations.................. -- -- (5,850)
Proceeds of loan from affiliate.................... -- -- 2,949
Cash dividend paid................................. -- (1,496) (1,496)
------ ------- -------
Net cash 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
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
E-18
<PAGE> 127
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, WMI and 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 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 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
E-19
<PAGE> 128
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.
E-20
<PAGE> 129
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.
NOTE 2 -- ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
The retained receivables at December 31, 1998 are expected to be collected
within one year.
E-21
<PAGE> 130
NOTE 3 -- COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROCESS
The consolidated balance sheets include the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
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)
======= ========
</TABLE>
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.
NOTE 4 -- PROPERTIES AND EQUIPMENT
Properties and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Land..................................................... $ -- $ --
Buildings and improvements............................... 300 355
Machinery and equipment.................................. 8302 6,527
Projects in progress..................................... 21 641
------ ------
8,623 7,523
Accumulated depreciation....................... (5327) (4,768)
------ ------
Properties and equipment, net.................. $3,296 $2,755
====== ======
</TABLE>
In 1997, the Company wrote-down to market the carrying value of its
Methuen, MA, headquarter 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.
E-22
<PAGE> 131
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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999........................................................ $139
2000........................................................ 139
2001........................................................ 125
2002........................................................ 50
2003........................................................ 6
----
Total............................................. $459
Amounts representing interest............................... 62
----
Present value of minimum lease payments..................... $397
====
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
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
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
======= ======
</TABLE>
Significant components of the provision for income tax expenses (benefit)
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
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
===== ======= ======
</TABLE>
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
E-23
<PAGE> 132
companies that have less than $10 million of taxable income) to income from
continuing operations before income taxes are:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
LIABILITY METHOD
------------------------
1998 1997 1996
----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
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%
===== ====== =====
</TABLE>
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.
E-24
<PAGE> 133
The following tables summarize information about the Company stock options.
<TABLE>
<CAPTION>
1990 PLAN
-------------------------------
NUMBER OPTION PRICE
OF RANGE PER
OPTIONS SHARE
-------- -------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1996........................... 47,250 $4.00 - $8.50
Granted................................................ 690,000 2.00 - 2.06
Canceled............................................... (184,500) 2.00 - 8.50
Outstanding at December 31, 1996......................... 552,750 2.00 - 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
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OPTION OUTSTANDING AT EXERCISABLE AT REMAINING OPTION
GRANT DATE DECEMBER 31, 1998 DECEMBER 31, 1998 CONTRACTUAL LIFE PRICE RANGE
---------- ----------------- ----------------- ---------------- -----------
<S> <C> <C> <C> <C>
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
</TABLE>
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
E-25
<PAGE> 134
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
E-26
<PAGE> 135
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:
<TABLE>
<CAPTION>
1998 1997
------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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)
</TABLE>
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.
E-27
<PAGE> 136
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
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......................... 4641) (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
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
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
======= ======== ========
</TABLE>
E-28
<PAGE> 137
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:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
- ---- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C>
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)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- ---- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C>
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)
======= ======= ======= =======
</TABLE>
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
E-29
<PAGE> 138
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.
/s/ ERNST & YOUNG LLP
- ---------------------------------------------------------
Boston, Massachusetts
February 12, 1999
except for Note 6
as to which the date is
March 23, 1999
E-30
<PAGE> 139
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:
<TABLE>
<CAPTION>
POSITIONS AND OTHER
RELATIONSHIPS WITH THE COMPANY
NAME AGE AND BUSINESS EXPERIENCE
- ---- --- ------------------------------
<S> <C> <C>
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.
