Page 1 of 70
Exhibit Index on Page 14
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For quarter ended November 30, 1998 Commission file number 1-3208
NATIONAL SERVICE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-0364900
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1420 Peachtree Street, N. E., Atlanta, Georgia 30309-3002
(Address of Principal Executive Offices) (Zip Code)
(404) 853-1000
(Registrant's Telephone Number, Including Area Code)
None
(Former Name,Former Address and Former Fiscal Year,if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes - X No -
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $1.00 Par Value - 41,174,672 shares as of December 31, 1998.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS -
NOVEMBER 30, 1998 AND AUGUST 31, 1998 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1997 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1997 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9-11
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<S> <C> <C>
November 30, August 31,
1998 1998
----------------- -------------
Assets (Unaudited)
Current Assets:
Cash and cash equivalents $ 32,041 $ 19,146
Short-term investments - -
Receivables, less reserves for doubtful accounts of $5,910 at November 30, 1998
and $4,631 at August 31, 1998 306,263 307,140
Inventories, at the lower of cost (on a first-in, first-out basis) or market 219,633 197,950
Linens in service, net of amortization 58,086 58,826
Deferred income taxes 14,861 17,542
Prepayments 12,121 6,447
----------------- -------------
Total Current Assets 643,005 607,051
----------------- -------------
Property, Plant, and Equipment, at cost:
Land 21,418 21,450
Buildings and leasehold improvements 150,424 150,326
Machinery and equipment 496,687 485,271
----------------- -------------
Total Property, Plant, and Equipment 668,529 657,047
Less-Accumulated depreciation and amortization 392,449 385,176
----------------- -------------
Property, Plant, and Equipment-net 276,080 271,871
----------------- -------------
Other Assets:
Goodwill and other intangibles 111,096 88,280
Other 41,952 43,482
----------------- -------------
Total Other Assets 153,048 131,762
================= =============
Total Assets $1,072,133 $1,010,684
================= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 100 $ 98
Notes payable 8,257 7,883
Accounts payable 104,349 95,217
Accrued salaries, commissions, and bonuses 35,050 34,820
Current portion of self-insurance reserves 12,212 11,253
Accrued taxes payable 12,945 -
Other accrued liabilities 74,438 72,724
----------------- -------------
Total Current Liabilities 247,351 221,995
----------------- -------------
Long-Term Debt, less current maturities 106,074 78,092
----------------- -------------
Deferred Income Taxes 39,552 40,404
----------------- -------------
Self-Insurance Reserves, less current portion 43,497 44,573
----------------- -------------
Other Long-Term Liabilities 49,143 46,719
----------------- -------------
Stockholders' Equity:
Series A participating preferred stock, $.05 stated value, 500,000 shares
authorized, none issued
Preferred stock, no par value, 500,000 shares authorized, none issued
Common stock, $1 par value, 80,000,000 shares authorized, 57,918,978
shares issued 57,919 57,919
Paid-in capital 28,953 28,521
Retained earnings 916,825 903,974
Accumulated other comprehensive income items (9,324) (11,357)
----------------- -------------
994,373 979,057
Less-Treasury stock, at cost (16,646,273 shares at November 30, 1998 and
16,457,340 shares at August 31, 1998) 407,857 400,156
----------------- -------------
Total Stockholders' Equity 586,516 578,901
================= =============
Total Liabilities and Stockholders' Equity $1,072,133 $1,010,684
================= =============
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
</TABLE>
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National Service Industries, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
<TABLE>
<S> <C> <C>
THREE MONTHS ENDED
NOVEMBER 30
-----------------------------
1998 1997
------------- -------------
Sales and Service Revenues:
Net sales of products $ 443,457 $ 409,518
Service revenues 75,469 78,066
------------- -------------
Total Revenues 518,926 487,584
------------- -------------
Costs and Expenses:
Cost of products sold 266,996 249,091
Cost of services 43,737 45,148
Selling and administrative expenses 164,912 152,628
Interest (income) expense, net 2,342 (2,002)
Other expense, net 9 364
------------- -------------
Total Costs and Expenses 477,996 445,229
------------- -------------
Income before Provision for Income Taxes 40,930 42,355
Provision for Income Taxes 15,226 15,687
------------- -------------
Net Income $ 25,704 $ 26,668
============= =============
Per Share:
Basic earnings per share $ .62 $ .61
============= =============
Basic Weighted Average Number of Shares Outstanding 41,407 43,652
============= =============
Diluted earnings per share $ .62 $ .60
============= =============
Diluted Weighted Average Number of Shares Outstanding 41,614 44,104
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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National Service Industries, Inc. and subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<S> <C> <C>
THREE MONTHS ENDED
NOVEMBER 30
-----------------------------
1998 1997
------------- -------------
Cash Provided by (Used for) Operating Activities
Net income $ 25,704 $ 26,668
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization 14,444 11,831
Provision for losses on accounts receivable 1,430 1,172
Gain on the sale of property, plant, and equipment (60) (2,106)
Gain on the sale of businesses - (1,011)
Change in noncurrent deferred income taxes (853) 8,965
Change in assets and liabilities net of effect of acquisitions and divestitures-
Receivables 2,854 (3,716)
Inventories and linens in service, net (17,045) (19,795)
Deferred income taxes 2,681 (5,542)
Prepayments and other (5,453) (3,529)
Accounts payable and accrued liabilities 19,564 (31,056)
Self-insurance reserves and other long-term liabilities 1,348 (2,616)
------------- ---------------
Net Cash Provided by (Used for) Operating Activities 44,614 (20,735)
------------- ---------------
Cash Provided by (Used for) Investing Activities
Change in short-term investments - 53,216
Purchases of property, plant, and equipment (15,284) (14,034)
Sale of property, plant, and equipment 362 1,499
Sale of businesses - 1,440
Acquisitions (28,498) (6,077)
Change in other assets 1,433 1,809
------------- ---------------
Net Cash Provided by (Used for) Investing Activities (41,987) 37,853
------------- ---------------
Cash Provided by (Used for) Financing Activities
Borrowings of notes payable, net 374 109
Borrowings (repayments) of long-term debt, net 27,984 (25)
Purchase of treasury stock, net (7,270) (52,836)
Cash dividends paid (12,853) (13,301)
------------- ---------------
Net Cash Provided by (Used for) Financing Activities 8,235 (66,053)
------------- ---------------
Effect of Exchange Rate Changes on Cash 2,033 (187)
------------- ---------------
Net Change in Cash and Cash Equivalents 12,895 (49,122)
Cash and Cash Equivalents at Beginning of Period 19,146 57,123
------------- ---------------
Cash and Cash Equivalents at End of Period $ 32,041 $ 8,001
============= ===============
Supplemental Cash Flow Information:
Income taxes paid (received) during the period $ (419) $ 38,017
Interest paid during the period 2,742 1,822
Noncash Investing and Financing Activities:
Noncash aspects of acquisitions--
Liabilities assumed or incurred $ 5,418 $ 2,061
Treasury stock issued 845 -
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(In thousands, except share and per share data)
1. BASIS OF PRESENTATION:
The interim consolidated financial statements included herein have been prepared
by the company without audit and the condensed consolidated balance sheet as of
August 31, 1998 has been derived from audited statements. These statements
reflect all adjustments, all of which are of a normal, recurring nature, which
are, in the opinion of management, necessary to present fairly the consolidated
financial position as of November 30, 1998, the consolidated results of
operations for the three months ended November 30, 1998 and 1997, and the
consolidated cash flows for the three months ended November 30, 1998 and 1997.
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1998.
The results of operations for the three months ended November 30, 1998 are not
necessarily indicative of the results to be expected for the full fiscal year
because the company's revenues and income are generally higher in the second
half of its fiscal year and because of the uncertainty of general business
conditions.
2. BUSINESS SEGMENT INFORMATION:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended November 30, 1998 and 1997
---------------------------------------------------------
Sales and Service
Revenues Operating Profit (Loss) Identifiable Assets
------------------------ -------------------------- ---------------------------------
November 30, August 31,
1998 1997 1998 1997 1998 1998
----------- ----------- ----------- ----------- ----------------- ------------
Lighting Equipment $ 284,077 $ 268,658 $ 29,479 $ 27,637 $ 450,919 $ 397,962
Chemical 116,744 105,859 8,536 8,614 228,169 235,269
Textile Rental 75,469 78,066 6,719 6,131 197,274 193,347
Envelope 42,636 35,001 3,536 2,534 106,743 103,087
----------- ----------- ----------- ----------- ------------- ------------
$ 518,926 487,584 48,270 44,916 983,105 929,665
=========== ===========
Corporate (4,998) (4,563) 89,028 81,019
Interest income(expense), net (2,342) 2,002
----------- ----------- ------------- ------------
Total $ 40,930 $ 42,355 $ 1,072,133 $ 1,010,684
=========== =========== ============= ============
3. INVENTORIES:
Major classes of inventory as of November 30, 1998 and August 31, 1998 were as
follows:
November 30, August 31,
1998 1998
------------ ------------
Raw Materials and Supplies $ 87,282 $ 78,730
Work-in-Process 10,616 10,725
Finished Goods 121,735 108,495
------------ ------------
Total $ 219,633 $ 197,950
============ ============
</TABLE>
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4. EARNINGS PER SHARE
During the quarter ended February 28, 1998, the company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Prior
period amounts have been restated in accordance with this Statement. Basic
earnings per share is computed by dividing net earnings available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed similarly but reflects the
potential dilution that could occur if dilutive options were exercised. The
following table calculates basic earnings per common share and diluted earnings
per common share at November 30:
<TABLE>
<S> <C> <C>
Three Months Ended
November 30
------------------------------
1998 1997
------------ ------------
Basic earnings per common share:
Net income $ 25,704 $ 26,668
Basic weighted average shares outstanding, including shares
contingently issuable (in thousands) 41,407 43,652
============ ============
Basic earnings per common share $ .62 $ .61
============ ============
Diluted earnings per common share:
Net income $ 25,704 $ 26,668
Basic weighted average shares outstanding (in thousands) 41,407 43,652
Add - Shares of common stock issuable upon assumed
exercise of dilutive stock options (in thousands) 207 452
------------ ------------
Diluted weighted average shares outstanding (in thousands) 41,614 44,104
------------ ------------
Diluted earnings per common share $ .62 $ .60
============ ============
</TABLE>
5. COMPREHENSIVE INCOME
The company adopted SFAS No. 130, "Reporting Comprehensive Income," in the first
quarter of fiscal 1999. SFAS No. 130 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. Other comprehensive income (loss) for the quarters ended November 30,
1998 and 1997 includes only foreign currency translation adjustments. The
calculation of comprehensive income is as follows:
Three Months Ended
November 30
----------------------------
1998 1997
----------- -----------
Net income $ 25,704 $ 26,668
Other comprehensive income (loss) 2,033 (187)
----------- -----------
Comprehensive Income $ 27,737 $ 26,481
=========== ===========
6. ENVIRONMENTAL MATTERS
The company's operations, as well as other similar operations, 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
prevent or reduce 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.
