-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WO53sELLUC0R/oR2tJfN+SRIJO6NcSnOLhmmOTsJRQDxY4dGVe9mTMfqHz87ncHz FaKHUn8AuR06spQEnx2faw== 0000863210-97-000001.txt : 19970401 0000863210-97-000001.hdr.sgml : 19970401 ACCESSION NUMBER: 0000863210-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NSC CORP CENTRAL INDEX KEY: 0000863210 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 311295113 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18597 FILM NUMBER: 97570527 BUSINESS ADDRESS: STREET 1: 49 DANTON DR CITY: METHUEN STATE: MA ZIP: 01844 BUSINESS PHONE: 5086866417 10-K 1 10-K FILING FOR THE YEAR ENDED DECEMBER 31, 1996 UNITED STATES 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, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ____________________. Commission file number 018597 NSC CORPORATION (Exact name of registrant as specified in its Charter) DELAWARE 31-1295113 (State of incorporation) (IRS Employer Identification Number) 49 DANTON DRIVE, METHUEN, MA 01844 (Address of principal executive offices) (ZIP code) (508) 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 each 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. [ ] The aggregate market value of the voting stock held by nonaffiliates of the registrant on March 27, 1997 was $4,877,938. The number of shares of Common Stock outstanding on March 27, 1997 was 9,971,175 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the 1997 Annual Meeting of Stockholders are incorporated by reference into Part III. Page 1 of 88 NSC Corporation 1996 Annual Report on Form 10-K Table of Contents Part I - ------------------------------------------------------------------------------ Item 1. Business 3 Item 2. Properties 10 Item 3. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Executive Officers of the Registrant 12 Part II - ------------------------------------------------------------------------------ Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 13 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 8. Financial Statements and Supplementary Data 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 33 Part III - ------------------------------------------------------------------------------ Item 10. Directors and Executive Officers of the Registrant 33 Item 11. Executive Compensation 33 Item 12. Security Ownership of Certain Beneficial Owners and Management 33 Item 13. Certain Relationships and Related Transactions 33 Part IV - ------------------------------------------------------------------------------ Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 34 Signatures 37 Page 2 of 88 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 services through three of its wholly-owned subsidiaries, National Surface Cleaning, Inc. ("NSCI"), National Service Cleaning Corp. ("NSCC") and NSC Energy Services, Inc.("NSCESI"); demolition and dismantling services through its wholly-owned subsidiary, Olshan Demolishing Management, Inc. ("ODMI"); and specialty coatings applications and lead paint-abatement through its wholly-owned subsidiary, NSC Specialty Coatings, Inc. ("NSCSCI"). For financial information concerning the Company's two principal service segments, asbestos-abatement (which includes specialty coatings applications and lead paint-abatement) and demolition and dismantling, see Note 13 to 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. The Company and a predecessor company to NSCC were acquired by OHM Corporation ("OHM") in June 1988. During 1989, NSCC was incorporated in Connecticut to provide asbestos-abatement services to clients which 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. ("Industrial"), OHM, The Brand Companies, Inc. ("Brand") and Waste Management, Inc. ("WMI"), now known as WMX Technologies, Inc., 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 the common stock of Industrial. As of December 31, 1996 and 1995, OHM and Rust International Inc. (a successor company to Brand and hereinafter referred to as "Rust") each owned approximately forty percent of the Company's common stock. On April 20, 1995 the Company entered into an Interim Management and Operating Agreements with 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. 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 perceived risk reduction measure. This demand, coupled with low barriers to entry, provided the conditions for the development of several large, national asbestos-abatement contractors. While demand for asbestos-abatement services has stabilized, credible estimates for the market show steady demand over the coming years. As such demand 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 increase its share of this market through a focused sales and marketing effort. Furthermore, through diversification into the demolition and lead paint-abatement markets, the Company is striving 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. Page 3 of 88 Asbestos-Abatement and Demolition Operations The Company provides asbestos-abatement and other specialty contracting services through its network of 16 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 31 states and generally provides its services with unionized labor, while NSCC is licensed to perform asbestos-abatement services in 34 states and provides its services with non-unionized labor. ODMI is licensed to conduct demolition and dismantling services in 49 states and the District of Columbia, Canada and Puerto Rico. 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 manage properly 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 are contracted either on a time and materials or a unit-price basis. The Company obtains work and performs services under contract, often on the basis of plans, specifications or requirements prepared by the client or the client's agent. Contracting opportunities are identified by telemarketing and the local sales force and are entered into following competitive bidding or direct negotiations with the customer or its agent. Generally, these contracts encompass supplying project management, labor, tools, equipment and materials. In most cases, a significant portion of the total costs incurred by the Company's asbestos-abatement operations is attributable to labor while a significant portion of the total costs of its demolition and dismantling operations is attributable to equipment rental costs. While large abatement contracts may last more than one year, the majority of the Company's projects are completed within five months. Project Management Each project is coordinated and supervised by a project manager who selects the requisite equipment, ensures contract compliance and supervises all personnel. The Company employs a computerized job cost system which allows it to track project profitability on an ongoing basis. The project manager reviews the progress of the project on a regular basis with management. The estimator 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 EPA's 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 asbestos-abatement personnel entering an asbestos atmosphere and all demolition personnel entering a 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. In addition to the required wearing of protective clothing 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 Page 4 of 88 and 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 Abatement Process The Company's workers remove asbestos in accordance with the regulations of the Environmental Protection Agency ("EPA") and OSHA with 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 clean area where workers prepare for the work shift and an area where the workers shower after leaving the sealed-off work area. Workers are fitted with respirators and disposable suits prior to entering the work area. Throughout the abatement process, air samples are taken to indicate the level of airborne fibers both inside and outside the work area to protect the workers and the building occupants. The 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 in an effort 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 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. Page 5 of 88 Markets and Customers The Company's primary markets for its asbestos-abatement, demolition and dismantling and other specialty contracting services are the states of Arizona, California, Georgia, Illinois, Kentucky, Massachusetts, Minnesota, New York, Pennsylvania, South Carolina and Texas. The Company's headquarters is located in Methuen, Massachusetts, outside of Boston. 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 1996. 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 Rust and its affiliates in connection with certain large industrial decontamination and demolition projects performed by Rust. The Company provides such services on a competitive basis to both OHM and Rust. Revenue for these services to OHM and Rust amounted to approximately $40,000 and $84,000, respectively, in 1996. The Company expects to continue to provide services to OHM and Rust on a subcontract basis, both inside and outside its primary market areas. The Company divides the market for asbestos-abatement and demolition and dismantling services into the following categories: (1) commercial/large residential buildings; (2) industrial facilities; and (3) institutional, which includes schools, government buildings, airports, hospitals and other buildings not described by another category. The following table summarizes the Company's gross revenues by category for the periods indicated: Years Ended December 31, ----------------------------------------------------- 1996 1995 1994 --------------- --------------- --------------- (In Thousands, Except Percentages) Commercial ............. $ 56,299 44% $ 60,895 49% $ 63,465 48% Industrial ............. 53,929 42 41,524 33 29,088 22 Institutional .......... 18,814 14 22,110 18 39,665 30 ------ ---- -------- ---- -------- ---- $129,042 100% $124,529 100% $132,218 100% ======== ==== ======== ==== ======== ==== The Company markets its services directly to companies that are in need of asbestos-abatement and demolition and dismantling services, to general contractors who oversee large renovation projects and to asbestos-abatement consulting firms from which the Company receives asbestos project referrals because of its reputation and experience. Seasonality The Company's business is subject to variations in revenue and net income for interim periods and from year to year, and increased revenue may not always result in a corresponding increase in net income. These conditions are due to a number of characteristics shared by the Company to varying degrees with most other members of the industry, including the following: (1) its businesses are seasonal (typically less activity during the winter months) and are affected by the scheduling of work at commercial properties, fiscal funding of projects by government entities, outages at utilities and shutdowns at other industrial facilities; (2) its asbestos business is labor intensive whereas its demolition business is equipment intensive; (3) 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 (4) costs ultimately incurred by the Company on a job may be materially affected by such risks as technical Page 6 of 88 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 begins with commercial general liability, automobile liability and workers' compensation policies. This plan is written with an A. M. Best Rated A+ XV carrier. When the Company's umbrella policy is used, the coverage limits are extended to $51,000,000 per occurrence and $52,000,000 general aggregate. Effective November 1, 1996 the Company's liability per occurrence under the general liability policy is $100,000, under the automobile liability policy is $350,000 and under the workers' compensation policy is $500,000. Public asbestos-abatement and demolition and dismantling projects require that the Company post surety bonds as guarantees of performance of the Company's contracts. The 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 Reliance Insurance Group. Employees As of March 14, 1997 the Company had approximately 1,320 employees, of which approximately 80 are employed as managers or executives, approximately 30 provide technical or engineering services, approximately 60 are employed in sales, clerical and data processing activities and approximately 1,150 are employed in other capacities, principally hourly labor. During 1996, the number of hourly-rate employees ranged from 750 to 1,420. As of March 14, 1997 approximately 600 of the Company's employees were represented by various unions 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. Page 7 of 88 Government Regulation The asbestos-abatement and demolition and dismantling process is regulated by the federal government through the EPA, OSHA and the Department of Transportation ("DOT"). Additionally, the demolition and dismantling process is regulated by MSHA when conducted at mining locations. EPA regulations establish standards for the control of asbestos fiber and airborne lead emissions into the environment during removal and demolition projects. AHERA mandates that public schools inspect for levels of asbestos contamination and prepare a specific management plan for appropriate remedial action. 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 include requirements for wetting of the asbestos-containing material, the use of exhaust ventilation and filtration systems meeting certain specifications, and procedures for transporting and disposing of asbestos-containing material. Prior to commencing most removal projects, contractors are required to provide the EPA with written notification containing certain information, including the address of the project, the anticipated starting and completion dates, methods to be used to comply with the emission standards, the amount of asbestos-containing material involved in the project and the location of the EPA-approved disposal site. The Toxic Substances Control Act ("TSCA"), as amended by AHERA, and the regulations promulgated pursuant thereto, require inspection of schools for asbestos and public notice of the inspection results, which often leads to demands for abatement. In addition, TSCA imposes asbestos exposure standards for state and local government employees. The EPA has also adopted regulations under AHERA which require schools to use accredited inspectors to inspect school buildings for asbestos-containing materials. If asbestos-containing materials are found and are damaged, the school must develop an asbestos management plan which outlines its management practices for the materials. Response actions may include encapsulation, enclosure, repair or removal of the asbestos-containing materials by an accredited contractor. The AHERA regulations impose affirmative obligations on the accredited contractor who performs the work on school building projects. These obligations include proper worker, employee and occupant protections. In addition, AHERA incorporated the OSHA 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 have adopted laws and regulations governing the conduct of asbestos-abatement contractors. Such laws and regulations generally require the training and licensing of asbestos-abatement contractors and their workers and notice before the commencement of any asbestos-abatement project and specify 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 will adopt similar laws and regulations and that existing laws and regulations will become more restrictive. The regulations concerning asbestos-abatement are primarily promulgated on the state and local level. Although subject to change, OSHA has Page 8 of 88 adapted the 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 asbestos licenses to provide asbestos-abatement services and contractor licenses to provide demolition and 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 substantial compliance with all current state licensing requirements where the Company intends to conduct business. In addition, certain states have adopted regulations which require state-specific training, testing and licensing of employees engaging in asbestos-abatement or demolition and 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 are 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 $38,875,000 for 1996 and $47,466,000 for both 1995 and 1994. Up to $1,650,000 of the Company's backlog at December 31, 1996 may not be earned during 1997. The remaining amount of the Company's backlog at December 31, 1996 is expected to be completed in the current calendar year. Page 9 of 88 Item 2. Properties The Company currently owns and 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: - --------------------------------- ---------------------------------------------- Location Principal Use Acreage Square Footage Own/Lease - -------------------------------------------------------------------------------- Methuen, MA Corporate Headquarters 9 40,000 Own Offices and Warehousing - -------------------------------------------------------------------------------- So. Windsor, CT Offices -- * Lease - -------------------------------------------------------------------------------- Thorofare, NJ Offices and Warehousing -- 17,570 Lease - -------------------------------------------------------------------------------- San Antonio, FL Offices and Warehousing -- 5,400 Lease - -------------------------------------------------------------------------------- Winfield, WV Offices and Warehousing -- 5,000 Lease - -------------------------------------------------------------------------------- Cincinnati, OH Offices and Warehousing -- 7,400 Lease - -------------------------------------------------------------------------------- Lombard, IL Offices -- 5,000 Lease - -------------------------------------------------------------------------------- Arden Hills, MN Offices and Warehousing -- 8,400 Lease - -------------------------------------------------------------------------------- Maryland Heights, MO Offices -- 1,900 Lease - -------------------------------------------------------------------------------- Salem, NH Offices -- 3,850 Lease - -------------------------------------------------------------------------------- Houston, TX Offices and Warehousing -- 24,240 Lease - -------------------------------------------------------------------------------- Orange, TX Offices -- * Lease - -------------------------------------------------------------------------------- Dallas, TX Offices -- * Lease - -------------------------------------------------------------------------------- Oakland, CA Offices and Warehousing -- 11,100 Lease - -------------------------------------------------------------------------------- Salisbury, NC Offices and Warehousing -- 5,400 Lease - -------------------------------------------------------------------------------- Baton Route, LA Offices and Warehousing -- 1,250 Lease - -------------------------------------------------------------------------------- * These facilities consist of less than 1,000 square feet. The Company's aggregate rental payments for leased office and warehouse space approximated $835,000 in 1996. Page 10 of 88 Item 3. Legal Proceedings The Company has been advised by the Department of Justice, Environmental Crimes Section, that the previously reported grand jury investigation relating to the operational activities involving a subsidiary of the Company as a subcontractor at the Weldon Springs Site Remedial Action Project has been concluded. The Company has been further advised by the Department of Justice, Environmental Crimes Section, that no action will be forthcoming against either the Company or its subsidiary as a result of the aforementioned investigation. The Company is also subject to certain other legal proceedings, including those relating to regulatory compliance, in the ordinary course of its business. Management believes that such other proceedings are either adequately covered by insurance or if uninsured, will not, in the aggregate, have a material adverse effect upon the Company. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Page 11 of 88 Executive Officers of the Registrant The executive officers of the Company as of March 14, 1997 are listed below: Victor J. Barnhart 54 Chairman and Chief Executive Officer Darryl G. Schimeck 36 President and Chief Operating Officer J. Drennan Lowell 40 Vice President, Chief Financial Officer, Treasurer and Secretary Efstathios A. Kouninis 35 Corporate Controller Victor J. Barnhart has been Chairman and Chief Executive Officer since December 5, 1996. Prior to joining the Company Mr. Barnhart was the President of Integrated Environmental Services - WMX Technologies since December 1995 and President of Rust Industrial Services Inc. and Rust Remedial Services, Inc., subsidiaries of WMX Technologies, since November 1990. Darryl G. Schimeck has been President and Chief Operating Officer since December 5, 1996 and served as President of National Surface Cleaning, Inc., a wholly-owned subsidiary of the Company, 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. From September 1992 to July 1993 he was Vice President - Northern Region for Brand Scaffold Services, Inc. J. Drennan Lowell has been Vice President, Chief Financial Officer and Secretary since November 1993 and Treasurer since May 1994. Prior to joining the Company, Mr. Lowell served as Vice President of Finance for Wheelabrator Clean Air Systems Inc. from December 1992 to November 1993 and for Wheelabrator Clean Water Systems Inc. from August 1991 to November 1993. Efstathios A. Kouninis has been Corporate Controller since February 1996 and Director of Tax and Internal Audit since September 1994. Prior to joining the Company, Mr. Kouninis served in positions of increasing responsibility in accounting for Wheelabrator Technologies Inc. since November 1991. Page 12 of 88 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 14, 1997 there were approximately 38 holders of record of the Common Stock. During December 1996, the Company declared and paid a cash dividend of $0.15 per share of common stock. Pursuant to the Revolving Credit Facility, as amended, the Company must comply with certain financial covenants for the declaration and payment of any cash dividends. While the Company's Board of Directors has not established a policy concerning payment of regular dividends, it intends to review annually the feasibility of declaring additional dividends depending upon the results of operations, financial condition and cash needs of the Company. The Common Stock does not have any preemptive rights. 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: 1996 1995 -------------- -------------- Quarter Ended High Low High Low ----------------------------------------------------------------- December 31.............. 2 1/2 1 3/8 2 3/4 1 3/32 September 30............. 2 1 1/2 3 2 June 30.................. 2 1/2 1 1/4 3 3/8 2 1/2 March 31................. 2 1/2 1 1/8 3 1/2 2 1/2 Page 13 of 88
