Page 1 of 139
Index to Exhibits on Page 17
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31,1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________.
Commission file number 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)
Securities registered pursuant to Section 12(b) Name of Each Exchange on
of the Act: Which Registered
Title of Each Class
Common Stock ($1.00 Par Value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Based on the closing price of $32.25 as quoted on the New York Stock Exchange on
October 29, 1999, the aggregate market value of the voting stock held by
nonaffiliates of the registrant, was $1,308,433,004.
The number of shares outstanding of the registrant's common stock, $1.00 par
value, was 40,690,942 shares as of October 29, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
Part I, Item 1 1999 Annual Report
Part II, Items 5, 6, 7, 7a and 8 1999 Annual Report
Part III, Items 10, 11, 12, and 13 1999 Proxy Statement
Part IV, Item 14 1999 Annual Report
<PAGE>
Page 2
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
Table of Contents
Page No.
Part I
Item 1. Business 3-4
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 6
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 6
Part III
Item 10. Directors and Executive Officers of the Registrant 7
Item 11. Executive Compensation 7
Item 12. Security Ownership of Certain Beneficial Owners and Management 7
Item 13. Certain Relationships and Related Transactions 7
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 8-13
Signatures 14
Financial Statement Schedules 15-16
Index to Exhibits 17
<PAGE>
Page 3
PART I
ITEM 1: BUSINESS
National Service Industries, Inc. (the "company" or "NSI"), incorporated in
1928, is a diversified service and manufacturing company that, through its
subsidiaries, occupies leadership positions in four markets--lighting equipment,
chemicals, textile rental, and envelopes. Headquartered in Atlanta, Georgia, NSI
provides products and services throughout North America, as well as Western
Europe and Australia. Of NSI's fiscal 1999 revenue of $2.2 billion,
approximately 97 percent was from North American sales. NSI's 1999 revenue
broken down by segment contributions was as follows: 55 percent lighting
equipment, 22 percent chemicals, 14 percent textile rental, and 9 percent
envelopes.
While each of the company's businesses is highly competitive, the competitive
conditions and the company's relative position and market share vary widely from
business to business. A limited number of competitors of each business are large
diversified companies. However, most of the competitors are smaller companies
that frequently specialize in one industry or geographic area, which in many
instances increases the intensity of competition. The principal methods of
competition include price, quality, brand name recognition, and customer
responsiveness.
BUSINESS SEGMENTS
Lighting Equipment
Lithonia Lighting and Holophane Corporation comprise NSI's lighting equipment
segment, which management believes is the world's largest manufacturer of
lighting fixtures for both new construction and renovation. Products include a
full range of indoor and outdoor lighting for commercial, institutional, and
industrial applications, surface and recessed residential lighting, exit signs
and emergency lighting, lighting control systems, and flexible wiring systems.
These lighting products are manufactured in the United States, Canada, Mexico,
and Europe and are marketed under numerous brand names, including Lithonia,
Holophane, Home-Vue, LightConcepts, Gotham, Hydrel, Peerless, Antique Street
Lighting, MetalOptics, and Reloc.
Principal customers include wholesale electrical distributors, retail home
centers, and lighting showrooms located in North America and selected
international markets. In North America, the lighting equipment segment's
products are sold through independent sales agents and factory sales reps who
cover specific geographic areas and market segments. Products are delivered
through a network of distribution centers, regional warehouses, and public field
warehouses using both common carriers and a company-owned truck fleet. For
international customers, the segment employs a sales force that adopts
distribution methods to meet individual customer or country requirements. In
fiscal 1999, North American sales accounted for more than 98 percent of this
segment's gross sales.
Chemicals
NSI's chemical segment, which includes Zep Manufacturing Company ("Zep"),
Enforcer Products, Inc. ("Enforcer"), and Selig Chemical Industries ("Selig"),
is a leading provider of speciality chemical products in the automotive, food,
manufacturing, institutional, hospitality, home center, and retail markets.
Products include cleaners, sanitizers, disinfectants, polishes, floor finishes,
degreasers, water treatments, pesticides, insecticides, and herbicides. Zep
manufactures products in five North American plants, two European plants, and
one Australian location, while Enforcer and Selig each operate a single
manufacturing facility in Georgia.
The chemical segment provides products to customers in North America, Western
Europe, and Australia. In fiscal 1999, North American sales accounted for
approximately 90 percent of gross sales. Zep and Selig serve a wide array of
institutional and industrial customers, ranging from small sole proprietorships
to Fortune 1000 corporations. Individual markets in the non-retail channel
include: automotive, vehicle wash, food, industrial manufacturing, and contract
cleaners and are sold through a direct commissioned sales force. Enforcer
provides Enforcer-branded products and Zep-branded products to retail channels
such as home centers, hardware stores, mass merchandisers, and drug stores.
Textile Rental
National Linen Service ("NLS") is a leading United States multi-service textile
rental company, serving the dining, lodging, and healthcare industries. Products
include napkins, table and bed linens, bath towels, pillow cases, bar towels,
scrubs and surgical drapery, mats, mops, and restroom supplies. NLS operates
from 66 locations primarily in the southeastern United States.
NLS's customers include restaurants, hotels, country clubs, retail stores,
hospitals, clinics, and doctor's offices. Clean products are delivered to
customers, and soiled products are retrieved by route drivers for cleaning. NLS
sells its services directly to end users though a salaried and commissioned
sales force.
<PAGE>
Page 4
Envelopes
Atlantic Envelope Company ("AECO") is a leading United States producer of custom
envelopes and office products, serving the energy, finance, transportation,
direct mail, and package delivery markets. Products include custom business and
courier envelopes, as well as specialty filing products. AECO's products are
manufactured in ten plants in the United States.
AECO serves customers throughout the United States, which include major
airlines, banks, credit card companies, and express delivery companies. Products
are sold directly to end users by a commissioned sales team. Specialty products
are also sold through dealers.
Financial Results By Industry Segment
Sales and service revenues, operating profit (loss), identifiable assets, and
related data for each of the company's business segments for the three years
ended August 31, 1999 are included on page 44 (Note 10, Business Segment
Information, of the Notes to the Consolidated Financial Statements) in the
company's annual report to stockholders and is incorporated herein by reference.
No significant portion of any segment of the company is dependent upon a single
customer or a few customers, the loss of any one of which would have a material
adverse affect on the segment. Furthermore, no single commodity or supplier in
any segment provided a significant portion of the segment's material
requirements nor were there any significant shortages of materials or components
during the years ended August 31, 1999, 1998, and 1997.
The company conducts research and development related to present and future
products for its lighting equipment, chemical, and envelope segments. Research
and development expenses were $8.5 million in 1999, $13.6 million in 1998, and
$8.6 million in 1997.
Management does not anticipate that compliance with current environmental laws
and regulations will materially affect the capital expenditures or results of
operations of the company or its subsidiaries during the fiscal year ending
August 31, 2000. See Note 5, Commitments and Contingencies, of the Notes to the
Consolidated Financial Statements on page 40 of the company's annual report to
stockholders, incorporated herein by reference.
Sales order backlog as of August 31, 1999 was $108.7 million, $1.9 million, and
$55.0 million in the lighting equipment, chemical, and envelope segments,
respectively. Sales order backlog at August 31, 1998 was $42.8 million in the
lighting equipment segment, $3.1 million in the chemical segment, and $45.1
million in the envelope segment.
As of August 31, 1999, the company employed approximately 19,700 people.
Financial results for any particular quarter are not necessarily indicative of
results to be expected for the full year. Typically, the company's revenues and
income are higher in the second half of its fiscal year.
<PAGE>
Page 5
ITEM 2. PROPERTIES
The general offices of the company are located in Atlanta, Georgia. Because of
the diverse nature of the operations and the large number of individual
locations, it is neither practical nor significant to describe all of the
operating facilities owned or leased by the company. The following listing
summarizes the significant facility categories by business:
Number of Facilities
Division Owned Leased Nature of Facilities
Lighting Equipment 15 7 Manufacturing plants
1 9 Distribution centers
Textile Rental 34 7 Linen processing plants
- 24 Linen service centers
- 1 Distribution centers
Chemical 7 3 Manufacturing plants
18 52 Distribution centers
1 3 Sales offices
Envelope 6 4 Manufacturing plants
- 2 Warehouses
Corporate Office 1 - Corporate headquarters
ITEM 3. LEGAL PROCEEDINGS
The registrant is neither a party to nor is its property subject to any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the three months
ended August 31, 1999.
<PAGE>
Page 6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is included on the inside back cover of
the company's annual report to stockholders for the year ended August 31, 1999,
under the captions "Listing," "Shareholders of Record," and "Common Share Prices
and Dividends per Share" and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included on pages 50 and 51 of the
company's annual report to stockholders for the year ended August 31, 1999,
under the caption "Ten-Year Financial Summary" and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is included on pages 46 through 49 of the
company's annual report to stockholders for the year ended August 31, 1999,
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included on page 49 of the company's
annual report to stockholders for the year ended August 31, 1999, under the
caption "Market Risk" and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages 28 through 45 of the
company's annual report to stockholders for the year ended August 31, 1999,
under the captions "Consolidated Balance Sheets," "Consolidated Statements of
Income," "Consolidated Statements of Stockholders' Equity," "Consolidated
Statements of Cash Flows," "Notes to Consolidated Financial Statements," and
"Report of Independent Public Accountants" and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
Page 7
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item, with respect to directors, is included on
pages 2 through 5 under the caption "Information Concerning Nominees" of the
company's proxy statement for the annual meeting of stockholders to be held
January 5, 2000, filed with the Commission pursuant to Regulation 14A, and is
incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the company are elected at the organizational meeting of
the Board of Directors in January.
<TABLE>
<S> <C>
Name and age of each executive officer Business experience of executive officers
during the five years and positions held with the company ended August 31, 1999
and term in office.
- -------------------------------------------- ----------------------------------------------------
James S. Balloun, age 61 Mr. Balloun was elected Chairman and Chief Executive Officer
Chairman, President, effective February, 1996 and assumed the role of President in
Chief Executive Officer October, 1996. Previously, he served McKinsey & Company as a Director.
and Director.
George H. Gilmore, Jr., age 50 Mr. Gilmore was elected Executive Vice President and Group
Executive Vice President and Group President effective June, 1999. Previously, he served as President
President of Moore Business Systems from 1994 to 1995, President of Moore
Document Solutions from 1995 to 1997, and as President and Chief
Operating Officer of Calmat Co. from 1998 to 1999.
David Levy, age 62 Mr. Levy was elected Executive Vice President, Administration in
Executive Vice President, October, 1992. He served as Senior Vice President, Secretary and
Administration and Counsel Counsel from 1982 through September, 1992.
and Director
Brock A. Hattox, age 51 Mr. Hattox was elected Executive Vice President and Chief Financial
Executive Vice President and Officer effective September, 1996. Previously, he served McDermott
Chief Financial Officer International, Inc. as Chief Financial Officer from 1991 to 1996.
Stewart A. Searle III, age 48 Mr. Searle was elected Senior Vice President, Planning and
Senior Vice President, Development effective June, 1996. Previously, he served four years
Planning and Development with Equifax as Senior Vice President of Development.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included on pages 5 through 15 under
the captions "Compensation of Directors," "Other Information Concerning the
Board and its Committees," "Compensation Committee Interlocks and Insider
Participation," "Summary Compensation Table," "Option Grants in Last Fiscal
Year," "Aggregated Option Exercises and Fiscal Year-End Option Values,"
"Long-Term Incentive Plans - Awards in Last Fiscal Year," "Employment Contracts,
Severance Arrangements, and Other Agreements," and "Pension and Supplemental
Retirement Benefits" of the company's proxy statement for the annual meeting of
stockholders to be held January 5, 2000, filed with the Commission pursuant to
Regulation 14A, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included on pages 6 through 7 under the
caption "Beneficial Ownership of the Corporation's Securities" of the company's
proxy statement for the annual meeting of stockholders to be held January 5,
2000, filed with the Commission pursuant to Regulation 14A, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included on page 5 under the caption
"Certain Relationships and Transactions" of the company's proxy statement for
the annual meeting of stockholders to be held January 5, 2000, filed with the
Commission pursuant to Regulation 14A, and is incorporated herein by reference.
<PAGE>
Page 8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements
The company's 1999 Annual Report contains the consolidated balance
sheets as of August 31, 1999 and 1998, the related consolidated
statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended August 31, 1999, and the
related report of Arthur Andersen LLP. The financial statements,
incorporated herein by reference, include the following:
Consolidated Balance Sheets - August 31, 1999 and 1998
Consolidated Statements of Income for the years ended August 31,
1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended August 31,
1999, 1998, and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Report of Independent Public Accountants on Schedule
Schedule Number
II Valuation and Qualifying Accounts
Any of schedules I through V not listed above have been omitted
because they are not applicable or the required information is
included in the consolidated financial statements or notes
thereto.
<PAGE>
Page 9
(3) Exhibits filed with this report
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
3 Amended and Restated Certificate of Incorporation and By-Laws
4 Amended and Restated Rights Agreement dated as of
December 17, 1997 between National Service Industries,
Inc. and Wachovia Bank, N.A. and Amendment (replacing
Wachovia Bank, N.A. with First Chicago Trust Company)
and Amendment (deleting certain redemption restrictions)
10(i)A (1) US$250,000,000 Credit Agreement dated as of July
23, 1996 among National Service Industries, Inc.,
Certain of its Subsidiaries, Certain Listed
Banks, Wachovia Bank of Georgia, N.A., as Agent,
and Nationsbank, N.A. (South) and Suntrust Bank,
Atlanta, as Co-Agents
(2) US$250,000,000 Credit Agreement, dated as of July
15, 1999, among National Service Industries,
Inc., Wachovia Bank, N.A., The First National
Bank of Chicago, Banc One Capital Markets, Inc.,
Wachovia Securities, Inc., Commerzbank AG, New
York Branch, ABN Amro, N.V., and the other banks
listed therein.
(3) Commercial Paper Dealer Agreement, dated as of
July 16, 1999, between National Service
Industries, Inc. and Goldman, Sachs & Co.
(4) Commercial Paper Dealer Agreement, dated as of
July 16, 1999, between National Service
Industries, Inc. and J.P. Morgan Securities, Inc.
(5) Commercial Paper Dealer Agreement, dated as of
July 16, 1999, between National Service
Industries, Inc. and Wachovia Securities, Inc.
(6) Commercial Paper Dealer Agreement, dated as of
July 16, 1999, between National Service
Industries, Inc. and The First National Bank of
Chicago.
10(iii)A Management Contracts and Compensatory Arrangements:
(1) Executives' Deferred Compensation Plan and
Amendments
(2) Restated and Amended Supplemental Retirement Plan
for Executives of National Service Industries,
Inc. , Amendments and Appendices
(3) The National Service Industries, Inc. Senior
Management Benefit Plan and Amendments
(4) Severance Protection Agreement between National
Service Industries, Inc. and David Levy and
Amendment
(5) Severance Protection Agreements between National
Service Industries, Inc. and
(a) James S. Balloun
(b) Stewart A. Searle III
and Amendments
(6) Bonus Letter Agreements between National Service
Industries, Inc. and
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
and Supplemental Letter Agreements
(7) Long-Term Incentive Program and Amendment
<PAGE>
Page 10
ITEM 14. (Continued)
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
(8) Incentive Stock Option Agreements between
National Service Industries, Inc. and
(a) David Levy
(b) Stewart A. Searle III
(c) Brock A. Hattox
(9) Nonqualified Stock Option Agreement for Corporate
Officers between National Service Industries,
Inc. and
(a) David Levy
(b) Brock A. Hattox
(10) Nonqualified Stock Option Agreement for Corporate
Officers Effective Beginning September 21, 1994
between National Service Industries, Inc. and
David Levy
(11) Benefits Protection Trust Agreement and
Amendments
(12) Executive Benefits Trust Agreement and Amendments
(13) 1992 Nonemployee Directors' Stock Option Plan
Effective September 16, 1992 and Amendment
(14) Nonemployee Directors' Stock Option Agreement
between National Service Industries, Inc. and
(a) John L. Clendenin
(b) Robert M. Holder, Jr.
(c) James C. Kennedy
(d) Bernard Marcus
(e) John G. Medlin, Jr.
(f) Dr. Betty L. Siegel
(g) Barrie A. Wigmore
(h) Thomas C. Gallagher
(i) Charles W. McCall
(j) Herman J. Russell
(k) Sam Nunn
(15) National Service Industries, Inc. Executive
Savings Plan Effective September 1, 1994 and
Amendment
(16) Nonqualified Stock Option Agreement Effective
January 3, 1996 between National Service
Industries, Inc. and James S. Balloun
(17) National Service Industries, Inc. Nonemployee
Director Deferred Stock Unit Plan, Effective
June 1, 1996 and Amendments
(18) Employment Letter Agreement between National
Service Industries, Inc. and Brock A. Hattox,
Dated August 26, 1996
(19) Incentive Stock Option Agreement Effective
Beginning September 17, 1996 between National
Service Industries, Inc. and
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
<PAGE>
Page 11
ITEM 14. (Continued)
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
(20) Nonqualified Stock Option Agreement for Executive
Officers Effective Beginning September 17, 1996
between National Service Industries, Inc. and
(a) James S. Balloun
(b) David Levy
(c) Stewart A. Searle III
(d) Brock A. Hattox
(21) National Service Industries, Inc. Long-Term
Achievement Incentive Plan Effective
September 17, 1996 and Amendment
(22) Aspiration Achievement Incentive Award Agreements
for the Performance Cycle beginning September 1,
1996 between National Service Industries, Inc.
and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
and Amendment
[refiled to disclose confidential information
previously omitted and filed separately with the
Secrities and Exchange Commission]
(23) National Service Industries, Inc. Supplemental
Deferred Savings Plan Effective
September 18, 1996 and Amendment
(24) Stock Option Agreement for Nonemployee Directors
Dated March 19, 1997 between National
Service Industries, Inc. and
(a) John L. Clendenin
(b) Samuel A. Nunn
(25) Employment Letter Agreement 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]
(26) Incentive Stock Option Agreement 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
(27) Nonqualified Stock Option 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
(28) Aspiration Achievement Incentive Award Agreements
for the Performance Cycle beginning September 1,
1997 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]
<PAGE>
Page 12
ITEM 14. (Continued)
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
(29) National Service Industries, Inc. Management
Compensation and Incentive Plan as Amended
and Restated, Effective as of September 1,
1998.
(30) Incentive Stock Option Agreement for Executive
Officers Effective Beginning September 22, 1998
between National Service Industries, Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(31) Nonqualified Stock Option Agreement for Executive
Officers Effective Beginning September 22, 1998
between National Service Industries, Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(32) Aspiration Achievement Incentive Award Agreements
for the Performance Cycle beginning September 1,
1998 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]
(33) Employment Letter Agreement between National
Service Industries, Inc. and George H. Gilmore,
Jr., Dated May 5, 1999.
(34) Severance Protection Agreements between National
Service Industries, Inc. and
(a) Brock A. Hattox (September 9, 1996)
(b) George H. Gilmore, Jr. (June 1, 1999)
(35) Bonus Letter Agreements between National Service
Industries, Inc. and
(a) Brock A. Hattox (September 9, 1996)
(b) George H. Gilmore, Jr. (June 1, 1999)
(36) Incentive Stock Option Agreement for Executive
Officers Effective Beginning June 1, 1999 between
National Service Industries, Inc. and George H.
Gilmore, Jr.
(37) Nonqualified Stock Option Agreement for Executive
Officers Effective Beginning June 1, 1999 between
National Service Industries, Inc. and George H.
Gilmore, Jr.
(38) Aspiration Achievement Incentive Award Agreement
for the Performance Cycle beginning September 1,
1997 between National Service Industries, Inc.
and George H. Gilmore, Jr., Dated June 1, 1999.
[a confidential portion of which has been omitted
and filed separately with the Securities and
Exchange Commission]
<PAGE>
Page 13
ITEM 14. (Continued)
Reference No. from
Reg. 229.601
Item 601 Description of Exhibit
(39) Aspiration Achievement Incentive Award
Agreement for the Performance Cycle beginning
September 1, 1998 between National Service
Industries, Inc. and George H. Gilmore, Jr.,
Dated June 1, 1999.
[a confidential portion of which has been
omitted and filed separately with the
Securities and Exchange Commission]
(40) Aspiration Achievement Incentive Award Agreements
for the Performance Cycle beginning September 1,
1999 between National Service Industries, Inc.
and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(e) George H. Gilmore, Jr.
[a confidential portion of which has been
omitted and filed separately with the Securities
and Exchange Commission]
12 Ratio of Earnings to Fixed Charges
13 Information Incorporated by Reference from Annual
Report for the Year Ended August 31, 1999
21 List of Subsidiaries
23 Consent of Independent Public Accountants
24 Powers of Attorney
27 Financial Data Schedule for the Year Ended August 31,
1999
(b) The company filed Form 8-K on August 3, 1999, with respect to the merger
with Holophane Corporation.
(c) Exhibits 2, 9, 11, 18, 22, and 28 have been omitted because they are not
applicable.
(d) Not applicable.
<PAGE>
Page 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: November 17, 1999 By: /s/ Helen D. Haines
------------------ -------------------------
Helen D. Haines
Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title
James S. Balloun* Chairman, President, and Chief Executive Officer
and Director
Brock Hattox* Executive Vice President and
Chief Financial Officer
Mark R. Bachmann* Vice President and Controller
John L. Clendenin* Director
Thomas C. Gallagher* Director
Robert M. Holder, Jr.* Director
James C. Kennedy* Director
--November 17, 1999
David Levy Director
Bernard Marcus* Director
John G. Medlin, Jr.* Director
Samuel A. Nunn* Director
Herman J. Russell* Director
Betty L. Siegel* Director
Kathy Brittain White* Director
Barrie A. Wigmore* Director
*By /s/ David Levy Attorney-in-Fact
David Levy
<PAGE>
Page 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To National Service Industries, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in NATIONAL SERVICE INDUSTRIES, INC.
and subsidiaries' annual report to stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated October 8, 1999. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in Item 14 in this Form 10-K is the
responsibility of the company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 8, 1999
<PAGE>
Page 16
SCHEDULE II
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED AUGUST 31, 1999, 1998, AND 1997
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Additions Charged to
Balance at ------------------------------------ Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts (1) Deductions (2) of Period
- ----------------------------- -------------- ------------ --------------- ---------------- ------------
YEAR ENDED AUGUST 31, 1999:
Deducted in the balance sheet
from the asset to which it applies-
Reserve for doubtful accounts $ 4,631 $ 3,651 $ 1,709 $ 3,685 $ 6,306
========== ========== ========== =========== ==========
YEAR ENDED AUGUST 31, 1998:
Deducted in the balance sheet
from the asset to which it applies-
Reserve for doubtful accounts $ 4,302 $ 3,558 $ 214 $ 3,443 $ 4,631
========== ========== ========== =========== ==========
YEAR ENDED AUGUST 31, 1997:
Deducted in the balance sheet
from the asset to which it applies-
Reserve for doubtful accounts $ 5,807 $ 2,276 $ (745) $ 3,036 $ 4,302
========== ========== ========== =========== ==========
</TABLE>
(1) Recoveries credited to reserve, reserves recorded in acquisitions, and
reserves removed in sale of businesses.
(2) Uncollectible accounts written off.
<PAGE>
<TABLE>
<S> <C> <C>
Page 17
INDEX TO EXHIBITS
Page No.
EXHIBIT 3 (a) Amended and Restated Certificate of Reference is made to Exhibit 3 of
Incorporation registrant's Form 10-Q for the quarter
ended February 28, 1998, which is
incorporated herein by reference.
(b) Certificate of Amendment of Restated Reference is made to Exhibit 3(a) of
Certificate of Incorporation registrant's Form 10-Q for the quarter
ended November 30, 1998, which is
incorporated herein by reference.
(c) By-Laws as Amended and Restated July 7, 28
1999.
EXHIBIT 4 (a) Amended and Restated Rights Agreement dated Reference is made to Exhibit 4.1 of
as of December 17, 1997 between National Service registrant's Form 8-A/A as filed with the
Industries, Inc. and Wachovia Bank, N.A. Commission on December 17, 1997, which is
(replacing Wachovia Bank, N.A. with First Chicago incorporated herein by reference.
Trust Company)
(b) First Amendment dated as of April 30, 1998 Reference is made to Exhibit 1 of
between National Service Industries, Inc. and registrant's Form 8-A/A-3 as filed
First Chicago Trust Company of New York, to the with the Commission on June 22, 1998,
Amended and Restated Rights Agreement, dated as which is incorporated herein by reference.
of December 17, 1997 between National Service
Industries, Inc. and Wachovia Bank, N.A
(c) Second Amendment dated as of January 6, 1999 Reference is made to Exhibit 1 of
between National Service Industries, Inc. and registrant's Form 8-A/A-4 as filed with
First Chicago Trust Company of New York, to the the Commission on January 12, 1999, which
Amended and Restated Rights Agreement, dated as is incorporated herein by reference.
of December 17, 1997 between National Service
Industries, Inc. and First Chicago Trust Company
of New York, as Rights Agent, as amended.
EXHIBIT 10(i)A (1) US$250,000,000 Credit Agreement dated as Reference is made to Exhibit 10(i)A of
of July 23, 1996 among National Service registrant's Form 10-Q for the quarter
Industries, Inc., Certain of its ended May 31, 1998, which is incorporated
Subsidiaries, Certain Listed Banks, herein by reference.
Wachovia Bank of Georgia, N.A., as Agent,
and Nationsbank, N.A. (South) and Suntrust
Bank, Atlanta, as Co-Agents
(2) US$250,000,000 Credit Agreement, dated as Reference is made to Exhibit (b)(8) of
of July 15, 1999, among National Service registrant's Schedule 14D-1 as filed with
Industries, Inc., Wachovia Bank, N.A., The the Commission on June 25, 1999, as
First National Bank of Chicago, Banc One amended and supplemented by Amendment No.
Capital Markets, Inc., Wachovia 2, filed July 20, 1999, which is
Securities, Inc., Commerzbank AG, New York incorporated herein by reference.
Branch, ABN Amro, N.V., and the other
banks listed therein.
<PAGE>
Page 18
INDEX TO EXHIBITS
Page No.
(3) Commercial Paper Dealer Agreement, dated Reference is made to Exhibit (b)(4) of
as of July 16, 1999, between National registrant's Schedule 14D-1 as filed with
Service Industries, Inc. and Goldman, the Commission on June 25, 1999, as
Sachs & Co. amended and supplemented by Amendment No.
2, filed July 20, 1999, which is
incorporated herein by reference.
(4) Commercial Paper Dealer Agreement, dated Reference is made to Exhibit (b)(5) of
as of July 16, 1999, between National registrant's Schedule 14D-1 as filed with
Service Industries, Inc. and J.P. Morgan the Commission on June 25, 1999, as
Securities, Inc. amended and supplemented by Amendment No.
2, filed July 20, 1999, which is
incorporated herein by reference.
(5) Commercial Paper Dealer Agreement, dated Reference is made to Exhibit (b)(6) of
as of July 16, 1999, between National registrant's Schedule 14D-1 as filed with
Service Industries, Inc. and Wachovia the Commission on June 25, 1999, as
Securities, Inc. amended and supplemented by Amendment No.
2, filed July 20, 1999, which is
incorporated herein by reference.
(6) Commercial Paper Dealer Agreement, dated Reference is made to Exhibit (b)(7) of
as of July 16, 1999, between National registrant's Schedule 14D-1 as filed with
Service Industries, Inc. and The First the Commission on June 25, 1999, as
National Bank of Chicago. amended and supplemented by Amendment No.
2, filed July 20, 1999, which is
incorporated herein by reference.
EXHIBIT 10(iii)A Management Contracts and Compensatory
Arrangements:
(1) (a)Executives' Deferred Compensation Plan Reference is made to Exhibit 19 of
registrant's Form 10-K for the fiscal
year ended August 31, 1982, which is
incorporated herein by reference.
(b)First Amendment To Executives' Deferred Reference is made to Exhibit
Compensation Plan, Dated September 21, 1989 10(iii)A(b)-(ii) of registrant's Form
10-K for the fiscal year ended August
31, 1989, which is incorporated herein by
reference.
(c)Second Amendment to Executives' Reference is made to Exhibit 10(iii)A(a)
Deferred Compensation Plan, Effective as of registrant's Form 10-Q for the quarter
of September 1, 1994. ended November 30, 1994, which is
incorporated herein by reference.
(d)Amendment No. 3 to Executives' Deferred Reference is made to Exhibit
Compensation Plan, Dated August 31, 1996 10(iii)A(2)(d) of registrant's Form 10-K
for the fiscal year ended August 31,
1996, which is incorporated herein by
reference.
(2) (a)Restated and Amended Supplemental Reference is made to Exhibit
Retirement Plan for Executives of National 10(iii)A(c)-(i) of registrant's Form
Service Industries, Inc. 10-K for the fiscal year ended August
31, 1993, which is incorporated herein
by reference.
<PAGE>
Page 19
INDEX TO EXHIBITS
Page No.
(b)Amendment to Restated and Amended Reference is made to Exhibit
Supplemental Retirement Plan for 10(iii)A(a) of registrant's Form 10-Q
Executives of National Service Industries, for the quarter ended February 28,
Inc. 1994, which is incorporated herein by
reference.
(c)Appendix B to Restated and Amended Reference is made to Exhibit
Supplemental Retirement Plan for 10(iii)A(e) of registrant's Form 10-Q
Executives of National Service Industries, for the quarter ended February 29,
Inc., Effective February 1, 1996 1996, which is incorporated herein by
reference.
(d)Appendix C to Restated and Amended Reference is made to Exhibit
Supplemental Retirement Plan for 10(iii)A(d) of registrant's Form 10-Q
Executives of National Service Industries, for the quarter ended May 31, 1996,
Inc., Effective May 31, 1996 which is incorporated herein by
reference.
