Page 1 of 96
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 November 30, 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 - 45,339,395 shares as of December 31, 1996.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS -
NOVEMBER 30, 1996 AND AUGUST 31, 1996 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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)
November 30, August 31,
1996 1996
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents ........................... $ 50,850 $ 58,662
Short-term investments .............................. 551 551
Receivables, less reserves for doubtful
accounts of $6,891 at November 30, 1996
and $5,807 at August 31, 1996 .................... 268,328 269,971
Inventories, at the lower of cost (on a
first-in, first-out basis) or market ............. 171,662 169,813
Linens in service, net of amortization ............. 96,290 97,710
Deferred income taxes ............................... 4,719 2,152
Prepayments ......................................... 11,449 7,522
Total Current Assets .............................. 603,849 606,381
Property, Plant, and Equipment, at cost:
Land ................................................ 28,904 29,062
Buildings and leasehold improvements ................ 191,608 194,219
Machinery and equipment ............................. 533,716 542,056
Total Property, Plant, and Equipment ............. 754,228 765,337
Less - Accumulated depreciation and
amortization ...................................... 400,701 407,941
Property, Plant, and Equipment - net ........... 353,527 357,396
Other Assets:
Goodwill and other intangibles ...................... 87,888 89,427
Other ............................................... 40,462 41,442
Total Other Assets ................................ 128,350 130,869
Total Assets .................................... $1,085,726 $1,094,646
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ................ $ 47 $ 46
Notes payable ....................................... 6,474 6,696
Accounts payable .................................... 77,159 79,851
Accrued salaries, commissions, and bonuses ......... 38,951 42,788
Current portion of self insurance reserves .......... 15,909 15,396
Other accrued liabilities ........................... 72,041 52,649
Total Current Liabilities ......................... 210,581 197,426
Long-Term Debt, less current maturities .............. 24,889 24,920
Deferred Income Taxes ................................. 62,164 63,347
Self Insurance Reserves, less current portion ........ 63,369 63,369
Other Long-Term Liabilities ........................... 28,408 27,576
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 November
30, 1996 and August 31, 1996 ..................... 57,919 57,919
Paid-in capital ..................................... 11,681 11,021
Retained earnings ................................... 803,103 791,367
872,703 860,307
Less - Treasury stock, at cost (12,391,884 shares at
November 30, 1996 and 11,447,036 shares at August
31, 1996) ........................................ 176,388 142,299
Total Stockholders' Equity .................... 696,315 718,008
Total Liabilities and Stockholders' Equity .. $1,085,726 $1,094,646
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per-share data)
THREE MONTHS ENDED
NOVEMBER 30
1996 1995
Sales and Service Revenues:
Net sales of products ........................... $ 381,763 $ 359,842
Service revenues ................................ 130,130 132,708
Total Revenues ................................ 511,893 492,550
Costs and Expenses:
Cost of products sold ........................... 236,604 227,439
Cost of services ................................ 75,578 74,364
Selling and administrative expenses ............. 158,382 152,220
Interest expense ................................ 1,341 1,242
Other expense, net ............................. 648 190
Total Costs and Expenses ...................... 472,553 455,455
Income before Provision for Income Taxes .......... 39,340 37,095
Provision for (Benefit from) Income Taxes:
Current ......................................... 14,506 14,227
Deferred ........................................ -- (401)
14,506 13,826
Net Income ........................................ $ 24,834 $ 23,269
Per Share:
Net income ...................................... $ .54 $ .48
Cash dividends .................................. $ .29 $ .28
Weighted Average Number of Shares
Outstanding (thousands) ......................... 45,957 48,343
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
THREE MONTHS ENDED
NOVEMBER 30
1996 1995
Cash Provided by (Used for) Operating Activities:
Net income ........................................... $ 24,834 $ 23,269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 14,832 14,394
Provision for losses on accounts receivable ...... 1,254 1,161
Loss (gain) on the sale of property, plant,
and equipment ................................... (222) (932)
Loss (gain) on the sale of business .............. (401) 63
Change in noncurrent deferred income taxes ....... -- (401)
Change in assets and liabilities net of effect
of acquisitions-
Receivables .................................. 888 9,518
Inventories and linens in service, net ....... (1,408) (5,824)
Current deferred income taxes ................ (2,568) 896
Prepayments and other ........................ (3,985) (4,127)
Accounts payable and accrued liabilities ..... 12,690 (2,694)
Changes in self-insurance reserves and other
long-term liabilities ........................ 832 484
Net Cash Provided by Operating Activities .. 46,746 35,807
Cash Provided by (Used for) Investing Activities:
Change in short-term investments ..................... -- 1,049
Purchase of property, plant, and equipment .......... (9,830) (14,338)
Sale of property, plant, and equipment .............. 1,816 1,548
Sale of business .................................... 1,989 --
Acquisitions, net of cash acquired .................. (1,876) (278)
Change in other assets .............................. 687 1,154
Net Cash Used for Investing Activities ............. (7,214) (10,865)
Cash Provided by (Used for) Financing Activities:
Repayment of long-term debt .......................... (30) (35)
Recovery of investment in tax benefits ............... 397 430
Deferred income taxes from investment in tax benefits (1,183) (1,068)
Issuance (purchase) of treasury stock ................ (33,429) 1,590
Cash dividends paid .................................. (13,435) (13,538)
Net Cash Used for Financing Activities ............. (47,680) (12,621)
Effect of Exchange Rate Changes on Cash ................ 336 846
Net Change in Cash and Cash Equivalents ................ (7,812) 13,167
Cash and Cash Equivalents at Beginning of Year ......... 58,662 79,402
Cash and Cash Equivalents at End of Period ............. $ 50,850 $ 92,569
Supplemental Cash Flow Information:
Income taxes paid during the period .................. $ 7,035 $ 12,330
Interest paid during the period ...................... 1,238 1,031
Noncash Investing and Financing Activities:
Noncash aspects of sale of business -
Receivables incurred .............................. $ (347) $ --
Liabilities assumed (removed) ...................... (10)
Noncash Aspects of Acquisitions:
Liabilities assumed or incurred ...................... $ (300) $ --
Treasury stock issued (returned) ..................... -- --
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, 1996 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 November 30, 1996, the consolidated results of
operations for the three months ended November 30, 1996 and 1995, and the
consolidated cash flows for the three months ended November 30, 1996 and 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, 1996.
The results of operations for the three months ended November 30, 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:
Three Months Ended November 30
Sales and Service
Revenues Operating Profit
1996 1995 1996 1995
(In thousands)
Lighting Equipment ........... $ 227,447 $ 208,278 $ 21,372 $ 16,378
Textile Rental ............... 130,130 132,708 8,137 9,753
Chemical ..................... 95,482 92,107 10,923 9,705
Envelopes .................... 31,351 29,483 2,113 2,116
Other ........................ 27,483 29,974 1,579 974
$ 511,893 $ 492,550 44,124 38,926
Corporate .................... (4,134) (1,573)
Interest expense, net ........ (650) (258)
Total ........................ $ 39,340 $ 37,095
3. INVENTORIES:
Major classes of inventory as of November 30, 1996 and August 31, 1996 were as
follows:
November 30, August 31,
1996 1996
(In thousands)
Raw Materials and Supplies ................... $ 71,799 $ 73,236
Work-in-Process .............................. 8,882 9,679
Finished Goods ............................... 90,981 86,898
Total ................................... $171,662 $169,813
4. ACCOUNTING STANDARDS ADOPTED
During the first quarter of fiscal 1997, the company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121
requires that long-lived assets and certain intangibles be reviewed whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. During the quarter ended November 30, 1996, there were
no circumstances indicating impairment of assets.
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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 continued in strong financial condition at
November 30, 1996. Net working capital was $393.3 million, compared with $409.0
million at August 31, 1996, and the current ratio was 2.9, compared with 3.1 at
year end. Cash and short-term investments were $51.4 million compared with $59.2
million at August 31. For the first quarter, the company invested $11.7 million
in capital expenditures and acquisitions. The percent of debt to total
capitalization was 4.3 percent, up slightly from 4.2 percent at August 31. Cash
provided by operating activities was $46.7 million, up from $35.8 million for
the first quarter last year.
Capital expenditures, exclusive of acquisition spending, were $9.8 million
for the first quarter this year and $14.3 million for the same period a year
ago. In both periods, the lighting equipment segment invested in facilities
improvements, equipment replacements, process improvements, and tooling for new
products while textile rental segment spending consisted primarily of
improvement of facilities and replacement of equipment and vehicles.
Current year acquisition spending of $1.9 million was primarily the result
of the chemical segment's purchase of an Ohio-based chemical products company.
Acquisition spending was minimal in the prior-year period.
During the quarter, the textile rental segment divested several
non-strategic businesses, generating cash of $2.0 million. There were no
divestitures during the prior-year first quarter.
Dividend payments totaled $13.4 million, or 29 cents per share, compared
with $13.5 million, or 28 cents per share, for the prior-year period. Effective
January, 1997, the regular quarterly dividend rate was increased 3.4 percent to
30 cents per share, or an annual rate of $1.20 per share. During the quarter,
the company repurchased 1.0 million of its common shares. The Board has
clarified that the standing authority is to reduce outstanding shares by 2.0
million per year. The company expects to repurchase the remaining 1.0 million
shares during the second fiscal quarter.
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 $13 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 $66 million in 1996, $59 million in 1995, and $43 million in
1994. Late in fiscal 1996, the company negotiated a $250 million multi-currency
committed credit facility, of which $187.5 million has been provided through
domestic banks and $62.5 million through foreign banks. The company has
complimentary lines of credit totaling $132 million, of which $110 million has
been provided domestically and $22 million is available on a multi-currency
basis primarily from a European bank. Current liquid assets, internally
generated funds, and the available credit are expected to meet most of the
anticipated general operating cash requirements for the next twelve months.
Results of Operations
National Service Industries' earnings per share for the first quarter ended
November 30, 1996 increased 12.3 percent to 54 cents compared with the same
quarter a year ago. Sales for the quarter increased 3.9 percent to $512 million.
Net income of $24.8 million was 6.7 percent higher than the $23.3 million
reported in last year's first quarter. First quarter 1997 pretax earnings
included gains of $0.5 million on asset sales, compared with $0.7 million in
1996, and a $1.8 million reduction in self insurance reserves due to improved
1995 workers' compensation claims experience. Earnings per share increased at a
greater rate of 12.3 percent due to 2.4 million fewer average shares outstanding
compared to the first quarter a year ago.
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The lighting equipment segment grew sales by 9.2 percent to $227 million
from $208 million the prior year. The stronger sales increase is attributable to
higher non-residential construction awards. Operating income advanced 30.5
percent to 9.4 percent of revenues, compared with 7.9 percent the year earlier,
due to higher volume, favorable product mix, and lower manufacturing costs.
Sales in the textile rental segment were down 1.9 percent from $133 million
to $130 million as a result of previously divested plants. Operating income
declined 16.6 percent to $8.1 million. Operating income included gains of $0.5
million on asset sales and a $1.1 million reduction in self insurance reserves
due to improved 1995 workers' compensations claims experience. In 1996 operating
income included $0.7 million in gains on asset sales. Although the performance
of this segment continues to be disappointing, progress has been made in
improving customer retention and pricing. Costs associated with merchandise
placed in service, plant operations and customer service programs increased due
to planned retention and quality initiatives. During the quarter the segment
consolidated three branches, sold one facility and three idle properties, and
reduced personnel at its headquarters and field operations.
Chemical segment sales advanced 3.7 percent to $95 million from $92 million
the prior year. Operating income grew 12.6 percent to 11.4 percent of revenues
from 10.5 percent the prior-year period. The gains resulted from improved
domestic volume, lower costs, and stronger international performance.
The envelope segment increased sales by 6.3 percent to $31 million from $29
million the prior year. Operating profit was even at $2.1 million.
A letter of intent was signed with Performance Contracting Group to sell
the insulation business at slightly over its book value. Sales for this segment
were $27 million and operating profits increased to $1.6 million due to lower
material and operating costs. The anticipated second quarter sale is forecast to
slightly reduce total year earnings per share, since the immediate returns of
the reinvested proceeds will not be able to offset the operating profits of the
business.
Corporate expenses were up $2.6 million due to accrued long-term incentive
plan costs and consulting expenses for introducing economic profit and refining
strategic planning. These expenditures are intended to accelerate the company's
profitable growth. Net interest increased slightly due to the share repurchase
initiatives.
The provision for income taxes was 36.9 percent of pretax income for the
quarter, compared with 37.3 percent the prior-year period. Changes in the
comparative year-to-year effective rates resulted from variations in the
relative amounts of tax exempt income.
From time to time, the company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the company notes that a variety of factors
could cause the company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the company's business
include without limitation the following: (a) the uncertainty of general
business and economic conditions, particularly the potential for a slow down in
nonresidential construction awards; (b) the ability to achieve strategic
initiatives, including but not limited to the ability to achieve sales growth
across the business segments through a combination of increased pricing, sales
force, and new products and improved customer service.
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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 November 30,
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 January 14, 1997 /S/ DAVID LEVY
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE January 14, 1997 /S/ BROCK HATTOX
BROCK HATTOX
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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Page 11
<TABLE>
INDEX TO EXHIBITS
Page No.
<S> <C> <C>
EXHIBIT 10(iii)A Management Contracts and Compensatory Arrangements:
(1) - Severance Protection Agreements between National Reference is made to Exhibit
Service Industries, Inc. and 10(iii)A(c) of registrant's Form
(a) James S. Balloun (February 1, 1996) 10-Q for the quarter ended February
(b) Stewart A.Searle III (June 19, 1996) 29, 1996, which is incorporated
(c) Brock A. Hattox (September 9, 1996) herein by reference.
(2) - Bonus Letter Agreements between National Reference is made to Exhibit
Service Industries, Inc. and 10(iii)A(j) of registrant's Form 10-K
(a) James S. Balloun (February 1, 1996) for the fiscal year ended August 31,
(b) David Levy (October 1, 1989) 1989 and to Exhibit 10(iii)A(d) of
(c) Stewart A. Searle III (June 19, 1996) registrant's Form 10-Q for the
(d) Brock A. Hattox (September 9, 1996) quarter ended February 29, 1996,
which are incorporated herein by
reference.
(3) - Incentive Stock Option Agreements between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(l) of registrant's Form
(a) D. Raymond Riddle 10-K for the fiscal year ended
(b) Don W. Hubble August 31, 1989, which is
(c) David Levy incorporated herein by reference.
(d) J. Robert Hipps
(e) Stewart A. Searle III
(f) Brock A. Hattox
(4) - Nonqualified Stock Option Agreement for Corporate Reference is made to Exhibit
Officers Effective Beginning September 21, 1994 10(iii)A(j) of registrant's Form
between National Service Industries, Inc. and 10-K for the fiscal year ended
(a) D. Raymond Riddle August 31, 1992, which is
(b) Don W. Hubble incorporated herein by reference.
(c) David Levy
(d) Brock A. Hattox
(5) - Incentive Stock Option Agreement Effective 13
Beginning September 17, 1996 between National
Service Industries, Inc. and
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(6) - Nonqualified Stock Option Agreement for Executive 19
Officers Effective Beginning September 17, 1996
between National Service Industries, Inc. and
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(d) Brock A. Hattox
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Page 12
INDEX TO EXHIBITS
Page No.
(7) - National Service Industries, Inc. Long-Term 25
Achievement Incentive Plan Effective
September 17, 1996
(8) - Aspiration Achievement Incentive Award Agreements 47
between National Service Industries, Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
[a confidential portion of which has been omitted
and filed separately with the Securities and
Exchange Commission]
(9) - National Service Industries, Inc. 62
Supplemental Deferred Savings Plan
Effective September 18, 1996
(10) - Letter Agreement Between National Service 93
Industries, Inc. and Don W. Hubble Dated
October 18, 1996, amending as of that date
the Incentive Stock Option Agreement
Dated September 15, 1993, the Incentive
Stock Option Agreement Dated September
21, 1994, the Nonqualified Stock Option
Agreement Dated September 21, 1994, the
Incentive Stock Option Agreement Dated
September 20, 1995, and the Nonqualified
Stock Option Agreement Dated September
20, 1995
EXHIBIT 11 Computation of Net Income per Share of 95
Common Stock
EXHIBIT 27 Financial Data Schedules 96
</TABLE>
Page 13
Exhibit 10(iii)A(5)
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of the 17th day of September, 1996 (the "Grant
Date"), between National Service Industries, Inc., a Delaware corporation (the
"Company"), and __________________ (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 Optionee performs services for the Company or one of its
Subsidiaries; and
WHEREAS, the Committee responsible for administration of the Program has
determined to grant the 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 ________ whole
Shares subject to, and in accordance with, the terms and conditions set forth in
this Agreement.