Item 6. Selected Financial Data (a) The Consolidated Five year Summary of Results of Operations for each of the five years ended December 31 is set forth below: (In thousands, except per-share data) Years Ended December 31, 1996 1995 1994 1993(1) 1992(2) - -------------------------------------------------------------- -------- -------- -------- -------- -------- Revenue....................................................... $129,043 $124,529 $132,218 $110,254 $ 62,220 Discontinued operations, net of income tax effects: Income from operations....................................... - - - - 174 Provision for loss on disposition............................ - - - - (600) -------- -------- -------- -------- -------- Income (loss) before cumulative effect of accounting change - - - - (2,030) Cumulative effect of accounting change........................ - - - - (1,000) -------- -------- -------- -------- -------- Net income (loss).......................................... $ 1,861 $ 715 $ 2,566 $ 3,373 $ (3,030) ======== ======== ======== ======== ======== Net income (loss) per share ( 3 ) Continuing operations...................................... $ 0.19 $ 0.07 $ 0.26 $ 0.40 $ (0.28) Discontinued operations: From operations.......................................... - - - - 0.03 From disposition......................................... - - - - (0.10) Cumulative effect of accounting change........................ - - - - (0.18) -------- -------- -------- -------- -------- $ 0.19 $ 0.07 $ 0.26 $ 0.40 $ (0.53) ======== ======== ======== ======== ======== Weighted average number of common shares outstanding........................................... 9,971 9,971 9,971 8,504 5,735 ======== ======== ======== ======== ======== Cash dividends declared per common share (4).................. $ 0.15 $ 0.15 $ 0.15 $ 1.20 $ - ======== ======== ======== ======== ========
(b) The consolidated five year summary of financial position as of December 31 is set forth below: December 31, 1996 1995 1994 1993 1992 - ------------------------------------------------------------- -------- -------- -------- -------- -------- (In Thousands) Total assets................................................. $ 85,225 $ 87,161 $ 88,287 $ 93,569 $ 68,264 Non current liabilities, including current portion of long-term debt (5)..................................... 7,611 7,421 10,588 13,775 15,848
Page 14 of 88 (1) The statement of operations data for the year ended December 31, 1993 includes the results of operations from May 4, 1993 (date of acquisition) of the Division. (2) The results of continuing operations for the year ended December 31, 1992 include pre-tax special charges totaling $5 million ($3.1 million after-tax), or $0.53 per share, related to restructuring of the Company's asbestos-abatement business and reserves for insurance and certain other matters. The cumulative effect of accounting change of $1 million, or $0.18 per share, is for early adoption of Financial Accounting Standards Board Statement No. 109, "Accounting For Income Taxes." In addition, the results of operations for the year ended December 31, 1992 include the provision for loss on disposition, net of income tax benefit, of the Company's industrial cleaning services business. (3) The net income per share amounts have been computed by dividing net income by the average number of common shares outstanding during the respective periods. (4) In December 1996, 1995 and 1994, the Company declared and paid a cash dividend of $0.15 per common share and $1.20 per common share in December 1993. (5) In December 31, 1992, $14,850,000 of the noncurrent liabilities are amounts due to OHM. On May 4, 1993 all outstanding amounts due to OHM were repaid with term loan borrowings under a senior revolving credit facility with banks. On March 21, 1996 the amount due to the banks under the senior revolving credit facility was repaid in full. Page 15 of 88 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations 1996 vs. 1995 Continuing Operations Revenue. The Company's consolidated revenue for the year ended December 31, 1996 increased 3.6% to $129,043,000 from $124,529,000 for the same period in 1995. This increase was due to the inclusion in 1996 of a full year of ODMI generated revenue of $21,421,000 compared with $7,589,000 for the four months ended December 31, 1995 and the $9,895,000 decline in asbestos-abatement revenue. The decline in asbestos-abatement revenue in 1996 was primarily due to normal fluctuations in the volume of abatement work available, as well as the Company's increased selectivity in accepting profitable projects. Gross Profit. Gross profit as a percentage of revenue increased to 17.5% in 1996 from 15.6% in 1995. The increase in the gross profit margin is primarily attributable to a reduction of insurance claims and their respective settlement reserves. Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses for the year ended December 31, 1996 increased $78,000 or less than 1% to $16,431,000 from $16,353,000 for the same period in 1995. SG&A expenses as a percentage of revenue for 1996 and 1995 remained constant at 13%. In 1996 ODMI incurred a full year of SG&A expenses of $1,814,000 compared with four months in 1995 of $714,000. The increase of ODMI expenses for 1996 was offset by a general reduction in SG&A expenses resulting from the Company's continued cost containment efforts. Other Operating Expenses. Other operating expenses in 1996 increased to $700,000 from $169,000 in 1995 due to the inclusion of a full year of ODMI activities. ODMI is required to pay Rust an annual fee based on operating profit, if any, in exchange for the right to operate ODC. Other (Income) Expenses. Other (income) expenses in 1996 increased to $635,000 from $191,000 in 1995. In the fourth quarter of 1996, the Company wrote-down to market the value of certain real property that no longer fits its strategic plans. The write-down of the property amounted to $625,000. This increase in other expenses was partially offset by the reduction in interest expense associated with the Company's long-term debt, which was repaid in full on March 21, 1996. Net Income. Net income increased 160% to $1,861,000 in 1996 from $715,000 in 1995. Net income as a percentage of revenue increased to 1.4% in 1996 from 0.6% in 1995. The increase in net income is attributable to higher revenue and the reduction of interest expense and insurance settlement reserves. 1995 vs. 1994 Continuing Operations Revenue. Revenue for the year ended December 31, 1995 decreased 6% to $124,529,000 from $132,218,000 for the same period in 1994. The decrease in revenue during 1995 was due in part to market fluctuations in the volume of abatement work performed, as well as to increased selectivity in the Company's bidding process. The decrease in revenue was offset in part by the inclusion in 1995 of $7,589,000 revenue generated by ODMI activities. Gross Profit. Gross profit for the year ended December 31, 1995 decreased 10% to $19,447,000 from $21,716,000 for the same period in 1994. Gross profit as a percentage of revenue decreased to 15% for 1995 from 16% for 1994, due to a significant extent to a change in the mix of projects undertaken and increased provisions for indemnity and workers' compensation losses in connection with the unfavorable resolution in 1995 of two significant claims. Page 16 of 88 Selling, General and Administrative Expenses. Selling, general and administrative ("SG&A") expenses for the year ended December 31, 1995 increased $805,000, or 5%, to $16,353,000 from $15,548,000 for the same period in 1994. SG&A expenses, as a percentage of revenue, were 13% for 1995 compared to 12% for the same period in 1994, primarily due to a reduced revenue base and legal costs related to the Weldon Springs grand jury investigation. (See "Item 3. Legal Proceedings".) Other Operating Expenses. In April 1995, the Company entered into an Operating Agreement with Rust under which the Company, through ODMI, assumed the management of ODC, a Rust subsidiary specializing in demolition and dismantling, primarily in the industrial market. In exchange for the right to operate ODC, the Company is required to pay Rust an annual fee based on operating profit, if any, which amounted to $169,000 in 1995. Other (Income) Expenses. Other (income) expenses for the year ended December 31, 1995 were $191,000 compared to $418,000 for the same period in 1994. The net decrease of $227,000 is primarily attributable to lower interest expense due to scheduled and unscheduled reductions in the Company's long-term debt. Net Income. The Company recorded net income of $715,000, or $0.07 per share, for the year ended December 31, 1995 compared to $2,566,000, or $0.26 per share, for the same period in 1994. Net income as a percentage of revenue for December 31, 1995 decreased by less than 1% as compared to the same period in 1994, which is directly related to the decrease in revenue and increases in direct and SG&A costs as a percentage of these revenues. Liquidity and Capital Resources Working capital at December 31, 1996 was $21,154,000 compared to $17,339,000 at December 31, 1995. The current ratio was 2.1/1 at December 31, 1996 compared to 1.7/1 at December 31, 1995. Cash provided by operating activities was $6,752,000 for 1996 compared to $2,125,000 for 1995. The increase in cash provided by operations is primarily due to increased billings and accounts receivable collections. During 1996, cash of $2,024,000 was used for purchases of property and equipment, of which $769,000 was used towards the implementation of new software technology. During 1997 the Company estimates that it will spend an additional $600,000 to complete the implementation and bring this software on-line by the early part of 1998. Also in 1996, cash of $618,000 was used for the acquisition of the assets of Safe Air Inc., a leader in the indoor air quality industry, $100,000 was used for other acquisition activities, and $5,850,000 was used for repayment of the Company's long-term debt. 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 the Agreement and is expected to remain outstanding for the full ten year term of the Agreement. The Company believes that its cash flows from operations and funds available under the existing senior revolving credit facilities, as amended on May 1, 1996, will be sufficient throughout the next twelve months to finance its working capital needs and planned capital expenditures. While the Company's Board of Directors has not established a policy concerning payment of regular dividends, it intends to review annually the feasibility of declaring additional dividends depending upon the results of operations, financial condition and cash needs of the Company. In connection with the acquisition of the Division, Rust (successor to Brand) has provided the Company with a $25 million revolving credit facility. No amounts were borrowed under this revolving credit facility during 1996, 1995 or 1994. This revolving credit facility terminated June 6, 1996. 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 at December 31, 1996 of $5,410,000 and at December 31, 1995 of $6,694,000. Inflation Historically, inflation has not had a significant impact upon the Company or its cost of operations. Page 17 of 88 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, 1996, 1995 and 1994 are set forth on pages 19 through 22. Page 18 of 88 NSC CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per-Share Data) December 31, --------------------- 1,996 1995 ASSETS ------- ------- Current assets: Cash and cash equivalents.......................... $ 3,975 $ 4,094 Accounts receivable, net........................... 26,859 27,125 Costs and estimated earnings on contracts in process in excess of billings................. 7,739 7,894 Inventories........................................ 878 1,041 Prepaid expenses and other current assets.......... 1,672 1,559 Refundable income taxes............................ - 92 ------- ------- 41,123 41,805 Property and equipment, net........................... 7,352 8,484 Other noncurrent assets: Goodwill, net of accumulated amortization of $6,884 and $5,787 in 1996 and 1995, respectively.. 36,275 36,872 Other assets..................................... 475 - ------- ------- 36,750 36,872 ------- ------- Total assets....................................... $85,225 $87,161 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................... $ 3,448 $ 3,063 Billings in excess of costs and estimated earnings on contracts in process................. 5,237 3,932 Accrued compensation and related costs............. 3,898 3,751 Federal, state and local taxes..................... 887 250 Other accrued liabilities.......................... 1,089 926 Reserve for self insurance claims and other contingencies.......................... 5,410 6,694 Current portion of noncurrent liabilities.......... - 5,850 ------- ------- 19,969 24,466 Noncurrent liabilities: Payable to affiliate............................... 4,520 1,571 Deferred income taxes.............................. 3,090 3,843 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 1996 and 1995................ 100 100 Additional paid-in capital......................... 56,079 56,079 Retained earnings.................................. 1,467 1,102 ------- ------- 57,646 57,281 ------- ------- Total liabilities and stockholders' equity......... $85,225 $87,161 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. Page 19 of 88
NSC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per-Share Data) Years Ended December 31, -------------------------------------- 1996 1995 1994 -------- -------- -------- Revenue............................................... $129,043 $124,529 $132,218 Cost of services..................................... 106,454 105,082 110,502 -------- -------- -------- Gross profit....................................... 22,589 19,447 21,716 Selling, general and administrative expenses.......... 16,431 16,353 15,548 Other operating expenses.............................. 700 169 - Goodwill amortization................................. 1,097 1,066 1,067 -------- -------- -------- 4,361 1,859 5,101 -------- -------- -------- Other: Interest expense.................................... 112 587 804 Other expenses...................................... 523 (396) (386) -------- -------- -------- 635 191 418 -------- -------- -------- Income before income taxes......................... 3,726 1,668 4,683 Income taxes.......................................... 1,865 953 2,117 -------- -------- -------- Net income......................................... $ 1,861 $ 715 $ 2,566 ======== ======== ======== Net income per share.................................. $ 0.19 $ 0.07 $ 0.26 ======== ======== ======== Weighted-average number of common shares outstanding.. 9,971 9,971 9,971 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 20 of 88
NSC CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands, Except Per-Share Data) Common Stock -------------------- Additional Total Number of Paid-in Retained Stockholders' Shares Amount Capital Earnings Equity ------- ------ -------- -------- -------- Balance at January 1, 1994.................. 9,971 $ 100 $ 56,079 $ 813 $ 56,992 Net income.................................. - - - 2,566 2,566 Cash dividend declared ($0.15 per share).... - - - (1,496) (1,496) ------- ------ -------- -------- -------- Balance at December 31, 1994................ 9,971 $ 100 $ 56,079 $ 1,883 $ 58,062 ------- ------ -------- -------- -------- Net income.................................. - - - 715 715 Cash dividend declared ($0.15 per share).... - - - (1,496) (1,496) ------- ------ -------- -------- -------- Balance at December 31, 1995................ 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 ======= ====== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 21 of 88