(e)Amendment No. 2 to Restated and Amended Reference is made to Exhibit
Supplemental Retirement Plan for 10(iii)A(3)(e) of registrant's Form
Executives of National Service Industries, 10-K for the fiscal year ended August
Inc., Dated August 31, 1996 31, 1996, which is incorporated herein
by reference.
(f)Appendix E to Restated and Amended 44
Supplemental Retirement Plan for Executives
of National Service Industries, Inc.
effective September 18, 1996.
(g) Appendix F to Restated and Amended 45
Supplemental Retirement Plan for Executives
of National Service Industries, Inc.
effective June 1, 1999.
(3) (a)The National Service Industries, Inc. Reference is made to Exhibit
Senior Management Benefit Plan, Dated 10(iii)A(f) of registrant's Form 10-K
August 15, 1985 for the fiscal year ended August 31,
1985, which is incorporated herein by
reference.
(b)First Amendment to National Service Reference is made to Exhibit
Industries, Inc. Senior Management Benefit 10(iii)A(e)-(ii) of registrant's Form
Plan, Dated September 21, 1989 10-K for the fiscal year ended August
31, 1989, which is incorporated herein
by reference.
(c)Amendment No. 2 to National Service Reference is made to Exhibit
Industries, Inc. Senior Management Benefit 10(iii)A(d)(iii) of registrant's Form
Plan, Dated September 16, 1994 10-K for the fiscal year ended August
31, 1994, which is incorporated herein
by reference.
(d)Amendment No. 3 to National Service Reference is made to Exhibit
Industries, Inc. Senior Management 10(iii)A(4)(d) of registrant's Form
Benefit Plan, Dated August 31, 1996 10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
<PAGE>
Page 20
INDEX TO EXHIBITS
Page No.
(4) (a)Severance Protection Agreement between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(h) of registrant's Form 10-K
David Levy for the fiscal year ended August 31,
1989, which is incorporated herein by
reference.
(b)Amendment to Severance Protection Reference is made to Exhibit
Agreement between National Service 10(iii)A(5)(b) of registrant's Form
Industries, Inc. and David Levy, Dated 10-K for the fiscal year ended August
August 31, 1996 31, 1996, which is incorporated herein
by reference.
(5) (a)Severance Protection Agreements between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(c) of registrant's Form 10-Q
(i) James S. Balloun (February 1, 1996) for the quarter ended February 29,
(ii) Stewart A. Searle III (June 19, 1996) 1996, which is incorporated herein by
reference.
(b)Amendment to Severance Protection Reference is made to Exhibit
Agreements, Dated August 31, 1996 10(iii)A(6)(b) of registrant's Form
10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
(6) (a)Bonus Letter Agreements between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(j) of registrant's Form 10-K
(i) James S. Balloun (February 1, 1996) for the fiscal year ended August 31,
(ii) David Levy (October 1, 1989) 1989, and to Exhibit 10(iii)A(d) of the
(iii) Stewart A. Searle III (June 19, 1996) registrant's Form 10-Q for the quarter
ended February 29, 1996, which are
incorporated herein by reference.
(b)Supplemental Letter Agreement, Dated Reference is made to Exhibit
August 31, 1996 10(iii)A(7)(b) of registrant's Form
10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
(7) (a)Long-Term Incentive Program, Dated Reference is made to Exhibit
September 20, 1989 10(iii)A(k) of registrant's Form 10-K
for the fiscal year ended August 31,
1989, which is incorporated herein by
reference.
(b)Amendment No. 1 to Long-Term Incentive Reference is made to Exhibit
Program, Dated September 21, 1994 10(iii)A(h)(ii) of registrant's Form
10-K for the fiscal year ended August
31, 1994, which is incorporated herein
by reference.
<PAGE>
Page 21
INDEX TO EXHIBITS
Page No.
(8) Incentive Stock Option Agreements between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(1) of registrant's Form 10-K
(a) David Levy for the fiscal year ended August 31,
(b) Stewart A. Searle III 1989, which is incorporated herein by
(c) Brock A. Hattox reference.
(9) Nonqualified Stock Option Agreement for Reference is made to Exhibit
Corporate Officers between National 10(iii)A(j) of registrant's Form 10-K
Service Industries, Inc. and for the fiscal year ended August 31,
(a) David Levy 1992, which is incorporated herein by
(b) Brock A. Hattox reference.
(10) Nonqualified Stock Option agreement for Reference is made to Exhibit
Corporate Officers Effective Beginning 10(iii)A(k) of registrant's Form 10-K
September 21, 1994 between National for the fiscal year ended August 31,
Service Industries, Inc. and David Levy 1994, which is incorporated herein by
reference.
(11) (a)Benefits Protection Trust Agreement Reference is made to Exhibit
Dated July 5, 1990, between National 10(iii)A(n) of registrant's Form 10-K
Service Industries, Inc. and Wachovia Bank for the fiscal year ended August 31,
and Trust Company 1990, which is incorporated herein by
reference.
(b)Amendment to Benefits Protection Trust Reference is made to Exhibit
Agreement between National Service 10(iii)A(12)(c) of registrant's Form
Industries, Inc. and Wachovia Bank and 10-K for the fiscal year ended August
Trust Company and Adoption, Dated August 31, 1996, which is incorporated herein
31, 1996 by reference.
(c)Amendment No. 2 to Benefits Protection Reference is made to Exhibit
Trust Agreement between National Service 10(iii)A(3) of registrant's Form 10-Q
Industries, Inc. and Wachovia Bank and for the quarter ended November 30,
Trust Company, Dated September 23, 1997 1997, which is incorporated herein by
reference.
(d)Amended Schedule 1 of Benefits Reference is made to Exhibit
Protection Trust Agreement between 10(iii)A(4) of registrant's Form 10-Q
National Service Industries, Inc. and for the quarter ended November 30,
Wachovia Bank and Trust Company, Dated 1997, which is incorporated herein by
September 23, 1997 reference.
(e)Amendment No. 3 to Benefits Protection Reference is made to Exhibit
Trust Agreement between National Service 10(iii)A(4) of registrant's Form 10-Q
Industries, Inc. and Wachovia Bank, N.A. for the quarter ended November 30,
(formerly Wachovia Bank and Trust 1998, which is incorporated herein by
Company), Dated January 6, 1999. reference.
(12) (a)Executive Benefits Trust Agreement Reference is made to Exhibit
Dated July 5, 1990, between National 10(iii)A(o) of registrant's Form 10-K
Service Industries, Inc. and Wachovia Bank for the fiscal year ended August 31,
and Trust Company 1990, which is incorporated herein by
reference.
<PAGE>
Page 22
INDEX TO EXHIBITS
Page No.
(b)Amendment to Executive Benefits Trust Reference is made to Exhibit
Agreement between National Service 10(iii)A(13) of registrant's Form 10-K
Industries, Inc. and Wachovia Bank and for the fiscal year ended August 31,
Trust Company and Adoption, Dated August 1996, which is incorporated herein by
31, 1996 reference.
(c)Amended Schedule 1 of Executive Reference is made to Exhibit
Benefits Trust Agreement between National 10(iii)A(5) of registrant's Form 10-Q
Service Industries, Inc. and Wachovia for the quarter ended November 30,
Bank, N.A. (formerly Wachovia Bank and 1997, which is incorporated herein by
Trust Company), Dated September 23, 1997 reference.
(d)Amendment No. 2 to Executive Benefits Reference is made to Exhibit
Trust Agreement between National Service 10(iii)A(5) of registrant's Form 10-Q
Industries, Inc. and Wachovia Bank, N.A. for the quarter ended November 30,
(formerly Wachovia Bank and Trust 1998, which is incorporated herein by
Company), Dated January 6, 1999. reference.
(13) (a)National Service Industries, Inc. 1992 Reference is made to Exhibit
Nonemployee Directors' Stock Option Plan, 10(iii)A(o) of registrant's Form 10-K
Effective September 16, 1992 for the fiscal year ended August 31,
1992, which is incorporated herein by
reference.
(b)First Amendment to the National Service Reference is made to Exhibit
Industries, Inc. 1992 Nonemployee 10(iii)A(13)(b) of registrant's Form
Directors' Stock Option Plan, Dated March 10-K for the fiscal year ended August
24, 1998 31, 1998, which is incorporated herein
by reference.
(14) Nonemployee Directors' Stock Option Reference is made to Exhibit
Agreement between National Service 10(iii)A(q) of registrant's Form 10-K
Industries, Inc. and for the fiscal year ended August 31,
(a) John L. Clendenin 1994, which is incorporated herein by
(b) Robert M. Holder, Jr. reference.
(c) James C. Kennedy
(d) Bernard Marcus
(e) John G. Medlin, Jr.
(f) Dr. Betty L. Siegel
(g) Barrie A. Wigmore
(h) Thomas C. Gallagher
(i) Charles W. McCall
(j) Herman J. Russell
(k) Samuel A. Nunn
(15) (a)National Service Industries, Inc. Reference is made to Exhibit
Executive Savings Plan, Effective 10(iii)A(s) of registrant's Form 10-K
September 1, 1994 for the fiscal year ended August 31,
1994, which is incorporated herein by
reference.
(b)Amendment No. 1 to National Service Reference is made to Exhibit
Industries, Inc. Executive Savings Plan, 10(iii)A(17)(b) of registrant's Form
Dated August 31, 1996 10-K for the fiscal year ended August
31, 1996, which is incorporated herein
by reference.
<PAGE>
Page 23
INDEX TO EXHIBITS
Page No.
(16) Nonqualified Stock Option Agreement Reference is made to Exhibit
Effective January 3, 1996 between National 10(iii)A(b) of registrant's Form 10-Q
Service Industries, Inc. and James S. for the quarter ended February 28,
Balloun 1996, which is incorporated herein by
reference.
(17) (a)National Service Industries, Inc. Reference is made to Exhibit
Nonemployee Director Deferred Stock Unit 10(iii)A(26) of registrant's Form 10-K
Plan, Effective June 1, 1996 for the fiscal year ended August 31,
1996, which is incorporated herein by
reference.
(b)Amendment No. 1 to National Service Reference is made to Exhibit
Industries, Inc. Nonemployee Director 10(iii)A(6) of registrant's Form 10-Q
Deferred Stock Unit Plan, Effective for the quarter ended November 30,
December 1, 1997 1997, which is incorporated herein by
reference.
(c)Amendment No. 2 to National Service Reference is made to Exhibit
Industries, Inc. Nonemployee Director 10(iii)A(19)(c) of registrant's Form
Deferred Stock Unit Plan, Effective 10-K for the fiscal year ended August
December 31, 1997 31, 1998, which is incorporated herein
by reference.
(18) Employment Letter Agreement between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(28) of registrant's Form 10-K
Brock A. Hattox, Dated August 26, 1996 for the fiscal year ended August 31,
1996, which is incorporated herein by
reference.
(19) Incentive Stock Option Agreement Effective Reference is made to Exhibit
Beginning September 17, 1996 between 10(iii)A(5) of registrant's Form 10-Q
National Service Industries, Inc. and for the quarter ended November 30,
(a) James S. Balloun 1996, which is incorporated herein by
(b) David Levy reference.
(c) Stewart A. Searle III
(20) Nonqualified Stock Option Agreement for Reference is made to Exhibit
Executive Officers Effective Beginning 10(iii)A(6) of registrant's Form 10-Q
September 17, 1996 between National for the quarter ended November 30,
Service Industries, Inc. and 1996, which is incorporated herein by
(a) James S. Balloun reference.
(b) David Levy
(c) Stewart A. Searle III
(d) Brock A. Hattox
(21) (a)National Service Industries, Inc. Reference is made to Exhibit
Long-Term Achievement Incentive Plan, 10(iii)A(7) of registrant's Form 10-Q
Effective September 17, 1996 for the quarter ended November 30,
1996, which is incorporated herein by
reference.
(b)Amendment No. 1 to National Service Reference is made to Exhibit
Industries, Inc. Long-Term Achievement 10(iii)A(9) of registrant's Form 10-Q
Incentive Plan, Dated April 7, 1999 for the quarter ended May 31, 1999,
which is incorporated herein by
reference.
<PAGE>
Page 24
INDEX TO EXHIBITS
Page No.
(22) (a)Aspiration Achievement Incentive Award 46
Agreements for the Performance Cycle
beginning September 1, 1996 between
National Service Industries, Inc. and
(i) James S. Balloun
(ii) Brock A. Hattox
(iii) David Levy
(iv) Stewart A. Searle III
[refiled to disclose confidential
information previously omitted and filed
separately with the Securities and
Exchange Commission]
(b) Amendment of Aspiration Achievement Reference is made to Exhibit
Incentive Award Agreement and Election 10(iii)A(8) of registrant's Form 10-Q
Form for Performance Cycle Ending August for the quarter ended May 31, 1999,
31, 1999 between National Service which is incorporated herein by
Industries, Inc. and: reference.
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(23) (a)National Service Industries, Inc. Reference is made to Exhibit
Supplemental Deferred Savings Plan, 10(iii)A(9) of registrant's Form 10-Q
Effective September 18, 1996 for the quarter ended November 30,
1996, which is incorporated herein by
reference.
(b)Amendment No. 1 to National Service 61
Industries, Inc. Supplemental Deferred
Savings Plan, Dated December 29, 1997
(24) Stock Option Agreement for Nonemployee Reference is made to Exhibit 10(iii)A
Directors Dated March 19, 1997 between of registrant's Form 10-Q for the
National Service Industries, Inc. and quarter ended May 31, 1997, which is
(a) John L. Clendenin incorporated herein by reference.
(b) Samuel A. Nunn
(25) Employment Letter Agreement between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(2) of registrant's Form 10-Q
James S. Balloun, Dated February 1, 1996 for the quarter ended November 30,
1997, which is incorporated herein by
[refiled to disclose confidential reference.
information previously omitted and filed
separately with the Securities and
Exchange Commission]
(26) Incentive Stock Option Agreement Effective Reference is made to Exhibit
Beginning September 23, 1997 between 10(iii)A(7) of registrant's Form 10-Q
National Service Industries, Inc. and for the quarter ended November 30,
(a) James S. Balloun 1997, which is incorporated herein by
(b) Brock A. Hattox reference.
(c) David Levy
(d) Stewart A. Searle III
<PAGE>
Page 25
INDEX TO EXHIBITS
Page No.
(27) Nonqualified Stock Option Agreement For Reference is made to Exhibit
Executive Officers Effective Beginning 10(iii)A(8) of registrant's Form 10-Q
September 23, 1997 between National for the quarter ended November 30,
Service Industries, Inc. and 1997, which is incorporated herein by
(a) James S. Balloun reference.
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(28) Aspiration Achievement Incentive Award Reference is made to Exhibit
Agreements for the Performance Cycle 10(iii)A(9) of registrant's Form 10-Q
beginning September 1, 1997 between for the quarter ended November 30,
National Service Industries, Inc. and 1997, which is incorporated herein by
(a) James S. Balloun reference.
(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]
(29) National Service Industries, Inc. Reference is made to Exhibit
Management Compensation and Incentive Plan 10(iii)A(31) of registrant's Form 10-K
as Amended and Restated, Effective as of for the fiscal year ended August 31,
September 1, 1998. 1998, which is incorporated herein by
reference.
(30) Incentive Stock Option Agreement for Reference is made to Exhibit
Executive Officers Effective Beginning 10(iii)A(1) of registrant's Form 10-Q
September 22, 1998 between National for the quarter ended November 30,
Service Industries, Inc. and 1998, which is incorporated herein by
(a) James S. Balloun reference.
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(31) Nonqualified Stock Option Agreement for Reference is made to Exhibit
Executive Officers Effective Beginning 10(iii)A(2) of registrant's Form 10-Q
September 22, 1998 between National for the quarter ended November 30,
Service Industries, Inc. and 1998, which is incorporated herein by
(a) James S. Balloun reference.
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(32) Aspiration Achievement Incentive Award Reference is made to Exhibit
Agreements for the Performance Cycle 10(iii)A(3) of registrant's Form 10-Q
beginning September 1, 1998 between for the quarter ended November 30,
National Service Industries, Inc. and 1998, which is incorporated herein by
(a) James S. Balloun reference.
(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]
<PAGE>
Page 26
INDEX TO EXHIBITS
Page No.
(33) Employment Letter Agreement between Reference is made to Exhibit
National Service Industries, Inc. and 10(iii)A(1) of registrant's Form 10-Q
George H. Gilmore, Jr., Dated May 5, 1999. for the quarter ended May 31, 1999,
which is incorporated herein by
reference.
(34) Severance Protection Agreements between 64
National Service Industries, Inc. and
(a) Brock A. Hattox (September 9, 1996)
(b) George H. Gilmore, Jr. (June 1, 1999)
(35) Bonus Letter Agreements between National 80
Service Industries, Inc. and
(a) Brock A. Hattox (September 9, 1996)
(b) George H. Gilmore, Jr. (June 1, 1999)
(36) Incentive Stock Option Agreement for Reference is made to Exhibit
Executive Officers Effective Beginning 10(iii)A(4) of registrant's Form 10-Q
June 1, 1999 between National Service for the quarter ended May 31, 1999,
Industries, Inc. and George H. Gilmore, Jr. which is incorporated herein by
reference.
(37) Nonqualified Stock Option Agreement for Reference is made to Exhibit
Executive Officers Effective Beginning 10(iii)A(5) of registrant's Form 10-Q
June 1, 1999 between National Service for the quarter ended May 31, 1999,
Industries, Inc. and George H. Gilmore, Jr. which is incorporated herein by
reference.
(38) Aspiration Achievement Incentive Award Reference is made to Exhibit
Agreement for the Performance Cycle 10(iii)A(6) of registrant's Form 10-Q
beginning September 1, 1997 between for the quarter ended May 31, 1999,
National Service Industries, Inc. and which is incorporated herein by
George H. Gilmore, Jr., Dated June 1, 1999. reference.
[a confidential portion of which has been
omitted and filed separately with the
Securities and Exchange Commission]
(39) Aspiration Achievement Incentive Award Reference is made to Exhibit
Agreement for the Performance Cycle 10(iii)A(7) of registrant's Form 10-Q
beginning September 1, 1998 between for the quarter ended May 31, 1999,
National Service Industries, Inc. and which is incorporated herein by
George H. Gilmore, Jr., Dated June 1, 1999. reference.
[a confidential portion of which has been
omitted and filed separately with the
Securities and Exchange Commission]
<PAGE>
Page 27
INDEX TO EXHIBITS
Page No.
(40) Aspiration Achievement Incentive Award 83
Agreements for the Performance Cycle
beginning September 1, 1999 between
National Service Industries, Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(e) George H. Gilmore, Jr.
[a confidential portion of which has been
omitted and filed separately with the
Securities and Exchange Commission]
EXHIBIT 12 Ratio of Earnings to Fixed Charges Reference is made to Exhibit 12 of
registrant's Form 10-Q for the quarter
ended November 30, 1998, which is
incorporated herein by reference.
EXHIBIT 13 Information Incorporated by Reference from 101
Annual Report for the Year Ended August
31, 1999
EXHIBIT 21 List of Subsidiaries 125
EXHIBIT 23 Consent of Independent Public Accountants 126
EXHIBIT 24 Powers of Attorney 127
EXHIBIT 27 Financial Data Schedule for the Year Ended 139
August 31, 1999
</TABLE>
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Exhibit 3(c)
NATIONAL SERVICE INDUSTRIES, INC.
BY - LAWS
(as amended and restated July 7, 1999)
(A Delaware Corporation)
ARTICLE ONE
OFFICES AND AGENT
1.1 Registered Office and Agent. The registered office of the
Corporation within the State of Delaware shall be in the City of Wilmington,
County of New Castle, and the name of the registered agent in charge thereof is
The Corporation Trust Company.
1.2 Other Offices. In addition to its registered office within the
State of Delaware, the Corporation may also have offices at such other places,
both within and without the State of Delaware, as the Board of Directors may,
from time to time determine or the business of the Corporation may require or
make desirable.
ARTICLE TWO
STOCKHOLDERS' MEETINGS
2.1 Place of Meetings. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at any place either
within or without the State of Delaware as shall be designated from time to time
by the Board of Directors or, if it fails to act, the Chairman of the Board, or
if he fails to act, the President, and shall be stated in the notice of meeting
or a duly executed waiver thereof.
2.2 Quorum, Adjournment. The holders of one-third of the voting power
of the stock of the Corporation issued and outstanding and entitled to vote at a
meeting of stockholders, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by the Delaware General Corporation Law or
by the Corporation's Restated Certificate of Incorporation, as amended from time
to time ("Certificate of Incorporation"). If, however, a quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat shall have the power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present. At such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
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Exhibit 3(c)
2.3 Conduct of Meetings. At each meeting of stockholders, the Chairman
of the Board shall act as chairman of the meeting. In the absence or inability
or refusal to act of the Chairman of the Board, the Vice Chairman of the Board,
or if a Vice Chairman has not been elected, the President, shall act as chairman
of the meeting. The Secretary or, in his absence, inability or refusal to act,
such person as the chairman of the meeting shall appoint shall act as secretary
of the meeting and keep the minutes thereof.
2.4 Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
2.5 Voting. Except as otherwise provided by statute or the
Corporation's Certificate of Incorporation, each stockholder of the Corporation
shall be entitled at each meeting of stockholders to one vote for each share of
capital stock of the Corporation standing in his name on the list of
stockholders of the Corporation on the record date fixed as provided in these
By-Laws, as amended from time to time ("By-Laws"). Each stockholder entitled to
vote at any meeting of stockholders may authorize another person or persons to
act for him by a proxy which is in writing or is transmitted as permitted by
law, including, without limitation, electronically, via telegram, internet,
interactive voice response system, or other means of electronic transmission
executed or authorized by such stockholders or his attorney-in-fact and bearing
a date not more than three (3) years prior to said meeting, unless said
instrument provides for a longer period. Any such proxy shall be delivered to
the secretary of the meeting at or prior to the time designated in the order of
business for so delivering such proxies. Any proxy transmitted electronically
shall set forth information from which it can be determined by the secretary or
voting inspector of the meeting that such electronic transmission was authorized
by the stockholder. At all meetings of stockholders for the election of
directors a plurality of the votes cast shall be sufficient to elect. All other
elections and questions shall, unless otherwise provided by law or in the
Corporation's Certificate of Incorporation or these By-Laws, be decided by the
vote of the holders of a majority of the outstanding shares of stock entitled to
vote thereon present in person or by proxy at the meeting. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
2.6 List of Stockholders. A complete list of the stockholders entitled
to vote at each meeting of stockholders, arranged in alphabetical order, with
the address of each, and the number of voting shares held by each, shall be
prepared by the Secretary at least ten days before every meeting. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.7 Inspectors. The Board of Directors may, in advance of any meeting
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Exhibit 3(c)
of stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors. Inspectors
need not be stockholders.
2.8 Annual meeting. The Annual Meeting of the Stockholders of the
Corporation ("Annual Meeting") shall be held at such time and on such date as
shall be designated by the Board of Directors and stated in the notice of
meeting. At such meeting, the stockholders shall elect directors as provided in
the Corporation's Certificate of Incorporation and By-Laws and shall transact
such other business as may properly come before the meeting.
2.9 Notice of Annual Meeting. Except as otherwise expressly required by
statute, written notice of the Annual Meeting stating the date, place and time
of the meeting shall be given to each stockholder entitled to vote thereat, not
less than ten nor more than sixty days prior to the date of the meeting. Notice
is given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the Corporation.
Notice of any meeting shall not be required to be given to any person (i) who
attends such meeting, except when such person attends the meeting in person or
by proxy for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, or (ii) who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an Annual Meeting need be specified in any
written waiver of notice.
2.10 Notice of Stockholder Proposals. (a) At an Annual Meeting, only
such business shall be conducted, and only such proposals shall be acted upon,
as shall have been brought before the Annual Meeting (i) by, or at the direction
of, the Board of Directors or (ii) by any stockholder of the Corporation who
complies with the notice procedures set forth in this Section of these By-Laws.
For a proposal to be properly brought before an Annual Meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
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Exhibit 3(c)
to the scheduled Annual Meeting, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if less
than seventy (70) days' notice or prior public disclosure of the date of the
scheduled Annual Meeting is given or made, notice by the stockholder to be
timely must be so delivered or received not later than the close of business on
the tenth (10th) day following the earlier of the day on which such notice of
the date of the scheduled Annual Meeting was mailed or the day on which such
public disclosure was made. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the Annual
Meeting (i) a brief description of the proposal desired to be brought before the
Annual Meeting and the reasons for conducting such business at the Annual
Meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business and any other stockholders known by
such stockholder to be supporting such proposal, (iii) the class and number of
shares of the Corporation's stock which are beneficially owned by the
stockholder on the date of such stockholder notice and by any other stockholders
known by such stockholder to be supporting such proposal on the date of such
stockholder notice, and (iv) any financial interest of the stockholder in such
proposal.
(b) If the presiding officer of the Annual Meeting determines
that a stockholder proposal was not made in accordance with the terms of this
Section, he shall so declare at the Annual Meeting and any, such proposal shall
not be acted upon at the Annual Meeting.
(c) This provision shall not prevent the consideration and
approval or disapproval at the Annual Meeting of reports of officers, directors
and committees of the Board of Directors, but, in connection with such reports,
no business shall be acted upon at such Annual Meeting unless stated, filed and
received as herein provided.
2.11 Special Meetings. Special meetings of the stockholders ("Special
Meetings"), for any purpose or purposes, unless otherwise prescribed by statute
or by the Certificate of Incorporation, may be called by the Chief Executive
Officer, and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors. Such request shall state the
purpose or purposes of the proposed meeting. Business transacted at all Special
Meetings shall be confined to the purposes stated in the notice of meeting.
2.12 Notice of Special Meetings. Except as otherwise expressly required
by statute, written notice of a special meeting, stating the date, time, place,
and purpose or purposes thereof, shall be given to each stockholder entitled to
vote thereat not less than ten nor more than sixty days prior to the date of the
meeting. Notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation. Notice of any meeting shall not be required to be given to
any person who attends such meeting, except when such person attends the meeting
in person or by proxy for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, or who, either before or after the meeting, shall
submit a signed written waiver of notice, in person or by proxy. Neither the
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Exhibit 3(c)
business to be transacted at, nor the purpose of, a Special Meeting need be
specified in any written waiver of notice.
ARTICLE THREE
BOARD OF DIRECTORS
3.1 General Powers. The business and affairs of the Corporation shall
be managed by or be under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or the Corporation's
Certificate of Incorporation directed or required to be done by the
stockholders.
3.2 Number, Qualification, Term of Office. The number of directors
which constitute the entire Board of Directors of the Corporation shall be fixed
by resolution of the Board of Directors from time to time, but shall in any
event be not less than seven nor more than fifteen. Any decrease in the number
of directors shall be effective at the time of the next succeeding Annual
Meeting unless there shall be vacancies in the Board of Directors at the time
the Board effects such decrease, in which case such decrease may become
effective at any time prior to the next succeeding Annual Meeting to the extent
of the number of vacancies. Directors need not be stockholders. Except as
provided in these By-Laws, directors shall be elected at the Annual Meeting or
at a Special Meeting called for such purpose, and each director shall be elected
to hold office until a successor shall be elected and qualify.
3.3 Election of Directors. Nominations for the election of directors
may be made by the Board of Directors or a nominating committee appointed by the
Board of Directors or by any stockholder entitled to vote in the election of
directors generally. However, any stockholder entitled to vote in the election
of directors generally may nominate one or more persons for election as
directors at a meeting only if written notice of such stockholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the Corporation
not later than (i) with respect to an election to be held at an Annual Meeting,
ninety (90) days prior to the anniversary date of the immediately preceding
Annual Meeting; and (ii) with respect to an election to be held at a Special
Meeting for the election of directors, the close of business on the tenth (10th)
day following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (A) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (B) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (C) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (D) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
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Exhibit 3(c)
Commission as then in effect; and (E) the consent of each nominee to serve as a
director of the Corporation if so elected. The presiding officer of the meeting
shall refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedure. The vote necessary to elect directors shall be as
set forth in these By-Laws including, without limitation, Section 2.5 hereof,
unless otherwise required by the Delaware General Corporation Law.
3.4 Vacancies. Unless otherwise provided in the Corporation's
Certificate of Incorporation (or by resolution of the Board of Directors, any
vacancy in the Board of Directors, whether arising from death, resignation,
removal, or any other cause, and any newly created directorship resulting from
an increase in the number of directors, shall be filled exclusively by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director, and shall not be filled by the stockholders. Each
director so elected shall hold office until his successor shall have been
elected and qualified.
3.5 Resignations. Any director of the Corporation may resign at any
time by giving written notice of his resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
3.6 Committees. (a) The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, designate one or more committees,
including an executive committee, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In addition, in the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(b) Except to the extent restricted by the Delaware General
Corporation Law or the Corporation's Certificate of Incorporation, each such
committee, to the extent provided in the resolution creating it, shall have and
may exercise all the powers and authority of the Board of Directors and may
authorize the seal of the Corporation to be affixed to all papers which require
it. Each such committee shall serve at the pleasure of the Board of Directors
and have such name as may be determined from time to time by resolution adopted
by the Board of Directors. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors.
(c) Except to the extent restricted by the Delaware General
Corporation Law or the Corporation's Certificate of Incorporation, the Executive
Committee, if any, shall, when the Board of Directors is not in session, have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, including, without
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Exhibit 3(c)
limitation, the power and authority to declare a dividend, to authorize the
issuance of stock, and to adopt a certificate of ownership and merger pursuant
to Section 253 of the Delaware General Corporation Law.
3.7 Compensation. The Board of Directors shall have authority to fix
the compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity.