1.2 The Option is intended to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code and shall be so construed;
provided, however, that nothing in this Agreement shall be interpreted as a
representation, guarantee, or other undertaking on the part of the Company that
the Option is or will be determined to be 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 $38.00 per Share.
<PAGE>
Page 14
Exhibit 10(iii)A(5)
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.
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, _____, 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 15
Exhibit 10(iii)A(5)
6. Termination of Employment.
6.1 Death, Disability, Retirement, or Change in Control. If the
employment of the Optionee is terminated as a result of his death, Disability,
Retirement, 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 Other Termination of Employment. If the employment of the Optionee
is terminated for any reason other than the reasons set forth in Section 6.1
(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.
Notwithstanding anything contained to the contrary in this Agreement,
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
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 Fair Market Value, at the time of surrender, of the
Shares subject to the Option or portion thereof 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 the Option or any
portion of the Option for cancellation 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. During the lifetime of the Optionee, the Option
shall be exercisable only by the Optionee.
<PAGE>
Page 16
Exhibit 10(iii)A(5)
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.
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 and Notice of Disposition.
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
<PAGE>
Page 17
Exhibit 10(iii)A(5)
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.
12.2 If the Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share
or Shares issued to him pursuant to his exercise of the Option within the two
(2) year period commencing on the day after the Grant Date or within the one (1)
year period commencing on the day after the date of transfer of such Share or
Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten
(10) days of such disposition, notify the Company thereof, by delivery of
written notice to the Company at its principal executive office, and immediately
deliver to the Company the amount of 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.
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 in 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 corporation. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee
<PAGE>
Page 18
Exhibit 10(iii)A(5)
and all rights granted to the Company under this Agreement shall be
final, binding, and conclusive upon the Optionee's heirs, executors,
administrators, and successors.
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.
By: /s/ James S. Balloun
Secretary James S. Balloun
Chairman of the Board
and Chief Executive Officer
/s/
Name of Optionee:
Page 19
Exhibit 10(iii)A(6)
NONQUALIFIED STOCK OPTION AGREEMENT
FOR EXECUTIVE OFFICERS AND DIVISION PRESIDENTS
THIS AGREEMENT, made as of the 17th day of September, 1996 (the "Grant
Date"), between National Service Industries, Inc., a Delaware corporation (the
"Company"), and ___________ (the "Optionee").
WHEREAS, the Company has adopted the National Service Industries, Inc.
Long-Term Incentive Program (the "Plan") in order to provide additional
incentive to certain officers and key employees of the Company and its
Subsidiaries; and
WHEREAS, the Optionee performs services for the Company and/or one of its
Subsidiaries; and
WHEREAS, the Committee responsible for administration of the Plan has
determined to grant the 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 _________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 Plan (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 Plan.
2. Purchase Price.
The price at which the Optionee shall be entitled to purchase Shares
upon the exercise of the Option shall be $38.00 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 20
Exhibit 10(iii)A(6)
4. Exercisability of Option.
Unless otherwise provided in this Agreement or the Plan, the Option
shall entitle the Optionee to purchase, in whole at any time or in part from
time to time, _________ , 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
Plan, 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 Plan, 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.
6. Termination of Employment.
6.1 In General. If the employment of the Optionee with the Company and
its Subsidiaries shall terminate for any reason, other than for the reasons set
forth in Sections 6.2 and 7.2 below, the Optionee's right to exercise any then
outstanding Options (whether or not vested) shall terminate immediately upon
termination of employment.
<PAGE>
Page 21
Exhibit 10(iii)A(6)
6.2 Termination of Employment Due to Death, Disability.
If the Optionee's termination of employment is due to death,
Disability or Retirement (termination on or after age 65), the following shall
apply:
(a) Termination Due To Death. In the event the Optionee dies while
actively employed, all vested Options at the date of death shall
remain exercisable at any time prior to the expiration of the
Exercise Term by (A) a Permitted Transferee (as defined in
Section 8 below), if any, or such person(s) that have acquired
the Optionee's rights under such Options by will or by the laws
of descent and distribution, or (B) if no such person described
in (A) exists, the Optionee's estate or representative of the
Optionee's estate. All Options that are not vested as of the date
of death shall be immediately forfeited.
(b) Termination by Disability. In the event the employment of the
Optionee is terminated by reason of Disability, all vested
Options as of the date the Committee determines the Optionee
terminated for Disability shall remain exercisable at any time
prior to the expiration of the Exercise Term. All Options that
are not vested as of the date of termination for Disability shall
be immediately forfeited.
(c) Termination by Retirement. In the event the employment of the
Optionee is terminated by reason of Retirement, the Optionee's
Options shall continue to vest in accordance with the original
schedule (just as if the Optionee had remained employed) and
shall remain exercisable at any time prior to the expiration of
the Exercise Term. In the event of the Optionee's death after
Retirement, the Options shall continue to vest and be exercisable
in accordance with this subsection (c) as if the Optionee had
lived and the Options shall be exercisable by the persons
described in (a) above.
7. Effect of Change in Control.
7.1 Notwithstanding anything contained to the contrary in this
Agreement, 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 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 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 portion thereof 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 the Option, or any
portion of the Option, for cancellation 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.
<PAGE>
Page 22
Exhibit 10(iii)A(6)
7.2 If the employment of the Optionee is terminated within two (2)
years following a Change in Control, all vested Options shall continue to be
exercisable at any time within three (3) years after the date of such
termination of employment, but in no event after expiration of the Exercise
Term.
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 the 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. If all or part of the Option is transferred to a Permitted
Transferee, the Permitted Transferee's rights hereunder shall be subject to the
same restrictions and limitations with respect to the Option as the Optionee.
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 Plan shall be interpreted or
construed to confer upon the Optionee any right with respect to continuance of
employment by the Company or a Subsidiary, nor shall this Agreement or the Plan
interfere in any way with the right of the Company or a Subsidiary 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 Plan and shall be effective and final,
binding and conclusive for all purposes of the Plan and this Agreement.
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.
<PAGE>
Page 23
Exhibit 10(iii)A(6)
12. Withholding of Taxes.
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
equal to the withholding Taxes, provided that, if the Optionee may be subject to
liability under Section 16(b) of the Exchange Act, the election must comply with
the requirements applicable to Share transactions by such Optionees.
13. Employee Bound by the Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan 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.
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 in 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 corporation. This Agreement shall inure to the benefit of the
Optionee's legal representatives. 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, Permitted Transferees,
administrators and successors.
<PAGE>
Page 24
Exhibit 10(iii)A(6)
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.
By: /s/ James S. Balloun
Secretary James S. Balloun
Chairman of the Board and
Chief Executive Officer
/s/
Name of Optionee
Page 25
Exhibit 10(iii)A(7)
NATIONAL SERVICE INDUSTRIES, INC.
LONG-TERM ACHIEVEMENT INCENTIVE PLAN
1. Purpose. The purposes of the National Service Industries, Inc. Long-Term
Achievement Incentive Plan (the "Plan") are to provide additional incentives to
those officers and key executives of National Service Industries, Inc. (the
"Company") and its Subsidiaries (as hereinafter defined) whose substantial
contributions are essential to the continued growth and profitability of the
Company's businesses, to strengthen their commitment to the Company and its
Subsidiaries, to motivate those officers and other executives to perform their
assigned responsibilities diligently and skillfully, and to attract and retain
competent and dedicated individuals whose efforts will result in the long term
growth and profitability of the Company. To accomplish these purposes, the
Program provides that the Company may grant Incentive Stock Options,
Nonqualified Stock Options, Aspiration Achievement Incentive Awards, Restricted
Stock, Performance Units and Performance Shares (as each term is hereinafter
defined).
2. Definitions. For purposes of the Program:
(a) "Adjusted Fair Market Value" means in the event of a Change in
Control, the greater of (i) the highest price per share paid to holders of
the Shares in any transaction (or series of transactions) constituting or
resulting in a Change in Control or (ii) the highest Fair Market Value of a
Share during the ninety (90) day period ending on the date of a Change in
Control.
(b) "Agreement" means the written agreement between the Company and an
Optionee or Grantee evidencing the grant of an Option or Award and setting
forth the terms and conditions thereof.
(c) "Aspiration Achievement Incentive Award" or "Aspiration Award"
means an Award granted to an Eligible Employee, as described in Section 7
of the Plan.
(d) "Award" means a grant of an Aspiration Award, Restricted Stock,
Performance Awards, or any or all of them.
(e) "Board" means the Board of Directors of the Company.
(f) "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) or exchange of Shares for a different number or kind of shares or
other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off,
split-up, issuance of warrants or rights or debentures, stock dividend,
stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, public offering,
private placement, change in corporate structure or otherwise, which in the
judgment of the Committee is material or significant.
<PAGE>
Page 26
Exhibit 10(iii)A(7)
(g) "Change in Control" means any of the following events:
(i) The acquisition (other than from the Company) by any "Person"
(as the term is used for purposes of Sections 13(d) or 14(d) of the
Exchange Act) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty percent (20%) or
more of the combined voting power of the Company's then outstanding
voting securities; or
(ii) The individuals who, as of September 18, 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
(iii) Approval by stockholders of the Company of (i) 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 (ii) 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(g)(i), 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.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means a committee consisting of two or more
Non-Employee Directors appointed by the Board to administer the Plan
and to perform the functions set forth herein.
(j) "Company" means National Service Industries, Inc., a Delaware
corporation, or any successor corporation.
<PAGE>
Page 27
Exhibit 10(iii)A(7)
(k) "Disability" means a physical or mental infirmity which
impairs the Optionee's or Grantee's ability to substantially perform
his duties for a period of one hundred eighty (180) consecutive days.
(l) "Division" means any of the operating units or divisions of
the Company, or its Subsidiaries, designated as a Division by the
Committee.
(m) "Eligible Employee" means any officer or other designated
employee of the Company or a Subsidiary designated by the Committee as
eligible to receive Options or Awards, subject to the conditions set
forth herein.
(n) "Exchange Act" means the Securities Exchange Act 1934, as
amended.
(o) "Fair Market Value" means the fair market value of the Shares
as determined in good faith by the Committee; provided, however, that
(A) if the Shares are admitted to trading on a national securities
exchange, Fair Market Value on any date shall be the last sale price
reported for the Shares on such exchange on such date or, if no sale
was reported on such date, on the last date preceding such date on
which a sale was reported, (B) if the Shares are admitted to quotation
on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or other comparable quotation system and have been
designated as a National Market System ("NMS") security, Fair Market
Value on any date shall be the last sale price reported for the Shares
on such system on such date or on the last day preceding such date on
which a sale was reported, or (C) if the Shares are admitted to
Quotation on NASDAQ and have not been designated a NMS Security, Fair
Market Value on any date shall be the average of the highest bid and
lowest asked prices of the Shares on such system on such date.
(p) "Grantee" means a person to whom an Award has been granted
under the Plan.
(q) "Incentive Stock Option" means an Option within the meaning
of Section 422 of the Code.
(r) "Named Executive Officer" means an Eligible Employee who as
of the date of grant, vesting and/or payout of an Award or Option is
deemed by the Committee to be one of the group of "covered" employees"
as defined in Code Section 162(m) and the regulations thereunder.
(s) "Non-Employee Director" means a director of the Company who
satisfies the requirements under Rule 16b-3(b)(3) of the Exchange Act,
as amended.
(t) "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
(u) "Option" means an Incentive Stock Option, a Nonqualified
Stock Option, or either or both of them.
<PAGE>
Page 28
Exhibit 10(iii)A(7)
(v) "Optionee" means a person to whom an Option has been granted
under the Plan.
(w) "Participant" means an Eligible Employee who has an
outstanding Award or Option under the Plan.
(x) "Performance Awards" means Performance Units, Performance
Shares or either or both of them.
(y) "Performance Cycle" means the time period specified by the
Committee at the time an Aspiration Award or a Performance Award is
granted during which the performance of the Company, a Subsidiary or a
Division will be measured, which period shall be at least two fiscal
years.
(z) "Performance Shares" means Restricted Stock granted under
Section 9 of the Plan.
(aa) "Performance Unit" means Performance Units granted under
Section 9 of the Plan.
(bb) "Restricted Stock" means Shares issued or transferred to an
Eligible Employee which are subject to restrictions. Restricted Stock
may be subject to restrictions which lapse over time without regard to
the performance of the Company, a Subsidiary or a Division, pursuant
to Section 8 hereof, or may be awarded as Performance Shares pursuant
to Section 9 hereof.
(cc) "Retirement" means the voluntary termination of employment
by the Grantee or Optionee at any time on or after the Grantee or
Optionee attains age 65.
(dd) "Shares" means the common stock, par value $1.00 per share,
of the Company (including any new, additional or different stock or
securities resulting from a Change in Capitalization).
(ee) "Subsidiary" means any corporation in an unbroken chain of
corporations, beginning with the Company, if each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. The
term "Subsidiary" shall also include a partnership in which the
Company or a Subsidiary owns 50% or more of the profits interest or
capital interest in the partnership.
(ff) "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code,
which issues or assumes an Option in a transaction to which Section
424(a) of the Code applies.
(gg) "Ten-Percent Stockholder" means an Eligible Employee who, at
the time an Incentive Stock Option is to be granted to him, owns
<PAGE>
Page 29
Exhibit 10(iii)A(7)
(within the meaning of Section 422(b)(6) of the Code) stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company.
(hh) "Termination of Cause" means the Optionee or Grantee has
terminated employment and has been found by the Committee to be guilty
of theft, embezzlement, fraud or misappropriation of the Company's
property or any action which, if the individual were an officer of the
Company, would constitute a breach of fiduciary duty.
3. Administration.
(a) The Plan shall be administered by the Committee which shall
hold such meetings as may be necessary for the proper administration
of the Plan. Each member of the Committee shall be a Non-Employee
Director. No member of the Committee shall be personally liable for
any action, determination or interpretation made in good faith with
respect to the Plan, Agreements, Options or Awards, and all members of
the Committee shall be fully indemnified by the Company with respect
to any such action, determination or interpretation.
(b) Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time:
(i) to determine those Eligible Employees to whom Options
shall be granted under the Plan and the number of Incentive Stock
Options and/or Nonqualified Stock Options to be granted to each
Eligible Employee and to prescribe the terms and conditions
(which need not be identical) of each Option, including the
purchase price per Share subject to each Option, and to make any
amendment or modification to any Agreement consistent with the
terms of the Plan;
(ii) to select those Eligible Employees to whom Awards shall
be granted under the Plan and to determine the amount of
Aspiration Award and Shares payable, the number of Performance
Units, Performance Shares, and/or shares of Restricted Stock, to
be granted pursuant to each Award, the terms and conditions of
each Award, including the restrictions or performance criteria
relating to such Award, the maximum value of each Award, and to
make any amendment or modification to any Agreement consistent
with the terms of the Plan;
provided, however, that the Board can exercise any of the
powers set forth in this Section 3(b), subject to any limitations
imposed by Code Section 162(m) or Rule 16b-3.
(c) Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time:
(i) to construe and interpret the Plan and the Options and
Awards granted thereunder and to establish, amend and revoke
rules and regulations for the administration of the Plan,
including, but not limited to, correcting any defect or supplying
<PAGE>
Page 30
Exhibit 10(iii)A(7)
any omission, or reconciling any inconsistency in the Plan or in
any Agreement, in the manner and to the extent it shall deem
necessary or advisable to make the Plan fully effective, and all
decisions and determinations by the Committee in the exercise of
this power shall be final, binding and conclusive upon the
Company, a Subsidiary, and the Optionees and Grantees, as the
case may be;
(ii) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee or Grantee on an
individual basis without constituting a termination of employment
or service for purposes of the Plan;
(iii) to exercise its discretion with respect to the powers
and rights granted to it as set forth in the Plan;
(iv) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best
interests of the Company with respect to the Plan.
4. Shares Subject to Program.
(a) The maximum number of Shares that may be issued or
transferred pursuant to Options and Awards under the Plan is 1,750,000
Shares (or the number and kind of shares of stock or other securities
to which such Shares are adjusted upon a Change in Capitalization
pursuant to Section 11) and the Company shall reserve for the purposes
of the Plan, out of its authorized but unissued Shares or out of
Shares held in the Company's treasury, or partly out of each, such
numbers of shares as shall be determined by the Board.
(b) Not more than fifteen percent (15%) of the Shares referred to
in Section 4(a) may be issued or transferred in connection with Awards
of Restricted Stock made pursuant to Section 8 (other than Awards of
Performance Shares pursuant to Section 9).
(c) Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason (other
than by exercise of the Option), the Shares allocable to the canceled
or otherwise terminated portion of such Option or Award may again be
the subject of Options and Awards hereunder.
(d) Whenever any Shares subject to an Award or Option are
forfeited for any reason pursuant to the terms of the Plan, such
shares may again be the subject of Options and Awards hereunder.
