Page 1 of 42
Exhibit Index on Page 11
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For quarter ended February 29, 1996 Commission file number 1-3208
NATIONAL SERVICE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-0364900
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1420 Peachtree Street, N. E., Atlanta, Georgia 30309-3002
(Address of Principal Executive Offices) (Zip Code)
(404) 853-1000
(Registrant's Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (applicable only to corporate
issuers).
Common Stock - $1.00 Par Value - 48,111,450 shares as of April 5, 1996.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS -
FEBRUARY 29, 1996 AND AUGUST 31, 1995 ........................ 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS AND SIX MONTHS ENDED FEBRUARY 29, ............... 4
1996 AND FEBRUARY 28, 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS - ............................ 5
SIX MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ......................... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION ................ 7-8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .......................... 9
SIGNATURES ............................................................... 10
EXHIBIT INDEX ............................................................ 11
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
February 29 August 31,
1996 1995
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents .......................... $ 73,431 $ 79,402
Short-term investments ............................. 2,550 3,598
Receivables, less reserves for doubtful
accounts of $8,256 at February 29, 1996
and $6,467 at August 31, 1995 .................... 252,097 266,056
Inventories, at the lower of cost (on a
first-in, first-out basis) or market ............. 182,428 185,789
Linens in service, net of amortization ............. 91,620 88,605
Deferred income taxes .............................. 15,507 10,221
Prepayments ........................................ 10,325 6,739
Total Current Assets ............................. 627,958 640,410
Property, Plant, and Equipment, at cost:
Land ............................................... 29,608 31,016
Buildings and leasehold improvements ............... 192,860 192,023
Machinery and equipment ............................ 524,436 503,868
Total Property, Plant, and Equipment ............. 746,904 726,907
Less - Accumulated depreciation and
amortization ..................................... 394,620 377,003
Property, Plant, and Equipment - net ........... 352,284 349,904
Other Assets:
Goodwill and other intangibles ..................... 92,656 101,410
Other .............................................. 38,449 39,622
Total Other Assets ............................... 131,105 141,032
Total Assets ................................... $1,111,347 $1,131,346
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ............... $ 72 $ 87
Notes payable ...................................... 6,630 6,399
Accounts payable ................................... 74,982 81,524
Accrued salaries, commissions, and bonuses ......... 32,509 43,944
Current portion of self insurance reserves ......... 16,825 16,276
Other accrued liabilities .......................... 45,777 54,340
Total Current Liabilities ........................ 176,795 202,570
Long-Term Debt, less current maturities .............. 26,741 26,776
Deferred Income Taxes ................................ 61,699 65,756
Self Insurance Reserves, less current portion ........ 62,986 67,830
Other Long-Term Liabilities .......................... 25,656 24,010
Stockholders' Equity:
Series A participating preferred stock, $.05 stated
value, 500,000 shares authorized, none issued
Preferred stock, no par value, 500,000 shares
authorized, none issued
Common stock, $1 par value, 80,000,000 shares
authorized, 57,918,978 shares issued at February
29, 1996 and August 31, 1995 ..................... 57,919 57,919
Paid-in capital .................................... 10,054 8,065
Retained earnings .................................. 761,241 746,256
829,214 812,240
Less - Treasury stock, at cost (9,631,592 shares at
February 29, 1996 and 9,609,261 shares at August
31, 1995) ........................................ 71,744 67,836
Total Stockholders' Equity ................... 757,470 744,404
Total Liabilities and Stockholders' Equity $ 1,111,347 $1,131,346
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
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<TABLE>
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per-share data)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEB. 29, FEB. 28, FEB. 29, FEB. 28,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales and Service Revenues:
Net sales of products .......................... $ 352,403 $ 334,059 $ 712,245 $ 678,941
Service revenues ............................... 129,803 131,751 262,511 267,853
Total Revenues ............................... 482,206 465,810 974,756 946,794
Costs and Expenses:
Cost of products sold .......................... 227,098 217,036 454,537 436,223
Cost of services ............................... 74,850 73,981 149,214 149,827
Selling and administrative expenses ............ 150,660 144,221 303,043 293,916
Interest expense ............................... 1,019 960 2,098 1,790
Other expense (income), net .................... (2,141) 1,581 (1,951) 3,272
Total Costs and Expenses ..................... 451,486 437,779 906,941 885,028
Income before Provision for Income Taxes ......... 30,720 28,031 67,815 61,766
Provision for (Benefit from) Income Taxes:
Current ........................................ 12,991 10,482 27,218 23,131
Deferred ....................................... (1,521) (29) (1,922) (57)
11,470 10,453 25,296 23,074
Net Income ....................................... $ 19,250 $ 17,578 $ 42,519 $ 38,692
Per Share:
Net income ..................................... $ .40 $ .36 $ .88 $ .79
Cash dividends ................................. $ .29 $ .28 $ .57 $ .55
Weighted Average Number of Shares
Outstanding (thousands) ........................ 48,364 48,859 48,350 49,025
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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<TABLE>
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
<CAPTION>
SIX MONTHS ENDED
FEB. 29, FEB. 28,
1996 1995
<S> <C> <C>
Cash Provided by (Used for) Operating Activities:
Net income .......................................................... $ 42,519 $ 38,692
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................... 29,336 29,046
Provision for losses on accounts receivable ..................... 2,256 2,631
Loss (gain) on the sale of property, plant, and equipment........ (1,459) 12
Loss (gain) on the sale of business ............................. (2,946) (1,162)
Change in noncurrent deferred income taxes ...................... (1,922) (57)
Change in assets and liabilities net of effect
of acquisitions-
Receivables ................................................. 11,030 11,686
Inventories and linens in service, net ...................... (913) (11,508)
Current deferred income taxes ............................... (5,286) (1,196)
Prepayments and other ....................................... (3,669) (3,410)
Accounts payable and accrued liabilities .................... (26,686) (17,605)
Net Cash Provided by Operating Activities ................. 42,260 47,129
Cash Provided by (Used for) Investing Activities:
Change in short-term investments .................................... 1,048 (2,600)
Purchase of property, plant, and equipment .......................... (31,100) (22,471)
Sale of property, plant, and equipment .............................. 3,695 5,634
Sale of business .................................................... 11,517 4,626
Acquisitions, net of cash acquired .................................. (600) (304)
Change in other assets .............................................. 957 (409)
Net Cash Used for Investing Activities ............................ (14,483) (15,524)
Cash Provided by (Used for) Financing Activities:
Change in notes payable ............................................. 231 1,262
Repayment of long-term debt ......................................... (50) (430)
Recovery of investment in tax benefits .............................. 860 414
Deferred income taxes from investment in tax benefits ............... (2,136) (1,950)
Issuance (purchase) of treasury stock ............................... (1,919) (16,694)
Change in other long-term liabilities ............................... (3,198) 5,949
Cash dividends paid ................................................. (27,570) (27,030)
Net Cash Used for Financing Activities ............................ (33,782) (38,479)
Effect of Exchange Rate Changes on Cash ............................... 34 347
Net Change in Cash and Cash Equivalents ............................... (5,971) (6,527)
Cash and Cash Equivalents at Beginning of Year ........................ 79,402 58,619
Cash and Cash Equivalents at End of Period ............................ $ 73,431 $ 52,092
Supplemental Cash Flow Information:
Income taxes paid during the period ................................. $ 41,850 $ 25,369
Interest paid during the period ..................................... 2,096 1,712
Noncash Investing and Financing Activities:
Noncash aspects of sale of business -
Receivables incurred ............................................. $ -- $ (893)
Noncash Aspects of Acquisitions:
Liabilities assumed or incurred ..................................... $ 6 $ --
Treasury stock issued (returned)
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION:
The interim consolidated financial statements included herein have been prepared
by the company without audit and the condensed consolidated balance sheet as of
August 31, 1995 has been derived from audited statements. These statements
reflect all adjustments, all of which are of a normal, recurring nature, which
are, in the opinion of management, necessary to present fairly the consolidated
financial position as of February 29, 1996, the consolidated results of
operations for the three months and six months ended February 29, 1996 and
February 28, 1995, and the consolidated cash flows for the six months ended
February 29, 1996 and February 28, 1995. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the company's Annual Report on Form 10-K for the fiscal year ended August 31,
1995.
The results of operations for the three and six months ended February 29, 1996
are not necessarily indicative of the results to be expected for the full fiscal
year because the company's revenues and income are generally higher in the
second half of its fiscal year and because of the uncertainty of general
business conditions.