</TABLE>
Directors' Fees
Directors of the Company who are not employees of the Company or WMI or
their affiliates receive $22,000 per annum.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended December 31, 1998,
1997 and 1996, the cash compensation paid by the Company and its subsidiaries,
as well as certain other compensation paid or accrued for those years, to each
of the most highly compensated executive
E-31
<PAGE> 140
officers of the Company, including the Chief Executive Officer of the Company,
in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND ----------------------- UNDERLYING COMPENSATION
PRINCIPAL POSITION(S) YEAR SALARY($) BONUS($)(1) OPTIONS(#) ($)(4)
--------------------- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Victor J. Barnhart 1998 258,858 -- -- 34,784
Former Chairman of the Board 1997 248,093 -- -- 9,526
And Chief Executive Officer 1996 -- -- 250,000(2) --
Darryl G. Schimeck 1998 204,144 15,000 -- --
Chairman of the Board, 1997 180,003 15,000 -- --
President 1996 137,954 79,519 100,000(3) 20,340
and Chief Executive Officer
Efstathios A. Kouninis 1998 127,669 22,500 -- --
Vice President of Finance, 1997 99,429 37,163 57,500(3) --
Corporate Controller,
Treasurer 1996 87,464 45,000 12,500(3) --
and Secretary
</TABLE>
- ---------------
(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
$25,000 of relocation expenses paid to Mr. Barnhart in 1998 according to his
separation agreement. The remaining amounts in "All Other Compensation"
represent vehicle allowances.
The following table sets forth information with respect to the named
executives concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES VALUE REALIZED UNDERLYING UNEXERCISED IN THE MONEY
ACQUIRED (MARKET PRICE AT OPTIONS AT FY-END(#) OPTIONS AT FY-END($)
ON EXERCISE LESS --------------------------- ---------------------------
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.
E-32
<PAGE> 141
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
- ---------------
* 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.
E-33
<PAGE> 142
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
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 case.
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
E-34
<PAGE> 143
Performance Graph*
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on the 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]
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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
- ---------------
* 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.
E-35
<PAGE> 144
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.
<TABLE>
<CAPTION>
AMOUNT AND
NAME OF NATURE OF
BENEFICIAL BENEFICIAL PERCENTAGE
OWNER(1) OWNERSHIP(2) OF CLASS
---------- ------------ ----------
<S> <C> <C>
Waste Management, Inc.
3003 Butterfield Road
Oakbrook, IL 60521....................................... 5,380,670 54.0%
Franklin Resources, Inc.(1)
One Parker Plaza, 16th Floor
Fort Lee, New Jersey 07024............................... 800,000 8.0%
Kennedy Capital Management, Inc.(2)
10829 Olive Boulevard
St. Louis, Missouri 63141................................ 621,645 6.2%
FMR Corp.(3)
82 Devonshire Street
Boston, MA 02109-3614.................................... 550,400 5.5%
Dimensional Fund Advisors, Inc.(4)
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401................................... 518,300 5.2%
Eugene L. Barnett(5)....................................... 10,000 *
Herbert A. Getz............................................ 500 *
William P. Hulligan........................................ 0 --
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 *
</TABLE>
- ---------------
* 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 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
E-36
<PAGE> 145
Messrs. Barnett, Mapel, Schimeck and Kouninis, respectively, granted
pursuant to the Company's 1990 Stock Option Plan.
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.
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:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets................................. E-15
--As of December 31, 1998 and 1997
Consolidated Statements of Operations....................... E-16
--For the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity.. E-17
--For the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows....................... E-18
--For the Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements.................. E-19
</TABLE>
(a)(2) The following consolidated financial statement schedule is included
herein at the page indicated below:
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Schedule II Valuation and Qualifying Accounts
--For the Years Ended December 31, 1998, 1997 and 1996.... E-41
</TABLE>
E-37
<PAGE> 146
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:
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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)
*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 to 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
</TABLE>
E-38
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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
*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.
</TABLE>
- ---------------
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.
E-39
<PAGE> 148
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.
<TABLE>
<CAPTION>
DATE
----
<S> <C> <C>
* /s/ Darryl G. Schimeck Chairman, President and Chief March 29, 1999
- ------------------------------------------ Executive Officer (Principal
Darryl G. Schimeck Executive Officer)
/s/ Efstathios A. Kouninis Vice President of Finance, March 29, 1999
- ------------------------------------------ Corporate Controller, Treasurer
Efstathios A. Kouninis and Secretary (Principal
Financial and Accounting
Officer)
* /s/ Eugene L. Barnett Director March 29, 1999
- ------------------------------------------
Eugene L. Barnett
* /s/ Herbert A. Getz Director March 29, 1999
- ------------------------------------------
Herbert A. Getz
* /s/ William P. Hulligan Director March 29, 1999
- ------------------------------------------
William P. Hulligan
* /s/ William M. R. Mapel Director March 29, 1999
- ------------------------------------------
William M. R. Mapel
* 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 Attorney-in-Fact March 29, 1999
- ------------------------------------------
Efstathios A. Kouninis
</TABLE>
E-40
<PAGE> 149
NSC CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
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
----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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.