(e) With respect to Shares used to exercise an Option or for tax
withholding, the Committee shall, in its discretion and in accordance
with applicable law, determine whether to charge such Shares against
the maximum number of Shares that may be issued under the Plan.
5. Eligibility. Subject to the provisions of the Plan, the Committee
shall have full and final authority to select those Eligible Employees who will
<PAGE>
Page 31
Exhibit 10(iii)A(7)
receive Options and/or Awards; provided, however, that no Eligible Employee
shall receive any Incentive Stock Options unless he is an employee of the
Company or a Subsidiary (other than a Subsidiary that is a partnership) at the
time the Incentive Stock Option is granted.
6. Options. The Committee may grant Options in accordance with the
Plan and the terms and conditions of the Option shall be set forth in an
Agreement. The Committee shall have sole discretion in determining the number of
Shares underlying each Option to grant a Participant; provided, however, that in
the case of any Incentive Stock Option granted under the Plan, the aggregate
Fair Market Value (determined at the time such Option is granted) of the Shares
to which Incentive Stock Options are exercisable for the first time by the
Participant during any calendar year (under the Plan and all other incentive
stock option plans of the Company and any Subsidiary) shall not exceed $100,000.
The maximum number of Shares subject to Options which can be granted under the
Plan during a 12-month period to any Participant, including a Named Executive
Officer, is 100,000 Shares. Each Option and Agreement shall be subject to the
following conditions:
(a) Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Option shall
be set forth in the Agreement, provided, that the purchase price per
Share under each Option shall not be less than 100% of the Fair Market
Value of a Share on the date the Option is granted (110% in the case
of an Incentive Stock Option granted to a Ten-Percent Stockholder.
(b) Duration. Options granted hereunder shall be for such term as
the Committee shall determine, provided that no Option shall be
exercisable after the expiration of ten (10) years from the date it is
granted (five (5) years in the case of an Incentive Stock Option
granted to a Ten-Percent Stockholder). The Committee may, subsequent
to the granting of any Option, extend the term thereof, but in no
event shall the term as so extended exceed the maximum term provided
for in the preceding sentence.
(c) Non-transferability. Unless the Committee otherwise provides
in the Agreement, no Option granted hereunder shall be transferable by
the Optionee, otherwise than by will or the laws of descent and
distribution, and an Option may be exercised during the lifetime of
such Optionee only by the Optionee or his guardian or legal
representative. The terms of such Option shall be final, binding and
conclusive upon the beneficiaries, executors, administrators, heirs
and successors of the Optionee.
(d) Vesting. Subject to Section 6(h) hereof, each Option shall be
exercisable in such installments (which need not be equal or the same
for each Optionee) and at such times as may be designated by the
Committee and set forth in the Agreement. To the extent not exercised,
installments shall accumulate and be exercisable, in whole or in part,
at any time after becoming exercisable, but not later than the date
the Option expires. The Committee may accelerate the exercisability of
any Option or portion thereof at any time, subject to any limitations
required by Code Section 162(m).
(e) Method of Exercise. The exercise of an Option shall be made
only by a written notice delivered in person or by mail to the
<PAGE>
Page 32
Exhibit 10(iii)A(7)
Secretary of the Company at the Company's principal executive office,
specifying the number of Shares to be purchased and accompanied by
payment therefor and otherwise in accordance with the Agreement
pursuant to which the Option was granted. The purchase price for any
Shares purchased pursuant to the exercise of an Option shall be paid
in full upon such exercise, as determined by the Committee in its
discretion, in cash, by check, or by transferring Shares to the
Company upon such terms and conditions as determined by the Committee.
The written notice pursuant to this Section 6(e) may also provide
instructions from the Optionee to the Company that upon receipt of the
purchase price in cash from the Optionee's broker or dealer,
designated as such on the written notice, in payment for any Shares
purchased pursuant to the exercise of an Option, the Company shall
issue such Shares directly to the designated broker or dealer. Any
Shares transferred to the Company as payment of the purchase price
under an Option shall be valued at their Fair Market Value on the day
preceding the date of exercise of such Option. If requested by the
Committee, the Optionee shall deliver the Agreement evidencing the
Option to the Secretary of the Company who shall endorse thereon a
notation of such exercise and return such Agreement to the Optionee.
No fractional Shares shall be issued upon exercise of an Option and
the number of Shares that may be purchased upon exercise shall be
rounded to the nearest number of whole Shares.
(f) Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and
until (i) the Option shall have been exercised pursuant to the terms
thereof, (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. Thereupon, the
Optionee shall have full voting, dividend and other ownership rights
with respect to such Shares.
(g) Termination of Employment. The Agreement shall set forth the
terms and conditions of the Option upon the termination of the
Optionee's employment with the Company, a Subsidiary or a Division
(including a Grantee'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), as the Committee may, in its
discretion, determine at the time the Option is granted or thereafter,
provided, however no Option shall be exercisable beyond its maximum
term as described in Section 6(b) hereof.
(h) Effect of Change in Control. Notwithstanding anything
contained in the Plan or an Agreement to the contrary, in the event of
a Change in Control, (i) all Options outstanding on the date of such
Change in Control shall become immediately and fully exercisable and
(ii) an Optionee will be permitted to surrender for cancellation
within sixty (60) days after such Change in Control, any Option or
portion of an Option to the extent not yet exercised and the Optionee
will be entitled to receive a cash payment in the amount equal to the
excess, if any, of (x) (A) in the case of a Nonqualified Stock Option,
the greater of (1) the Fair Market Value, on the date preceding the
date of surrender, of the Shares subject to the Option or portion
thereof surrendered or (2) the Adjusted Fair Market Value of the
Shares subject to the option or portion thereof surrendered or (B) in
the case of an Incentive Stock Option, the Fair Market Value, at the
time of surrender, of the Shares subject to the Option or portion
<PAGE>
Page 33
Exhibit 10(iii)A(7)
thereof surrendered, over (y) the aggregate purchase price for such
Shares under the Option; provided, however, in the case of any
Optionee who may be subject to liability under Section 16(b) of the
Exchange Act, such Optionee shall be entitled to surrender for
cancellation his or her Option during the sixty (60) day period
commencing upon the expiration of six (6) months from the date of
grant of any such Option.
(i) Modification or Substitution. Subject to the terms of the
Plan, the Committee may, in its discretion, modify outstanding Options
or accept the surrender of outstanding Options (to the extent not
exercised) and grant new Options in substitution for them.
Notwithstanding the foregoing, no modification of an Option shall
adversely alter or impair any rights or obligations under the
Agreement without the Optionee's consent.
7. Aspiration Achievement Incentive Awards.
(a) Grant of Aspiration Awards. Subject to the terms of the Plan,
the Committee may grant Aspiration Awards to Eligible Employees. The
Committee shall have the discretion to determine the amount of each
Aspiration Award and the other terms and conditions relating to the
grant of such awards.
(b) Terms of Aspiration Awards. The following rules shall apply
to the Aspiration Awards:
(i) Prior to or at the beginning of the Performance Cycle
(or within such time period as is permitted by Code Section
162(m) and the regulations thereunder), the Committee shall
determine, based upon the Participant's salary and level of
responsibility, the Aspiration Award applicable to the
Participant. The Award will contain performance levels related to
the Performance Measure(s) that will determine the actual award
the Participant will receive at the end of the Performance Cycle.
The Committee will select one or more of the Performance Measures
listed on Appendix A (which objectives may be different for
different Participants or Performance Cycles) for purposes of the
Aspiration Awards under the Plan. Performance Measures may be in
respect of the performance of the Company and its Subsidiaries on
a consolidated basis, or a Subsidiary or a Division, or some
combination of the foregoing. Performance levels with respect to
a Performance Measure may be absolute or relative and may be
expressed in terms of a progression within a specified range.
Except with respect to Named Executive Officers, the Committee
may establish additional Performance Measures for purposes of
Aspiration Awards under the Plan. Further, in the event that
applicable tax and/or securities laws (including, but not limited
to, Code Section 162(m) and Section 16 of the Exchange Act)
change to permit Committee discretion to alter the governing
Performance Measures for Named Executive Officers without
obtaining stockholder approval of such changes, the Committee
shall have sole discretion to make such changes without obtaining
stockholder approval.
(ii) No Participant may receive an Aspiration Award in
excess of $4 million with respect to a single three-year
Performance Cycle.
<PAGE>
Page 34
Exhibit 10(iii)A(7)
(iii) Performance Cycles shall equal or exceed three (3)
years in length.
(c) Earning of Aspiration Awards. After the applicable
Performance Cycle has ended, the Committee shall certify the extent to
which the performance levels for the Performance Measure(s) have been
achieved. The Committee may, in determining whether the performance
levels have been met, adjust the financial results for a Performance
Cycle to exclude the effect of unusual charges or income items, or
other events (such as acquisitions or divestitures), which are
distortive of financial results for the Performance Cycle; provided,
that, with respect to Named Executive Officers, in determining
financial results, items whose exclusion from consideration will
increase the Award shall only have their effects excluded if they
constitute "extraordinary items" under generally accepted accounting
principles and all such items shall be excluded. The Committee shall
also adjust the performance calculations to exclude the unanticipated
effect on financial results of changes in the Code, or other tax laws,
and the regulations thereunder. The Committee may decrease the amount
of an Award otherwise payable if, in the Committee's view, the
financial performance during the Performance Cycle justifies such
adjustment, regardless of the extent to which the Performance Measure
was achieved.
The Agreement may provide the Committee with the right to revise
the performance levels for the Performance Measure and the Award
amounts, if unforeseen events (including, without limitation, a Change
in Capitalization, an equity restructuring, an acquisition or a
divestiture) occur which have a substantial effect on the financial
results and which in the judgment of the Committee make the
application of the performance levels unfair unless a revision is
made. For Named Executive Officers, such changes shall be made in a
manner consistent with Code Section 162(m).
(d) Form and Timing of Payment of Aspiration Awards. The
Agreement shall set forth the manner in which payment of earned
Aspiration Awards will be made. Payment will be made in cash or in
Shares, or in a combination of cash and Shares, as determined by the
Committee in the Agreement. Payment will be made as soon as practical
after the end of the Performance Cycle to which the Award relates. For
purposes of the portion of the Award paid in Shares, the Shares shall
be valued on their Fair Market Value as of the last day of Performance
Cycle (unless the Agreement provides otherwise).
(e) Termination of Employment. The Agreement shall set forth the
terms and conditions of the Aspiration Award upon the termination of
the Participant's employment with the Company, Subsidiary or a
Division (including a Participant'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), as the
Committee may, in its discretion, determine at the time the Aspiration
Award is granted or thereafter.
(f) Nontransferability. Unless the Agreement provides otherwise,
Aspiration Awards may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, other than, if amounts are
payable after the Participant's death, by will or by the laws of
descent and distribution.
<PAGE>
Page 35
Exhibit 10(iii)A(7)
(g) Effect of Change in Control. In the event of a Change in
Control, the Participant shall earn and become entitled to payment of
such portion of the Aspiration Award as set forth in the Agreement.
The time of payment of the Aspiration Award and the form of such
payment shall also be as set forth in the Agreement.
8. Restricted Stock. The Committee may grant Awards of Restricted
Stock, and may issue Shares of Restricted Stock in payment in respect of
Aspiration Awards or vested Performance Units (as hereinafter provided in
Section 9(b)), which shall be evidenced by an Agreement between the Company and
the Grantee. Each Agreement shall contain such restrictions, terms and
conditions as the Committee may, in its discretion, determine and (without
limiting the generality of the foregoing) such Agreements may require that an
appropriate legend be placed on Share certificates. The maximum number of Shares
that may be awarded under a Restricted Stock Award to a Named Executive Officer
during any 12-month period is 20,000 Shares. Awards of Restricted Stock shall be
subject to the following terms and provisions:
(a) Rights of Grantee. Shares of Restricted Stock granted
pursuant to an Award hereunder shall be issued in the name of the
Grantee as soon as reasonably practicable after the Award is granted,
provided that the Grantee has executed an Agreement evidencing the
Award, the appropriate blank stock powers and, in the discretion of
the Committee, an escrow agreement and any other documents which the
Committee may require as a condition to the issuance of such Shares.
If a Grantee shall fail to execute the documents which the Committee
may require within the time period prescribed by the Committee at the
time the Award is granted, the Award shall be null and void. At the
discretion of the Committee, Shares issued in connection with a
Restricted Stock Award shall be deposited together with the stock
powers with an escrow agent designated by the Committee. Unless the
Committee determines otherwise and as set forth in the Agreement, upon
delivery of the Shares to the escrow agent, the Grantee shall have all
of the rights of a stockholder with respect to such Shares, including
the right to vote the Shares and to receive all dividends or other
distributions paid or made with respect to the Shares.
(b) Non-transferability. Unless the Agreement provides otherwise,
until any restrictions upon the Shares of Restricted Stock awarded to
a Grantee shall have lapsed in the manner set forth in Section 8(c),
such Shares shall not be sold, transferred or otherwise disposed of
and shall not be pledged or otherwise hypothecated, nor shall they be
delivered to the Grantee.
(c) Lapse of Restrictions.
(i) Generally. Restrictions upon Shares of Restricted Stock
awarded hereunder shall lapse at such time or times and on such
terms and conditions as the Committee may provide in the
Agreement.
(ii) Effect of Change in Control. Notwithstanding anything
contained in the Plan to the contrary, in the event of a Change
<PAGE>
Page 36
Exhibit 10(iii)A(7)
in Control, all restrictions upon any Shares of Restricted Stock
(other than Performance Shares) shall lapse immediately and all
such Shares shall become fully vested in the Grantee.
(d) Termination of Employment. The Agreement shall set forth
the terms and conditions that shall apply upon the termination of
the Grantee's employment with the Company, a Subsidiary or a
Division (including a forfeiture of Shares for which the
restrictions have not lapsed upon Grantee's ceasing to be
employed) as the Committee may, in its discretion, determine at
the time the Award is granted or thereafter.
(e) Modification or Substitution. Subject to the terms of
the Plan, the Committee may modify outstanding Awards of
Restricted Stock or accept the surrender of outstanding Awards of
Restricted Stock (to the extent not exercised) and grant new
Awards in substitution for them. Notwithstanding the foregoing,
no modification of an Award shall adversely alter or impair any
rights or obligations under the Agreement without the Grantee's
consent.
(f) Treatment of Dividends. At the time the Award of Shares
of Restricted Stock is granted, the Committee may, in its
discretion, determine that the payment to the Grantee of
dividends, or a specified portion thereof, declared or paid on
such Shares by the Company shall be (i) deferred until the
lapsing of the restrictions imposed upon such Shares and (ii)
held by the Company for the account of the Grantee until such
time. In the event of such deferral, there shall be credited at
the end of each year (or portion thereof) interest on the amount
of the account at the beginning of the year at a rate per annum
as the Committee, in its discretion, may determine. Payment of
deferred dividends, together with interest accrued thereon, shall
be made upon the lapsing of restrictions imposed on such Shares,
and any dividends deferred (together with any interest accrued
thereon) in respect of any Shares of Restricted Stock shall be
forfeited upon the forfeiture of such Shares pursuant to Section
8(d) or otherwise.
(g) Delivery of Shares. Upon the lapse of the restrictions
on Shares of Restricted Stock, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such
Shares, free of all restrictions hereunder (except any
restrictions under Section 17).
9. Performance Awards.
(a) Performance Objectives. The Committee will select one or
more of the Performance Measures listed on Appendix A attached
hereto for purposes of Performance Awards under the Plan.
Performance Measures may be in respect of the performance of the
Company and its Subsidiaries (which may be on a consolidated
basis), a Subsidiary or a Division, or any combination of the
foregoing. Performance objectives may be absolute or relative and
may be expressed in terms of a progression within a specified
range, with the Grantee becoming vested in (i) a minimum
percentage of such Performance Awards in the event the Minimum
Acceptable Objective is met or, if surpassed, a greater
percentage (ii) an intermediate percentage of such Performance
Awards in the event the Good Objective is met or, if surpassed, a
<PAGE>
Page 37
Exhibit 10(iii)A(7)
greater percentage and (iii) one hundred percent (100%) of such
Performance Awards in the event the Maximum Realistic Objective
is met or surpassed. The Committee may, in determining whether
the performance levels have been met, adjust the financial
results for a Performance Cycle to exclude the effect of unusual
charges or income items, or other events (such as acquisition or
divestitures), which are distortive of financial results for the
Performance Cycle; provided, that, with respect to Named
Executive Officers, in determining financial results, items whose
exclusion from consideration will increase the Award shall only
have their effects excluded if they constitute "extraordinary
items" under generally accepted accounting principles and all
such items shall be excluded. The Committee shall also adjust the
performance calculations to exclude the unanticipated effect on
financial results of changes in the Code, or other tax laws, and
the regulations thereunder. The Committee may decrease the amount
of an Award otherwise payable if, in the Committee's view, the
financial performance during the Performance Cycle justifies such
adjustment, regardless of the extent to which the Performance
Measure was achieved.