<PAGE>
Page 8
The company's environmental reserves totaled $11,300 and $12,600 at November 30,
1998 and August 31, 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 such
amount 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 financially
viable potentially responsible parties ("PRPs"), 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 parties, 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 matter
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 Site, since the matter is currently in the investigative phase, the
company does not know whether its liability is de minimis but believes that its
exposure at the site is not likely to result in a material adverse effect on the
company. For the property which the company owns on Seaboard Industrial
Boulevard in Atlanta, Georgia, the company has agreed to conduct an
investigation on its and adjoining properties pursuant to the Georgia Hazardous
Site Response Act. Until that investigation is completed, 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 the 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 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 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 any expenditures which may have to be made to achieve compliance
to be material.
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. 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. 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.
In November 1997, the Environmental Protection Agency ("EPA") proposed stringent
new wastewater discharge limits, which would become effective in the future,
that could apply to certain facilities operated by the company. While the
company does not believe that these regulations should apply to its operations,
if the regulations are adopted as proposed, following adoption, the company's
cost to comply with them could be as much as $6,000 to $9,000 of equipment
expenditures spread over a three-year period, which the company does not believe
would be material to its financial condition or results of operations.
7. SUBSEQUENT EVENT - INCREASE IN SHARES AUTHORIZED
On January 6, 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.
<PAGE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes.
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 strong financial condition at November
30, 1998. Net working capital was $395.7 million, up from $385.1 million at
August 31, 1998, and the current ratio was 2.6 compared with 2.7 at August 31,
1998. At November 30, 1998, the company's debt to capitalization increased to
16.3 percent compared with 12.9 percent at August 31, 1998.
Results of Operations
National Service Industries generated quarterly revenue of $518.9 million in the
first quarter of fiscal 1999 compared with quarterly revenue of $487.6 million
in the first quarter of fiscal 1998. The revenue increase was primarily due to
higher revenue in the lighting equipment and chemical segments. Additionally,
revenue increased due to the September 1998 acquisition of GTY Industries (d/b/a
"Hydrel") and the March 1998 acquisition of Allen Envelope, which were not
included in the prior-year results.
Net income for the quarter ended November 30, 1998 was $25.7 million ($.62 per
basic and diluted share) compared to net income for the quarter ended November
30, 1997 of $26.7 million ($.61 per basic share and $.60 per diluted share).
Increased earnings in the lighting equipment and envelope segments were more
than offset by increased interest expense during the quarter, causing net income
to remain relatively unchanged. Basic and diluted earnings per share increased
due to a reduction of 2.2 million basic and 2.5 million diluted average shares
outstanding.
The lighting equipment segment reported record first quarter revenue of $284.1
million, an increase of 5.7 percent over last year's first quarter revenue of
$268.7 million. This increase resulted from continued strength in the
non-residential construction market, particularly in non-fluorescent products,
as well as the acquisition of Hydrel. Operating profit increased 6.7 percent to
$29.5 million driven by the additional sales and a slightly better product mix.
The non-residential construction market remains strong, and order rates continue
to be solid.
First quarter chemical segment revenue of $116.7 million increased 10.3 percent
from last year's $105.9 million, primarily due to higher revenue from retail
distribution channels. Operating profit of $8.5 million was slightly lower than
last year's results due to increased operating costs required to support the
retail distribution channels and changes in the product mix.
Textile rental segment revenue decreased 3.3 percent to $75.5 million, while
operating profit of $6.7 million increased 9.6 percent compared to the
prior-year period. The decrease in revenue was related in part to last year's
sale of several industrial contracts, continued efforts to eliminate low-margin
customer accounts, and the temporary, negative impact of two hurricanes on nine
southeastern plants. Excluding non-recurring gains in each of the periods,
operating profit rates remained relatively unchanged at approximately seven
percent. During the current quarter, fiscal 1997 year-end restructuring reserves
were reduced by a minimal amount for payments related to plant consolidations.
Envelope segment revenue increased 21.8 percent to $42.6 million, while
operating profit increased 39.5 percent to $3.5 million over the prior year's
$2.5 million. Revenue increased due to additional sales resulting from the Allen
Envelope acquisition, which was completed in March 1998, and additional volume
in the base business, offset by the effect of lower paper prices. The increase
in operating profit was the result of the increased volume as well as
incremental material cost savings.
Corporate expenses remained relatively consistent in comparison to the same
period in the prior year.
Net interest expense was $2.3 million in the quarter ended November 30, 1998
compared with $2.0 million of interest income in the quarter ended November 30,
1997. The increase in net interest expense is due to lower interest income,
resulting from the use of the short-term investments generated from the textile
rental segment's 1997 divestiture proceeds, combined with higher interest
expense from the increased borrowings to fund acquisitions, share repurchases,
and internal growth.
The provision for income taxes was 37.2 percent of pretax income for the quarter
compared with 37.0 percent in the prior-year period.
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Liquidity and Capital Resources
Operating Activities
Operations provided cash of $44.6 million during the first quarter of fiscal
1999 and used cash of $20.7 million during the first quarter of fiscal 1998. The
increase in cash flow for the quarter ended November 30, 1998 was primarily
attributable to the absence of tax payments of $38.0 million reflected in the
first quarter of the prior year related to the 1997 textile rental segment
divestitures. Additionally, the current quarter change in accounts payable and
accrued liabilities includes a $12.9 million increase in accrued taxes due in
the second quarter.
Investing Activities
Investing activities used cash of $42.0 million for the three months ended
November 30, 1998 compared with cash provided of $37.9 million in the three
months ended November 30, 1997. The decrease in cash flow in the first quarter
of fiscal 1999 was primarily the result of the liquidation of short-term
investments in the first quarter of fiscal 1998, which provided cash of $53.2
million for share repurchases. Additionally, acquisition spending in the first
quarter of fiscal 1999 totaled $28.5 million compared to $6.1 million in the
same quarter of the prior year. Current quarter acquisition spending was
primarily related to the September 1998 purchase by the lighting equipment
segment of the assets of Hydrel, a manufacturer of architectural-grade light
fixtures for landscape, in-grade, and underwater applications. The company also
made minor acquisitions related to the textile rental segment. Prior-year
acquisition spending of $6.1 million was due to the chemical segment's purchase
of Pure Corporation, a specialty chemical company with its core businesses in
Indiana, Pennsylvania, and New York.
Capital expenditures were $15.3 million in the first three months of fiscal 1999
compared with $14.0 million in the first three months of fiscal 1998. Capital
spending in the first quarter of fiscal 1999 was primarily attributable to the
lighting equipment, textile rental, and envelope segments. The lighting
equipment segment's capital expenditures related to upgrading of old tooling
equipment as well as purchases of new tooling equipment for capacity expansion.
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 new
folding capacity, manufacturing process improvements, and information systems.
Capital spending in the first quarter of fiscal 1998 consisted primarily of
facility expansions and manufacturing process improvements in the lighting
equipment segment, efficiency improvements and replacements of processing
equipment and information systems in the textile rental segment, and facility
and machinery replacements in the envelope segment. Capital expenditures for
fiscal 1999 are estimated to be $90 million. Management believes current cash
balances, anticipated cash flows from operations, and available funds from the
credit facility, complementary 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.
Financing Activities
Cash provided by financing activities was $8.2 million in the first quarter of
fiscal 1999 compared with cash used of $66.1 million in the first quarter of
fiscal 1998. Contributing to the change were net purchases of treasury stock
which were $7.3 million in the current quarter versus $52.8 million in the same
quarter of the prior year. During the current quarter, the company repurchased
250,000 of its common shares. Additionally, for the quarter ended November 30,
1998, the company borrowed $28.0 million primarily to fund acquisitions, share
repurchases, and internal growth.
Dividend payments totaled $12.9 million, or 31 cents per share, compared with
$13.3 million, or 30 cents per share, for the prior-year period. On January 6,
1999, the regular quarterly dividend rate was increased 3.2 percent to 32 cents
per share, or an annual calendar year rate of $1.28 per share.
Environmental Matters
See Note 6:Environmental Matters for a discussion of the company's environmental
issues.
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.
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Page 11
Management is addressing the Year 2000 Issue in four phases: awareness,
assessment, action plan, and plan implementation. At November 30, 1998, all
areas of the company had completed the first three phases and implementation of
the plan was approximately 80 percent complete. Management estimates that the
total cost to be incurred in connection with the Year 2000 Issue will range from
$3 million to $5 million, and substantially all major systems are expected to be
in compliance prior to the end of calendar year 1999. 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
November 30, 1998, the company had spent approximately $2.0 million on the Year
2000 Issue. The cost of the project is being funded through operating cash
flows.
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, a contingency plan is currently being developed to
address the potential for unforeseen issues that may arise. 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.
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 and environmental
issues; (b) statements made concerning management's expectations with respect to
the company's plan for strategic growth; and (c) statements made regarding
management's expectations with regard to projected capital expenditures and
future cash flows. In order to comply with the terms of the safe harbor, the
company notes that a variety of factors could cause the company's actual results
and experience to differ materially from the anticipated results or other
expectations expressed in the company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development, and
results of the company's business include without limitation the following: (a)
the uncertainty of general business and economic conditions, particularly the
potential for a slow down in non-residential construction awards; and (b) the
ability to achieve strategic initiatives, including but not limited to the
ability to achieve sales growth across the business segments through a
combination of increased pricing, enhanced sales force, new products, and
improved customer service, as well as share repurchases and acquisitions.
