Page 1 of 51
Exhibit Index on Page 12
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, 1997 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 - 42,995,425 shares as of December 31, 1997.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS -
NOVEMBER 30, 1997 AND AUGUST 31, 1997 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per-share data)
November 30, August 31,
1997 1997
(Unaudited)
Current Assets:
Cash and cash equivalents $ 8,001 $ 57,123
Short-term investments 152,086 205,302
Receivables, less reserves for doubtful
accounts of $5,593 at November 30, 1997
and $4,302 at August 31, 1997 262,144 258,689
Inventories, at the lower of cost (on a
first-in, first-out basis) or market 198,284 179,046
Linens in service, net of amortization 61,330 60,805
Deferred income taxes 18,701 13,077
Prepayments 10,302 6,716
Total Current Assets 710,848 780,758
Property, Plant, and Equipment, at cost:
Land 20,465 19,911
Buildings and leasehold improvements 141,661 138,933
Machinery and equipment 446,004 434,194
Total Property, Plant, and Equipment 608,130 593,038
Less-Accumulated depreciation and
amortization 366,971 356,308
Property, Plant, and Equipment-net 241,159 236,730
Other Assets:
Goodwill and other intangibles 54,955 50,166
Other 37,119 38,698
Total Other Assets 92,074 88,864
Total Assets $1,044,081 $1,106,352
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 92 $ 116
Notes payable 7,187 5,773
Accounts payable 95,321 101,512
Accrued salaries, commissions, and bonuses 30,880 34,776
Current portion of self-insurance reserves 12,928 12,540
Accrued taxes payable 9,601 38,351
Other accrued liabilities 96,783 88,932
Total Current Liabilities 252,792 282,000
Long-Term Debt, less current maturities 26,442 26,197
Deferred Income Taxes 43,058 34,093
Self-Insurance Reserves, less current portion 51,033 57,056
Other Long-Term Liabilities 38,599 35,193
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 57,919 57,919
Paid-in capital 25,443 25,521
Retained earnings 854,225 841,045
937,587 924,485
Less - Treasury stock, at cost (14,884,919
shares at November 30, 1997 and 13,719,834
shares at August 31, 1997) 305,430 252,672
Total Stockholders' Equity 632,157 671,813
Total Liabilities and Stockholders' Equity $1,044,081 $1,106,352
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
(In thousands, except per-share data) 1997 1996
Sales and Service Revenues:
Net sales of products $ 409,518 $ 381,763
Service revenues 78,066 130,130
Total Revenues 487,584 511,893
Costs and Expenses:
Cost of products sold 249,091 236,604
Cost of services 45,148 75,578
Selling and administrative expenses 152,628 158,382
Interest (income) expense, net (2,002) 1,341
Other expense, net 364 648
Total Costs and Expenses 445,229 472,553
Income before Provision for Income Taxes 42,355 39,340
Provision for Income Taxes 15,687 14,506
Net Income $ 26,668 $ 24,834
Per Share:
Net income $ .61 $ .54
Cash dividends $ .30 $ .29
Weighted Average Number of Shares
Outstanding (thousands) 43,600 45,957
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
1997 1996
Cash Provided by (Used for) Operating Activities
Net income $ 26,668 $ 24,834
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 11,831 14,832
Provision for losses on accounts receivable 1,172 1,254
Gain on the sale of property, plant,
and equipment (2,106) (222)
Gain on the sale of businesses (1,011) (401)
Change in assets and liabilities net of
effect of acquisitions and divestitures-
Receivables (3,716) 888
Inventories and linens in service, net (19,795) (1,408)
Deferred income taxes 3,423 (2,568)
Prepayments and other (3,529) (3,985)
Accounts payable and accrued liabilities (31,056) 12,690
Self-insurance reserves and other
long-term liabilities (2,616) 832
Net Cash Provided by (Used for)
Operating Activities (20,735) 46,746
Cash Provided by (Used for) Investing Activities
Change in short-term investments 53,216 --
Purchases of property, plant, and equipment (14,034) (9,830)
Sale of property, plant, and equipment 1,499 1,816
Sale of businesses 1,440 1,989
Acquisitions (6,077) (1,876)
Change in other assets 1,809 687
Net Cash Provided by (Used for)
Investing Activities 37,853 (7,214)
Cash Provided by (Used for) Financing Activities
Change in notes payable 109 --
Repayment of long-term debt (25) (30)
Recovery of investment in tax benefits -- 397
Deferred income taxes from investment in
tax benefits -- (1,183)
Purchase of treasury stock, net (52,836) (33,429)
Cash dividends paid (13,301) (13,435)
Net Cash Used for Financing Activities (66,053) (47,680)
Effect of Exchange Rate Changes on Cash (187) 336
Net Change in Cash and Cash Equivalents (49,122) (7,812)
Cash and Cash Equivalents at Beginning of Period 57,123 58,662
Cash and Cash Equivalents at End of Period $ 8,001 $ 50,850
Supplemental Cash Flow Information:
Income taxes paid during the period $ 38,017 $ 7,305
Interest paid during the period 1,822 1,238
Noncash Investing and Financing Activities:
Noncash aspects of sale of businesses--
Receivables incurred $ -- $ 347
Liabilities assumed -- 10
Noncash aspects of acquisitions--
Liabilities assumed or incurred $ 2,061 $ 300
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, 1997 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, 1997, the consolidated results of
operations for the three months ended November 30, 1997 and 1996, and the
consolidated cash flows for the three months ended November 30, 1997 and 1996.