The Agreement may provide the Committee with the right to
revise the performance levels for the Performance Measure and the
Award amounts, if unforeseen events (including, without
limitation, a Change in Capitalization, an equity restructuring,
an acquisition or a divestiture) occur which have a substantial
effect on the financial results and which in the judgment of the
Committee make the application of the performance levels unfair
unless a revision is made. For Named Executive Officers, such
changes shall be made in a manner consistent with Code Section
162(m).
The maximum number of Performance Units and Performance
Shares a Named Executive Officer may earn for any Performance
Cycle shall not exceed an aggregate of 60,000 Units and Shares.
(b) Performance Units. The Committee may grant Performance
Units, the terms and conditions of which shall be set forth in an
Agreement between the Company and the Grantee. Each Performance
Unit shall, contingent upon the attainment of specified
performance objectives within the Performance Cycle, represent
one (1) Share. Each Agreement shall specify the number of the
Performance Units to which it relates, the performance objectives
which must be satisfied in order for the Performance Units to
vest, the Performance Cycle within which such objectives must be
satisfied, and the form of payment in respect of vested
Performance Units.
(i) Vesting and Forfeiture. A Grantee shall become
vested with respect to the Performance Units to the extent
that the performance objectives set forth in the Agreement
are satisfied for the Performance Cycle. Subject to Section
9(d) hereof, if the Minimum Acceptable Objective specified
in the Agreement is not satisfied for the applicable
Performance Cycle, the Grantee's rights with respect to the
Performance Shares shall be forfeited.
(ii) Payment of Awards. Payment of Performance Units to
Grantees in respect of vested Performance Units shall be
made within sixty (60) days after the last day of the
Performance Cycle to which such Award relates. Subject to
<PAGE>
Page 38
Exhibit 10(iii)A(7)
Section 9(d), such payments may be made entirely in Shares,
entirely in cash, or in such combination of Shares and cash
as the Committee in its discretion, shall determine at any
time prior to such payment, provided, however, that if the
Committee in its discretion determines to make such payment
entirely or partially in Shares of Restricted Stock, the
Committee must determine the extent to which such payment
will be in Shares of Restricted Stock at the time the Award
is granted. Except as provided in Section 9(d), if payment
is made in the form of cash, the amount payable in respect
of any Share shall be equal to the Fair Market Value of such
Share on the last day of the Performance Cycle.
(iii) Termination of Employment. The Agreement shall
set forth the terms and conditions of the Award of
Performance Units upon the termination of the Grantee's
employment with the Company, a Subsidiary, or a Division
(including a Grantee'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) as the Committee may, in its discretion, determine
at the time the Award is granted or thereafter.
(c) Performance Shares. The Committee, in its discretion,
may grant Awards of Performance Shares and shall be evidenced by
an Agreement between the Company and the Grantee. Each Agreement
shall contain such restrictions, if any, and the terms and
conditions as the Committee may, in its discretion, require, and
(without limiting the generality of the foregoing) such
Agreements may require that an appropriate legend be placed on
Share certificates. Awards of Performance Shares shall be subject
to the following terms and provisions:
(i) Rights of Grantee. The Committee shall provide at
the time an Award of Performance Shares is made, the time or
times at which the Performance Shares granted pursuant to
such Award hereunder shall be issued in the name of the
Grantee; provided, however, that no Performance Shares shall
be issued until the Grantee has executed an Agreement
evidencing the Award, the appropriate blank stock powers
and, in the discretion of the Committee, an escrow agreement
and any other documents which the Committee may require as a
condition to the issuance of such Performance Shares. If a
Grantee shall fail to execute the documents which the
Committee may require within the time period prescribed by
the Committee at the time the Award is granted, the award
shall be null and void. At the discretion of the Committee,
Shares issued in connection with an Award of Performance
Shares shall be deposited together with the stock powers
with an escrow agent designated by the Committee. Except as
restricted by the terms of the Agreement, upon delivery of
the Shares to the escrow agent, the Grantee shall have, in
the discretion of the Committee, all of the rights of a
stockholder with respect to such Shares, including the right
to vote the shares and to receive all dividends or other
distributions paid or made with respect to the shares.
(ii) Non-transferability. Unless the Agreement provides
otherwise, until any restrictions upon the Performance
Shares awarded to a Grantee shall have lapsed in the manner
<PAGE>
Page 39
Exhibit 10(iii)A(7)
set forth in Sections 9(c)(3) or 9(d), such Performance
Shares shall not be sold, transferred or otherwise disposed
of and shall not be pledged or otherwise hypothecated, nor
shall they be delivered to the Grantee. The Committee may
also impose such other restrictions and conditions on the
Performance Shares, if any, as it deems appropriate.
(iii) Lapse of Restrictions. Subject to Section 9(d),
restrictions upon Performance Shares awarded hereunder shall
lapse and such Performance Shares shall become vested at
such time or times and on such terms, conditions and
satisfaction of performance objectives as the Committee may,
in its discretion, determine at the time an Award is
granted.
(iv) Termination of Employment. The Agreement shall set
forth the terms and conditions of the Award of Performance
Shares upon the termination of the Grantee's employment with
the Company, a Subsidiary or a Division (including a
Grantee'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) as the Committee
may, in its discretion, determine at the time the Award is
granted or thereafter.
(v) Treatment of Dividends. At the time the Award of
Performance Shares is granted, the Committee may, in its
discretion, determine that the payment to the Grantee of
dividends, or a specified portion thereof, declared or paid
on Performance Shares issued by the Company to the Grantee
shall be (i) deferred until the lapsing of the restrictions
imposed upon such Performance Shares and (ii) held by the
Company for the account of the Grantee until such time. In
the event of such deferral, there shall be credited at the
end of each year (or portion thereof) interest on the amount
of the account at the beginning of the year at a rate per
annum as the Committee, in its discretion, may determine.
Payments of deferred dividends, together with interest
accrued thereon as aforesaid, shall be made upon the lapsing
of restrictions imposed on such Performance Shares, except
that any dividends deferred (together with any interest
accrued thereon) in respect of any Performance Shares shall
be forfeited upon the forfeiture of such Performance Shares
pursuant to Section 9(c)(4) or otherwise.
(vi) Delivery of Shares. Upon the lapse of the
restrictions on Performance Shares awarded hereunder, the
Committee shall cause a stock certificate to be delivered to
the Grantee with respect to such Shares, free of all
restrictions hereunder.
(d) Effect of Change in Control. Notwithstanding anything
contained in the Plan to the contrary, in the event of a Change
in Control:
(i) With respect to the Performance Units, the Grantee
shall (i) become vested in a percentage of Performance Unit
as determined by the Committee at the time of the Award of
<PAGE>
Page 40
Exhibit 10(iii)A(7)
such Performance Units and as set forth in the Agreement and
(ii) be entitled to receive in respect of all Performance
Units which become vested as a result of a Change in
Control, a cash payment within ten (10) days after such
Change in Control equal to the product of the Adjusted Fair
Market Value of a Share multiplied by the number of
Performance Units which become vested in accordance with
this Section 9(d); and
(ii) With respect to the Performance Shares, all
restrictions shall lapse immediately on all or a portion of
the Performance Shares as determined by the Committee at the
time of the Award of such Performance Shares and as set
forth in the Agreement.
(e) Non-transferability. Unless the Agreement provides
otherwise, no Performance Awards shall be transferable by the
Grantee otherwise than by will or the laws of descent and
distribution.
(f) Modification or Substitution. Subject to the terms of
the Plan, the Committee may modify outstanding Performance Awards
or accept the surrender of outstanding Performance Awards and
grant new Performance Awards in substitution for them.
Notwithstanding the foregoing, no modification of a Performance
Award shall adversely alter or impair any rights or obligations
under the Agreement without the Grantee's consent.
(g) Definitions. For purposes of Performance Awards, the
following definitions shall apply:
(i) "Good Objective" means a challenging and above
average level of performance of the Company, a Subsidiary or
a Division during a Performance Cycle for which a
performance Award is granted, as determined by the Committee
at the time such Performance Award is granted.
(ii) "Maximum Realistic Objective" means an excellent
level of performance of the Company, a Subsidiary or a
Division during a Performance Cycle for which a Performance
Award is granted, as determined by the Committee at the time
such Performance Award is granted.
(iii) "Minimum Acceptable Objective" means a minimum
level of performance of the Company, a Subsidiary or a
Division during a Performance Cycle for which a Performance
Award is granted, as determined by the Committee at the time
such Performance Award is granted.
10. Loans.
(a) The Company or any Subsidiary may make loans to a
Grantee or Optionee in connection with the exercise of an Option,
subject to the following terms and conditions and such other
terms and conditions not inconsistent with the Program including
the rate of interest, if any, as the Committee shall impose from
time to time.
<PAGE>
Page 41
Exhibit 10(iii)A(7)
(b) No loan made under the Program shall exceed the sum of
(i) the aggregate purchase price payable pursuant to the Option
with respect to which the loan is made, plus (ii) the amount of
the reasonably estimated income taxes payable by the Optionee or
Grantee with respect to the Option or Award. In no event may any
such loan exceed the Fair Market Value, at the date of exercise,
of any such Shares.
(c) No loan shall have an initial term exceeding ten (10)
years; provided, however, that loans under the Program shall be
renewable at the discretion of the Committee.
(d) Loans under the Program may be satisfied by an Optionee
or Grantee, as determined by the Committee, in cash or, with the
consent of the Committee, in whole or in part by the transfer to
the Company of Shares whose Fair Market Value on the date
preceding the date of such payment is equal to the cash amount
for which such Shares are transferred.
(e) A loan shall be secured by a pledge of Shares with a
Fair Market Value of not less than the principal amount of the
loan. After partial repayment of a loan, pledged Shares no longer
required as security may be released into escrow or pursuant to
the terms of the Option, Award or escrow agreement to the
Optionee or Grantee.
11. Adjustment Upon Changes in Capitalization.
(a) In the event of a Change in Capitalization, the
Committee shall conclusively determine the appropriate
adjustments, if any, to the maximum number and class of Shares or
other stock or securities with respect to which Options or Awards
may be granted under the Program, the number and class of Shares
or other stock or securities which are subject to outstanding
Options or Awards granted under the Program, and the purchase
price therefor, if applicable.
(b) Any such adjustment in the Shares or other stock or
securities subject to outstanding Incentive Stock Options
(including any adjustments in the purchase price) shall be made
in such manner as not to constitute a modification as defined by
Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, a Grantee
of an Award shall be entitled to, or an Optionee shall be
entitled to exercise an Option with respect to, new, additional
or different shares of stock, securities, Aspiration Awards,
Performance Units or Performance Shares (other than rights or
warrants to purchase securities), such new, additional or
different shares shall thereupon be subject to all of the
conditions, restrictions and performance criteria which were
applicable to the Aspiration Awards, Performance Units or
Performance Shares pursuant to the Award or Shares subject to the
Option, as the case may be, prior to such Change in
Capitalization.
12. Effect of Certain Transactions. Subject to Sections 6(h), 7(g),
8(c)(ii) and 9(d), in the event of (i) the liquidation or dissolution of the
<PAGE>
Page 42
Exhibit 10(iii)A(7)
Company or (ii) a merger or consolidation of the Company (a "Transaction"), the
Plan and the Options and Awards issued hereunder shall continue in effect in
accordance with their respective terms and each Optionee and Grantee shall be
entitled to receive in respect of each Share subject to any outstanding Options
or Awards, as the case may be, upon exercise of any Option or Award or payment
or transfer in respect of any Award, the same number and kind of stock,
securities, cash, property, or other consideration that each holder of a Share
was entitled to receive in the Transaction in respect of a Share.
13. Release of Financial Information. A copy of the Company's annual
report to stockholders shall be delivered to each Optionee and Grantee at the
time such report is distributed to the Company's stockholders. Upon reasonable
request the Company shall furnish as soon as reasonably practicable, to each
Optionee and Grantee a copy of its most recent annual report and each quarterly
report and current report filed under the Exchange Act since the end of the
Company's prior fiscal year.
14. Termination and Amendment of the Plan.
(a) The Plan shall terminate on the day preceding the tenth
anniversary of its effective date and no Option or Award may be
granted thereafter. The Board may sooner terminate or amend the
Plan (other than to reduce the rights of Optionees and Grantees,
as the case may be, under Sections 6(h), 7(g), 8(c)(ii) and 9(d),
at any time and from time to time; provided, however, that to the
extent necessary under Section 16(b) of the Exchange Act and the
rules and regulations promulgated thereunder or as may otherwise
be legally required, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with
applicable law and regulations at an annual or special meeting.
(b) Except as provided in Sections 11 and 12 hereof, rights
and obligations under any Option or Award granted before any
amendment of the Plan shall not be adversely altered or impaired
by such amendment, except with the consent of the Optionee or
Grantee, as the case may be.
15. Non-Exclusivity of the Plan. The adoption of the Plan by the Board
shall not be construed as amending, modifying or rescinding any previously
approved incentive arrangement or as creating any limitations on the power of
the Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
16. Limitation of Liability. As illustrative of the limitations of
liability of the Company, but not intended to be exhaustive thereof, nothing in
the Plan shall be construed to:
(a) give any person any right to be granted an Option or
Award other than at the sole discretion of the Committee;
(b) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Program;
<PAGE>
Page 43
Exhibit 10(iii)A(7)
(c) limit in any way the right of the Company to terminate
the employment of any person at any time (with or without Cause);
or
(d) be evidence of any agreement or understanding, expressed
or implied, that the Company will employ any person in any
particular position at any particular rate of compensation or for
any particular period of time.
17. Regulation and Other Approvals; Governing Law.
(a) This Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with
the laws of the State of Delaware without giving effect to the
conflicts of laws principles thereof, except to the extent that
such law is preempted by federal law.
(b) The obligation of the Company to sell or deliver Shares
with respect to Options and Awards granted under the Plan shall
be subject to all applicable laws, rules and regulations,
including all applicable federal and state securities laws, and
the obtaining of all such approvals by governmental agencies as
may be deemed necessary or appropriate by the Committee.
(c) The Plan is intended to comply with Rule 16b-3
promulgated under the Exchange Act and the Committee shall
interpret and administer the provisions of the Plan or any
Agreement in a manner consistent therewith. Any provisions
inconsistent with such Rule shall be inoperative and shall not
affect the validity of the Plan.
(d) The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any
government authority, or to obtain for Eligible Employees granted
Incentive Stock Options the tax benefits under the applicable
provisions of the code and regulations promulgated thereunder.
(e) Each Option and Award is subject to the requirement
that, if at any time the Committee determines, in its discretion,
that the listing, registration or qualification of Shares
issuable pursuant to the Plan is required by any securities
exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of
an Option or the issuance of Shares, no Options shall be granted
or payment made or Shares issued, in whole or in part, unless
listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions as acceptable to
the Committee.
(f) Notwithstanding anything contained in the Plan to the
contrary, in the event that the disposition of Shares acquired
pursuant to the Plan is not covered by a then current
registration statement under the Securities Act of 1933, as
amended, and is not otherwise exempt from such registration, such
Shares shall be restricted against transfer to the extent
required by the Securities Act of 1933, as amended, and Rule 144
or other regulations thereunder. The Committee may require any
individual receiving Shares pursuant to the Plan, as a condition
precedent to receipt of such Shares (including upon exercise of
<PAGE>
Page 44
Exhibit 10(iii)A(7)
an Option), to represent and warrant to the Company in writing
that the Shares acquired by such individual are acquired without
a view to any distribution thereof and will not be sold or
transferred other than pursuant to an effective registration
thereof under said Act or pursuant to an exemption applicable
under the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder. The certificates evidencing
any of such Shares shall be appropriately legended to reflect
their status as restricted securities as aforesaid.
(g) In the event that changes are made to Code Section
162(m) to permit greater flexibility with respect to any Award or
Option under the Plan, the Committee may, subject to this Section
17, make any adjustments it deems appropriate in such Award or
Option.
18. Miscellaneous.
(a) Multiple Agreements. The terms of each Option or Award
may differ from other Options or Awards granted under the Plan at
the same time, or at some other time. The Committee may also
grant more than one Option or Award to a given Eligible Employee
during the term of the Plan, either in addition to, or in
substitution for, one or more Options or Awards previously
granted to that Eligible Employee. The grant of multiple Options
and/or Awards may be evidenced by a single Agreement or multiple
Agreements, as determined by the Committee.