2. BUSINESS SEGMENT INFORMATION:
<TABLE>
<CAPTION>
Three Months Ended Feb. 29, 1996 and Feb. 28, 1995
Sales and Service
Revenues Operating Profit
1996 1995 1996 1995
(In thousands)
<S> <C> <C> <C> <C>
Lighting Equipment ................................................................ $ 206,454 $ 200,753 $ 13,776 $ 12,580
Textile Rental .................................................................... 129,803 131,751 9,247 7,485
Chemical .......................................................................... 84,355 80,192 6,222 6,311
Other ............................................................................. 61,594 53,114 3,052 3,691
$ 482,206 $ 465,810 32,297 30,067
Corporate and other ............................................................... (558) (1,076)
Interest Expense .................................................................. (1,019) (960)
Total ............................................................................. $ 30,720 $ 28,031
Six Months Ended Feb. 29, 1996 and Feb. 28, 1995
Sales and Service
Revenues Operating Profit
1996 1995 1996 1995
(In thousands)
Lighting Equipment ................................................................ $ 414,732 $ 404,559 $ 30,154 $ 26,270
Textile Rental .................................................................... 262,511 267,853 19,000 18,801
Chemical .......................................................................... 176,462 168,144 15,927 15,612
Other ............................................................................. 121,051 106,238 6,142 6,760
$ 974,756 $ 946,794 71,223 67,443
Corporate and other ............................................................... (1,310) (3,887)
Interest Expense .................................................................. (2,098) (1,790)
Total ............................................................................. $ 67,815 $ 61,766
</TABLE>
3. INVENTORIES:
Major classes of inventory as of February 29, 1996 and August 31, 1995 were as
follows:
February 29, August 31,
1996 1995
(In thousands)
Raw Materials and Supplies ................... $ 80,493 $ 87,470
Work-in-Process .............................. 9,501 9,879
Finished Goods ............................... 92,434 88,440
Total ................................... $182,428 $185,789
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes.
Financial Condition
National Service Industries maintained a strong financial position at February
29, 1996. Net working capital was $451.1 million, compared with $437.8 million
at August 31, 1995, and the current ratio was 3.6, up from 3.2 at year end. Cash
and short-term investments were $76.0 million compared with $83.0 million at
August 31. For the first half ended February 29, the company invested $31.7
million in capital expenditures and acquisitions. Long-term debt and other
long-term liabilities were 13.2 percent of total capitalization, down from 13.7
percent at August 31. Cash provided by operating activities was $42.3 million,
compared with $47.1 million for the first half last year.
Capital expenditures, exclusive of acquisition spending, were $31.1 million for
the first six months this year and $22.5 million for the prior-year period. The
lighting equipment division continued its investment in equipment replacement
and process improvements and tooling for new products. For the six months,
textile rental division spending consisted primarily of replacement and
improvement of facilities, equipment and vehicles. Prior-year spending included
the lighting equipment division's manufacturing equipment replacements and
improvements and construction of the Mexican production facility and the textile
rental division's fleet upgrades and facility improvements. Acquisition spending
was minimal in both periods.
Dividend payments for the first half totaled $27.6 million, or 57 cents per
share, compared with $27.0 million, or 55 cents per share, for the prior-year
period. Effective January, 1996, the regular quarterly dividend rate was
increased 3.6 percent to 29 cents per share, or an annual rate of $1.16 per
share. During the second quarter, the company repurchased 125,000 of its shares
under the board approved 2.0 million share standing authorization. The company
announced plans to accelerate this program.
For the periods presented, capital expenditures, working capital needs,
dividends, acquisitions, and share repurchases were financed primarily with
internally generated funds. European operations were supplemented by short-term
borrowings in the European market. Contractual commitments for capital and
acquisition spending during the coming twelve months total $16 million. For the
current fiscal year, the company expects actual capital expenditures to be
somewhat higher than levels of recent years, which, excluding acquisition
spending, were $59 million in 1995, $43 million in 1994, and $36 million in
1993. Current liquid assets and internally generated funds are expected to be
more than adequate to meet anticipated general operating cash requirements for
the next twelve months. Some interim borrowings might be incurred to meet
short-term needs. The company has complimentary lines of credit totaling $152
million, of which $110 million has been provided domestically and $42 million is
available on a multi-currency basis primarily from a European bank.
Results of Operations
National Service Industries' earnings per share for the second quarter ended
February 29, 1996 increased 10.6 percent to 40 cents. Sales for the quarter
increased 3.5 percent to $482 million. Net income of $19.3 million was 9.5
percent higher than the $17.6 million reported in last year's second quarter.
Since there were, on average, 495,000 fewer shares outstanding during this
year's quarter, earnings per share increased at the greater rate of 10.6
percent.
For the fiscal first half, sales increased $28.0 million, or 3.0 percent, to
$975 million. Net income increased $3.8 million, or 9.9 percent, to $42.5
million. Earnings per share increased 11.4 percent to 88 cents.
The lighting equipment division led second quarter performance and continued its
growth with sales advancing 2.8 percent to $206 million from $201 million last
year. For the six months, sales increased 2.5 percent to $415 million. Increases
in both periods were reflective of pricing gains offset somewhat by lower unit
volumes. For the quarter, operating income advanced 9.5 percent to 6.7 percent
of revenues, compared with 6.3 percent the year earlier. For the first half,
operating income grew 14.8 percent to 7.3 percent of revenues, compared with 6.5
percent the prior year. Better pricing, a more favorable product mix and cost
reduction efforts increased profit margins in both periods.
The textile rental sector experienced a 1.5 percent decrease in sales for the
second quarter, from $132 million to $130 million, and a 2.0 percent decrease
for the half, from $268 million to $263 million. The declines in both periods
were due
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Page 8
to a combination of inclement weather and branches divested late last year.
Income improved 23.5 percent to $9.2 million for the quarter as two
non-strategic branches were sold. Operating income increased only slightly from
the prior-year first half as the healthcare market remained under pressure, but
the company continued to build its hospitality and uniform businesses.
Chemical segment sales, benefiting from both improved pricing and unit volume
gains, advanced 5.2 percent to $84 million for the quarter and 4.9 percent to
$176 million for the first half. Operating income declined to 7.4 percent of
revenues for the quarter and 9.0 percent for the half, from 7.9 percent and 9.3
percent the respective prior-year periods, almost entirely as a result of raw
material prices.
The insulation and envelope divisions combined for a sales increase of 16.0
percent for the quarter and 13.9 percent for the six months. Operating profits
decreased by 17.3 percent for the quarter and 9.1 percent year-to-date largely
from an unfavorable product mix in the insulation business.
Corporate expense was lower in both current-year periods due to interest earned
on higher average investment levels. Last year's first half was also higher due
to the company's first quarter adoption of Statement of Financial Accounting
Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits."
The resulting accrual related primarily to severance agreements and the
liability for life insurance coverage for certain eligible disabled employees.
Interest expense on European loans was higher than in the prior-year period due
to increased borrowings at somewhat higher average interest rates.
The provision for income taxes was 37.3 percent of pretax income for both the
quarter and first half, compared with 37.3 percent and 37.4 percent for the
respective periods the prior year. Changes in the comparative year-to-date
effective rates resulted from variations in the relative amounts of tax exempt
income.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits are listed on the Index to Exhibits (page 11).
(b) There were no reports on Form 8-K for the three months ended February 29,
1996.
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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.
NATIONAL SERVICE INDUSTRIES, INC.
REGISTRANT
DATE April 12, 1996 /s/ DAVID LEVY
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE April 12, 1996 /S/ J. ROBERT HIPPS
J. ROBERT HIPPS
SENIOR VICE PRESIDENT, FINANCE
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Page 11
INDEX TO EXHIBITS
Page No.
EXHIBIT 10(iii)A Management Contracts and Compensatory Arrangements:
(a)-Employment Letter Agreement between National
Service Industries, Inc. and James S. Balloun dated
February 1, 1996 .................................... 12
(b)-Nonqualified Stock Option Agreement Effective
January 3, 1996 between National Service Industries,
Inc. and James S. Balloun ........................... 17
(c)-Severance Protection Agreement between National
Service Industries, Inc. and James S. Balloun dated
February 1, 1996 .................................... 23
(d)-Bonus Letter Agreement between National Service
Industries, Inc. and James S. Balloun dated February 1,
1996 ................................................ 38
(e)-Appendix B to Restated and Amended Supplemental
Retirement Plan for Executives of National Service
Industries, Inc. (Supplemental Pension Plan) Effective
February 1, 1996 .................................... 40
EXHIBIT 11 - Computation of Net Income per Share of Common Stock.. 41
EXHIBIT 27 - Financial Data Schedules ............................ 42
Page 12
Exhibit 10(III)A(a)
February 1, 1996
Mr. James S. Balloun
National Service Industries, Inc.