NSC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Years Ended December 31, -------------------------------------- 1996 1995 1994 -------- -------- -------- Cash flows from operating activities: Net income ......................................... $ 1,861 $ 715 $ 2,566 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation................................... 1,716 1,830 2,160 Goodwill amortization.......................... 1,097 1,066 1,067 Deferred income taxes.......................... (771) (1,034) 1,072 Loss (gain) on disposition of property and equipment................................ 194 (36) (123) Loss on impairement of assets held for sale.... 625 - - Changes in assets and liabilities, net of effects of acquired business: Accounts receivable, net............................ 266 (984) 2,943 Costs and estimated earnings on contracts in process in excess of billings................... 155 (2,283) (1,048) Other current assets................................ 235 487 3,884 Accounts payable.................................... 385 (176) (1,677) Billings in excess of costs and estimated earnings on contracts in process................... 1,305 (1,559) (471) Other current liabilities........................... (316) 4,061 (2,197) Other............................................... - 38 14 ------- ------- ------- Net cash provided by operating activities...... 6,752 2,125 8,190 ------- ------- ------- Cash flows from investing activities: Purchases of property and equipment................. (2,024) (759) (814) Proceeds from sale of property and equipment........ 268 144 350 Acquisiton of other assets.......................... (718) - - ------- ------- ------- Net cash used in investing activities.......... (2,474) (615) (464) ------- ------- ------- Cash flows from financing activities: Payments on long-term debt.......................... (5,850) (4,738) (3,187) Proceeds of loan from affiliate..................... 2,949 - - Cash dividend paid.................................. (1,496) (1,496) (1,496) ------- ------- ------- Net cash used in financing activities.......... (4,397) (6,234) (4,683) ------- ------- ------- Net increase (decrease) in cash and cash equivalents......................... (119) (4,724) 3,043 Cash and cash equivalents at beginning of periods... 4,094 8,818 5,775 ------- ------- ------- Cash and cash equivalents at end of periods......... 3,975 4,094 8,818 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. Page 22 of 88 NSC Corporation Notes to Consolidated Financial Statements December 31, 1996 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 since September 4, 1995 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, Industrial, OHM, The Brand Companies, Inc. ("Brand") and Waste Management, Inc. ("WMI"), now known as WMX Technologies, Inc., 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 the common stock of Industrial. As of December 31, 1996 and 1995, OHM and Rust International Inc. (a successor company to Brand and hereinafter referred to as "Rust") each owned approximately forty percent of the Company's common stock. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences may or may not be material. Revenue and Cost Recognition. The Company primarily derives its revenues 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 cost 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 $25,240,000, $24,426,000 and $23,672,000 for 1996, 1995 and 1994, respectively, and are included in Costs of Services in the 1996 Consolidated Statement of Income. Inventories. Inventories primarily consist 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. Page 23 of 88 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. Income Taxes. The Company provides for income taxes based upon earnings reported for financial statement purposes. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax base of assets and liabilities. Stock Compensation. Effective January 1, 1996 the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires the recognition of, or disclosure of, compensation expense for grants of stock options or other equity instruments issued to employees based on the fair value at the date of grant. As permitted by SFAS No. 123, the Company elected the disclosure requirements instead of recognition of compensation expense and therefore will continue to apply existing accounting rules. Cash Equivalents and Cash Flow Information. The Company considers all 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 $2,007,000, $1,702,000 and $263,000 for 1996, 1995, and 1994, respectively. Cash paid for interest was $112,000, $587,000 and $802,000 for 1996, 1995 and 1994, respectively. The effects of the Company's cash and non-cash transactions with ODMI are described in Note 9, "Transactions with Affiliates." Net Income Per Share. The net income per share amounts for 1996, 1995 and 1994 have been computed by dividing net income by the weighted-average number of common shares outstanding during the respective periods. Reclassifications. Certain reclassifications have been made to prior year financial statements to conform with the current year presentation. Note 2 - Accounts Receivable Accounts receivable are summarized as follows: December 31, ------------------------ 1996 1995 ---------- ---------- (In Thousands) Accounts billed and due currently ................. $24,861 $24,479 Retained .......................................... 2,555 3,195 ------- ------- 27,416 27,674 Allowance for uncollectible accounts .............. (557) (549) ------- ------- $26,859 $27,125 ======= ======= The retained receivables at December 31, 1996 are expected to be collected within one year. Page 24 of 88 Note 3 - Properties and Equipment Properties and equipment were as follows: December 31, ----------------------- 1996 1995 -------- -------- (In Thousands) Land............................................. $ 767 $ 998 Buildings and improvements....................... 4,311 5,588 Machinery and equipment.......................... 9,868 8,813 Projects in progress............................. 558 - -------- -------- 15,504 15,399 Accumulated depreciation......................... (8,152) (6,915) -------- -------- Properties and equipment, net.................... $ 7,352 $ 8,484 ======== ======== In 1995, the Company removed from its books fully depreciated assets with a total cost of $3,334,000. In 1996, the Company wrote-down to market the carrying value of its Hammond, IN property which no longer fits in its strategic plans and is currently held for sale. The write-down of the property amounted to $625,000 and is included in other expenses in the 1996 Consolidated Statement of Income. Also in 1996, cash of $769,000 was used towards the implementation of new software technology. During 1997 the Company estimates that it will spend additional an $600,000 to complete the implementation and bring this software on-line by the early part of 1998. Note 4 - Costs and Estimated Earnings on Contracts in Process The consolidated balance sheets include the following amounts: December 31, ------------------------ 1996 1995 ---------- ---------- (In Thousands) Costs incurred on contracts in process............. $106,327 $98,882 Estimated earnings................................. 18,427 19,481 -------- -------- 124,754 118,363 Less billing to date............................... 122,252 114,401 -------- -------- $ 2,502 $ 3,962 ======== ======== Costs and estimated earnings on contracts in process in excess of billings................ $ 7,739 $ 7,894 Billings on contracts in process in excess of costs and estimated earnings................. (5,237) (3,932) -------- -------- $ 2,502 $ 3,962 ======== ======== Costs and estimated earnings on contracts in process in excess of billings included reserves for contract revenue adjustments of $152,000 and $442,000 at December 31, 1996 and 1995, 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, due to factors such as technical problems, disputes, weather, delays caused by external sources and fluctuations in the prices of materials and scrap metals. Page 25 of 88 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, 1996 and 1995 are as follows: December 31, --------------------- 1996 1995 --------- -------- (In Thousands) Deferred tax assets: Accrued liabilities ............................. $2,390 $1,840 Allowance for uncollectible accounts ............ 223 219 ------ ------ Total deferred tax assets .................... 2,613 2,059 Deferred tax liabilities: Tax over book depreciation ..................... 572 932 Goodwill ....................................... 3,698 3,542 Contract revenue recognition ................... 458 515 Prepaid expenses and other assets .............. 641 597 ------ ------ Total deferred tax liabilities ............... 5,369 5,586 ------ ------ Net deferred tax liabilities ................. $2,756 $3,527 ====== ====== Significant components of the provision for income taxes (benefit) are as follows: Years Ended December 31, ---------------------------------- 1996 1995 1994 --------- --------- -------- (In Thousands) Current: Federal ............................... $2,269 $1,404 $ 768 State ................................ 367 583 277 ------ ------ ------ Total current taxes.................. 2,636 1,987 1,045 ------ ------ ------ Deferred: Federal................................ (825) (664) 831 State ................................. 54 (370) 241 ------ ------ ------ Total deferred taxes (benefit)....... (771) (1,034) 1,072 ------ ------ ------ Total income tax provision........... $1,865 $ 953 $2,117 ====== ====== ====== The reasons for differences between income taxes attributable to continuing operations and the amount computed by applying the federal statutory tax rate (34% is the statutory tax rate for companies that have less than $10 million of taxable income) to income from continuing operations before income taxes are: Years Ended December 31, ------------------------------- Liability Method ------------------------------- 1996 1995 1994 ------ ------ ------ Federal statutory rate ........................ 34.0% 34.0% 34.0% Add (deduct): State income taxes, net of federal tax benefit............................. 7.4 8.2 7.1 Goodwill amortization ...................... 4.8 10.9 3.9 Other ...................................... 3.9 4.0 0.2 ----- ----- ----- 50.1% 57.1% 45.2% ===== ===== ===== Page 26 of 88 Note 6 - Long-Term Debt On March 21, 1996 the Company repaid the full $5,850,000 outstanding amount under the $25,000,000 revolving credit facility (the "Facility") dated May 4, 1993. Subsequently, on May 1, 1996 the Company amended its May 4, 1993 revolving credit facility. Under this amendment, the Company can borrow up to $25,000,000 on a revolving basis for a term expiring April 30, 1999. The amended revolving credit facility contains debt service coverage, leverage and interest convenants 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, 1996 was 5.56%) and are secured by substantially all of the Company's assets. As of December 31, 1996 the Company had outstanding $8,000,000 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, 1996 no preferred stock has been issued. Pursuant to an agreement among the Company, Rust and OHM dated May 4, 1993 each of Rust and OHM has the right to demand registration, at their own expense, of all or a portion of the common stock of the Company held by it. In the event either Rust or OHM demands such registration, the other entity has the right to participate. This agreement is subject to certain conditions and limitations, including limitations as to the frequency of exercise and Rust's and OHM'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 151,250, 656,750 and 478,680 for the years ended December 31, 1996, 1995 and 1994 respectively. The following tables summarize information about the Company stock options. 1990 Plan ------------------------------- Number of Option Price Options Range Per Share ---------- ----------------- Outstanding at January 1, 1994 ................ 449,420 4.00 - 8.75 Canceled.................................. (224,100) 4.00 - 8.75 -------- Outstanding at December 31, 1994............... 225,320 4.00 - 8.50 Canceled.................................. (178,070) 4.00 - 6.00 -------- Outstanding at December 31, 1995............... 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 ======== Page 27 of 88
Number of Shares Number of Shares Option Outstanding at Exercisable at Remaining Option Grant Date 12/31/96 12/31/96 Contractual Life Price Range - ------------------- ------------------- ------------------ ------------------- ----------------- March 1991 3,000 3,000 4.0 years $6.00 May 1991 10,000 10,000 4.2 years $6.00 November 1991 1,250 1,250 4.5 years $4.00 November 1992 1,000 1,000 5.5 years $5.75 May 1993 10,000 10,000 6.2 years $4.05 February 1996 207,500 0 9.1 years $2.00 December 1996 320,000 0 9.8 years $2.06
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 for 1996: market price of the Company's common stock of $2.00 and $2.06, 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 "Agreements") with 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. 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, Rust provided the Company 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, Rust paid an additional $2,949,000 to the Company, raising the outstanding balance of the working capital loan to $4,520,000. The results of operations of ODMI are consolidated with the Company's results of operations. In exchange for the right to operate ODC, the Company is required to pay Rust an annual fee based on operating profit, if any. This fee amounted to $700,000 in 1996 and $169,000 in 1995. In the event that ODC incurs operating losses, Rust would be required to reimburse the Company for a portion of those losses. 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 $40,000, $212,000 and $1,377,000 for 1996, 1995 and 1994, respectively. Also, OHM provided in 1996 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 Rust and certain of its affiliates on a subcontract basis. Revenues recognized for such services were $84,000, $302,000, and $4,509,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Also, Rust 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 provided by Rust and its affiliates was $1,503,000, $1,719,000 and $940,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Rust rented demolition equipment to the Company for which it was charged $527,000 and $209,000 for the year ended December 31, 1996 and 1995, respectively. Page 28 of 88 Note 10 - Employee Benefit Plans Effective October 1, 1992 the Company adopted the NSC Corporation Retirement Savings Plan (the "Plan"). The Plan allows eligible employees 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 $105,000 and $89,000 for 1996 and 1995, respectively. No matching contribution was made in 1994. The Company's subsidiary, NSC, has certain union employees which are covered by union-sponsored, collectively - bargained, multi-employer retirement plans. Contributions to the plans were $1,828,000, $1,575,000 and $2,379,000 for 1996, 1995 and 1994, 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 $350,000, $100,000 and $500,000 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 $5,410,000 and $6,694,000 for 1996 and 1995, 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 2000. Rental expense under operating leases amounted to $956,267, $908,000 and $830,000 for 1996, 1995 and 1994, respectively. The lease agreements generally contain renewal provisions and escalation clauses. Future minimum lease payments under non cancelable operating leases as of December 31, 1996 are: 1997, $597,000; 1998, $379,000, 1999, $121,000 and 2000, $86,000. The Company had $8,000,000 letters of credit outstanding at both December 31, 1996 and 1995. These letters of credit were issued in support of the Company's insurance programs. 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-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. Page 29 of 88 The carrying amounts and fair values of the Company's financial instruments at December 31, 1996 are as follows: Carrying Fair Amount Value -------- -------- (In Thousands) Cash and cash equivalents........................ $ 3,975 $ 3,975 Accounts receivable.............................. 26,859 26,859 Accounts payable................................. (3,448) (3,448) Long-term debt................................... (4,520) (2,261) Note 13- Industry Segment Data The Company operates in two principal industries - asbestos-abatement services and beginning in September 1995, demolition and dismantling services. The Company's asbestos-abatement divisions provide asbestos removal, insulation and restoration 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. December 31, -------------------------- 1996 1995 ----------- ----------- (In Thousands) Revenue Asbestos-Abatement.......................... $107,622 $116,940 Demolition and Dismantling.................. 21,421 7,589 -------- -------- Total revenue.......................... $129,043 $124,529 ======== ======== Operating profit Asbestos-Abatement.......................... $ 7,455 $ 6,932 Demolition and Dismantling.................. 1,101 827 -------- -------- Total operating profit................. 8,556 7,759 Corporate expenses............................ (4,195) (5,731) Interest expense.............................. (112) (587) Other......................................... (523) 227 -------- -------- Income before income taxes............. $ 3,726 $ 1,668 ======== ======== Identifiable assets Asbestos-Abatement.......................... $ 66,919 $ 74,958 Demolition and Dismantling.................. 8,681 7,370 -------- -------- 75,600 82,328 Corporate assets.............................. 9,625 4,833 -------- -------- Total assets.......................... $ 85,225 $ 87,161 ======== ======== Depreciation Asbestos-Abatement.......................... $ 1,407 $ 1,571 Demolition and Dismantling.................. 63 2 Corporate ................................. 246 257 -------- -------- Total depreciation.................... $ 1,716 $ 1,830 ======== ======== Amortization Asbestos-Abatement.......................... $ 31 $ - Demolition and Dismantling.................. - - Corporate ................................. 1,068 1,066 -------- -------- Total amortization.................... $ 1,099 $ 1,066 ======== ======== Page 30 of 88 Capital Expenditures Asbestos-Abatement.......................... $ 394 $ 486 Demolition and Dismantling.................. 699 79 Corporate ................................. 931 195 -------- -------- Total capital expenditures............ $ 2,024 $ 760 ======== ======== Note 14 - Quarterly Financial Data (Unaudited) The following is an analysis of certain items in the consolidated statements of operations by quarter for 1996 and 1995: First Second Third Fourth 1996 Quarter Quarter Quarter Quarter ---- ------- ------- ------- ------- (In Thousands, Except Per-Share Data) Revenue............................. $35,823 $32,147 $30,014 $31,059 Gross profit........................ 5,960 5,331 5,321 5,977 Net income.......................... 560 557 454 290 Net income per share ............... $ 0.06 $ 0.06 $ 0.04 $ 0.03 ======= ======== ======= ======= First Second Third Fourth 1995 Quarter Quarter Quarter Quarter ---- ------- ------- ------- ------- (In Thousands, Except Per-Share Data) Revenue............................ $29,545 $31,965 $29,452 $33,567 Gross profit....................... 4,700 5,203 4,562 4,982 Net income......................... 220 493 2 - Net income per share .............. $ 0.02 $ 0.05 $ 0.00 $ 0.00 ======= ======= ======= ======= In the fourth quarter of 1996, the Company wrote-down to market the value of the Hammond,IN facility which no longer fits in its strategic plans and is currently being held for sale - see Note 3 "Properties and Equipment." The Company's results of operations for the fourth quarter of 1995 reflect additional provisions for workers' compensation losses in connection with the unfavorable resolution of two significant claims. Page 31 of 88 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, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NSC Corporation and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, 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 January 31, 1997 Page 32 of 88 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 information required by this item, in addition to that set forth above in Part I under the caption "Executive Officers of the Registrant," is set forth in the section entitled "Information Concerning Directors and Nominees" contained in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission (the "Proxy Statement") in connection with the Company's 1997 Annual Meeting of Stockholders, and such information is incorporated herein by reference. Item 11. Executive Compensation Remuneration of the directors and officers and information related thereto is included in the section entitled "Executive Compensation and Other Information" contained in the Proxy Statement, and said information is incorporated herein by reference except for information contained under the captions "Board Compensation Committee Report" and "Performance Graph." Item 12. Security Ownership of Certain Beneficial Owners and Management Security ownership of management and certain beneficial owners and information related thereto is included in the section entitled "Voting Securities and Principal Holders Thereof" contained in the Proxy Statement, and said information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Transactions with management and related parties and information related thereto is included in the section entitled "Certain Relationships and Related Transactions" contained in the Proxy Statement, and said information is incorporated herein by reference. Page 33 of 88 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, 1996, 1995 and 1994 are included at the pages indicated below: Page Consolidated Balance Sheets 19 -As of December 31, 1996 and 1995 Consolidated Statements of Operations 20 -For the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Stockholders' Equity 21 -For the Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows 22 -For the Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements 23 Report of Independent Auditors 32 (a)(2) The following consolidated financial statement schedule is included herein at the pages indicated below: Page Schedule II Valuation and Qualifying Accounts 39 -For the Years Ended December 31, 1996, 1995 and 1994 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted. (a)(3)The following Exhibits are included in this Annual Report on Form 10-K: Exhibit Exhibit Number Description 3(i)(a) Amended and Restated Certificate of Incorporation of the Registrant dated April 24, 1990 [incorporated by reference to Exhibit 3(a) to the Registrant's Form S-1, Registration Statement No. 33-34702]. 