(b) Withholding of Taxes. (1) The Company shall have the
right to deduct from any distribution of cash to any Optionee or
Grantee, 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 any Option or Award. If
an Optionee or Grantee is entitled to receive Shares upon
exercise of an Option or pursuant to an Award, the Optionee or
Grantee shall pay the Withholding Taxes to the Company prior to
the issuance, or release from escrow, of such Shares. In
satisfaction of the Withholding Taxes to the Company, the
Optionee or Grantee may make an irrevocable 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 or
pursuant to an Award having an aggregate Fair Market Value equal
to the Withholding Taxes, provided that in respect of an Optionee
or Grantee who may be subject to Section 16(b) of the Exchange
Act, the election complies with the requirements applicable to
Share transactions by such Participants.
(2) If an Optionee makes a disposition, within the meaning
of Section 424(c) of the Code and regulations promulgated
thereunder, of any Share or Shares issued to him pursuant to his
exercise of the Option within the two-year period commencing on
the day after the date of the grant or within the one-year period
commencing on the day after the date of transfer of such Share or
Shares to the Optionee pursuant to such exercise, the Optionee
shall, within ten (10) days of such disposition, notify the
Company thereof, by delivery of written notice to the Company at
its principal executive office, and immediately deliver to the
Company the amount of Withholding Taxes.
<PAGE>
Page 45
Exhibit 10(iii)A(7)
(c) Designation of Beneficiary. To the extent applicable to
the type of Award, each Grantee (other than an Optionee) may
designate a person or persons to receive in the event of his or
her death, any Award or any amount payable pursuant thereto, to
which he or she would then be entitled under the terms of the
Plan. Such designation will be made upon forms supplied by and
delivered to the Company and may be revoked in writing.
(d) Deferral. The Committee may permit a Participant to
defer to another plan or program such Participant's receipt of
Shares or cash that would otherwise be due to such Participant by
virtue of the exercise of an Option, earning of an Aspiration
Award, the vesting of Restricted Stock or the earning of
Performance Awards. If any such deferral election is required or
permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals.
19. Effective Date. The effective date of the Plan shall be the date
of its adoption by the Board, subject only to the approval by the affirmative
votes of the holders of a majority of the securities of the Company present, or
represented, and entitled to vote at a meeting of stockholders duly held in
accordance with the applicable laws of the State of Delaware within twelve (12)
months of such adoption.
<PAGE>
Page 46
Exhibit 10(iii)A(7)
APPENDIX A
TO
NATIONAL SERVICE INDUSTRIES, INC.
LONG-TERM ACHIEVEMENT INCENTIVE PLAN
<TABLE>
<S> <C>
PERFORMANCE MEASURE DEFINITION
Capitalized Equity Value Capitalized Entity Value minus total debt
Capitalized Entity Value Sum of Average Invested Capital in the business and the
Capitalized Economic Profit
Capitalized Economic Profit Economic Profit divided by the Weighted Average Cost of
Capital (WACC)
Economic Profit Adjusted After-Tax Profits (AATP) minus Average Invested
Capital times the WACC
Average Invested Capital Average of beginning and ending Invested Capital (i.e.
total assets including cash and capitalized operating
leases minus non-interest-bearing liabilities other than
self-insurance reserves)
Weighted Average Cost of Capital (WACC) A percentage cost established for the Performance Cycle
Adjusted After-Tax Profit (AATP) Sales minus operating costs (including depreciation,
amortization and an operating lease adjustment) minus book
income taxes
Return on Invested Capital AATP divided by Average Invested Capital
AATP Margin AATP divided by Sales
Sales Growth Change in Sales from year to year
Total Return to Shareholders Change in stock price plus reinvested dividends
Cashflow Return on Capital Cashflow divided by Average Invested Capital
Cashflow Return on Capitalized Entity/Equity Value Cashflow divided by Capitalized Entity/Equity Value
Net Income Return on Capital Net Income divided by Average Invested Capital
Sales
Earnings Per Share
Net Income
Cashflow
</TABLE>
Page 47
Exhibit 10(iii)A(8)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT
FOR EXECUTIVE OFFICERS
THIS AGREEMENT, made as of the 17th day of September, 1996 (the "Grant
Date"), between NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation
("NSI") and___________, a Subsidiary of NSI (together, the "Company"), and
____________ (the "Grantee").
WHEREAS, NSI has adopted the National Service Industries, Inc.
Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional
incentives to certain officers and key employees of NSI and its Subsidiaries;
and
WHEREAS, the Committee responsible for administration of the Plan has
determined to grant to the Grantee an Aspiration Achievement Incentive Award as
provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Aspiration Award.
1.1 The Company hereby grants to the Grantee an Aspiration Achievement
Incentive Award (the "Award"), which has a value determined as provided in
Section 2 below based upon the performance of NSI during the Performance Cycle
from September 1, 1996 to August 31, 1999. As provided in the Plan, Grantee's
right to payment of this Award is dependent upon Grantee's continued employment
in Grantee's current position with the Company, or in a position with
responsibilities of substantially similar value to the Company during the
Performance Cycle. Under certain circumstances as described below, Grantee may
be entitled to receive payment for some portion of the Award if Grantee's
employment terminates prior to the end of the Performance Cycle.
1.2 The Grantee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof. This Agreement shall
be construed in accordance with, and subject to, the provisions of the Plan (the
provisions of which are hereby incorporated 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 Plan.
2. Performance Measure and Performance Levels
The Committee has established the performance measure (the
"Performance Measure"), and award and performance levels set forth in Appendix A
attached hereto. The chart in Appendix A specifies a Commitment performance
level, at which the Commitment Level Award will be paid; an Aspiration
<PAGE>
Page 48
Exhibit 10(iii)A(8)
performance level, at or above which an Aspiration Level Award will be paid; and
a threshold performance level, at which a minimum incentive award will be paid
and below which no award will be paid. For each level of performance at or above
the threshold performance level through the Aspiration performance level,
Grantee will receive an award determined in accordance with the chart and
formulae set forth in Appendix A. The terms used in determining the Performance
Measure are defined in Appendix B.
3. Determination of Aspiration Award.
3.1 Determination Notice. Subject to Section 3.2, as soon as practical
following the last day of the Performance Cycle, the Committee will determine,
in accordance with Section 7(c) of the Plan, the performance level of NSI with
respect to the Performance Measure for the Performance Cycle. The Committee may
in determining the performance level with respect to the Performance Measure
adjust NSI's financial results for the Performance Cycle to exclude the effect
of unusual charges or income items which are distortive of financial results for
the Performance Cycle; provided, that, in determining financial results, items
whose exclusion from consideration will increase the Grantee's Award shall only
have their effects excluded if they constitute "extraordinary items" under
generally accepted accounting principles and all such items shall be excluded.
The Committee shall also adjust the performance calculations to exclude the
unanticipated effect on financial results of changes in the Code, or other tax
laws, and the regulations thereunder. The Committee may decrease the amount of
the Award otherwise payable to Grantee if, in the Committee's view, the
financial performance of NSI during the Performance Cycle justifies such
adjustment, regardless of the extent to which the Performance Measure has been
achieved.
The Company will notify the Grantee (or the executors or
administrators of the Grantee's estate, if applicable) of the Committee's
determination (the "Determination Notice"). The Determination Notice shall
specify the performance level of NSI with respect to the Performance Measure for
the Performance Cycle and the amount of Award (if any) Grantee will be entitled
to receive. The amount Grantee is entitled to receive will be paid one-half in
cash and one-half in Shares, with the Shares being valued at their Fair Market
Value as of the last day of the Performance Cycle.
3.2 Significant Corporate Events. If, during a Performance Cycle, NSI
consummates an acquisition or disposition that involves assets whose value
equals or exceeds 30% of the total value of NSI's assets, the following rules
shall apply:
(a) If the transaction is consummated during the first year of the
Performance Cycle, the Performance Cycle and the Grantee's outstanding Award
will be terminated with no payout and a new Performance Cycle will be started.
(b) If the transaction is consummated after the first year of the
Performance Cycle, the Performance Cycle will end and the outstanding Award will
be determined and paid at NSI's actual performance level to such date (using,
for such purpose, prorated performance levels of the Performance Measure to
reflect the portion of the Performance Cycle that had elapsed as of the date of
consummation of the acquisition or disposition). Payment of the Award will be
<PAGE>
Page 49
Exhibit 10(iii)A(8)
made as soon as practical after it is determined. A new Performance Cycle will
be started to cover the period remaining in the initial Performance Cycle or, if
that result is not practical, the Committee will make an appropriate adjustment
to reflect the premature termination of the initial Performance Cycle.
If, during a Performance Cycle, NSI consummates an acquisition or
disposition that involves assets whose value is less than 30% of the total value
of NSI's assets, the effects of such acquisition or disposition shall be
disregarded in determining NSI's financial results and performance level for the
Performance Cycle.
Any actions under this Section 3.2 shall be taken in accordance with
the requirements of Code Section 162(m) and the regulations thereunder.
4. Termination of Employment
4.1 In General. Except as provided in Sections 4.2, 4.3 and 4.4 below,
in the event that a Grante's employment terminates during a Performance Cycle,
all unearned Aspiration Awards shall be immediately forfeited by the Grantee.
4.2 Termination of Employment Due to Death, Disability, or Retirement.
In the event the employment of a Grantee is terminated by reason of death or
Disability during a Performance Cycle, the Grantee shall be entitled to a
prorated payout with respect to the unearned Award. The prorated payout shall be
determined by the Committee based upon the length of time that the Grantee was
actively employed during the Performance Cycle relative to the full length of
the Performance Cycle; provided that payment shall only be made to the extent at
the end of the Performance Cycle the Award would have been earned based upon the
performance level achieved for the Performance Cycle; and provided, further,
that the performance level used to determine the prorated award cannot exceed
200% of the Commitment performance level.
In the event of Grantee's Retirement (on or after age 65), the full
Award shall continue to be eligible for payout at the end of the Performance
Cycle, just as if Grantee had remained employed for the remainder of the
Performance Cycle (including if the Grantee dies after Retirement but before the
end of the Performance Cycle). At the end of the Performance Cycle, the
Committee shall make its determination in the same manner as provided in Section
3.
Payment of earned Awards to Grantee in the event of termination due to
death, Disability, or Retirement shall be made at the same time payments would
be made to Grantee if Grantee did not terminate employment during the
Performance Cycle.
4.3 Change In Control. Notwithstanding anything in this Agreement to
the contrary, if a Change in Control occurs during the Performance Cycle, then
the Grantees
<PAGE>
Page 50
Exhibit 10(iii)A(8)
Award shall be determined for the Performance Cycle then in progress as though
the Performance Cycle had ended as of the date of the Change in Control and the
outstanding Award will be paid at the Commitment Level Award or the actual
performance level to such date (using, for such purpose, prorated performance
levels of the Performance Measure to reflect the portion of the Performance
Cycle that had elapsed as of the date of the Change in Control), whichever
provides the greater payment. The Award determined in accordance with the
preceding sentence shall be fully vested and payable immediately to the Grantee.
The Committee shall determine the amount of the Award under this Section 5.3,
subject to the terms of this section and no downward adjustment of the Award
shall be permitted. The Award will be paid in full in cash, unless the Grantee
elects to receive one-half of the Award in Shares. For purposes of determining
the number of Shares to be paid to a Grantee under this Section 4.3, the Fair
Market Value of a Share shall be determined by taking the average closing price
per share for the last twenty (20) trading days prior to the commencement of the
offer, transaction or other event which resulted in a Change in Control.
4.4 Termination Without Cause. In the event Grantee's employment is
terminated by the Company without Cause more than one (1) year after the
commencement of the Performance Cycle and prior to the end of the Performance
Cycle, the Grantee shall be entitled to a prorated payout of the Award based
upon the length of time that the Grantee was actively employed during the
Performance Cycle relative to the full length of the Performance Cycle;
provided, that payment shall only be made to the extent at the end of the
Performance Cycle the Award would have been earned based upon the performance
level achieved for the Performance Cycle; and provided, further, that the
performance level used to determine the prorated award cannot exceed 200% of the
Commitment performance level. Payment shall be made to Grantee at the same time
as if Grantee had not terminated employment during the Performance Cycle.
5. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be interpreted to confer
upon the Grantee any rights with respect to continuance of employment by the
Company, nor shall this Agreement or the Plan interfere in any way with the
right of the Company to terminate the Grantee's employment at any time.
6. Nonassignment.
The Grantee shall not have the right to assign, alienate, pledge,
transfer or encumber any amounts due Grantee hereunder, and any attempt to
assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits
shall be null and void and not recognized by the Plan or the Company.
<PAGE>
Page 51
Exhibit 10(iii)A(8)
7. 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.
8. Severability; Governing Law.
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 in full force in accordance with their terms.
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.
9. Successors in Interest.
This Agreement shall inure to the benefit of and be binding upon any
successor to the Company. All obligations imposed upon the Grantee and all
rights granted to the Company under this Agreement shall be binding upon the
Grantee's heirs, executors, and administrators.
10. 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 Grantee and the Company for all
purposes.
11. Withholding of Taxes.
The Company shall have the right to deduct from any amount payable
under this Agreement, 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 any such amount. In satisfaction of all or
part of the Withholding Taxes, the Grantee may make a written election (the "Tax
Election"), which may be accepted or rejected in the discretion of the Company,
to have withheld a portion of the Shares issuable to him or her pursuant to an
Award, having an aggregate Fair Market Value equal to the Withholding Taxes.
<PAGE>
Page 52
Exhibit 10(iii)A(8)
12. Shareholder Approval.
The effectiveness of this Agreement and of the grant of the Award
pursuant hereto is subject to the approval of the Plan by the stockholders of
NSI in accordance with the terms of the Plan.
NATIONAL SERVICE INDUSTRIES, INC.
By: /s/ James S. Balloun
Chairman of the Board and
Chief Executive Officer
___________, Subsidiary
By: /s/ James S. Balloun
JAMES S. BALLOUN
Chairman of the Board and
Chief Executive Officer
/s/
Name of Grantee: _____________
<PAGE>
Page 53
Exhibit 10(iii)A(8)
Exhibit A(1)
YOUR AWARD OPPORTUNITY
Name: : Jim Balloun
Position : CEO, Chairman
Division : NSI
Performance Period : 1997-1999
Award at Commitment : $480,000
YOUR POTENTIAL PAYOUT
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
<TABLE>
<CAPTION>
NSI Cumulative Economic Profit Payout*
($ Millions) ($ 000s)
<S> <C>
Threshold** $ 120
Commitment** $ 480
Aspiration** $2,400
</TABLE>
*Amounts between performance benchmarks will be interpolated.
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 54
Exhibit 10(iii)A(8)
Exhibit A(1)
(continued)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 55
Exhibit 10(iii)A(8)
Exhibit A(2)
YOUR AWARD OPPORTUNITY
Name: : Brock Hattox
Position : AVP, CFO
Division : NSI
Performance Period : 1997-1999
Award at Commitment : $224,000
YOUR POTENTIAL PAYOUT
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
<TABLE>
<CAPTION>
NSI Cumulative Economic Profit Payout*
($ Millions) ($ 000s)
<S> <C>
Threshold** $ 56
Commitment** $ 224
Aspiration** $1,120
</TABLE>
*Amounts between performance benchmarks will be interpolated.
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 56
Exhibit 10(iii)A(8)
Exhibit A(2)
(continued)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 57
Exhibit 10(iii)A(8)
Exhibit A(3)
YOUR AWARD OPPORTUNITY
Name: : David Levy
Position : EVP, Administration & Counsel
Division : NSI
Performance Period : 1997-1999
Award at Commitment : $214,000
YOUR POTENTIAL PAYOUT
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
<TABLE>
<CAPTION>
NSI Cumulative Economic Profit Payout*
($ Millions) ($ 000s)
<S> <C>
Threshold** $ 54
Commitment** $ 214
Aspiration** $1,070
</TABLE>
*Amounts between performance benchmarks will be interpolated.
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 58
Exhibit 10(iii)A(8)
Exhibit A(3)
(continued)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 59
Exhibit 10(iii)A(8)
Exhibit A(4)
YOUR AWARD OPPORTUNITY
Name: : Stewart Searle
Position : SVP, Planning Development
Division : NSI
Performance Period : 1997-1999
Award at Commitment : $128,000
YOUR POTENTIAL PAYOUT
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
<TABLE>
<CAPTION>
NSI Cumulative Economic Profit Payout*
($ Millions) ($ 000s)
<S> <C>
Threshold** $ 32
Commitment** $128
Aspiration** $640
</TABLE>
*Amounts between performance benchmarks will be interpolated
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 60
Exhibit 10(iii)A(8)
Exhibit A(4)
(continued)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 61
Exhibit 10(iii)A(8)
APPENDIX B
ASPIRATION ACHIEVEMENT
INCENTIVE AWARD
PERFORMANCE MEASURE
<TABLE>
<S> <C>
PERFORMANCE MEASURE DEFINITION
Economic Profit Sum of the annual economic profits for the performance
cycle. Annual economic profit shall be determined as
follows: Adjusted After-Tax Profits (AATP) minus
[Average Invested Capital times the Weighted Average
Cost of Capital (WACC)]
RELATED TERMS DEFINITION
Average Invested Capital Average of the average beginning and ending Invested
Capital balances each month.