NSI Center
1420 Peachtree Street, N.E.
Atlanta, Georgia 30309-3002
Dear Jim:
This letter will confirm the terms of your employment as Chief Executive Officer
of National Service Industries, Inc. ("NSI"), effective February 1, 1996 (the
"Effective Date"). We are enthusiastic about your decision to join NSI and look
forward to working with you to enhance the future growth of the company.
The terms of your employment will be as follows:
1. Duties - You will be the Chief Executive Officer and Chairman of the
Board of NSI, and will assume the duties and responsibilities commensurate with
those positions. You will devote substantially all of your working time and
attention to the business and affairs of NSI.
2. Base Salary - Your base salary for each of the three (3) fiscal years of
NSI ending August 31, 1996, 1997, and 1998 will be at least Seven Hundred Fifty
Thousand Dollars ($750,000). Thereafter, your base salary will be subject to
annual review for increases at such time as NSI conducts salary reviews for
executive officers generally.
3. Annual Incentive Compensation - For the three (3) fiscal years of NSI
ending August 31, 1996, 1997, and 1998, you will participate in the NSI
Management Compensation and Incentive Plan (the "Annual Incentive Plan") and
will be eligible for the following incentive bonuses:
For fiscal year 1996, an incentive bonus of Seven Hundred Fifty Thousand
Dollars ($750,000) if NSI's Earnings Per Share equal or exceed $ .* for the
fiscal year. NSI's Earnings Per Share will be determined in the customary
manner under the Annual Incentive Plan and will be subject to adjustment
for changes in capitalization and for unusual charges or income items as
provided in the plan.
* Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
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Page 13
Exhibit 10(III)A(a)
For fiscal years 1997 and 1998, an incentive bonus of Seven Hundred Fifty
Thousand Dollars ($750,000) per year if the performance target(s)
established for the Chief Executive Officer pursuant to the Annual
Incentive Plan (or a similar plan) is achieved.
For fiscal year 1999 and later years, you will participate in the Annual
Incentive Plan (or a similar plan) and be eligible for an incentive award at a
level consistent with your position as Chief Executive Officer of NSI, with
performance targets consistent with those for other executive officers.
4. Stock Options - You have received, or you will be eligible for, the
following stock option grants pursuant to the NSI Long-Term Incentive Program:
On January 3, 1996, you received a grant of an option (the "Option") to
purchase two hundred fifty thousand (250,000) shares of NSI Common Stock at
a share price equal to the Common Stock's Fair Market Value on that date.
The Option was granted pursuant to the Long-Term Incentive Plan and has the
following specific provisions:
* A ten (10) year term to exercise from date of grant.
* Vesting as follows, eighty-five thousand (85,000) shares will vest
on the last day of NSI's fiscal year 1996; eighty-five thousand
(85,000) shares will vest on the last day of fiscal year 1997; and the
remaining eighty thousand (80,000) shares will vest on the last day of
fiscal year 1998.
* Unvested shares will be forfeited upon your voluntary termination,
termination upon death or Disability, or if you are terminated by NSI
for Cause (Disability and Cause are defined in Item 7 below).
* In the event of death, options for vested shares may be exercised by
your personal representative or estate.
* If you retire from NSI at age sixty-five (65) or later, the Option
<PAGE>
Page 14
Exhibit 10(III)A(a)
will be exercisable for five (5) years or until the end of the term of
the Option, whichever first occurs.
You will be eligible for annual stock option grants under the Long-Term
Incentive Plan in amounts at the competitive median or higher for a Chief
Executive Officer of a company of NSI's revenue size and characteristics,
or at such other competitive level as may be established by NSI's Board.
The option terms will generally be as provided under the plan for other
executive officers of NSI.
5. Retirement Plans - Upon satisfying the eligibility requirements, you
will be eligible to participate in the Company's tax-qualified retirement plans,
NSI Pension Plan C, and the NSI 401(k) Plan for Corporate Office Employees. In
addition, on the Effective Date, you will become a participant in the
Supplemental Retirement Plan for Executives of NSI (the "SERP"). Your benefits
under the SERP will be determined in the same manner as for other executive
officers of NSI participating in the plan, except that you will be credited with
two (2) years of credited service under the SERP for each year of actual
credited service. You will become vested in your SERP benefit after completing
five (5) years of employment with NSI.
S. Medical, Life Insurance, and Other Employee Benefits - You will be
covered by, or eligible to participate in, the medical, dental, life insurance,
disability, deferred compensation, and other benefit programs generally made
available by NSI to its executive officers and their families. With respect to
life insurance coverage, you will be provided no less than $1 million coverage
(subject to coordination with the qualified retirement plans' death benefits in
the same manner as for other executives).
7. Severance Payment/Change in Control - Except in the event of termination
in connection with a Change in Control of NSI (as defined in the Severance
Protection Agreement that will cover you), you will be entitled to the following
severance payment:
If your employment is terminated on or before August 31, 1998, except for
voluntary termination, termination upon death or Disability (as defined
below), or termination by NSI for Cause (as defined below), you will
receive a lump sum severance payment, immediately following your
termination, of $4.5 million reduced by the total amount of any base salary
and annual incentive bonus(es) paid to you by NSI for the period from the
Effective Date to the date of your termination.
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Page 15
Exhibit 10(III)A(a)
If your employment is terminated after August 31, 1998, except for the
reasons stated in the preceding paragraph, you will receive a $1.5 million
lump sum severance payment immediately following your termination.
For purposes of entitlement to a severance payment, "Cause" shall mean any
act(s) on your part that constitutes fraud, a felony involving dishonesty,
a breach of fiduciary duty, or gross malfeasance or habitual neglect of
your duties for NSI, and "Disability" shall mean a physical or mental
infirmity which impairs your ability to substantially perform your duties
as Chief Executive Officer of NSI for a period of one hundred eighty (180)
consecutive days. The NSI Board, based upon the information provided to it,
shall determine whether an act constituting Cause has occurred and whether
you have suffered a Disability. In the case of termination for Cause, (i)
you will be given written notice of the actions constituting Cause at least
fifteen (15) days prior to any meeting of the Board of Directors of NSI at
which your termination is to be considered; (ii) you will be given the
opportunity to be heard by the Board; and (iii) your termination for Cause
must be evidenced by a resolution adopted by two-thirds of the Board.
With respect to Change in Control situations, you will be covered by a
Severance Protection Agreement with the same provisions as are applicable to
NSI's other executive officers. In the event of your termination in connection
with a Change in Control that entitles you to benefits under the Severance
Protection Agreement, you will receive the greater of the payments and benefits
provided under the Severance Protection Agreement (after consideration of any
tax penalties) or the severance payments described above.
The base salary, annual incentive, option grants, nonqualified retirement
benefits, and any severance payments will be structured to ensure the tax
deductibility to NSI of the payments and benefits under the Internal Revenue
Code of 1986, including Code Section 162(m). We can provide additional
information on these issues if you so desire.
We are preparing a SERP provision and Severance Protection Agreement to
evidence the arrangements set forth in this letter. These agreements should be
completed shortly.
<PAGE>
Page 16
Exhibit 10(III)A(a)
Again, we are delighted you are joining NSI and we look forward to a long
and mutually satisfactory relationship. This letter outlines your employment
relationship with NSI; if you agree with the employment terms as outlined above,
please sign and date both copies of this letter agreement and return one copy to
me at your earliest convenience.
Very truly yours,
/s/ John G. Medlin, Jr.
John G. Medlin, Jr.
Chairman, Executive Resource,
Compensation and Nominating Committee
of the Board of Directors
ACCEPTED AND AGREED TO THIS
5 DAY OF FEBRUARY, 1996
/s/ James S. Balloun
James S. Balloun
Page 17
Exhibit 10(iii)A(b)
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of the 3rd day of January, 1996 (the "Grant Date"),
between National Service Industries, Inc., a Delaware corporation (the
"Company"), and James S. Balloun (the "Optionee").
WHEREAS, the Company has adopted the National Service Industries, Inc.
Long-Term Incentive Program (the "Program") in order to provide additional
incentive to certain officers and employees of the Company and its Subsidiaries;
and
WHEREAS, the Committee responsible for administration of the Program has
determined to grant an option to the Optionee as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
1.1 The Company hereby grants to the Optionee the right and option
(the "Option") to purchase all or any part of an aggregate of 250,000 whole
Shares subject to, and in accordance with, the terms and conditions set forth in
this Agreement.
1.2 The Option is not intended to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code.
1.3 This Agreement shall be construed in accordance and consistent
with, and subject to, the provisions of the Program (the provisions of which are
incorporated herein by reference) and, except as otherwise expressly set forth
herein, the capitalized terms used in this Agreement shall have the same
definitions as set forth in the Program.