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, 1997.
The results of operations for the three months ended November 30, 1997 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
1997 1996 1997 1996
(In thousands)
Lighting Equipment $ 268,658 $ 227,447 $ 27,637 $ 21,372
Chemical 105,859 95,482 8,614 10,923
Textile Rental 78,066 130,130 6,131 8,137
Envelope 35,001 31,351 2,534 2,113
Other -- 27,483 -- 1,579
$ 487,584 $ 511,893 44,916 44,124
Corporate (4,563) (4,134)
Interest income (expense), net 2,002 (650)
Total $ 42,355 $ 39,340
3. INVENTORIES:
Major classes of inventory as of November 30, 1997 and August 31, 1997 were as
follows:
November 30, August 31,
1997 1997
(In thousands)
Raw Materials and Supplies $ 78,272 $ 71,266
Work-in-Process 10,142 10,572
Finished Goods 109,870 97,208
Total $ 198,284 $ 179,046
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4. NEW ACCOUNTING STANDARD
During the quarter ending February 28, 1998, the company is required to adopt
Statement of Financial Accounting Standards No. 128, "Earnings per Share." SFAS
No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings per
Share," and promulgates new accounting standards for the computation and manner
of presentation of the company's earnings per share. Earlier application is not
permitted; however, upon adoption, the company will be required to restate
previously reported annual and interim earnings per share in accordance with the
provisions of SFAS No. 128. The adoption of SFAS No. 128 will not have a
material impact on the computation or manner of presentation of the company's
earnings per share as currently or previously presented under APB 15. The
following table represents a reconciliation of basic and diluted weighted
average shares and a pro forma calculation of earnings per share using the
guidelines of SFAS No. 128.
Three Months Ended
November 30
1997 1996
(In thousands, except per-share data)
Basic weighted average shares outstanding,
including shares contingently issuable 43,652 45,957
Add: Shares of common stock assumed issued
upon exercise of stock options using
the "Treasury Stock" method as it applies
to the computation of diluted earnings
per share 452 258
Diluted weighted average shares outstanding 44,104 46,215
Net earnings used in the computation of basic
and diluted earnings per share $26,668 $24,834
Pro Forma Earnings per Share:
Basic $.61 $.54
Diluted $.60 $.54
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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' financial position remained strong at November 30,
1997. Net working capital was $458.1 million, compared with $498.8 million at
August 31, 1997, and the current ratio was 2.8, the same as at year end. Cash
and short-term investments were $160.1 million, compared with $262.4 million at
August 31. During the first quarter, the company invested $20.1 million in
capital expenditures and acquisitions. The company also repurchased $55.0
million of its common stock. The percent of debt to total capitalization was 5.1
percent, up from 4.6 percent at August 31. Operating activities consumed $20.7
million in cash due largely to investment in inventories to support increased
sales and the payment of taxes associated with the gain on the 1997 disposal of
linen plants. Cash provided by operating activities was $46.7 million for the
first quarter last year.
Capital expenditures, exclusive of acquisition spending, were $14.0 million for
the first quarter this year and $9.8 million for the same period a year ago.
Current-year spending consisted primarily of facility expansions and
manufacturing process improvements in the lighting equipment segment, efficiency
improvements and replacements of processing equipment and information systems in
the textile rental segment, and facility and machinery replacements in the
envelope segment. In the prior-year quarter, 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 $6.1 million was due to the chemical
segment's purchase of Pure Corporation, a specialty chemical company with its
core businesses in Indiana, Pennsylvania, and New York. Acquisition spending of
$1.9 million in the prior year was primarily the result of the chemical
segment's purchase of an Ohio-based chemical products company.
During the quarter, fiscal 1997 year-end restructuring reserves were reduced by
$2.7 million primarily for exit costs associated with the disposal of facilities
and consolidation of operations and a minor amount of severance-related costs.
Dividend payments totaled $13.3 million, or 30 cents per share, compared with
$13.4 million, or 29 cents per share, for the prior-year period. Effective
January, 1998, the regular quarterly dividend rate was increased 3.3 percent to
31 cents per share, or an annual calendar year rate of $1.24 per share. During
the quarter, the company repurchased 1.2 million of its common shares.
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 $17 million. The
company expects actual capital expenditures in 1998 to be somewhat higher than
the 1997 level. Capital expenditures, excluding acquisition spending, were $49
million in 1997, $66 million in 1996, and $59 million in 1995. Late in fiscal
1996, the company negotiated a $250 million multi-currency committed credit
facility with eleven domestic and international banks. The company has
complimentary lines of credit totaling $62 million, of which $40 million is
available 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 the anticipated general
operating cash requirements for the next twelve months.
Over the past year, the company has devoted significant internal resources in
addressing the expected impact of the Year 2000 issue on its information
technology infrastructure. At this point in time, the company does not believe
that the Year 2000 issue will have a material impact on its financial position,
results of operations, liquidity, or future business strategy.
Results of Operations
National Service Industries' earnings per share for the first quarter ended
November 30, 1997 increased 13.0 percent to 61 cents compared with the same
quarter a year ago. First quarter sales decreased 4.7 percent to $488 million.
Net income of $26.7 million was 7.4 percent higher than a year ago. The higher
net income and a 2.4 million reduction in average shares outstanding allowed
earnings per share to increase 13.0 percent over last year's first quarter
results.