Adjusted After-Tax Profit (AATP) Adjusted Pre-Tax Profit minus Book Income Taxes.
Adjusted Pre-Tax Profit (APTP) Income before provision for income taxes plus interest
expense plus implied interest on capitalized operating
leases.
Book Income Taxes Reported tax rate (determined by dividing
the provision for income taxes by the
income before the provision for income
taxes, as reported in NSI's annual financial
statements) applied to APTP.
Invested Capital [Total assets plus capitalized operating leases, less
short and long-term investment in tax benefits] less
[non-interest bearing liabilities except for self
insurance reserves and deferred tax credits relating to
the safe harbor lease].
Weighted Average Cost of Capital (WACC) Ten percent (10%) will be the WACC for the Performance
Cycle ending August 31, _____.
</TABLE>
Page 62
Exhibit 10(iii)A(9)
NATIONAL SERVICE INDUSTRIES, INC.
SUPPLEMENTAL DEFERRED SAVINGS PLAN
(Effective As of September 18, 1996)
<PAGE>
Page 63
Exhibit 10(iii)A(9)
NATIONAL SERVICE INDUSTRIES, INC.
SUPPLEMENTAL DEFERRED SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I INTRODUCTION AND ESTABLISHMENT.........................................................................1
ARTICLE II DEFINITIONS...........................................................................................1
2.1 Account 1
2.2 Annual Valuation Date...............................................................................1
2.3 Beneficiary.........................................................................................1
2.4 Change in Capitalization............................................................................1
2.5 Change in Control...................................................................................2
2.6 Class Year Subaccount...............................................................................3
2.7 Code 3
2.8 Company 3
2.9 Compensation........................................................................................3
2.10 Division...........................................................................................4
2.11 Deferral Subaccount................................................................................4
2.12 Election Form......................................................................................4
2.13 Employer...........................................................................................4
2.14 ERISA 4
2.15 Executive..........................................................................................4
2.16 Executive Savings Plan.............................................................................4
2.17 Fair Market Value..................................................................................4
2.18 Fiscal Year........................................................................................5
2.19 Matching Subaccount................................................................................5
2.20 Participant........................................................................................5
2.21 Plan 5
2.22 Plan Administrator.................................................................................5
2.23 Plan Year..........................................................................................5
2.24 Prime Rate.........................................................................................6
2.25 Retirement.........................................................................................6
2.26 Shares 6
2.27 Subsidiary.........................................................................................6
2.28 Supplemental Subaccount............................................................................6
2.29 Termination for Cause..............................................................................6
2.30 Termination of Service.............................................................................6
2.31 Total and Permanent Disability.....................................................................7
2.32 Valuation Date.....................................................................................7
2.33 Year of Service....................................................................................7
ARTICLE III PARTICIPATION; DEFERRAL ELECTION.....................................................................1
3.1 Eligibility to Participate..........................................................................1
3.2 Deferral Election...................................................................................1
3.3 Executive Savings Plan..............................................................................2
ARTICLE IV PARTICIPANTS' ACCOUNTS; EMPLOYER CONTRIBUTION CREDITS.................................................1
4.1 Accounting for Participants' Interests..............................................................1
<PAGE>
Page 64
Exhibit 10(iii)A(9)
4.2 Vesting of a Participant's Account..................................................................2
4.3 Distribution of a Participant's Account.............................................................3
4.4 Hardship............................................................................................6
4.5 Transfer of Executive Savings Plan Account..........................................................6
ARTICLE V PLAN ADMINISTRATOR.....................................................................................1
5.1 Committee...........................................................................................1
5.2 Right and Duties....................................................................................1
5.3 Compensation, Indemnity and Liability...............................................................2
5.4 Taxes 2
ARTICLE VI CLAIMS PROCEDURE......................................................................................1
6.1 Claims for Benefits.................................................................................1
6.2 Appeals 1
ARTICLE VII AMENDMENT AND TERMINATION; CHANGE IN CONTROL..........................................................
1
7.1 Amendments..........................................................................................1
7.2 Termination of Plan.................................................................................1
7.3 Change In Control Provisions........................................................................1
ARTICLE VIII MISCELLANEOUS.......................................................................................1
8.1 Limitation on Participant's Rights..................................................................1
8.2 Benefits Unfunded...................................................................................1
8.3 Other Plans.........................................................................................1
8.4 Receipt or Release..................................................................................2
8.5 Governing Law.......................................................................................2
8.6 Gender, Tense, and Headings.........................................................................2
8.7 Successors and Assigns; Nonalienation of Benefits...................................................2
8.8 Combination With Other Plan..........................................................................3
APPENDIX A DEFERRAL AND PAYMENT ELECTIONS AND DESIGNATION
OF BENEFICIARY.............................................................................A-1
APPENDIX B ELECTION TO DEFER DISTRIBUTION.............................................................B-1
</TABLE>
<PAGE>
Page 65
Exhibit 10(iii)A(9)
ARTICLE I
INTRODUCTION AND ESTABLISHMENT
National Service Industries, Inc. ("Company") hereby establishes the
National Service Industries, Inc. Supplemental Deferred Savings Plan ("Plan")
for the benefit of eligible management and highly compensated employees of the
Company and its Subsidiaries and Divisions. The Plan is designed to assist and
encourage eligible employees to accumulate capital and to supplement their
retirement income and to align their interests more closely with those of
shareholders. The Plan provides for elective deferrals of an employee's
compensation, Company matching contributions and supplemental Company
contributions.
The terms of this Plan are applicable only to eligible employees who
are actively employed on or after December 1, 1996. Any employee who terminates
his employment relationship prior to that date shall not be covered by this
Plan.
<PAGE>
Page 66
Exhibit 10(iii)A(9)
ARTICLE II
DEFINITIONS
When used in this Plan, the following terms shall have the meanings
set forth below unless a different meaning is plainly required by the context:
2.1 "Account" means the records maintained by the Plan Administrator
to determine each Participant's interest under this Plan. Such Account may be
reflected as an entry in the Company's (or Employer's) records, or as a separate
account under a trust, or as a combination of both. Each Participant's Account
shall consist of at least three subaccounts: a Deferral Subaccount to reflect
his deferrals of Compensation; a Matching Subaccount for Employer's matching
contribution credits; a Supplemental Subaccount for any supplemental Employer
contribution credits. The Plan Administrator may establish such additional
subaccounts as it deems necessary for the proper administration of the Plan.
2.2 "Annual Valuation Date" means December 31 of each year while the
Plan is in effect.
2.3 "Beneficiary" means the person or persons last designated in
writing by the Participant to receive the vested amount in his Account in the
event of such Participant's death; or if no designation shall be in effect at
the time of a Participant's death or if all designated Beneficiaries shall have
predeceased the Participant, then the Beneficiary shall be the Participant's
estate or his personal representative.
2.4 "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) or exchange of Shares for a different number or kind of shares or other
securities of the Company, by reason of a reclassification, recapitalization,
merger, consolidation, reorganization, spin-off, split-up, issuance of warrants
or rights or debentures, stock dividend, stock split or reverse stock split,
cash dividend, property dividend, combination or exchange of shares, repurchase
of shares, public offering, private placement, change in corporate structure or
otherwise, which in the judgment of the Plan Administrator is material or
significant.
2.5 "Change in Control" means any of the following events:
(i) 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 Securities Exchange Act of 1934, as amended
(the "1934 Act")) of beneficial ownership (within the meaning of
<PAGE>
Page 67
Exhibit 10(iii)A(9)
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
(ii) The individuals who, as of September 18, 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 Plan, be considered as a
member of the Incumbent Board; or
(iii) 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 subsection (i) above, 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.
2.6 "Class Year Subaccount" means the subaccount set up under the
Deferral Subaccount to reflect the Participant's deferrals for each Plan Year
and any earnings thereon.
<PAGE>
Page 68
Exhibit 10(iii)A(9)
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
2.8 "Company" means National Service Industries, Inc., a Delaware
corporation, or its successor or successors.
2.9 "Compensation" means the annual cash compensation (salary plus
annual bonus) paid by the Employer to the Participant for the Plan Year,
provided that a bonus actually paid during a subsequent Plan year based upon
performance during the preceding Plan Year shall be treated as Compensation for
such preceding Plan Year. The Participant's Compensation shall include amounts
deferred by the Participant to this Plan and any other deferred compensation
plan of the Employer (whether or not qualified), and any salary reduction
amounts contributed to a welfare plan. The term "Compensation" shall not include
long-term incentive payments, car allowances and non-cash remuneration, such as
health benefits, life insurance, and other fringe benefits.
2.10 "Division" means any of the operating units or divisions of the
Company, or its Subsidiaries, designated as a Division by the Plan
Administrator.
2.11 "Deferral Subaccount" means the subaccount maintained to reflect
the Participant's deferral of Compensation and any earnings thereon.
2.12 "Election Form" means the form prescribed by the Plan
Administrator on which a Participant may specify the amount of his Compensation
that is to be deferred pursuant to the provisions of Article III, and the manner
of payment of his benefits.
2.13 "Employer" means the Company and any Subsidiary or related
employer designated by the Company to participate in the Plan.
2.14 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.15 "Executive" means an officer of the Company, a Subsidiary or one
of the Company's Divisions, and other key employees designated as eligible
pursuant to Section 3.1. Any dispute regarding any individual's classification
shall be determined by the Plan Administrator in its sole discretion.
2.16 "Executive Savings Plan" means the National Service Industries,
Inc. Executive Savings Plan which was established effective September 1, 1994.
2.17 "Fair Market Value" means the fair market value of the Shares as
determined in good faith by the Plan Administrator; provided, however, that (A)
<PAGE>
Page 69
Exhibit 10(iii)A(9)
if the Shares are admitted to trading on a national securities exchange, Fair
Market Value on any date shall be the closing price reported for the Shares on
such exchange on such date or, if no sale was reported on such date, on the last
date preceding such date on which a sale was reported, (B) if the Shares are
admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or other comparable quotation system and
have been designated as a National Market System ("CMS") security, Fair Market
Value on any date shall be the last sale price reported for the Shares on such
system on such date or on the last day preceding such date on which a sale was
reported, or (C) if the Shares are admitted to Quotation on NASDAQ and have not
been designated a CMS Security, Fair Market Value on any date shall be the
average of the highest bid and lowest asked prices of the Shares on such system
on such date.
2.18 "Fiscal " means the year commencing on September 1 and ending on
August 31 of the following calendar year, or such other 12-month period used by
the Company for financial reporting purposes.
2.19 "Matching Subaccount" means the subaccount maintained to reflect
the Employer's matching contribution credits and any earnings thereon.
2.20 "Participant" means an Eligible Executive as defined in
Section 3.1 (or an individual who was an Eligible Executive), a portion of whose
Compensation for any Plan Year has been deferred pursuant to the Plan or who has
received Employer Supplemental Subaccount credits, and whose interest in the
Plan has not been wholly distributed.
2.21 "Plan" means the National Service Industries, Inc. Supplemental
Deferred Savings Plan, as set forth herein and as it may be amended from time to
time.
2.22 "Plan Administrator" means the Company or, if applicable, a
committee appointed pursuant to Article V to administer the Plan.
2.23 "Plan Year" means January 1 through the next following December
31, except that the initial Plan Year shall be the period commencing December 1,
1996 and ending December 31, 1997.
2.24 "Prime Rate" means the prime rate of interest on a particular
date of Wachovia Bank of Georgia, N.A. (or its successor), as determined by the
Plan Administrator, or the prime rate interest of of such other bank as may be
selected by the Company.
<PAGE>
Page 70
Exhibit 10(iii)A(9)
2.25 "Retirement" means termination of the Participant's employment
with all Employers on or after attaining age 60, other than a Termination for
Cause.
2.26 "Shares" means the common stock, par value $1.00 per share, of
the Company (including any new, additional or different stock or securities
resulting from a Change in Capitalization).
2.27 "Subsidiary" means any corporation in an unbroken chain of
corporations, beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain. The term "Subsidiary" shall also include a
partnership in which the Company or a Subsidiary owns 50% or more of the profits
interest or capital interest in the partnership.
2.28 "Supplemental Subaccount" means the subaccount established to
reflect the Employer's supplemental contribution credits and any earnings
thereon.
2.29 "Termination for Cause" means the Executive has terminated
employment and has been found by the Plan Administrator to be guilty of theft,
embezzlement, fraud or misappropriation of the Company's property or of any
action which, if the individual were an officer of the Company, would constitute
a breach of fiduciary duty. The final determination of whether a Participant has
incurred a Termination for Cause shall be made by the Plan Administrator.
2.30 "Termination of Service" or similar expression means the
termination of the Participant's employment as an Executive. A Participant who
is granted a temporary leave of absence, whether with or without pay, shall not
be deemed to have terminated his service. In the event of a transfer of an
Executive to a position in which he would no longer be eligible to continue in
this Plan, or in the event of the disability of a Participant, the Plan
Administrator in its sole discretion, shall determine whether a Termination of
Service has occurred.
2.31 "Total and Permanent Disability" means the permanent and lasting
inability of a Participant due to illness, accident, or other physical or mental
incapacity, to perform his usual duties and services for the Employer. The
determination as to whether Total and Permanent Disability exists shall be made
by the Plan Administrator based upon the information provided to it.
2.32 "Valuation Date" means the Annual Valuation Date, and any other
date(s) selected by the Plan Administrator as of which the Accounts of
Participants are valued.
<PAGE>
Page 71
Exhibit 10(iii)A(9)
2.33 "Year of Service" means, subject to such Break in Service rules
as the Plan Administrator may establish, each Plan Year in which the Eligible
Employee is credited with 1,000 or more Hours of Service with the Employer,
including years commencing prior to the date of adoption of the Plan. Hours of
Service shall be determined hereunder in accordance with the Company's general
rules for determining such hours under its tax-qualified plans.
<PAGE>
Page 72
Exhibit 10(iii)A(9)
ARTICLE III
PARTICIPATION; DEFERRAL ELECTION
3.1 Eligibility to Participate. Prior to, or at the beginning of,
each Plan Year, the Company (or its designee) shall specify the Executives who
are eligible to make deferral elections under the Plan for the following Plan
Year and to receive Matching Subaccount and Supplemental Subaccount credits (an
"Eligible Executive"). Such eligibility designation may be made by establishing
a minimum compensation level for participation or by the use of such other
criteria as the Company (or its designee) deems appropriate from time to time.
3.2 Deferral Election. Each Eligible Executive may elect on an
Election Form to have a portion of the salary to be received by the Executive
for the period December 1, 1996 through December 31, 1997 and the annual bonus
for the fiscal year ending August 31, 1997 ("Initial Election Period"), deferred
in accordance with the terms and conditions of the Plan. The Eligible
Executive's election for the Initial Election Period shall be effective December
1, 1996, or such later date as may be determined by the Plan Administrator for
administrative reasons. The election with respect to the bonus for the Initial
Election Period shall be coordinated with the Eligible Executive's election (if
any) under the Executive Savings Plan in the manner provided in Section 4.5.
For any Plan Year thereafter in which he is eligible to participate,
the Eligible Executive may elect to defer a portion of his Compensation in
accordance with the terms of the Plan. The Plan Administrator may provide for a
separate election with respect to salary and annual bonus. The amount that may
be deferred for any Plan Year shall not be less than $1,000, nor an aggregate of
more than fifty percent (50%) of his Compensation for such Plan Year.
An Executive desiring to exercise such election shall, prior to the
beginning of the Initial Election Period and each Plan Year thereafter (or prior
to or coincident with the beginning of the Eligible Executive's initial
employment or eligibility, if such employment or eligibility commences other
than at the beginning of a Plan Year), complete an Election Form indicating the
percentage of his Compensation for such Plan Year that he elects to have
deferred. If the Eligible Executive's election would result in a deferral
greater than the maximum provided herein, any deferred amount shall be reduced
to the maximum limit.
An election to defer Compensation must be filed with the Plan
Administrator within the time period prescribed by the Plan Administrator. If a
Participant fails to file a properly completed and duly executed Election Form
with the Plan Administrator by the prescribed time, he will be deemed to have
<PAGE>
Page 73
Exhibit 10(iii)A(9)
elected not to defer any Compensation under this Plan for the Plan Year, except
to the extent the Plan Administrator in its sole discretion permits an extension
of the election period. An Eligible Executive may not, after the applicable
election date change (increase or decrease) the percentage of Compensation he
has elected to defer for a Plan Year.