E-41
<PAGE> 150
ANNEX F
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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)
<TABLE>
<S> <C>
DELAWARE
(State or other jurisdiction of incorporation or 31-1295113
organization) (IRS Employer Identification Number)
49 DANTON DRIVE, METHUEN, MA 01844
(Address of principal executive offices) (ZIP Code)
</TABLE>
(978) 557-7300
(Registrant's telephone number, including area code)
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
The number of shares of Common Stock outstanding as of May 12, 1999 was
9,971,175.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 151
NSC CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
-As of March 31, 1999 and December 31, 1998................. F-1
Consolidated Statements of Income
-For the Three Months Ended March 31, 1999 and 1998......... F-2
Consolidated Statements of Cash Flow
-For the Three Months Ended March 31, 1999 and 1998......... F-3
Notes to Consolidated Financial Statements.................. F-4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... F-5
PART II
OTHER INFORMATION
Item 1. Legal Proceedings........................................... F-8
Item 6. Exhibits and Reports on Form 8-K............................ F-8
Signatures............................................................ F-9
</TABLE>
<PAGE> 152
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NSC CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 2,558 $ 3,634
Accounts receivable, net................................ 23,562 22,146
Costs and estimated earnings on contracts in process in
excess of billings................................... 5,543 4,270
Inventories............................................. 1,043 1,058
Prepaid expenses and other current assets............... 2,219 2,425
Deferred income taxes................................... 1,119 758
------- -------
36,044 34,291
Property and equipment, net............................... 3,278 3,296
Other non-current assets:
Assets held for sale.................................... 313 313
Investment in unconsolidated joint venture.............. 225 225
Goodwill, net of accumulated amortization............... 33,800 34,075
------- -------
TOTAL ASSETS.................................... $73,660 $72,200
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 3,989 $ 2,471
Billings in excess of costs and estimated earnings on
contracts in process................................. 4,658 4,369
Accrued compensation and related costs.................. 2,977 2,141
Federal, state and local taxes.......................... (1,079) (776)
Other accrued liabilities............................... 436 569
Reserve for self-insurance claims and other
contingencies........................................ 4,614 5,013
Current portion of long-term obligations................ 109 109
------- -------
15,704 13,896
Non-current liabilities:
Long-term obligations................................... 262 288
Payable to affiliate.................................... 4,520 4,520
Deferred income taxes................................... 2,101 1,894
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 issued and outstanding in 1999
and 1998............................................. 100 100
Additional paid-in capital.............................. 56,079 56,079
Accumulated deficit..................................... (5,106) (4,577)
------- -------
51,073 51,602
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $73,660 $72,200
======= =======
</TABLE>
- ---------------
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying notes are an integral part of these consolidated financial
statements.
F-1
<PAGE> 153
NSC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
------- -------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $25,331 $20,808
Cost of services............................................ 21,585 16,917
------- -------
Gross profit.............................................. 3,746 3,891
Selling, general and administrative expenses................ (4,158) (3,448)
Other operating expenses.................................... (205) (153)
Goodwill amortization....................................... (275) (275)
------- -------
Operating (loss) income................................... (892) 15
Other income.............................................. 27 32
------- -------
(Loss) income before income taxes......................... (865) 47
Income tax benefit (expense)................................ 336 (24)
------- -------
Net (loss) income......................................... $ (529) $ 23
======= =======
Basic and diluted loss per share............................ $ (0.05) $ 0.00
======= =======
Weighted-average number of common shares outstanding........ 9,971 9,971
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 154
NSC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
------- -------
(UNAUDITED)
<S> <C> <C>
Cash flow from operating activities:
Net (loss) income......................................... $ (529) $ 23
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation......................................... 283 226
Goodwill amortization................................ 275 275
Deferred income taxes................................ (154) --
Gain on disposition of property and equipment........ (4) (8)
Changes in current assets and liabilities
Accounts receivable....................................... (1,416) 2,358
Costs and estimated earnings on contracts in process in
excess of billings..................................... (1,273) (4,115)
Other current assets...................................... 221 152
Accounts payable.......................................... 1,518 (1,818)
Billings in excess of costs and estimated earnings on
contracts in process................................... 289 994