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The lighting equipment segment led the company in performance with reported
sales of $268.7 million, an increase of 18.1 percent over the last year's first
quarter sales of $227.4 million. Operating income increased 29.3 percent to
$27.6 million, or 10.3 percent of revenues, compared with 9.4 percent of
revenues the year earlier. The strong growth in sales and income reflected
continued demand in the non-residential construction market. Another key
contributor to the exceptional sales growth was the market acceptance of a newly
redesigned fluorescent parabolic fixture along with related revenues from
associated products.
First quarter chemical segment sales increased 10.9 percent to $105.9 million,
due largely to the Enforcer acquisition in last year's third quarter. Operating
income decreased to $8.6 million from last year's $10.9 million due in part to
anticipated seasonal losses in the retail distribution channel. Also
contributing to the reduced profitability were higher manufacturing costs,
up-front expenses associated with increased penetration of the retail sales
channel, and initiatives to improve the effectiveness of the sales force.
Textile rental segment sales declined 40.0 percent from last year's sales of
$130.1 million as a result of the divestiture of the segment's uniform plants
late in fiscal 1997. Operating income declined to $6.1 million from last year's
$8.1 million. Excluding the divested units, sales of $78.0 million were even
with last year. Related operating income increased by $1.0 million, and related
operating profit margins improved to 7.9 percent from 6.5 percent. The margin
improvement was due to incremental pricing and improved costs. Since the 1997
divestiture, the segment is operating more efficiently and is delivering
positive economic profit.
Envelope segment sales increased 11.6 percent to $35.0 million, and operating
profits increased 19.9 percent to $2.5 million due largely to higher sales unit
volume.
Interest income improved due to the proceeds derived from the sale of the
textile rental and insulation assets in 1997.
The provision for income taxes was 37.0 percent of pretax income for the
quarter, compared with 36.9 percent the prior-year period.
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,
enhanced sales force, new products, and improved customer service; share
repurchases; and acquisitions.
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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 12).
(b) There were no reports on Form 8-K for the three months ended November 30,
1997.
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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, 1998 /s/ David Levy
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE January 14, 1998 /s/ Brock Hattox
BROCK HATTOX
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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INDEX TO EXHIBITS
Page No.
EXHIBIT 10 (iii)A (1)-Nonemployee Directors' Stock Reference is made to
Option Agreement between National Exhibit 10(iii)A(q)
Service Industries, Inc. and of registrant's Form
(a) Barrie A. Wigmore 10-K for the fiscal
(b) Thomas C. Gallagher year ended August 31,
1994, which is
incorporated herein
by reference.
(2)-Employment Letter Agreement 14
between National Service Industries,
Inc. and James S. Balloun, Dated
February 1, 1996
[refiled to disclose confidential
information previously omitted and
filed separately with the Securities
and Exchange Commission]
(3)-Amendment No. 2 to Benefits 19
Protection Trust Agreement
between National Service Industries,
Inc. and Wachovia Bank and Trust
Company Dated September 23, 1997
(4)-Amended Schedule 1 of Benefits 23
Protection Trust Agreement between
National Service Industries, Inc.
and Wachovia Bank and Trust Company
Dated September 23, 1997
(5)-Amended Schedule 1 of Executive 24
Benefits Trust Agreement between
National Service Industries, Inc.
and Wachovia Bank and Trust Company
Dated September 23, 1997
(6)-Amendment No. 1 to National 25
Service Industries, Inc. Nonemployee
Director Deferred Stock Unit Plan
Effective December 1, 1997
(7)-Incentive Stock Option Agreement 27
Effective Beginning September 23,
1997 between National Service
Industries, Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(8)-Nonqualified Stock Option 33
Agreement For Executive Officers
Effective Beginning September 23,
1997 between National Service
Industries, Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
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INDEX TO EXHIBITS
Page No.
EXHIBIT 10 (iii)A (9)-Aspiration Achievement Incentive 39
Award Agreements 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]
EXHIBIT 11 Computations of Net Income per 50
Share of Common Stock
EXHIBIT 27 Financial Data Schedules 51
Page 14
Exhibit 10(iii)A(2)
February 1, 1996
Mr. James S. Balloun
National Service Industries, Inc.
NSI Center
1420 Peachtree Street, N.E.
Atlanta, Georgia 30309-3002
Dear Jim:
This letter will confirm the terms of your employment as Chief Executive Officer
of National Service Industries, Inc. ("NSI"), effective February 1, 1996 (the
"Effective Date"). We are enthusiastic about your decision to join NSI and look
forward to working with you to enhance the future growth of the company.
The terms of your employment will be as follows:
1. Duties - You will be the Chief Executive Officer and Chairman of the
Board of NSI, and will assume the duties and responsibilities commensurate with
those positions. You will devote substantially all of your working time and
attention to the business and affairs of NSI.
2. Base Salary - Your base salary for each of the three (3) fiscal years of
NSI ending August 31, 1996, 1997, and 1998 will be at least Seven Hundred Fifty
Thousand Dollars ($750,000). Thereafter, your base salary will be subject to
annual review for increases at such time as NSI conducts salary reviews for
executive officers generally.
3. Annual Incentive Compensation - For the three (3) fiscal years of NSI
ending August 31, 1996, 1997, and 1998, you will participate in the NSI
Management Compensation and Incentive Plan (the "Annual Incentive Plan") and
will be eligible for the following incentive bonuses:
For fiscal year 1996, an incentive bonus of Seven Hundred Fifty Thousand
Dollars ($750,000) if NSI's Earnings Per Share equal or exceed $2.065 for
the fiscal year. NSI's Earnings Per Share will be determined in the
customary manner under the Annual Incentive Plan and will be subject to
adjustment for changes in capitalization and for unusual charges or income
items as provided in the plan.