<PAGE>
Page 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On October 15, 1998 the company issued 26,495 unregistered shares of common
stock as payment of $845,000 to the sellers of Clearwater Linen & Uniform
Supply, Inc. as consideration for the acquisition. The company relied on Section
4(2) of the Securities Act of 1933 as its exemption from the registration
requirements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits are listed on the Index to Exhibits (page 14).
(b) There were no reports on Form 8-K for the three months ended November 30,
1998.
<PAGE>
Page 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL SERVICE INDUSTRIES, INC.
REGISTRANT
DATE January 13, 1999 /s/ David Levy
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE January 13, 1999 /s/ Brock Hattox
BROCK HATTOX
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
<PAGE>
Page 14
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Page No.
EXHIBIT 3 (a) Certificate of Amendment of Restated Certificate of Incorporation 15
(b) By-Laws as Amended and Restated June 21, 1989 and Amended March 24, 1998 and 17
January 6, 1999
EXHIBIT 10(iii)A (1) Incentive Stock Option Agreement for Executive Officers Effective Beginning 33
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
(2) Nonqualified Stock Option Agreement for Executive Officers Effective Beginning 40
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
(3) Aspiration Achievement Incentive Award Agreements between National Service 46
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]
(4) Amendment No. 3 to Benefits Protection Trust Agreement between National Service 57
Industries, Inc. and Wachovia Bank, N.A. (formerly Wachovia Bank and Trust
Company), Dated January 6, 1999.
(5) Amendment No. 2 to Executive Benefits Trust Agreement between National Service 63
Industries, Inc. and Wachovia Bank, N.A. (formerly Wachovia Bank and Trust
Company), Dated January 6, 1999.
EXHIBIT 12 Ratio of Earnings to Fixed Charges 69
EXHIBIT 27 Financial Data Schedule 70
</TABLE>
Page 15
Exhibit 3(a)
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "NATIONAL SERVICE INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE SIXTH DAY OF
JANUARY, A.D. 1999, AT 4 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEWCASTLE COUNTY
RECORDER OF DEEDS.
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
0241713 8100 AUTHENTICATION: 9507969
991005940 DATE: 01-07-99
<PAGE>
Page 16
Exhibit 3(a)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NATIONAL SERVICE INDUSTRIES, INC.
The undersigned, on behalf of National Service Industries, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. Article Fourth of the Restated Certificate of Incorporation of the
Corporation is hereby amended by striking out paragraphs (A) and (B) therefrom
and by substituting in lieu therefor the following new paragraphs (A) and (B):
(A) The total number of shares of stock which the Corporation
shall have authority to issue is 121,000,000.
(B) Of such stock, 120,000,000 shares shall be Common Stock of
the par value of $1.00 each, amounting in the aggregate to
$120,000,000.
2. Said amendment has been duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly signed by its Chairman of the Board, President, and Chief Executive Officer
and attested by its Secretary this 6th day of January, 1999.
(SEAL)
By: /s/ James S. Balloun
James S. Balloun, Chairman of the Board,
President, and Chief Executive Officer
ATTEST:
/s/ Helen D. Haines
Helen D. Haines, Secretary
Page 17
Exhibit 3(b)
NATIONAL SERVICE INDUSTRIES, INC.
BY - LAWS
(as amended and restated June 21, 1989
and amended March 24, 1998 and January 6, 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.
<PAGE>
Page 18
Exhibit 3(b)
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 signed by such stockholder or his attorney-in-fact
bearing a date not more than three 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. 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
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
<PAGE>
Page 19
Exhibit 3(b)
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
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
<PAGE>
Page 20
Exhibit 3(b)
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
business to be transacted at, nor the purpose of, a Special Meeting need be
specified in any written waiver of notice.
<PAGE>
Page 21
Exhibit 3(b)
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
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.
<PAGE>
Page 22
Exhibit 3(b)
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
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.
<PAGE>
Page 23
Exhibit 3(b)
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 on
the third Wednesday of March, June, September, and December, at 1:00 p.m. at the
office of the Corporation in the City of Atlanta, Georgia, unless the Secretary
or any Assistant Secretary shall have given notice to each director of some
other date, time or place for the meeting. 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
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
<PAGE>
Page 24
Exhibit 3(b)
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.
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
<PAGE>
Page 25
Exhibit 3(b)
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
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.
<PAGE>
Page 26
Exhibit 3(b)
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
Corporation Law, and shall perform such other duties as the Board of Directors
or the Chief Executive Officer may from time to time prescribe.
<PAGE>
Page 27
Exhibit 3(b)
(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
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
<PAGE>
Page 28
Exhibit 3(b)
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
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
<PAGE>
Page 29
Exhibit 3(b)
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
certificate may be issued.
6.6 Facsimile Signatures. Any or all of the signatures on a certificate
<PAGE>
Page 30
Exhibit 3(b)
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
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.
<PAGE>
Page 31
Exhibit 3(b)
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.
(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
<PAGE>
Page 32
Exhibit 3(b)
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.
* Paragraph 5.12(b), as amended March 24, 1998.
** Paragraph 6.4, as amended to add subsection (c) January 6, 1999.
Page 33
Exhibit 10(iii)A(1)
INCENTIVE STOCK OPTION AGREEMENT
FOR EXECUTIVE OFFICERS AND OPERATING UNIT PRESIDENTS
THIS AGREEMENT, made as of the 22nd day of September, 1998 (the "Grant
Date"), between National Service Industries, Inc., a Delaware corporation (the
"Company"), and [Name] (the "Optionee").
WHEREAS, the Company has adopted the National Service Industries, Inc.
Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional
incentive to certain officers and key employees of the Company and its
Subsidiaries; and
WHEREAS, the Optionee performs services for the Company or one of its
Subsidiaries; and
WHEREAS, the Committee responsible for administration of the Plan has
determined to grant the Option to the Optionee as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
1.1 The Company hereby grants to the Optionee the right and
option (the "Option") to purchase all or any part of an aggregate of [Amount]
whole Shares subject to, and in accordance with, the terms and conditions set
forth in this Agreement.
1.2 The Option is intended to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code and shall be so construed;
provided, however, that nothing in this Agreement shall be interpreted as a
representation, guarantee or other undertaking on the part of the Company that
the Option is or will be determined to be an Incentive Stock Option within the
meaning of Section 422 of the Code. To the extent this Option is not treated as
an Incentive Stock Option, it will be treated as a Nonqualified Stock Option.
1.3 This Agreement shall be construed in accordance and
consistent with, and subject to, the provisions of the Plan (the provisions of
which are incorporated herein by reference) and, except as otherwise expressly
set forth herein, the capitalized terms used in this Agreement shall have the
same definitions as set forth in the Plan.
2. Purchase Price.
The price at which the Optionee shall be entitled to
purchase Shares upon the exercise of the Option shall be $35.0625 per Share.
<PAGE>
Page 34
Exhibit 10(iii)A(1)
3. Duration of Option.
The Option shall be exercisable to the extent and in the
manner provided herein for a period of ten (10) years from the Grant Date (the
"Exercise Term"); provided, however, that the Option may be earlier terminated
as provided in Section 6 hereof.
4. Exercisability of Option.
Unless otherwise provided in this Agreement or the Plan, the
Option shall entitle the Optionee to purchase, in whole at any time or in part
from time to time, [Para]. Each such right of purchase shall be cumulative and
shall continue, unless sooner exercised or terminated as herein provided during
the remaining period of the Exercise Term.
5. Manner of Exercise and Payment.
5.1 Subject to the terms and conditions of this Agreement and
the Plan, the Option may be exercised by delivery of written notice to the
Company, at its principal executive office. Such notice shall state that the
Optionee is electing to exercise the Option and the number of Shares in respect
of which the Option is being exercised and shall be signed by the person or
persons exercising the Option. If requested by the Committee, such person or
persons shall (i) deliver this Agreement to the Secretary of the Company who
shall endorse thereon a notation of such exercise and (ii) provide satisfactory
proof as to the right of such person or persons to exercise the Option.
5.2 The notice of exercise described in Section 5.1 shall be
accompanied by the full purchase price for the Shares in respect of which the
Option is being exercised, in cash, by check or by transferring Shares to the
Company having a Fair Market Value on the day preceding the date of exercise
equal to the cash amount for which such Shares are substituted.
5.3 Upon receipt of notice of exercise and full payment for
the Shares in respect of which the Option is being exercised, the Company shall,
subject to Section 17 of the Plan, take such action as may be necessary to
effect the transfer to the Optionee of the number of Shares as to which such
exercise was effective.
5.4 The Optionee shall not be deemed to be the holder of, or
to have any of the rights of a holder with respect to any Shares subject to the
Option until (i) the Option shall have been exercised pursuant to the terms of
this Agreement and the Optionee shall have paid the full purchase price for the
number of Shares in respect of which the Option was exercised, (ii) the Company
shall have issued and delivered the Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company, whereupon the Optionee shall have full voting and other
ownership rights with respect to such Shares.
<PAGE>
Page 35
Exhibit 10(iii)A(1)
6. Termination of Employment.
6.1 In General.
If the employment of the Optionee with the Company
and its Subsidiaries shall terminate for any reason, other than for the reasons
set forth in Sections 6.2 and 7.2 below, the Option shall continue to be
exercisable (to the extent the Option was vested and exercisable on the date
of the Optionee's termination of employment) at any time within three (3) months
after the date of such termination of employment, but in no event after the
expiration of the Exercise Term.
6.2 Termination of Employment Due to Death, Disability or
Retirement.
If the Optionee's termination of employment is due to
Death, Disability or Retirement (termination on or after age 65), or if Optionee
terminates employment after age 55, the following shall apply:
(a) Termination Due To Death. In the event the Optionee dies while
actively employed, all vested Options at the date of death
shall remain exercisable at any time prior to the expiration
of the Exercise Term by (A) such person(s) that have acquired
the Optionee's rights under such Options by will or by the
laws of descent and distribution, or (B) if no such person
described in (A) exists, the Optionee's estate or
representative of the Optionee's estate. All Options that are
not vested as of the date of death shall be immediately
forfeited.