2. Purchase Price.
The price at which the Optionee shall be entitled to purchase Shares
upon the exercise of the Option shall be $32.50 per Share.
3. Duration of Option.
The Option shall be exercisable to the extent and in the manner
provided herein for a period of ten (10) years from the Grant Date (the
"Exercise Term"); provided, however, that the Option may be earlier terminated
as provided in Section 6 hereof.
<PAGE>
Page 18
Exhibit 10(iii)A(b)
4. Exercisability of Option.
Unless otherwise provided in this Agreement or the Program, the Option
shall entitle the Optionee to purchase, in whole at any time or in part from
time to time, 85,000 Shares covered by the Option on or after August 31, 1996,
an additional 85,000 Shares covered by the Option on or after August 31, 1997,
and an additional 80,000 Shares covered by the Option on or after August 31,
1998, and each such right of purchase shall be cumulative and shall continue,
unless sooner exercised or terminated as herein provided during the remaining
period of the Exercise Term.
5. Manner of Exercise and Payment.
5.1 Subject to the terms and conditions of this Agreement and the
Program, the Option may be exercised by delivery of written notice to the
Company at its principal executive office. Such notice shall state that the
Optionee is electing to exercise the Option and the number of Shares in respect
of which the Option is being exercised and shall be signed by the person or
persons exercising the Option. If requested by the Committee, such person or
persons shall (i) deliver this Agreement to the Secretary of the Company who
shall endorse thereon a notation of such exercise and (ii) provide satisfactory
proof as to the right of such person or persons to exercise the Option.
5.2 The notice of exercise described in Section 5.1 shall be
accompanied by the full purchase price for the Shares in respect of which the
Option is being exercised, in cash, by check, or by transferring Shares to the
Company having a Fair Market Value on the day preceding the date of exercise
equal to the cash amount for which such Shares are substituted.
5.3 Upon receipt of notice of exercise and full payment for the Shares
in respect of which the Option is being exercised, the Company shall, subject to
Section 17 of the Program, take such action as may be necessary to effect the
transfer to the Optionee of the number of Shares as to which such exercise was
effective.
5.4 The Optionee shall not be deemed to be the holder of, or to have
any of the rights of a holder with respect to any Shares subject to the Option
until (i) the Option shall have been exercised pursuant to the terms of this
Agreement and the Optionee shall have paid the full purchase price for the
number of Shares in respect of which the Option was exercised, (ii) the Company
shall have issued and delivered the Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company, whereupon the Optionee shall have full voting and other
ownership rights with respect to such Shares.
<PAGE>
Page 19
Exhibit 10(iii)A(b)
6. Termination of Employment.
6.1 Death, Disability, or Change in Control. If the employment of the
Optionee is terminated as a result of his death, Disability, or within two (2)
years following a Change in Control, the Option shall continue to be exercisable
in whole or in part (to the extent exercisable on the date of the Optionee's
termination of employment) at any time within three (3) years after the date of
such termination of employment, but in no event after the expiration of the
Exercise Term. In the event of the Optionee's death, the Option shall be
exercisable, to the extent provided in the Program and this Agreement, by the
legatee or legatees under his will, or by his personal representatives or
distributees and such person or persons shall be substituted for the Optionee
each time the Optionee is referred to herein.
6.2 Retirement at Age Sixty-five (65). If the employment of the
Optionee is terminated as a result of Optionee's Retirement (on or after
Optionee's sixth-fifth (65th) birthday), the Option shall continue to be
exercisable in whole or in part (to the extent exercisable on the date of the
Optionee's termination of employment) at any time within five (5) years after
the date of such termination of employment, but in no event after the expiration
of the Exercise Term.
6.3 Termination Without Cause. In the event of the Company's
termination of Optionee's employment without Cause, and other than as provided
in Sections 6.1 and 6.2 above, the Option shall become immediately and fully
exercisable. "Cause" shall mean any act(s) on Optionee's part that constitutes
fraud, a felony involving dishonesty, a breach of fiduciary duty, or gross
malfeasance or habitual neglect of Optionee's duties for the Company; provided
that (i) Optionee has been given written notice of such actions constituting
Cause at least fifteen (15) days prior to any meeting of the Board of Directors
of the Company at which his termination is to be considered; (ii) Optionee has
been given the opportunity to be heard by the Board; and (iii) Optionee's
termination for Cause is evidenced by a resolution adopted by two-thirds of the
Board.
6.4 Termination of Option. If the employment of the Optionee is
terminated for any reason other than the reasons set forth in Sections 6.1 and
6.2 (including the Optionee's ceasing to be employed by a Subsidiary or Division
as a result of the sale of such Subsidiary or Division or an interest in such
Subsidiary or Division), the Option shall terminate on the date of the
Optionee's termination of employment, whether or not exercisable.
7. Effect of Change in Control and Termination of Employment Without Cause
Notwithstanding anything contained in this Agreement to the contrary,
in the event of a Change in Control, (i) the Option shall become immediately and
fully exercisable, and (ii) the Optionee will be permitted to surrender for
cancellation, within sixty (60) days after such Change in Control, the Option or
<PAGE>
Page 20
Exhibit 10(iii)A(b)
any portion of the Option to the extent not yet exercised and the Optionee shall
be entitled to receive immediately a cash payment in an amount equal to the
excess, if any, of (A) the greater of (x) the Fair Market Value, on the date
preceding the date of the surrender, of the Shares subject to the Option or
portion of the Option surrendered or (y) the Adjusted Fair Market Value of the
Shares subject to the Option or the portion of the Option surrendered, over (B)
the aggregate purchase price for such Shares under the Option; provided,
however, that if the Option was granted within six (6) months prior to the
Change in Control and the Optionee may be subject to liability under Section
16(b) of the Exchange Act, the Optionee shall be entitled to surrender for
cancellation the Option or any portion of the Option during the sixty (60) day
period following the expiration of six (6) months from the Grant Date and to
receive the amount described above with respect to such surrender for
cancellation.
8. Nontransferability.
The Option shall not be transferable other than-by will or by the laws
of descent and distribution. Notwithstanding the foregoing, the Option may be
transferred, in whole or in part, without consideration, by written instrument
signed by the Optionee, to any members of the immediate family of Optionee
(i.e., spouse, children and grandchildren), any trusts for the benefit of such
family members or any partnerships whose only partners are such family members
(the "Permitted Transferees"). Appropriate evidence of any such transfer to the
Permitted Transferees shall be delivered to the Company at its principal
executive office. During the lifetime of the Optionee, the Option shall be
exercisable only by the Optionee, or, if applicable, by the Permitted
Transferees.
9. No Right to Continued Employment.
Nothing in this Agreement or the Program shall be interpreted or
construed to confer upon the Optionee any right with respect to continuance of
employment by the Company, nor shall this Agreement or the Program interfere in
any way with the right of the Company to terminate the Optionee's employment at
any time.
10. Adjustments.
In the event of a Change in Capitalization, the Committee may make
appropriate adjustments to the number and class of Shares or other stock or
securities subject to the Option and the purchase price for such Shares or other
stock or securities. The Committee's adjustment shall be made in accordance with
the provisions of Section 11 of the Program and shall be effective and final,
binding, and conclusive for all purposes of the Program and this Agreement.
<PAGE>
Page 21
Exhibit 10(iii)A(b)
11. Terminating Events.
Subject to Section 7 hereof, upon the effective date of (i) the
liquidation or dissolution of the Company or (ii) a merger or consolidation of
the Company (a "Transaction"), the Option shall continue in effect in accordance
with its terms and the Optionee shall be entitled to receive in respect of all
Shares subject to the Option, upon exercise of the Option, the same number and
kind of stock, securities, cash, property, or other consideration that each
holder of Shares was entitled to receive in the Transaction.
12. Withholding of Taxes.
12.1 The Company shall have the right to deduct from any distribution
of cash to the Optionee an amount equal to the federal, state, and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to the Option. If the Optionee is entitled to
receive Shares upon exercise of the Option, the Optionee shall pay the
Withholding Taxes to the Company in cash prior to the issuance of such Shares.
In satisfaction of the Withholding Taxes, the Optionee may make a written
election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the Shares issuable
to him or her upon exercise of the Option, having an aggregate Fair Market Value
on the date preceding the Tax Date (as defined below) equal to the Withholding
Taxes, provided that (i) if the Optionee may be subject to liability under
Section 16(b) of the Exchange Act (unless his or her employment was terminated
due to Disability or death), (A) the Optionee makes the Tax Election at least
six (6) months after the Grant Date and (B) the Tax Election is made either at
least six (6) months prior to the date that the amount of the Withholding Taxes
are determined (the "Tax Date") or during the ten (10) day period beginning on
the third business day and ending on the twelfth business day following the
release for publication of the Company's quarterly or annual statements of
earnings, (ii) the Tax Election is made prior to the Tax Date, and (iii) the Tax
Election is irrevocable; provided, however, in the event that the Tax Date
occurs subsequent to the exercise of the Option, the Optionee shall tender back
to the Company on the Tax Date that number of Shares having a Fair Market Value
on the date preceding the Tax Date equal to the Withholding Taxes.