Other current liabilities................................. 399 (1,428)
Reserve for self insurance claims and other
contingencies.......................................... (399) (1,278)
------- -------
Net cash used in operating activities............. (790) (4,619)
Cash flow from investing activities:
Purchases of property and equipment....................... (272) (136)
Proceeds from the sale of property and equipment.......... 12 78
Investment in joint venture............................... -- (150)
------- -------
Net cash used in investing activities............. (260) (208)
Cash flow from financing activities:
Payments on long-term debt................................ (26) --
------- -------
Net cash used in financing activities............. (26) --
------- -------
Net decrease in cash and cash equivalents......... (1,076) (4,827)
Cash and cash equivalents at beginning of periods........... 3,634 8,781
------- -------
Cash and cash equivalents at end of periods................. $ 2,558 $ 3,954
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1999
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by NSC Corporation (the "Company") and reflect all adjustments,
consisting of only normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of financial results for the three
month periods ended March 31, 1999 and 1998, in accordance with generally
accepted accounting principles for interim financial reporting and pursuant to
Article 10 of Regulation S-X. Certain information and footnote disclosures
normally included in audited financial statements have been condensed or omitted
pursuant to such rules and regulations. These interim consolidated financial
statements should be read in conjunction with the Company's Annual Report to
Stockholders on Form 10-K for the year ended December 31, 1998 as amended by
Form 10K/A. The results of operations for the three-month period ended March 31,
1999 are not necessarily indicative of the results for the full year.
The accompanying interim consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The Company is a
Delaware corporation and is owned approximately 54% by Waste Management, Inc
("WMI").
The Company has entered into an Agreement and Plan of Merger, dated as of
February 12, 1999, as amended, by and among NSC Holdings, Inc. ("Holdings"), NSC
Acquisition, Inc. ("Merger Subsidiary"), the Company and WMI (the "Merger
Agreement") pursuant to which Merger Subsidiary will be merged with and into the
Company, with the Company continuing as the surviving corporation (the
"Merger"). Neither Holdings nor Merger Subsidiary has any prior affiliation with
the Company or WMI. Pursuant to the Merger Agreement, each share of 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
$1.25 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 $1,245,525, representing $1.25 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 $1.25 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, Olshan
Demolishing Company ("ODC"), to sell certain machinery and equipment to Olshan
Demolishing Management, Inc. ("ODMI"), a subsidiary of the Company. 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.
Revenue and operating results of asbestos-abatement activities may be
affected by the timing of some contracts. Because of this change in demand, the
Company's quarterly revenues can fluctuate, especially if all or a substantial
part of the performance of such contracts occurs within one or two quarters.
Fluctuations in the price of scrap metals and the demand for process equipment
may affect the revenue and operating results of the demolition and dismantling
activities. Accordingly, quarterly or other interim results should not be
considered indicative of results to be expected for any other quarter or for the
full fiscal year.
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
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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.
ITEM 2. 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 which 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.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
VERSUS
THREE MONTHS ENDED MARCH 31, 1998
Revenue. Revenue for the three months ended March 31, 1999 increased 22% to
$25,331,000 from $20,808,000 for the same period in 1998. The increase in
revenue was due to a $759,000 increase in asbestos-abatement related revenue and
a $3,764,000 increase in demolition related revenue. This increase was the
result of the Company's timing in securing new work. The first quarter results
are not indicative of results to be expected for any upcoming quarter.
Gross Profit. Gross profit for the three months ended March 31, 1999
decreased 4% to $3,746,000 from $3,891,000 for the same period in 1998. Gross
profit as a percentage of revenue decreased for the three months ended March 31,
1999 to 15% from 19% for the same period in 1998. The decrease in the gross
profit margin percentage was primarily due to a significant loss on two major
projects. This was partially offset by the reduction of the contingent liability
reserve as a result of improved loss experience.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) for the three months ended March 31, 1999
increased 21% to $4,158,000 from $3,448,000 for the same period in 1998. The
increase in SG&A costs is due to increased legal and consulting costs associated
with the Merger, increased office expenses associated with the leasing expense
of the corporate and an operating unit's office space that was owned in 1998 and
an increased provision for bad debt of $182,000. The SG&A expenses, as a
percentage of revenue, for the three months ended March 31, 1999 were 16%
compared to 17% for the same period in 1998 due to higher revenue in the current
quarter.