ARTICLE FOUR
MEETINGS OF THE BOARD
4.1 Annual Meeting. The newly elected Board shall meet, immediately
after the Annual Meeting at which they were elected, for the purpose of
organization or otherwise, and no notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the meeting, provided
a majority of the whole Board shall be present.
4.2 Regular Meetings. Regular meetings of the Board shall be held
within six (6) weeks following the end of each fiscal quarter at such time and
place as the Board of Directors may fix. Notice of regular meetings of the Board
of Directors need not be given.
4.3 Special Meetings. Special meetings of the Board may be called by
the Chairman of the Board or the President. Notice of any special meeting shall
be given to each director at least twelve (12) hours before the meeting by
telephone or by being personally delivered or sent by telex, telecopier, or
telegraph, or at least three (3) days before the meeting if delivered by mail at
the address at which the director is most likely to be reached. Such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage prepaid, or when transmitted if sent by telex,
telecopier or telegraph. Any director may waive notice of any meeting by a
writing signed by the director entitled to the notice and filed with the minutes
or corporate records. The attendance at or participation of the director at a
meeting shall constitute waiver of notice of such meeting, unless the director
at the beginning of the meeting or promptly upon his arrival objects to holding
the meeting or transacting business at the meeting. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Special meetings
shall be called by the Chairman of the Board, President or Secretary in like
manner and on like notice on the written request of two directors.
4.4 Place of Meetings. Unless otherwise specified in the notice of any
meeting, meetings of the Board of Directors shall be held at such place or
places, within or without the State of Delaware, as the Board of Directors may
from time to time determine.
4.5 Quorum and Manner of Acting. At all meetings of the Board,
one-third of the total number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a majority
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Exhibit 3(c)
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by the Delaware General Corporation Law or by the Certificate of Incorporation
or by these By-Laws. However, directors attending a meeting at which less than a
quorum is present shall have the power to adjourn the meeting. Notice of the
time and place of any such adjourned meeting shall be given to all of the
directors unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
4.6 Conduct of Meetings. At each meeting of the Board of Directors, the
Chairman of the Board shall act as chairman of the meeting and preside thereat.
The Secretary or, in his absence, inability or refusal to act, such person as
the chairman of the meeting shall appoint shall act as secretary of the meeting
and keep the minutes thereof.
4.7 Action by Consent. Unless restricted by the Corporation's
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or committee may be taken without a meeting if all
members of the Board of Directors or such committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of the Board of Directors or committee, as the case may be.
4.8 Telephonic Meeting. Unless restricted by the Corporation's
Certificate of Incorporation, any one or more members of the Board of Directors
or any committee thereof may participate in a meeting of the Board of Directors
or such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE FIVE
OFFICERS
5.1 Offices. The Board of Directors, at its first meeting after each
Annual Meeting of Stockholders, shall elect the officers of the Corporation,
which shall include the following: Chairman of the Board; President; one or more
Vice Presidents, as the Board of Directors shall designate; Secretary; and
Treasurer. The Secretary and the Treasurer may be the same person, and any Vice
President may hold at the same time the office of Secretary and/or Treasurer.
The Board may elect one or more Assistant Secretaries and one or more Assistant
Treasurers as may be necessary or desirable for the business of the Corporation.
The Board may also elect from among its members a Vice Chairman of the Board,
and from among its members or former members, a Chairman Emeritus. The Board may
elect such other officers as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
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Exhibit 3(c)
5.2 Designation of Chief Executive Officer. The Board of Directors
shall designate either the Chairman of the Board or the President of the
Corporation as the Chief Executive officer of the Corporation. The Chief
Executive Officer shall have authority over the business and affairs of the
Corporation and over all other officers, agents and employees of the
Corporation, subject to the control and direction of the Board of Directors.
5.3 Designation of Chief Operating Officer. The Board of Directors may
designate an officer of the Corporation as the Chief Operating Officer of the
Corporation. The Chief Operating Officer, if designated, shall manage and
operate the business and affairs of the Corporation, subject to the control and
direction of the Board of Directors, and shall report to the Chief Executive
Officer.
5.4 Compensation. The salaries of all officers shall be fixed by or
pursuant to the direction of the Board of Directors.
5.5 Tenure and Removal. Each officer of the Corporation shall hold
office until his successor is chosen and qualifies in his stead, or until his
death, or until he shall have resigned or been removed, as hereinafter provided
in these By-Laws. Any officer elected or appointed by the Board of Directors may
be removed at any time with or without cause by the affirmative vote of a
majority of the Board of Directors.
5.6 Resignations. Any officer of the Corporation may resign at any time
by giving written notice of his resignation to the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
5.7 Vacancies. If the office of any officer becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, the Board of Directors may fill each such vacancy for the unexpired
term in respect of which such vacancy occurred.
5.8 Chairman of the Board. (a) The Chairman of the Board shall be
elected from among the members of the Board of Directors and shall be an officer
of the Corporation. The Chairman shall preside at all meetings of the Board of
Directors and of the stockholders. The Chairman shall have such powers and
duties as an officer of the Corporation as provided by these By-Laws and as the
Board of Directors may from time to time prescribe.
(b) The Chairman may sign, execute, acknowledge and deliver,
in the name and on behalf of the Corporation, all stock certificates, deeds,
mortgages, bonds, contracts, documents and instruments, except where the signing
thereof shall be expressly and exclusively delegated to some other officer or
agent by the Board of Directors or by these By-Laws, or required by law to be
otherwise signed or executed.
5.9 Chairman Emeritus. The Board of Directors may elect a former
Chairman of the Board as Chairman Emeritus. The Chairman Emeritus shall be an
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Exhibit 3(c)
honorary position, reflecting outstanding service and devotion to the
Corporation. The Chairman Emeritus shall advise and consult with the Board of
Directors, committees of the Board of Directors, and the President, on matters
of interest to the Corporation, and shall perform such other duties as the Board
of Directors may from time to time prescribe.
5.10 Vice Chairman of the Board. The Vice Chairman of the Board, if one
shall have been elected from among the members of the Board, shall, in the
absence of the Chairman or in the event of the Chairman's refusal or inability
to act, preside at all meetings of the Board of Directors and stockholders, and
shall perform such other duties as the Board of Directors may from time to time
prescribe.
5.11 President. (a) The President shall have such powers and shall
perform such duties as are provided by these By-Laws and as the Board of
Directors may from time to time prescribe. The President shall, in the
Chairman's absence, inability or refusal to act, perform the duties of the
Chairman, other than duties to be performed by the Vice Chairman (if one shall
have been elected) as prescribed under or pursuant to these By-Laws. When so
acting, the President shall have all of the powers of and be subject to all the
restrictions upon the Chairman, including the powers and restrictions applicable
to the Chief Executive Officer if the Chairman serves in that capacity.
(b) The President may sign, execute, acknowledge and deliver,
in the name and on behalf of the Corporation, all stock certificates, deeds,
mortgages, bonds, contracts, documents and instruments, except where the signing
thereof shall be expressly and exclusively delegated to some other officer or
agent by the Board of Directors or by these By-Laws or required by law to be
otherwise signed or executed.
5.12 Vice President. (a) Each Vice President shall have such powers and
be required to perform such duties as the Board of Directors or the Chief
Executive Officer may from time to time prescribe.
(b) The Board of Directors may designate one or more of the
Vice Presidents as Executive Vice President. The Executive Vice President (or,
if more than one Executive Vice President has been designated, the Executive
Vice President specified by the Board of Directors) shall, in the President's
absence, inability or refusal to act, perform all of the duties of the
President. When so acting, the Executive Vice President shall have all of the
powers of and be subject to all of the restrictions upon the President,
including the powers and restrictions applicable to the Chief Executive Officer
if the President serves in that capacity.
5.13 Secretary. (a) The Secretary shall attend all sessions of the
Board and all meetings of the stockholders and shall record all votes and the
minutes of all such proceedings in a book to be kept for that purpose. The
Secretary shall perform like duties for the Committees of the Board upon
requested. He shall be custodian of the records and the seal of the Corporation
and shall affix and attest the seal to all documents to be executed on behalf of
the Corporation under its seal. He shall give, or cause to be given, notice of
all meetings of the stockholders and of the Board of Directors, in accordance
with the provisions of these By-Laws and as required by the Delaware General
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Exhibit 3(c)
Corporation Law, and shall perform such other duties as the Board of Directors
or the Chief Executive Officer may from time to time prescribe.
(b) The Assistant Secretary shall, in the Secretary's absence,
inability or refusal to act, perform the duties of the Secretary, and shall
perform such other duties as the Board of Directors or the Chief Executive
Officer may from time to time prescribe.
5.14 Treasurer. (a) The Treasurer shall have charge and custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements, in books belonging to the Corporation, and shall
deposit all corporate monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors or pursuant to its direction.
(b) The Treasurer shall receive and give receipts for monies
due and payable to the Corporation from any source whatsoever and shall disburse
the funds of the Corporation as may be ordered by the Board, taking proper
vouchers therefor, and shall render to the President and directors, at the
regular meetings of the Board, or whenever they may require it, an account of
all of his transactions as Treasurer and of the financial condition of the
Corporation and in general, perform all duties incident to the office of the
Treasurer and such other duties as the Board of Directors or the Chief Executive
Officer may from time to time prescribe.
(c) The Assistant Treasurer shall, in the Treasurer's absence,
inability or refusal to act, perform the duties of the Treasurer and shall also
perform such other duties as the Board of Directors or the Chief Executive
Officer may from time to time prescribe.
ARTICLE SIX
STOCK CERTIFICATES AND TRANSFER THEREOF
6.1 Stock Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate, signed by, or in the name of the Corporation
by, the Chairman of the Board or the President or the Executive Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation. If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the Delaware General Corporation Law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
<PAGE>
Page 39
Exhibit 3(c)
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
6.2 Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its record; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
6.3 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, and
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares of stock on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
6.4 Record Date. (a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, and, for determining
stockholders entitled to receive payment of any dividend or other distribution
or allotment or rights or to exercise any rights of change, conversion or
exchange of stock or for any other purpose, the record date shall be at the
close of business on the day on which the Board of Directors adopts a resolution
relating thereto.
(b) A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(c) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
<PAGE>
Page 40
Exhibit 3(c)
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent shall, by
written notice to the Secretary, request the Board of Directors to fix a record
date. Such notice shall specify the action proposed to be consented to by
stockholders. The Board of Directors shall promptly, but in all events within
ten (10) days after the date on which such a request is received, adopt a
resolution fixing the record date. If no record date has been fixed by the Board
of Directors within ten (10) days after the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation. Such delivery to the Corporation shall be made to
its registered office in the State of Delaware, its principal place of business,
or any officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded, to the attention of the
Secretary of the Corporation. Such delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
applicable law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be the close of business
on the date on which the Board of Directors adopts the resolution taking such
prior action.
In the event of delivery to the Corporation of a written
consent or written consents purporting to authorize or take corporate action,
and/or related revocation or revocations, (each such written consent and related
revocation, individually and collectively, a "Consent"), the Secretary of the
Corporation shall provide for the safekeeping of such Consent and shall as soon
as practicable thereafter conduct such reasonable investigation as the Secretary
deems necessary or appropriate for the purpose of ascertaining the validity of
such Consent and all matters incident thereto, including, without limitation,
whether holders of shares having the requisite voting power to authorize or take
the action specified in the Consent have given consent. If after such
investigation the Secretary shall determine that the Consent is sufficient and
valid, that fact shall be certified on the records of the Corporation kept for
the purpose of recording the proceedings of meetings of the stockholders, and
the Consent shall be filed in such records, at which time the Consent shall
become effective as stockholder action.
6.5 Lost Certificates. Any person claiming a certificate of stock to be
lost, stolen or destroyed shall make an affidavit or affirmation of that fact,
in such manner and form as the Board of Directors may from time to time require,
in order to obtain issuance of a new certificate in place thereof. The Board of
Directors may, at its discretion and as a condition precedent to any such
issuance, require any such person to give the Corporation a bond in such sum as
it may direct to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate. Upon compliance with all
requirements established by the Board of Directors for any such issuance, a new
<PAGE>
Page 41
Exhibit 3(c)
certificate may be issued.
6.6 Facsimile Signatures. Any or all of the signatures on a certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may, be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
6.7 Transfer Agents and Registrars. The Board of Directors may appoint,
or authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
6.8 Regulations. The Board of Directors may make such additional rules
and regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
ARTICLE SEVEN
GENERAL PROVISIONS
7.1 Corporate Seal. The corporate seal shall have inscribed thereon the
name of the Corporation and the words "CORPORATE SEAL" and "DELAWARE."
7.2 Fiscal Year. The fiscal year shall begin the first day of
September in each year.
7.3 Checks, Notes, Drafts, Etc. All checks, drafts or other demands for
the payment of money and notes of the Corporation shall be signed, endorsed, or
accepted in the name of the Corporation by such officer or officers from time to
time designated by the Board of Directors or by an officer or officers
authorized by the Board of Directors to make such designation.
7.4 Execution of Instruments. The Board of Directors may authorize any
officer or officers, agent or agents, in the name of and on behalf of the
Corporation to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and such authority
may be general or confined to specific instances.
7.5 Dividends and Reserves. Subject to the provisions of statute and
the Corporation's Certificate of Incorporation dividends upon the shares of
capital stock of the Corporation may be declared by the Board of Directors at
any regular or special meeting, and may be paid in cash, in property or in
shares of stock of the Corporation.
7.6 Notice. Whenever under the provisions of these By-Laws written
notice is required to be given to any director, officer, or stockholder, it
shall not be construed to require personal notice, but unless otherwise provided
by these By-Laws, such notice shall be deemed to have been given in writing when
<PAGE>
Page 42
Exhibit 3(c)
deposited in the United States mail, postage prepaid, directed to such
stockholder, officer or director at his address as it appears on the records of
the Corporation.
7.7 Voting of Stock in Other Corporations. Unless otherwise provided by
resolution of the Board of Directors, the Chief Executive Officer, from time to
time, may (or may appoint one or more attorneys or agents to) cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation. In the event one or more; attorneys or agents are
appointed, the Chief Executive Officer may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent. The
Chief Executive Officer may, or may instruct the attorneys or agents appointed
to, execute or cause to be executed in the name and on behalf of the Corporation
and under its seal or otherwise, such written proxies, consents, waivers or
other instruments as may be necessary or proper in the circumstances.
7.8 Indemnification. (a) Each director or officer or former director or
officer of the Corporation or any person who may have served at its request as a
director or officer of another corporation in which it owns shares of capital
stock or of which it is a creditor, shall be indemnified and held harmless by
the Corporation, as hereinafter provided, against any and all liabilities and
counsel fees, costs and legal and other expenses (including, without limitation,
fines, penalties, judgments and amounts paid in settlement) reasonably incurred
by or imposed on him in connection with or resulting from any claim, action,
suit or proceeding, whether civil, criminal, administrative or investigative, or
any appeal therein, in which he may be or become involved or with which he may
be threatened, as a party or otherwise, by reason of his now or hereafter being
or having heretofore been a director or officer of the Corporation or of such
other corporation, or by reason of his alleged acts or omissions as a director
or officer as aforesaid, whether or not he continues to be such at the time such
liabilities, fees, costs or expenses shall have been incurred, provided such
director or officer shall be indemnified and held harmless against such
liabilities, fees, costs and expenses, only if he acted in relation to such
matters in good faith for a purpose which he reasonably believed to be in the
best interests of the Corporation.
(b) In discharging his duty to the Corporation, a director or
officer, when acting in good faith, may rely upon financial statements of the
Corporation represented to him to be correct by, the officer of the Corporation
having charge of its books of accounts, or stated in a written report by an
independent public or certified public accountant or firm of such accountants
fairly to reflect the financial condition of such corporation.
(c) Termination of a claim, action or proceeding by judgment,
order, settlement (whether with or without court approval), conviction or upon a
plea of guilty or of nolo contendere, or its equivalent, shall not of itself
create a presumption that a director or officer did not meet the standard of
conduct set forth above.
<PAGE>
Page 43
Exhibit 3(c)
(d) The grant of an indemnification provided herein, unless
approved by a court in a final adjudication of a claim, action, suit, or
proceeding or in connection with a court approved settlement thereof, shall be
made pursuant to a direction of the Board of Directors of the Corporation, but
may be granted only (i) if the Board of Directors, acting by a quorum consisting
of directors not parties to such claim, action, suit or proceeding, shall have
determined that in its opinion the director or officer has met the standard of
conduct set forth above or (ii) in the event such a quorum is not obtainable
with due diligence, then alternatively if the Board of Directors shall have
received the written advice of independent legal counsel selected by it, that in
the latter's judgment such applicable standard of conduct has been met. If
several claims, issues, matters or actions are involved in the grant of
indemnification provided herein, a director or officer may be granted
indemnification by the Board of Directors to the extent of that portion of the
liabilities, fees, costs and expenses which are allocable to such claims,
issues, matters or actions in respect of which it is determined that such
director or officer has met the standard of conduct set forth above.
(e) Expenses incurred with respect to any claim, action, suit
or proceeding may be advanced by the Corporation prior to the final disposition
thereof upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount unless it shall ultimately be determined that he is
entitled to indemnification hereunder.
(f) The rights to the indemnification provided herein shall
inure to the benefit of the heirs, executors, administrators, or legal
representatives of the persons covered hereby; shall be in addition to any
rights to which any such person may otherwise be entitled by any provision of
law, articles of incorporation, by-law, contract, vote of stockholders or
otherwise; and shall be in addition to and not in restriction or limitation of
any other privilege or power which the Corporation may lawfully exercise with
respect to the indemnification or reimbursement of directors, officers and
others.
(g) If any part of this Section shall be found, in any action,
suit or proceeding, to be invalid or ineffective, the validity and the effect of
the remaining parts shall not be affected.
(h) The rights of indemnification provided herein shall not
arise with respect to conduct subsequent to January 5, 1987, which conduct shall
be subject to the indemnification provisions set forth in Article Fifteenth of
the Corporation's Certificate of Incorporation.
7.9 Amendments. These By-Laws may be adopted, amended or repealed (i)
by the affirmative vote of a majority of the directors present at a meeting at
which a quorum is present unless the Certificate of Incorporation or these
By-Laws shall require a vote of a greater number, or (ii) by the affirmative
vote of the holders of two-thirds of the voting power of all of the outstanding
shares of capital stock of the Corporation at any regular or special meeting of
stockholders if notice of the proposed amendment is contained in the notice of
the meeting or waived by all of the stockholders entitled to vote.
Page 44
Exhibit 10(iii)A(2)(f)
APPENDIX E
E.1 Eligible Individual Brock A. Hattox
E.2 Effective Date Pursuant to Section 2.1(b), the Eligible Individual's
date of participation shall be September 18, 1996.
E.3 Special Provisions The following special provision shall apply to
the Eligible Individual's participation in the Plan.
(a) The Eligible Individual will qualify as a Vested Terminee if he
completes 5 years of employment with NSI from September 9, 1996 to his
Termination Date.
(b) The Eligible Individual will be eligible for Early Retirement under
Sections 1.1(a)(2) and 3.3 upon attainment of age 60 while actively employed by
NSI (at which time he will have more than 10 years of service), provided that
his Early Retirement Accrued Pension shall be calculated based upon his Credited
Service and Eligible Service at his date of Retirement.
Except as otherwise specifically provided in this Appendix E, the Eligible
Individual's benefits under the Plan shall be determined in the same manner as
for other participants.
Page 45
Exhibit 10(iii)A(2)(g)
APPENDIX F
F.1 Eligible Individual George H. Gilmore
F.2 Effective Date Pursuant to Section 2.1(b), the Eligible Individual's
date of participation shall be June 1, 1999.
F.3 Special Provisions The following special provisions shall apply
to the Eligible Individual's participation in the Plan.
(a) The Eligible Individual will qualify as a Vested Terminee if he
completes 5 years of employment with NSI from June 1, 1999 to his Termination
Date.
(b) The Eligible Individual will receive a year of Credited Service
under Section 2.3 of the Plan for each 12-month period he is employed by the
Company or an Adopting Employer for the period from June 1, 1999 to his
Termination Date. If the Eligible Individual's final year of Credited Service is
not a full year, he shall receive partial credit for such year based upon the
number of complete months worked during such partial year.
Except as otherwise specifically provided in this Appendix F, the Eligible
Individual's benefits under the Plan shall be determined under the standard
provisions of the Plan.
Page 46
Exhibit 10(iii)A(22)(a)
FORM OF
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT
FOR EXECUTIVE OFFICERS
--------------------------------------------------
THIS AGREEMENT, made as of the ____ day of September, 1996
(the "Grant Date"), between NATIONAL SERVICE INDUSTRIES, INC., a Delaware
corporation ("NSI") and ____________________________________________, a
Subsidiary of NSI (together, the "Company"), and
__________________________________________________ (the "Grantee").
WHEREAS, NSI has adopted the National Service Industries, Inc.
Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional
incentives to certain officers and key employees of NSI and its Subsidiaries;
and
WHEREAS, the Committee responsible for administration of the
Plan has determined to grant to the Grantee an Aspiration Achievement Incentive
Award as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Aspiration Award.
1.1 The Company hereby grants to the Grantee an Aspiration Achievement
Incentive Award (the "Award"), which has a value determined as provided in
Section 2 below based upon the performance of NSI during the Performance Cycle
from September 1, 1996 to August 31, 1999. As provided in the Plan, Grantee's
right to payment of this Award is dependent upon Grantee's continued employment
in Grantee's current position with the Company, or in a position with
responsibilities of substantially similar value to the Company during the
Performance Cycle. Under certain circumstances as described below, Grantee may
be entitled to receive payment for some portion of the Award if Grantee's
employment terminates prior to the end of the Performance Cycle.
1.2 The Grantee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof. This Agreement shall
be construed in accordance with, and subject to, the provisions of the Plan (the
provisions of which are hereby incorporated by reference) and, except as
otherwise expressly set forth herein, the capitalized terms used in this
Agreement shall have the same definitions as set forth in the Plan.
2. Performance Measure and Performance Levels
The Committee has established the performance measure (the
"Performance Measure"), and award and performance levels set forth in Appendix A
attached hereto. The chart in Appendix A specifies a Commitment performance
<PAGE>
Page 47
Exhibit 10(iii)A(22)(a)
level, at which the Commitment Level 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 accordancewith Section 7(c) of the Plan, the performance level of NSI with
respect to the Performance Measure for the Performance Cycle. The Committee may
in determining the performance level with respect to the Performance
Measure adjust NSI's financial results for the Performance Cycle to exclude
the effect of unusual charges or income items which are distortive of
financial results for the Performance Cycle; provided, that, in determining
financial results, items whose exclusion from consideration will increase the
Grantee's Award shall only have their effects excluded if they constitute
"extraordinary items" under generally accepted accounting principles and all
such items shall be excluded. The Committee shall also adjust the
performance calculations to exclude the unanticipated effect on financial
results of changes in the Code, or other tax laws, and the regulations
thereunder. The Committee may decrease the amount of the Award otherwise
payable to Grantee if, in the Committee's view, the financial
performance of NSI during the Performance Cycle justifies such
adjustment, regardless of the extent to which the Performance Measure has been
achieved.
The Company will notify the Grantee (or the executors or administrators
of the Grantee's estate, if applicable) of the Committee's determination (the
"Determination Notice"). The Determination Notice shall specify the performance
level of NSI with respect to the Performance Measure for the Performance Cycle
and the amount of Award (if any) Grantee will be entitled to receive. The amount
Grantee is entitled to receive will be paid one-half in cash and one-half in
Shares, with the Shares being valued at their Fair Market Value as of the last
day of the Performance Cycle.
3.2 Significant Corporate Events. If, during a Performance Cycle, NSI
consummates an acquisition or disposition that involves assets whose value
equals or exceeds 30% of the total value of NSI's assets, the following rules
shall apply:
(a) If the transaction is consummated during the first year of
the Performance Cycle, the Performance Cycle and the Grantee's outstanding Award
will be terminated with no payout and a new Performance Cycle will be started.
(b) If the transaction is consummated after the first year of
the Performance Cycle, the Performance Cycle will end and the outstanding Award
will be determined and paid at NSI's actual performance level to such date
(using, for such purpose, prorated performance levels of the Performance Measure
<PAGE>
Page 48
Exhibit 10(iii)A(22)(a)
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 involves assets whose value is less than 30% of the total value
of NSI's assets, the effects of such acquisition or disposition shall be
disregarded in determining NSI's financial results and performance level for the
Performance Cycle.
Any actions under this Section 3.2 shall be taken in accordance with the
requirements of Code Section 162(m) and the regulations thereunder.
4. Termination of Employment
4.1 In General. Except as provided in Sections 4.2, 4.3 and 4.4 below, in
the event that a 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; and provided, further,
that the performance level used to determine the prorated award cannot exceed
200% of the Commitment performance level.
In the event of Grantee's Retirement (on or after age 65), the full Award
shall continue to be eligible for payout at the end of the Performance Cycle,
just as if Grantee had remained employed for the remainder of the Performance
Cycle (including if the Grantee dies after Retirement but before the end of the
Performance Cycle). At the end of the Performance Cycle, the Committee shall
make its determination in the same manner as provided in Section 3.
Payment of earned Awards to Grantee in the event of termination due to
death, Disability, or Retirement shall be made at the same time payments would
be made to Grantee if Grantee did not terminate employment during the
Performance Cycle.
4.3 Change In Control. Notwithstanding anything in this Agreement to the
contrary, if a Change in Control occurs during the Performance Cycle, then the
<PAGE>
Page 49
Exhibit 10(iii)A(22)(a)
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 had elapsed as of the date of the Change in Control),
whichever provides the greater payment. The Award determined in accordance with
the preceding sentence shall be fully vested and payable immediately to the
Grantee. The Committee shall determine the amount of the Award under this
Section 5.3, subject to the terms of this section and no downward adjustment of
the Award shall be permitted. The Award will be paid in full in cash, unless the
Grantee elects to receive one-half of the Award in Shares. For purposes of
determining the number of Shares to be paid to a Grantee under this Section 4.3,
the Fair Market Value of a Share shall be determined by taking the average
closing price per share for the last twenty (20) trading days prior to the
commencement of the offer, transaction or other event which resulted in a Change
in Control.
4.4 Termination Without Cause. In the event Grantee's employment is
terminated by the Company without Cause more than one (1) year after the
commencement of the Performance Cycle and prior to the end of the Performance
Cycle, the Grantee shall be entitled to a prorated payout of the Award based
upon the length of time that the Grantee was actively employed during the
Performance Cycle relative to the full length of the Performance Cycle;
provided, that payment shall only be made to the extent at the end of the
Performance Cycle the Award would have been earned based upon the performance
level achieved for the Performance Cycle; and provided, further, that the
performance level used to determine the prorated award cannot exceed 200% of the
Commitment performance level. Payment shall be made to Grantee at the same time
as if Grantee had not terminated employment during the Performance Cycle.
5. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be interpreted to
confer upon the Grantee any rights with respect to continuance of employment by
the Company, nor shall this Agreement or the Plan interfere in any way with the
right of the Company to terminate the Grantee's employment at any time.
6. Nonassignment.
The Grantee shall not have the right to assign, alienate,
pledge, transfer or encumber any amounts due Grantee hereunder, and any attempt
to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits
shall be null and void and not recognized by the Plan or the Company.
<PAGE>
Page 50
Exhibit 10(iii)A(22)(a)
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 51
Exhibit 10(iii)A(22)(a)
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:
JAMES S. BALLOUN
Chairman of the Board and Chief Executive Officer
_________________________________________, Subsidiary
By:
JAMES S. BALLOUN
Chairman of the Board and Chief Executive Officer
Name of Grantee: ___________________________________
<PAGE>
Page 52
EXHIBIT 10(iii)A(22)(a)
Your Award Opportunity
Name: James S. Balloun
Position: Chairman, President, Chief Executive Officer and
Director
Division: NSI
Perfomance period: 1997-1999
Award at Commitment: $480,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY97-99 Cumulative Economic Profit ($000) $ 38,700 $ 65,500 $ 135,000
Payout * ($000) $ 120 $ 480 $ 2,400
</TABLE>
YOUR POTENTIAL PAYOUT
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
<TABLE>
<CAPTION>
NSI Cumulative Economic Profit Payout*
($ 000s) ($ 000s)
<S> <C> <C>
Threshold $ 38,700 $ 120
Commitment $ 65,500 $ 480
Aspiration $135,000 $2,400
</TABLE>
* Amounts between performance benchmarks will be interpolated.
<PAGE>
Page 53
Exhibit 10(iii)A(22)(a)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 54
EXHIBIT 10(iii)A(22)(a)
Your Award Opportunity
Name: Brock A. Hattox
Position: Executive Vice President and Chief Financial Officer
Division: NSI
Perfomance period: 1997-1999
Award at Commitment: $224,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY97-99 Cumulative Economic Profit ($000) $ 38,700 $ 65,500 $ 135,000
Payout * ($000) $ 56 $ 224 $ 1,120
</TABLE>
YOUR POTENTIAL PAYOUT
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
<TABLE>
<CAPTION>
NSI Cumulative Economic Profit Payout*
($ 000s) ($ 000s)
<S> <C> <C>
Threshold $ 38,700 $ 56
Commitment $ 65,500 $ 224
Aspiration $135,000 $1,120
* Amounts between performance benchmarks will be interpolated.