A Participant may at any time during the Plan Year terminate an
election to defer salary (but not the bonus) and discontinue future salary
deferrals of Compensation under this Plan by providing written notice to the
Plan Administrator prior to the start of the next payroll period for which
Compensation will be payable. In such event, Compensation earned for services
subsequent to such termination notice will be paid directly to the Participant
and will not be subject to his prior deferral election. A Participant who elects
to discontinue participation in the Plan for a Plan Year may not recommence
participation in the Plan until the next following Plan Year (or such later Plan
Year in which he is again eligible to participate), provided the Participant
completes and executes the required Election Form. Increases or decreases in the
amount a Participant elects to defer (other than a suspension of deferrals)
shall not be permitted during the Plan Year.
The Eligible Executive may designate on the Election Form (or on a
separate form provided by the Plan Administrator) a Beneficiary (or
Beneficiaries) to receive payment of amounts in his Account in the event of his
death.
3.3 Executive Savings Plan. If the Plan is otherwise terminated by the
Company before it becomes fully effective, the deferrals elected under Section
3.1 shall be made to the Executive Savings Plan and shall be held and
distributed in accordance with the provisions of such plan. In such event, no
Employer matching contribution credits or supplemental contribution credits will
be made to the Plan or the Executive Savings Plan.
<PAGE>
Page 74
Exhibit 10(iii)A(9)
ARTICLE IV
PARTICIPANTS' ACCOUNTS; EMPLOYER CONTRIBUTION CREDITS
4.1 Accounting for Participants' Interests.
(a) Deferral Subaccount. Each Participant's Deferral Subaccount shall
be credited with the amounts of Compensation deferred by the Participant under
this Plan. The timing and manner in which amounts are credited to a
Participant's Deferral Subaccount under this Plan shall be determined by the
Plan Administrator in its discretion, but the deferral election shall be applied
to each pay period in which the Participant has Compensation during his period
of participation in the Plan. The Participant's Deferral Subaccount shall be
credited with interest at the Prime Rate on each Annual Valuation Date based
upon the amount credited to such Subaccount as of the preceding Annual Valuation
Date, and at such other times, if any, as may be determined by the Plan
Administrator.
(b) Matching Subaccount. As of the end of each Plan Year, unless the
Board otherwise determines, an amount shall be credited to the Participant's
Matching Subaccount equal to 25% of the amount of the Participant's deferrals
for such Plan Year, provided that the maximum amount credited to a Participant's
Matching Subaccount for a Plan Year shall not exceed five percent (5%) of the
Participant's Compensation for such Plan Year. An Eligible Executive who is
covered by a defined benefit supplemental executive retirement plan maintained
by the Employer shall not be eligible to receive Employer matching contribution
credits under the Plan.
Unless the Company otherwise determines for the Plan Year, the amount
credited to a Participant's Matching Subaccount for the year shall be deemed to
be in the form of cash, Shares, or a combination of cash and Shares, as elected
by the Participant on the Election Form for such year. To the extent the amount
is deemed to be credited in cash, the Matching Subaccount will be credited with
interest at the Prime Rate on each Annual Valuation Date (and at such other
dates, if any, as may be determined by the Plan Administrator); if Shares are
deemed to be credited, the Matching Subaccount will be adjusted on each Annual
Valuation Date (and at such other dates ,if any, as may be determined by the
Plan Administrator) as if it were invested in Shares to reflect any dividends
(including reinvestment of such dividends in Shares), distributions, stock
dividends, stock splits or similar actions with respect to the Shares since the
preceding Annual Valuation Date (or such other date).
(c) Supplemental Subaccount. As of the end of each Plan Year, unless
the Board otherwise determines, there shall be credited to the Supplemental
Subaccount of each Eligible Employee who is employed on the last day of the Plan
Year and who has a Year of Service for such Plan Year an amount equal to three
<PAGE>
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Exhibit 10(iii)A(9)
percent (3%) of the Eligible Employee's Compensation for such Plan Year. An
Eligible Executive who is covered by a defined benefit supplemental executive
retirement plan maintained by the Employer shall not be eligible to receive
Employer supplemental contribution credits under the Plan.
Unless the Company otherwise determines, the amount credited to an
Eligible Employee's Supplemental Subaccount shall be deemed to be in the form of
Shares. If Shares are deemed to be credited, the Supplemental Subaccount will be
adjusted on each Annual Valuation Date (and at such other dates, if any, as may
be determined by the Plan Administrator) as if it were invested in Shares to
reflect any dividends (including reinvestment of such dividends in Shares),
distributions, stock dividends, stock splits or similar action with respect to
the Shares since the preceding Annual Valuation Date (or such other date).
(d) Crediting of Shares. The number of Shares to credit to a
Participant's Matching Subaccount or Supplemental Subaccount as of an Annual
Valuation Date (or other date, as provided above) shall be determined by
converting the cash credit otherwise required to Shares using the Fair Market
Value of a Share on such date.
4.2 Vesting of a Participant's Account.
(a) Deferral Subaccount. Except as provided in the next sentence, a
Participant's interest in the amount credited to his Deferral Subaccount shall
at all times be 100% vested and nonforfeitable. If a Participant incurs a
Termination for Cause, he shall forfeit all earnings credited on all amounts
deferred to his Deferral Subaccount that have not yet been fully distributed to
him under Section 4.3.
(b) Matching and Supplemental Subaccounts. Except in the event of a
Termination For Cause, a Participant's interest in the amount credited to his
Matching Subaccount and Supplemental Subaccount shall become (i) 100% vested and
nonforfeitable upon his death, Total and Permanent Disability, Retirement or
completion of 10 or more Years of Service and attainment of age 55 while
actively employed, and (ii) 50% vested upon completion of 5 Years of Service and
attainment of age 55 while actively employed, with such vesting increasing 10%
per year for each additional Year of Service up to 10 years. Subject to Article
VII, if the Participant incurs a Termination for Cause (regardless of whether he
is otherwise vested) or if the Participant's employment is terminated prior to
the time specified for vesting in the preceding sentence, his entire Matching
and Supplemental Subaccounts shall be forfeited.
4.3 Distribution of a Participant's Account. Subject to Article VII, a
Participant's Account shall be distributed as follows:
<PAGE>
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Exhibit 10(iii)A(9)
(a) Deferral Subaccount. (i) Except as provided in (ii) and (iii)
below, distribution of each Class Year Subaccount of a Participant shall be made
in a single lump sum payment as soon as practicable after the January 1 next
following five (5) full Plan Years after the Class Year. For example, the
distribution of the 1997 Class Year Subaccount (the Participant's deferrals
credited to him for the year ended December 31, 1997) shall be made on or about
January 1, 2003, and for the 1998 Class Year Subaccount on or about January 1,
2004, and so on.
(ii) Election to Defer Distribution. A Participant who will become
eligible to receive distribution of a Class Year Subaccount under (i) above may
elect to defer to the January 1 of a later year (subject to the limitations
provided below) the distribution of such Class Year Subaccount. The election to
defer distribution of a Class Year Subaccount must be filed prior to the end of
the fourth Plan Year immediately following the Class Year for such Class Year
Subaccount. For example, for the 1997 Class Year Subaccount, the election must
be filed prior to January 1, 2002. The Participant's deferral election for a
Class Year Subaccount must indicate (A) the January 1 when he desires his
benefit to be paid or to commence, which date must be at least two (2) years
after the date he could initially have received a distribution, and (B) whether
the distribution should be made in a lump sum or in annual installments over a
period of up to ten (10) years; provided, that the lump sum payment shall be
made not later than the year in which he attains age 70 and the last installment
payment shall be made later than the year in which the Participant attains age
75. A Participant's Class Year Subaccount for which a deferral election is made
under this subsection (b) shall continue to be credited with earnings under
Section 4.1(a) until the amount is fully distributed (except as limited in the
case of a Termination for Cause).
(iii) Death, Disability or Termination of Service Prior to Vesting.
(A) Notwithstanding the existence of a deferral election under Section
4.3(a)(ii), in the event of a Participant's death, Total and Permanent
Disability, or a Termination of Service prior to the Participant's completion of
5 Years of Service and attainment of age 55, distribution of the vested balance
credited to a Participant's Deferral Subaccount shall be made to the Participant
(or his Beneficiary in the event of death) as soon as practical. Payment of the
Participant's Deferral Subaccount shall be made in a lump sum. In the event
payments are made pursuant to this subsection (a)(iii), earnings shall be
credited under Section 4.1(a) until all amounts have been distributed (except as
limited in the case of Termination for Cause).
(B) In the event a Participant terminates after completing 5 years of
Service and attaining age 55 (except for death and Total and Permanent
Disability), the vested balance credited to a Participant's Deferral Subaccount
shall be distributed to him in a lump sum as soon as practical; provided, that
<PAGE>
Page 77
Exhibit 10(iii)A(9)
any Class Year Subaccounts as to which he has properly elected under subsection
(ii) above a delayed distribution and/or payment in installments shall be
distributed in accordance with such elections; provided, further, that any such
Participant may elect prior to termination to make the deferral election in (ii)
above with respect to any Class Year Subaccounts as to which the five-year
period has not yet passed and that would otherwise be payable more than one (1)
year in the future.
(b) Matching and Supplemental Subaccounts. (i) The vested amounts
(determined in accordance with Section 4.2(b)) credited to a Participant's
Matching Subaccount and Supplemental Subaccount shall be payable in a lump sum
as soon as practical after the Participant's death, Total and Permanent
Disability or Termination of Service, unless, in the case of a termination other
than for death or Total and Permanent Disability, the Participant has elected a
delayed payment date and/or payment in installments on the Election Form;
provided that the lump sum payment shall be made not later than the year in
which he attains age 70 and the last installment payment shall be made not later
than the year in which the Participant attains age 75. The Plan Administrator
may establish rules to permit Participants to change the form and timing of
their payment election, provided that no such change shall be effective unless
it is made at least two (2) years prior to the Participant's Termination of
Service. In the event of death after Termination of Service, distribution of the
remaining amount credited to the Participant's Matching Subaccount and
Supplemental Subaccount shall be made to a Beneficiary in a lump sum as soon as
practical after the Participant's death.
(ii) In the event all or any portion of the Participant's Matching
Subaccount and Supplemental Subaccount is deemed to be invested in Shares, the
Company may at its discretion permit the Participant to elect to receive a
distribution of all or any portion of the amount credited to the Subaccounts in
Shares in full satisfaction of the Company's obligations hereunder. Any
fractional Share shall be paid in cash.
The obligation of the Company to deliver Shares under the Plan shall
be subject to all applicable laws, rules and regulations, including all
applicable federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or appropriate by
the Company. Notwithstanding anything contained in the Plan to the contrary, in
the event that the disposition of Shares acquired pursuant to the Plan is not
covered by a then current registration statement under the Securities Act of
1933, as amended, and is not otherwise exempt from such registration, such
Shares shall be restricted against transfer to the extent required by the
Securities Act of 1933, as amended, and Rule 144 or other regulations
thereunder. The Company may require any individual receiving Shares pursuant to
<PAGE>
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Exhibit 10(iii)A(9)
the Plan, as a condition precedent to receipt of Shares to represent and warrant
to the Company in writing that the Shares acquired by such individual are
acquired without a view to any distribution thereof and will not be sold or
transferred other than pursuant to an effective registration thereof under said
Act or pursuant to an exemption applicable under the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder. The certificates
evidencing any of such Shares shall be appropriately legended to reflect their
status as restricted securities.
4.4 Hardship. A Participant who is suffering an unforeseen and severe
financial hardship as a result of (i) an illness or accident of the Participant
or his immediately family, (ii) loss of Participant's property due to casualty,
or (iii) for such other reasons as the Plan Administrator may establish, may
file a written request with the Plan Administrator for distribution of all or a
portion of the amount credited to his Deferral Subaccount. The Plan
Administrator shall have the sole discretion to determine whether to grant a
Participant's hardship request and the amount to distribute to the Participant.
The Plan Administrator shall have authority in connection with such hardship
request to accelerate the payment of any Class Year Subaccounts which have been
deferred pursuant to Section 4.3(a).
4.5 Transfer of Executive Savings Plan Account. A Participant in the
Plan who is also a participant in the Executive Savings Plan shall have the
amount credited to his "Account" (as defined in the Executive Savings Plan)
transferred to the Plan as soon as practical after the Plan has been fully
implemented by the Company, or at such earlier or later date as may be selected
by the Company. The amount credited to the Participant's Account in the
Executive Savings Plan shall be credited to his Deferral Subaccount hereunder
and shall thereafter be held and distributed in accordance with the rules of the
Plan applicable to the Deferral Subaccount.
In the event the Plan is fully implemented prior to the date the
bonuses for the Fiscal Year ending August 31, 1997 are paid, the deferral of
bonuses for such year to the Executive Savings Plan shall be made to the Plan
and shall be treated in the same manner as a deferral for the Initial Election
Period.
<PAGE>
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Exhibit 10(iii)A(9)
ARTICLE V
PLAN ADMINISTRATOR
5.1 Committee. The Plan Administrator shall be the Company or such
committee as may be designated by the Company to administer and manage the Plan.
Members of any committee shall not be required to be employees of the Company or
Participants. Action of the Plan Administrator may be taken with or without a
meeting of committee members. If a member of the committee is a Participant in
the Plan, he shall not participate in any decision which solely affects his own
Account.
5.2 Right and Duties. The Plan Administrator shall have the
discretionary authority to administer and manage the Plan and shall have all
powers necessary to accomplish that purpose, including (but not limited to) the
following:
(a) To construe, interpret, and administer this Plan;
(b) To make allocations and determinations required by this Plan, and
to maintain records relating to Participants' Accounts;
(c) To compute and certify to the Company the amount and kinds of
benefits payable to Participants or their beneficiaries, and to determine the
time and manner in which such benefits are to be paid;
(d) To authorize all disbursements by the Company pursuant to this
Plan;
(e) To maintain (or cause to be maintained) all the necessary records
of the administration of this Plan;
(f) To make and publish such rules for the regulation of this Plan as
are not inconsistent with the terms hereof;
(g) To delegate to other individuals or entities from time to time the
performance of any of its duties or responsibilities hereunder; and
(h) To hire agents, accountants, actuaries, consultants and legal
counsel to assist in operating and administering the Plan.
The Plan Administrator shall have the exclusive discretionary
authority to construe and to interpret the Plan, to decide all questions of
eligibility for benefits and to determine the amount and manner of payment of
such benefits, and its decisions on such matters shall be final and conclusive
on all parties.
5.3 Compensation, Indemnity and Liability. The Plan Administrator
shall serve as such without bond and without compensation for services
<PAGE>
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Exhibit 10(iii)A(9)
hereunder. All expenses of the Plan and the Plan Administrator shall be paid by
the Company. If the Plan Administrator is a committee, no member of the
committee shall be liable for any act or omission of any other member of the
committee, nor for any act or omission on his own part, excepting his own
willful misconduct. The Company shall indemnify and hold harmless the Plan
Administrator and each member of the committee against any and all expenses and
liabilities, including reasonable legal fees and expenses, arising out of his
membership on the committee, excepting only expenses and liabilities arising out
of his own willful misconduct.
5.4 Taxes. If the whole or any part of any Participant's Account shall
become liable for the payment of any estate, inheritance, income, or other tax
which the Company shall be required to pay or withhold, the Company shall have
the full power and authority to withhold and pay such tax out of any monies or
other property in its hand for the account of the Participant whose interests
hereunder are so liable. The Company shall provide notice of any such
withholding. Prior to making any payment, the Company may require such releases
or other documents from any lawful taxing authority as it shall deem necessary.
<PAGE>
Page 81
Exhibit 10(iii)A(9)
ARTICLE VI
CLAIMS PROCEDURE
6.1 Claims for Benefits. If a Participant or beneficiary (hereafter,
"Claimant") does not receive timely payment of any benefits which he believes
are due and payable under the Plan, he may make a claim for benefits to the Plan
Administrator. The claim for benefits must be in writing and addressed to the
Plan Administrator or to the Company. If the claim for benefits is denied, the
Plan Administrator shall notify the Claimant in writing within 90 days after the
Plan Administrator initially received the benefit claim. However, if special
circumstances require an extension of time for processing the claim, the Plan
Administrator shall furnish notice of the extension to the Claimant prior to the
termination of the initial 90-day period and such extension shall not exceed one
additional, consecutive 90-day period. Any notice of a denial of benefits shall
advise the Claimant of the basis for the denial, any additional material or
information necessary for the Claimant to perfect his claim, and the steps which
the Claimant must take to have his claim for benefits reviewed.
6.2 Appeals. Each Claimant whose claim for benefits has been denied
may file a written request for a review of his claim by the Plan Administrator.
The request for review must be filed by the Claimant within 60 days after he
received the written notice denying his claim. The decision of the Plan
Administrator will be made within 60 days after receipt of a request for review
and shall be communicated in writing to the Claimant. Such written notice shall
set forth the basis for the Plan Administrator's decision. If there are special
circumstances which require an extension of time for completing the review, the
Plan Administrator's decision shall be rendered not later than 120 days after
receipt of a request for review.