13. Employee Bound by the Program.
The Optionee hereby acknowledges receipt of a copy of the Program and
agrees to be bound by all the terms and provisions thereof.
14. Modification of Agreement.
This Agreement may be modified, amended, suspended, or terminated, and
any terms or conditions may be waived, but only by a written instrument executed
by the parties hereto.
<PAGE>
Page 22
Exhibit 10(iii)A(b)
15. Severability.
Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue it full force in accordance with their terms.
16. Governing Law.
The validity, interpretation, construction, and performance of this
Agreement shall be governed by the laws of the State of Delaware without giving
effect to the conflicts of laws principles thereof.
17. Successors in Interest.
This Agreement shall inure to the benefit of and be binding upon each
successor to the Company. This Agreement shall inure to the benefit of the
Optionee's legal representatives and Permitted Transferees. All obligations
imposed upon the Optionee and all rights granted to the Company under this
Agreement shall be final, binding, and conclusive upon the Optionee's heirs,
executors, administrators, successors, and Permitted Transferees.
18. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a result of,
or in any way relate to, the interpretation, construction, or application of
this Agreement shall be determined by the Committee. Any determination made
hereunder shall be final, binding, and conclusive on the Optionee and the
Company for all purposes.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
/s/ Carol Ellis Morgan By: /s/ John G. Medlin, Jr
Assistant Secretary John G. Medlin, Jr.
Chairman, Executive Resource,
Compensation and Nominating
Committee of The Board of Directors
/s/ James S. Balloun
Name of Optionee: James S. Balloun
Page 23
Exhibit 10(iii)A(c)
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT made as of the 1st day of February, 1996, by and between
National Service Industries, Inc. (the "Company") and James S. Balloun (the
"Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat of or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure his continued dedication and efforts in such event without undue concern
for his personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this Agreement with the Executive to
provide the Executive with certain benefits in the event his employment is
terminated as a result of, or in connection with, a Change in Control and to
provide the Executive with the Gross-Up Payment (as hereinafter defined) and
certain other benefits whether or not the Executive's employment is terminated.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement.
(a) This Agreement shall commence as of February 1, 1996, and shall
continue in effect until the earlier of the Executive's sixty-fifth (65th)
birthday or the Executive's termination of employment prior to a Change in
Control, as provided in Section 1(b) below.
(b) Prior to a Change in Control and other than during a Threatened
Change in Control Period, the term of this Agreement shall expire on the date
the Executive ceases to serve as Chairman of the Board and Chief Executive
Officer, or in another capacity as an executive officer (as defined in Rule 3b-7
under the Securities Exchange Act of 1934, as amended (the "1934 Act") as in
effect on the date hereof) of the Company, unless such cessation was at the
request of a Third Party or otherwise occurred in connection with, or in
anticipation of, a Change in Control.
<PAGE>
Page 24
Exhibit 10(iii)A(c)
2. Definitions.
2.1 Cause. For purposes of this Agreement, a termination for "Cause"
is a termination evidenced by a resolution adopted in good faith by two-thirds
of the Board that the Executive (a) intentionally and continually failed to
substantially perform his duties with the Company (other than a failure
resulting from the Executive's incapacity due to physical or mental illness)
which failure continued for a period of at least thirty (30) days after a
written notice of demand for substantial performance has been delivered to the
Executive specifying the manner in which the Executive has failed to
substantially perform, or (b) intentionally engaged in conduct which is
demonstrably and materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of the Executive's employment shall be
for Cause as set forth in clause (b) above until (x) there shall have been
delivered to the Executive a copy of a written notice setting forth that the
Executive was guilty of the conduct set forth in clause (b) and specifying the
particulars thereof in detail, and (y) the Executive shall have been provided an
opportunity to be heard by the Board (with the assistance of the Executive's
counsel if the Executive so desires). No act, nor failure to act, on the
Executive's part, shall be considered "intentional" unless he has acted, or
failed to act, with an absence of good faith and without a reasonable belief
that his action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the contrary, no failure
to perform by the Executive after a Notice of Termination is given by the
Executive shall constitute Cause for purposes of this Agreement.
2.2 Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(a) The acquisition (other than from the Company) by any "Person"
(as the term person is used for purposes of Sections 13(d) or 14(d) of the 1934
Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of twenty percent (20%) or more of the combined voting power of
the Company's then outstanding voting securities; or
(b) The individuals who, as of February 1, 1996, are members of
the Board (the "Incumbent Board") cease for any reason to constitute at least
two-thirds of the Board; provided, however, that if the election, or nomination
for election by the Company's stockholders, of any new director was approved by
a vote of at least two-thirds of the Incumbent Board, such new director shall,
for purposes of this Agreement, be considered as a member of the Incumbent
Board; or
(c) Approval by stockholders of the Company of (1) a merger or
consolidation involving the Company if the stockholders of the Company,
<PAGE>
Page 25
Exhibit 10(iii)A(c)
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than seventy percent
(70%) of the combined voting power of the then outstanding voting securities of
the corporation resulting from such merger or consolidation in substantially the
same proportion as their ownership of the combined voting power of the voting
securities of the Company outstanding immediately before such merger or
consolidation, or (2) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially all of the
assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur pursuant to Section 2.2(a), solely because twenty percent (20%)
or more of the combined voting power of the Company's then outstanding
securities is acquired by (i) a trustee or other fiduciary holding securities
under one or more employee benefit plans maintained by the Company or any of its
subsidiaries, or (ii) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition (hereinafter referred to as "Related Persons").
(d) Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated prior to a Change in
Control and the Executive reasonably demonstrates that such termination (1) was
at the request of a Third Party (as hereinafter defined), or (2) otherwise
occurred in connection with, or in anticipation of, a Change in Control
(including, without limitation, during a Threatened Change in Control Period),
then for all purposes of this Agreement, the date of a Change in Control shall
mean the date immediately prior to the date of such termination of the
Executive's employment.
2.3 Disability. For purposes of this Agreement, "Disability" shall
mean a physical or mental infirmity which impairs the Executive's ability to
substantially perform his duties under this Agreement for a period of one
hundred eighty (180) consecutive days.
2.4 (a) Good Reason. For purposes of this Agreement, "Good Reason"
shall mean the occurrence after a Change in Control of any of the events or
conditions described in Subsections (1) through (9) hereof:
(1) a change in the Executive's status, title, position, or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents an adverse change from his status,
title, position, or responsibilities as in effect immediately prior thereto; the
assignment to the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his status, title,
position, or responsibilities; or any removal of the Executive from or failure
<PAGE>
Page 26
Exhibit 10(iii)A(c)
to reappoint or reelect him to any of such offices or positions, except in
connection with the termination of his employment for Disability, Cause, as a
result of his death, or by the Executive other than for Good Reason;
(2) a reduction in the Executive's base salary or any failure to
pay the Executive any compensation or benefits to which he is entitled within
five (5) days of the date due;
(3) a failure to increase the Executive's base salary at least
annually at a percentage of base salary no less than the average percentage
increases (other than increases resulting from the Executive's promotion)
granted to the Executive during the three (3) full years ended prior to a Change
in Control (or such lesser number of full years during which the Executive was
employed);
(4) the Company1s requiring the Executive to be based at any
place outside a thirty (30) mile radius from Atlanta, Georgia, except for
reasonably required travel on the Company's business which is not greater than
such travel requirements prior to the Change in Control;
(5) the failure by the Company to (A) continue in effect (without
reduction in benefit level, and/or reward opportunities) any compensation or
employee benefit plan in which the Executive was participating immediately prior
to the Change in Control, including, but not limited to, the plans listed on the
Appendix, unless a substitute or replacement plan has been implemented which
provides substantially identical compensation or benefits to the Executive, or
(B) provide the Executive with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward opportunities) to those
provided for under each other compensation or employee benefit plan, program,
and practice as in effect immediately prior to the Change in Control (or as in
effect following the Change in Control, if greater);
(6) the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy of the Company;
(7) any material breach by the Company of any provision of this
Agreement;
(8) any purported termination of the Executive's employment for
Cause by the Company which does not comply with the terms of Section 2.1; or
(9) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any successor or assign of the Company to
assume and agree to perform this Agreement, as contemplated in Section 9 hereof.