</TABLE>
<PAGE>
Page 55
Exhibit 10(iii)A(22)(a)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 56
EXHIBIT 10(iii)A(22)(a)
Your Award Opportunity
Name: David Levy
Position: Executive Vice President, Administration and Counsel
and Director
Division: NSI
Perfomance period: 1997-1999
Award at Commitment: $214,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY97-99 Cumulative Economic Profit ($000) $ 38,700 $ 65,500 $ 135,000
Payout * ($000) $ 54 $ 214 $ 1,070
</TABLE>
YOUR POTENTIAL PAYOUT
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
<TABLE>
<CAPTION>
NSI Cumulative Economic Profit Payout*
($ 000s) ($ 000s)
<S> <C> <C>
Threshold $ 38,700 $ 54
Commitment $ 65,500 $ 214
Aspiration $135,000 $1,070
* Amounts between performance benchmarks will be interpolated.
</TABLE>
<PAGE>
Page 57
Exhibit 10(iii)A(22)(a)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 58
EXHIBIT 10(iii)A(22)(a)
Your Award Opportunity
Name: Stewart A. Searle III
Position: Senior Vice President, Planning and Development
Division: NSI
Perfomance period: 1997-1999
Award at Commitment: $128,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY97-99 Cumulative Economic Profit ($000) $ 38,700 $ 65,500 $ 135,000
Payout * ($000) $ 32 $ 128 $ 640
</TABLE>
YOUR POTENTIAL PAYOUT
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
<TABLE>
<CAPTION>
NSI Cumulative Economic Profit Payout*
($ 000s) ($ 000s)
<S> <C> <C>
Threshold $ 38,700 $ 32
Commitment $ 65,500 $ 128
Aspiration $135,000 $ 640
* Amounts between performance benchmarks will be interpolated.
</TABLE>
<PAGE>
Page 59
Exhibit 10(iii)A(22)(a)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 60
Exhibit 10(iii)A(22)(a)
APPENDIX B
ASPIRATION ACHIEVEMENT
INCENTIVE AWARD
PERFORMANCE MEASURE
<TABLE>
<S> <C>
PERFORMANCE MEASURE DEFINITION
Economic Profit Sum of the annual economic profits for the performance
cycle. Annual economic profit shall be determined as
follows: Adjusted After-Tax Profits (AATP) minus
[Average Invested Capital times the Weighted Average
Cost of Capital (WACC)]
RELATED TERMS DEFINITION
Average Invested Capital Average of the average beginning and ending Invested
Capital balances each month.
Adjusted After-Tax Profit (AATP) Adjusted Pre-Tax Profit minus Book Income Taxes.
Adjusted Pre-Tax Profit (APTP) Income before provision for income taxes plus interest
expense plus implied interest on capitalized operating
leases.
Book Income Taxes Reported tax rate (determined by dividing
the provision for income taxes by the
income before the provision for income
taxes, as reported in NSI's annual financial
statements) applied to APTP.
Invested Capital [Total assets plus capitalized operating leases, less
short and long-term investment in tax benefits] less
[non-interest bearing liabilities except for self
insurance reserves and deferred tax credits relating to
the safe harbor lease].
Weighted Average Cost of Capital (WACC) Ten percent (10%) will be the WACC for the Performance
Cycle ending August 31.
</TABLE>
Page 61
Exhibit 10(iii) A(23)(b)
AMENDMENT NO. 1
TO
NATIONAL SERVICE INDUSTRIES, INC.
SUPPLEMENTAL DEFERRED SAVINGS PLAN
THIS AMENDMENT made as of this 29th day of December, 1997, by NATIONAL
SERVICE INDUSTRIES, INC.
(the "Company");
W I T N E S S E T H:
WHEREAS, the Company previously established the National Service
Industries, Inc. Supplemental Deferred Savings Plan ("Plan"), effective
September 18, 1996; and
WHEREAS, the Company now desires to amend the Plan in the manner
hereinafter provided;
NOW, THEREFORE, for and in consideration of the premises, the Plan is
hereby amended as follows:
1.
Section 4.1(a) is hereby amended by adding the following to the end of the
present section:
"If permitted by the Company and in accordance with such rules
as the Company may establish, a Participant (other than an Executive
Officer of the Company) may direct that all or a portion of the
Deferral Subaccount shall be deemed to be invested in Shares."
2.
Section 4.1(b) is hereby amended by deleting the present section in its
entirety and substituting the following in lieu thereof:
"(b) Matching Subaccount. As of the end of each Plan Year,
unless the Board otherwise determines, there shall be credited to the
Matching Subaccount of each Participant who is employed on the last day
of the Plan Year an amount equal to 25% of the amount of the
Participant's deferrals for such Plan Year, provided that the maximum
amount credited to a Participant's Matching Subaccount for a Plan Year
shall not exceed five percent (5%) of the Participant's Compensation
for such Plan Year. Unless the Company otherwise determines for a
designated Eligible Executive (other than an Executive Officer of the
Company), an Eligible Executive who is covered by a defined benefit
supplemental executive retirement plan maintained by the Employer shall
not be eligible to receive Employer matching contribution credits under
the Plan.
<PAGE>
Page 62
Exhibit 10(iii) A(23)(b)
Unless the Company otherwise determines, the amount credited
to a Participant's Matching Subaccount shall be deemed to be invested
in the form of cash, Shares, or a combination of cash and Shares, as
elected by the Participant on the Election Form. The Company may
provide the Participant with the right to change the deemed investment
election from time to time and to designate different deemed investment
elections for amounts credited to the Matching Subaccount in different
Plan Years. To the extent the amount is deemed to be credited in cash,
the Matching Subaccount will be credited with interest at the Prime
Rate on each Annual Valuation Date (and at such other dates, if any, as
may be determined by the Plan Administrator); if Shares are deemed to
be credited, the Matching Subaccount will be adjusted on each Annual
Valuation Date (and at such other dates ,if any, as may be determined
by the Plan Administrator) as if it were invested in Shares to reflect
any dividends (including reinvestment of such dividends in Shares),
distributions, stock dividends, stock splits or similar actions with
respect to the Shares since the preceding Annual Valuation Date (or
such other date)."
3.
Section 4.1(c) is hereby amended by adding the following at the beginning
of the last sentence of the first paragraph of the present section:
"Unless the Company otherwise determines for a designated
Eligible Executive,"
4.
Section 4.3(a)(iii)(B) is hereby amended by deleting the present provision
in its entirety and substituting the following in lieu thereof:
"(B) In the event a Participant terminates after completing 5
Years of Service and attaining age 55 (except for death and Total and
Permanent Disability which are covered by (A) above), the vested
balance credited to a Participant's Deferral Subaccount shall be
distributed as follows: (x) any Class Year Subaccounts as to which he
has properly elected under subsection (ii) above a delayed distribution
and/or payment in installments shall be distributed in accordance with
such elections; and (y) with respect to any Class Year Subaccounts as
to which the five-year period has not yet passed and that would
otherwise be payable more than one (1) year in the future, the
Participant may elect prior to termination to make the deferral
election in (ii) above. Any Class Year Subaccounts as to which the
5-year period has not passed that are payable within one (1) year and
any Class Year Subaccounts as to which the election in (y) is not made
shall be payable as soon as practical after termination."
<PAGE>
Page 63
Exhibit 10(iii) A(23)(b)
5.
Section 4.3(b)(ii) is hereby amended by adding the following at the end of
the first paragraph of the present section:
"If the Participant does not elect to receive a distribution
in Shares, or if Shares cannot otherwise be distributed, the
Participant's benefits shall be paid in cash."
6.
The within and foregoing amendments to the Plan shall be effective as of
December 1, 1996. Except as hereby modified, the Plan shall remain in full force
and effect.
IN WITNESS WHEREOF, the undersigned has executed this Amendment No. 1 the
day and year first above written.
NATIONAL SERVICE INDUSTRIES, INC.
By: /s/ James S. Balloun
---------------------------------
Page 64
Exhibit 10(iii)A(34)
SEVERANCE PROTECTION AGREEMENT
THIS AGREEMENT made as of the _____ day of ____________, 19___, by and
between National Service Industries, Inc. (the "Company") and
____________________ _________________(the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat of or the occurrence of a Change in Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure his continued dedication and efforts in such event without undue concern
for his personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of
the Company (including its subsidiary corporations and partnerships),
particularly in the event of a threat or the occurrence of a Change in Control,
the Company desires to enter into this Agreement with the Executive to provide
the Executive with certain benefits in the event his employment is terminated as
a result of, or in connection with, a Change in Control and to provide the
Executive with the Gross-Up Payment (as hereinafter defined) and certain other
benefits whether or not the Executive's employment is terminated.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement.
(a) This Agreement shall commence as of ____________ __, 19___
and shall continue in effect until the earlier of ____________ __, 19___ or the
Executive's termination of employment prior to a Change in Control; provided,
however, that commencing on ____________ __, 19___ and on each ____________ __
thereafter, the term of this Agreement shall automatically be extended for one
(1) year unless either the Company or the Executive shall have given written
notice to the other at least ninety (90) days prior thereto that the term of
this Agreement shall not be so extended.
(b) Notwithstanding the foregoing, (1) the term of this
Agreement shall not expire during a Threatened Change in Control Period or prior
to the expiration of 24 months after the occurrence of a Change in Control and
(2) prior to a Change in Control and other than during a Threatened Change in
<PAGE>
Page 65
Exhibit 10(iii)A(34)
Control Period, the term of this Agreement shall expire on the date the
Executive ceases to serve as ______________, or in another capacity as an
executive officer (as defined in Rule 3b-7 under the Securities Exchange Act of
1934, as amended (the "1934 Act") as in effect on the date hereof) of the
Company unless such cessation was at the request of a Third Party or otherwise
occurred in connection with, or in anticipation of, a Change in Control.
2. Definitions.
2.1 Cause. For purposes of this Agreement, a termination for
"Cause" is a termination evidenced by a resolution adopted in good faith by
two-thirds of the Board that the Executive (a) intentionally and continually
failed to substantially perform his duties with the Company (other than a
failure resulting from the Executive's incapacity due to physical or mental
illness) which failure continued for a period of at least thirty (30) days after
a written notice of demand for substantial performance has been delivered to the
Executive specifying the manner in which the Executive has failed to
substantially perform, or (b) intentionally engaged in conduct which is
demonstrably and materially injurious to the Company, monetarily or otherwise;
provided, however that no termination of the Executive's employment shall be for
Cause as set forth in clause (b) above until (x) there shall have been delivered
to the Executive a copy of a written notice setting forth that the Executive was
guilty of the conduct set forth in clause (b) and specifying the particulars
thereof in detail, and (y) the Executive shall have been provided an opportunity
to be heard by the Board (with the assistance of the Executive's counsel if the
Executive so desires). No act, nor failure to act, on the Executive's part,
shall be considered "intentional" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his action or failure
to act was in the best interest of the Company. Notwithstanding anything
contained in this Agreement to the contrary, no failure to perform by the
Executive after a Notice of Termination is given by the Executive shall
constitute Cause for purposes of this Agreement.
2.2 Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(a) The acquisition (other than from the Company) by any "Person" (as the
term person is used for purposes of Sections 13(d) or 14(d) of the 1934 Act) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of twenty percent (20%) or more of the combined voting power of the
Company's then outstanding voting securities; or
(b) The individuals who, as of ____________ __, 19___, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the Board; provided, however, that if the election, or nomination
for election by the Company's stockholders, of any new director was approved by
<PAGE>
Page 66
Exhibit 10(iii)A(34)
a vote of at least two-thirds of the Incumbent Board, such new director shall,
for purposes of this Agreement, be considered as a member of the Incumbent
Board; or
(c) Approval by stockholders of the Company of (1) a merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than seventy percent
(70%) of the combined voting power of the then outstanding voting securities of
the corporation resulting from such merger or consolidation in substantially the
same proportion as their ownership of the combined voting power of the voting
securities of the Company outstanding immediately before such merger or
consolidation, or (2) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially all of the
assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
pursuant to Section 2.2(a), solely because twenty percent (20%) or more of the
combined voting power of the Company's then outstanding securities is acquired
by (i) a trustee or other fiduciary holding securities under one or more
employee benefit plans maintained by the Company or any of its subsidiaries or
(ii) any corporation which, immediately prior to such acquisition, is owned
directly or indirectly by the stockholders of the Company in the same proportion
as their ownership of stock in the Company immediately prior to such acquisition
(hereinafter referred to as "Related Persons").
(d) Notwithstanding anything contained in this Agreement to the contrary,
if the Executive's employment is terminated prior to a Change in Control and the
Executive reasonably demonstrates that such termination (1) was at the request
of a Third Party (as hereinafter defined) or (2) otherwise occurred in
connection with, or in anticipation of, a Change in Control (including, without
limitation, during a Threatened Change in Control Period), then for all purposes
of this Agreement, the date of a Change in Control shall mean the date
immediately prior to the date of such termination of the Executive's employment.
2.3 Company. Each place in the Agreement where a reference to
the "Company" appears that relates to the Executive's employment, termination of
employment or performing services, including the definitions of "Cause" and
"Good Reason", shall mean and include the Subsidiary which is the primary
employer of the Executive. Further, in each place where the Agreement refers to
a benefit plan or program, payment of compensation, compensation arrangement or
other similar plan or program maintained by the Company, such reference shall
include any plan, program or arrangement maintained or established by the
Subsidiary. Notwithstanding the foregoing, the references in the definitions of
"Change in Control," "Threatened Change in Control Period" and similar
references to changes in ownership and control of the Company shall mean and
refer to National Service Industries, Inc., a Delaware corporation.
<PAGE>
Page 67
Exhibit 10(iii)A(34)
2.4 Disability. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform his duties under this Agreement for a period of one
hundred eighty (180) consecutive days.
2.5 (a) Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence after a Change in Control of any of the events
or conditions described in Subsections (1) through (9) hereof:
(1) a change in the Executive's status, title, position or responsibilities
(including reporting responsibilities) which, in the Executive's reasonable
judgment, represents an adverse change from his status, title, position or
responsibilities as in effect immediately prior thereto; the assignment to the
Executive of any duties or responsibilities which, in the Executive's reasonable
judgment, are inconsistent with his status, title, position or responsibilities;
or any removal of the Executive from or failure to reappoint or reelect him to
any of such offices or positions, except in connection with the termination of
his employment for Disability, Cause, as a result of his death or by the
Executive other than for Good Reason;
(2) a reduction in the Executive's base salary or any failure to pay the
Executive any compensation or benefits to which he is entitled within five days
of the date due;
(3) a failure to increase the Executive's base salary at least annually at
a percentage of base salary no less than the average percentage increases (other
than increases resulting from the Executive's promotion) granted to the
Executive during the three full years ended prior to a Change in Control (or
such lesser number of full years during which the Executive was employed);
(4) the Company's requiring the Executive to be based at any place outside
a 30-mile radius from Atlanta, Georgia, except for reasonably required travel on
the Company's business which is not greater than such travel requirements prior
to the Change in Control;
(5) the failure by the Company to (A) continue in effect (without reduction
in benefit level, and/or reward opportunities) any compensation or employee
benefit plan in which the Executive was participating immediately prior to the
Change in Control, including, but not limited to, the plans listed on the
Appendix, unless a substitute or replacement plan has been implemented which
provides substantially identical compensation or benefits to the Executive or
(B) provide the Executive with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward opportunities) to those
provided for under each other compensation or employee benefit plan, program and
<PAGE>
Page 68
Exhibit 10(iii)A(34)
practice as in effect immediately prior to the Change in Control (or as in
effect following the change in Control, if greater);
(6) the insolvency or the filing (by any party, including the Company) of a
petition for bankruptcy of the Company;
(7) any material breach by the Company of any provision of this Agreement;
(8) any purported termination of the Executive's employment for Cause by
the Company which does not comply with the terms of Section 2.1; or
(9) the failure of the Company to obtain an agreement, satisfactory to the
Executive, from any successor or assign of the Company to assume and agree to
perform this Agreement, as contemplated in Section 9 hereof.
(b) Any event or condition described in Section 2.5(a) (1) through (9)
which occurs prior to a Change in Control but which the Executive reasonably
demonstrates (1) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in Control (a
"Third Party"), or (2) otherwise arose in connection with or in anticipation of
a Change in Control, shall constitute Good Reason for purposes of this Agreement
notwithstanding that it occurred prior to the Change in Control.
(c) The Executive's right to terminate his employment pursuant to this
Section 2.4 shall not be affected by his incapacity due to physical or mental
illness.
2.6 Threatened Change in Control. For purposes of this
Agreement, a Threatened Change in Control shall mean the occurrence of any of
the following events:
(a) when the Company is aware of or is contemplating, a proposal (a
"Proposal") for any Person other than a Related Person (1) to acquire five
percent (5%) or more of the voting power of the Company's outstanding
securities, or (2) to merge or consolidate with another entity, transfer or sell
assets of the Company, or liquidate or dissolve the Company, in each case
described in this clause (2) in a transaction that would constitute a Change in
Control; or
(b) any Person other than a Related Person,
(1) acquires five percent (5%) or more of the voting power of the Company's
outstanding securities, other than as a holder whose investment in the Company
<PAGE>
Page 69
Exhibit 10(iii)A(34)
is eligible to be reported on Schedule 13G pursuant to Rule 13d-l (b) (1)
promulgated under the Exchange Act, or
(2) initiates a tender or exchange offer to acquire such number of
securities as would result in such Person holding twenty percent (20%) or more
of the voting power of the Company's outstanding securities, or
(3) solicits proxies for votes to elect members of the Board at a
shareholders' meeting of the Company.
2.7 Threatened Change in Control Period. For purposes of this
Agreement, a Threatened Change in Control Period shall mean the period
commencing on the date that a Threatened Change in Control has occurred and
ending upon:
(a) the date the Proposal referred to in Section 2.6(a) is abandoned;
(b) the acquisition of five percent (5%) of the voting power of the
Company's outstanding securities by the Person referred to in Section 2.6(a) (1)
if such acquisition does not constitute a Threatened Change in Control under
Section 2.6 (b) (1);
(c) the date when any Person described in Section 2.6(b), (1) shall own
less than five percent (5%) of the voting power of the Company's outstanding
securities, (2) shall have abandoned the tender or exchange offer, or (3) shall
not have elected a member of the Board as the case may be; or
(d) the date a Change in Control occurs.
3. Termination of Employment.
3.1 If, during the term of this Agreement, the Executive's
employment with the Company shall be terminated within 24 months following a
Change in Control, the Executive shall be entitled to the following compensation
and benefits (in addition to any compensation and benefits provided for under
any of the Company's employee benefit plans, policies and practices):
(a) If the Executive's employment with the Company shall be terminated (1)
by the Company for Cause or Disability, (2) by reason of the Executive's death,
or (3) by the Executive other than for Good Reason or during the Window Period
(as each term is hereinafter defined), the Company shall pay the Executive all
amounts earned or accrued through the Termination Date but not paid as of the
Termination Date, including (i) base salary, (ii) reimbursement for reasonable
and necessary expenses incurred by the Executive on behalf of the Company during
<PAGE>
Page 70
Exhibit 10(iii)A(34)
the period ending on the Termination Date, (iii) vacation pay, and (iv) sick
leave (collectively, "Accrued Compensation"). In addition to the foregoing, if
the Executive's employment is terminated by the Company for Disability or by
reason of the Executive's death, the Company shall pay to the Executive or his
beneficiaries an amount equal to the "Pro Rata Bonus" (as hereinafter defined).
The "Pro Rata Bonus" is an amount equal to the Bonus Amount (as hereinafter
defined) multiplied by a fraction the numerator of which is the number of days
in such fiscal year through the Termination Date and the denominator of which is
365. The term "Bonus Amount" shall mean the greater of the (x) most recent
annual bonus paid or payable to the Executive, or, if greater, the annual bonus
paid or payable for the full fiscal year ended prior to the fiscal year during
which a Change in Control occurred or (y) average of the annual bonuses paid or
payable during the three full fiscal years ended prior to the Termination Date
or, if greater, the three full fiscal years ended prior to the Change in Control
(or, in each case, such lesser period for which annual bonuses were paid or
payable to the Executive). Executive's entitlement to any other compensation or
benefits shall be determined in accordance with the Company's employee benefit
plans and other applicable programs and practices then in effect.
(b) If the Executive's employment with the Company shall be terminated
(other than by reason of death), (1) by the Company other than for Cause or
Disability, (2) by the Executive for Good Reason, or (3) by the Executive for
any reason within the 60-day period commencing on the first anniversary of the
date of the occurrence of a Change in Control (the "Window Period"), the
Executive shall be entitled to the following:
(1) the Company shall pay the Executive all Accrued Compensation and a
Pro-Rata Bonus;
(2) the Company shall pay the Executive as severance pay and in lieu of any
further compensation for periods subsequent to the Termination Date, in a single
payment an amount (the "Severance Amount") in cash equal to two times the sum of
(A) the greater of the Executive's base salary in effect on the Termination Date
or at any time during the 90-day period prior to the Change in Control ("Base
Salary") and (B) the Bonus Amount. Notwithstanding the foregoing, if the
Executive has attained at least age 63 on the Termination Date the Severance
Amount to be paid under this Subsection (2) shall be the amount described in the
preceding sentence multiplied by a fraction (which in no event shall be less
than one-half) the numerator of which shall be the number of months (for this
purpose any partial month shall be considered as a whole month) remaining until
the Executive's 65th birthday (but in no event shall be less than 12) and the
denominator of which shall be 24;
(3) for a number of months equal to the lesser of (A) 24 or (B) the number
of months remaining until the Executive's 65th birthday (the "Continuation
Period"), the Company shall at its expense continue on behalf of the Executive
<PAGE>
Page 71
Exhibit 10(iii)A(34)
and his dependents and beneficiaries the life insurance, disability, medical,
dental and hospitalization benefits provided (x) to the Executive at the time
Notice of Termination is given, at any time during the 90-day period prior to
the Change in Control or at any time thereafter, or (y) to other similarly
situated executives who continue in the employ of the Company during the
Continuation Period. The coverage and benefits (including deductibles and costs)
provided in this Section 3.1(b) (3) during the Continuation Period shall be no
less favorable to the Executive and his dependents and beneficiaries, than the
most favorable of such coverages and benefits during any of the periods referred
to in clauses (x) and (y) above. The Company's obligation hereunder with respect
to the foregoing benefits shall be limited to the extent that the Executive
obtains any such benefits pursuant to a subsequent employer's benefit plans, in
which case the Company may reduce the coverage of any benefits it is required to
provide the Executive hereunder as long as the aggregate coverages and benefits
of the combined benefit plans is no less favorable to the Executive than the
coverages and benefits required to be provided hereunder. This Subsection (3)
shall not be interpreted so as to limit any benefits to which the Executive or
his dependents may be entitled under any of the Company's employee benefit
plans, programs or practices following the Executive's termination of
employment, including without limitation, retiree medical and life insurance
benefits;
(4) the Company shall pay in a single payment an amount in cash equal to
the excess of (A) the Supplemental Retirement Benefit (as defined below) had (w)
the Executive remained employed by the Company for an additional two complete
years of credited service (or until his 65th birthday if earlier), (x) his
annual compensation during such period been equal to his Base Salary and the
Bonus Amount, (y) the Company and/or the Division made employer contributions to
each defined contribution plan in which the Executive was a participant at the
Termination Date (in an amount equal to the amount of such contribution for the
plan year immediately preceding the Termination Date) and (z) he been fully
(100%) vested in his benefit under each retirement plan in which the Executive
was a participant, over (B) the lump sum actuarial equivalent of the aggregate
retirement benefit the Executive is actually entitled to receive under such
retirement plans. For purposes of this Subsection (4), the "Supplemental
Retirement Benefit" shall mean the lump sum actuarial equivalent of the
aggregate retirement benefit the Executive would have been entitled to receive
under the Company's supplemental and other retirement plans including, but not
limited to, the NSI Pension Plan C ("Pension Plan C"); provided, however, if the
Executive has attained at least age 50 and has been employed by the Company for
at least 15 years as of the Termination Date the calculation of the Supplemental
Retirement Benefit shall be made pursuant to the early retirement provisions
under Pension Plan C without regard to the Executive's attained age or years of
credited service (as defined therein). For purposes of this Subsection (4), the
"actuarial equivalent" shall be determined in accordance with the actuarial
assumptions used for the calculation of benefits under Pension Plan C as applied
<PAGE>
Page 72
Exhibit 10(iii)A(34)
prior to the Termination Date in accordance with such plan's past practices; and
(5) (A) the restrictions on any outstanding incentive awards (including
restricted stock) granted to the Executive under the Long-Term Incentive Program
(the "Program") or under any other incentive plan or arrangement shall lapse and
such incentive award shall become one hundred percent (100%) vested, all stock
options and stock appreciation rights granted to the Executive shall become
immediately exercisable and shall become 100% vested, and all Performance Units
granted to the Executive shall become 100% vested and (B) the Executive shall
have the right to require the Company to purchase, for cash, any shares of
unrestricted stock or shares purchased upon exercise of any options, at a price
equal to the fair market value of such shares on the date of purchase by the
Company.
(c) The amounts provided for in Sections 3.1(a) and 3.1(b)(1), (2), (4) and
(5) shall be paid within five (5) days after the Executive's Termination Date.
(d) The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent employment except as
provided in Section 3.1(b)(3).
3.3 The severance pay and benefits provided for in Sections
3.1(a) and 3.1(b)(1) and (2) shall be in lieu of any other severance pay to
which the Executive may be entitled under any Company severance plan, program or
arrangement.
4. Notice of Termination. During a Threatened Change in Control Period
and following a Change in Control, any purported termination by the Company or
by the Executive shall be communicated by written Notice of Termination to the
other. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which indicates the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. For purposes of this Agreement, no such purported
termination shall be effective without such Notice of Termination.
5. Termination Date. "Termination Date" shall mean in the case of the
Executive's death, his date of death, and in all other cases, the date specified
in the Notice of Termination subject to the following:
(a) If the Executive's employment is terminated by the Company
for Cause or due to Disability, the date specified in the Notice of Termination
<PAGE>
Page 73
Exhibit 10(iii)A(34)
shall be at least thirty (30) days from the date the Notice of Termination is
given to the Executive, provided that in the case of Disability the Executive
shall not have returned to the full-time performance of his duties during such
period of at least 30 days; and
(b) If the Executive's employment is terminated for Good
Reason, the date specified in the Notice of Termination shall not be more than
sixty (60) days from the date the Notice of Termination is given to the Company.
6. Excise Tax Payments.
(a) Notwithstanding anything contained in this Agreement to
the contrary and without regard to whether the Executive's employment with the
Company has terminated, in the event that any payment or benefit (within the
meaning of Section 28OG(b) (2) of the Internal Revenue Code of 1986, as amended
(the "Code"), to the Executive or for his benefit, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his employment with the Company
or a change in ownership or effective control of the Company or of a substantial
portion of its assets (a "Payment" or "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes and the Excise Tax), including any Excise
Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Section 6 and the amount of such Gross-Up Payment
shall be made by an accounting firm selected by the Company and reasonably
acceptable to the Executive which is designated one of the five largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation to the Company and the
Executive within five days of the Termination Date if applicable, or such other
time as requested by the Company or by the Executive (provided the Executive
reasonably believes that any of the Payments may be subject to the Excise Tax)
and if the Accounting Firm determines that no Excise Tax is payable by the
Executive with respect to a Payment or Payments, it shall furnish the Executive
with an opinion reasonably acceptable to the Executive that no Excise Tax will
be imposed with respect to any such Payment or Payments. Within five days of the
delivery of the Determination to the Executive, the Executive shall have the
right to dispute the Determination (the "Dispute). The Gross-Up Payment, if any,
as determined pursuant to this Section 6(b) shall be paid by the Company to the
<PAGE>
Page 74
Exhibit 10(iii)A(34)
Executive within five days of the receipt of the Accounting Firm's
determination. The existence of the Dispute shall not in any way affect the
right of the Executive to receive the Gross-Up Payment in accordance with the
Determination. If there is no Dispute, the Determination shall be binding, final
and conclusive upon the Company and the Executive subject to the application of
Section 6(c).
(c) As a result of the uncertainty in the application of
Sections 4999 and 28OG of the Code, it is possible that a Gross-Up Payment (or a
portion thereof) will be paid which should not have been paid (an "Excess
Payment") or a Gross-Up Payment (or a portion thereof) which should have been
paid will not have been paid (an "Underpayment"). An Underpayment shall be
deemed to have occurred (1) upon notice (formal or informal) to the Executive
from any governmental taxing authority that the tax liability of the Executive
(whether in respect of the then current taxable year of the Executive or in
respect of any prior taxable year of the Executive) may be increased by reason
of the imposition of the Excise Tax on a Payment or Payments with respect to
which the Company has failed to make a sufficient Gross-Up Payment, (2) upon a
determination by a court, (3) by reason of determination by the Company (which
shall include the position taken by the Company, or together with its
consolidated group, on its federal income tax return) or (4) upon the resolution
to the satisfaction of the Executive of the Dispute. If an Underpayment occurs,
the Executive shall promptly notify the Company and the Company shall pay to the
Executive at least five days prior to the date on which the applicable
government taxing authority has requested payment, an additional Gross-Up
Payment equal to the amount of the Underpayment plus any interest and penalties
(other than interest and penalties imposed by reason of a failure to file timely
a tax return or pay taxes shown due on a return) imposed on the Underpayment. An
Excess Payment shall be deemed to have occurred upon a "Final Determination" (as
hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or
Payments with respect to which the Executive had previously received a Gross-Up
Payment. A Final Determination shall be deemed to have occurred when the
Executive has received from the applicable government taxing authority a refund
of taxes or other reduction in his tax liability by reason of the Excess Payment
and upon either (i) the date a determination is made by, or an agreement is
entered into with, the applicable governmental taxable authority which finally
and conclusively binds the Executive and such taxing authority, or in the event
that a claim is brought before a court of competent jurisdiction, the date upon
which a final determination has been made by such court and either all appeals
have been taken and finally resolved or the time for all appeals has expired or
(ii) the statute of limitations with respect to the Executive's applicable tax
return has expired. If an Excess Payment is determined to have been made, the
amount of the Excess Payment shall be treated as a loan by the Company to the
Executive and the Executive shall pay to the Company on demand (but not less
than 10 days after the determination of such Excess Payment) the amount of the
<PAGE>
Page 75
Exhibit 10(iii)A(34)
Excess Payment plus interest at an annual rate equal to the rate provided for in
Section 1274(b)(2)(B) of the Code from the date the Gross-Up Payment (to which
the Excess Payment relates) was paid to the Executive until the date of
repayment to the Company.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event that, according to the Determination, an Excise Tax
will be imposed on any Payment or Payments, the Company shall pay to the
applicable government taxing authorities as Excise Tax withholding, the amount
of the Excise Tax that the Company has actually withheld from the Payment or
Payments.