<PAGE>
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Exhibit 10(iii)A(9)
ARTICLE VII
AMENDMENT AND TERMINATION; CHANGE IN CONTROL
7.1 Amendments. Subject to Section 7.3, the Company (or its designee)
shall have the right in its sole discretion to amend this Plan in any manner at
any time; provided, however, that no such amendment shall reduce the
Participant's vested interest in his Account under Section 4.2 at that time. Any
amendment shall be in writing and executed by a duly authorized officer of the
Company. All Participants shall be bound by such amendment.
7.2 Termination of Plan. The Company expects to continue this Plan,
but does not obligate itself to do so. Subject to Section 7.3, the Company
reserves the right to discontinue and terminate the Plan at any time, in whole
or in part, for any reason (including a change, or an impending change, in the
tax laws of the United States or any State). If the Plan is terminated, the Plan
Administrator shall be notified of such action in a writing executed by a duly
authorized officer of the Company, and the Plan shall be terminated at the time
therein set forth. Termination of the Plan shall be binding on all Participants,
but in no event may such termination reduce the amounts credited at that time to
any Participant's Account. If this Plan is terminated, amounts theretofore
credited to Participant's Deferral Subaccount, Matching Subaccount and
Supplemental Subaccount, including interest and earnings from the last Valuation
Date to the termination date, shall either be paid in a lump sum immediately, or
distributed in some other manner consistent with this Plan, as determined by the
Plan Administrator in its sole discretion.
7.3 Change In Control Provisions.
(a) Amendment or Termination. Notwithstanding anything contained in
this Plan to the contrary, for a period of two (2) years following a Change in
Control this Plan shall not be terminated or amended to reduce, suspend or
eliminate any Eligible Executive's or Participant's benefits or participation
(or right to participate) provided under this Plan, including, without
limitation, the benefits provided in Articles III and IV. Any amendment or
termination of this Plan which a Participant reasonably demonstrates (i) was at
the request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control, or (ii) otherwise arose in
connection with or in anticipation of a Change in Control, and which was not
consented to in writing by the Participant shall be null and void, and shall
have no effect whatsoever with respect to the Participant.
(b) Termination of Employment. Notwithstanding anything contained in
this Plan to the contrary, if a Participant's employment is terminated by the
Company (other than for "Cause" as defined in (c) below) or by the Participant
<PAGE>
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Exhibit 10(iii)A(9)
for any reason within two (2) years following a Change in Control, the
Participant's Account shall become fully vested and the Company shall, within
five (5) days, pay to the Participant a lump sum cash payment of the full amount
credited to his Account (including any Class Year Subaccounts subject to a
deferral election under Section 4.3(b), Matching Subaccount and Supplemental
Subaccount) with earnings determined under Section 4.1 credited thereto to the
date of payment. If a Participant's employment is terminated (i) for Cause (as
defined in (c) below) within two (2) years following a Change in Control or
(ii) for any reason more than two (2) years after a Change in Control, the
provisions of Article IV shall apply to the distribution of the Participant's
Account.
(c) Cause. For purposes of Section 7.3(b), a termination for "Cause"
is a termination of the Executive evidenced by a resolution adopted in good
faith by two-thirds of the Board of Directors of the Company that the
Participant (i) intentionally and continually failed to substantially perform
his duties with the Company (other than a failure resulting from the
Participant'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 Participant
specifying the manner in which the Participant has failed to substantially
perform, or (ii) intentionally engaged in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise; provided, however,
that no termination of the Participant's employment shall be for Cause as set
forth in clause (ii) above until (x) there shall have been delivered to the
Participant a copy of a written notice setting forth that the Participant was
guilty of the conduct set forth in clause (ii) and specifying the particulars
thereof in detail, and (y) the Participant shall have been provided an
opportunity to be heard by the Board (with the assistance of the Participant's
counsel if the Participant so desires). No act, nor failure to act, on the
Participant'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, in the
case of any Participant who is a party to a Severance Protection Agreement, no
failure to perform by the Participant after a Notice of Termination (as defined
in the Participant's Severance Protection Agreement) is given by the Participant
shall constitute Cause for purposes of this Plan.
<PAGE>
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Exhibit 10(iii)A(9)
ARTICLE VIII
MISCELLANEOUS
8.1 Limitation on Participant's Rights. Participation in this Plan
shall not give any Participant the right to be retained in the Company's employ
or the employ of any Employer, or any right or interest in this Plan or any
assets of the Company other than as herein provided. The Company reserves the
right to terminate the employment of any Participant without any liability for
any claim against the Company under this Plan, except to the extent provided
herein.
8.2 Benefits Unfunded. The benefits provided by this Plan shall be
unfunded. All amounts payable under this Plan to Participants shall be paid from
the general assets of the Company, and nothing contained in this Plan shall
require the Company to set aside or hold in trust any amounts or assets for the
purpose of paying benefits to Participants. This Plan shall create only a
contractual obligation on the part of the Company, and Participants shall have
the status of general unsecured creditors of the Company under the Plan with
respect to amounts of Compensation they defer hereunder or any other obligation
of the Company to pay benefits pursuant hereto. Any funds of the Company
available to pay benefits pursuant to the Plan shall be subject to the claims of
general creditors of the Company, and may be used for any purpose by the
Company.
Notwithstanding the preceding paragraph, the Company may at any time
transfer assets, including Shares, to a trust for purposes of paying all or any
part of its obligations under this Plan. However, to the extent provided in the
trust only, such transferred amounts shall remain subject to the claims of
general creditors of the Company. To the extent that assets are held in a trust
when a Participant's benefits under the Plan become payable, the Plan
Administrator shall direct the trustee to pay such benefits to the Participant
from the assets of the trust.
8.3 Other Plans. This Plan shall not affect the right of any Executive
or Participant to participate in and receive benefits under and in accordance
with the provisions of any other employee benefit plans which are now or
hereafter maintained by the Company, unless the terms of such other employee
benefit plan or plans specifically provide otherwise.
8.4 Receipt or Release. Any payment to a Participant in accordance
with the provisions of this Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Plan Administrator, the Company and any
Employer, and the Plan Administrator may require such Participant, as a
condition precedent to such payment, to execute a receipt and release to such
effect.
8.5 Governing Law. This Plan shall be construed, administered, and
governed in all respects in accordance with applicable federal law and, to the
<PAGE>
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Exhibit 10(iii)A(9)
extent not preempted by federal law, in accordance with the laws of the State of
Georgia. If any provisions of this instrument shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
8.6 Gender, Tense, and Headings. In this Plan, whenever the context so
indicates, the singular or plural number and the masculine, feminine, or neuter
gender shall be deemed to include the other. Headings and subheadings in this
Plan are inserted for convenience of reference only and are not considered in
the construction of the provisions hereof.
8.7 Successors and Assigns; Nonalienation of Benefits. This Plan shall
inure to the benefit of and be binding upon the parties hereto and their
successors and assigns; provided, however, that the amounts credited to the
Account of a Participant shall not (except as provided in Section 5.4) be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any right to
any benefits payable hereunder, including, without limitation, any assignment or
alienation in connection with a separation, divorce, child support or similar
arrangement, shall be null and void and not binding on the Plan or the Company.
In addition to any obligations imposed by law upon any successor to the Company,
the Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to substantially all of the business or
assets of the Company to expressly agree to assume and perform this Agreement in
the same manner that the Company would be required to perform it.
8.8 Combination With Other Plan. The Plan may be combined or merged
with other deferred compensation plans of the Company and the Plan Administrator
shall establish the terms and conditions relating to any such merger.
<PAGE>
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Exhibit 10(iii)A(9)
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officers as of the date and year first written above.
NATIONAL SERVICE INDUSTRIES, INC.
By:________________________
<PAGE>
Page 87
Exhibit 10(iii)A(9)
NATIONAL SERVICE INDUSTRIES, INC.
SUPPLEMENTAL DEFERRED SAVINGS PLAN
DEFERRAL AND PAYMENT ELECTIONS
AND DESIGNATION OF BENEFICIARY
To the Plan Administrator:
I hereby agree to participate in the NATIONAL SERVICE INDUSTRIES, INC.
SUPPLEMENTAL DEFERRED SAVINGS PLAN (the "Plan") pursuant to the terms and
conditions of such Plan contained in the Plan document adopted by NATIONAL
SERVICE INDUSTRIES, INC. ("Company"), all of which terms and conditions are
incorporated herein by reference.
I. DEFERRAL ELECTIONS
a. Salary Deferral: I hereby elect to defer the amount of my Salary
indicated below for the period December 1, 1996 to December 31,
1997:
_____% of my Salary
$_____ of my Salary (amounts will be deducted
equally over the pay periods)
Other _________________________________
b. Annual Bonus Deferral: I hereby elect to defer the amount of my
Annual Bonus indicated below for the Company's Fiscal Year
commencing September 1, 1996 and ending August 31, 1997:
_____% of my Annual Bonus
$_____ of my Annual Bonus (if my Annual Bonus is less than this
amount, 100% of my Annual Bonus will be deferred).
_____% of my Annual Bonus above $________ (specify dollar level
above which percentage of Annual Bonus will be deferred).
<PAGE>
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Exhibit 10(iii)A(9)
Other _________________________________
NOTE:If you have already elected to defer a portion of your
fiscal 1997 bonus to the Executive Savings Plan, that
election will be recognized first before any bonus amounts
are deferred to this Plan. However, the Company intends to
merge the Executive Savings Plan with this Plan and, in such
event, your deferrals under the Executive Savings Plan will
be transferred to this Plan.
c. Deferral Limitation: Notwithstanding my election in this Section
I, I understand that my annual deferral cannot be less than
$1,000 nor exceed 50% of my Compensation (Salary and Annual
Bonus) for the Plan Year and, that in the event my election does
not satisfy these limitations, the Plan Administrator will adjust
my election in an appropriate manner.
If, for any reason, this Plan is not finally implemented, any
deferrals under this Plan will be made to the Executive Savings
Plan.
II. ELECTION FOR MATCHING SUBACCOUNT CREDITS
I hereby elect to have the Employer's credits to my Matching
Subaccount for the period covered by this election treated as if they were
invested as follows:
100% in cash, with interest credited at the Prime Rate
100% in Shares of the Company, with earnings credited as if
invested in such Shares
<PAGE>
Page 89
Exhibit 10(iii)A(9)
50%in cash and 50% in Shares
NOTE:This deemed investment election must be made each year with
respect to Matching Subaccount credits for such year and the
Company may elect not to allow the election for any year.
III. BENEFIT PAYMENT ELECTION
Subject to the provisions of the Plan, I hereby elect to receive
payment of the vested portion of the Employer's credits to my Matching
Subaccount and Supplemental Subaccount on the date(s) and in the
manner specified below:
Based on Termination of Service Based on Designated Age
Year Amount or % Age Amount or %
Termination of
Service
Termination +1
Termination +2
Termination +3
Termination +4
Termination +5
Termination +6
Termination +7
Termination +8
Termination +9
NOTE:
(1) Except for the year in which you terminate or attain the
designated age, all payments will be made on or about
January 1 of the year indicated. If you elect installment
payments, it must be in 10% increments.
(2) Your Subaccounts will not be vested unless you terminate on
or after age 55 with at least 5 Years of Service.
(3) If you wish payments to start at a specified age, enter the
age at which you want payments to start (which must be at
least age 60), but payments will not start until after
Termination of Service (at which time all back payments will
also be made).
<PAGE>
Page 90
Exhibit 10(iii)A(9)
(4) If you elect a lump sum, it must be made no later than the
year in which you attain age 70. If you elect installments,
your last installment payment must be made no later than the
year in which you attain age 75.
IV. BENEFICIARY DESIGNATION
I designate the following person(s) as Primary and Contingent
Beneficiaries under the Plan with respect to all vested amounts credited to my
Account:
Primary Beneficiary(ies):
______________________ __________________ __________________
Name % Benefit Relationship
______________________ __________________ __________________
Name % Benefit Relationship
______________________ __________________ __________________
Name % Benefit Relationship
<PAGE>
Page 91
Exhibit 10(iii)A(9)
Contingent Beneficiary(ies): (will only receive benefits if none of
the Primary Beneficiary(ies) survives the Participant)
______________________ __________________ __________________
Name % Benefit Relationship
______________________ __________________ __________________
Name % Benefit Relationship
______________________ __________________ __________________
Name % Benefit Relationship
V. SIGNATURE
I retain the right, at any time, to change the Beneficiary designation
in Section IV above by giving written notice of such change to the Plan
Administrator and to make such other changes to this Election Form as may be
permitted by the Plan. I hereby agree to be bound by all of the terms and
conditions of the Plan, as it may be amended from time to time.
Dated: ____________________
S.S.N.
Received By Company: _______________________
Signature Date
<PAGE>
Page 92
Exhibit 10(iii)A(9)
ELECTION TO DEFER DISTRIBUTION
Page 93
Exhibit 10(iii)A(10)
Don W. Hubble
October 18, 1996
October 18, 1996
Don W. Hubble
2621 Winslow Drive
Atlanta, Georgia 30305
Re: Amendment of Stock Option Agreements
Dear Don:
In connection with your termination of employment, and as confirmed
and evidenced by this letter agreement, the terms of certain stock options
previously granted to you were amended by action taken by the Executive Resource
and Nominating Committee of NSI's Board of Directors (the "Committee") on August
2, 1996, and ratified by the Board of Directors on September 18, 1996.
The following installments of employee stock options, which had
previously been granted to you and which would otherwise have vested and become
exercisable after this date, have been accelerated so that they are immediately
exercisable on this date:
Number of
Option Grant Date Shares In Installments
September 15, 1993 3,750
September 21, 1994 4,011
September 21, 1994 8,489
September 20, 1995 3,252
September 20, 1995 15,498
35,000
In addition, the Committee amended the expiration provisions of those
options for 35,000 shares and options for 42,756 shares which were previously
granted to you and were already exercisable according to their original vesting
schedules. Pursuant to the amendment, said options for 77,756 shares remain
exercisable through October 31, 1998, notwithstanding your resignation effective
today.
<PAGE>
Page 94
Exhibit 10(iii)A(10)
Your Incentive Stock Option Agreement dated September 15, 1993,
Incentive Stock Option Agreement dated September 21, 1994, Nonqualified Stock
Option Agreement dated September 21, 1994, Incentive Stock Option Agreement
dated September 20, 1995 and Nonqualified Stock Option Agreement dated September
20, 1995 (the "Stock Option Agreements") are each hereby amended in accordance
with this letter.
Please acknowledge your acceptance of this letter by signing in the
space provided below and returning the executed letter to me. A duplicate is
enclosed for you to retain with your copies of the Stock Option Agreements.
Very truly yours,
/s/ James S. Balloun
James S. Balloun
Chairman and Chief Executive Officer
JSB:sdh
Enclosures
Accepted and agreed to as of the
18th day of October, 1996:
/s/ Don W. Hubble
Don W. Hubble
Page 95
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
NOVEMBER 30
1996 1995
Primary:
Weighted Average Number of Shares
(determined on a monthly basis) ................ 45,957 48,343
Net Income ....................................... $ 24,834 $ 23,269
Primary Earnings per Share ....................... $ .54 $ .48
Fully Diluted:
Weighted Average Number of Shares
Outstanding .................................... 45,957 48,343
Additional Shares Assuming Exercise of
Options:
Options exercised ............................ 1,204 1,233
Treasury stock purchased with proceeds ....... (947) (979)
Average Common Shares Outstanding
(as adjusted) ................................. 46,214 48,597
Net Income ....................................... $ 24,834 $ 23,269
Fully Diluted Earnings per Share ................. $ .54 $ .48
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Page 96 Exhibit 27
Financial Data Schedules
Quarter Ended November 30, 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 November 30, 1996 and
the consolidated statement of income for the three months ended November 30,
1996, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 50,850
<SECURITIES> 551
<RECEIVABLES> 275,219
<ALLOWANCES> 6,891
<INVENTORY> 171,662
<CURRENT-ASSETS> 603,849
<PP&E> 754,228
<DEPRECIATION> 400,701
<TOTAL-ASSETS> 1,085,726
<CURRENT-LIABILITIES> 210,581
<BONDS> 24,889
0
0
<COMMON> 57,919
<OTHER-SE> 638,396
<TOTAL-LIABILITY-AND-EQUITY> 1,085,726
<SALES> 381,763
<TOTAL-REVENUES> 511,893
<CGS> 236,604
<TOTAL-COSTS> 312,182
<OTHER-EXPENSES> 159,030
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,341
<INCOME-PRETAX> 39,340
<INCOME-TAX> 14,506
<INCOME-CONTINUING> 24,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,834
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