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Page 15
Exhibit 10(iii)A(2)
For fiscal years 1997 and 1998, an incentive bonus of Seven Hundred Fifty
Thousand Dollars ($750,000) per year if the performance target(s)
established for the Chief Executive Officer pursuant to the Annual
Incentive Plan (or a similar plan) is achieved.
For fiscal year 1999 and later years, you will participate in the Annual
Incentive Plan (or a similar plan) and be eligible for an incentive award at a
level consistent with your position as Chief Executive Officer of NSI, with
performance targets consistent with those for other executive officers.
4. Stock Options - You have received, or you will be eligible for, the
following stock option grants pursuant to the NSI Long-Term Incentive Program:
On January 3, 1996, you received a grant of an option (the "Option") to
purchase two hundred fifty thousand (250,000) shares of NSI Common Stock at
a share price equal to the Common Stock's Fair Market Value on that date.
The Option was granted pursuant to the Long-Term Incentive Plan and has the
following specific provisions:
* A ten (10) year term to exercise from date of grant.
* Vesting as follows, eighty-five thousand (85,000) shares will vest
on the last day of NSI's fiscal year 1996; eighty-five thousand
(85,000) shares will vest on the last day of fiscal year 1997; and the
remaining eighty thousand (80,000) shares will vest on the last day of
fiscal year 1998.
* Unvested shares will be forfeited upon your voluntary termination,
termination upon death or Disability, or if you are terminated by NSI
for Cause (Disability and Cause are defined in Item 7 below).
* In the event of death, options for vested shares may be exercised by
your personal representative or estate.
* If you retire from NSI at age sixty-five (65) or later, the Option
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Page 16
Exhibit 10(iii)A(2)
will be exercisable for five (5) years or until the end of the term of
the Option, whichever first occurs.
You will be eligible for annual stock option grants under the Long-Term
Incentive Plan in amounts at the competitive median or higher for a Chief
Executive Officer of a company of NSI's revenue size and characteristics,
or at such other competitive level as may be established by NSI's Board.
The option terms will generally be as provided under the plan for other
executive officers of NSI.
5. Retirement Plans - Upon satisfying the eligibility requirements, you
will be eligible to participate in the Company's tax-qualified retirement plans,
NSI Pension Plan C, and the NSI 401(k) Plan for Corporate Office Employees. In
addition, on the Effective Date, you will become a participant in the
Supplemental Retirement Plan for Executives of NSI (the "SERP"). Your benefits
under the SERP will be determined in the same manner as for other executive
officers of NSI participating in the plan, except that you will be credited with
two (2) years of credited service under the SERP for each year of actual
credited service. You will become vested in your SERP benefit after completing
five (5) years of employment with NSI.
S. Medical, Life Insurance, and Other Employee Benefits - You will be
covered by, or eligible to participate in, the medical, dental, life insurance,
disability, deferred compensation, and other benefit programs generally made
available by NSI to its executive officers and their families. With respect to
life insurance coverage, you will be provided no less than $1 million coverage
(subject to coordination with the qualified retirement plans' death benefits in
the same manner as for other executives).
7. Severance Payment/Change in Control - Except in the event of termination
in connection with a Change in Control of NSI (as defined in the Severance
Protection Agreement that will cover you), you will be entitled to the following
severance payment:
If your employment is terminated on or before August 31, 1998, except for
voluntary termination, termination upon death or Disability (as defined
below), or termination by NSI for Cause (as defined below), you will
receive a lump sum severance payment, immediately following your
termination, of $4.5 million reduced by the total amount of any base salary
and annual incentive bonus(es) paid to you by NSI for the period from the
Effective Date to the date of your termination.
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Page 17
Exhibit 10(iii)A(2)
If your employment is terminated after August 31, 1998, except for the
reasons stated in the preceding paragraph, you will receive a $1.5 million
lump sum severance payment immediately following your termination.
For purposes of entitlement to a severance payment, "Cause" shall mean any
act(s) on your part that constitutes fraud, a felony involving dishonesty,
a breach of fiduciary duty, or gross malfeasance or habitual neglect of
your duties for NSI, and "Disability" shall mean a physical or mental
infirmity which impairs your ability to substantially perform your duties
as Chief Executive Officer of NSI for a period of one hundred eighty (180)
consecutive days. The NSI Board, based upon the information provided to it,
shall determine whether an act constituting Cause has occurred and whether
you have suffered a Disability. In the case of termination for Cause, (i)
you will be given written notice of the actions constituting Cause at least
fifteen (15) days prior to any meeting of the Board of Directors of NSI at
which your termination is to be considered; (ii) you will be given the
opportunity to be heard by the Board; and (iii) your termination for Cause
must be evidenced by a resolution adopted by two-thirds of the Board.
With respect to Change in Control situations, you will be covered by a
Severance Protection Agreement with the same provisions as are applicable to
NSI's other executive officers. In the event of your termination in connection
with a Change in Control that entitles you to benefits under the Severance
Protection Agreement, you will receive the greater of the payments and benefits
provided under the Severance Protection Agreement (after consideration of any
tax penalties) or the severance payments described above.