(b) Termination by Disability. In the event the employment of the
Optionee is terminated by reason of Disability, all vested
Options as of the date the Committee determines the Optionee
terminated for Disability shall remain exercisable at any time
prior to the expiration of the Exercise Term. All Options that
are not vested as of the date of termination for Disability
shall be immediately forfeited.
(c) Termination by Retirement. In the event the employment of the
Optionee is terminated by reason of Retirement, the Optionee's
Options shall continue to vest in accordance with the original
schedule (just as if the Optionee had remained employed) and
shall remain exercisable at any time prior to the expiration
of the lesser of five years or the remaining Exercise Term of
the Options. In the event of the Optionee's death after
Retirement, the Options shall continue to vest and be
exercisable in accordance with this subsection (c) as if the
Optionee had lived and the Options shall be exercisable by the
persons described in (a) above.
(d) Termination After Attaining Age 55. If the Optionee terminates
employment (other than as a result of death or Disability)
after attaining age 55 but prior to age 65, unless the
<PAGE>
Page 36
Exhibit 10(iii)A(1)
Committee determines otherwise at the time of such
termination, the Optionee's Options shall continue to vest in
accordance with the original schedule (just as if the Optionee
had remained employed) and shall remain exercisable at any
time prior to the expiration of the lesser of five years or
the remaining Exercise Term of the Options. In the event of
the Optionee's death after Retirement, the Options shall
continue to vest and be exercisable in accordance with this
subsection (d) as if the Optionee had lived and the Options
shall be exercisable by the persons described in (a) above.
7. Effect of Change in Control.
7.1 Notwithstanding anything contained to the contrary in this
Agreement, in the event of a Change in Control, (i) the Option shall become
immediately and fully exercisable, and (ii) the Optionee will be permitted to
surrender for cancellation within sixty (60) days after such Change in Control,
the Option or any portion of the Option to the extent not yet exercised, and the
Optionee shall be entitled to receive immediately a cash payment in an amount
equal to the excess, if any, of (A) the Fair Market Value, at the time of
surrender, of the Shares subject to the Option or portion thereof surrendered,
over (B) the aggregate purchase price for such Shares under the Option;
provided, however, that if the Option was granted within six (6) months prior to
the Change in Control and the Optionee may be subject to liability under Section
16(b) of the Exchange Act, the Optionee shall be entitled to surrender the
Option, or any portion of the Option, for cancellation during the sixty (60) day
period following the expiration of six (6) months from the Grant Date and to
receive the amount described above with respect to such surrender for
cancellation.
7.2 If the employment of the Optionee is terminated within two
(2) years following a Change in Control, all vested Options shall continue to be
exercisable at any time within three (3) years after the date of such
termination of employment, but in no event after expiration of the Exercise
Term.
8. Nontransferability.
The Option shall not be transferable other than by will or by
the laws of descent and distribution. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee.
9. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be interpreted or
construed to confer upon the Optionee any right with respect to continuance of
employment by the Company or a Subsidiary, nor shall this Agreement or the Plan
interfere in any way with the right of the Company or a Subsidiary to terminate
the Optionee's employment at any time.
<PAGE>
Page 37
Exhibit 10(iii)A(1)
10. Adjustments.
In the event of a Change in Capitalization, the Committee may
make appropriate adjustments to the number and class of Shares or other stock or
securities subject to the Option and the purchase price for such Shares or other
stock or securities. The Committee's adjustment shall be made in accordance with
the provisions of Section 11 of the Plan and shall be effective and final,
binding, and conclusive for all purposes of the Plan and this Agreement.
11. Terminating Events.
Subject to Section 7 hereof, upon the effective date of (i)
the liquidation or dissolution of the Company or (ii) a merger or consolidation
of the Company (a "Transaction"), the Option shall continue in effect in
accordance with its terms and the Optionee shall be entitled to receive in
respect of all Shares subject to the Option, upon exercise of the Option, the
same number and kind of stock, securities, cash, property, or other
consideration that each holder of Shares was entitled to receive in the
Transaction.
12. Withholding of Taxes and Notice of Disposition.
12.1 The Company shall have the right to deduct from any
distribution of cash to the Optionee an amount equal to the federal, state, and
local income taxes and other amounts as may be required by law to be withheld
(the "Withholding Taxes") with respect to the Option. If the Optionee is
entitled to receive Shares upon exercise of the Option, the Optionee shall pay
the Withholding Taxes (if any) to the Company in cash prior to the issuance of
such Shares. In satisfaction of the Withholding Taxes, the Optionee may make a
written election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the Shares issuable
to him or her upon exercise of the Option, having an aggregate Fair Market Value
equal to the withholding Taxes, provided that, if the Optionee may be subject to
liability under Section 16(b) of the Exchange Act, the election must comply with
the requirements applicable to Share transactions by such Optionees.
12.2 If the Optionee makes a disposition, within the meaning
of Section 424(c) of the Code and regulations promulgated thereunder, of any
Share or Shares issued to him pursuant to his exercise of the Option within the
two-year period commencing on the day after the Grant Date or within the
one-year period commencing on the day after the date of transfer of such Share
or Shares to the Optionee pursuant to such exercise, the Optionee shall, within
ten (10) days of such disposition, notify the Company thereof, by delivery of
written notice to the Company at its principal executive office, and immediately
deliver to the Company the amount of Withholding Taxes.
13. Employee Bound by the Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by all the terms and provisions thereof.
<PAGE>
Page 38
Exhibit 10(iii)A(1)
14. Modification of Agreement.
This Agreement may be modified, amended, suspended, or
terminated, and any terms or conditions may be waived, but only by a written
instrument executed by the parties hereto.
15. Severability.
Should any provision of this Agreement be held by a court of
competent jurisdiction to be unenforceable or invalid for any reason, the
remaining provisions of this Agreement shall not be affected by such holding and
shall continue in full force in accordance with their terms.
16. Governing Law.
The validity, interpretation, construction, and performance of
this Agreement shall be governed by the laws of the State of Delaware without
giving effect to the conflicts of laws principles thereof.
17. Successors in Interest.
This Agreement shall inure to the benefit of and be binding
upon each successor corporation. This Agreement shall inure to the benefit of
the Optionee's legal representatives. All obligations imposed upon the Optionee
and all rights granted to the Company under this Agreement shall be final,
binding, and conclusive upon the Optionee's heirs, executors, administrators,
and successors.
18. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a
result of, or in any way relate to, the interpretation, construction, or
application of this Agreement shall be determined by the Committee. Any
determination made hereunder shall be final, binding, and conclusive on the
Optionee and the Company for all purposes.
<PAGE>
Page 39
Exhibit 10(iii)A(1)
19. Shareholder Approval.
The effectiveness of this Agreement and of the grant of the
Option pursuant hereto is subject to the approval of the Plan by the
stockholders of the Company in accordance with the terms of the Plan.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
By:
Secretary James S. Balloun
Chairman, President, and
Chief Executive Officer
Name of Optionee: [Name]
Page 40
Exhibit 10(iii)A(2)
NONQUALIFIED STOCK OPTION AGREEMENT
FOR EXECUTIVE OFFICERS AND OPERATING UNIT PRESIDENTS
THIS AGREEMENT, made as of the 22nd day of September, 1998 (the "Grant
Date"), between National Service Industries, Inc., a Delaware corporation (the
"Company"), and [Name] (the "Optionee").
WHEREAS, the Company has adopted the National Service Industries, Inc.
Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional
incentive to certain officers and key employees of the Company and its
Subsidiaries; and
WHEREAS, the Optionee performs services for the Company and/or one of
its Subsidiaries; and
WHEREAS, the Committee responsible for administration of the Plan has
determined to grant the Option to the Optionee as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option.
1.1 The Company hereby grants to the Optionee the right and
option (the "Option") to purchase all or any part of an aggregate of [Amount]
whole Shares subject to, and in accordance with, the terms and conditions set
forth in this Agreement.
1.2 The Option is not intended to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
1.3 This Agreement shall be construed in accordance and
consistent with, and subject to, the provisions of the Plan (the provisions of
which are incorporated herein by reference) and, except as otherwise expressly
set forth herein, the capitalized terms used in this Agreement shall have the
same definitions as set forth in the Plan.
2. Purchase Price.
The price at which the Optionee shall be entitled to purchase
Shares upon the exercise of the Option shall be $35.0625 per Share.
3. Duration of Option.
The Option shall be exercisable to the extent and in the
manner provided herein for a period of ten (10) years from the Grant Date (the
"Exercise Term"); provided, however, that the Option may be earlier terminated
as provided in Section 6 hereof.
<PAGE>
Page 41
Exhibit 10(iii)A(2)
4. Exercisability of Option.
Unless otherwise provided in this Agreement or the Plan, the
Option shall entitle the Optionee to purchase, in whole at any time or in part
from time to time, [Para], and each such right of purchase shall be cumulative
and shall continue, unless sooner exercised or terminated as herein provided
during the remaining period of the Exercise Term.
5. Manner of Exercise and Payment.
5.1 Subject to the terms and conditions of this Agreement and
the Plan, the Option may be exercised by delivery of written notice to the
Company, at its principal executive office. Such notice shall state that the
Optionee is electing to exercise the Option and the number of Shares in respect
of which the Option is being exercised and shall be signed by the person or
persons exercising the Option. If requested by the Committee, such person or
persons shall (i) deliver this Agreement to the Secretary of the Company who
shall endorse thereon a notation of such exercise and (ii) provide satisfactory
proof as to the right of such person or persons to exercise the Option.
5.2 The notice of exercise described in Section 5.1 shall be
accompanied by the full purchase price for the Shares in respect of which the
Option is being exercised, in cash, by check, or by transferring Shares to the
Company having a Fair Market Value on the day preceding the date of exercise
equal to the cash amount for which such Shares are substituted.