3(ii)(a) By-Laws of the Registrant [incorporated by reference to Exhibit 3(b) to the Registrant's Form S-1, Registration Statement No. 33-34702]. 4 Specimen Common Stock Certificate [incorporated by reference to Exhibit 4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990]. * 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]. Page 34 of 88 * 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(l) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993]. 10(g) Security and Pledge 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(h) First Amendment to Revolving Credit Agreement, dated as of December 2, 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(n) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993]. 10(i) Revolving Credit Agreement and Promissory Note, dated as of May 4, 1993 by and between NSC Corporation, and the Brand Companies, Inc., as succeeded by Rust International Inc. [incorporated by reference to Exhibit 10(o) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993]. 10(j) 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(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) Independent Sales Representative Agreement, dated as of November 29, 1993 by and between NSC Corporation and Gary P. Snoonian [incorporated by reference to Exhibit 10(q) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993]. - ------------------------------------ * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K. Page 35 of 88 * 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) Consulting Agreement, dated as of November 30, 1993 by and between Anthony Mesiti and NSC Corporation [incorporated by reference to Exhibit 10(s) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994]. 10(o) 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(p) Employment Agreement, dated March 12, 1997 by and between Victor J. Barnhart and NSC Corporation. * 10(q) Employment Security Agreement, dated October 2, 1996 by and between J. Drennan Lowell and NSC Corporation. * 10(r) Employment Security Agreement, dated October 2, 1996 by and between Darryl G. Schimeck and NSC Corporation. * 10(s) Employment Security Agreement, dated October 2, 1996 by and between David R. Krache and NSC Corporation. * 10(t) Employment Security Agreement, dated October 2, 1996 by and between Thomas W. Bartlett, Jr. and NSC Corporation. * 10(u) Employment Security Agreement, dated October 2, 1996 by and between Thomas W. Gilmore and NSC Corporation. 11 Statement re computation of per share earnings. 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. 24 Powers of Attorney of certain directors of the Registrant. (b) The Company filed one Current Report on Form 8-K during the three-month period ended December 31, 1996: The Current Report, dated December 6, 1996 described the appointment of Victor J. Barnhart as Chairman and Chief Executive Officer and the promotion of Darryl G. Schimeck as President and Chief Operating Officer. - ------------------------------------ * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K. Page 36 of 88 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, Corporate Controller March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date * VICTOR J. BARNHART March 28, 1997 Victor J. Barnhart - Chairman and Chief Executive Officer (Principal Executive Officer) * DARRYL G. SCHIMECK March 28, 1997 Darryl G. Schimeck - President and Chief Operating Officer * J. DRENNAN LOWELL March 28, 1997 J. Drennan Lowell - Vice President, Chief Financial Officer Treasurer and Secretary (Principal Financial Officer) /s/ EFSTATHIOS A. KOUNINIS March 28, 1997 Efstathios A. Kouninis, Corporate Controller (Principal Accounting Officer) * EUGENE L. BARNETT March 28, 1997 Eugene L. Barnett - Director * PAMELA K.M. BEALL March 28, 1997 Pamela K.M. Beall - Director Page 37 of 88 * ROBERT J. BLACKWELL March 28, 1997 Robert J. Blackwell - Director * HERBERT A. GETZ March 28, 1997 Herbert A. Getz - Director * WILLIAM P. HULLIGAN March 28, 1997 William P. Hulligan - Director * WILLIAM M. R. MAPEL March 28, 1997 William M. R. Mapel - Director * The undersigned, by signing his name hereto does sign and execute this report pursuant to Powers of Attorney executed on behalf of the above-named officers and directors and contemporaneously herewith filed with the Securities and Exchange Commission. /s/ EFSTATHIOS A. KOUNINIS March 28, 1997 Efstathios A. Kouninis - Attorney-in-Fact Page 38 of 88
NSC CORPORATION SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (In Thousands) - ----------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - ----------------------------------------------------------------------------------------------------- Balance at Charged to Beginning Costs and Deductions Balance at Description of Period Expenses (2) Describe (1) End of Period - ----------------------------------------------------------------------------------------------------- Year Ended December 31, 1996 Deducted from assets accounts: Allowance for uncollectible accounts $ 549 $ 67 $ 59 $ 557 Reserve for contract revenue adjustments 442 111 401 152 - ----------------------------------------------------------------------------------------------------- Year Ended December 31, 1995 Deducted from assets accounts: Allowance for uncollectible accounts $ 782 $ - $ 233 $ 549 Reserve for contract revenue adjustments 530 401 489 442 - ----------------------------------------------------------------------------------------------------- Year Ended December 31, 1994 Deducted from assets accounts: Allowance for uncollectible accounts $ 1,165 $ 390 $ 773 $ 782 Reserve for contract revenue adjustments 1,546 332 1,348 530 - ----------------------------------------------------------------------------------------------------
(1) Uncollectible accounts written off and adjustments to unbilled revenues on contracts in process. (2) Reduction of revenues on contracts in process and amounts charged to bad debt expense. Page 39 of 88 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 __________________ FORM 10-K ANNUAL REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED December 31, 1996 ____________________ NSC CORPORATION (Exact name of registrant as specified in its charter) _____________________ Exhibits _____________________ Page 40 of 88 EXHIBIT INDEX The following Exhibits are included in this Annual Report on Form 10-K: Exhibit Exhibit Exhibit Number Description Page * 10(p) Employment Agreement, dated March 12, 1997 by and 42 between Victor J. Barnhart and NSC Corporation. * 10(q) Employment Security Agreement, dated October 2, 1996 55 by and between J. Drennan Lowell and NSC Corporation. * 10(r) Employment Security Agreement, dated October 2, 1996 61 by and between Darryl G. Schimeck and NSC Corporation. * 10(s) Employment Security Agreement, dated October 2, 1996 67 by and between David R. Krache and NSC Corporation. * 10(t) Employment Security Agreement, dated October 2, 1996 73 by and between Thomas W. Bartlett, Jr.and NSC Corporation. * 10(u) Employment Security Agreement, dated October 2, 1996 79 by and between Thomas W. Gilmore and NSC Corporation. 11 Statement re computation of per share earnings. 84 21 Subsidiaries of the Registrant. 85 23 Consent of Independent Auditors. 86 24 Powers of Attorney of certain directors of the Registrant. 87 27 Fiancial Data Schedule, Article 5 88 (b) The Company filed one Current Report on Form 8-K during the three-month period ended December 31, 1996: The Current Report, dated December 6, 1996 described the appointment of Victor J. Barnhart as Chairman and Chief Executive Officer and the promotion of Darryl G. Schimeck as President and Chief Operating Officer. - ----------------------------------------------- * Indicates a management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of Form 10-K. Page 41 0f 88 EX-10 2 EMPLOYMENT AGREEMENT- VICTOR J. BARNHART EMPLOYMENT AGREEMENT AGREEMENT made this 12th day of March, 1997, effective as of January 1, 1997, by and between NSC CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware, with a principal place of business at 49 Danton Drive, Methuen, Massachusetts 01844 (hereinafter referred to as "Employer") and VICTOR J. BARNHART, an individual residing at 10 Tartan Lakes, Westmont, Illinois 60559 (hereinafter referred to as "Employee"). WHEREAS, Employer wishes to retain Employee's skill, knowledge and experience for the management of its business and operations and Employee wishes to make such skills, knowledge and experience available to Employer; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Employer and Employee hereby agree as follows: Section 1. Employment. 1.1 Term. Employer shall employ Employee, and Employee shall serve Employer as Chairman and Chief Executive Officer for a term of three (3) years beginning on January 1, 1997 and ending on December 31, 1999 (the "Initial Period of Employment"), which employment shall thereafter continue on an at-will basis (collectively the "Term of Employment"), unless earlier terminated pursuant to the provisions of Section 5 of this Agreement. 1.2 Duties. (a) Capacity. During the Term of Employment, Employee shall assume and perform such managerial and executive duties and responsibilities commensurate with his positions, including responsibility for sales, operations staffing, budgets, pricing, personnel, training, advertising, market expansion, business development, acquisitions, and profits and losses and Employee shall further assume and perform such other reasonable executive and managerial responsibilities and duties as may be assigned to him hereafter from time to time by the Board of Directors of Employer. Employee will report directly to the Board of Directors of Employer. (b) Schedule. During the Term of Employment, Employee shall be employed on a full-time basis. Employee's working schedule during the Term of Employment shall correspond with the requirements of his position. (c) Exclusivity. Without limiting the generality of the foregoing, during the Term of Employment, Employee shall not, without the prior written approval of Employer, render services of a business, professional or commercial nature Page 42 of 88 for compensation to any other entity or person; provided, however, this clause shall not prohibit Employee from making investments of a passive nature (other than investments of more than one (1%) percent of the outstanding shares of companies engaged in any business which is directly or indirectly competitive with or similar to the business now or hereafter conducted by the Employer) which do not detract from the full-time nature of Employee's employment hereunder. 1.3 Compensation and Benefits. During the Term of Employment, as compensation for the services to be rendered during such period and the other obligations undertaken by Employee hereunder, Employee shall be entitled to the following compensation: (a) Salary. Employer shall pay to Employee weekly in equal installments an annual minimum Base Salary of Two Hundred Fifty Thousand ($250,000.00) Dollars, or such greater amount as may be determined by Employer, in its sole discretion, upon a review of Employee's performance. (b) Expenses. During the Term of Employment, Employer shall reimburse Employee for reasonable and necessary travel and entertainment expenses in connection with his employment hereunder in accordance with the policies of Employer in effect from time to time and upon Employee timely submitting such expenses for reimbursement and providing the Employer with such documentation substantiating such expenses as Employer may reasonably require. Employer shall provide to Employee an annual allowance for reimbursement of private club dues and financial/tax planning expenses in an amount equal to two (2%) percent of Employee's then annual Base Salary, such expenses to be reimbursed by Employer to Employee through Employee's expense reports. (c) Car Allowance. During the Term of Employment, Employer shall pay a monthly car allowance to Employee in the amount of Eight Hundred ($800.00) Dollars per month. It is acknowledged and understood by the parties that said car allowance shall be in lieu of any reimbursement for Employee's expenses for local auto travel, including, but not limited to, any mileage reimbursement. (d) Benefits. During the Term of Employment, Employee shall be entitled to such other fringe benefits, including vacation, paid holidays, health, life and disability insurances, etc. in accordance with such plans and policies as may be maintained by Employer from time to time. In addition to the foregoing benefits, Employer shall provide to Employee, or reimburse Employee for the cost of, a term life insurance policy upon the Employee's life providing for a death benefit of two (2) times Employee's then base salary. (e) Relocation Expenses. In the event that Employer shall require Employee to relocate from Oak Brook, Illinois to the Company's headquarters in Methuen, Page 43 of 88 Massachusetts during the Term of Employment, Employer shall reimburse Employee for Employee's cost of relocating in accordance with the Employer's Relocation Policy, Policy No. 602, a copy of which is attached hereto as Exhibit A. (f) Incentive Compensation. During the Term of Employment, Employee shall be entitled to participate in Employer's Management Incentive Compensation Plan and such other incentive compensation plans as may be made available by Employer to similarly situated executives from time to time during the Term of Employment. For the calendar year of 1997, Employee's target bonus under the Employer's Management Incentive Compensation Plan (the "Plan") shall be fifty (50%) percent of Employee's annual Base Salary to be earned and paid in accordance with the terms of said Plan; and thereafter, Employee's target bonus under said Plan shall be determined by the Employer's Compensation Committee, in said committee's discretion. Section 2. Development of Inventions, Improvements or Know-How. 2.1 Information. During the Term of Employment, Employee shall keep Employer informed of any and all promotional and advertising materials, catalogs, brochures, plans, customer lists, supplier lists, manuals, handbooks, inventions, discoveries, improvements, trade secrets, secret processes, and any technology, know-how or intellectual property made or developed by him, in whole or in part, or conceived of by him, alone or with others, which results from any work he may do for, or at the request of Employer, or which relates in any way to the business operations, activities, research, investigations or obligations of Employer (collectively the "Information"). 2.2 Assignment of Rights. Employee, and his heirs, assigns and representatives shall assign, transfer and set over, and do hereby assign, transfer and set over, to Employer, and its successors and assigns, all of his and their right, title and interest in and to any and all Information, and any patents, patent applications, copyrights, trademarks, tradenames or other intellectual property rights relating thereto, provided or conceived by Employee during the Term of Employment. For purposes of this Section 2, any Information developed, conceived or provided by the Employee within six (6) months after the date of the termination of Employee's employment with Employer hereunder shall be conclusively presumed to have been developed, conceived or provided during the Employee's Term of Employment with the Employer. 2.3 Further Assurances. To the extent Employer deems necessary or desirable to affect the intent of the assignments, transfers and set-overs provided for in Sections 2.1 and 2.2 hereinabove, Employee, and his heirs, assigns or representatives, shall, at the expense of Employer, assist Employer or its nominees to obtain patents, copyrights, trademarks and tradename or similar rights of protection (including any renewals or continuations thereof) for any and all Information in any country or countries throughout the world. Employee, and his heirs, assigns and representatives shall execute and deliver any and all applications, assignments or other instruments necessary or Page 44 of 88 desirable to secure United States or foreign patents, copyrights, trademarks and tradenames or similar rights of protection (including any renewals or continuations thereof), and to transfer to Employer, upon request, any and all right, title or interest in and to any and all such Information. Employee, and his heirs, assigns and representatives shall give Employer, upon request, any and all facts known to him or them reflecting such Information with respect to any of the foregoing, including, without limitation, any and all formulae, processes, sketches, drawings, models and figures. Section 3. Non-Disclosure. Employee hereby acknowledges that Employer possesses certain confidential and proprietary information, including, but not limited to client and customer lists, supplier lists, data, figures, sales figures, projections, estimates, tax records, personnel history, accounting procedures, bids, and other information relating to the Employer's employees, clients, customers, client and customer requirements, methods of client development, suppliers, contractors, bidding techniques, pricing, research, and development and other activities, services and business of the Employer (the foregoing being hereinafter referred to collectively as "Confidential Information") and that maintaining the confidential and proprietary nature of said Confidential Information is essential to the continued commercial success of the Employer's business and that said Confidential Information constitutes valuable and unique assets which provide the Employer with a distinct competitive advantage over competing businesses. Therefore, Employee hereby agrees that Employee shall not disclose, divulge, or use in any manner any such Confidential Information except as is specifically required in the performance of Employee's duties pursuant to this Employment Agreement, and that Employee will not, under any circumstances, communicate any such Confidential Information to any one not employed by the Employer and/or specifically authorized in writing by the Employer to receive such Confidential Information. It is expressly agreed that the foregoing restrictions upon use, disclosure or communication of the aforementioned Confidential Information shall be in full force and effect forever and shall survive any termination of this Agreement, whether voluntary or involuntary, and regardless of the reason for or manner of termination. Upon the termination of this Agreement and Employee's employment hereunder, regardless of the reason for or manner of termination, Employee agrees that Employee will deliver to the Company all originals and all copies in the Employee's possession of any and all documents of any nature containing, evidencing, or in any manner relating to any Confidential Information as defined herein and shall not take any such documentation with Employee upon said termination. Section 4. Covenant Not To Compete. 4.1 Acknowledgment. Employee acknowledges that he is being employed by the Employer in a position in which he will be expected to independently develop and maintain close relationships with customers and clients of the Employer and in which he will be provided with access to confidential information of Employer, and that such customer relationships and confidential information constitute a significant part of the goodwill of the Employer, the preservation of which are essential to the success of the Employer, and that the Employer has a legitimate interest in restricting Page 45 of 88 Employee's ability to take advantage of such relationships and confidential information. Employee further acknowledges that, in conjunction with this Employment Agreement, and in further consideration of the covenants of Employee set forth hereinbelow, Employee has been granted certain stock options by Employer. 