<PAGE>
Page 27
Exhibit 10(iii)A(c)
(b) Any event or condition described in this Section 2.4(a)(1)
through (9) which occurs prior to a Change in Control but which the Executive
reasonably demonstrates (1) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to effect a Change
in Control (a "Third Party"), or (2) otherwise arose in connection with or in
anticipation of a Change in Control, shall constitute Good Reason for purposes
of this Agreement notwithstanding that it occurred prior to the Change in
Control.
(c) The Executive's right to terminate his employment pursuant to
this Section 2.4 shall not be affected by his incapacity due to physical or
mental illness.
2.5 Threatened Change in Control. For purposes of this Agreement, a
"Threatened Change in Control" shall mean the occurrence of any of the following
events:
(a) when the Company is aware of, or is contemplating, a proposal
(a "Proposal") for any Person other than a Related Person (1) to acquire five
percent (5%) or more of the voting power of the Company's outstanding
securities, or (2) to merge or consolidate with another entity, transfer or sell
assets of the Company, or liquidate or dissolve the Company, in each case
described in this clause (2), in a transaction that would constitute a Change in
Control; or
(b) any Person other than a Related Person,
(1) acquires five percent (5%) or more of the voting power
of the Company's outstanding securities, other than as a holder whose investment
in the Company is eligible to be reported on Schedule 13G pursuant to Rule
13d-l(b)(1) promulgated under the Exchange Act, or
(2) initiates a tender or exchange offer to acquire such
number of securities as would result in such Person holding twenty percent (20%)
or more of the voting power of the Company's outstanding securities, or
(3) solicits proxies for votes to elect members of the Board
at a shareholders meeting of the Company.
2.6 Threatened Change in Control Period. For purposes of this
Agreement, a "Threatened Change in Control Period" shall mean the period
commencing on the date that a Threatened Change in Control has occurred and
ending upon:
(a) the date the Proposal referred to in Section 2.5(a) is
abandoned;
<PAGE>
Page 28
Exhibit 10(iii)A(c)
(b) the acquisition of five percent (5%) of the voting power of
the Company's outstanding securities by the Person referred to in Section
2.5(a)(1) if such acquisition does not constitute a Threatened Change in Control
under Section 2.5(b)(1);
(c) the date when any Person described in Section 2.5(b), (1)
shall own less than five percent (5%) of the voting power of the Company's
outstanding securities, (2) shall have abandoned the tender or exchange offer,
or (3) shall not have elected a member of the Board as the case may be; or
(d) the date a Change in Control occurs.
3. Termination of Employment.
3.1 If, during the term of this Agreement, the Executive's employment
with the Company shall be terminated within twenty-four (24) months following a
Change in Control, the Executive shall be entitled to the following compensation
and benefits (in addition to any compensation and benefits provided for under
any of the Company's employee benefit plans, policies, and practices):
(a) If the Executive's employment with the Company shall be
terminated (1) by the Company for Cause or Disability, (2) by reason of the
Executive's death, or (3) by the Executive other than for Good Reason or during
the Window Period (as each term is defined herein), the Company shall pay the
Executive all amounts earned or accrued through the Termination Date but not
paid as of the Termination Date, including (i) base salary, (ii) reimbursement
for reasonable and necessary expenses incurred by the Executive on behalf of the
Company during the period ending on the Termination Date, (iii) vacation pay,
and (iv) sick leave (collectively, "Accrued Compensation"). In addition to the
foregoing, if the Executive's employment is terminated by the Company for
Disability or by reason of the Executive's death, the Company shall pay to the
Executive or his beneficiaries an amount equal to the "Pro Rata Bonus" (as
hereinafter defined). The "Pro Rata Bonus" is an amount equal to the Bonus
Amount (as hereinafter defined) multiplied by a fraction, the numerator of which
is the number of days in such fiscal year through the Termination Date and the
denominator of which is three hundred sixty-five (365). The term "Bonus Amount"
shall mean the greater of the (x) most recent annual bonus paid or payable to
the Executive, or, if greater, the annual bonus paid or payable for the full
fiscal year ended prior to the fiscal year during which a Change in Control
occurred, or (y) average of the annual bonuses paid or payable during the three
(3) full fiscal years ended prior to the Termination Date or, if greater, the
three (3) full fiscal years ended prior to the Change in Control (or, in each
case, such lesser period for which annual bonuses were paid or payable to the
Executive). Executive's entitlement to any other compensation or benefits shall
be determined in accordance with the Company's employee benefit plans and other
<PAGE>
Page 29
Exhibit 10(iii)A(c)
applicable programs and practices then in effect.
(b) If the Executive's employment with the Company shall be
terminated (other than by reason of death), (1) by the Company other than for
Cause or Disability, (2) by the Executive for Good Reason, or (3) by the
Executive for any reason within the sixty (60) day period commencing on the
first anniversary of the date of the occurrence of a Change in Control (the
"Window Period"), the Executive shall be entitled to the following:
(i) the Company shall pay the Executive all Accrued
Compensation and a Pro-Rata Bonus;
(ii) the Company shall pay the Executive as severance pay
and in lieu of any further compensation for periods subsequent to the
Termination Date, in a single payment an amount (the Severance Amount") in cash
equal to two (2) times the sum of (A) the greater of the Executive's base salary
in effect on the Termination Date or at any time during the ninety (90) day
period prior to the Change in Control ("Base Salary"), and (B) the Bonus Amount.
Notwithstanding the foregoing, if the Executive has attained at least age
sixty-three (63) on the Termination Date, the Severance Amount to be paid under
this Subsection (ii) shall be the amount described in the preceding sentence
multiplied by a fraction (which in no event shall be less than one-half (1/2)),
the numerator of which shall be the number of months (for this purpose any
partial month shall be considered as a whole month) remaining until the
Executive's sixty-fifth (65th) birthday (but in no event shall be less than
twelve (12)) and the denominator of which shall be twenty-four (24);
(iii) for a number of months equal to the lesser of (A)
twenty-four (24), or (B) the number of months remaining until the Executive's
sixty-fifth (65th) birthday (the "Continuation Period"), the Company shall at
its expense continue on behalf of the Executive and his dependents and
beneficiaries, the life insurance, disability, medical, dental, and
hospitalization benefits provided (x) to the Executive at the time Notice of
Termination is given, at any time during the ninety (90) day period prior to the
Change in Control, or at any time thereafter, or (y) to other similarly situated
executives who continue in the employ of the Company during the Continuation
Period. The coverage and benefits (including deductibles and costs) provided in
this Section 3.1(b)(iii) during the Continuation Period shall be no less
favorable to the Executive and his dependents and beneficiaries than the most
favorable of such coverages and benefits during any of the periods referred to
in clauses (x) and (y) above. The Company's obligation hereunder with respect to
the foregoing benefits shall be limited to the extent that the Executive obtains
any such benefits pursuant to a subsequent employer's benefit plans, in which
case, the Company may reduce the coverage of any benefits it is required to
provide the Executive hereunder as long as the aggregate coverages and benefits
of the combined benefit plans is no less favorable to the Executive than the
<PAGE>
Page 30
Exhibit 10(iii)A(c)
coverages and benefits required to be provided hereunder. This Subsection (iii)
shall not be interpreted so as to limit any benefits to which the Executive or
his dependents may be entitled under any of the Company's employee benefit
plans, programs, or practices following the Executive's termination of
employment, including, without limitation, retiree medical and life insurance
benefits;
(iv) the Company shall pay in a single payment an amount in
cash equal to the excess of (A) the Supplemental Retirement Benefit (as defined
below) had (w) the Executive remained employed by the Company for an additional
two (2) complete years of credited service (or until his sixty-fifth (65th)
birthday, if earlier), (x) his annual compensation during such period been equal
to his Base Salary and the Bonus Amount, (y) the Company made employer
contributions to each defined contribution plan in which the Executive was a
participant at the Termination Date (in an amount equal to the amount of such
contribution for the plan year immediately preceding the Termination Date), and
(z) he been fully (100%) vested in his benefit under each retirement plan in
which the Executive was a participant, over (B) the lump sum actuarial
equivalent of the aggregate retirement benefit the Executive is actually
entitled to receive under such retirement plans. For purposes of this Subsection
(iv), the "Supplemental Retirement Benefit" shall mean the lump sum actuarial
equivalent of the aggregate retirement benefit the Executive would have been
entitled to receive under the Company's supplemental and other retirement plans,
including, but not limited to, Pension Plan C (the "NSI Pension Plan");
provided, however, if the Executive has attained at least age fifty (50) and has
been employed by the Company for at least fifteen (15) years as of the
Termination Date, the calculation of the Supplemental Retirement Benefit shall
be made pursuant to the Early Retirement Accrued Pension formula under the
Supplemental Retirement Plan for Executives of the Company without regard to the
Executive's attained age or year of credited service (as defined therein). For
purposes of this Subsection (iv), the "actuarial equivalent" shall be determined
in accordance with the actuarial assumptions used for the calculation of
benefits under the NSI Pension Plan as applied prior to the Termination Date in
accordance with such plan's past practices; and
(v) (A) the restrictions on any outstanding incentive awards
(including restricted stock and granted Performance Shares) granted to the
Executive under the Long-Term Incentive Program (the "Program") or under any
other incentive plan or arrangement shall lapse and such incentive award shall
become one hundred percent (100%) vested, all stock options and stock
appreciation rights granted to the Executive shall become immediately
exercisable and shall become hundred percent (100%) vested, and all Performance
Units granted to the Executive shall become hundred percent (100%) vested, and
(B) the Executive shall have the right to require the Company to purchase, for
cash, any shares of unrestricted stock or shares purchased upon exercise of any
options, at a price equal to the fair market value of such shares on the date of
<PAGE>
Page 31
Exhibit 10(iii)A(c)
purchase by the Company.