The base salary, annual incentive, option grants, nonqualified retirement
benefits, and any severance payments will be structured to ensure the tax
deductibility to NSI of the payments and benefits under the Internal Revenue
Code of 1986, including Code Section 162(m). We can provide additional
information on these issues if you so desire.
We are preparing a SERP provision and Severance Protection Agreement to
evidence the arrangements set forth in this letter. These agreements should be
completed shortly.
<PAGE>
Page 18
Exhibit 10(iii)A(2)
Again, we are delighted you are joining NSI and we look forward to a long
and mutually satisfactory relationship. This letter outlines your employment
relationship with NSI; if you agree with the employment terms as outlined above,
please sign and date both copies of this letter agreement and return one copy to
me at your earliest convenience.
Very truly yours,
/s/ John G. Medlin, Jr.
John G. Medlin, Jr.
Chairman, Executive Resource,
Compensation and Nominating Committee
of the Board of Directors
ACCEPTED AND AGREED TO THIS
5 DAY OF FEBRUARY, 1996
/s/ James S. Balloun
James S. Balloun
Page 19
Exhibit 10(iii)A(3)
AMENDMENT NO. 2 TO
NATIONAL SERVICE INDUSTRIES, INC.
BENEFITS PROTECTION TRUST
This Amendment made and entered into as of this 23rd day of September,
1997, by and between National Service Industries, Inc., a Delaware Corporation
(the "Company"), and Wachovia Bank, N.A. (formerly Wachovia Bank and Trust
Company), as Trustee (the "Trustee");
W I T N E S S E T H:
WHEREAS, the Company previously established a trust arrangement known as
the National Service Industries, Inc. Benefits Protection Trust (the "Trust") in
order to ensure that, in the event of Change in Control of the Company,
participants and their beneficiaries receive the benefits which the Company and
its Affiliates are obligated to provide pursuant to various executive
compensation arrangements (collectively, the "Plans"); and
WHEREAS, the Company now desires to amend the Trust in a number of
respects;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1.
Section 2.2 is hereby amended by adding the following new sentence
after the first sentence of the present section:
"The Trust shall become irrevocable upon the occurrence of a Change in
Control, subject to the provisions of Section 17.5."
2.
Section 4.2 is hereby amended by deleting the second paragraph of such
section in its entirety and substituting the following in lieu thereof:
"Immediately upon the occurrence of a Threatened Change in Control and a
Change in Control, the Company shall contribute sufficient cash to the
Benefit Account to pay all benefits earned or accrued as of the date of the
Threatened Change in Control and the Change in Control (whether payable
currently or on a deferred basis) under all the Plans as determined by the
Trustee in its discretion."
<PAGE>
Page 20
Exhibit 10(iii)A(3)
3.
Section 4.3 is hereby amended by deleting the present section in its
entirety and substituting the following in lieu thereof:
"During a Threatened Change in Control Period or after the occurrence of a
Change in Control, if the Trustee determines that the funds in the Benefit
Account are insufficient to fully pay all benefits earned or accrued as of
any date under the Plans, the Trustee shall make a written demand on the
Company to provide funds in an amount determined by the Trustee in its
discretion. The Company shall transfer such funds within fifteen (15) days
from the time the written demand is mailed."
4.
Article 6 is hereby amended by deleting Sections 6.1 and 6.2 in their
entirety and substituting the following in lieu thereof:
"6.1 Prior to a Change in Control, this Trust's assets shall be held,
invested and reinvested by the Trustee in accordance with written
investment guidelines provided by the Company from time to time. Except as
mandated by law, the Trustee shall not be liable for following the
investment guidelines from the Company prior to a Change in Control if
there is a loss due to investments made in accordance with the investment
guidelines provided by the Company. The Trustee may invest in and hold
securities (including stock or rights to acquire stock) or obligations of
the Company, if directed to do so in writing by the Company. In exercising
the powers of the Company under this Section 6.1 of Article 6, the Company
shall act by its Corporate Treasurer or his written designees, each of whom
is fully authorized to exercise such powers. The Trustee may, and shall,
follow the written guidelines signed by said Corporate Treasurer or such
designees.
6.2 In the absence of written investment guidelines provided by the
Company, the Trustee shall invest the assets as if a Change in Control had
occurred as provided in Section 6.3 of this Article 6 and Article 9."
5.
Section 10.1 is hereby amended by adding the following to the beginning of
the second sentence of the present section:
"To the extent not deducted and paid by the Company,"
<PAGE>
Page 21
Exhibit 10(iii)A(3)
6.
Section 11.2 is hereby amended by deleting the present section in its
entirety and substituting the following in lieu thereof:
"11.2 (a) Except as restricted by securities or other laws, the Company
shall notify the Trustee as soon as practical of any facts of which its
officers have knowledge which have caused the commencement or termination
of a Threatened Change in Control Period or the occurrence of a Change in
Control.
(b) The Trustee is responsible for ascertaining whether a Threatened Change
in Control Period has commenced and whether a Change in Control has
occurred."
7.
Section 18.2 is hereby amended by deleting the third sentence of the
present section in its entirety and substituting the following in lieu thereof:
"Upon receipt of such notice or any other written allegation, or if the
Trustee has actual knowledge of the insolvency of, or of the commencement
of a case under the Bankruptcy Code in respect of, the Company or any
Affiliate, the Trustee shall suspend all payments of benefits from the
Trust with respect to Participants and beneficiaries and shall hold the
assets of the Trust for the benefit of the general creditors of the Company
or its Affiliates."
and by adding the following at the end of the present section:
"Provided that there are sufficient assets, if the Trustee discontinues the
payment of benefits from the Trust and subsequently resumes such payments,
the first payment following such discontinuance shall include the aggregate
amount of all payments due Participants or their beneficiaries under the
terms of the Plan(s) for the period of such discontinuance, less the
aggregate amount of any payments made to Participants or their
beneficiaries by the Company (or an Affiliate) in lieu of payments provided
for hereunder during any such period of discontinuance." 8.