5.3 Upon receipt of notice of exercise and full payment for
the Shares in respect of which the Option is being exercised, the Company shall,
subject to Section 17 of the Plan, take such action as may be necessary to
effect the transfer to the Optionee of the number of Shares as to which such
exercise was effective.
5.4 The Optionee shall not be deemed to be the holder of, or
to have any of the rights of a holder with respect to any Shares subject to the
Option until (i) the Option shall have been exercised pursuant to the terms of
this Agreement and the Optionee shall have paid the full purchase price for the
number of Shares in respect of which the Option was exercised, (ii) the Company
shall have issued and delivered the Shares to the Optionee, and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company, whereupon the Optionee shall have full voting and other
ownership rights with respect to such Shares.
6. Termination of Employment.
6.1 In General.
If the employment of the Optionee with the Company
and its Subsidiaries shall terminate for any reason, other than for the reasons
set forth in Sections 6.2 and 7.2 below, the Option shall continue to be
exercisable (to the extent the Option was vested and exercisable on the date
of the Optionee's termination of employment) at any time within three (3) months
after the date of such termination of employment, but in no event after the
expiration of the Exercise Term.
<PAGE>
Page 42
Exhibit 10(iii)A(2)
6.2 Termination of Employment Due to Death, Disability or
Retirement.
If the Optionee's termination of employment is due to
Death, Disability or Retirement (termination on or after age 65), or if Optionee
terminates employment after age 55, the following shall apply:
(a) Termination Due To Death. In the event the Optionee dies while
actively employed, all vested Options at the date of death
shall remain exercisable at any time prior to the expiration
of the Exercise Term by (A) a Permitted Transferee (as defined
in Section 8 below), if any, or such person(s) that have
acquired the Optionee's rights under such Options by will or
by the laws of descent and distribution, or (B) if no such
person described in (A) exists, the Optionee's estate or
representative of the Optionee's estate. All Options that are
not vested as of the date of death shall be immediately
forfeited.
(b) Termination by Disability. In the event the employment of the
Optionee is terminated by reason of Disability, all vested
Options as of the date the Committee determines the Optionee
terminated for Disability shall remain exercisable at any time
prior to the expiration of the Exercise Term. All Options that
are not vested as of the date of termination for Disability
shall be immediately forfeited.
(c) Termination by Retirement. In the event the employment of the
Optionee is terminated by reason of Retirement, the Optionee's
Options shall continue to vest in accordance with the original
schedule (just as if the Optionee had remained employed) and
shall remain exercisable at any time prior to the expiration
of the lesser of five years or the remaining Exercise Term of
the Options. In the event of the Optionee's death after
Retirement, the Options shall continue to vest and be
exercisable in accordance with this subsection (c) as if the
Optionee had lived and the Options shall be exercisable by the
persons described in (a) above.
(d) Termination After Attaining Age 55. If the Optionee terminates
employment (other than as a result of death or Disability)
after attaining age 55 but prior to age 65, unless the
Committee determines otherwise at the time of such
termination, the Optionee's Options shall continue to vest in
accordance with the original schedule (just as if the Optionee
had remained employed) and shall remain exercisable at any
time prior to the expiration of the lesser of five years or
the remaining Exercise Term of the Options. In the event of
the Optionee's death after Retirement, the Options shall
continue to vest and be exercisable in accordance with this
subsection (d) as if the Optionee had lived and the Options
shall be exercisable by the persons described in (a) above.
<PAGE>
Page 43
Exhibit 10(iii)A(2)
7. Effect of Change in Control.
7.1 Notwithstanding anything contained to the contrary in this
Agreement, in the event of a Change in Control, (i) the Option shall become
immediately and fully exercisable, and (ii) the Optionee will be permitted to
surrender for cancellation within sixty (60) days after such Change in Control,
the Option or any portion of the Option to the extent not yet exercised, and the
Optionee shall be entitled to receive immediately a cash payment in an amount
equal to the excess, if any, of (A) the greater of (x) the Fair Market Value on
the date preceding the date of surrender, of the shares subject to the Option or
portion of the Option surrendered, or (y) the Adjusted Fair Market Value of the
Shares subject to the Option or portion thereof surrendered, over (B) the
aggregate purchase price for such Shares under the Option; provided, however,
that if the Option was granted within six (6) months prior to the Change in
Control and the Optionee may be subject to liability under Section 16(b) of the
Exchange Act, the Optionee shall be entitled to surrender the Option, or any
portion of the Option, for cancellation during the sixty (60) day period
following the expiration of six (6) months from the Grant Date and to receive
the amount described above with respect to such surrender for cancellation.
7.2 If the employment of the Optionee is terminated within two
(2) years following a Change in Control, all vested Options shall continue to be
exercisable at any time within three (3) years after the date of such
termination of employment, but in no event after expiration of the Exercise
Term.
8. Nontransferability.
The Option shall not be transferable other than by will or by
the laws of descent and distribution. Notwithstanding the foregoing, the Option
may be transferred, in whole or in part, without consideration, by written
instrument signed by the Optionee, to any members of the immediate family of the
Optionee (i.e., spouse, children, and grandchildren), any trusts for the benefit
of such family members or any partnerships whose only partners are such family
members (the "Permitted Transferees"). Appropriate evidence of any such transfer
to the Permitted Transferees shall be delivered to the Company at its principal
executive office. If all or part of the Option is transferred to a Permitted
Transferee, the Permitted Transferee's rights hereunder shall be subject to the
same restrictions and limitations with respect to the Option as the Optionee.
During the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee, or if applicable, by the Permitted Transferees.
9. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be interpreted or
construed to confer upon the Optionee any right with respect to continuance of
employment by the Company or a Subsidiary, nor shall this Agreement or the Plan
interfere in any way with the right of the Company or a Subsidiary to terminate
the Optionee's employment at any time.
<PAGE>
Page 44
Exhibit 10(iii)A(2)
10. Adjustments.
In the event of a Change in Capitalization, the Committee may
make appropriate adjustments to the number and class of Shares or other stock or
securities subject to the Option and the purchase price for such Shares or other
stock or securities. The Committee's adjustment shall be made in accordance with
the provisions of Section 11 of the Plan and shall be effective and final,
binding, and conclusive for all purposes of the Plan and this Agreement.
11. Terminating Events.
Subject to Section 7 hereof, upon the effective date of (i)
the liquidation or dissolution of the Company or (ii) a merger or consolidation
of the Company (a "Transaction"), the Option shall continue in effect in
accordance with its terms and the Optionee shall be entitled to receive in
respect of all Shares subject to the Option, upon exercise of the Option, the
same number and kind of stock, securities, cash, property, or other
consideration that each holder of Shares was entitled to receive in the
Transaction.
12. Withholding of Taxes.
The Company shall have the right to deduct from any
distribution of cash to the Optionee an amount equal to the federal, state, and
local income taxes and other amounts as may be required by law to be withheld
(the "Withholding Taxes") with respect to the Option. If the Optionee is
entitled to receive Shares upon exercise of the Option, the Optionee shall pay
the Withholding Taxes to the Company in cash prior to the issuance of such
Shares. In satisfaction of the Withholding Taxes, the Optionee may make a
written election (the "Tax Election"), which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the Shares issuable
to him or her upon exercise of the Option, having an aggregate Fair Market Value
equal to the withholding Taxes, provided that, if the Optionee may be subject to
liability under Section 16(b) of the Exchange Act, the election must comply with
the requirements applicable to Share transactions by such Optionees.
13. Employee Bound by the Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by all the terms and provisions thereof.
14. Modification of Agreement.
This Agreement may be modified, amended, suspended, or
terminated, and any terms or conditions may be waived, but only by a written
instrument executed by the parties hereto.
<PAGE>
Page 45
Exhibit 10(iii)A(2)
15. Severability.
Should any provision of this Agreement be held by a court of
competent jurisdiction to be unenforceable or invalid for any reason, the
remaining provisions of this Agreement shall not be affected by such holding and
shall continue in full force in accordance with their terms.
16. Governing Law.
The validity, interpretation, construction, and performance of
this Agreement shall be governed by the laws of the State of Delaware without
giving effect to the conflicts of laws principles thereof.
17. Successors in Interest.
This Agreement shall inure to the benefit of and be binding
upon each successor corporation. This Agreement shall inure to the benefit of
the Optionee's legal representatives. All obligations imposed upon the Optionee
and all rights granted to the Company under this Agreement shall be final,
binding, and conclusive upon the Optionee's heirs, executors, Permitted
Transferees, administrators, and successors.
18. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a
result of, or in any way relate to, the interpretation, construction, or
application of this Agreement shall be determined by the Committee. Any
determination made hereunder shall be final, binding, and conclusive on the
Optionee and the Company for all purposes.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
By:
Secretary James S. Balloun
Chairman, President, and
Chief Executive Officer
Name of Optionee:[Name]
Page 46
Exhibit 10(iii)A(3)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT
FOR EXECUTIVE OFFICERS
THIS AGREEMENT, made as of the 22nd day of September, 1998 (the "Grant
Date"), between NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation
("NSI"), and NSI SERVICES, L.P. (GA), a Subsidiary of NSI (together, the
"Company"), and [Grantee] (the "Grantee").
WHEREAS, NSI has adopted the National Service Industries, Inc.
Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional
incentives to certain officers and key employees of NSI and its Subsidiaries;
and
WHEREAS, the Committee responsible for administration of the Plan has
determined to grant to the Grantee an Aspiration Achievement Incentive Award as
provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Aspiration Award.