(c) The amounts provided for in Sections 3.1(a) and
3.1(b)(i), (ii), (iv), and (v) shall be paid within five (5) days after the
Executive's Termination Date.
(d) The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment
except as provided in Section 3.1(b)(iii).
3.3 The severance pay and benefits provided for in Sections 3.1(a) and
3.1(b)(i) and (ii) shall be in lieu of any other severance pay to which the
Executive may be entitled under any Company severance plan, program, or
arrangement.
4. Notice of Termination. During a Threatened Change in Control Period and
following a Change in Control, any purported termination by the Company or by
the Executive shall be communicated by written Notice of Termination to the
other. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which indicates the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. For purposes of this Agreement, no such purported
termination shall be effective without such Notice of Termination.
5. Termination Date. "Termination Date" shall mean in the case of the
Executive's death, his date of death, and in all other cases, the date specified
in the Notice of Termination subject to the following:
(a) If the Executive's employment is terminated by the Company for
Cause or due to Disability, the date specified in the Notice of Termination
shall be at least thirty (30) days from the date the Notice of Termination is
given to the Executive, provided that in the case of Disability, the Executive
shall not have returned to the full-time performance of his duties during such
period of at least thirty (30) days; and
(b) If the Executive's employment is terminated for Good Reason, the
date specified in the Notice of Termination shall not be more than sixty (60)
days from the date the Notice of Termination is given to the Company.
6. Excise Tax Payments.
(a) Notwithstanding anything contained in this Agreement to the
contrary and without regard to whether the Executive's employment with the
Company has terminated, in the event that any payment or benefit (within the
<PAGE>
Page 32
Exhibit 10(iii)A(c)
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
[the "Code"]) to the Executive or for his benefit, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his employment with the Company
or a change in ownership or effective control of the Company or of a substantial
portion of its assets (a "Payment" or "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes and the Excise Tax), including any Excise
Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) An initial determination as to whether a Gross-Up Payment is
required pursuant to this Section 6 and the amount of such Gross-Up Payment
shall be made by an accounting firm selected by the Company and reasonably
acceptable to the Executive which is designated one of the five (5) largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation, to the Company and the
Executive within five (5) days of the Termination Date, if applicable, or such
other time as requested by the Company or by the Executive (provided the
Executive reasonably believes that any of the Payments may be subject to the
Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable
by the Executive with respect to a Payment or Payments, it shall furnish the
Executive with an opinion reasonably acceptable to the Executive that no Excise
Tax will be imposed with respect to any such Payment or Payments. Within five
(5) days of the delivery of the Determination to the Executive, the Executive
shall have the right to dispute the Determination (the "Dispute"). The Gross-Up
Payment, if any, as determined pursuant to this Section 6(b) shall be paid by
the Company to the Executive within five (5) days of the receipt of the
Accounting Firm's determination. The existence of the Dispute shall not in any
way affect the right of the Executive to receive the Gross-Up Payment in
accordance with the Determination. If there is no Dispute, the Determination
shall be binding, final, and conclusive upon the Company and the Executive
subject to the application of Section 6(c).
(c) As a result of the uncertainty in the application of Sections 4999
and 280G of the Code, it is possible that a Gross-Up Payment (or a portion
thereof) will be paid which should not have been paid (an "Excess Payment"), or
a Gross-Up Payment (or a portion thereof) which should have been paid will not
have been paid (an "Underpayment"). An Underpayment shall be deemed to have
occurred (1) upon notice (formal or informal) to the Executive from any
governmental taxing authority that the tax liability of the Executive (whether
<PAGE>
Page 33
Exhibit 10(iii)A(c)
in respect of the then current taxable year of the Executive or in respect of
any prior taxable year of the Executive) may be increased by reason of the
imposition of the Excise Tax on a Payment or Payments with respect to which the
Company has failed to make a sufficient Gross-Up Payment, (2) upon a
determination by a court, (3) by reason of determination by the Company (which
shall include the position taken by the Company, or together with its
consolidated group, on its federal income tax return), or (4) upon the
resolution to the satisfaction of the Executive of the Dispute. If an
Underpayment occurs, the Executive shall promptly notify the Company and the
Company shall pay to the Executive at least five (5) days prior to the date on
which the applicable government taxing authority has requested payment, an
additional Gross-Up Payment equal to the amount of the Underpayment plus any
interest and penalties (other than interest and penalties imposed by reason of a
failure to file timely a tax return or pay taxes shown due on a return) imposed
on the Underpayment. An Excess Payment shall be deemed to have occurred upon a
"Final Determination" (as hereinafter defined) that the Excise Tax shall not be
imposed upon a Payment or Payments with respect to which the Executive had
previously received a Gross-Up Payment. A Final Determination shall be deemed to
have occurred when the Executive has received from the applicable government
taxing authority a refund of taxes or other reduction in his tax liability by
reason of the Excess Payment and upon either (i) the date a determination is
made by, or an agreement is entered into with, the applicable governmental
taxable authority which finally and conclusively binds the Executive and such
taxing authority, or in the event that a claim is brought before a court of
competent jurisdiction, the date upon which a final determination has been made
by such court and either all appeals have been taken and finally resolved or the
time for all appeals has expired, or (ii) the statute of limitations with
respect to the Executive's applicable tax return has expired. If an Excess
Payment is determined to have been made, the amount of the Excess Payment shall
be treated as a loan by the Company to the Executive and the Executive shall pay
to the Company on demand (but not less than ten (10) days after the
determination of such Excess Payment) the amount of the Excess Payment plus
interest at an annual rate equal to the rate provided for in Section
1274(b)(2)(B) of the Code from the date the Gross-Up Payment (to which the
Excess Payment relates) was paid to the Executive until the date of repayment to
the Company.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Payment or Payments, the Company shall pay to the applicable
government taxing authorities as Excise Tax withholding, the amount of the
Excise Tax that the Company has actually withheld from the Payment or Payments.
7. Unauthorized Disclosure. During the period that the Executive is
actively employed by the Company, the Executive shall not make any Unauthorized
Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean
<PAGE>
Page 34
Exhibit 10(iii)A(c)
disclosure by the Executive without the consent of the Board (other than
pursuant to a court order) to any person, other than an employee or director of
the Company or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the Company, or as may be legally required, of any material
confidential information obtained by the Executive while in the employ of the
Company (including any material confidential information with respect to any of
the Company's customers or methods of distribution), the disclosure of which is
demonstrably and materially injurious to the Company; provided; however, that
such term shall not include the use or disclosure by the Executive, without
consent, of any information known generally to the public (other than as a
result of disclosure by him in violation of this Section 7) or any information
not otherwise considered confidential and material by a reasonable person
engaged in the same business as that conducted by the Company; provided further,
however, that any breach of this Section 7 shall in no event subject the
Executive to damages (including costs, fees, and expenses incurred by the
Company) in excess of Ten Thousand Dollars ($10,000) in the aggregate.
8. Non-Compete. During the period that the Executive is actively employed
by the Company, the Executive shall not, directly or indirectly, own, manage,
operate, control, consult with, or be connected as an officer, employee, agent,
partner, director, or consultant with, or have any financial interest in, or
assist anyone in the conduct of, any business which directly competes with the
businesses of the Company in the State of Georgia. Notwithstanding the
foregoing, the Executive shall not be in violation of the preceding sentence due
to ownership (directly or indirectly) by the Executive of not more than five
percent (5%) of the issued and outstanding class of securities of a corporation
whose securities are publicly traded.
9. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the Company shall require
any successor or assign to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place. The term "the
Company" as used herein shall include such successors and assigns. The term
"successors and assigns" as used herein shall mean a corporation or other entity
acquiring all or substantially all the assets and business of the Company
(including this Agreement) whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by the Executive, his beneficiaries, or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
<PAGE>
Page 35
Exhibit 10(iii)A(c)
10. Fees and Expenses. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence, and counsel) incurred by the
Executive as they become due as a result of (a) the Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), (b) the Executive seeking to
obtain or enforce any right or benefit provided by this Agreement or by any
other plan or arrangement maintained by the Company under which the Executive is
or may be entitled to receive benefits, or (c) the Executive's hearing before
the Board as contemplated in Section 2.1 of this Agreement; provided, however,
that the circumstances set forth in clauses (a) and (b) (other than as a result
of the Executive's termination of employment under circumstances described in
Section 2.2(d)) occurred on or after a Change in Control.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
12. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive, or other plan or program provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor shall anything herein
limit or reduce such rights as the Executive may have under any other agreements
with the Company or any of its subsidiaries. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
13. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense, or other right which
the Company may have against the Executive or others.
14. Miscellaneous. No provision of this Agreement may be modified, waived,
or discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
<PAGE>
Page 36
Exhibit 10(iii)A(c)
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
15. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia without giving
effect to the conflict of laws principles thereof. Any action brought by any
party to this Agreement shall be brought and maintained in a court of competent
jurisdiction in Fulton County in the State of Georgia.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. Entire Agreement - Letter Agreement of February 1, 1996. This Agreement
constitutes the entire agreement between the parties hereto and, except as
provided hereinbelow in this Paragraph 17, supersedes all prior agreements, if
any, understandings, and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof. The Executive and the Company
have entered into a letter agreement dated February 1, 1996, which, in Paragraph
7 thereof, provides severance payments in certain circumstances. In the event of
the Executive's termination in connection with a Change in Control that entitles
the Executive to benefits under this Agreement, the Executive will receive the
greater of the payments and benefits provided under this Agreement (after
consideration of any tax penalties) or the severance payments described in
Paragraph 7 of said letter agreement.
<PAGE>
Page 37
Exhibit 10(iii)A(c)
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has executed this Agreement as of
the day and year first above written.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
/s/ Carol Ellis Morgan By: /s/ John G. Medlin, Jr.
Assistant Secretary John G. Medlin, Jr.
Chairman, Executive Resource,
Compensation and Nominating
Committee of The Board of Directors
/s/ James S. Balloun
James S. Balloun
Page 38
Exhibit 10(iii)A(d)
February 1, 1996
James S. Balloun
Chairman of the Board
and Chief Executive Officer
National Service Industries, Inc.
1420 Peachtree Street, N.E.
Atlanta, Georgia 30309-3002
Dear Jim:
The Board of Directors (the "Board") of National Service Industries, Inc.
(the "Company") believes that the threat or occurrence of a Change in Control
(as defined in the Appendix) of the Company may cause you undue concern for your
financial security and distract your attention from the operations of our
businesses, which would be detrimental to the Company and its shareholders.
In recognition of these concerns, the Board has determined that in order to
provide you with some measure of security in the event of a Change in Control of
the Company, it has authorized the Company to agree as follows:
The term of this letter agreement shall commence as of the date hereof and
shall continue in effect until your sixty-fifth (65th) birthday.
For any fiscal year during which you are in the employ of the Company on
the date of occurrence of a Change in Control, you shall be guaranteed an annual
bonus for that fiscal year (the "Change in Control Year") in an amount no less
than the annual bonus that was paid or payable to you for the most recently
ended fiscal year prior to a Change in Control (the "Bonus") provided that you
are in the employ of Company (or its successor) on the last day of the Change in
Control Year.
The Bonus will be paid to you in cash within five (5) business days
following the last day of the Change in Control Year whether or not you are in
the employ of the Company on the date of payment.
Very truly yours,
/s/ John G. Medlin, Jr.
ATTEST: John G. Medlin, Jr.
Chairman, Executive Resource,
Compensation and Nominating Committee
/s/ Carol Ellis Morgan of the Board of Directors
Assistant Secretary
<PAGE>
Page 39
Exhibit 10(iii)A(d)
APPENDIX
Change in Control. For purposes of this letter agreement, a
"Change in Control" shall mean any of the following events:
(a) The acquisition (other than from the Company) by any "Person"
(as the term person is used for purposes of Sections 13(d) or 14(d) of the 1934
Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of twenty percent (20%) or more of the combined voting power of
the Company's then outstanding voting securities; or
(b) The individuals who, as of February 1, 1996, are members of
the Board (the "Incumbent Board") cease for any reason to constitute at least
two-thirds of the Board; provided, however, that if the election, or nomination
for election by the Company's stockholders, of any new director was approved by
a vote of at least two-thirds of the Incumbent Board, such new director shall,
for purposes of this Agreement, be considered as a member of the Incumbent
Board; or
(c) Approval by stockholders of the Company of (1) a merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than seventy percent
(70%) of the combined voting power of the then outstanding voting securities of
the corporation resulting from such merger or consolidation in substantially the
same proportion as their ownership of the combined voting power of the voting
securities of the Company outstanding immediately before such merger or
consolidation, or (2) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially all of the
assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur pursuant to Section (a), solely because twenty percent (20%) or
more of the combined voting power of the Company's then outstanding securities
is acquired by (i) a trustee or other fiduciary holding securities under one or
more employee benefit plans maintained by the Company or any of its
subsidiaries, or (ii) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition (hereinafter referred to as "Related Persons").
Page 40
Exhibit 10(iii)A(e)
APPENDIX B
B.1. Eligible Individual: James S. Balloun
B.2. Effective Date of Participation: Pursuant to Section 2.1(b), Mr. Balloun's
date of participation shall be February 1, 1996.
B.3. Special Provisions: The following special provisions shall apply to Mr.
Balloun's participation in the Plan:
(a) Except for purposes of determining whether Mr. Balloun is a Vested
Terminee and entitled to a Vested Pension under the Plan, Mr. Balloun will be
credited with two (2) years of Credited Service under Sections 1.1(q) and 2.3
for each year of Credited Service he would otherwise receive under the Plan.
(b) Mr. Balloun will qualify as a Vested Terminee if he completes five (5)
years of employment with NSI from his Service Date to his Termination Date.
Except as otherwise specifically provided in this Appendix B, Mr. Balloun's
benefits under the Plan shall be determined in the same manner as for other
Participants.
Page 41
Exhibit 11
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATIONS OF NET INCOME PER SHARE OF COMMON STOCK
(In thousands, except per-share data)
THREE MONTHS ENDED SIX MONTHS ENDED
FEB. 29, FEB. 28, FEB. 29, FEB. 28,
1996 1995 1996 1995
Primary:
Weighted Average Number of Shares
(determined on a monthly basis)..... 48,364 48,859 48,350 49,025
Net Income ........................... $ 19,250 $ 17,578 $ 42,519 $ 38,692
Primary Earnings per Share ........... $ .40 $ .36 $ .88 $ .79
Fully Diluted:
Weighted Average Number of Shares
Outstanding ........................ 48,364 48,859 48,350 49,025
Additional Shares Assuming Exercise
of Options:
Options exercised ................ 1,292 982 1,292 982
Treasury stock purchased
with proceeds .................. (1,007) (889) (983) (889)
Average Common Shares Outstanding
(as adjusted) ..................... 48,649 48,952 48,659 49,118
Net Income ........................... $ 19,250 $ 17,578 $ 42,519 $ 38,692
Fully Diluted Earnings per Share ..... $ .40 $ .36 $ .87 $ .79
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Page 42 Exhibit 27
Financial Data Schedules
Quarter Ended February 29, 1996
Pursuant to Section 601(c) of Regulation S-K
This schedule contains summary financial information extracted from National
Service Industries, Inc. consolidated balance sheet as of February 29, 1996 and
the consolidated statement of income for the six months ended February 29, 1996,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 73,431
<SECURITIES> 2,550
<RECEIVABLES> 260,353
<ALLOWANCES> 8,256
<INVENTORY> 182,428
<CURRENT-ASSETS> 627,958
<PP&E> 746,904
<DEPRECIATION> 394,620
<TOTAL-ASSETS> 1,111,347
<CURRENT-LIABILITIES> 176,795
<BONDS> 26,741
0
0
<COMMON> 57,919
<OTHER-SE> 771,295
<TOTAL-LIABILITY-AND-EQUITY> 757,470
<SALES> 712,245
<TOTAL-REVENUES> 974,756
<CGS> 454,537
<TOTAL-COSTS> 603,751
<OTHER-EXPENSES> 301,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,098
<INCOME-PRETAX> 67,815
<INCOME-TAX> 25,296
<INCOME-CONTINUING> 42,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,519
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.87
</TABLE>