7. Unauthorized Disclosure. During the period that the Executive is
actively employed by the Company, the Executive shall not make any Unauthorized
Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean
disclosure by the Executive without the consent of the Board (other than
pursuant to a court order) to any person, other than an employee or director of
the Company or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the Company or as may be legally required, of any material
confidential information obtained by the Executive while in the employ of the
Company (including any material confidential information with respect to any of
the Company's customers or methods of distribution) the disclosure of which is
demonstrably and materially injurious to the Company; provided, however, that
such term shall not include the use or disclosure by the Executive, without
consent, of any information known generally to the public (other than as a
result of disclosure by him in violation of this Section 7) or any information
not otherwise considered confidential and material by a reasonable person
engaged in the same business as that conducted by the Company; provided further,
however, that any breach of this Section 7 shall in no event subject the
Executive to damages (including costs, fees and expenses incurred by the
Company) in excess of $10,000 in the aggregate.
8. Non-Compete. During the period that the Executive is actively
employed by the Company, the Executive shall not directly or indirectly, own,
manage, operate, control, consult with, or be connected as an officer, employee,
agent, partner, director or consultant with, or have any financial interest in,
or assist anyone in the conduct of, any business which directly competes with
the businesses of the Company in the State of Georgia. Notwithstanding the
foregoing, the Executive shall not be in violation of the preceding sentence due
to ownership (directly or indirectly) by the Executive of not more than five
percent (5%) of the issued and outstanding class of securities of a corporation
whose securities are publicly traded.
9. Successors; Binding Agreement.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its successors and assigns and the Company shall
<PAGE>
Page 76
Exhibit 10(iii)A(34)
require any successor or assign to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. The
term "the Company" as used herein shall include such successors and assigns. The
term "successors and assigns" as used herein shall mean a corporation or other
entity acquiring all or substantially all the assets and business of the Company
(including this Agreement) whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
10. Fees and Expenses. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become due as a result of (a) the Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), (b) the Executive seeking to
obtain or enforce any right or benefit provided by this Agreement or by any
other plan or arrangement maintained by the Company under which the Executive is
or may be entitled to receive benefits, or (c) the Executive's hearing before
the Board as contemplated in Section 2.1 of this Agreement; provided, however,
that the circumstances set forth in clauses (a) and (b) (other than as a result
of the Executive's termination of employment under circumstances described in
Section 2.2(d)) occurred on or after a Change in Control.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
12. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor shall anything herein
limit or reduce such rights as the Executive may have under any other agreements
with the Company or any of its subsidiaries. Amounts which are vested benefits
<PAGE>
Page 77
Exhibit 10(iii)A(34)
or which the Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
13. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
14. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
15. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia without giving
effect to the conflict of law principles thereof. Any action brought by any
party to this Agreement shall be brought and maintained in a court of competent
jurisdiction in Fulton County in the State of Georgia.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has executed this Agreement as of the
day and year first above written.
<PAGE>
Page 78
Exhibit 10(iii)A(34)
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
___________________________ By: ________________________________
Secretary James S. Balloun
Chairman of the Board
And Chief Executive Officer
--------------------------------
---------------
In consideration of the Executive's performing valuable services for the
Subsidiary, the undersigned Subsidiary does hereby agree to the terms and
conditions of the Agreement and does hereby guarantee the payment and
performance of all the Company's obligations and responsibilities under the
Agreement.
This ___ day of ________, 1999.
SUBSIDIARY:
-----------------------------------
By: ________________________________
<PAGE>
Page 79
Exhibit 10(iii)A(34)
APPENDIX
Executives' Deferred Compensation Plan
Supplemental Retirement Plan for Executives
Long-Term Achievement Incentive Plan
Pension Plan C
National Service Industries, Inc. Retirement and 401(k) Plan
Page 80
Exhibit 10(iii)A(35)
----------------
- --------------------------------
- --------------------------------
National Service Industries, Inc.
1420 Peachtree Street, NE
Atlanta, Georgia 30309-3002
Dear ___________:
The Board of Directors (the "Board") of National Service Industries,
Inc. (the "Company") believes that the threat or occurrence of a Change in
Control (as defined in the Appendix) of the Company may cause you undue concern
for your financial security and distract your attention from the operations of
our businesses, which would be detrimental to the Company and its shareholders.
In recognition of these concerns, the Board has determined that in
order to provide you with some measure of security in the event of a Change in
Control of the Company, it has authorized the Company to agree as follows:
The term of this letter agreement shall commence as of the date hereof
and shall continue in effect for a period of at least 48 months; provided,
however, that commencing on the first anniversary date and each anniversary date
thereafter the term shall be automatically extended for an additional 12 months
unless the Company shall have given written notice to you at least 90 days prior
thereto that the term of this letter agreement shall not be so extended;
provided, further, however, that upon a Change in Control this letter agreement
shall in no event be terminated prior to the complete and full satisfaction by
the Company (or any successor thereto) of its obligations as set forth herein.
For any fiscal year during which you are in the employ of the Company
on the date of occurrence of a Change in Control, you shall be guaranteed an
annual bonus for that fiscal year (the "Change in Control Year") in an amount no
less than the annual bonus that was paid or payable to you for the most recently
ended fiscal year prior to a Change in Control (the "Bonus") provided that you
are in the employ of Company (or its successor) on the last day of the Change in
Control Year.
<PAGE>
Page 81
Exhibit 10(iii)A(35)
- --------------
- -----------------------
National Service Industries, Inc.
June 1, 1999
Page -2-
The Bonus will be paid to you in cash within five (5) business days
following the last day of the Change in Control Year whether or not you are in
the employ of the Company on the date of payment.
For purposes of this letter agreement, the phrase "employ of the
Company" shall include your being in the employ of a direct or indirect
subsidiary corporation or subsidiary partnership of the Company.
Very truly yours,
ATTEST: James S. Balloun
Chairman of the Board of Directors
and Chief Executive Officer
Secretary
<PAGE>
Page 82
Exhibit 10(iii)A(35)
APPENDIX
Change in Control. For purposes of this letter agreement, a "Change in
Control" shall mean any of the following events:
(a) The acquisition (other than from the Company) by any "Person" (as the
term person is used for purposes of Sections 13(d) or 14(d) of the 1934 Act) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
1934 Act) of twenty percent (20%) or more of the combined voting power of the
Company's then outstanding voting securities; or
(b) The individuals who, as of June 1, 1999, are members of the Board (the
"Incumbent Board") cease for any reason to constitute at least two-thirds of the
Board; provided, however, that if the election, or nomination for election by
the Company's stockholders, of any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new director shall, for purposes
of this Agreement, be considered as a member of the Incumbent Board; or
(c) Approval by stockholders of the Company of (1) a merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than seventy percent
(70%) of the combined voting power of the then outstanding voting securities of
the corporation resulting from such merger or consolidation in substantially the
same proportion as their ownership of the combined voting power of the voting
securities of the Company outstanding immediately before such merger or
consolidation, or (2) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially all of the
assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
pursuant to Section (a), solely because twenty percent (20%) or more of the
combined voting power of the Company's then outstanding securities is acquired
by (i) a trustee or other fiduciary holding securities under one or more
employee benefit plans maintained by the Company or any of its subsidiaries, or
(ii) any corporation which, immediately prior to such acquisition, is owned
directly or indirectly by the stockholders of the Company in the same proportion
as their ownership of stock in the Company immediately prior to such acquisition
(hereinafter referred to as "Related Persons").
Page 83
Exhibit 10(iii)A(40)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT
FOR EXECUTIVE OFFICERS
THIS AGREEMENT, made as of the 7th day of October, 1999 (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").
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 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 Grantee an Aspiration
Achievement Incentive Award (the "Award"), which has a value determined as
provided in Section 2 below based upon the performance of NSI during the
Performance Cycle from September 1, 1999 to August 31, 2002. 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 Grantee hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by all the terms and provisions thereof. This Agreement
shall be construed in accordance with, and subject to, the provisions of the
Plan (the provisions of which are hereby incorporated by reference) and, except
as otherwise expressly set forth herein, the capitalized terms used in this
Agreement shall have the same definitions as set forth in the Plan.
2. Performance Measure and Performance Levels.
The Committee has established the performance measure (the
"Performance Measure"), and award and performance levels set forth in Appendix A
attached hereto. The chart in Appendix A specifies a Commitment performance
level, at which the Commitment Level Award will be paid, an Aspiration
<PAGE>
Page 84
Exhibit 10(iii)A(40)
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 Grantee (or the executors or administrators of
Grantee's estate, if applicable) of the Committee's determination (the
"Determination Notice"). The Determination Notice shall specify the performance
level of NSI with respect to the Performance Measure for the Performance Cycle
and the amount of Award (if any) Grantee will be entitled to receive.
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 twenty percent (20%) of the total value of NSI's
<PAGE>
Page 85
Exhibit 10(iii)A(40)
assets, (ii) represents a part of the business whose revenues equal or exceed
twenty percent (20%) of the total of NSI's revenues, or (iii) causes a material
restructuring of NSI, the following rules shall apply:
(a) If the transaction is consummated during the first year of the
Performance Cycle, the Performance Cycle and 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.Payment of Aspiration Award.
4.1 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 as follows: (a)
for a payment level up to and including twice the Commitment Level Award, the
Award will be paid one-half in cash and one-half in Shares, payable as soon as
administratively practicable following the determination of the performance
level pursuant to Section 3.1 above, and (b) to the extent the payment level is
more than twice the Commitment Level Award, that portion of the Award will be
paid one-half in Restricted Stock and one-half in cash, to be paid out upon
vesting of the Restricted Stock as described in Section 4.4 below. The Shares
and Restricted Stock issued upon payment of an Award shall be valued at the
average of the Fair Market Value of the shares for the last ten (10) trading
days 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.
4.2 Prior to vesting, the Restricted Stock shall not be
transferable by Grantee by means of sale, assignment, exchange, pledge, or
otherwise; provided, however, that with NSI's consent Grantee shall have the
<PAGE>
Page 86
Exhibit 10(iii)A(40)
right to tender for sale or exchange any such shares in the event of any tender
offer within the meaning of Section 14(d) of the Securities Exchange Act of
1934. Any attempt to convey any interest in the Restricted Stock in violation of
this paragraph shall not be recognized by the Company and shall be null and
void. Grantee shall otherwise be entitled with respect to the Restricted Stock
to the rights of a stockholder of NSI, including the right to vote the shares
and receive dividends and any other distributions declared on NSI's stock.
Grantee's rights with respect to the Restricted Stock shall remain forfeitable
at all times prior to the dates on which such rights become vested, as set forth
in Section 4.4 below.
4.3 The stock certificate(s) evidencing the Restricted Stock
shall be registered on NSI's books in the name of Grantee as soon as practicable
following the Determination Notice. NSI or the Company may retain physical
possession and custody of the certificate(s) until vesting of the Restricted
Stock as set forth in Section 4.4 below, and the certificate(s) shall bear a
legend referring to the restrictions on transfer set forth in this Agreement.
Grantee shall sign a power of attorney enabling the certificate(s) to be
transferred to the Company in the event and to the extent the Restricted Stock
is forfeited as set forth in Section 4.4 below. Upon vesting of the Restricted
Stock as set forth in Section 4.4 below, NSI shall cause a stock certificate for
the requisite number of shares to be delivered to Grantee, free of any
restrictive legend.
4.4 Fifty percent (50%) of the shares of Restricted Stock
shall vest one (1) year following the end of the Performance Cycle and the other
fifty percent (50%) shall vest two (2) years following the end of the
Performance Cycle. In the event of Grantee's termination of employment within
two (2) years after the end of the Performance Cycle, by death, Disability,
Retirement (termination at or after age 65), or by the Company without Cause,
the Restricted Stock, to the extent not already vested, shall vest in full as of
the date of termination. Except as the Committee may otherwise determine, in the
event of Grantee's termination of employment for any other reason, including
voluntary termination or termination for Cause, the Restricted Stock shall be
forfeited to the extent not already vested and Grantee's rights as a stockholder
with respect to that forfeited Restricted Stock will thereupon cease.
Notwithstanding the foregoing, the Restricted Stock will fully vest in the event
of a Change in Control during Grantee's employment. The cash portion of the
Award corresponding to the Restricted Stock will be paid to Grantee when and as
the Restricted Stock vests; that cash portion shall be subject to the same
vesting and forfeiture provisions as are set forth above for the Restricted
Stock.
5. Termination of Employment.
5.1 In General. Except as provided in Sections 5.2, 5.3, and
5.4 below, in the event that Grantee's employment terminates during a
Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited
by Grantee.
5.2 Termination of Employment Due to Death, Disability, or
Retirement. In the event the employment of Grantee is terminated by reason of
<PAGE>
Page 87
Exhibit 10(iii)A(40)
death or Disability during a Performance Cycle, 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 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 two hundred percent (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 Grantee dies after Retirement but before the end of the
Performance Cycle). At the end of the Performance Cycle, the Committee shall
make its determination in the same manner as provided in Section 3.
Payment of earned Awards to Grantee in the event of termination due to
death, Disability, or Retirement shall be made at the same time payments would
be made to Grantee if Grantee did not terminate employment during the
Performance Cycle.
5.3 Change In Control. Notwithstanding anything in this
Agreement to the contrary, if a Change in Control occurs during the Performance
Cycle, then 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 Grantee.
The Committee shall determine the amount of the Award under this Section 5.3,
subject to the terms of this section, and no downward adjustment of the Award
which would result in reduction of the Award by more than fifty percent (50%)
shall be permitted. The Award will be paid in full in cash, unless Grantee
elects to receive one-half of the Award in Shares. For purposes of determining
the number of Shares to be paid to Grantee under this Section 5.3, 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.
5.4 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, Grantee shall be entitled to a prorated payout of the Award
based upon the length of time that Grantee was actively employed during the
<PAGE>
Page 88
Exhibit 10(iii)A(40)
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 two hundred
percent (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.
6. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be interpreted to
confer upon 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 Grantee's employment at any time.
7. Nonassignment.
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.
8. 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.
9. 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.
10. Successors in Interest.
This Agreement shall inure to the benefit of and be binding
upon any successor to the Company. All obligations imposed upon Grantee and all
rights granted to the Company under this Agreement shall be binding upon
Grantee's heirs, executors, and administrators.
<PAGE>
Page 89
Exhibit 10(iii)A(40)
11. 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 Grantee
and the Company for all purposes.
12. 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, Grantee may make a written 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.
NATIONAL SERVICE INDUSTRIES, INC.
By:__________________________________________________
JAMES S. BALLOUN
Chairman, President, and
Chief Executive Officer
NSI SERVICES, L.P. (GA), Subsidiary
By:__________________________________________________
JAMES S. BALLOUN
Chairman, President, and
Chief Executive Officer
-----------------------------------------------------
Name of Grantee: _____________________
<PAGE>
Page 90
EXHIBIT 10(iii)A(40)
Appendix A
Aspiration Award Program Illustration - FY 2000-2002
Name: James S. Balloun Division: Corporate
Position: Chairman, President, & CEO
Salary: $850,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY00-02 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 100,000 $ 400,000 $ 2,000,000
</TABLE>
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.
<TABLE>
<CAPTION>
Individual
Aspiration
Economic Profit Award
<S> <C> <C>
Threshold ** $ 100,000
Commitment ** $ 400,000
Aspiration ** $ 2,000,000
** Confidential information has been omitted and filed separately with Securities and Exchange Commission.
<PAGE>
Page 91
Exhibit 10(iii)A(40)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
2000 - 2002 PERFORMANCE PERIOD
NSI CORPORATE
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02885
b = -0.29808
Above Commitment Level EP:
a = 0.0303
b = -0.36364
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
</TABLE>
<PAGE>
Page 92
EXHIBIT 10(iii)A(40)
Appendix A
Aspiration Award Program Illustration - FY 2000-2002
Name: Brock A. Hattox Division: Corporate
Position: Executive Vice President
& Chief Financial Officer
Salary: $390,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY00-02 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 46,800 $ 187,200 $ 936,000
</TABLE>
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.
<TABLE>
<CAPTION>
Individual
Aspiration
Economic Profit Award
<S> <C> <C>
Threshold ** $ 46,800
Commitment ** $ 187,200
Aspiration ** $ 936,000
** Confidential information has been omitted and filed separately with Securities and Exchange Commission.
</TABLE>
<PAGE>
Page 93
Exhibit 10(iii)A(40)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
2000 - 2002 PERFORMANCE PERIOD
NSI CORPORATE
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02885
b = -0.29808
Above Commitment Level EP:
a = 0.0303
b = -0.36364
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 94
EXHIBIT 10(iii)A(40)
Appendix A
Aspiration Award Program Illustration - FY 2000-2002
Name: David Levy Division: Corporate
Position: Executive Vice President, Administration
& Counsel
Salary: $375,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY00-02 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 45,000 $ 180,000 $ 900,000
</TABLE>
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.
<TABLE>
<CAPTION>
Individual
Aspiration
Economic Profit Award
<S> <C> <C>
Threshold ** $ 45,000
Commitment ** $ 180,000
Aspiration ** $ 900,000
** Confidential information has been omitted and filed separately with Securities and Exchange Commission.
</TABLE>
<PAGE>
Page 95
Exhibit 10(iii)A(40)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
2000 - 2002 PERFORMANCE PERIOD
NSI CORPORATE
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02885
b = -0.29808
Above Commitment Level EP:
a = 0.0303
b = -0.36364
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 96
EXHIBIT 10(iii)A(40)
Appendix A
Aspiration Award Program Illustration - FY 2000-2002
Name: Stewart A. Searle Division: Corporate
Position: Senior Vice President, Planning & Development
Salary: $250,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY00-02 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 30,000 $ 120,000 $ 600,000
</TABLE>
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.
<TABLE>
<CAPTION>
Individual
Aspiration
Economic Profit Award
<S> <C> <C>
Threshold ** $ 30,000
Commitment ** $ 120,000
Aspiration ** $ 600,000
** Confidential information has been omitted and filed separately with Securities and Exchange Commission.
</TABLE>
<PAGE>
Page 97
Exhibit 10(iii)A(40)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
2000 - 2002 PERFORMANCE PERIOD
NSI CORPORATE
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02885
b = -0.29808
Above Commitment Level EP:
a = 0.0303
b = -0.36364
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 98
EXHIBIT 10(iii)A(40)
Appendix A
Aspiration Award Program Illustration - FY 2000-2002
Name: George H. Gilmore, Jr. Division: Corporate
Position: Executive Vice President and Group President
Salary: $450,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY00-02 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 54,000 $ 216,000 $ 1,080,000
</TABLE>
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.
<TABLE>
<CAPTION>
Individual
Aspiration
Economic Profit Award
<S> <C> <C>
Threshold ** $ 54,000
Commitment ** $ 216,000
Aspiration ** $ 1,080,000
** Confidential information has been omitted and filed separately with Securities and Exchange Commission.
</TABLE>
<PAGE>
Page 99
Exhibit 10(iii)A(40)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
2000 - 2002 PERFORMANCE PERIOD
NSI CORPORATE
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02885
b = -0.29808
Above Commitment Level EP:
a = 0.0303
b = -0.36364
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 100
EXHIBIT 10(iii)A(40)
APPENDIX B
ASPIRATION ACHIEVEMENT
INCENTIVE AWARD
PERFORMANCE MEASURE
<TABLE>
<S> <C>
PERFORMANCE MEASURE DEFINITION
Economic Profit Sum of the annual economic profits for the performance
cycle. Annual economic profit shall be determined as
follows: Adjusted After-Tax Profits (AATP) minus
[Average Invested Capital times the Weighted Average
Cost of Capital (WACC)]
RELATED TERMS DEFINITION
Average Invested Capital Average of the average beginning and ending Invested
Capital balances each month.
Adjusted After-Tax Profit (AATP) Adjusted Pre-Tax Profit minus Book Income Taxes.
Adjusted Pre-Tax Profit (APTP) Income before provision for income taxes plus interest
expense plus implied interest on capitalized operating
leases.
Book Income Taxes Reported tax rate (determined by dividing
the provision for income taxes by the
income before the provision for income
taxes, as reported in NSI's annual financial
statements) applied to APTP.
Invested Capital [Total assets plus capitalized operating leases, less
short and long-term investment in tax benefits] less
[non-interest bearing liabilities except for self
insurance reserves and deferred tax credits relating to
the safe harbor lease].
Weighted Average Cost of Capital (WACC) Ten percent (10%) will be the WACC for the Performance
Cycle ending August 31, 2002.
</TABLE>
Page 101
Exhibit 13
CONSOLIDATED BALANCE SHEETS
National Service Industries, Inc.
<TABLE>
<CAPTION>
August 31
---------- ----------
(In thousands, except share and per-share data) 1999 1998
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents ........................................................... $ 2,254 $ 19,146
Receivables, less reserves for doubtful accounts of $6,306 in 1999 and $4,631 in 1998 382,188 307,140
Inventories, at the lower of cost (on a first-in, first-out basis) or market ........ 218,191 197,950
Linens in service, net of amortization .............................................. 58,875 58,826
Deferred income taxes ............................................................... 10,271 17,542
Prepayments ......................................................................... 8,634 6,447
---------- ----------
Total Current Assets ........................................................... 680,413 607,051
---------- ----------
Property, Plant, and Equipment, at cost:
Land ................................................................................ 25,764 21,450
Buildings and leasehold improvements ................................................ 186,776 150,326
Machinery and equipment ............................................................. 587,719 485,271
---------- ----------
Total Property, Plant, and Equipment ........................................... 800,259 657,047
Less - Accumulated depreciation and amortization .................................... 417,946 385,176
---------- ----------
Property, Plant, and Equipment - net ........................................... 382,313 271,871
---------- ----------
Other Assets:
Goodwill and other intangibles ...................................................... 551,995 88,280
Other ............................................................................... 81,068 43,482
---------- ----------
Total Other Assets ............................................................. 633,063 131,762
---------- ----------
Total Assets .............................................................. $1,695,789 $1,010,684
---------- ----------
</TABLE>
<PAGE>
Page 102
Exhibit 13
CONSOLIDATED BALANCE SHEETS (continued)
National Service Industries, Inc.
<TABLE>
<CAPTION>
August 31
----------- -----------
(In thousands, except share and per-share data) 1999 1998
Liabilities and Stockholders' Equity
Current Liabilities:
<S> <C> <C>
Current maturities of long-term debt ......................................................... $ 368 $ 98
Commercial paper, short-term ................................................................. 102,539 --
Notes payable ................................................................................ 11,471 7,883
Accounts payable ............................................................................. 128,122 95,217
Accrued salaries, commissions, and bonuses ................................................... 65,458 34,820
Current portion of self-insurance reserves ................................................... 8,785 11,253
Accrued taxes payable ........................................................................ 12,203 --
Other accrued liabilities .................................................................... 94,939 72,724
----------- -----------
Total Current Liabilities ............................................................... 423,885 221,995
----------- -----------
Long-Term Debt, less current maturities ............................................................ 435,199 78,092
----------- -----------
Deferred Income Taxes .............................................................................. 95,557 40,404
----------- -----------
Self-Insurance Reserves, less current portion ...................................................... 38,828 44,573
----------- -----------
Other Long-Term Liabilities ........................................................................ 86,446 46,719
----------- -----------
Commitments and Contingencies (Note 5)
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, 120,000,000 shares authorized, 57,918,978 shares
issued in 1999 and 1998 ................................................................ 57,919 57,919
Paid-in capital .............................................................................. 29,055 28,521
Retained earnings ............................................................................ 976,461 903,974
Accumulated other comprehensive income items ................................................. (9,326) (11,357)
----------- -----------
1,054,109 979,057
----------- -----------
Less - Treasury stock, at cost (17,449,752 shares in 1999 and 16,457,340 shares in 1998) .. 438,235 400,156
----------- -----------
Total Stockholders' Equity .......................................................... 615,874 578,901
----------- -----------
Total Liabilities and Stockholders' Equity ....................................... $ 1,695,789 $ 1,010,684
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
Page 103
Exhibit 13
CONSOLIDATED STATEMENTS OF INCOME
National Service Industries, Inc.
<TABLE>
<CAPTION>
Years Ended August 31
------------ ----------- -----------
(In thousands, except per-share data) 1999 1998 1997
Sales and Service Revenues:
<S> <C> <C> <C>
Net sales of products ..................................... $ 1,910,114 $ 1,718,564 $ 1,542,644
Service revenues .......................................... 309,115 312,746 493,535
----------- ----------- -----------
Total Sales and Service Revenues ..................... 2,219,229 2,031,310 2,036,179
----------- ----------- -----------
Costs and Expenses:
Cost of products sold ..................................... 1,146,080 1,023,765 924,505
Cost of services .......................................... 180,770 183,470 283,024
Selling and administrative expenses ....................... 698,196 654,511 655,029
Interest expense, net ..................................... 14,067 749 1,624
Gain on sale of businesses ................................ (11,220) (2,449) (75,097)
Restructuring expense, asset impairments, and other charges (9,291) -- 63,091
Other (income) expense, net ............................... 2,305 (1,857) 4,925
----------- ----------- -----------
Total Costs and Expenses ............................. 2,020,907 1,858,189 1,857,101
----------- ----------- -----------
Income before Provision for Income Taxes ........................ 198,322 173,121 179,078
Provision for Income Taxes ...................................... 73,979 64,401 71,800
----------- ----------- -----------
Net Income ...................................................... $ 124,343 $ 108,720 $ 107,278
----------- ----------- -----------
Basic Earnings per Share ........................................ $ 3.04 $ 2.56 $ 2.37
----------- ----------- -----------
Basic Weighted Average Number of Shares Outstanding ............. 40,899 42,462 45,191
----------- ----------- -----------
Diluted Earnings per Share ...................................... $ 3.03 $ 2.53 $ 2.36
----------- ----------- -----------
Diluted Weighted Average Number of Shares Outstanding ........... 41,093 43,022 45,534
----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
Page 104
Exhibit 13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
National Service Industries, Inc.
(In thousands, except share and per-share data)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Common Paid-in Retained Comprehensive Treasury
Income Stock Capital Earnings Income Items Stock Total
------------ -------- -------- --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance August 31, 1996 $57,919 $11,021 $794,801 $ (3,434) $(142,299) $718,008
Comprehensive income:
Net income $107,278 - - 107,278 - - 107,278
Other comprehensive income, net of tax:
Foreign currency translation adjustments (3,378) - - - (3,378) - (3,378)
---------
Other comprehensive income (3,378)
=========
Comprehensive income 103,900
=========
Treasury stock purchased (1) - - - - (121,668) (121,668)
Stock options exercised (2) - 2,588 - - 2,685 5,273
Treasury stock issued in
connection with acquisition (3) - 11,912 - - 8,610 20,522
Cash dividends of $1.19 per
share paid on common stock - - (54,222) - - (54,222)
-------- -------- --------- -------------- --------- ---------
Balance August 31, 1997 57,919 25,521 847,857 (6,812) (252,672) 671,813
Comprehensive income:
Net income 108,720 - - 108,720 - - 108,720
Other comprehensive income, net of tax:
Foreign currency translation adjustments (4,528) - - - (4,528) - (4,528)
Minimum pension liability adjustment
(net of tax of $10) (17) - - - (17) - (17)
---------
Other comprehensive income (4,545)
=========
Comprehensive income 104,175
=========
Treasury stock purchased (4) - - - - (154,032) (154,032)
Stock options exercised (5) - 625 - - 3,305 3,930
Treasury stock issued in connection
with acquisition (6) - 2,104 - - 2,896 5,000
Employee Stock Purchase Plan issuances (7) - 271 - - 347 618
Cash dividends of $1.23 per share paid on common stock - - (52,603) - - (52,603)
-------- -------- --------- ------------- ----------- --------
Balance August 31, 1998 57,919 28,521 903,974 (11,357) (400,156) 578,901
Comprehensive income:
Net income 124,343 - - 124,343 - - 124,343
Other comprehensive income, net of tax:
Foreign currency translation adjustments 2,022 - - - 2,022 2,022
Minimum pension liability adjustment
(net of tax of $4) 9 - - - 9 - 9
---------
Other comprehensive income 2,031
---------
Comprehensive income $126,374
=========
Treasury stock purchased (8) - - - - (41,954) (41,954)
Stock options exercised (9) - 58 - - 435 493
Treasury stock issued in connection
with acquisition (10) - 200 - - 645 845
Employee Stock Purchase Plan issuances (11) - 276 - - 2,795 3,071
Cash dividends of $1.27 per share paid on common stock - - (51,856) - - (51,856)
-------- -------- --------- ------------- ---------- ---------
Balance August 31, 1999 $57,919 $29,055 $976,461 $ (9,326) $(438,235) $615,874
-------- -------- --------- ------------- ---------- ---------
(1) 3,000,000 shares. (2) 190,330 shares. (3) 536,872 shares. (4) 3,025,162 shares. (5) 142,568 shares. (6) 130,804 shares.
(7) 14,284 shares. (8) 1,153,099 shares. (9) 21,357 shares. (10) 26,495 shares. (11) 112,835 shares.