Schedule 1 is hereby amended by substituting a revised Schedule 1, dated
September 23, 1997, which is attached hereto and made a part hereof.
<PAGE>
Page 22
Exhibit 10(iii)A(3)
9.
The within and foregoing amendments to the Trust shall be effective as of
September 23, 1997. Except as hereby modified, the Trust shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2
as of the day and year first written above.
NATIONAL SERVICE INDUSTRIES, INC.
By: /s/ David Levy
WACHOVIA BANK, N.A., AS TRUSTEE
By: /s/
The undersigned Affiliates of the Corporation hereby consent to, and agree
to be bound by, this Amendment No. 2 to the Trust.
This _23_ day of __September_______, 1997.
NATIONAL SERVICE INDUSTRIES, INC.
(Georgia)
By: /s/ James S. Balloun
NSI ENTERPRISES, INC.
By: /s/ James S. Balloun
ZEP MANUFACTURING, COMPANY
By: /s/ Glen Reed
NSI SERVICES, L.P.
By: /s/ James S. Balloun
Page 23
Exhibit 10(iii)A(4)
Schedule 1
THE PLANS
The following Company plans and agreements (collectively referred to as the
"Plans") are subject to this Trust:
1. Executives' Deferred Compensation Plan
2. Supplemental Retirement Plan for Executives
3. Supplemental Pension Plan
4. Senior Management Benefit Plan
5. Supplemental Deferred Savings Plan
6. 1984 Special Deferred Supplemental Bonus Plans for:
(i) Maziar
(ii) McClung
7. 1987 Special Deferred Supplemental Bonus Plans for:
(i) Maziar
(ii) McClung
8. Severance Protection Agreements with:
(i) Balloun (ii) Levy (iii) Hattox (iv) Searle (v) McClung (vi)
Sawyer (vii) Maziar (viii) Joel (ix) Zook
Page 24
Exhibit 10(iii)A(5)
Schedule 1
THE PLANS
The following Company plans and agreements (collectively referred to as the
"Plans") are subject to this Trust:
1. Executives' Deferred Compensation Plan
2. Supplemental Retirement Plan for Executives
3. Supplemental Pension Plan
4. Senior Management Benefit Plan
5. Supplemental Deferred Savings Plan
6. 1984 Special Deferred Supplemental Bonus Plans for:
(i) Maziar
(ii) McClung
7. 1987 Special Deferred Supplemental Bonus Plans for:
(i) Maziar
(ii) McClung
8. Severance Protection Agreements with:
(i) Balloun (ii) Levy (iii) Hattox (iv) Searle (v) McClung (vi)
Sawyer (vii) Maziar (viii) Joel (ix) Zook
Page 25
Exhibit 10(iii)A(6)
AMENDMENT NO. 1 TO
NATIONAL SERVICE INDUSTRIES, INC.
NONEMPLOYEE DIRECTOR DEFERRED STOCK UNIT PLAN
This Amendment is made as of the 23rd day of September, 1997, by National
Service Industries, Inc. (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation previously established the National Service
Industries, Inc. Nonemployee Director Deferred Stock Unit Plan (the "Plan") for
the benefit of directors of the Corporation who are not employees of the
Corporation or any Subsidiary (as defined in the Plan); and
WHEREAS, pursuant to the power of amendment contained in Section 7.1 of the
Plan, by action of the Board of Directors of the Corporation on the date hereof,
the Plan is hereby amended as follows:
1.
Paragraph 2.1(e) of the Plan is amended, effective January 8, 1997, by
deleting the existing language thereof and substituting in lieu thereof the
following: "`Committee' shall mean the Executive Resource and Compensation
Committee."
2.
Paragraph 2.1 (o) of the Plan is amended, effective December 1, 1997, by
deleting the existing language thereof and substituting in lieu thereof the
following: "`Required Amount' shall mean one-half of the Annual Fee."
3.
Article 5 of the Plan is amended, effective December 1, 1997, by
renumbering Section 5.3 as 5.5 and inserting the following as Sections 5.3 and
5.4:
5.3 Annual Grant. On the first day of each December on and after December
1, 1997 and prior to the termination of this Plan (subject to Section
6.1 below), the bookkeeping account of each Eligible Director shall
automatically be credited with 350 Deferred Stock Units.
5.4 One-Time Grant. The bookkeeping account of each Eligible Director as
of December 1, 1997, shall automatically be credited with 1,000
Deferred Stock Units. The bookkeeping account of each Eligible
Director first
<PAGE>
Page 26
Exhibit 10(iii)A(6)
elected to the Board (whether by action of the Board of Directors or
the shareholders of the Corporation) after December 1, 1997, and prior
to the termination of this Plan (subject to Section 6.1 hereof) shall
automatically be credited with 1,000 Deferred Stock Units as of the
effective date of such election.
4.