Other Operating 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 the three month period ended March 31, 1999, the amount due to WMI
was $205,000 compared to $153,000 for the same period in 1998 due to the
increase in ODMI's operating profit.
Other Income. Other income for the three months ended March 31, 1999 was
$27,000 compared to $32,000 for the same period in 1998 mainly due to decreased
gains on sales of assets.
Net (Loss) Income. Net loss was $529,000 for the three months ended March
31, 1999 compared to a net income of $23,000 for the same period in 1998 due to
reduced gross profit despite the reduction of insurance reserves and increased
overhead costs mainly associated with the Merger. As a percentage of gross
revenue, net (loss) income decreased to (2%) for the three months ended March
31, 1999 from .1% for the same period in 1998.
Liquidity and Capital Resources. Working capital at March 31, 1999 was
$20,340,000 compared to $20,395,000 at December 31, 1998. The current ratio was
2.3/1 at March 31, 1999 compared to 2.5/1 at December 31, 1998. Cash used in
operating activities was $790,000 for the three-month period ended March 31,
1999 compared to $4,619,000 for the same period in 1998. The decrease in cash
used in operations is mainly due to the timing of customer billings and vendor
payments. In the first quarter of 1998, the Company paid a significant general
liability claim. During the first three months of 1999, cash of $272,000 was
used for purchases of property and equipment.
The Company is in default of its profitable operations covenant under its
revolving credit facility dated May 4, 1993, as amended from time to time,
because of the net operating loss recorded in the first quarter ended March 31,
1999. The amended credit facility contains certain financial covenants,
including the following: i) a minimum debt service coverage ratio covenant of
1.5 (the ratio of EBITDA less capital expenditures and income taxes to
consolidated total interest expense plus scheduled payments on capital leases);
ii) a maximum leverage ratio covenant of
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<PAGE> 158
2.75 (the ratio of consolidated total liabilities plus letters of credit
outstanding to consolidated tangible net worth); iii) a minimum interest
coverage ratio covenant of 4.0(the ratio of EBITA to consolidated interest
expense); iv) a pricing ratio covenant used to determine the fee for the unused
portion of the credit facility and the outstanding letters of credit (based on
the ratio of consolidated total liabilities plus letters of credit outstanding
to consolidated tangible net worth); v) a profitable operations covenant, which
provides that the Company shall not have a net loss for any fiscal quarter; vi)
a minimum consolidated working capital covenant of $10,000,000 (consolidated
current assets less consolidated current liabilities) and vii) a minimum net
worth covenant of $28,800,000 (consolidated total assets less consolidated total
liabilities).
BankBoston has not waived the default but has indicated that it will take
no action to terminate the credit facility at the present time, however,
BankBoston has reserved the right to take any action it deems necessary to
protect its interests specified under the facility. The Company believes that
its cash flows from operations will be sufficient through the date of the
consummation of the Merger to finance its working capital needs. 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 has indicated a willingness to assist the Company
in this regard by guaranteeing some or all of the Company's outstanding debt
obligations.
The nature and scope of the Company's business bring it into regular
contact with the general public, 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 loss claims, at March 31, 1999 of $4,614,000
and at December 31, 1998 of $5,013,000.
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, $622,000 was incurred for consulting and training expenses with
respect to system upgrades, including Year 2000 compliance. 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.
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<PAGE> 159
PART II -- OTHER INFORMATION
ITEM 1. 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.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
<TABLE>
<S> <C>
2 Agreement and Plan of Merger, dated as of February 12, 1999
by and among NSC Holdings, Inc., NSC Acquisition, INC.,
Waste Management, Inc, and NSC Corporation [incorporated by
reference to Exhibit 2.1 to the Registrant's Form 8-K filed
February 16, 1999]
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]
27 Financial Data Schedule
</TABLE>
(b) Forms 8-K
The Company filed a Form 8-K dated February 16, 1999 disclosing (i)
the Agreement and Plan of Merger, dated as of February 12, 1999 by and
among NSC Holdings, Inc., NSC Acquisition, Inc., Waste Management, Inc. and
NSC Corporation, (ii) the Voting Agreement, dated as of February 12, 1999
by and between NSC Holdings, Inc. and Waste Management, Inc., and (iii) the
Press Release, dated February 16, 1999, issued by the Registrant to
announce the items identified in (i) and (ii) hereof.