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
Page 105
Exhibit 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
National Service Industries, Inc.
<TABLE>
<CAPTION>
Years Ended August 31
--------- --------- ----------
(In thousands) 1999 1998 1997
Cash Provided by (Used for) Operating Activities
<S> <C> <C> <C>
Net income ........................................................................... $ 124,343 $ 108,720 $ 107,278
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................... 55,822 48,846 57,981
Provision for losses on accounts receivable ..................................... 3,651 3,558 2,276
(Gain) loss on the sale of property, plant, and equipment ....................... (1,098) (3,400) 1,233
Gain on sale of businesses ...................................................... (11,220) (2,449) (75,097)
Restructuring expense, asset impairments, and other charges ..................... (9,291) -- 63,091
Change in non-current deferred income taxes ..................................... 4,860 6,311 (25,219)
Change in assets and liabilities net of effect of acquisitions and divestitures -
Receivables ................................................................ (24,207) (47,564) (14,338)
Inventories and linens in service, net ..................................... 10,371 (16,995) (12,167)
Current deferred income taxes .............................................. 12,486 (4,383) (10,926)
Prepayments ................................................................ 517 493 (146)
Accounts payable and accrued liabilities ................................... 42,323 (64,830) 32,543
Self-insurance reserves and other long-term liabilities .................... (360) (1,944) (1,021)
---------- --------- ---------
Net Cash Provided by Operating Activities ............................ 208,197 26,363 125,488
---------- --------- ---------
Cash Provided by (Used for) Investing Activities
Sales (purchases) of short-term investments .......................................... -- 205,302 (204,751)
Purchases of property, plant, and equipment .......................................... (72,285) (82,034) (48,806)
Sale of property, plant, and equipment ............................................... 3,996 6,814 5,370
Sale of businesses ................................................................... 11,962 3,064 311,382
Acquisitions ......................................................................... (534,132) (45,305) (4,320)
Change in other assets ............................................................... (7,527) (6,532) 2,208
---------- --------- ---------
Net Cash (Used for) Provided by Investing Activities ............................ $(597,986) $ 81,309 $ 61,083
---------- --------- ---------
</TABLE>
<PAGE>
Page 106
Exhibit 13
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
National Service Industries, Inc.
<TABLE>
<CAPTION>
Years Ended August 31
---------- --------- ---------
(In thousands) 1999 1998 1997
Cash Provided by (Used for) Financing Activities
<S> <C> <C> <C>
Proceeds from (repayments of) notes payable, net ........ $ 3,588 $ 805 $ (11,021)
Proceeds from issuances of commercial paper, net ........ 352,265 -- --
Proceeds from issuances of long-term debt ............... 267,585 52,000 1,563
Repayments of long-term debt ............................ (160,304) (957) (6,190)
Recovery of investment in tax benefits .................. -- -- 661
Deferred income taxes from investment in tax benefits ... -- -- (1,972)
Purchase of treasury stock, net ......................... (38,390) (144,484) (116,395)
Cash dividends paid ..................................... (51,856) (52,603) (54,222)
--------- --------- ---------
Net Cash Provided by (Used for) Financing Activities 372,888 (145,239) (187,576)
--------- --------- ---------
Effect of Exchange Rate Changes on Cash ....................... 9 (410) (534)
--------- --------- ---------
Net Change in Cash and Cash Equivalents ....................... (16,892) (37,977) (1,539)
Cash and Cash Equivalents at Beginning of Year ................ 19,146 57,123 58,662
--------- --------- ---------
Cash and Cash Equivalents at End of Year ...................... $ 2,254 $ 19,146 $ 57,123
--------- --------- ---------
Supplemental Cash Flow Information:
Income taxes paid during the year ....................... $ 40,799 $ 100,270 $ 68,475
Interest paid during the year ........................... 15,660 7,025 5,614
Noncash Investing and Financing Activities:
Noncash aspects of sale of businesses-
Receivables incurred ............................... $ 396 $ -- $ 391
Liabilities assumed ................................ 954 166 22,637
Noncash aspects of acquisitions -
Liabilities assumed or incurred .................... $ 125,261 $ 5,885 $ 22,440
Treasury stock issued .............................. 845 5,000 20,522
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
Page 107
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
National Service Industries, Inc.
(In thousands, except share and per-share data)
Note 1: Summary of Accounting Policies
Description of Business
The company operates in four business segments - lighting equipment, chemicals,
textile rental, and envelopes - each of which is a leading competitor in its
respective markets. The lighting equipment segment produces a variety of
fluorescent and non-fluorescent fixtures for markets throughout the United
States, Canada, Mexico, and overseas. The chemical segment produces maintenance,
sanitation, and water treatment products for customers throughout the United
States, Canada, Puerto Rico, Western Europe, and Australia. The textile rental
segment provides linens and dust control products to healthcare, lodging, and
dining customer segments in the United States. The envelope segment produces
business and specialty envelopes in the United States.
Revenue Recognition and Product Warranty
The company records revenues as products are shipped or as services are
rendered. A provision for estimated returns, allowances, and warranty costs is
recorded when products are shipped.
Principles of Consolidation
The consolidated financial statements include the accounts of the company and
all subsidiaries after elimination of significant intercompany transactions and
accounts.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash, Cash Equivalents, and Short-Term Investments
Cash in excess of daily requirements is invested in time deposits and marketable
securities and is included in the accompanying balance sheet at market value.
The company considers time deposits and marketable securities purchased with an
original maturity of three months or less to be cash equivalents. Investments
purchased with a maturity of more than three months and less than a year are
considered short-term investments. There were no short-term investments at
August 31, 1999 and 1998.
Concentrations of Credit Risk
Concentrations of credit risk with respect to receivables are limited due to the
wide variety of customers and markets using the company's products and services,
as well as their dispersion across many different geographic areas. As a result,
as of August 31, 1999, the company does not consider itself to have any
significant concentrations of credit risk.
Inventories and Linens in Service
Inventories are valued at the lower of cost (on a first-in, first-out basis) or
market and consisted of the following at August 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------- ------------ --------------
<S> <C> <C>
Raw materials and supplies $ 99,249 $ 78,730
Work in progress 16,718 10,725
Finished goods 102,224 108,495
- -------------------------------------------------- ------------ --------------
$ 218,191 $ 197,950
------------ --------------
</TABLE>
Linens in service are recorded at cost and are amortized over their
estimated useful lives of 15 to 50 months.
Goodwill and Other Intangibles
Goodwill of $3,460 was recognized in connection with a 1969 acquisition and is
not being amortized. Remaining amounts of goodwill ($385,380 in 1999 and
$71,059 in 1998) and other intangible assets are being amortized on a
straight-line basis over various periods ranging from 2 to 40 years.
The company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of goodwill and
other long-lived assets or whether the remaining balance of goodwill should be
evaluated for possible impairment. The company uses an estimate of related
undiscounted cash flows over the remaining life of the goodwill in measuring
whether the goodwill is recoverable. During fiscal 1997, goodwill and other
intangibles of $8,800 were written off due to the impairment of related
long-lived assets (See Note 6: Restructuring Expense and Asset Impairments).
<PAGE>
Page 108
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
National Service Industries, Inc.
Depreciation
For financial reporting purposes, depreciation is determined principally on a
straight-line basis using estimated useful lives of plant and equipment (20 to
40 years for buildings and 3 to 16 years for machinery and equipment) while
accelerated depreciation methods are used for income tax purposes. Leasehold
improvements are amortized over the life of the lease or the useful life of the
improvement, whichever is shorter.
Research and Development
Research and development costs are expensed as incurred. Research and
development expenses amounted to $8,482, $13,577, and $8,561 during 1999, 1998,
and 1997, respectively.
Foreign Currency Translation
The functional currency for the company's foreign operations is the local
currency. The translation of foreign currencies into U.S. dollars is performed
for balance sheet accounts using exchange rates in effect at the balance sheet
date and for revenue and expense accounts using a weighted average exchange rate
during the period. The gains or losses, net of applicable income taxes,
resulting from the translation are included in "Accumulated Other Comprehensive
Income Items" in the Consolidated Statements of Stockholders' Equity and are
excluded from net income.
Gains or losses resulting from foreign currency transactions are included
in "Other (income) expense, net" in the Consolidated Statements of Income and
were insignificant in 1999, 1998, and 1997.
Postretirement Healthcare and Life Insurance Benefits
The company's retiree medical plans are financed entirely by retiree
contributions; therefore, the company has no liability in connection with them.
Several programs provide limited retiree life insurance benefits. The liability
for these plans is not material.
Postemployment Benefits
Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers'
Accounting for Postemployment Benefits," requires the accrual of the estimated
cost of benefits provided by an employer to former or inactive employees after
employment but before retirement. The company's accrual, which is not material,
relates primarily to severance agreements and the liability for life insurance
coverage for certain eligible employees.
Interest Expense, Net
Interest expense, net, is comprised primarily of interest expense on long-term
debt, credit facility borrowings, commercial paper, and line of credit
borrowings offset by interest income on cash, cash equivalents, and short-term
investments.
Other (Income) Expense, Net
Other (income) expense, net, is comprised primarily of amortization of
intangible assets net of gains resulting from the sale of fixed assets.
Accounting Standards Adopted
During 1999, the company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires the reporting of a measure of all changes in equity of an entity
that result from recognized transactions and other economic events other than
transactions with owners in their capacity as owners. The disclosures required
by SFAS No. 130 are presented in the Consolidated Statements of Stockholders'
Equity.
The company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which requires the reporting of financial
information on the basis that it is used internally for evaluating segment
performance and the allocation of resources to segments. The disclosures
required by SFAS No. 131 are presented in Note 10: Business Segment Information.
The company adopted SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." SFAS No. 132 amends SFAS Nos. 87, 88, and
106 by standardizing the disclosure requirements for pensions and other
postretirement benefits, requiring additional information on changes in
benefit obligations and fair values of plan assets, and eliminating certain
other disclosures. The disclosures required by SFAS No. 132 are presented in
Note 2: Pension and Profit Sharing Plans.
The company also adopted Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," issued by
the American Institute of Certified Public Accountants. This statement requires
the capitalization of certain internal use software costs. The adoption of this
statement did not have a material impact on the consolidated financial
statements or results of operations.
Accounting Standards Yet to be Adopted
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. However, the company does not currently
participate in any significant hedging activities, nor does it utilize any
significant derivative financial instruments.
Reclassifications
Certain prior period amounts in the financial statements and notes have been
reclassified to conform with the 1999 presentation.
<PAGE>
Page 109
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
National Service Industries, Inc.
Note 2: Pension and Profit Sharing Plans
The company has several pension plans covering hourly and salaried employees.
Benefits paid under these plans are based generally on employees' years of
service and/or compensation during the final years of employment. The company
makes annual contributions to the plans to the extent indicated by actuarial
valuations. Plan assets are invested primarily in equity and fixed income
securities.
The following tables reflect the status of the company's pension plans at
August 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $124,545 $109,826
Service cost 3,822 3,091
Interest cost 8,592 8,509
Acquisition 11,869 -
Actuarial (gain) loss (6,589) 14,929
Benefits paid (11,840) (11,810)
Other 182 -
- -------------------------------------------------------------------------------------
Benefit obligation at end of year $130,581 $124,545
---------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $150,101 $133,214
Actual return on plan assets 9,466 26,435
Employer contributions 564 1,864
Benefits paid (11,440) (11,412)
Acquisition 13,663 -
Other 213 -
- -------------------------------------------------------------------------------------
Fair value of plan assets at end of year $162,567 $150,101
---------------------------
Funded status: $ 31,987 $ 25,556
Unrecognized actuarial loss 6,655 8,863
Unrecognized transition asset (4,030) (5,040)
Unrecognized prior service cost 3,670 4,148
- -------------------------------------------------------------------------------------
Prepaid pension expense $ 38,282 $ 33,527
---------------------------
Amounts recognized in the consolidated balance sheets
consist of:
Prepaid benefit cost $ 45,086 $ 39,136
Accrued benefit liability (7,713) (6,501)
Intangible asset 854 824
Accumulated other comprehensive income 55 68
- -------------------------------------------------------------------------------------
Prepaid pension expense $ 38,282 $ 33,527
---------------------------
</TABLE>
The projected benefit obligation and accumulated benefit obligation for
unfunded defined benefit pension plans were $8.7 million and $7.4 million,
respectively, as of August 31, 1999, and $8.1 million and $5.9 million,
respectively, as of August 31, 1998.
Components of net periodic benefit cost for the fiscal years ended
August 31, 1999, 1998, and 1997 included the following:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 3,822 $ 3,091 $ 3,636
Interest cost 8,592 8,509 8,505
Expected return on plan assets (13,893) (12,344) (12,463)
Amortization of prior service cost 477 444 517
Amortization of transitional asset (1,011) (1,131) (1,289)
Recognized actuarial loss 236 55 74
- ------------------------------------------------------------------------------------------
Net periodic benefit cost $ (1,777) $ (1,376) $ (1,020)
------------------------------------------
</TABLE>
Weighted average assumptions in 1999 and 1998 included the following:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.5% 7.0%
Expected return on plan assets 9.2% 9.5%
Rate of compensation increase 5.1% 5.0%
---------------------------
</TABLE>
During 1999, the discount rate used to determine the projected benefit
obligation was increased to 7.5 percent to more closely approximate rates on
high-quality, long-term obligations.
<PAGE>
Page 110
Exhibit 13
The company also has profit sharing and 401(k) plans to which both
employees and the company contribute. At August 31, 1999, assets of the 401(k)
plans included shares of the company's common stock with a market value of
approximately $11,479. The company's cost of these plans was $4,521 in 1999,
$4,292 in 1998, and $5,020 in 1997.
Note 3: Long-Term Debt and Lines of Credit
Long-term debt at August 31, 1999 and 1998, consisted of the following:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper with an average interest rate of 5.5% at
August 31, 1999 $ 249,726 $ -
6% notes due February 2009 with an effective rate of 6.04%,
net of unamortized discount of $393 159,607 -
3.2% to 8.5% other notes, payable in installments to 2026
(secured in part by property, plant and equipment having a
net book value of $176 at August 31, 1999) 26,234 78,190
- ------------------------------------------------------------------------------------
435,567 78,190
Less-Amounts payable within one year included in current
liabilities 368 98
- ------------------------------------------------------------------------------------
$ 435,199 $78,092
----------------------
</TABLE>
The annual principal payments of long-term debt for the five-year period
ending August 31, 2004 are: 2000 - $368; 2001 - $207; 2002 - $107; 2003 - $95;
2004 - $103.
In 1996, the company negotiated a $250,000 multi-currency committed credit
facility (the "Credit Facility") with ten domestic and international banks. The
Credit Facility has a term of five years, expiring in July 2001, with no
provision for a reduction in commitments. The Credit Facility contains
restrictions on the incurrence of indebtedness by subsidiaries, as well as
financial and other covenants, including the restriction that the company's
ratio of total debt to capitalization may not exceed 60 percent at any time.
During the fourth quarter of 1998, the company filed a registration
statement (the "shelf registration"), which became effective September 8, 1998,
with the Securities and Exchange Commission to allow the company to offer for
sale, from time to time, up to $400,000 of unsecured senior debt securities or
unsecured senior subordinated debt securities (the "Debt Securities") consisting
of notes, debentures, or other evidence of indebtedness, of which $240,000
remains available at August 31, 1999. The Debt Securities may be convertible
into or exchangeable for shares of the company's common stock, shares of its
preferred stock, or other Debt Securities. The Debt Securities may be offered as
a single series or as two or more separate series in amounts, at prices and on
terms to be determined at the time of the offering. The Debt Securities may be
sold to or through one or more agents designated from time to time.
In January 1999, the company issued $160,000 in ten-year publicly traded
notes bearing a coupon rate of 6.0 percent. Proceeds from this issuance were
used for the repayment of $80,000 in borrowings under the Credit Facility, of
which $52,000 was outstanding under the domestic line of credit, discussed
below, at August 31, 1998. The remainder was used for general corporate purposes
including working capital requirements, capital expenditures, acquisitions, and
share repurchases. In July 1999, the company entered into an additional
$250,000, 364-day committed credit facility (the "Revolving Credit Facility")
expiring in July 2000. The combined $500,000 under the Credit Facility and the
Revolving Credit Facility support the company's commercial paper program, which
was initiated in July 1999. Interest rates under the credit facilities are based
on the LIBOR rate or other rates, at the company's option. The company pays an
annual fee on the commitments based on the company's debt rating and leverage
ratio. No amounts were outstanding under either facility at August 31, 1999 and
1998.
At August 31, 1999, the company had $352,265 outstanding under its
commercial paper program, of which $249,726 was classified as long-term as the
company intends to refinance this amount through long-term debt instruments or
availability under the Credit Facility which matures in 2001. Short-term
commercial paper of $102,539 had an average interest rate of 5.8 percent.
At August 31, 1999, the company had complimentary lines of credit totaling
$125,672 for general operating purposes, of which $25,672 is designated as
multi-currency. At August 31, 1999, $76,890 in letters of credit were
outstanding, primarily under the domestic line of credit. The company had
$10,864 of foreign currency short-term bank borrowings under the multi-currency
line of credit at a weighted-average interest rate of 3.8 percent at August 31,
1999.
Except for the $160,000 notes, long-term debt recorded in the accompanying
Consolidated Balance Sheets approximates fair value based on the borrowing rates
currently available to the company for bank loans with similar terms and average
maturities. The fair value of the $160,000 notes, based on quoted market prices,
was approximately $145,424 at August 31, 1999.
Note 4: Common Stock and Related Matters
Shares Authorized
In January 1999, the stockholders approved an amendment to the corporation's
Restated Certificate of Incorporation to increase the corporation's authorized
shares of common stock from 80,000,000 to 120,000,000. The additional shares
will be available for potential acquisitions, stock dividends and splits, and
other purposes determined by the board of directors to be in the best interests
of the corporation.
Shareholder Rights Plan
The company has a shareholder rights plan under which one preferred stock
purchase right is presently attached to and trades with each outstanding share
of the company's common stock. The plan, which was to have expired May 19, 1998,
was amended and extended to May 19, 2008.
<PAGE>
Page 111
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
National Service Industries, Inc.
The rights become exercisable and transferable apart from the common stock
(a) on the date that a person or group announces that they have acquired 15
percent or more of the company's common stock or (b) ten days after a person or
group makes an unsolicited offer to acquire beneficial ownership of, or the
right to obtain beneficial ownership of, 15 percent or more of the company's
common stock (unless such date is extended by the board of directors) or (c) 20
business days before the date on which a business combination is reasonably
expected to be consummated involving a person who, if the business combination
is consummated, has or would acquire beneficial ownership of, or the right to
obtain beneficial ownership of, 15 percent or more of the company's common stock
and that person has directly or indirectly nominated a director of the company
at the time the business combination is considered. The rights are not triggered
if the board of directors is notified that reaching the trigger threshold was
inadvertent and divestiture of sufficient stock is thereafter made. Once
exercisable, each right entitles the holder to purchase one one-thousandth share
of Series A Participating Preferred Stock at an exercise price of $160, subject
to adjustment to prevent dilution. The rights have no voting power and, until
exercised, no dilutive effect on net income per common share. The rights expire
on May 19, 2008, and are redeemable under certain circumstances.
If a person acquires 15 percent ownership, except in an offer approved
under the plan by a majority of the nonemployee directors, each right not owned
by the acquirer or related parties will entitle its holder to purchase, at the
right's exercise price, common stock or common stock equivalents having a market
value immediately prior to the triggering of the right of twice that exercise
price. In addition, after an acquirer obtains 15 percent ownership, if the
company is involved in certain mergers, business combinations, or asset sales,
each right not owned by the acquirer or related persons will entitle its holder
to purchase, at the right's exercise price, shares of common stock of the other
party to the transaction having a market value immediately prior to the
triggering of the right of twice that exercise price.
Preferred Stock
The company has 1,000,000 shares of preferred stock authorized, 500,000 of which
have been reserved for issuance under the shareholder rights plan. No shares of
preferred stock had been issued at August 31, 1999 and 1998.
Earnings per Share
During fiscal 1998, the company adopted SFAS No. 128, "Earnings per Share." SFAS
No. 128 superseded Accounting Principles Board ("APB") Opinion No. 15, "Earnings
per Share," and promulgated new accounting standards for the computation and
manner of presentation of the company's earnings per share. Upon adoption, the
company was 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 did not have a material impact on the computation or manner of
presentation of the company's earnings per share as previously presented under
APB 15.
The following table represents a reconciliation of basic and diluted
earnings per share at August 31:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic weighted average shares outstanding (thousands) 40,899 42,462 45,191
Add: Shares of common stock assumed issued
upon exercise of stock options (thousands) 194 560 343
------------ ----------- ----------
Diluted weighted average shares outstanding (thousands) 41,093 43,022 45,534
============ =========== ==========
Net income used in the computation of basic and
diluted earnings per share $ 124,343 $ 108,720 $107,278
============ =========== ==========
Earnings per Share:
Basic $ 3.04 $ 2.56 $ 2.37
============ =========== ==========
Diluted $ 3.03 $ 2.53 $ 2.36
============ =========== ==========
</TABLE>
Stock-Based Compensation
In 1990, stockholders approved the National Service Industries, Inc. Long-Term
Incentive Program for the benefit of officers and other key employees. There
were 1,750,000 treasury shares reserved for issuance under the program.
In 1997, stockholders approved the National Service Industries, Inc.
Long-Term Achievement Incentive Plan for the benefit of officers and other key
employees. There were 1,750,000 treasury shares reserved for issuance under that
plan.
Aspiration Achievement Incentive Awards were granted annually beginning in
September 1996 under the Long-Term Achievement Incentive Plan. Shares may be
earned and issued to participants based on a level of achievement of performance
over three year performance cycles. In some cases, the shares may be exchanged
for stock options. Amounts charged to compensation expense for 1999, 1998, and
1997 were $9,244, $7,203, and $3,841, respectively, of which approximately half
related to the stock portion of the award. No shares were issued under the award
as of August 31, 1999.
Generally, the stock options granted under both the incentive programs
become exercisable in four equal annual installments beginning one year from the
date of the grant.
In January 1993, stockholders approved the National Service Industries,
Inc. 1992 Nonemployee Directors' Stock Option Plan, under which 100,000 treasury
shares were reserved for issuance. The stock options granted under that plan
become exercisable one year from the date of the grant.
Under all stock option plans, the options expire ten years from the date of
the grant and have an exercise price equal to the fair market value of the
company's stock on the date of the grant. At August 31, shares available for
issuance under all plans were 694,279 in 1999, 1,236,574 in 1998, and 1,732,574
in 1997.
<PAGE>
Page 112
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
National Service Industries, Inc.
Stock option transactions for the stock option plans and stock option
agreements during the years ended August 31, 1999, 1998, and 1997 were as
follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------ --------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------------------------ --------------------------
<S> <C> <C> <C> <C>
Outstanding at August 31, 1996 1,266,043 $ 27.74
Granted 324,500 $ 37.96
Exercised (196,115) $ 25.96
Cancelled (7,214) $ 31.46
------------------------ --------------------------
Outstanding at August 31, 1997 1,387,214 $ 30.35 731,914 $ 27.11
------------------------ --------------------------
Granted 500,000 $ 44.50
Exercised (142,568) $ 26.32
Cancelled - -
------------------------ --------------------------
Outstanding at August 31, 1998 1,744,646 $ 34.74 876,721 $ 29.05
------------------------ --------------------------
Granted 665,250 $ 35.24
Exercised (21,357) $ 27.71
Cancelled (122,955) $ 39.24
------------------------ --------------------------
Outstanding at August 31, 1999 2,265,584 $ 34.78 1,110,084 $ 31.30
------------------------ --------------------------
Range of option exercise prices:
$19.75-$39.75 (average
life-6.6 years) 1,812,084 $ 32.35 989,959 $ 29.70
$44.25-$59.44 (average
life-8.1 years) 453,500 $ 44.49 120,125 $ 44.47
</TABLE>
During fiscal 1997, the company adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for these stock option plans. Had
compensation cost for the company's stock option plans been determined based on
the fair value at the grant date for awards in fiscal years 1999, 1998, and 1997
consistent with the provisions of SFAS No. 123, the company's net income and
earnings per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------
Pro Forma Information:
<S> <C> <C> <C>
Net income $ 120,141 $ 106,297 $ 105,793
Basic earnings per share $ 2.94 $ 2.50 $ 2.34
Diluted earnings per share $ 2.92 $ 2.47 $ 2.32
------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model. The weighted average grant date
fair value of options was $13.70, $12.23, and $9.69 for 1999, 1998, and 1997,
respectively. The following weighted average assumptions were used to estimate
fair value:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 2.630% 2.809% 3.350%
Expected volatility 36.2% 18.1% 16.8%
Risk-free interest rate 5.20% 6.10% 6.73%
Expected life of options 10 years 10 years 10 years
Turnover rate 5.0% 5.0% 5.0%
-------------------------------------------
</TABLE>
Employee Stock Purchase Plan
In 1998, stockholders approved the National Service Industries, Inc. Employee
Stock Purchase Plan for the benefit of eligible employees. Under the plan,
employees may purchase, through payroll deduction, the company's common stock at
a 15 percent discount. Shares are purchased quarterly at 85 percent of the lower
of the fair market value of the company's common stock on the first business day
of the quarterly plan period or on the last business day of the quarterly plan
period. There were 1,500,000 treasury shares reserved for purchase under the
plan, of which 1,372,881 shares remain available for purchase at August 31,
1999.
Note 5: Commitments and Contingencies
Self-Insurance
It is the company's policy to self insure for certain insurable risks consisting
primarily of physical loss to property; business interruptions resulting from
such loss; and workers' compensation, comprehensive general, and auto liability.
Insurance coverage is obtained for catastrophic property and casualty exposures
as well as those risks required to be insured by law or contract. Based on an
independent actuary's estimate of the aggregate liability for claims incurred, a
provision for claims under the self-insured program is recorded and revised
annually.
<TABLE>
<CAPTION>
The major components of the self-insurance liability at August 31 were as
follows:
1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve, beginning of period $ 55,826 $ 69,596 $ 78,765
Expense 5,302 3,482 7,900
Payments (13,515) (17,252) (17,069)
- --------------------------------------------------------------------------------
Reserve, end of period $ 47,613 $ 55,826 $ 69,596
------------------------------------
</TABLE>
<PAGE>
Page 113
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
National Service Industries, Inc.
Leases
The company leases certain of its buildings and equipment under noncancelable
lease agreements. Minimum lease payments under noncancelable leases for years
subsequent to August 31, 1999, are as follows: 2000 - $13,902; 2001 - $11,542;
2002 - $8,260; 2003 - $6,170; 2004 - $4,624; after 2004 - $6,686.
Total rent expense was $16,536 in 1999, $12,237 in 1998, and $11,327 in
1997.
Collective Bargaining Agreements
Approximately 55 percent of the company's total work force is covered by
collective bargaining agreements. Collective bargaining agreements representing
13 percent of the company's total work force will expire within one year.
Litigation
The company is involved in various legal matters primarily arising in the normal
course of business. In the opinion of management, the company's liability in
these matters will not have a material adverse effect on its financial condition
or results of operations.
Environmental Matters
The company's operations, as well as similar operations of other companies, are
subject to comprehensive laws and regulations relating to the generation,
storage, handling, transportation, and disposal of hazardous substances and
solid and hazardous wastes and to the remediation of contaminated sites. Permits
and environmental controls are required for certain of the company's operations
to limit air and water pollution, and these permits are subject to modification,
renewal, and revocation by issuing authorities. The company believes that it is
in substantial compliance with all material environmental laws, regulations, and
permits. On an ongoing basis, the company incurs capital and operating costs
relating to environmental compliance. Environmental laws and regulations have
generally become stricter in recent years, and the cost of responding to future
changes may be substantial.
The company's environmental reserves, which are included in current
liabilities, totaled $11,000 and $12,600 at August 31, 1999 and 1998,
respectively. The actual cost of environmental issues may be substantially lower
or higher than that reserved due to the difficulty in estimating such costs,
potential changes in the status of government regulations, and the inability to
determine the extent to which contributions will be available from other
parties. The company does not believe that any amount of such costs below or in
excess of that accrued is reasonably estimable.
Certain environmental laws, such as Superfund, can impose liability for
the entire cost of site remediation upon each of the current or former owners or
operators of a site or parties who sent waste to a site where a release of a
hazardous substance has occurred regardless of fault or the lawfulness of the
original disposal activity. Generally, where there are a number of potentially
responsible parties ("PRPs") that are financially viable, liability has been
apportioned based on the type and amount of waste disposed of by each party at
such disposal site and the number of financially viable PRPs, although no
assurance can be given as to any particular site.
The company is currently a party to, or otherwise involved in, legal
proceedings in connection with several state and federal Superfund sites, two of
which are located on property owned by the company. Except for the Crymes
Landfill and M&J Solvents matters in Georgia, the company believes its liability
is de minimis at each of the sites which it does not own where it has been named
as a PRP. At the Crymes Landfill and M&J Solvents sites in Georgia, since the
matters are currently in the investigative phase, the company does not know
whether its liability is de minimis but believes that its exposure at each of
the sites is not likely to result in a material adverse effect on the company
due to its limited involvement at the sites and the number of viable PRPs. For
property which the company owns on Seaboard Industrial Boulevard in Atlanta,
Georgia, the company has conducted an investigation on its and adjoining
properties and submitted a Compliance Status Report ("CSR") to the State of
Georgia Environmental Protection Division ("EPD") pursuant to the Georgia
Hazardous Site Response Act. Until EPD's review and approval of the CSR are
completed, which are not subject to a deadline, the company will not be able to
determine if remediation will be required, if the company will be solely
responsible for the cost of such remediation, or whether such cost is likely to
result in a material adverse effect on the company. For property which the
company owns on East Paris Street in Tampa, Florida, the company has been
requested by the State of Florida to clean up chlorinated solvent contamination
in the groundwater on the property and on surrounding property known as Seminole
Heights Solvent Site and to reimburse approximately $430 of costs already
incurred by the State of Florida in connection with such contamination. The
company believes that it has a strong defense due to likely off-site sources of
the contamination and because contamination from the property, if any, was due
to prior owners and not the company's operations. At this time, it is too early
to quantify the company's potential exposure or the likelihood of an adverse
result.