Except as provided herein, the provisions of the Plan shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
as of the day and year first written above.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
By: /s/ Kenyon W. Murphy By: /s/ James S. Balloun
Page 27
Exhibit 10(iii)A(7)
INCENTIVE STOCK OPTION AGREEMENT
FOR EXECUTIVE OFFICERS AND DIVISION PRESIDENTS
THIS AGREEMENT, made as of the 23rd day of September, 1997 (the "Grant
Date"), between National Service Industries, Inc., a Delaware corporation (the
"Company"), and Name (the "Optionee").
WHEREAS, the Company has adopted the National Service Industries, Inc.
Long-Term Achievement Incentive Plan (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 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 Amount 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. To the extent this Option is
not treated as an Incentive Stock Option, it will be treated as a
Nonqualified Stock Option.
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 $44.3125 per Share.
<PAGE>
Page 28
Exhibit 10(iii)A(7)
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 Plan, the Option
shall entitle the Optionee to purchase, in whole at any time or in part
from time to time, Para. 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.
<PAGE>
Page 29
Exhibit 10(iii)A(7)
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.
6.2 Termination of Employment Due to Death, Disability or Retirement.
If the Optionee's termination of employment is due to death,
Disability or Retirement (termination on or after age 65), or if Optionee
terminates employment after age 55, 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) 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.
(d) Termination After Attaining Age 55. If the Optionee terminates
employment (other than as a result of death or Disability) after
attaining age 55 but prior to age 65, unless the Committee
determines otherwise at the time of such termination, 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 (d) as if the Optionee had
lived and the Options shall be exercisable by the persons
described in (a) above.
<PAGE>
Page 30
Exhibit 10(iii)A(7)
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 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.
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. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee.
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.
<PAGE>
Page 31
Exhibit 10(iii)A(7)
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 (if any) 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.
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-year period commencing on the day after the Grant Date 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.
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.
<PAGE>
Page 32
Exhibit 10(iii)A(7)
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, 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.
19. Shareholder Approval.
The effectiveness of this Agreement and of the grant of the Option
pursuant hereto is subject to the approval of the Plan by the stockholders
of the Company in accordance with the terms of the Plan.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
/s/ Kenyon W. Murphy By: /s/ James S. Balloun
Secretary James S. Balloun
Chairman, President and
Chief Executive Officer
Name of Optionee:
Page 33
Exhibit 10(iii)A(8)
NONQUALIFIED STOCK OPTION AGREEMENT
FOR EXECUTIVE OFFICERS AND DIVISION PRESIDENTS
THIS AGREEMENT, made as of the 23rd day of September, 1997 (the "Grant
Date"), between National Service Industries, Inc., a Delaware corporation (the
"Company"), and Name (the "Optionee").
WHEREAS, the Company has adopted the National Service Industries, Inc.
Long-Term Achievement Incentive Plan (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 Amount 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 $44.3125 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 34
Exhibit 10(iii)A(8)
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, Para. 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 35
Exhibit 10(iii)A(8)
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), or if
Optionee terminates employment after age 55, 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.
(d) Termination After Attaining Age 55. If the Optionee terminates
employment (other than as a result of death or Disability) after
attaining age 55 but prior to age 65, unless the Committee
determines otherwise at the time of such termination, 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 (d) as if the Optionee had
lived and the Options shall be exercisable by the persons
described in (a) above.
<PAGE>
Page 36
Exhibit 10(iii)A(8)
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.
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. Transferability.
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.
<PAGE>
Page 37
Exhibit 10(iii)A(8)
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.
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.
<PAGE>
Page 38
Exhibit 10(iii)A(8)
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.
18. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a result of, or in any
way relate to, the interpretation, construction or application of this Agreement
shall be determined by the Committee. Any determination made hereunder shall be
final, binding and conclusive on the Optionee and the Company for all purposes.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
/s/ Kenyon W. Murphy By: /s/ James S. Balloun
Secretary James S. Balloun
Chairman, President, and
Chief Executive Officer
Name of Optionee:
Page 39
Exhibit 10(iii)A(9)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT
FOR EXECUTIVE OFFICERS
THIS AGREEMENT, made as of the 23rd day of September, 1997 (the "Grant
Date"), between National Service Industries, Inc., a Delaware corporation
("NSI") and NSI SERVICES, L.P. (GA), a Subsidiary of NSI (together, the
"Company"), and Grantee (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 the Operations during the
Performance Cycle from September 1, 1997 to August 31, 2000. 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
<PAGE>
Page 40
Exhibit 10(iii)A(9)
Award will be paid, an Aspiration 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 performance level of NSI 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
shall also exclude from consideration the effect on financial performance
of each of the following events or items where the result of excluding the
particular event or item is to increase the performance level of NSI: (i)
an acquisition or a divestiture involving more than $10 million in net
worth or $25 million in business revenues; (ii) an equity restructuring
involving more than $1 million; (iii) asset impairment charges involving
more than $1 million and restructuring costs involving more than $1 million
associated with facility closings or reduction in employment levels; (iv)
changes in accounting treatment or rules involving more than $1 million.
The Committee may decrease the amount of the Award otherwise payable to
Grantee if, in the Committee's view, such adjustment is necessary or
desirable, regardless of the extent to which the Performance Measure has
been achieved. The Committee may establish such guidelines and procedures
for reducing the amount of an Award as it deems appropriate.
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 the Operations with respect to the
Performance Measure for the Performance Cycle and the amount of Award (if
any) Grantee will be entitled to receive. Unless the Committee determines
otherwise at the time the Award is paid and except as otherwise provided in
the event of a Change in Control, the amount Grantee is entitled to receive
will be paid one-half in cash and one-half in Shares. The Shares will be
valued at their Fair Market Value as of the last day of the Performance
Cycle. Except in the case of a Change in Control, the Committee may, in its
discretion, attach restrictions, terms and conditions to the Shares issued
as part of the Award.