1.1 The Company hereby grants to the Grantee an Aspiration
Achievement Incentive Award (the "Award"), which has a value determined as
provided in Section 2 below based upon the performance of the Operations during
the Performance Cycle from September 1, 1998 to August 31, 2001. 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(3)
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 accordance with Section 7(c) of the Plan, the performance level of
NSI with respect to the Performance Measure for the Performance Cycle. The
Committee may in determining the performance level with respect to the
Performance Measure adjust NSI's financial results for the Performance Cycle to
exclude the effect of unusual charges or income items which are distortive of
financial results for the Performance Cycle; provided, that, in determining
financial results, items whose exclusion from consideration will increase the
performance level of NSI shall only have their effects excluded if they
constitute "extraordinary items" under generally accepted accounting principles
and all such items shall be excluded. The Committee shall also adjust the
performance calculations to exclude the unanticipated effect on financial
results of changes in the Code, or other tax laws, and the regulations
thereunder. The Committee shall also exclude from consideration the effect on
financial performance of each of the following events or items where the result
of excluding the particular event or item is to increase the performance level
of NSI: (i) an acquisition or a divestiture involving more than $10 million in
net worth or $25 million in business revenues; (ii) an equity restructuring
involving more than $1 million; (iii) asset impairment charges involving more
than $1 million and restructuring costs involving more than $1 million
associated with facility closings or reduction in employment levels; (iv)
changes in accounting treatment or rules involving more than $1 million. The
Committee may decrease the amount of the Award otherwise payable to Grantee if,
in the Committee's view, such adjustment is necessary or desirable, regardless
of the extent to which the Performance Measure has been achieved. The Committee
may establish such guidelines and procedures for reducing the amount of an Award
as it deems appropriate.
The Company will notify the Grantee (or the executors or
administrators of the Grantee's estate, if applicable) of the Committee's
determination (the "Determination Notice"). The Determination Notice shall
specify the performance level of the Operations with respect to the Performance
Measure for the Performance Cycle and the amount of Award (if any) Grantee will
be entitled to receive. Unless the Committee determines otherwise at the
time the Award is paid and except as otherwise provided in the event of a
Change in Control, the amount Grantee is entitled to receive will be paid
one-half in cash and one-half in Shares. The Shares will be valued at their Fair
<PAGE>
Page 48
Exhibit 10(iii)A(3)
Market Value as of the last day of the Performance Cycle. Except in the case of
a Change in Control, the Committee may, in its discretion, attach restrictions,
terms, and conditions to the Shares issued as part of the Award.
3.2 Significant Corporate Events. If, during a Performance
Cycle, NSI consummates an acquisition or disposition that (i) involves assets
whose value equals or exceeds 20% of the total value of NSI's assets, (ii)
represents a part of the business whose revenues equal or exceed 20% of the
total of NSI's revenues, or (iii) causes a material restructuring of NSI, the
following rules shall apply:
(a) If the transaction is consummated during the
first year of the Performance Cycle, the Performance Cycle and the Grantee's
outstanding Award will be terminated with no payout and a new Performance Cycle
containing a new Award will be started.
(b) If the transaction is consummated after the first
year of the Performance Cycle, the Performance
Cycle will end and the outstanding Award will be determined and paid at NSI's
actual performance level to such date, taking into account the adjustments
provided for in Section 3.1 above and using prorated performance levels of the
Performance Measure to reflect the portion of the Performance Cycle that had
elapsed as of the date of consummation of the acquisition or disposition.
Payment of the Award will be made as soon as practical after it is determined. A
new Performance Cycle will be started to cover the period remaining in the
initial Performance Cycle or, if that result is not practical, the Committee
will make an appropriate adjustment to reflect the premature termination of the
initial Performance Cycle.
If, during a Performance Cycle, NSI consummates an
acquisition or disposition that is not covered by the special provisions of
this Section 3.2, the financial effects of such acquisition or disposition
shall be handled as provided in Section 3.1.
Any actions under this Section 3.2 shall be taken in
accordance with the requirements of Code Section
162(m) and the regulations thereunder.
4. Termination of Employment.
4.1 In General. Except as provided in Sections 4.2, 4.3, and
4.4 below, in the event that the 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 the 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
<PAGE>
Page 49
Exhibit 10(iii)A(3)
length of the Performance Cycle; provided, that payment shall only be made to
the extent at the end of the Performance Cycle the Award would have been earned
based upon the performance level achieved for the Performance Cycle (taking into
account the adjustment provisions and other rules in Section 3 above); and
provided, further, that the performance level used to determine the prorated
award cannot exceed 200% of the Commitment performance level.
In the event of Grantee's Retirement (on or after age
65), the full Award shall continue to be eligible for payout at the end of the
Performance Cycle, just as if Grantee had remained employed for the remainder
of the Performance Cycle (including if the Grantee dies after Retirement but
before the end of the Performance Cycle). At the end of the Performance Cycle,
the Committee shall make its determination in the same manner as provided in
Section 3.
Payment of earned Awards to Grantee in the event of
termination due to death, Disability, or Retirement shall be made at the same
time payments would be made to Grantee if Grantee did not terminate employment
during the Performance Cycle.
4.3 Change In Control. Notwithstanding anything in this
Agreement to the contrary, if a Change in Control occurs during the Performance
Cycle, then the Grantee's Award shall be determined for the Performance Cycle
then in progress as though the Performance Cycle had ended as of the date of the
Change in Control and the outstanding Award will be paid at the Commitment Level
Award or the actual performance level to such date (using, for such purpose,
prorated performance levels of the Performance Measure to reflect the portion of
the Performance Cycle that has elapsed as of the date of the Change in Control),
whichever provides the greater payment. The Award determined in accordance with
the preceding sentence shall be fully vested and payable immediately to the
Grantee. The Committee shall determine the amount of the Award under this
Section 4.3, subject to the terms of this section, and no downward adjustment of
the Award which would result in reduction of the Award by more than 50% shall be
permitted. The Award will be paid in full in cash, unless the Grantee elects to
receive one-half of the Award in Shares. For purposes of determining the number
of Shares to be paid to the Grantee under this Section 4.3, the Fair Market
Value of a Share shall be determined by taking the average closing price per
share for the last twenty (20) trading days prior to the commencement of the
offer, transaction, or other event which resulted in a Change in Control.
4.4 Termination Without Cause. In the event Grantee's
employment is terminated by the Company without Cause more than one (1) year
after the commencement of the Performance Cycle and prior to the end of the
Performance Cycle, the Grantee shall be entitled to a prorated payout of the
Award based upon the length of time that the Grantee was actively employed
during the Performance Cycle relative to the full length of the Performance
Cycle; provided, that payment shall be made only to the extent at the end of the
Performance Cycle the Award would have been earned based upon the performance
<PAGE>
Page 50
Exhibit 10(iii)A(3)
level achieved during the Performance Cycle (taking into account the adjustment
provisions and other rules in Section 3 above); and provided, further, that the
performance level used to determine the prorated award cannot exceed 200% of the
Commitment performance level. Payment shall be made to Grantee at the same time
as if Grantee had not terminated employment during the Performance Cycle.
5. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be interpreted to
confer upon the Grantee any rights with respect to continuance of employment by
the Company, nor shall this Agreement or the Plan interfere in any way with the
right of the Company to terminate the Grantee's employment at any time.
6. Nonassignment.
The Grantee shall not have the right to assign, alienate,
pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt
to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits
shall be null and void and not recognized by the Plan or the Company.
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.
<PAGE>
Page 51
Exhibit 10(iii)A(3)
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.
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, President and
Chief Executive Officer
NSI SERVICES, L.P. (GA), Subsidiary
By:
JAMES S. BALLOUN
Chairman, President and
Chief Executive Officer
Name of Grantee: [Grantee]
<PAGE>
Page 52
Exhibit 10(iii)A(3)
Appendix A(1)
Aspiration Award Program Illustration - FY 1999-2001
Name: James S. Balloun Division: Corporate
Position: Chairman & Chief Executive Officer
Salary: $800,000
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $100,000 $400,000 $2,000,000
Aspiration Award Program Opportunity
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 100,000
Commitment** $ 400,000
Aspiration** $2,000,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 53
Exhibit 10(iii)A(3)
Appendix A(2)
Aspiration Award Program Illustration - FY 1999-2001
Name: Brock A. Hattox Division: Corporate
Position: EVP, Chief Financial Officer
Salary: $380,000
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $45,600 $182,400 $912,000
Aspiration Award Program Opportunity
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 45,600
Commitment** $182,400
Aspiration** $912,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 54
Exhibit 10(iii)A(3)
Appendix A(3)
Aspiration Award Program Illustration - FY 1999-2001
Name: David Levy Division: Corporate
Position: EVP, Administration & Counsel
Salary: $365,000
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $43,800 $175,200 $876,000
Aspiration Award Program Opportunity
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 43,800
Commitment** $175,200
Aspiration** $876,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 55
Exhibit 10(iii)A(3)
Appendix A(4)
Aspiration Award Program Illustration - FY 1999-2001
Name: Stewart A. Searle Division: Corporate
Position: SVP, Corporate Development
Salary: $240,000
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $28,800 $115,200 $576,000
Aspiration Award Program Opportunity
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 28,800
Commitment** $115,200
Aspiration** $576,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 56
Exhibit 10(iii)A(3)
Appendix B
Aspiration Achievement
Incentive Award
Performance Measure
PERFORMANCE MEASURE DEFINITION
Economic Profit Sum of the annual economic profits for the performance
cycle. Annual economic profit shall be determined as
follows: Adjusted After-Tax Profits (AATP) minus
[Average Invested Capital times the Weighted Average
Cost of Capital (WACC)]
RELATED TERMS DEFINITION
Average Invested Capital
Average of the average beginning and ending Invested
Capital balances each month.
Adjusted After-Tax
Profit (AATP) Adjusted Pre-Tax Profit minus Book Income Taxes.
Adjusted Pre-Tax
Profit (APTP)
Income before provision for income taxes plus interest
expense plus implied interest on capitalized operating
leases.
Book Income Taxes Reported tax rate (determined by dividing the
provision for income taxes by the income before the
provision for income taxes, as reported in NSI's
annual financial statements) applied to APTP.
Invested Capital [Total assets plus capitalized operating leases, less
short and long-term investment in tax benefits] less
[non-interest bearing liabilities except for self
insurance reserves and deferred tax credits relating
to the safe harbor lease].
Weighted Average
Cost of Capital (WACC) Ten percent(10%) will be the WACC for the Performance
Cycle ending August 31, 2001.
Page 57
Exhibit 10(iii)A(4)
AMENDMENT NO. 3
TO
NATIONAL SERVICE INDUSTRIES, INC.