The company is currently evaluating emissions of volatile organic
compounds from its manufacturing operations in the Atlanta, Georgia, area to
determine whether it will need to install pollution control equipment or modify
its operations to comply with federal and state air pollution regulations. Until
the current evaluations are completed, the company is not able to quantify the
possible cost of compliance. However, based upon currently available
information, the company does not expect that any material expenditures will be
required to achieve compliance.
<PAGE>
Page 114
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
National Service Industries, Inc.
In connection with the sale of the North Bros. business and 29 of the
company's textile rental plants in 1997, the company has retained certain
environmental liabilities arising from events occurring prior to the closing,
subject to certain exceptions. The company has received notice from the buyer of
the textile rental plants of the alleged presence of perchloroethylene
contamination on one of the properties involved in the sale. The company has
since asserted an indemnification claim against the company from which it bought
the property. The prior owner is currently conducting an investigation of the
contamination at its expense, subject to a reservation of rights. At this time,
it is too early to quantify the company's potential exposure in this matter, the
likelihood of an adverse result, or the possibility that the company may be
fully or partially indemnified.
The State of New York has filed a lawsuit against the company alleging
that the company is responsible as a successor to Serv-All Uniform Rental Corp.
for past and future response costs in connection with the release or threatened
release of hazardous substances at and from the Blydenburgh Landfill in Islip,
New York. The company believes that it is not a successor to Serv-All Uniform
Rental Corp. and therefore has no liability with respect to the Blydenburgh
Landfill, and it has responded to the lawsuit accordingly. At this stage of the
litigation, it is too early to quantify the company's potential exposure or the
likelihood of an adverse result.
Note 6: Restructuring Expense and Asset Impairments
During 1997, the company conducted reviews of the textile rental, European
chemical, and corporate operations as a part of management's strategic
initiatives to examine under-performing operations and to position the company
for growth. As a result of the reviews, the company approved a significant
restructuring program and recorded a related charge of $9,600 during the fourth
quarter of 1997. The accrual included severance and union-related costs totaling
$2,950 for 120 employees of the textile rental, chemical, and envelope segments,
all of whom have since been terminated, and $6,650 in exit expenses to close
certain facilities and consolidate the operations of others in the textile
rental segment. Exit expenses include costs of unexpired leases and costs to
dispose of facilities.
The major components of the 1997 restructuring charges and related
activity are as follows:
<TABLE>
<CAPTION>
Reserve, Reserve,
Beginning Cash Non-Cash End of
of Period Charge Payments Adjustments Period
- -------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C> <C>
Severance and union
related costs $ 630 - (290) (177) (1) $ 163
Exit costs $ 3,600 - (378) (2,758) (1) $ 464
1998
Severance and union
related costs $ 2,745 - (2,115) - $ 630
Exit costs $ 4,740 - (390) (750) (1) $ 3,600
1997
Severance and union
related costs $ - 2,950 (205) - $ 2,745
Exit costs $ - 6,650 (1,910) - $ 4,740
</TABLE>
(1) The restructuring reserves were reduced because the company realized lower
costs than originally anticipated and also revised its estimate for certain
expenses included in the original restructuring plan due to lease terminations
or other changes.
As a further result of the 1997 reviews, the company recognized long-lived
asset impairments totaling $43,500. Textile rental assets to be disposed of in
under-performing branches were reduced by $22,300 to state them at their
estimated fair value less costs to sell. After the charge, the remaining net
book value of these assets was immaterial. Fixed assets held for use by the
textile rental, European chemical, and corporate units were reduced by $12,400
and related intangibles were reduced by $8,800. Impairments were recognized for
those assets where the sum of estimated undiscounted future cash flows was less
than the carrying amount of the assets, including related goodwill. Fair market
values were established based on independent appraisals, comparable sales or
purchases, and expected future cash flows discounted at the company's cost of
capital. Factors leading to the impairments were a combination of the results of
the reviews discussed above, historical losses, anticipated future losses, and
inadequate cash flows.
The losses resulting from the accruals and impairments are included in
"Restructuring expense, asset impairments, and other charges" in the
Consolidated Statements of Income.
During 1999, management performed an extensive review of the assets that
were to be disposed of and the remaining restructuring accruals. In addition to
realizing lower than anticipated costs, management has determined that it is
currently more economically feasible to continue to operate certain locations
that were to be disposed of in the original plan. As a result, in 1999 the
related reserve and impairments were reversed and $9,291 in income was recorded
and is included in "Restructuring expense, asset impairments, and other charges"
in the Consolidated Statements of Income.
<PAGE>
Page 115
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
National Service Industries, Inc.
Note 7: Acquisitions and Divestitures
Acquisition spending in 1999 totaled $534,977 ($534,132 in cash and 26,495
shares valued at $845) and was primarily related to the lighting equipment and
envelope segments. The acquisitions were accounted for as purchases and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on estimated fair values.
The lighting equipment segment acquired four companies during 1999. The
largest acquisition was Holophane Corporation ("Holophane"), a manufacturer of
premium quality, highly engineered lighting fixtures and systems, which was
purchased in July 1999 for approximately $470,811. The preliminary allocation of
the purchase price resulted in additional goodwill of $251,781, which is being
amortized over 40 years, and identifiable intangibles of $145,725, which are
being amortized over periods ranging from 2 to 40 years. Identifiable
intangibles include trade names, trademarks, patented technology, distribution
network, trained workforce, and restrictive covenants. Results of operations
after the acquisition date of Holophane are included in the Consolidated
Statements of Income. The following pro forma information has been prepared
assuming the Holophane acquisition had taken place at the beginning of the
respective fiscal year of the company. The pro forma information includes
adjustments for interest expense on debt incurred to effect the acquisition, the
interest income foregone on the cash portion paid for the acquisition,
additional depreciation based on the fair market value of property, plant, and
equipment, and amortization of goodwill and intangibles resulting from this
transaction. The pro forma financial information does not purport to reflect the
financial position or results of operations that actually would have resulted
had the transaction occurred as of the date indicated or to project the results
of operations for any future period.
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------
Pro Forma Information (Unaudited):
<S> <C> <C>
Sales and Service Revenues $ 2,422,991 $ 2,240,322
Net Income $ 118,403 $ 102,102
Basic earnings per share $ 2.90 $ 2.40
Diluted earnings per share $ 2.88 $ 2.37
------------------------------------
</TABLE>
Other acquisitions in the lighting equipment segment included the
September 1998 purchase of certain assets of GTY Industries (d/b/a "Hydrel"), a
manufacturer of architectural-grade light fixtures for landscape, in-grade, and
underwater applications; the April 1999 purchase of certain assets of Peerless
Corporation, a manufacturer of high performance indirect/direct suspended
lighting products; and the July 1999 purchase of C&G Carandini SA, a
manufacturer of exterior lighting fixtures. In February 1999, the envelope
segment acquired substantially all of Gilmore Envelope, an envelope manufacturer
headquartered in Los Angeles, California. The company also made several minor
acquisitions in the textile rental segment.
Divestitures primarily related to the envelope segment's sale of
Techno-Aide/Stumb Metal Products in June 1999 for approximately $4,191. The
envelope segment recognized a pretax gain of $1,990 on the transaction. Other
divestitures during 1999 related to the sale of industrial contracts in the
textile rental segment and were not material.
During 1999, management performed an extensive review of the liabilities
recorded in connection with the textile rental segment's 1997 uniform plants
divestiture. In 1997, the textile rental segment accrued for items related to
the sale of its uniform plants including environmental exposures, severance
agreements, and costs to return leased facilities to pre-lease condition. The
company has realized lower costs than originally anticipated associated with
these items and, as a result, reduced the liability and recorded a gain of
$3,511.
Acquisition spending in 1998 totaled $45,305 and was primarily related to
the chemical and envelope segments. In November 1997, the chemical segment
purchased Pure Corporation, a speciality chemical company with its core
businesses in Indiana, Pennsylvania, and New York. In March 1998, the envelope
segment purchased Allen Envelope Corporation, a single-plant, Pennsylvania-based
envelope manufacturer, providing the segment with access to markets in the
Northeast. In July 1998, the company purchased Calman Australia Pty Ltd
("Calman"). Calman, located in Victoria, Australia is a manufacturer of
cleaning, maintenance, sanitation and industrial products, chemicals, supplies,
and accessories. Additionally, the company paid certain performance payments
associated with a prior year chemical acquisition. Divestitures during 1998
related to the textile rental segment and excess properties and were not
material.
In February 1997, the company sold the North Bros. insulation business for
$27,113 in cash. An immaterial gain was realized on the sale. The business had
1997 sales of $57,000 and operating income of $1,900. Additionally, immaterial
gains were recognized as the company divested several non-strategic textile
rental locations.
In July 1997, the company sold 29 textile rental plants to G & K Services,
Inc. at a pretax gain of $74,044. The following condensed pro forma consolidated
statements of income present reported results for the respective fiscal years to
remove both the gain on the transaction and the results of the operations sold:
<TABLE>
<CAPTION>
Condensed Pro Forma Consolidated Statements of Income
(Unaudited) 1997 1996
- ------------------------------------------------------------ ----------- ------------
<S> <C> <C>
Sales and Service Revenues $1,859,653 $1,803,034
Other Costs and Expenses 1,708,672 1,648,460
Restructuring Expense, Asset Impairments, and Other Charges 63,091 -
- ------------------------------------------------------------ ----------- ------------
Income before Provision for Income Taxes 87,890 154,574
Provision for Income Taxes 32,172 57,988
- ------------------------------------------------------------ ----------- ------------
Net Income $ 55,718 $96,586
----------- ------------
Basic Earnings per Share $ 1.23 $ 2.01
----------- ------------
Basic Weighted Average Number of Shares Outstanding
(thousands) 45,191 47,941
----------- ------------
Diluted Earnings per Share $ 1.22 $ 2.00
----------- ------------
Diluted Weighted Average Number of Shares Outstanding
(thousands) 45,534 48,189
----------- ------------
</TABLE>
<PAGE>
Page 116
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (continued)
National Service Industries, Inc.
The pro forma statements are not necessarily indicative of the financial
position and results of operations that would have been attained had the
divestiture been consummated on the dates indicated or that may be attained in
the future.
In 1997, cash acquisition spending totaled $4,320 and was the result of
the chemical segment's purchase of chemical products companies in Ohio and
Canada and the lighting equipment segment's acquisition of a small emergency
lighting products manufacturer in Canada. The company also issued 536,872 shares
of common stock valued at $20,522 to acquire Enforcer Products, Inc.
("Enforcer"), a specialty chemical company with a retail focus. The operating
results of Enforcer were included in the chemical segment beginning with the
third quarter of fiscal 1997.
Note 8: Income Taxes
The company accounts for income taxes using the asset and liability approach as
prescribed by SFAS 109, "Accounting for Income Taxes." This approach requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Using the enacted tax rates in effect for the year in which the
differences are expected to reverse, deferred tax liabilities and assets are
determined based on the differences between the financial reporting and the tax
basis of an asset or liability.
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for current Federal taxes $ 49,221 $ 54,997 $ 94,426
Provision for current state taxes 2,957 3,143 11,994
Provision for current foreign taxes 2,373 1,952 1,598
Provision (credit) for deferred taxes 19,428 4,309 (36,218)
---------------------------
Total provision for income taxes $ 73,979 $ 64,401 $ 71,800
---------------------------
A reconciliation from the Federal statutory rate to the total provision
for income taxes is as follows:
1999 1998 1997
- -------------------------------------------------------------------------------------
Federal income tax computed at statutory rate $ 69,414 $ 60,592 $ 62,677
State income tax, net of Federal income tax benefit 2,594 2,144 5,960
Foreign and other, net 1,971 1,665 3,163
---------------------------
Total provision for income taxes $ 73,979 $ 64,401 $ 71,800
---------------------------
</TABLE>
<TABLE>
<CAPTION>
Components of the net deferred income tax liability at August 31, 1999 and
1998 include:
1999 1998
- ----------------------------------------------------------------------------------
Deferred tax liabilities:
<S> <C> <C>
Depreciation $ 32,260 $ 26,837
Amortization of linens 25,416 21,017
Pension 14,252 12,835
Intangibles 60,239 2,279
Other 22,481 24,361
--------------------
Total deferred tax liabilities 154,648 87,329
--------------------
Deferred tax assets:
Self-insurance (22,093) (24,753)
Deferred compensation (28,684) (10,393)
Bonuses (943) (2,609)
Foreign tax losses (807) (1,014)
Restructuring and asset impairment (10,079) (14,594)
Asset disposition reserves (2,981) (4,365)
Other assets (3,775) (6,739)
--------------------
Total deferred tax assets (69,362) (64,467)
--------------------
Net deferred tax liability $ 85,286 $ 22,862
--------------------
</TABLE>
At August 31, 1999, the company had foreign net operating loss
carryforwards of $2,207 expiring in fiscal years 2000 through 2004.
Note 9: Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Sales and Income Basic Diluted
Service Gross before Net Earnings Earnings
Revenues Profit Taxes Income per Share per Share
- ---------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $ 518,926 $213,488 $40,930 $25,704 $ .62 $.62
2nd Quarter 510,359 201,357 39,427 24,762 .60 .60
3rd Quarter 569,838 228,849 48,635 30,541 .75 .75
4th Quarter 620,106 248,685 69,330 43,336 1.07 1.07
1998
1st Quarter $ 487,584 $198,408 $42,355 $26,668 $ .61 $.60
2nd Quarter 479,411 191,200 37,312 23,488 .55 .54
3rd Quarter 521,608 212,474 44,789 28,139 .67 .66
4th Quarter 542,707 221,993 48,665 30,425 .73 .72
</TABLE>
<PAGE>
Page 117
Exhibit 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENT (continued)
National Service Industries, Inc.
Note 10: Business Segment Information
<TABLE>
<CAPTION>
Capital
Sales and Operating Expemditures
Service Profit Identifiable Depreciation Amortization Including
Revenues (Loss) Assets Expense Expense Acquisitions
- ----------------------------------------------------------------------------------------------------------
1999
<S> <C> <C> <C> <C> <C> <C>
Lighting Equipment $1,220,602 $ 121,755 $ 1,073,936 $ 20,351 $ 2,322 $ 541,649
Chemical 487,783 45,206 233,461 6,681 3,480 10,980
Textile Rental (1) 309,115 42,935 203,509 13,666 860 20,669
Envelope (3) 201,729 17,662 139,755 5,319 969 32,592
--------------------------------------------------------------------------------------
2,219,229 227,558 1,650,661 46,017 7,631 605,890
Corporate (15,169) 45,128 2,174 527
Interest Expense, net (14,067)
--------------------------------------------------------------------------------------
$2,219,229 $ 198,322 $ 1,695,789 $ 48,191 $ 7,631 $ 606,417
--------------------------------------------------------------------------------------
1998
Lighting Equipment $1,105,255 $ 109,286 $ 397,962 $ 18,819 $ 295 $ 37,541
Chemical 454,532 36,460 235,269 6,387 2,807 20,217
Textile Rental (1) 312,746 29,734 193,347 12,836 1,076 21,595
Envelope 158,777 13,293 103,087 3,895 488 47,111
--------------------------------------------------------------------------------------
2,031,310 188,773 929,665 41,937 4,666 126,464
Corporate (14,903) 81,019 2,243 875
Interest Expense, net (749)
--------------------------------------------------------------------------------------
$2,031,310 $ 173,121 $ 1,010,684 $ 44,180 $ 4,666 $ 127,339
--------------------------------------------------------------------------------------
1997
Lighting Equipment $ 952,026 $ 92,372 $ 353,224 $ 16,446 $ 276 $ 21,688
Chemical (2) 402,569 31,647 202,769 6,064 2,615 12,875
Textile Rental (1) 493,535 60,792 190,139 20,567 6,447 13,050
Envelope (3) 131,015 10,190 55,271 3,287 10 7,159
Other 57,034 1,096 -- 611 -- 509
--------------------------------------------------------------------------------------
2,036,179 196,907 801,403 46,975 9,348 $ 55,281
Corporate (4) (16,205) 304,949 1,658 1,709
Interest Expense, net (1,624)
--------------------------------------------------------------------------------------
$2,036,179 $ 179,078 $ 1,106,352 $ 48,633 $ 9,348 $ 56,990
--------------------------------------------------------------------------------------
</TABLE>
(1) Textile rental segment 1999 operating profit included $9,291 of income
related to the reversal of restructuring reserves and asset impairments.
Textile rental segment 1997 operating profit included one-time charges of
$17,800 for restructuring, environmental matters, and other and $31,800 for
asset impairments. Gains resulting from the sale of businesses were $9,230
in 1999, $2,449 in 1998, and $75,097 in 1997. Gains on sale of businesses
for 1999 included $3,511 related to the 1997 sale of textile rental plants
to G&K Services, Inc. See Note 7: Acquisitions and Divestitures.
(2) Chemical segment 1997 operating profit included one-time charges of $1,500
for restructuring and $8,100 for asset impairments.
(3) Envelope segment 1999 operating profit included gains resulting from
the sale of businesses of $1,990. Envelope segment 1997 operating profit
included one-time charges of $230 for restructuring.
(4) Corporate operating profit included one-time charges of $3,700 for asset
impairments.
The geographic distribution of the company's sales and service revenues,
operating profit (loss), and identifiable assets is summarized in the following
tables:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and service revenues
United States $2,061,774 $1,898,947 $1,914,203
Canada 85,829 79,435 71,067
European countries 46,723 39,936 44,503
Other 24,903 12,992 6,406
---------------------------------------
$2,219,229 $2,031,310 $2,036,179
---------------------------------------
Operating profit(loss)
United States $ 195,470 $ 174,447 $185,987
Canada 1,170 152 101
European countries 934 (2,562) (7,188)
Other 748 1,084 178
---------------------------------------
$ 198,322 $ 173,121 $179,078
---------------------------------------
Identifiable assets
United States $1,551,003 $ 938,802 $1,040,726
Canada 46,982 40,747 37,756
European countries 67,558 23,556 25,028
Other 30,246 7,579 2,842
---------------------------------------
$1,695,789 $1,010,684 $1,106,352
---------------------------------------
</TABLE>
Sales are attributed to each country based on the selling location.
<PAGE>
Page 118
Exhibit 13
REPORT OF MANAGEMENT
National Service Industries, Inc.
The management of National Service Industries, Inc. is responsible for the
integrity and objectivity of the financial information in this annual report.
These financial statements are prepared in conformity with generally accepted
accounting principles, using informed judgments and estimates where appropriate.
The information in other sections of this report is consistent with the
financial statements. The company maintains a system of internal controls and
accounting policies and procedures designed to provide reasonable assurance that
assets are safeguarded and transactions are executed and recorded in accordance
with management's authorization. The audit committee of the Board of Directors,
composed entirely of outside directors, is responsible for monitoring the
company's accounting and reporting practices. The audit committee meets
regularly with management, the internal auditors, and the independent public
accountants to review the work of each and to assure that each performs its
responsibilities. Both the internal auditors and Arthur Andersen LLP have
unrestricted access to the audit committee allowing open discussion, without
management's presence, on the quality of financial reporting and the adequacy of
internal accounting controls.
/s/ James S. Balloun /S/ Brock A. Hattox /s/ Mark R. Bachmann
James S. Balloun Brock A. Hattox Mark R. Bachmann
Chairman, President, and Executive Vice President and Vice President and
Chief Executive Officer Chief Financial Officer Controller
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of National Service Industries, Inc.:
We have audited the accompanying consolidated balance sheets of National Service
Industries, Inc. (a Delaware corporation) and subsidiaries as of August 31, 1999
and 1998 and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended August
31, 1999. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Service Industries,
Inc. and subsidiaries as of August 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1999 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
October 8, 1999
<PAGE>
Page 119
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
National Service Industries is a diversified service and manufacturing company
operating in four segments: lighting equipment, chemicals, textile rental, and
envelopes. The company continued to be in solid financial condition at August
31, 1999. Although down from last year, net working capital remained strong at
$256.5 million at August 31, 1999, and the current ratio was 1.6, compared with
2.7 at the prior year end. The decrease in net working capital was primarily the
result of a decrease in cash and an increase in debt to fund acquisitions,
capital expenditures, share repurchases, and payment of dividends. At August 31,
1999, the company's debt to capitalization increased to 47.2 percent compared
with 12.9 percent at the prior year end.
Strategic Transactions
The company periodically implements strategic transactions that, it believes,
afford it the opportunity to redeploy resources to create value and position the
company for future growth. During the three-year period ending August 31, 1999,
the following transactions occurred:
Acquisitions
Acquisition spending in 1999 totaled $534.9 million ($534.1 million in cash and
$0.8 million in stock) and was primarily related to the lighting equipment and
envelope segments. In July 1999, the lighting equipment segment purchased
Holophane Corporation ("Holophane"), a manufacturer of premium quality, highly
engineered lighting fixtures and systems, for approximately $471 million. Other
acquisitions in the lighting equipment segment included the September 1998
purchase of certain assets of GTY Industries (d/b/a "Hydrel"), a manufacturer of
architectural-grade light fixtures for landscape, in-grade, and underwater
applications; the April 1999 purchase of certain assets of Peerless Corporation
("Peerless"), a manufacturer of high performance indirect/direct suspended
lighting products; and the July 1999 purchase of C&G Carandini SA, a
manufacturer of exterior lighting fixtures. In February 1999, the envelope
segment acquired substantially all of Gilmore Envelope, an envelope manufacturer
headquartered in Los Angeles, California. The company also made several minor
acquisitions in the textile rental segment.
In 1998, acquisition spending totaled $45.3 million and was primarily
related to the chemical and envelope segments. In November 1997, the chemical
segment purchased Pure Corporation, a specialty chemical company with its core
businesses in Indiana, Pennsylvania, and New York. In March 1998, the envelope
segment purchased Allen Envelope Corporation ("Allen"), a single-plant,
Pennsylvania-based envelope manufacturer, providing the segment with access to
markets in the Northeast. In July 1998, the company purchased Calman Australia
Pty Ltd ("Calman"). Calman, located in Victoria, Australia, is a manufacturer of
cleaning, maintenance, sanitation and industrial products, chemicals, supplies,
and accessories. Additionally, the company paid certain performance payments
associated with a prior year chemical acquisition.
In 1997, acquisition spending totaled $4.3 million and resulted from the
chemical segment's purchase of chemical products companies in Ohio and Canada
and the lighting equipment segment's acquisition of a small emergency lighting
products manufacturer in Canada. In March 1997, the company also issued 536,872
shares of common stock valued at $20.5 million to acquire Enforcer Products,
Inc. ("Enforcer"), a specialty chemical company with a retail focus.
Divestitures
In 1999, proceeds from divestitures totaled $12.0 million and primarily related
to the envelope segment's sale of Techno-Aide/Stumb Metal Products in June 1999
resulting in proceeds of $4.2 million and a pretax gain of $2.0 million. Other
divestitures during 1999 related to the sale of industrial contracts in the
textile rental segment and were not material.
During 1999, management performed an extensive review of the liabilities
recorded in connection with the textile rental segment's 1997 uniform plants
divestiture. In 1997, the textile rental segment accrued for items related to
its uniform plants including environmental exposures, severance agreements, and
costs to return leased facilities to pre-lease condition. The company realized
lower costs than originally anticipated associated with these items and, as a
result, has reduced the liability and recorded a gain of $3.5 million.
In 1998, divestitures of non-strategic textile rental operations and excess
properties resulted in net proceeds of $3.1 million and pretax gains of $2.4
million.
In February 1997, the company sold the North Bros. insulation business for
cash of $27.1 million, recognizing an immaterial gain. The business had 1997
sales of $57.0 million and operating income of $1.9 million through the date of
sale.
In July 1997, the company sold 29 textile rental plants to G&K Services,
Inc. for approximately $280.0 million, recognizing a pretax gain of $74.0
million. The divested locations had 1997 sales of $176.5 million and operating
income of $9.4 million through the date of sale.
Additionally, in 1997, the company divested other non-strategic businesses
in the textile rental segment generating cash of $4.3 million.
Liquidity and Capital Resources
Operating Activities
Operations provided cash of $208.2 million in 1999, compared with cash provided
of $26.4 million in 1998 and $125.5 million in 1997. The increase in 1999
primarily resulted from additional tax payments made in 1998 related to the 1997
textile rental segment divestitures, improved working capital management in the
lighting equipment and chemical segments, and an increase in net income. The
decrease in 1998 compared with 1997 was primarily the result of the tax payments
and an increase in accounts receivable commensurate with the increased revenue
in the lighting equipment and chemical segments.
Investing Activities
Investing activities used cash of $598.0 million in 1999 and provided cash of
$81.3 million and $61.1 million in 1998 and 1997, respectively. The decrease in
1999 was a result of the significant increase in acquisition spending coupled
with the liquidation of short-term investments during 1998 that was not repeated
during the current year. The increase in 1998 compared with 1997 is the result
of the liquidation of $205.3 million of short-term investments, generated by
1997 divestitures, to fund acquisitions, capital expenditures, share
repurchases, and payment of dividends. Capital expenditures were $72.3 million
in 1999, compared with $82.0 million in 1998 and $48.8 million in 1997. Capital
spending during 1999 was primarily attributable to the lighting equipment,
textile rental, and envelope segments. The lighting equipment segment's capital
expenditures related to the purchase of land and buildings for a new plant,
manufacturing improvements and upgrades for capacity expansion, and
implementation of new technology. Expenditures in the textile rental segment
were for implementation of new technology, production enhancements, and delivery
truck purchases and refurbishments. The envelope segment's expenditures related
primarily to manufacturing process improvements, information systems, facility
expansion, and new folding capacity. During 1998, the lighting equipment segment
invested in facility expansions and manufacturing process improvements, the
textile rental segment invested in a merchandise tracking system and fleet
refurbishment, and the envelope segment invested in facility and machinery
replacements. Capital spending in 1997 consisted primarily of lighting equipment
segment facilities and process improvements, equipment replacements, and tooling
for new products and textile
<PAGE>
Page 120
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
rental segment facilities improvements and equipment replacements. In 2000,
capital expenditures are expected to approximate $110 million as the company
continues to invest capital in technology and facilities. Contractual
commitments for capital and acquisition spending for fiscal year 2000
approximate $24 million.
As noted under "Acquisitions" and "Divestitures," the company has
completed a number of strategic transactions. The company spent $534.1 million,
$45.3 million, and $4.3 million in 1999, 1998, and 1997, respectively, on
acquisitions. Additionally, the company received $12.0 million, $3.1 million,
and $311.4 million in connection with dispositions of non-strategic assets in
1999, 1998, and 1997, respectively.
Financing Activities
Financing activities provided cash of $372.9 million during 1999 and used cash
of $145.2 million and $187.6 million in 1998 and 1997, respectively. In the
three years ending August 31, 1999, the company distributed approximately $476.3
million to stockholders through share repurchases and dividends. Cash of $42.0
million, $154.0 million, and $121.7 million was utilized in 1999, 1998, and
1997, respectively, for share repurchases of 1.2 million, 3.0 million, and 3.0
million shares, respectively. Although the company has a standing annual
authorization to repurchase 2.0 million shares plus the number of new shares
issued in any one year, the company does not plan to purchase additional shares
until its ratio of total debt to capitalization is within the company's stated
objective of 30 to 40 percent. Included in the 1998 and 1997 amounts was a
supplemental authorization for the repurchase of 1.25 million shares granted as
a result of the textile rental divestiture transaction. Additionally, the
company distributed cash of $51.9 million, $52.6 million, and $54.2 million in
1999, 1998, and 1997, respectively, to the company's stockholders in the form of
dividends. The increase in dividends to $1.27 per share in 1999 from $1.23 per
share in 1998 represented an increase of 3.3 percent, marking the sixty-third
consecutive year of quarterly dividends without a decrease.
In 1996, the company negotiated a $250 million multi-currency committed
credit facility (the "Credit Facility") with ten domestic and international
banks. The Credit Facility has a term of five years, expiring in July 2001, with
no provision for a reduction in commitments. The Credit Facility contains
restrictions on the incurrence of indebtedness by subsidiaries, as well as
financial and other covenants, including the restriction that the company's
ratio of total debt to capitalization may not exceed 60 percent at any time.
During the fourth quarter of 1998, the company filed a registration
statement (the "shelf registration"), which became effective September 8, 1998,
with the Securities and Exchange Commission to allow the company to offer for
sale, from time to time, up to $400 million of unsecured senior debt securities
or unsecured senior subordinated debt securities (the "Debt Securities")
consisting of notes, debentures, or other evidence of indebtedness, of which
$240 million remains available at August 31, 1999. The Debt Securities may be
convertible into or exchangeable for shares of the company's common stock,
shares of its preferred stock, or other Debt Securities. The Debt Securities may
be offered as a single series or as two or more separate series in amounts, at
prices and on terms to be determined at the time of the offering. The Debt
Securities may be sold to or through one or more agents designated from time to
time.
In January 1999, the company issued $160.0 million in ten-year publicly
traded notes bearing a coupon rate of 6.0 percent. Proceeds were used for the
repayment of $80.0 million in borrowings under the Credit Facility, of which
$52.0 million was outstanding under the domestic line of credit at August 31,
1998. The remainder was used for general corporate purposes including working
capital requirements, capital expenditures, acquisitions, and share repurchases.