3.2 Significant Corporate Events. If, during a Performance Cycle, NSI
consummates an acquisition or disposition that (i) involves assets whose
value equals or exceeds 20% of the total value of NSI's assets, (ii)
represents a part of the business whose revenues equal or exceed 20% of the
total of NSI's revenues, or (iii) causes a material restructuring of NSI,
the following rules shall apply:
<PAGE>
Page 41
Exhibit 10(iii)A(9)
(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
containing a new Award 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,
taking into account the adjustments provided for in Section 3.1 above and
using 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 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 is not covered by the special provisions of this Section
3.2, the financial effects of such acquisition or disposition shall be
handled as provided in Section 3.1.
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 Grantee'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 (taking into account the adjustment provisions and other rules in
Section 3 above); 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.
<PAGE>
Page 42
Exhibit 10(iii)A(9)
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 Grantee's 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 has 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 4.3, subject to the terms of this
section, and no downward adjustment of the Award which would result in
reduction of the Award by more than 50% 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 be made only to the extent
at the end of the Performance Cycle the Award would have been earned based
upon the performance level achieved during the Performance Cycle (taking
into account the adjustment provisions and other rules in Section 3 above);
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 43
Exhibit 10(iii)A(9)
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 44
Exhibit 10(iii)A(9)
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
JAMES S. BALLOUN
Chairman, President and Chief Executive Officer
NSI SERVICES, L.P. (GA), Subsidiary
By: /s/ James S. Balloun
JAMES S. BALLOUN
Chairman, President and Chief Executive Officer
Name of Grantee:
<PAGE>
Page 45
Exhibit 10(iii)A(9)
Appendix A(1)
NSI Aspiration Award Program Illustration - FY 1998-2000
Name: James S. Balloun Division: NSI Total
Position: Chairman & Chief Executive Officer
Salary: $750,000
Total LTI Multiple: 160%
AAI % of LTI: 30%
Achievement Level
Threshold Commitment Aspiration
FY98-00 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $90,000 $360,000 $1,800,000
Aspiration Award Program Opportunity
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.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 90,000
Commitment** $ 360,000
Aspiration** $1,800,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 46
Exhibit 10(iii)A(9)
Appendix A(2)
NSI Aspiration Award Program Illustration - FY 1998-2000
Name: Brock A. Hattox Division: NSI Total
Position: EVP, Chief Financial Officer
Salary: $360,000
Total LTI Multiple: 160%
AAI % of LTI: 30%
Achievement Level
Threshold Commitment Aspiration
FY98-00 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $43,200 $172,800 $864,000
Aspiration Award Program Opportunity
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.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 43,200
Commitment** $172,800
Aspiration** $864,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 47
Exhibit 10(iii)A(9)
Appendix A(3)
NSI Aspiration Award Program Illustration - FY 1998-2000
Name: David Levy Division: NSI Total
Position: EVP, Administration & Counsel
Salary: $350,000
Total LTI Multiple: 160%
AAI % of LTI: 30%
Achievement Level
Threshold Commitment Aspiration
FY98-00 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $42,000 $168,000 $840,000
Aspiration Award Program Opportunity
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.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 42,000
Commitment** $168,000
Aspiration** $840,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 48
Exhibit 10(iii)A(9)
Appendix A(4)
NSI Aspiration Award Program Illustration - FY 1998-2000
Name: Stewart A. Searle Division: NSI Total
Position: SVP, Corporate Development
Salary: $225,000
Total LTI Multiple: 160%
AAI % of LTI: 30%
Achievement Level
Threshold Commitment Aspiration
FY98-00 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $27,000 $108,000 $540,000
Aspiration Award Program Opportunity
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.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 27,000
Commitment** $108,000
Aspiration** $540,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 49
Exhibit 10(iii)A(9)
APPENDIX B
ASPIRATION ACHIEVEMENT
INCENTIVE AWARD
PERFORMANCE MEASURE
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.
Page 50
Exhibit 11
NATIONAL SERVICE INDUSTRIES, INC.
COMPUTATIONS OF NET INCOME PER SHARE OF COMMON STOCK
(In thousands, except per-share data)
THREE MONTHS ENDED
NOVEMBER 30
1997 1996
Primary:
Weighted Average Number of Shares Outstanding
(determined on a monthly basis) 43,600 45,957
Net Income $26,668 $24,834
Primary Earnings per Share $.61 $.54
Fully Diluted:
Weighted Average Number of Shares Outstanding 43,600 45,957
Additional Shares Assuming Exercise of Options:
Options exercised 1,853 1,204
Treasury stock purchased with proceeds (1,343) (947)
Average Common Shares Outstanding (as adjusted) 44,110 46,214
Net Income $26,668 $24,834
Fully Diluted Earnings per Share $.60 $.54
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Page 51
Exhibit 27
Financial Data Schedule
Quarter Ended November 30, 1997
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, 1997 and
the consolidated statement of income for the three months ended November 30,
1997, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 8,001
<SECURITIES> 152,086
<RECEIVABLES> 267,737
<ALLOWANCES> 5,593
<INVENTORY> 198,284
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0
0
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<CGS> 249,091
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<INCOME-TAX> 15,687
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<EPS-PRIMARY> 0.61
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</TABLE>