BENEFITS PROTECTION TRUST
This Amendment made and entered into as of this 6th day of January,
1999, by and between National Service Industries, Inc., a Delaware Corporation
(the "Company"), and Wachovia Bank, N.A. (formerly Wachovia Bank and Trust
Company), as Trustee (the "Trustee");
W - I - T - N - E - S - S - E - T - H:
WHEREAS, the Company previously established a trust arrangement known
as the National Service Industries, Inc. Benefits Protection Trust (the "Trust")
in order to ensure that, in the event of Change in Control of the Company,
designated participants and their beneficiaries receive the benefits which the
Company and its Affiliates are obligated to provide pursuant to various
executive compensation arrangements (collectively, the "Plans"); and
WHEREAS, the Company now desires to amend the Trust in a number of
respects;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1.
Section 3.4 is hereby amended by deleting the present provision in its
entirety and substituting the following in lieu thereof:
"3.4 Upon the occurrence of a Threatened Change in Control or
a Change in Control, the Company shall contribute to the Trustee
Expense Account sufficient cash (i) to provide for the Litigation (as
defined in Section 9.3 of Article 9) expenses of all Plaintiffs as
determined by the Trustee, and (ii) to pay the expenses of operating
this Trust for twelve (12) months. If the Company fails to deposit the
amount in the Trust required by this Section 3.4 within five (5) days
of the occurrence of a Threatened Change in Control or a Change in
Control, the Trustee shall commence legal action as provided in Section
9.5."
2.
Section 4.2 is hereby amended by designating the first paragraph of the
present section as subparagraph (a), by deleting the second paragraph of the
present section in its entirety, and by adding the following new subparagraph
(b) in Section 4.2:
<PAGE>
Page 58
Exhibit 10(iii)A(4)
"(b) Immediately upon the occurrence of a Threatened Change in
Control or a Change in Control, the Company shall contribute sufficient
cash to the Benefit Account (i) to pay all payments and benefits to
which Participants would be entitled (whether payable currently or on a
deferred basis) pursuant to the terms of the Plans as of the date of
the Threatened Change in Control or Change in Control and (ii) to pay
the additional payments and benefits that would be due Participants
under the Plans assuming the Participants' employment was terminated
involuntarily by the Company without cause immediately following the
date on which the Threatened Change in Control or Change in Control
occurred. The amount the Company shall contribute to the Trust pursuant
to this subparagraph (b) shall be determined by the Trustee in its
discretion. If the Company fails to contribute the amount to the Trust
required by this subparagraph (b) within five (5) days of the
occurrence of the Threatened Change in Control or Change in Control,
the Trustee shall commence legal action as provided in Section 9.5.
During a Threatened Change in Control Period or after
the occurrence of a Change in Control, if the Trustee determines that
the funds in the Benefit Account are insufficient to fully pay all
payments and benefits in (b)(i) and (ii) above under the Plans, the
Trustee shall make written demand on the Company to provide funds in an
amount determined by the Trustee in its discretion. If the Company
fails to contribute this additional amount to the Trust within five (5)
days of receipt of the Trustee's written demand, the Trustee shall
commence legal action as provided in Section 9.5."
3.
Section 4.3 is hereby amended by deleting the present section in its
entirety and substituting the following in lieu thereof:
"4.3(a) In addition to the cash and/or other property
delivered to, and deposited with, the Trustee pursuant to Article 3 and
Sections 4.1 and 4.2, the Company may deliver to the Trustee one or
more letters of credit (referred to hereinafter as the "Letter(s) of
Credit") which shall (i) be irrevocable for a period of at least 364
days, (ii) be renewable by the Company on substantially the same terms
and conditions at the end of such period unless the issuer provides to
the Company and the Trustee not less than 90 calendar days' written
notice prior to the expiration date that any Letter(s) of Credit will
not be renewed, and (iii) name the Trustee as beneficiary. A Letter of
Credit shall enable the Trustee to draw directly from the issuer of
such Letter of Credit, immediately upon notice and without any other
requirement, an amount equal to the excess of 100% of the amount the
Trustee has demanded the Company contribute to the Trust pursuant to
Article 3 and Sections 4.1 and 4.2, as determined by the Trustee, over
the value of all other assets of the Trust, subject, however, to the
maximum amount of the Letters of Credit.
(b) The Trustee shall draw on each Letter of Credit held by it
to the full extent thereof no later than three (3) business days
following the failure by the Company to contribute to the Trust the
amounts demanded by the Trustee pursuant to Article 3 and Sections 4.1
and 4.2.
<PAGE>
Page 59
Exhibit 10(iii)A(4)
(c) If the Trustee receives written notice from an issuer
referencing a Letter of Credit by number which is signed by an officer
of the issuer of such Letter of Credit, that such Letter of Credit will
not be renewed on substantially the same terms and conditions, then the
Trustee shall notify the Company in writing that it has received such
notice.
(d) Notwithstanding (a) above, the Trustee shall not draw on
any Letter of Credit pursuant to subparagraph (a), to the extent that
the Company has deposited in the Trust 100% of the amount the Trustee
has demanded the Company to contribute to the Trust pursuant to Article
3 and Sections 4.1 and 4.2, as determined by the Trustee."
4.
Article 7 is hereby amended by redesignating the current Section 7.5 as
Section 7.6 and adding the following new Section 7.5:
"7.5 To draw upon any Letter of Credit provided pursuant
to Section 4.3 and to make demand upon the issuer of any Letter of
Credit to pay amounts directly to the Trust."
5.
Section 9.4 is hereby amended by deleting the present section in its
entirety and substituting the following in lieu thereof:
"9.4 After a Change in Control, the Trustee shall bill the
Company directly, on a monthly basis, for all fees and expenses
described in Section 10.2. The Trustee may commence legal action
against the Company to recover any amount not paid within thirty (30)
days of the billing date. If the Company's failure to pay causes a
reduction in the assets of the Trustee Expense Account contributed
pursuant to Article 3 such that the Trustee Expense Account is
insufficient to pay for all expenses that may be incurred in connection
with the Litigation, the Trustee shall commence legal action as
provided in Section 9.5."
6.
Section 9.5 is hereby amended by deleting the present section in its
entirety and substituting the following in lieu thereof:
"9.5 Upon the occurrence of a Threatened Change in Control or
after a Change in Control, if the Company fails to transfer to, and
deposit in, the Trust the amounts required by Sections 3.4, 4.2 and
9.4, (i) within five (5) days of the demand by the Trustee, the Trustee
shall commence legal action to compel the Company to pay such amounts
to the Trust and (ii) the Company shall be required to contribute
within 10 days of commencement of such action an additional amount to
the Trust to pay for the costs and expenses, including legal fees, of
such action. The Trustee shall have the power and authority to hire
legal counsel of its choice to pursue such legal action against the
Company and the costs of such legal counsel shall be paid from the
Trust."
<PAGE>
Page 60
Exhibit 10(iii)A(4)
7.
Article 12 is hereby amended by adding the following new Section 12.3.
"12.3 Nothing in this Article 12 shall require the Company to
indemnify the Trustee with respect to any Letter of Credit (as
described in Section 4.3) which the Trustee or any affiliate may issue
in its commercial capacity, nor may any assets of the Trust be used to
repay the Trustee or any affiliate for amounts the Trustee or any
affiliate may pay pursuant to any Letter of Credit."
8.
Article 13 is hereby amended by adding the following sentence to the
end of the present Article:
"The provisions of this Article 13 shall not limit in any way
the obligations and responsibilities of the Trustee or any affiliate
pursuant to a Letter of Credit (as described in Section 4.3) and the
rights of the Trustee to draw upon any Letter of Credit issued by the
Trustee or any affiliate shall be as provided in such Letter of
Credit."
9.
Section 15.4 is hereby amended by deleting the present provision in its
entirety and substituting the following in lieu thereof:
"15.4 Until written notice is given to the contrary,
communications to the Trustee shall be sent to it at its office at 301
N. Main Street, P.O. Box 3099, Winston-Salem, North Carolina 27150,
Attention: Mr. John N. Smith, facsimile 336-770-4059, copy to Mr. Joe
Long, Trust Counsel (or such other individuals as delegated in writing
by Messrs. Smith or Long); communications to the Company shall be sent
to it at its office at 1420 Peachtree Street, N.E., Atlanta, Georgia,
Attention: David Levy, facsimile 404-853-1015, with a copy to William
J. Vesely, Jr., Kilpatrick Stockton LLP, facsimile 404-815-6555."
10.
Section 17.3 is hereby amended by adding the following after the word
"thereto" in the fourth line of the present section:
", including all rights under any Letters of Credit,"
<PAGE>
Page 61
Exhibit 10(iii)A(4)
11.
Schedule 1 is hereby amended by substituting a revised Schedule 1,
dated January 6, 1999, which is attached hereto and made a part hereof.
12.
The within and foregoing amendments to the Trust shall be effective as
of January 6, 1999. Except as hereby modified, the Trust shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
3 as of the day and year first written above.
NATIONAL SERVICE INDUSTRIES, INC.
By/s/ James S. Balloun
James S. Balloun
Chairman, President and
Chief Executive Officer
WACHOVIA BANK N.A., AS TRUSTEE
By /s/Jane B. Fisher
Name: Jane B. Fisher
Title: Senior Vice President
<PAGE>
Page 62
Exhibit 10(iii)A(4)
The undersigned Affiliates of the Corporation hereby consent to, and
agree to be bound by, this Amendment No. 3 to the Trust.
This the 6th day of January, 1999.
NATIONAL SERVICE INDUSTRIES, INC.
(Georgia)
By /s/ James S. Balloun
James S. Balloun, President
NSI ENTERPRISES, INC.
By /s/ James S. Balloun
James S. Balloun, President
ZEP MANUFACTURING COMPANY
By /s/ Glen D. Reed
Glen D. Reed, President
NSI SERVICES, L.P.
By /s/ James S. Balloun
James S. Balloun, President
Page 63
Exhibit 10(iii)A(5)
AMENDMENT NO. 2
TO
NATIONAL SERVICE INDUSTRIES, INC.