In July 1999, the company entered into an additional $250.0 million, 364-day
committed credit facility (the "Revolving Credit Facility") expiring in July
2000. The combined $500.0 million under the Credit Facility and the Revolving
Credit Facility support the company's commercial paper program, which was
initiated in July 1999 primarily to fund the acquisition of Holophane.
At August 31, 1999, the company had $352.3 million outstanding under its
commercial paper program, of which $249.7 million was classified as long-term as
the company intends to refinance this amount through long-term debt instruments
or availability under the Credit Facility which matures in 2001. Short-term
commercial paper of $102.5 million had an average interest rate of 5.8 percent.
The company has complimentary lines of credit totaling $125.7 million for
general operating purposes, of which $25.7 million is designated as
multi-currency. At August 31, 1999, $76.9 million in letters of credit were
outstanding, primarily under the domestic line of credit. The company had $10.9
million of foreign currency short-term bank borrowings outstanding under the
multi-currency line of credit at a weighted average interest rate of 3.8 percent
at August 31, 1999.
Management believes current cash balances, anticipated cash flows from
operations, and available funds from the commercial paper program or the
committed credit facilities, complimentary lines of credit, and the shelf
registration are sufficient to meet the company's planned level of capital
spending and general operating cash requirements for the next twelve months.
<TABLE>
<CAPTION>
Results of Operations Years Ended August 31
(in millions, except ---------------------------------------
per-share amounts) 1999 1998 1997
---------------------------------------
Sales and Service Revenue:
<S> <C> <C> <C>
Lighting Equipment $1,220.6 $1,105.3 $ 952.0
Chemical 487.8 454.5 402.6
Textile Rental 309.1 312.7 493.5
Envelope 201.7 158.8 131.0
Other - - 57.1
---------------------------------------
$2,219.2 $2,031.3 $2,036.2
=======================================
Operating Profit (Loss):
Lighting Equipment $ 121.8 $ 109.3 $ 92.4
Chemical 45.2 36.5 31.6
Textile Rental 42.9 29.7 60.8
Envelope 17.7 13.3 10.2
Other - - 1.9
---------------------------------------
227.6 188.8 196.9
Corporate (15.2) (14.9) (16.2)
Interest expense, net (14.1) (0.8) (1.6)
=======================================
$ 198.3 $ 173.1 $ 179.1
=======================================
Net Income $ 124.3 $ 108.7 $ 107.3
=======================================
Earnings per Share:
Basic $ 3.04 $ 2.56 $ 2.37
Diluted 3.03 2.53 2.36
=======================================
</TABLE>
<PAGE>
Page 121
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
National Service Industries posted revenues of $2.2 billion for the fiscal
year ended August 31, 1999. The revenue increase in 1999 in comparison to the
prior year resulted from increased lighting equipment, chemical, and envelope
revenues of approximately $192 million, partially offset by a slight decrease in
revenue in the textile rental segment. Revenues in 1998 decreased slightly in
comparison with the prior year as a result of increased lighting equipment,
chemical, and envelope revenues of approximately $233 million, offset primarily
by revenues not included in 1998 as a result of 1997 divestitures.
Net income for 1999 increased $15.6 million, or 14.4 percent, to a record
level of $124.3 million, or $3.04 per basic share, $3.03 diluted. Earnings per
share grew at the higher rate of 18.8 percent per basic share and 19.8 percent
per diluted share due to a reduction of 1.6 million basic and 1.9 million
diluted average shares outstanding. Net income in 1998 increased $1.4 million,
or 1.3 percent, to $108.7 million, or $2.56 per basic share, $2.53 diluted.
Lighting equipment segment sales grew $115.3 million, or 10.4 percent, to
$1.2 billion in 1999. Continued strength in the non-residential construction
market and the acquisitions of Hydrel, Peerless, and Holophane contributed to
the growth in sales. As a result of the increased sales and manufacturing cost
savings, operating profit increased 11.4 percent in 1999. Sales for 1998
increased 16.1 percent due to strong demand in the non-residential construction
market and increased volumes resulting from new products. Operating profit for
1998 increased 18.3 percent as a result of the increased sales and ongoing
productivity improvements.
Chemical segment revenues for 1999 increased $33.3 million, or 7.3
percent, to $487.8 million. The increase in revenue was a result of continued
growth in the retail channel, higher revenue in the industrial and institutional
distribution channels, inclusion of a full year of Calman, and other
international revenue. Operating profit increased $8.7 million, or 24.0 percent,
to $45.2 million as a result of the increased revenues, lower operating costs,
and severance costs included in 1998 that were not repeated in 1999. Revenues in
1998 increased 12.9 percent as a result of the inclusion of a full year of
Enforcer as well as increased retail volumes of Enforcer and Zep Manufacturing
Company. Operating profit in 1998 increased 15.5 percent as a result of the
increased revenues and the impact of the 1997 restructuring charge on 1997
operating profit. These increases in operating profit were somewhat offset by
additional severance costs and increased selling expenses incurred in the
industrial chemical channel of the segment.
Textile rental segment revenues, representing all of the company's service
revenues, decreased 1.2 percent during 1999 to $309.1 million, primarily as a
result of the continued sale of industrial contracts and the rationalization of
unprofitable accounts. Operating profit increased 44.4 percent to $42.9 million,
primarily as a result of gains recognized on the sale of businesses and
adjustments made to amounts accrued in connection with the 1997 uniform plants
divestiture and 1997 restructuring activities. In 1997, the textile rental
segment accrued for items related to the sale of its uniform plants including
environmental exposures, severance agreements, and costs to return leased
facilities to pre-lease condition. The company realized lower costs than
originally anticipated and recorded a gain of $3.5 million as discussed in
"Strategic Transactions." In 1997, the segment also recorded an impairment
charge and accrued for items related to restructuring activities that primarily
related to branch consolidations and asset dispositions. In addition to
realizing lower than anticipated costs, management determined that it is
currently more economically feasible to continue to operate certain locations
that were to be disposed of in the original plan. As a result, in 1999 the
related reserve and impairments were reversed and $9.3 million in income was
recorded. Excluding unusual gains and other non-operating items in 1999 and
1998, operating profit increased slightly due to the segment's focus on lowering
merchandise costs and improving production efficiencies. Segment revenue in 1998
decreased 36.6 percent as a result of businesses divested in 1997. Excluding the
1997 divestiture, revenues declined approximately $4.0 million as the segment
continued to eliminate low-margin customer accounts. Operating profit in 1998
decreased 51.2 percent to $29.7 million, primarily as a result of the 1997
divestitures.
Envelope segment revenue increased $43.0 million, or 27.1 percent, in 1999
to $201.7 million primarily as a result of the acquisitions of Gilmore Envelope
in February 1999 and Allen in March 1998. Operating profit for the segment
increased 32.9 percent to $17.7 million primarily as a result of the gain on the
sale of Techno-Aide/Stumb Metal Products, as discussed in "Strategic
Transactions," the acquisition of Gilmore Envelope, and increased revenues.
Segment revenue in 1998 increased 21.2 percent due to the March 1998 purchase of
Allen, as discussed in "Strategic Transactions," and higher shipment volumes.
Operating profit increased 30.4 percent during 1998 as a result of the increased
revenues generated by the Allen acquisition.
Corporate expenses in 1999 approximated last year. In 1998, corporate
expenses decreased $1.3 million, as 1997 expense included an asset impairment
recorded to reflect the $1.2 million appraised value of an asset held for sale.
Net interest expense increased $13.3 million in 1999 as a result of higher
average debt levels coupled with lower average cash balances. Net interest
expense decreased $0.8 million in 1998 as the company benefited from higher
average levels of short-term investments, offset slightly by higher average debt
levels.
Consolidated income before taxes increased $25.2 million, or 14.6 percent,
to $198.3 million primarily due to increased income from the lighting equipment,
chemical, and envelope segments. Additionally, gains realized on the sale of
businesses and related to adjustments to restructuring reserves and impairments
originally recorded in 1997 in the textile rental segment positively affected
income. The provision for income taxes was 37.3 percent, 37.2 percent, and 40.1
percent in 1999, 1998, and 1997, respectively. The decrease in the effective
rate in 1998 was due primarily to higher rates applicable to the 1997 textile
rental divestiture.
Environmental Matters
See Note 5: Commitments and Contingencies in the Notes to the Consolidated
Financial Statements for a discussion of environmental matters.
<PAGE>
Page 122
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Market Risk
The company is exposed to market risks that may impact the Consolidated Balance
Sheets, Consolidated Statements of Income, and Consolidated Statements of Cash
Flows due to changing interest rates and foreign exchange rates. The company
does not currently participate in any significant hedging activities, nor does
it utilize any significant derivative financial instruments. The following
discussion provides additional information regarding the company's market risks.
Interest Rates-The company's commercial paper, notes payable, fixed-rate notes,
and other long-term debt are subject to interest rate fluctuations. These
fluctuations expose the company to changes in interest expense, cash flows, and
the fair market value of the instruments. The company's variable-rate debt
amounted to $387.0 million at August 31, 1999. Based on outstanding borrowings
at year end, a 10 percent adverse change in effective market interest rates at
August 31, 1999 would result in additional annual after-tax interest expense of
approximately $1.3 million. To address this risk, the company intends to
refinance approximately $250 million of the outstanding commercial paper on a
long-term, fixed-rate basis. Although a fluctuation in interest rates would not
affect interest expense or cash flows related to the company's $160 million
publicly traded notes, a 10 percent adverse change in effective market interest
rates at August 31, 1999 would decrease the fair value of the notes to
approximately $138.2 million.
Foreign Exchange Rates-The majority of the company's revenue, expense, and
capital purchases are transacted in U.S. dollars. International operations,
primarily the lighting equipment and chemical segments, represented
approximately 7.1 percent of sales and service revenues, 1.4 percent of
operating profit (loss), and 8.5 percent of identifiable assets. The company
does not believe a 10 percent fluctuation in average foreign currency rates
would have a material effect on its consolidated financial statements or results
of operations.
Impact of the Year 2000 Issue
The "Year 2000 Issue" resulted from the use of two digits rather than four
digits to define the applicable year in certain computer programs. With the
coming millennium, any of the company's computer programs that have two-digit
date-sensitive software may interpret a date of "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculation
causing disruption of the operation of computer hardware and software, as well
as intelligent manufacturing equipment and processes, and telephony.
Management is addressing the Year 2000 Issue in four phases: awareness,
assessment, action plan, and plan implementation. At August 31, 1999, all areas
of the company had completed the first three phases and implementation of the
plan was substantially complete. Management estimates that the total cost to be
incurred in connection with the Year 2000 Issue will be approximately $6
million, and all major systems are expected to be in compliance prior to the end
of calendar year 1999. At August 31, 1999, the company had spent approximately
$4.7 million on the Year 2000 Issue. The cost of the project is being funded
through operating cash flows. Approximately one-third of the total cost reflects
the redeployment of existing internal information technology resources and
should not be incremental costs to the company.
At this time, the company believes its most reasonably likely worst case
scenario is that key suppliers or service providers who have not resolved their
own Year 2000 Issue may cause a disruption of service to the company's critical
business processes. Management has evaluated the potential exposure of the
company to related problems of its customers and suppliers and has implemented a
vendor certification process. While management believes that its plan is
sufficient to address the Year 2000 Issue, management has substantially
completed a contingency plan to address the potential for unforeseen issues that
may arise. The contingency plan includes identifying alternative suppliers and
increasing inventory levels. There can be no assurance, however, that such
exposures or the costs of remediating any problems associated therewith will not
materially affect the company's future business, financial condition, or results
of operations.
Outlook
Management continues to execute its strategic plan to grow both internally and
through acquisitions. Fiscal 2000 sales from the existing businesses are
anticipated to grow at a rate in excess of 5.0 percent, led primarily by the
lighting equipment segment through continued lighting equipment market strength
and in the chemical segment by product development and growth in the retail
market. Assuming there are no significant changes in the current economic
environment, management expects earnings to be lower than 1999 results due to
the Holophane acquisition, which is expected to dilute earnings by 13 cents per
share, and unusual gains included in 1999 results that are not planned in fiscal
2000.
Cautionary Statement Regarding Forward-Looking Information
From time to time, the company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
capital expenditures, 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.
Statements herein which may be considered forward-looking include: (a)
statements made regarding the company's current expectations or beliefs with
respect to the outcome and impact on the company's business, financial
condition, or results of operations of the Year 2000 Issue, environmental
issues, and legal proceedings; (b) statements made concerning management's
expectations with respect to the company's plan for strategic growth; (c)
statements made regarding management's expectations with regard to projected
capital expenditures, future cash flows, debt refinancing, share repurchases,
and debt to capitalization objectives; and (d) statements made regarding the
acquisition of Holophane. 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, including the potential for a slowdown in
non-residential construction awards, fluctuations in commodity and raw material
prices, market demand for public debt, interest rate changes, and foreign
currency fluctuations; and (b) the ability to achieve strategic initiatives,
including but not limited to the achievement of synergies related to
acquisitions and the achievement of sales growth across the business segments
through a combination of increased pricing, enhanced sales force, new products,
improved customer service, and acquisitions.
<PAGE>
Page 123
Exhibit 13
<TABLE>
<CAPTION>
TEN-YEAR FINANCIAL SUMMARY
National Service Industries, Inc.
(Dollar amounts in thousands, except per-share data)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Results
Net sales of
products $1,910,114 $1,718,564 $1,542,644 $1,482,937 $1,424,180 $1,337,410 $1,257,906 $1,189,684 $1,164,181 $1,250,833
Service revenues 309,115 312,746 493,535 530,625 546,447 544,454 546,916 444,127 437,534 396,981
-----------------------------------------------------------------------------------------------------------------
Total revenues 2,219,229 2,031,310 2,036,179 2,013,562 1,970,627 1,881,864 1,804,822 1,633,811 1,601,715 1,647,814
Cost of products
sold (1) 1,146,080 1,023,765 924,505 909,870 908,869 875,055 832,264 810,552 791,355 832,867
Cost of services(1) 180,770 183,470 283,024 304,381 299,687 286,519 281,551 236,474 240,376 219,673
Selling and administrative
expenses 698,196 654,511 655,029 640,048 601,143 576,463 556,162 462,240 456,622 438,949
Interest expense (income),
net 14,067 749 1,624 1,565 1,648 2,788 3,645 (837) (4,332) (3,712)
Gain on sale of
businesses (11,220) (2,449) (75,097) (7,579) (5,726) (2,249) (1,379) - - -
Restructuring expense,
asset impairments, and
other charges (9,291) - 63,091 - - - - - 63,467 -
Other expense (income),
net 2,305 (1,857) 4,925 3,429 14,509 11,090 13,063 8,474 5,591 4,322
-----------------------------------------------------------------------------------------------------------------
Income before taxes 198,322 173,121 179,078 161,848 150,497 132,198 119,516 116,908 48,636 155,715
Provision for
income taxes 73,979 64,401 71,800 60,700 56,400 49,500 44,400 42,800 16,400 56,000
-----------------------------------------------------------------------------------------------------------------
Net Income $ 124,343 $ 108,720 $ 107,278 $ 101,148 $ 94,097 $ 82,698 $ 75,116 $ 74,108 $ 32,236 $ 99,715
-----------------------------------------------------------------------------------------------------------------
Per-Share Data
Net income: (2)
Basic $ 3.04 $ 2.56 $ 2.37 $ 2.11 $ 1.93 $ 1.67 $ 1.52 $ 1.50 $ .65 $ 2.02
Diluted 3.03 2.53 2.36 2.10 1.93 1.67 1.51 1.50 .65 2.02
Cash dividends 1.27 1.23 1.19 1.15 1.11 1.07 1.03 .99 .95 .90
Stockholders' equity 15.22 13.96 15.20 15.45 15.41 14.77 14.21 13.79 13.33 13.68
Financial Ratios
Current ratio 1.6 2.7 2.8 3.1 3.2 3.2 2.9 3.5 3.4 4.5
Net income as a percent
of sales 5.6% 5.4% 5.3% 5.0% 4.8% 4.4% 4.2% 4.5% 2.0% 6.1%
EBITDA as a percent
of sales 12.1% 11.0% 11.7% 11.0% 10.6% 10.4% 10.3% 10.4% 5.9% 11.8%
Return on average
stockholders' equity 21.2% 17.4% 15.5% 13.6% 13.0% 11.6% 10.9% 11.1% 4.8% 15.6%
Dividends as a percent of
current year earnings 41.7% 48.4% 50.5% 54.6% 57.6% 64.1% 67.9% 66.3% 146.2% 44.6%
Percent of debt to total
capitalization 47.2% 12.9% 4.6% 4.2% 4.3% 4.3% 4.7% 4.2% 5.0% 4.2%
</TABLE>
<PAGE>
Page 124
Exhibit 13
<TABLE>
<CAPTION>
TEN-YEAR FINANCIAL SUMMARY (continued)
National Service Industries, Inc.
(Dollar amounts in thousands, except per-share data)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Position
Increase (decrease) in:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents $ (16,892)$ (37,977) $ (1,539)$ (20,740)$ 20,783 $ 42,766 $ (85,284)$ 27,617 $ (50,437)$ 23,433
Short-term
investments - (205,302) 204,751 (3,047) 1,019 (2,197) (3,736) (5,551) 12,813 (27,247)
Net working capital 256,528 385,056 498,758 408,955 437,840 413,114 363,575 399,893 386,306 447,800
Short-term debt $ 114,378 $ 7,981 $ 5,889 $ 6,742 $ 6,486 $ 5,765 $ 6,196 $ 1,434 $ 3,254 $ 2,253
Long-term debt 435,199 78,092 26,197 24,920 26,776 26,683 28,418 28,359 31,373 27,465
---------------------------------------------------------------------------------------------------------------
Total debt 549,577 86,073 32,086 31,662 33,262 32,628 34,614 29,793 34,627 29,718
Stockholders' equity 615,874 578,901 671,813 718,008 744,404 727,385 704,023 682,954 660,567 675,444
---------------------------------------------------------------------------------------------------------------
Capitalization $ 1,165,451 $ 664,974 $ 703,899 $ 749,670 $ 777,666 $ 760,013 $ 738,637 $ 712,747 $ 695,194 $ 705,162
---------------------------------------------------------------------------------------------------------------
Other Data
Capital expenditures
(including acquisitions)$606,417 $ 127,339 $ 56,990 $ 65,566 $ 59,910 $ 42,508 $ 82,171 $ 49,789 $ 90,229 $ 82,932
Depreciation
and amortization ... 55,822 48,846 57,981 58,428 57,130 60,548 62,097 53,816 50,249 42,821
Total assets ..........1,695,789 1,010,684 1,106,352 1,094,646 1,131,346 1,101,261 1,081,510 1,036,908 1,008,319 960,622
Deferred income
tax liability ...... 95,557 40,404 34,093 63,347 67,756 73,319 78,286 87,150 96,627 99,277
Self-insurance
reserves, less
current portion ..... 38,828 44,573 57,056 63,369 67,830 61,081 56,335 47,638 38,428 15,222
Other long-term
liabilities ......... 86,446 46,719 35,193 27,576 24,010 22,940 27,110 28,677 22,015 16,067
Weighted average number of shares
outstanding (in thousands): (2)
Basic 40,899 42,462 45,191 47,941 48,696 49,547 49,556 49,539 49,540 49,389
Diluted 41,093 43,022 45,534 48,189 48,797 49,614 49,623 49,566 49,561 49,389
Stockholders 6,292 6,774 7,165 6,281 6,655 7,034 7,262 7,554 7,996 8,248
Employees 19,700 16,700 16,100 20,600 21,100 22,000 22,200 20,100 20,900 21,800
Use of Total Revenues
Salaries and wages $ 582,343 $ 552,816 $ 572,517 $ 580,571 $ 568,616 $ 565,859 $ 572,163 $ 502,709 $ 501,502 $ 491,334
Materials and supplies 1,048,817 955,307 909,082 875,658 832,668 783,610 760,551 700,338 683,871 713,310
Other operating expenses 357,854 305,888 334,503 348,143 370,575 349,849 301,356 273,330 258,919 246,288
Taxes and licenses 126,383 111,028 124,805 115,621 110,397 102,097 97,015 83,326 59,889 97,167
Gain on sale of
businesses (11,220) (2,449) (75,097) (7,579) (5,726) (2,249) (1,379) - - -
Restructuring expense, asset impairments,
and other charges (9,291) - 63,091 - - - - - 63,467 -
Dividends paid 51,856 52,603 54,222 55,272 54,156 53,042 51,041 49,105 47,124 44,506
Retained earnings 72,487 56,117 53,056 45,876 39,941 29,656 24,075 25,003 (13,057) 55,209
---------------------------------------------------------------------------------------------------------------
$ 2,219,229 $2,031,310 $2,036,179 $2,013,562 $1,970,627 $1,881,864 $1,804,822 $1,633,811 $1,601,715 $1,647,814
---------------------------------------------------------------------------------------------------------------
(1) Certain prior period amounts in the financial statements and notes have been reclassified to conform with the 1999 presentation.
(2) In 1998, the company adopted Financial Accounting Standards No. 128, "Earnings per Share." Prior period amounts have been
restated in accordance with this statement.
</TABLE>
Page 125
Exhibit 21
NSI LIST OF SUBSIDIARIES
Registrant - National Service Industries, Inc.
Registrant owns, directly or indirectly, the following subsidiaries and other
affiliates:
<TABLE>
<S> <C> <C>
State or Other
Jurisdiction
of
Incorporation
Subsidiary or Affiliate Principal Location or Organization
- ------------------------ -------------------------- -------------------
Antique Street Lamps, Inc. .................................................... Brownsville, Texas Texas
C&G Carandini SA .............................................................. Barcelona, Spain Spain
Castlight de Mexico, S.A. de C.V .............................................. Matamoros, Tamaulipas Mexico
Enforcer Products, Inc. ....................................................... Atlanta, Georgia Georgia
Graham International B.V ...................................................... Bergen op Zoom, Holland Netherlands
HSA Acquisition Corporation ................................................... Columbus, Ohio Ohio
Holophane S.A. de C.V ......................................................... Tultitlan, Mexico City Mexico
Holophane Alumbrado Iberica S.r.l ............................................. Barcelona, Spain Spain
Holophane Australia Corporation Pty Ltd. ...................................... New South Wales, Australia Australia
Holophane Canada, Inc. ........................................................ Brampton, Ontario Canada
Holophane Corporation ......................................................... Columbus, Ohio Delaware
Holophane Europe Ltd. ......................................................... Milton Keynes, England United Kingdom
Holophane International, Inc. ................................................. Bridgetown, Barbados Barbados
Holophane Lichttechnik GmbH ................................................... Dusseldorf, Germany Germany
Holophane Lighting Ltd. ....................................................... Milton Keynes, England United Kingdom
Holophane Market Development Corp. ............................................ Grand Cayman, Cayman Islands British West Indies
ID Limited .................................................................... Douglas, Isle of Man Isle of Man
Kem Europa B.V ................................................................ Bergen op Zoom, Holland Netherlands
Keplime B.V ................................................................... Bergen op Zoom, Holland Netherlands
Keplime Ltd. .................................................................. London, England United Kingdom
Lithonia Lighting Mexico S.A. de C.V .......................................... Monterrey, Nuevo Leon Mexico
Lithonia Lighting Servicios S.A. de C.V ....................................... Monterrey, Nuevo Leon Mexico
Luxfab Ltd. ................................................................... Milton Keynes, England United Kingdom
MetalOptics, Inc. ............................................................. Austin, Texas Texas
National Service Industries, Inc. ............................................. Atlanta, Georgia Georgia
NSI Enterprises, Inc. ......................................................... Atlanta, Georgia California
NSI Export Ltd. ............................................................... Bridgetown, Barbados Barbados
NSI Holdings, Inc. ............................................................ Montreal, Quebec, Canada Canada
NSI Insurance (Bermuda) Ltd. .................................................. Hamilton, Bermuda Bermuda
NSI International Pty Ltd. .................................................... Melbourne, Australia Australia
NSI Leasing, Inc. ............................................................. Atlanta, Georgia Delaware
NSI Realty, L.P. .............................................................. Atlanta, Georgia Texas
NSI Services, L.P. ............................................................ Atlanta, Georgia Georgia
Productos Lithonia Lighting de Mexico, S.A. de C.V ............................ Monterrey, Nuevo Leon Mexico
Produits de Maintenance et de Proprete Industrielle SARL Nogent-le-Roi, France France
Selig Company of Puerto Rico, Inc. ............................................ Atlanta, Georgia Puerto Rico
Unique Lighting Solutions Pty Ltd. ............................................ New South Wales, Australia Australia
ZEP Belgium S.A ............................................................... Brussels, Belgium Belgium
ZEP Europe B.V ................................................................ Bergen op Zoom, Holland Netherlands
ZEP FRANCE S.A.R.L ............................................................ Nogent-le-Roi, France France
Zep Industries S.A.S .......................................................... Nogent-le-Roi, France France
Zep Industries, S.A. (formerly Zep S.A.) ...................................... Bern, Switzerland Switzerland
Zep Industries B.V. (formerly Chemical Specialties) ........................... Bergen op Zoom, Holland Netherlands
Zep International Pty Ltd. .................................................... Melbourne, Australia Australia
Zep Italia S.r.l .............................................................. Aprilia, Italy Italy
Zep Manufacturing B.V ......................................................... Bergen Op Zoom, Holland Netherlands
Zep Manufacturing Company ..................................................... Santa Clara, California Delaware
The consolidated financial statements include the accounts of all subsidiaries and affiliates.
</TABLE>
Page 126
Exbihit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated October 8, 1999, included or incorporated by
reference in National Service Industries, Inc. Form 10-K for the year ended
August 31, 1999, into the company's previously filed Registration Statement File
Nos. 33-35609, 33-36980, 333-48835, 33-51339, 33-51341, 33-51343, 33-51345,
33-51351, 33-51355, 33-51357, 333-59627, 33-60715, 333-73133, and 333-73135.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 17, 1999
Page 127
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby
constitutes and appoints David Levy and Brock Hattox, and each of them
individually, his true and lawful attorneys-in-fact (with full power of
substitution and resubstitution) to act for him in his name, place, and stead in
his capacity as a director or officer of National Service Industries, Inc., to
file a registrant's annual report on Form 10-K for the fiscal year ended August
31, 1999, and any and all amendments thereto, with any exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, and each of them individually,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact or either of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
/s/ James S. Balloun
James S. Balloun, Chairman of the Board,
President and Chief Executive Officer, and Director
/s/ Brock Hattox
Brock Hattox, Executive Vice President and
Chief Financial Officer
/s/ David Levy
David Levy, Executive Vice President,
Administration and Counsel, and Director
/s/ Mark R. Bachmann
Mark R. Bachmann, Vice President and Controller
(Principal Accounting Officer)
Dated: November 17, 1999
<PAGE>
Page 128
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ John L. Clendenin
John L. Clendenin
Dated: November 17, 1999
<PAGE>
Page 129
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Thomas C. Gallagher
Thomas C. Gallagher
Dated: November 17, 1999
<PAGE>
Page 130
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Robert M. Holder, Jr
Robert M. Holder, Jr
Dated: November 17, 1999
<PAGE>
Page 131
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ James C. Kennedy
James C. Kennedy
Dated: November 17, 1999
<PAGE>
Page 132
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Bernard Marcus
Bernard Marcus
Dated: November 17, 1999
<PAGE>
Page 133
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ John G. Medlin, Jr
John G. Medlin, Jr
Dated: November 17, 1999
<PAGE>
Page 134
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Sam Nunn
Sam Nunn
Dated: November 17, 1999
<PAGE>
Page 135
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Herman J. Russell
Herman J. Russell
Dated: November 17, 1999
<PAGE>
Page 136
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints David Levy and Brock Hattox, and each of them individually, her true
and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for her in her name, place, and stead in her capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Betty L. Siegel
Betty L. Siegel
Dated: November 17, 1999
<PAGE>
Page 137
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Kathy Brittain White
Kathy Brittain White
Dated: November 17, 1999
<PAGE>
Page 138
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints David Levy and Brock Hattox, and each of them individually, his
true and lawful attorneys-in-fact (with full power of substitution and
resubstitution) to act for him in his name, place, and stead in his capacity as
a director or officer of National Service Industries, Inc., to file a
registrant's annual report on Form 10-K for the fiscal year ended August 31,
1999, and any and all amendments thereto, with any exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or either of them, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
/s/ Barrie A. Wigmore
Barrie A. Wigmore
Dated: November 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Page 139
Exhibit 27
Financial Data Schedule
Year Ended August 31, 1999
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 August 31, 1999 and
the consolidated statement of income for the year ended August 31, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-1-1998
<PERIOD-END> AUG-31-1999
<CASH> 2,254
<SECURITIES> 0
<RECEIVABLES> 388,494
<ALLOWANCES> 6,306
<INVENTORY> 218,191
<CURRENT-ASSETS> 680,413
<PP&E> 800,259
<DEPRECIATION> 417,946
<TOTAL-ASSETS> 1,695,789
<CURRENT-LIABILITIES> 423,885
<BONDS> 435,199
0
0
<COMMON> 57,919
<OTHER-SE> 557,955
<TOTAL-LIABILITY-AND-EQUITY> 1,695,789
<SALES> 1,910,114
<TOTAL-REVENUES> 2,219,229
<CGS> 1,146,080
<TOTAL-COSTS> 1,326,850
<OTHER-EXPENSES> 673,511
<LOSS-PROVISION> 3,651
<INTEREST-EXPENSE> 16,895
<INCOME-PRETAX> 198,322
<INCOME-TAX> 73,979
<INCOME-CONTINUING> 124,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,343
<EPS-BASIC> 3.04
<EPS-DILUTED> 3.03
</TABLE>