4.2 Non-Competition Agreement. In light of the foregoing, and in consideration of the employment of Employee hereunder, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by Employee, Employee hereby covenants and agrees that, during the Term of Employment and, upon termination, for a period equal to the then remaining balance of the Term of Employment or one (1) year, whichever is greater immediately following any termination of this Employment Agreement and/or Employee's employment hereunder, whether voluntary or involuntary, and regardless of the reason for or manner of termination, Employee shall not, alone or with others, directly or indirectly (as owner, stockholder, partner, lender, other investor, director, officer, employee, consultant, or otherwise): (i) Solicit, perform or engage in any business of the same or similar nature to the business of Employer anywhere within the Employer's territories as hereinafter defined; (ii) Solicit, engage in, perform, divert or accept any business of the same or similar nature to the business of Employer with or from any customer or potential customer of Employer; or (iii) Induce or attempt to induce any customer of Employer to reduce such customer's business with Employer or divert such customer's business from the Employer, by direct advertising, solicitation or otherwise; (iv) Disclose the names of any customers or potential customers of Employer to any other person, firm, corporation or other entity; or (v) Employ, hire, cause to be employed or hired, entice away, solicit, or establish a business with any then current officer, employee, servant or agent of Employer, or any other person who was employed by Employer within the twelve (12) months immediately prior to such employment or establishment, or in any manner persuade or attempt to persuade any officer, employee, servant or agent of Employer to leave the employ of the Employer; or (vi) Assist any person, firm, entity, employer, business associate or member of Employee's family to commit any of the foregoing acts. 4.3 Definitions. For purposes of this Section 4, the following terms shall have the meanings hereinafter set forth: Page 46 of 88 (i) The term "customer" shall mean any person, firm, corporation or other entity or any parent, subsidiary or affiliate thereof with which Employer has had a contract, engaged in any business with or for which Employer has performed any work or services during the twelve (12) months immediately preceding Employee's termination and up to and including the date of Employee's termination; (ii) The term "potential customer" shall mean any person, firm, corporation or other entity or any parent, subsidiary or affiliate thereof from which Employer has solicited or attempted to solicit any business or to which Employer has submitted any written or oral proposal within the twelve (12) months immediately preceding Employee's termination and up to and including the date of Employee's termination. (iii) The term "Employer's territories" shall mean the United States of America, including without limitation, each and every state or territory in which Employer has conducted or solicited any business within the twelve (12) months immediately preceding the date of Employee's termination and up to and including the date of Employee's termination. (iv) The phrase "business of the same or similar nature to the business of Employer" shall mean the supplying of products, work or services which have the same or similar characteristics as, or is competitive with, any products, work or services engaged in, performed by or rendered by Employer at the time of the termination of this Agreement and/or within the twelve (12) months immediately preceding such termination and/or any products, work or services which have been the subject of any solicitation or proposal by Employer within the twelve (12) months immediately preceding such termination. 4.4 Enforcement. The covenants and obligations of Employee pursuant to this Section 4 shall be specifically enforceable in addition to and not in limitation of any other legal or equitable remedies, including monetary damages, which Employer may have. Employee recognizes and acknowledges that irreparable injury may result to Employer in its business in the event of any breach by Employee of any covenant or agreement contained herein, and, by reason of the foregoing, Employee consents and agrees that in the event of any such breach, Employer shall be entitled, in addition to any other remedies that it may have, including monetary damages, to an injunction to restrain Employee from committing or continuing any violation of any covenant or agreement set forth in this Section 4. It is the intent of the parties hereto that this Agreement contains covenants which are valid and enforceable, which are reasonable and necessary to safeguard the interests of Employer and which will be binding upon Employee. Therefore, in the event that any of the obligations of Employee are determined to be unreasonable or unenforceable because of the duration of such provision, the area covered thereby or the scope thereof so as to render any of the foregoing covenants unenforceable, then such a covenant shall be interpreted as to require only a reasonable duration, area or scope, and any Court making any such determination shall have the power to reduce the duration, area or Page 47 of 88 scope of such provision and/or to delete or revise specific words and phrases, and, in its reduced or revised form, such provisions shall be enforceable and shall be enforced. In the event that Employer alleges that Employee has violated any of the covenants contained herein and Employer seeks enforcement of such covenants in any Court having jurisdiction thereof, Employer shall be entitled to recover from Employee all reasonable attorney's fees and costs incurred by Employer in prosecuting such litigation. Section 5. Termination of Agreement. 5.1. Right to Terminate. (a) Death. This Agreement shall terminate immediately upon Employee's death. (b) Disability. In the event that Employee, because of accident, disability or physical or mental illness, is incapable of performing his duties hereunder, unless otherwise prohibited by applicable law, Employer shall have the right to terminate Employee's employment hereunder upon thirty (30) days prior written notice to Employee. For purposes of this Section 5.1 (b), Employee shall be deemed to have become incapable of performing his duties hereunder if he shall have been incapable of so doing for (i) a continuous period of one hundred eighty (180) days and remains so incapable at the end of such one hundred eighty (180) day period; or (ii) periods amounting in the aggregate to one hundred eighty (180) days within any one period of three hundred sixty-five (365) days and remains so incapable at the end of such aggregate period of one hundred eighty (180) days. (c) Breach of Agreement. In the event that Employee breaches in any material respect, or fails to comply in any material respect with, any of the provisions of this Agreement, Employer shall, upon thirty (30) days prior written notice to Employee specifying the nature of such breach or failure to comply, have the right to terminate this Agreement and Employee's employment hereunder, (i) if Employee fails to cure such breach or failure to comply, if curable, within thirty (30) days after the giving of such notice; and (ii) upon the expiration of such thirty (30) day period if such breach or failure to comply cannot be cured. (d) Cause. Employer shall have the right to terminate Employee's employment hereunder for cause immediately without prior notice to Employee. The term "cause" shall mean (i) Employee's willful failure or refusal to comply with explicit directives of the Employer or to render the services required herein; or (ii) misappropriation of any business opportunities; or (iii) dishonesty, fraud, embezzlement, or misappropriation of funds, involving assets of the Employer, its customers, suppliers, or any of their affiliates; or (iv) indictment or charge of Employee by applicable governmental authorities with, or Page 48 of 88 being convicted of, any criminal offense which adversely affects Employee's ability to perform his duties hereunder or the reputation of Employer; or (v) the willful and repeated breach or habitual neglect by Employee of his duties under this Agreement or his duties as an Employee of Employer; or (vi) Employee engaging in any acts or making statements which reflect adversely upon Employer, its affiliates or subsidiaries or their business. (e) Other. Employer shall have the right to terminate Employee's employment hereunder for any other reason not specified in this Section 5.1, at Employer's sole discretion, upon ten (10) days prior written notice to Employee; provided, however, that in the event that Employer shall terminate the Employee's employment pursuant to this Section 5.1(e), then Employee shall be entitled to the following severance benefits: (i) In the event that Employer shall terminate Employee's employment pursuant to this Section 5.1(e) during the Initial Period of Employment, Employer shall continue to pay Employee his Base Salary as set forth herein or as then established, payable in accordance with Employer's normal payroll procedures, and shall provide Employee with continued coverage under Employer's medical and dental plans at the rate applicable to active employees, from the effective date of termination until the later of (x) one (1) year following the effective date of termination or (y) the remaining portion of the Initial Period of Employment.. In addition to the aforementioned salary continuation, Employer shall pay to Employee any deferred portion of any bonus awarded to Employee under Employer's Management Incentive Compensation Plan and shall pay to Employee a pro-rated portion of the bonus payable under said Plan for the calendar year in which such termination occurs when, and if and only if, such bonus is payable in accordance with the terms and conditions of the Plan. (ii) In the event that Employer shall terminate Employee's employment pursuant to this Section 5.1(e) at any time after the Initial Period of Employment, Employer shall continue to pay Employee his Base Salary as set forth herein or as then established, payable in accordance with Employer's normal payroll procedures, and shall provide Employee with continued coverage under Employer's medical and dental plans at the rate applicable to active employees, for a period of one (1) year following the effective date of termination. In addition to the aforementioned salary continuation, Employer shall pay to Employee any deferred portion of any bonus awarded to Employee under Employer's Management Incentive Compensation Plan and shall pay to Employee a pro-rated portion of the bonus payable under said Plan for the calendar year in which such termination occurs when, and if and only if, such bonus is payable in accordance Page 49 of 88 with the terms and conditions of the Plan. Notwithstanding anything to the contrary set forth herein, the provisions of this Section 5.1(e)(ii) shall be void and of no further force and effect upon Employee attaining the age of sixty (60) years. (iii) In the event that a "Terminating Event," as defined hereinafter, shall occur within one (1) year after a "Change in Control," as defined hereinafter, then (i) Employer shall provide all severance benefits to Employee in accordance with Section 5.1(e)(i) hereinabove in the event that such Terminating Event shall occur during the Initial Period of Employment or such severance benefits as provided for in Section 5.1(e)(ii) in the event such Terminating Event shall occur any time after the Initial Period of Employment and (ii) Employer shall reimburse Employee for the expenses of relocating to a location within the State of South Carolina in accordance with the Employer's Relocation Policy, Policy No. 602 attached hereto as Exhibit A. For purposes hereof, a Change in Control shall be deemed to have occurred in the following events: (i) as a direct result of any tender or exchange, merger, reorganization, consolidation, or other business combination, any person, firm, or entity, other than OHM Corporation or Rust International, Inc., shall hold a majority of the then issued and outstanding shares of the Employer or (ii) the sale or other disposition of all or substantially all of the assets of the Employer (in one transaction or in a series of transactions). Further, for purposes hereof, a Terminating Event shall mean (i) termination by the Employer (or by any successor entity) of the employment of the Employee with the Employer for any reason other than (A) death or (B) for cause, as defined in Section 5.1(d) hereinabove; or (ii) resignation of the Employee from the Employer, within ninety (90) days after the occurrence of any of the following events: (A) a reasonable determination by the Employee in good faith that there has been a significant and substantial reduction in the scope of the Employee's responsibilities, authorities, powers, functions, or duties from the responsibilities, authorities, powers, functions, or duties exercised by the Employee immediately prior to a Change in Control; (B) a ten (10%) percent reduction in the Employee's total monetary compensation, including base salary, bonuses, incentive compensation, material benefit plans, and all non-cash personal benefits and perquisites which are susceptible of accurate and objective measurement, as all of the same shall be in effect on the date of this Agreement or as the same may be increased from time to time; or (C) the relocation of the Employee from the office where the Employee is principally employed immediately prior to the date of the Change in Control to a location more than fifty (50) away. Notwithstanding anything to the contrary contained herein, in the event that Employer shall become obligated to pay any severance Page 50 of 88 benefits as specified in Sections 5.1(e)(i) or 5.1(e)(ii) due to the occurrence of a Terminating Event after a Change in Control, Employee, at his option, may, upon written notice to Employer, elect to accelerate the severance benefits payable hereunder and to have said severance benefits payable in one (1) lump sum within thirty (30) days of the date of Employee's termination, said severance benefits to be discounted to present value utilizing such discount rate as shall be reasonably designated by Employer. (iv) It is the intention of the Employee and of the Employer that no payments by the Employer to or for the benefit of the Employee under this Agreement or any other agreement or plan, if any, pursuant to which Employee is entitled to receive payments or benefits shall be non-deductible to the Employer by reason of the operation of Section 280G of the Internal Revenue Code of 1986, as amended ("Code") relating to parachute payments. Accordingly, and notwithstanding any other provision of this Agreement or any other such agreement of plan, if by reason of the operation of said Section 280G, any such payments exceed the amount which can be deducted by the Employer, such payments shall be reduced to the maximum amount which can be deducted by the Employer. To the extent that payments exceeding such maximum deductible amount have been made to or for the benefit of the Employee, such excess payment shall be refunded to the Employer with interest thereon at the applicable federal rate determined under Section 1274(d) of the Code, compounded annually, or at such other rate as may be required in order that no such payment shall be non-deductible to the Employer by reason of the operation of said Section 280G. To the extent that there is more than one method of reducing the payments to bring them within the limitation of said Section 280G, the Employee shall determine which method shall be followed provided that if the Employee fails to make such a determination within forty-five (45) days after the Employer has provided Employee written notice of the need for such reduction, the Employer may determine the method of such reduction in its sole discretion. If any dispute between the Employer and the Employee as to any of the amounts to be determined under this Section 5(e)(v) or the method of calculating such amounts, cannot be resolved by the Employer and the Employee, either the Employer or the Employee, after giving three (3) days written notice to the other party, may refer the dispute to a partner in the Boston office of a firm of independent certified public accountants selected jointly by the Employer and the Employee. The determination of such partner as to the amount to be determined under this Section 5(e)(v) and the method of calculating such amount shall be final and binding on both the Employer and the Employee. The Employer shall bear the costs of any such determination. Page 51 of 88 ` f) Rights and Obligations of Employee Upon Termination. (i) Upon the termination of Employee's employment pursuant to Sections 5.1 (a), (b), (c), (d), or (e) of this Agreement, Employer shall not have any further obligation to Employee under this Agreement except (other than as provided in Section 5.1 (e) above) to distribute to Employee his Base Salary due pursuant to Section 1.3 (a) hereof (and accrued vacation pay) up to the date of termination. Notwithstanding the foregoing, in the event that Employee's employment pursuant to this Agreement shall be terminated pursuant to Sections 5.1(a) and 5.1(b), then Employer shall pay to Employee or the Employee's heirs or personal representatives, as applicable, a pro-rated portion of the bonus payable under the Employer's Management Incentive Compensation Plan for the calendar year in which such termination occurs when, and if and only if, such bonus is payable in accordance with the terms and conditions of the Plan. (ii) Upon the termination of this Agreement and Employee's employment hereunder, whether voluntary or involuntary, and regardless of the reason for or manner of termination, all of the obligations of Employee under Sections 2.2, 2.3, 3, and 4 shall remain in full force and effect and shall survive the termination of this Agreement to the extent set forth herein. Section 6. Miscellaneous. 6.1 Remedies. (a) Injunctions. Inasmuch as any breach of, or failure to comply with, this Agreement will cause serious and substantial damage to Employer, if Employee should in any way breach or fail to comply with the terms of this Agreement, Employer shall be entitled to an injunction restraining Employee from such breach or failure. (b) Cumulative Remedies. All remedies of Employer expressly provided for herein are cumulative of any and all other remedies now existing at law or in equity. Employer shall, in addition to the remedies herein provided, 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 herein. Resort to any remedy provided for hereunder or provided by law shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies, or preclude the recovery by Employer of monetary damages. Page 52 of 88 6.2 Amendment. This Agreement may be amended only by a writing duly executed by the parties hereto. 6.3 Entire Agreement. This Agreement and any other agreements expressly referred to herein set forth the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior contracts, agreements, arrangements, communications, discussions, representations and warranties, whether oral or written, between the parties regarding the subject matter hereof. 6.4 Notice. For purposes of this Agreement, notices and communications provided or permitted to be given hereunder shall be deemed to have been given when (i) made by telex, telecopy or facsimile transmission; or (ii) sent by overnight courier or mailed by United States registered or certified mail, return receipt requested, postage prepaid to the parties at their addresses set forth above, or at such other addresses as either may designate in writing as aforesaid from time to time. 6.5 Assignment. This Agreement is personal as to Employee and shall not be assignable by Employee. Employer may assign its rights under this Agreement to any person, firm, corporation, or other entity which may acquire all or substantially all of the business which is now or hereafter conducted by Employer or which may require substantially all of the assets of Employer or with or into which Employer may be consolidated or merged, provided, that any such assignment shall be subject to the express terms and conditions hereof. 