On May 11, 1999, the Registrant filed a Form 8-K disclosing an
amendment to the above described merger agreement.
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<PAGE> 160
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
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<S> <C> <C>
Date: May 12, 1999 By /s/ Efstathios A. Kouninis
--------------------------------------------
Efstathios A. Kouninis
Vice President of Finance, Corporate Controller,
Secretary and Treasurer
Signing on behalf of the registrant and as
principal financial and accounting officer.
</TABLE>
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<PAGE> 161
P R O X Y NSC CORPORATION
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS, JUNE 22, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Darryl G.
Schimeck and Efstathios A. Kouninis as proxies with full
power of substitution, and hereby authorizes each of them to
present and to vote, as designated on the reverse side of
this card, all the shares of Common Stock, $0.01 par value,
held of record on May 21, 1999 by the undersigned in NSC
Corporation, at the Special Meeting of Stockholders to be
held on June 22, 1999 and at any adjournments thereof.
This proxy, when properly executed, will be voted in the
manner directed on the reverse side of this card by the
undersigned stockholders' if no direction is made, this proxy
will be voted for Item No. 1 set forth on the reverse side of
this card.
PLEASE MARK, SIGN AND DATE REVERSE SIDE AND MAIL THIS
PROXY CARD PROMPTLY, USING THE ENCLOSED PREPAID ENVELOPE.
-----------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 162
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<S> <C> <C>
X PLEASE
MARK
EACH
VOTE
LIKE
THIS
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM NO. 1 SET FORTH BELOW.
<TABLE>
<S> <C> <C> <C>
1. The approval and adoption of the Agreement and Plan of FOR AGAINST ABSTAIN
Merger, dated as of February 12, 1999, as amended by
Amendment No. 1 to the Agreement and Plan of Merger, dated [ ] [ ] [ ]
as of May 10, 1999 (collectively, the "Merger Agreement"),
by and among NSC Holdings, Inc., a Delaware corporation, NSC
Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of NSC Holdings, inc., NSC Corporation, a
Delaware corporation, and Waste Management Inc., a Delaware
corporation, pursuant to which NSC Acquisition, Inc. will be
merged with and into NSC Corporation (the "Merger"), with
NSC Corporation continuing as the surviving corporation.
Pursuant to the Merger Agreement, each share of common
stock, $0.01 par value, of NSC Corporation issued and
outstanding at the effective time of the Merger (other than
shares held by NSC Corporation and stockholders, if any, who
properly exercise their appraisal rights under Delaware law)
will be converted into the right to receive $1.25 per share
in cash.
2. In their discretion, the proxies are authorized to vote upon such other
matters incidental to the conduct of the meeting as may properly come before
the meeting or any postponement or adjournment thereof.
</TABLE>
Dated: _____________________, 1999
__________________________________
__________________________________
STOCKHOLDER SIGNATURE
PLEASE SIGN YOUR NAME EXACTLY AS
IT APPEARS AT LEFT. IN SIGNING AS
ATTORNEY, EXECUTOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE
AS SUCH, AND IF SIGNING FOR A
CORPORATION PLEASE GIVE YOUR TITLE.
WHEN SHARES ARE IN THE NAME OF MORE
THAN ONE PERSON, EACH SHOULD SIGN.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 163
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-END] MAR-31-1999
[CASH] 2,558
[SECURITIES] 0
[RECEIVABLES] 24,019
[ALLOWANCES] 457
[INVENTORY] 1,043
[CURRENT-ASSETS] 36,044
[PP&E] 8,724
[DEPRECIATION] 5,446
[TOTAL-ASSETS] 73,660
[CURRENT-LIABILITIES] 15,704
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 100
[OTHER-SE] 50,973
[TOTAL-LIABILITY-AND-EQUITY] 73,660
[SALES] 24,952
[TOTAL-REVENUES] 25,331
[CGS] 21,585
[TOTAL-COSTS] 26,223
[OTHER-EXPENSES] (27)
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (865)
[INCOME-TAX] (336)
[INCOME-CONTINUING] (529)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (529)
[EPS-BASIC] (.05)
[EPS-DILUTED] (.05)
</TABLE>