6.6 Governing Law. This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts. 6.7 Severability. Each section and subsection of this Agreement constitutes a separate and distinct provision hereof. It is the intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applicable in each jurisdiction in which enforcement is sought. Accordingly, if any provision of this Agreement shall be adjudicated to be invalid, ineffective or unenforceable, the remaining provisions shall not be affected thereby. The invalid, ineffective or unenforceable provisions shall, without further action by the parties, be automatically amended to affect the original purpose and intent of the invalid, ineffective and unenforceable provision; provided, however, that such amendment shall apply only with respect to the operation of such provision in the particular jurisdiction with respect to which such adjudication is made. 6.8. Waiver. The failure of Employer to insist upon strict adherence to any term of this Agreement on any occasion shall not be construed as a waiver of or deprive Employer of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver by Employer must be in writing and signed by a duly authorized representative of Employer other than Employee. Page 53 of 88 6.9 Headings. The headings of this Agreement are solely for convenience of reference and shall not be given any effect in the construction or interpretation of this Agreement. 6.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together will constitute one and the same instrument. 6.11 Third Parties. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person or entity other than Employer and Employee any rights or remedies under, or by reason of, this Agreement. 6.12 Income Tax Reporting. As a condition to Employee's entitlement to all amounts to be paid hereunder, Employee shall report the Base Salary, portion of the allowances attributable to personal use and any bonuses paid to Employee as earned income for federal, state or local income tax purposes. 6.13 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their heirs, personal representatives, successors and permitted assigns. IN WITNESS WHEREOF, NSC Corporation has caused this Agreement to be duly executed and delivered by its duly authorized officer, and Employee has duly executed and delivered this Agreement, as of the date first above written, the parties intending this document to take effect as a sealed instrument. Employer: NSC CORPORATION By: /S/ HERBERT A. GETZ Name: Herbert A. Getz Title: Chairman, Compensation Committee Employee: /s/ VICTOR J. BARNHART Victor J. Barnhart Page 54 of 88 EX-10 3 EMPLOYMENT SECURITY AGREEMENT- J. DRENNAN LOWELL PERSONAL AND CONFIDENTIAL October 2, 1996 Mr. J. Drennan Lowell c/o NSC Corporation 49 Danton Drive Methuen, MA 01844 Re: Employment Security Agreement Dear Drennan: In light of the recent developments at NSC Corporation ("NSC"), NSC wishes to offer you this Employment Security Agreement in appreciation of your past dedicated service and to provide you with peace of mind. In consideration of the payments and other security listed below, you agree to continue your employment with NSC and provide your full cooperation and assistance to NSC. 1. Term. The Term of the Agreement shall be for a period commencing on the date hereof and ending on December 31, 1998. 2. Base Salary. Your current base salary will not be reduced during the Term and will be subject to normal increases which are in the discretion of management. 3. Execution Bonus. Upon the execution and delivery of this agreement by you, NSC shall pay to you, in one single lump sum, a one-time execution bonus in the amount of Twenty Thousand ($20,000.00) Dollars. 4. Supplemental Bonus and Guaranteed Minimum Bonus. With respect to any bonus payable to you under the NSC Corporation Management Incentive Compensation Plan (the "Plan"), (i) if you remain employed with NSC through December 31, 1997, NSC agrees to pay you a supplemental bonus in an amount equal to thirty-five (35%) percent of any bonus payable to you under the 1997 Plan and (ii) if you remain employed with NSC through the end of the Term, NSC agrees to pay you a supplemental bonus in an amount equal to thirty-five (35%) percent of any bonus payable to you under the 1998 Plan; provided, however, that, regardless of the amount of any bonuses payable to you under the 1997 and 1998 Plans, the amount of each supplemental bonus to be paid to you by NSC for each such year shall in no event be less than Fifteen Thousand ($15,000.00) Dollars, or Thirty Thousand ($30,000.00) in the aggregate for both years ( the "Guaranteed Minimum Bonus"). 5. Transaction Bonus. In the event of a sale of NSC during the term to an entity unrelated to NSC or its major shareholders, Rust International, Inc. and OHM Corporation, if you remain employed with NSC through the closing of the sale, NSC will pay you a transaction bonus equal to two (2) times your monthly Page 55 of 88 base salary for your assistance and cooperation in facilitating the closing of the sale. NSC shall pay said transaction bonus to you as soon as reasonably practicable following the date of the closing. Payment of such bonus will be subject to normal withholding. 6. Stock Options. Any otherwise exercisable stock options will remain in effect, in accordance with the terms of the stock option plan under which they were issued, during any period of employment with NSC and any subsequent period during which you may be receiving severance pay. However, in the event of a transaction involving NSC, which under the terms of the stock option plan would cause the options to terminate, NSC will use its reasonable efforts to cause the exercisability of the options to be accelerated. 7. (a) Termination Without Cause. If you are terminated by NSC without Cause prior to the end of the Term, NSC will pay you (i) an amount equal to the greater of (a) the amount of the base salary remaining to be paid during the Term, or (b) one year of continued base salary (payable in the same manner as regular salary), measured by your base salary in effect on the date of your termination and (ii) the Guaranteed Minimum Bonus payment(s) (as provided for in paragraph 4) for the balance of the Term. NSC will also provide you with one year's continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (The foregoing period of continued salary and benefits is hereinafter referred to as the "Severance Period.") Notwithstanding the foregoing, your payments under this paragraph 7(a) can, at your election, be paid in a single lump sum. (b) Severance. If you are terminated by NSC without Cause after the expiration of the Term of this Agreement, you shall be entitled to receive severance pay for a period of one (1) year from the date of your termination at your annual base salary then in effect, payable in the same manner as regular salary, together with one year's continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (c) Cause. For purposes of this Agreement, Cause shall mean any act of dishonesty or theft, willful misconduct, acts of gross negligence, or the willful and continued failure or your refusal to perform assigned duties (other than caused by a disability, which for purposes of this Agreement shall mean your total and permanent incapacity to perform the duties you were performing immediately prior to the onset of such disability). 8. Survivor's Benefit. In the event of your death before the end of the Term, or during the course of any applicable Severance Period, your spouse, if any, shall receive the full (or, if your death occurs during any applicable Severance Period, the remainder of the) period of continued base salary and medical and dental coverage set forth in paragraph 6 or 7 above. Further, your spouse, if any, shall receive the Guaranteed Minimum Bonus due with respect to the year of your death under paragraph 4 above. 9. Affirmation. As further consideration for the payments and other security set forth above, by signing this Agreement you agree to continue to abide by the covenants and agreements set forth in Exhibit A attached hereto. 10. Assignment. You may not assign your rights or obligations hereunder. The rights and obligations of NSC hereunder shall inure to the benefit of and shall be binding upon its respective successors and assigns. NSC shall use its Page 56 of 88 reasonable efforts to ensure that any purchaser of the business of NSC offers the same or substantially equivalent plans as the medical, dental, and vehicle allowance plans currently offered by NSC. 11. General Provisions. (a) This Agreement shall be subject to and governed by the laws of the Commonwealth of Massachusetts without regard to its choice of law principles. (b) Failure to insist upon strict compliance with any provision(s) hereof shall not be deemed a waiver of such provision(s) or any other provision hereof. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or a part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. (c) This Agreement shall not be altered, amended, or modified except by written instrument executed by NSC and you. A waiver of any term, covenant, agreement, or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement, or condition, and any waiver of any default in any such term, covenant, agreement, or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement, or condition. (d) For purposes of this Agreement and each of the Exhibits attached hereto, the term "NSC" shall mean and include NSC Corporation and each of its subsidiaries, including, but not limited to, National Surface Cleaning, Inc., National Service Cleaning Corp., Olshan Demolishing Management, Inc., NSC Energy Services, Inc. and NSC Specialty Coatings, Inc. Page 57 of 88 (e) NSC's obligation to pay amounts hereunder are subject to its withholding obligations under applicable federal, state, and local laws. NSC CORPORATION By: /s/ VICTOR J. BARNHART Victor J. Barnhart, Acting President and Chief Executive Officer ACCEPTANCE Agreed to and accepted this ____ day of ____________, 1996. By: /S/ J. DRENNAN LOWELL J. Drennan Lowell Page 58 of 88 EXHIBIT A (A) I agree that while I am employed by NSC, I will not, directly or indirectly, compete with the business conducted by NSC. (B) I agree that for a period of twelve (12) months after the termination of employment, whether voluntary or involuntary, and regardless of the reason for or manner of termination, I will not, alone or with others, directly or indirectly (as owner, stockholder, partner, lender, other investor director, officer, employee, consultant or otherwise): (1) Solicit, perform or engage in any business of the same or similar nature to the business of NSC, or which is competitive with the business of NSC, anywhere within the Restricted Area as hereinafter defined; and (2) Sell, attempt to sell, provide or attempt to provide any products or services (in competition with those products or services which I sold or provided on behalf of NSC) to, or solicit, perform, engage in, divert or accept any business of the same or similar nature to the business of NSC from, any person, firm or entity: (a) residing, maintaining a principal place of business or located within the Restricted Area; (b) who was a customer of NSC within the Restricted Area during the last twenty-four (24) months of my employment; or (c) to whom I sold, attempted to sell, provided or attempted to provide such products or services during the last twenty-four (24) months of my employment with NSC. (3) Induce or attempt to induce any customer of NSC to reduce such customer's business with NSC or divert such customer's business from NSC, by direct advertising, solicitation or otherwise. (4) Disclose the names of any customers or potential customers of NSC to any other person, firm, corporation or other entity. I agree that I will comply with the most restrictive of the provisions specified in subsections (1), (2)(a) through (c), (3) and (4) which is allowed by applicable state law. The parties agree that if enforcement of this Agreement is sought, the enforcing court should select the most restrictive provisions appropriate under applicable state law. (C) I agree that while I am employed by NSC and for a period of twelve (12) months after termination of my employment for any reason, voluntary or involuntary, with or without Cause, I will not directly or indirectly hire, or attempt to hire any employee of NSC nor will I encourage or induce any employee of NSC to terminate employment with NSC. (D) "Restricted Area" shall mean and include each and every state or territory in which NSC has conducted or solicited any business within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Customer" shall mean any person, firm or other entity, or any parent, subsidiary or Page 59 of 88 affiliate thereof, with which NSC has had a contract, engaged in any business with or for which NSC has performed any services within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Potential Customer" shall mean any person firm or other entity, or any parent, subsidiary or affiliate thereof, from which NSC has solicited or attempted to solicit any business, or to which NSC has submitted any bid or written or oral proposal, within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. (E) I acknowledge that during the term of my employment, I will be making use of, acquiring, or adding to NSC's Classified Information. In order to protect the Classified Information, I will not, during the term of my employment with NSC or thereafter, in any way utilize any of the Classified Information except in connection with my employment by NSC. I will not copy, reproduce, or remove from NSC's premises the original or any copies of the Classified Information and I will not disclose any of the Classified Information to anyone. Page 60 of 88 EX-10 4 EMPLOYMENT SECURITY AGREEMENT- DARRYL G. SCHIMECK PERSONAL AND CONFIDENTIAL October 2, 1996 Mr. Darryl G. Schimeck c/o National Surface Cleaning, Inc. 160 Eisenhower Lane North Lombard, IL 60148 Re: Employment Security Agreement Dear Darryl: In light of the recent developments at NSC Corporation ("NSC"), NSC wishes to offer you this Employment Security Agreement in appreciation of your past dedicated service and to provide you with peace of mind. In consideration of the payments and other security listed below, you agree to continue your employment with NSC and provide your full cooperation and assistance to NSC. 1. Term. The Term of the Agreement shall be for a period commencing on the date hereof and ending on December 31, 1998. 2. Base Salary. Your current base salary will not be reduced during the Term and will be subject to normal increases which are in the discretion of management. 3. Execution Bonus. Upon the execution and delivery of this agreement by you, NSC shall pay to you, in one single lump sum, a one-time execution bonus in the amount of Twenty Thousand ($20,000.00) Dollars. 4. Supplemental Bonus and Guaranteed Minimum Bonus. With respect to any bonus payable to you under any incentive compensation plan provided by NSC for its senior personnel ("Plan"), (i) if you remain employed with NSC through December 31, 1997, NSC agrees to pay you a supplemental bonus in an amount equal to thirty-five (35%) percent of any bonus payable to you under the 1997 Plan and (ii) if you remain employed with NSC through the end of the Term, NSC agrees to pay you a supplemental bonus in an amount equal to thirty-five (35%) percent of any bonus payable to you under the 1998 Plan; provided, however, that, regardless of the amount of any bonuses payable to you under the 1997 and 1998 Plans, the amount of each supplemental bonus to be paid to you by NSC for each such year shall in no event be less than Fifteen Thousand ($15,000.00) Dollars, or Thirty Thousand ($30,000.00) in the aggregate for both years ( the "Guaranteed Minimum Bonus"). Page 61 of 88 5. Transaction Bonus. In the event of a sale of NSC during the Term to an entity unrelated to NSC or its major shareholders, Rust International, Inc. and OHM Corporation, if you remain employed with NSC through the closing of the sale, NSC will pay you a transaction bonus equal to two (2) times your monthly base salary for your assistance and cooperation in facilitating the closing of the sale. NSC will pay said transaction bonus to you as soon as reasonably practicable following the date of the closing. Payment of such bonus will be subject to normal withholding. 6. Stock Options. Any otherwise exercisable stock options will remain in effect, in accordance with the terms of the stock option plan under which they were issued, during any period of employment with NSC and any subsequent period during which you may be receiving severance pay. However, in the event of a transaction involving NSC, which under the terms of the stock option plan would cause the options to terminate, NSC will use its reasonable efforts to cause the exercisability of the options to be accelerated. 7. (a) Termination Without Cause. If you are terminated by NSC without Cause prior to the end of the Term, NSC will pay you (i) an amount equal to the greater of (a) the amount of the base salary remaining to be paid during the Term, or (b) one year of continued base salary (payable in the same manner as regular salary), measured by your base salary in effect on the date of your termination and (ii) the Guaranteed Minimum Bonus payment(s) (as provided for in paragraph 4) for the balance of the Term. NSC will also provide you with one year's continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (The foregoing period of continued salary and benefits is hereinafter referred to as the "Severance Period.") Notwithstanding the foregoing, your payments under this paragraph 7(a) can, at your election, be paid in a single lump sum. (b) Severance. If you are terminated by NSC without Cause after the expiration of the Term of this Agreement, you shall be entitled to receive severance pay for a period of one (1) year from the date of your termination at your annual base salary then in effect, payable in the same manner as regular salary, together with one year's continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (c) Cause. For purposes of this Agreement, Cause shall mean any act of dishonesty or theft, willful misconduct, acts of gross negligence, or the willful and continued failure or your refusal to perform assigned duties (other than caused by a disability, which for purposes of this Agreement shall mean your total and permanent incapacity to perform the duties you were performing immediately prior to the onset of such disability). 8. Survivor's Benefit. In the event of your death before the end of the Term, or during the course of any applicable Severance Period, your spouse, if any, shall receive the full (or, if your death occurs during any applicable Severance Period, the remainder of the) period of continued base salary and medical and dental coverage set forth in paragraph 6 or 7 above. Further, your spouse, if any, shall receive the Guaranteed Minimum Bonus due with respect to the year of your death under paragraph 4 above. Page 62 of 88 9. Affirmation. As further consideration for the payments and other security set forth above, by signing this Agreement you agree to continue to abide by the covenants and agreements set forth in Exhibit A attached hereto. 10. Assignment. You may not assign your rights or obligations hereunder. The rights and obligations of NSC hereunder shall inure to the benefit of and shall be binding upon its respective successors and assigns. NSC shall use its reasonable efforts to ensure that any purchaser of the business of NSC offers the same or substantially equivalent plans as the medical, dental, and vehicle allowance plans currently offered by NSC. 11. General Provisions. (a) This Agreement shall be subject to and governed by the laws of the Commonwealth of Massachusetts without regard to its choice of law principles. (b) Failure to insist upon strict compliance with any provision(s) hereof shall not be deemed a waiver of such provision(s) or any other provision hereof. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or a part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. (c) This Agreement shall not be altered, amended, or modified except by written instrument executed by NSC and you. A waiver of any term, covenant, agreement, or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement, or condition, and any waiver of any default in any such term, covenant, agreement, or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement, or condition. (d) For purposes of this Agreement and each of the Exhibits attached hereto, the term "NSC" shall mean and include NSC Corporation and each of its subsidiaries, including, but not limited to, National Surface Cleaning, Inc., National Service Cleaning Corp., Olshan Demolishing Management, Inc., NSC Energy Services, Inc. and NSC Specialty Coatings, Inc. (e) NSC's obligation to pay amounts hereunder are subject to its withholding obligations under applicable federal, state, and local laws. Page 63 of 88 NSC CORPORATION By: /s/ VICTOR J. BARNHART Victor J. Barnhart, Acting President and Chief Executive Officer ACCEPTANCE Agreed to and accepted this ____ day of ____________, 1996. By: /s/ DARRYL G. SCHIMECK Darryl G. Schimeck Page 64 of 88 EXHIBIT A (A) I agree that while I am employed by NSC, I will not, directly or indirectly, compete with the business conducted by NSC. (B) I agree that for a period of twelve (12) months after the termination of employment, whether voluntary or involuntary, and regardless of the reason for or manner of termination, I will not, alone or with others, directly or indirectly (as owner, stockholder, partner, lender, other investor director, officer, employee, consultant or otherwise): (1) Solicit, perform or engage in any business of the same or similar nature to the business of NSC, or which is competitive with the business of NSC, anywhere within the Restricted Area as hereinafter defined; and (2) Sell, attempt to sell, provide or attempt to provide any products or services (in competition with those products or services which I sold or provided on behalf of NSC) to, or solicit, perform, engage in, divert or accept any business of the same or similar nature to the business of NSC from, any person, firm or entity: (a) residing, maintaining a principal place of business or located within the Restricted Area; (b) who was a customer of NSC within the Restricted Area during the last twenty-four (24) months of my employment; or (c) to whom I sold, attempted to sell, provided or attempted to provide such products or services during the last twenty-four (24) months of my employment with NSC. (3) Induce or attempt to induce any customer of NSC to reduce such customer's business with NSC or divert such customer's business from NSC, by direct advertising, solicitation or otherwise. (4) Disclose the names of any customers or potential customers of NSC to any other person, firm, corporation or other entity. I agree that I will comply with the most restrictive of the provisions specified in subsections (1), (2)(a) through (c), (3) and (4) above which is allowed by applicable state law. The parties agree that if enforcement of this Agreement is sought, the enforcing court should select the most restrictive provisions appropriate under applicable state law. (C) I agree that while I am employed by NSC and for a period of twelve (12) months after termination of my employment for any reason, voluntary or involuntary, with or without Cause, I will not directly or indirectly hire, or attempt to hire any employee of NSC nor will I encourage or induce any employee of NSC to terminate employment with NSC. (D) "Restricted Area" shall mean and include each and every state or territory in which NSC has conducted or solicited any business within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Customer" shall mean any person firm or other entity, or any parent, subsidiary or Page 65 of 88 affiliate thereof, with which NSC has had a contract, engaged in any business with or for which NSC has performed any services within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Potential Customer" shall mean any person firm or other entity, or any parent, subsidiary or affiliate thereof, from which NSC has solicited or attempted to solicit any business, or to which NSC has submitted any bid or written or oral proposal, within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. (E) I acknowledge that during the term of my employment, I will be making use of, acquiring, or adding to NSC's Classified Information. In order to protect the Classified Information, I will not, during the term of my employment with NSC or thereafter, in any way utilize any of the Classified Information except in connection with my employment by NSC. I will not copy, reproduce, or remove from NSC's premises the original or any copies of the Classified Information and I will not disclose any of the Classified Information to anyone. Page 66 of 88 EX-10 5 EMPLOYMENT SECURITY AGREEMENT- DAVID R. KRACHE PERSONAL AND CONFIDENTIAL October 2, 1996 Mr. David R. Krache c/o National Service Cleaning Corp. 3575 West 12th Street Houston, TX 77008 Re: Employment Security Agreement Dear Dave: In light of the recent developments at NSC Corporation ("NSC"), NSC wishes to offer you this Employment Security Agreement in appreciation of your past dedicated service and to provide you with peace of mind. In consideration of the payments and other security listed below, you agree to continue your employment with NSC and provide your full cooperation and assistance to NSC. 1. Term. The Term of the Agreement shall be for a period commencing on the date hereof and ending on December 31, 1998. 2. Base Salary. Your current base salary will not be reduced during the Term and will be subject to normal increases which are in the discretion of management. 3. Execution Bonus. Upon the execution and delivery of this agreement by you, NSC shall pay to you, in one single lump sum, a one-time execution bonus in the amount of Twenty Thousand ($20,000.00) Dollars. 4. Supplemental Bonus and Guaranteed Minimum Bonus. With respect to any bonus payable to you under any incentive compensation plan provided by NSC for its senior personnel ("Plan"), (i) if you remain employed with NSC through December 31, 1997, NSC agrees to pay you a supplemental bonus in an amount equal to thirty-five (35%) percent of any bonus payable to you under the 1997 Plan and (ii) if you remain employed with NSC through the end of the Term, NSC agrees to pay you a supplemental bonus in an amount equal to thirty-five (35%) percent of any bonus payable to you under the 1998 Plan; provided, however, that, regardless of the amount of any bonuses payable to you under the 1997 and 1998 Plans, the amount of each supplemental bonus to be paid to you by NSC for each such year shall in no event be less than Fifteen Thousand ($15,000.00) Dollars, or Thirty Thousand ($30,000.00) in the aggregate for both years ( the "Guaranteed Minimum Bonus"). Page 67 of 88 5. Transaction Bonus. In the event of a sale of NSC during the term to an entity unrelated to NSC or its major shareholders, Rust International, Inc. and OHM Corporation, if you remain employed with NSC through the closing of the sale, NSC will pay you a transaction bonus equal to two (2) times your monthly base salary for your assistance and cooperation in facilitating the closing of the sale. NSC will pay said transaction bonus to you as soon as reasonably practicable following the date of the closing. Payment of such bonus will be subject to normal withholding. 6. Stock Options. Any otherwise exercisable stock options will remain in effect, in accordance with the terms of the stock option plan under which they were issued, during any period of employment with NSC and any subsequent period during which you may be receiving severance pay. However, in the event of a transaction involving NSC, which under the terms of the stock option plan would cause the options to terminate, NSC will use its reasonable efforts to cause the exercisability of the options to be accelerated. 7. (a) Termination Without Cause. If you are terminated by NSC without Cause prior to the end of the Term, NSC will pay you (i) an amount equal to the greater of (a) the amount of the base salary remaining to be paid during the Term, or (b) one year of continued base salary (payable in the same manner as regular salary), measured by your base salary in effect on the date of your termination and (ii) the Guaranteed Minimum Bonus payment(s) (as provided for in paragraph 4) for the balance of the Term. NSC will also provide you with one year's continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (The foregoing period of continued salary and benefits is hereinafter referred to as the "Severance Period.") Notwithstanding the foregoing, your payments under this paragraph 7(a) can, at your election, be paid in a single lump sum. (b) Severance. If you are terminated by NSC without Cause after the expiration of the Term of this Agreement, you shall be entitled to receive severance pay for a period of one (1) year from the date of your termination at your annual base salary then in effect, payable in the same manner as regular salary, together with one year's continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (c) Cause. For purposes of this Agreement, Cause shall mean any act of dishonesty or theft, willful misconduct, acts of gross negligence, or the willful and continued failure or your refusal to perform assigned duties (other than caused by a disability, which for purposes of this Agreement shall mean your total and permanent incapacity to perform the duties you were performing immediately prior to the onset of such disability). 8. Survivor's Benefit. In the event of your death before the end of the Term, or during the course of any applicable Severance Period, your spouse, if any, shall receive the full (or, if your death occurs during any applicable Severance Period, the remainder of the) period of continued base salary and medical and dental coverage set forth in paragraph 6 or 7 above. Further, your spouse, if any, shall receive the Guaranteed Minimum Bonus due with respect to the year of your death under paragraph 4 above. Page 68 of 88 9. Affirmation. As further consideration for the payments and other security set forth above, by signing this Agreement you agree to continue to abide by the covenants and agreements set forth in Exhibit A attached hereto. 10. Assignment. You may not assign your rights or obligations hereunder. The rights and obligations of NSC hereunder shall inure to the benefit of and shall be binding upon its respective successors and assigns. NSC shall use its reasonable efforts to ensure that any purchaser of the business of NSC offers the same or substantially equivalent plans as the medical, dental, and vehicle allowance plans currently offered by NSC. 11. General Provisions. (a) This Agreement shall be subject to and governed by the laws of the Commonwealth of Massachusetts without regard to its choice of law principles. (b) Failure to insist upon strict compliance with any provision(s) hereof shall not be deemed a waiver of such provision(s) or any other provision hereof. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or a part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. (c) This Agreement shall not be altered, amended, or modified except by written instrument executed by NSC and you. A waiver of any term, covenant, agreement, or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement, or condition, and any waiver of any default in any such term, covenant, agreement, or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement, or condition. (d) For purposes of this Agreement and each of the Exhibits attached hereto, the term "NSC" shall mean and include NSC Corporation and each of its subsidiaries, including, but not limited to, National Surface Cleaning, Inc., National Service Cleaning Corp., Olshan Demolishing Management, Inc., NSC Energy Services, Inc. and NSC Specialty Coatings, Inc. (e) NSC's obligation to pay amounts hereunder are subject to its withholding obligations under applicable federal, state, and local laws. Page 69 of 88 NSC CORPORATION By: /s/ VICTOR J. BARNHART Victor J. Barnhart, Acting President and Chief Executive Officer ACCEPTANCE Agreed to and accepted this ____ day of ____________, 1996. By: /s/ DAVID R. KRACHE David R. Krache Page 70 of 88 EXHIBIT A (A) I agree that while I am employed by NSC, I will not, directly or indirectly, compete with the business conducted by NSC. (B) I agree that for a period of twelve (12) months after the termination of employment, whether voluntary or involuntary, and regardless of the reason for or manner of termination, I will not, alone or with others, directly or indirectly (as owner, stockholder, partner, lender, other investor director, officer, employee, consultant or otherwise): (1) Solicit, perform or engage in any business of the same or similar nature to the business of NSC, or which is competitive with the business of NSC, anywhere within the Restricted Area as hereinafter defined; and (2) Sell, attempt to sell, provide or attempt to provide any products or services (in competition with those products or services which I sold or provided on behalf of NSC) to, or solicit, perform, engage in, divert or accept any business of the same or similar nature to the business of NSC from, any person, firm or entity: (a) residing, maintaining a principal place of business or located within the Restricted Area; (b) who was a customer of NSC within the Restricted Area during the last twenty-four (24) months of my employment; or (c) to whom I sold, attempted to sell, provided or attempted to provide such products or services during the last twenty-four (24) months of my employment with NSC. (3) Induce or attempt to induce any customer of NSC to reduce such customer's business with NSC or divert such customer's business from NSC, by direct advertising, solicitation or otherwise. (4) Disclose the names of any customers or potential customers of NSC to any other person, firm, corporation or other entity. I agree that I will comply with the most restrictive of the provisions specified in subsections (1), (2)(a) through (c), (3) and (4) above which is allowed by applicable state law. The parties agree that if enforcement of this Agreement is sought, the enforcing court should select the most restrictive provisions appropriate under applicable state law. (C) I agree that while I am employed by NSC and for a period of twelve (12) months after termination of my employment for any reason, voluntary or involuntary, with or without Cause, I will not directly or indirectly hire, or attempt to hire any employee of NSC nor will I encourage or induce any employee of NSC to terminate employment with NSC. (D) "Restricted Area" shall mean and include each and every state or territory in which NSC has conducted or solicited any business within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Customer" shall mean any person firm or other entity, or any parent, subsidiary or Page 71 of 88 affiliate thereof, with which NSC has had a contract, engaged in any business with or for which NSC has performed any services within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Potential Customer" shall mean any person firm or other entity, or any parent, subsidiary or affiliate thereof, from which NSC has solicited or attempted to solicit any business, or to which NSC has submitted any bid or written or oral proposal, within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. (E) I acknowledge that during the term of my employment, I will be making use of, acquiring, or adding to NSC's Classified Information. In order to protect the Classified Information, I will not, during the term of my employment with NSC or thereafter, in any way utilize any of the Classified Information except in connection with my employment by NSC. I will not copy, reproduce, or remove from NSC's premises the original or any copies of the Classified Information and I will not disclose any of the Classified Information to anyone. Page 72 of 88 EX-10 6 EMPLOYMENT SECURITY AGREEMENT- THOMAS W. BARTLETT PERSONAL AND CONFIDENTIAL October 2, 1996 Mr. Thomas W. Bartlett c/o Olshan Demolishing Management, Inc. 3575 West 12th Street Houston, TX 77008 Re: Employment Security Agreement Dear Bill: In light of the recent developments at NSC Corporation ("NSC"), NSC wishes to offer you this Employment Security Agreement in appreciation of your past dedicated service and to provide you with peace of mind. In consideration of the payments and other security listed below, you agree to continue your employment with NSC and provide your full cooperation and assistance to NSC. 1. Term. The Term of the Agreement shall be for a period commencing on the date hereof and ending on December 31, 1998. 2. Base Salary. Your current base salary will not be reduced during the Term and will be subject to normal increases which are in the discretion of management. 3. Execution Bonus. Upon the execution and delivery of this agreement by you, NSC shall pay to you, in one single lump sum, a one-time execution bonus in the amount of Twenty Thousand ($20,000.00) Dollars. 4. Supplemental Bonus and Guaranteed Minimum Bonus. With respect to any bonus payable to you under any incentive compensation plan provided by NSC for its senior personnel ("Plan"), (i) if you remain employed with NSC through December 31, 1997, NSC agrees to pay you a supplemental bonus in an amount equal to thirty-five (35%) percent of any bonus payable to you under the 1997 Plan and (ii) if you remain employed with NSC through the end of the Term, NSC agrees to pay you a supplemental bonus in an amount equal to thirty-five (35%) percent of any bonus payable to you under the 1998 Plan; provided, however, that, regardless of the amount of any bonuses payable to you under the 1997 and 1998 Plans, the amount of each supplemental bonus to be paid to you by NSC for each such year shall in no event be less than Fifteen Thousand ($15,000.00) Dollars, or Thirty Thousand ($30,000.00) in the aggregate for both years ( the "Guaranteed Minimum Bonus"). Page 73 of 88 5. Transaction Bonus. In the event of a sale of NSC during the Term to an entity unrelated to NSC or its major shareholders, Rust International, Inc. and OHM Corporation, if you remain employed with NSC through the closing of the sale, NSC will pay you a transaction bonus equal to two (2) times your monthly base salary for your assistance and cooperation in facilitating the closing of the sale. NSC will pay said transaction bonus to you as soon as reasonably practicable following the date of the closing. Payment of such bonus will be subject to normal withholding. 6. Stock Options. Any otherwise exercisable stock options will remain in effect, in accordance with the terms of the stock option plan under which they were issued, during any period of employment with NSC and any subsequent period during which you may be receiving severance pay. However, in the event of a transaction involving NSC, which under the terms of the stock option plan would cause the options to terminate, NSC will use its reasonable efforts to cause the exercisability of the options to be accelerated. 7. (a) Termination Without Cause. If you are terminated by NSC without Cause prior to the end of the Term, NSC will pay you (i) an amount equal to the greater of (a) the amount of the base salary remaining to be paid during the Term, or (b) one year of continued base salary (payable in the same manner as regular salary), measured by your base salary in effect on the date of your termination and (ii) the Guaranteed Minimum Bonus payment(s) (as provided for in paragraph 4) for the balance of the Term. NSC will also provide you with one year's continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (The foregoing period of continued salary and benefits is hereinafter referred to as the "Severance Period.") Notwithstanding the foregoing, your payments under this paragraph 7(a) can, at your election, be paid in a single lump sum. (b) Severance. If you are terminated by NSC without Cause after the expiration of the Term of this Agreement, you shall be entitled to receive severance pay for a period of one (1) year from the date of your termination at your annual base salary then in effect, payable in the same manner as regular salary, together with one year's continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (c) Cause. For purposes of this Agreement, Cause shall mean any act of dishonesty or theft, willful misconduct, act of gross negligence, or the willful and continued failure or your refusal to perform assigned duties (other than caused by a disability, which for purposes of this Agreement shall mean your total and permanent incapacity to perform the duties you were performing immediately prior to the onset of such disability). 8. Survivor's Benefit. In the event of your death before the end of the Term, or during the course of any applicable Severance Period, your spouse, if any, shall receive the full (or, if your death occurs during any applicable Severance Period, the remainder of the) period of continued base salary and medical and dental coverage set forth in paragraph 6 or 7 above. Further, your spouse, if any, shall receive the Guaranteed Minimum Bonus due with respect to the year of your death under paragraph 4 above. Page 74 of 88 9. Affirmation. As further consideration for the payments and other security set forth above, by signing this Agreement you agree to abide by the covenants and agreements set forth in Exhibit A attached hereto. 10. Assignment. You may not assign your rights or obligations hereunder. The rights and obligations of NSC hereunder shall inure to the benefit of and shall be binding upon its respective successors and assigns. NSC shall use its reasonable efforts to ensure that any purchaser of the business of NSC offers the same or substantially equivalent plans as the medical, dental, and vehicle allowance plans currently offered by NSC. 11. General Provisions. (a) This Agreement shall be subject to and governed by the laws of the Commonwealth of Massachusetts without regard to its choice of law principles. (b) Failure to insist upon strict compliance with any provision(s) hereof shall not be deemed a waiver of such provision(s) or any other provision hereof. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or a part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. (c) This Agreement shall not be altered, amended, or modified except by written instrument executed by NSC and you. A waiver of any term, covenant, agreement, or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement, or condition, and any waiver of any default in any such term, covenant, agreement, or condition shall not be deemed a waiver of any later default thereof or of any other term, covenant, agreement, or condition. (d) For purposes of this Agreement and each of the Exhibits attached hereto, the term "NSC" shall mean and include NSC Corporation and each of its subsidiaries, including, but not limited to, National Surface Cleaning, Inc., National Service Cleaning Corp., Olshan Demolishing Management, Inc., NSC Energy Services, Inc. and NSC Specialty Coatings, Inc. (e) NSC's obligation to pay amounts hereunder are subject to its withholding obligations under applicable federal, state, and local laws. Page 75 of 88 NSC CORPORATION By: /s/ VICTOR J. BARNHART Victor J. Barnhart, Acting President and Chief Executive Officer ACCEPTANCE Agreed to and accepted this ____ day of ____________, 1996. By: /s/ THOMAS W. BARTLETT Thomas W. Bartlett Page 76 of 88 EXHIBIT A (A) I agree that while I am employed by NSC, I will not, directly or indirectly, compete with the business conducted by NSC. (B) I agree that for a period of twelve (12) months after the termination of employment, whether voluntary or involuntary, and regardless of the reason for or manner of termination, I will not, alone or with others, directly or indirectly (as owner, stockholder, partner, lender, other investor director, officer, employee, consultant or otherwise): (1) Solicit, perform or engage in any business of the same or similar nature to the business of NSC, or which is competitive with the business of NSC, anywhere within the Restricted Area as hereinafter defined; and (2) Sell, attempt to sell, provide or attempt to provide any products or services (in competition with those products or services which I sold or provided on behalf of NSC) to, or solicit, perform, engage in, divert or accept any business of the same or similar nature to the business of NSC from, any person, firm or entity: (a) residing, maintaining a principal place of business or located within the Restricted Area; (b) who was a customer of NSC within the Restricted Area during the last twenty-four (24) months of my employment; or (c) to whom I sold, attempted to sell, provided or attempted to provide such products or services during the last twenty-four (24) months of my employment with NSC. (3) Induce or attempt to induce any customer of NSC to reduce such customer's business with NSC or divert such customer's business from NSC, by direct advertising, solicitation or otherwise. (4) Disclose the names of any customers or potential customers of NSC to any other person, firm, corporation or other entity. I agree that I will comply with the most restrictive of the provisions specified in subsections (1), (2)(a) through (c), (3) and (4) above which is allowed by applicable state law. The parties agree that if enforcement of this Agreement is sought, the enforcing court should select the most restrictive provisions appropriate under applicable state law. (C) I agree that while I am employed by NSC and for a period of twelve (12) months after termination of my employment for any reason, voluntary or involuntary, with or without Cause, I will not directly or indirectly hire, or attempt to hire any employee of NSC nor will I encourage or induce any employee of NSC to terminate employment with NSC. (D) "Restricted Area" shall mean and include each and every state or territory in which NSC has conducted or solicited any business within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Customer" shall mean any person, firm or other entity, or any parent, subsidiary or Page 77 of 88 affiliate thereof, with which NSC has had a contract, engaged in any business with or for which NSC has performed any services within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Potential Customer" shall mean any person, firm or other entity, or any parent, subsidiary or affiliate thereof, from which NSC has solicited or attempted to solicit any business, or to which NSC has submitted any bid or written or oral proposal, within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. (E) I acknowledge that during the term of my employment, I will be making use of, acquiring, or adding to NSC's Classified Information. In order to protect the Classified Information, I will not, during the term of my employment with NSC or thereafter, in any way utilize any of the Classified Information except in connection with my employment by NSC. I will not copy, reproduce, or remove from NSC's premises the original or any copies of the Classified Information and I will not disclose any of the Classified Information to anyone. Page 78 of 88 EX-10 7 EMPLOYMENT SECURITY AGREEMENT- THOMAS W. GILMORE PERSONAL AND CONFIDENTIAL November 5, 1996 Mr. Thomas W. Gilmore c/o NSC Energy Services, Inc. 650 Grove Street Thorofare, NJ 08086 Re: Employment Security Agreement Dear Tom: In light of the recent developments at NSC Corporation ("NSC"), NSC wishes to offer you this Employment Security Agreement in appreciation of your past dedicated service and to provide you with peace of mind. In consideration of the payments and other security listed below, you agree to continue your employment with NSC and provide your full cooperation and assistance to NSC. 1. Term. The Term of the Agreement shall be for a period commencing on the date hereof and ending on October 8, 1997. 2. Base Salary. Your current base salary will not be reduced during the Term and will be subject to normal increases which are in the discretion of management. 3. Execution Bonus. Upon execution of and delivery of this Agreement, you will receive, in a single lump sum, a one-time bonus in the amount of Ten Thousand ($10,000.00) Dollars. 4. Stock Options. Any otherwise exercisable stock options will remain in effect, in accordance with the terms of the stock option plan under which they were issued, during any period of employment with NSC and any subsequent period during which you may be receiving severance pay. However, in the event of a transaction involving NSC which under the terms of the stock option plan would cause the options to terminate, NSC will use its reasonable efforts to cause the exercisability of the options to be accelerated. 5. (a) Termination Without Cause. If you are terminated by NSC without Cause prior to the end of the Term, NSC will pay you an amount equal to (i) one year of continued base salary (payable in the same manner as regular salary), measured by your base salary in effect on the date of your termination and (ii) the Completion Bonus payment (as provided for in paragraph 3). NSC will also provide you with one year's continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (The period of continued salary and benefits is hereinafter referred to as the "Severance Period.") Page 79 of 88 Notwithstanding the foregoing, your payments under this paragraph 5(a) can, at your election, be paid in a single lump sum. (b) Severance. If you are terminated by NSC without Cause after the expiration of the Term of this Agreement, you shall be entitled to receive severance pay for a period of six (6) months at the rate of your annual base salary then in effect, payable in the same manner as your regular salary, together with six (6) months continued coverage under NSC's medical and dental plans at the rate applicable to active employees. (c) Cause. For purposes of this Agreement, Cause shall mean any act of dishonesty or theft, willful misconduct, acts of gross negligence, or the willful and continued failure or your refusal to perform assigned duties (other than caused by a disability, which for purposes of this Agreement shall mean your total and permanent incapacity to perform the duties you were performing immediately prior to the onset of such disability). 6. Survivor's Benefit. In the event of your death before the end of the Term, or during the course of any applicable Severance Period, your spouse, if any, shall receive the full (or, if your death occurs during any applicable Severance Period, the remainder of the) period of continued base salary and medical and dental coverage set forth in paragraph 5 above. 7. Affirmation. As further consideration for the payments and other security set forth above, by signing this Agreement you agree to abide by the covenants and agreements set forth in Exhibit A attached hereto. 8. Assignment. You may not assign your rights or obligations hereunder. The rights and obligations of NSC hereunder shall inure to the benefit of and shall be binding upon its respective successors and assigns. NSC shall use its reasonable efforts to ensure that any purchaser of the business of NSC offers the same or substantially equivalent plans as the medical, dental, and vehicle allowance plans currently offered by NSC. 9. General Provisions. (a) This Agreement shall be subject to and governed by the laws of the Commonwealth of Massachusetts without regard to its choice of law principles. (b) Failure to insist upon strict compliance with any provision(s) hereof shall not be deemed a waiver of such provision(s) or any other provision hereof. If all or any part of this Agreement is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not serve to invalidate any portion of this Agreement not declared to be unlawful or invalid. Any paragraph or a part of a paragraph so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such paragraph or part of a paragraph to the fullest extent possible while remaining lawful and valid. (c) This Agreement shall not be altered, amended, or modified except by written instrument executed by NSC and you. A waiver of any term, covenant, agreement, or condition contained in this Agreement shall not be deemed a waiver of any other term, covenant, agreement, or condition any waiver of any default in any such term, covenant, agreement, or condition shall not be deemed a waiver Page 80 of 88 of any later default thereof or of any other term, covenant, agreement, or condition. (d) For purposes of this Agreement and each of the Exhibits attached hereto, The term "NSC" shall mean and include NSC Corporation and each of its subsidiaries, including, but not limited to, National Surface Cleaning, Inc., National Service Cleaning Corp., Olshan Demolishing Management, Inc., NSC Energy Services, Inc. and NSC Specialty Coatings, Inc. (e) NSC's obligation to pay amounts hereunder are subject to its withholding obligations under applicable federal, state, and local laws. NSC CORPORATION BY: /s/ VICTOR J. BARNHART Victor J. Barnhart, Acting President and Chief Executive Officer ACCEPTANCE Agreed to and accepted this ____ day of ____________, 1996. By: /s/ THOMAS W. GILMORE Thomas W. Gilmore Page 81 of 88 EXHIBIT A (A) I agree that while I am employed by NSC, I will not, directly or indirectly, compete with the business conducted by NSC. (B) I agree that for a period of six (6) months after the termination of employment, whether voluntary or involuntary, and regardless of the reason for or manner of termination, I will not, alone or with others, directly or indirectly (as owner, stockholder, partner, lender, other investor director, officer, employee, consultant or otherwise): (1) Solicit, perform or engage in any business of the same or similar nature to the business of NSC, or which is competitive with the business of NSC, anywhere within the Restricted Area as hereinafter defined; and (2) Sell, attempt to sell, provide or attempt to provide any products or services (in competition with those products or services which I sold or provided on behalf of NSC) to, or solicit, perform, engage in, divert or accept any business of the same or similar nature to the business of NSC from, any person, firm or entity: (a) residing, maintaining a principal place of business or located within the Restricted Area; (b) who was a customer of NSC within the Restricted Area during the last twenty-four (24) months of my employment; or (c) to whom I sold, attempted to sell, provided or attempted to provide such products or services during the last twenty-four (24) months of my employment with NSC. (3) Induce or attempt to induce any customer of NSC to reduce such customer's business with NSC or divert such customer's business from NSC, by direct advertising, solicitation or otherwise. (4) Disclose the names of any customers or potential customers of NSC to any other person, firm, corporation or other entity. I agree that I will comply with the most restrictive of the provisions specified in subsections (1), (2)(a) through (c), (3) and (4) above which is allowed by applicable state law. The parties agree that if enforcement of this Agreement is sought, the enforcing court should select the most restrictive provisions appropriate under applicable state law. (C) I agree that while I am employed by NSC and for a period of six (6) months after termination of my employment for any reason, voluntary or involuntary, with or without Cause, I will not directly or indirectly hire, or attempt to hire any employee of NSC nor will I encourage or induce any employee of NSC to terminate employment with NSC. (D) "Restricted Area" shall mean and include each and every state or territory in which NSC has conducted or solicited any business within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Customer" shall mean any person, firm or other entity, or any parent, subsidiary or Page 82 of 88 affiliate thereof, with which NSC has had a contract, engaged in any business with or for which NSC has performed any services within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. "Potential Customer" shall mean any person firm or other entity, or any parent, subsidiary or affiliate thereof, from which NSC has solicited or attempted to solicit any business, or to which NSC has submitted any bid or written or oral proposal, within the twenty-four (24) months immediately preceding the termination of my employment and up to and including the date of the termination of my employment. I acknowledge that during the term of my employment, I will be making use of, acquiring, or adding to NSC's Classified Information. In order to protect the Classified Information, I will not, during the term of my employment with NSC or thereafter, in any way utilize any of the Classified Information except in connection with my employment by NSC. I will not copy, reproduce, or remove from NSC's premises the original or any copies of the Classified Information and I will not disclose any of the Classified Information to anyone. Page 83 of 88 EX-12 8 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 Statement Re Computation of Per Share Earnings NSC CORPORATION COMPUTATION OF PER SHARE EARNINGS (In Thousands, Except Per-Share Data) Years Ended December 31, ------------------------------- 1996 1995 1994 ------- ------- ------- Primary : Average shares outstanding.............. 9,971 9,971 9,971 Net effect of dilutive equity securities outstanding based on the treasury stock method............. - - - ------- ------- ------- Total................................ 9,971 9,971 9,971 ======= ======= ======= Net income ............................. 1,861 715 2,566 Per share amounts: Net income........................... 0.19 0.07 0.26 Years Ended December 31, ------------------------------- 1996 1995 1994 ------- ------- ------- Fully Diluted : Average shares outstanding.............. 9,971 9,971 9,971 Net effect of dilutive equity securities outstanding based on the treasury stock method............. 87 - - ------- ------- ------- Total................................ 10,058 9,971 9,971 ======= ======= ======= Net income........................... 1,861 715 2,566 Per share amounts: Net income........................... 0.19 0.07 0.26 Page 84 of 88 EX-21 9 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT State of Other Name of Subsidiary Jurisdiction of Incorporation - ---------------------------------- ----------------------------- National Surface Cleaning, Inc. New Hampshire National Service Cleaning Corp. Connecticut Olshan Demolishing Management, Inc. Delaware NSC Energy Services, Inc. Delaware NSC Specialty Coatings, Inc. Delaware Page 85 of 88 EX-23 10 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-35986) pertaining to the 1990 Stock Option Plan of NSC Corporation and in the related Prospectus of our report dated January 31, 1997, with respect to the consolidated financial statements and schedule of NSC Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1996. /s/ ERNST & YOUNG LLP Boston, Massachusetts March 28, 1997 Page 86 of 88 EX-24 11 POWER OF ATTORNEY EXHIBIT 24 DIRECTORS AND OFFICERS OF NSC CORPORATION ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY The undersigned directors and officers of NSC Corporation, a Delaware corporation (the "Company"), do hereby make, constitute and appoint Victor J. Barnhart, J. Drennan Lowell, Efstathios A. Kouninis, and Paul C. Remus, and each of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, to execute and file, under the Securities Exchange Act of 1934, as amended, the Company's Annual Report on Form 10-K, for the year ended December 31, 1996 and all amendments or exhibits thereto, and any or all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report, with full power and authority to do and perform any and all acts and things whatsoever necessary, appropriate or desirable to be done in the premises, or in the name, place and stead of the said directors and officers, hereby ratifying and approving the acts of said attorneys and any of them and any substitute. This action may be executed in counterpart. IN WITNESS WHEREOF, the undersigned have subscribed these presents as of the 28th day of March 1997. /s/ VICTOR J. BARNHART /s/ EUGENE L. BARNETT Victor J. Barnhart, Chairman of the Board Eugene L. Barnett, Director and Chief Executive Officer (Principal Executive Officer) /s/ PAMELA K. M. BEALL Pamela K. M. Beall, Director /s/ DARRYL G. SCHIMECK Darryl G. Schimeck, President and Chief /s/ ROBERT J. BLACKWELL Operating Officer Robert J. Blackwell, Director /s/ J. DRENNAN LOWELL /s/ HERBERT A. GETZ J. Drennan Lowell, Vice President, Chief Herbert A. Getz, Director Financial Officer, Treasurer and Secretary (Principal Financial Officer) /s/ WILLIAM P. HULLIGAN William P. Hulligan, Director /s/ EFSTATHIOS A. KOUNINIS Efstathios A. Kouninis, Corporate /s/ WILLIAM M. R. MAPEL Controller (Principal Accounting Officer) William M. R. Mapel, Director Page 87 of 88 EX-27 12 ARTICLE 5 FDS FOR DECEMBER 31, 1996
5 1,000 12-MOS Dec-31-1996 Dec-31-1996 3,975 0 27,416 557 878 41,123 15,504 8,152 85,225 19,969 0 0 0 100 57,546 85,225 130,663 129,043 106,454 124,682 523 0 112 3,726 1,865 1,861 0 0 0 1,861 0.19 0.19
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