EXECUTIVE BENEFITS TRUST
This Amendment made and entered into as of this 6th day of January,
1999, by and between National Service Industries, Inc., a Delaware Corporation
(the "Company"), and Wachovia Bank, N.A. (formerly Wachovia Bank and Trust
Company), as Trustee (the "Trustee");
W - I - T - N - E - S - S - E - T - H:
WHEREAS, the Company previously established a trust arrangement known
as the National Service Industries, Inc. Executive Benefits Trust (the "Trust")
in order to ensure that, in the event of Change in Control of the Company,
designated participants and their beneficiaries receive the benefits which the
Company and its Affiliates are obligated to provide pursuant to various
executive compensation arrangements (collectively, the "Plans"); and
WHEREAS, the Company now desires to amend the Trust in a number of
respects;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1.
Section 2.4 is hereby amended by adding the following after the word
"securities" in the third line of the present section:
", and all rights under any Letters of Credit,"
2.
Section 3.2 is hereby amended by adding the following to the end of the
present section:
"If the Company fails to deposit the amount in the Trust
required by this Section 3.2 within fifteen (15) days of the Trustee's
written demand, the Trustee shall commence legal action as provided in
Section 9.4."
<PAGE>
Page 64
Exhibit 10(iii)A(5)
3.
Section 4.1 is hereby amended by deleting the present section in its
entirety, and by substituting the following in lieu thereof:
"4.1 Immediately upon the occurrence of a Change in Control,
the Company shall contribute sufficient cash or marketable securities
to the Benefit Account in an amount equal to the difference between the
assets transferred to this Trust pursuant to the Transfer and the
amount necessary (i) to pay all payments and benefits to which
Participants would be entitled (whether payable currently or on a
deferred basis) pursuant to the terms of the Transferred Plans as of
the date of the Change in Control and (ii) to pay the additional
payments and benefits that would be due Participants under the
Transferred Plans assuming the Participants' employment were terminated
involuntarily by the Company without cause immediately following the
date on which the Change in Control occurred. The amount the Company
shall contribute to the Trust pursuant to this Section 4.1 shall be
determined by the Trustee in its discretion. If the Company fails to
contribute the amount to the Trust required by this Section 4.1 within
five (5) days of the occurrence of the Change in Control, the Trustee
shall commence legal action as provided in Section 9.4. Upon a Change
in Control, this Trustee will have possession and control of the assets
transferred (together with any other assets) of this Trust and all of
the income therefrom to hold, administer and dispose of the same on the
terms and conditions set forth herein on behalf of the Participants and
their beneficiaries."
4.
Section 4.3 is hereby amended by deleting the present section in its
entirety and substituting the following in lieu thereof:
"4.3 After the occurrence of a Change in Control, if the
Trustee determines that the funds in the Benefit Account (including any
Sub-Account) are insufficient to fully pay all benefits under the
Transferred Plans as described in Section 4.1 and any taxes imposed or
levied with respect to the assets and/or income of this Trust, as
provided under Section 10.1 of Article 10, the Trustee with respect to
the Benefit Account shall, and with respect to any Sub-Account may,
make a written demand on the Company to provide funds in an amount
determined at least quarterly by the Trustee in its discretion. The
Company shall transfer such funds within fifteen (15) days from the
time the written demand is mailed. If the Trustee fails to deposit the
amounts in the Trust required by this Section 4.3 within fifteen (15)
days of the Trustee's written demand, the Trustee shall commence legal
action as provided in Section 9.4."
<PAGE>
Page 65
Exhibit 10(iii)A(5)
5.
Article 4 is hereby amended by adding the following new Section 4.4 to
the present Article:
"4.4(a) In addition to the cash and/or other property
delivered to, and deposited with, the Trustee pursuant to Article 3 and
Sections 4.1, 4.2 and 4.3, the Company may deliver to the Trustee one
or more letters of credit (referred to hereinafter as the "Letter(s) of
Credit") which shall (i) be irrevocable for a period of at least 364
days, (ii) be renewable by the Company on substantially the same terms
and conditions at the end of such period unless the issuer provides to
the Company and the Trustee not less than 90 calendar days' written
notice prior to the expiration date that any Letter(s) of Credit will
not be renewed, and (iii) name the Trustee as beneficiary. A Letter of
Credit shall enable the Trustee to draw directly from the issuer of
such Letter of Credit, immediately upon notice and without any other
requirement, an amount equal to the excess of 100% of the amount the
Trustee has demanded the Company contribute to the Trust pursuant to
Article 3 and Sections 4.1, 4.2 and 4.3, as determined by the Trustee,
over the value of all other assets of the Trust, subject, however, to
the maximum amount of the Letters of Credit.
(b) The Trustee shall draw on each Letter of Credit held by it
to the full extent thereof no later than three (3) business days
following the failure by the Company to contribute to the Trust the
amounts demanded by the Trustee pursuant to Article 3 and Sections 4.1,
4.2 and 4.3.
(c) If the Trustee receives written notice from an issuer
referencing a Letter of Credit by number which is signed by an officer
of the issuer of such Letter of Credit, that such Letter of Credit will
not be renewed on substantially the same terms and conditions, then the
Trustee shall notify the Company in writing that it has received such
notice.
(d) Notwithstanding (a) above, the Trustee shall not draw on
any Letter of Credit pursuant to subparagraph (a), to the extent that
the Company has deposited in the Trust 100% of the amount the Trustee
has demanded the Company to contribute to the Trust pursuant to Article
3 and Sections 4.1, 4.2 and 4.3, as determined by the Trustee."
6.
Article 7 is hereby amended by redesignating the current Section 7.8
as Section 7.9 and adding the following new Section 7.8:
"7.8 To draw upon any Letter of Credit provided pursuant
to Section 4.4 and to make demand upon the issuer of any Letter of Credit to pay
amounts directly to the Trust."
<PAGE>
Page 66
Exhibit 10(iii)A(5)
7.
Section 9.3 is hereby amended by deleting the present section in its
entirety and substituting the following in lieu thereof:
"9.3 After a Change in Control, the Trustee shall bill the
Company directly, on a monthly basis, for all fees and expenses
described in Section 10.2. If the Company fails to pay such amounts
within thirty (30) days, the Trustee shall commence legal action as
provided in Section 9.4."
8.
Section 9.4 is hereby amended by deleting the present section in its
entirety and substituting the following in lieu thereof:
"9.4 After a Change in Control, if the Company fails to
transfer to, and deposit in, the Trust the amounts required by Articles
3 and 4, and Sections 9.3 and 10.1, within the time period demanded by
the Trustee, the Trustee shall commence legal action to compel the
Company to pay such amounts to the Trust, and (ii) the Company shall be
required to contribute within 10 days of commencement of such action an
additional amount to the Trust to pay for the costs and expenses,
including legal fees, of such action. The Trustee shall have the power
and authority to hire legal counsel of its choice to pursue such legal
action against the Company and the costs of such legal counsel shall be
paid from the Trust."
9.
Article 12 is hereby amended by adding the following new Section 12.3.
"12.3 Nothing in this Article 12 shall require the Company to
indemnify the Trustee with respect to any Letter of Credit (as
described in Section 4.4) which the Trustee or any affiliate may issue
in its commercial capacity, nor may any assets of the Trust be used to
repay the Trustee or any affiliate for amounts the Trustee or any
affiliate may pay pursuant to any Letter of Credit."
10.
Article 13 is hereby amended by adding the following sentence to the
end of the present Article:
"The provisions of this Article 13 shall not limit in any way
the obligations and responsibilities of the Trustee or any affiliate
pursuant to a Letter of Credit (as described in Section 4.4) and the
rights of the Trustee to draw upon any Letter of Credit issued by the
Trustee or any affiliate shall be as provided in such Letter of
Credit."
<PAGE>
Page 67
Exhibit 10(iii)A(5)
11.
Section 15.4 is hereby amended by deleting the present provision in its
entirety and substituting the following in lieu thereof:
"15.4 Until written notice is given to the contrary,
communications to the Trustee shall be sent to it at its office at 301
N. Main Street, P.O. Box 3099, Winston-Salem, North Carolina 27150,
Attention: Mr. John N. Smith, III, facsimile 336-770-4059, copy to
Mr. Joe Long, Trust Counsel (or such other individuals as delegated
in writing by Messrs. Smith or Long); communications to the Company
shall be sent to it at its office at 1420 Peachtree Street, N.E.,
Atlanta, Georgia, Attention: David Levy, facsimile 404-853-1015, with
a copy to William J. Vesely, Jr., Kilpatrick Stockton LLP, facsimile
404-815-6555."
12.
Schedule 1 is hereby amended by substituting a revised Schedule 1,
dated January 6, 1999, which is attached hereto and made a part hereof. The
within and foregoing amendments to the Trust shall be effective as of January 6,
1999. Except as hereby modified, the Trust shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
2 as of the day and year first written above.
NATIONAL SERVICE INDUSTRIES, INC.
By/s/ James S. Balloun
James S. Balloun
Chairman, President and
Chief Executive Officer
WACHOVIA BANK N.A., AS TRUSTEE
By /s/ Jane B. Fisher
Name: Jane B. Fisher
Title: Senior Vice President
<PAGE>
Page 68
Exhibit 10(iii)A(5)
The undersigned Affiliates of the Corporation hereby consent to, and
agree to be bound by, this Amendment No. 2 to the Trust.
This the 6th day of January, 1999.
NATIONAL SERVICE INDUSTRIES, INC.
(Georgia)
By /s/ James S. Balloun
James S. Balloun, President
NSI ENTERPRISES, INC.
By /s/ James S. Balloun
James S. Balloun, President
ZEP MANUFACTURING COMPANY
By /s/ Glen D. Reed
Glen D. Reed, President
NSI SERVICES, L.P.
By /s/ James S. Balloun
James S. Balloun, President
Page 69
Exhibit 12
National Service Industries, Inc.
Ratio of Earnings to Fixed Charges
Three Months Ended Year Ended
November 30 August 31
1998 1997 1998
------------------ -------------
Earnings:
Income before taxes on income 40,930 42,355 173,121
Fixed charges 4,000 2,355 11,343
------------------ -------------
44,930 44,710 184,464
Fixed Charges:
Interest Expense 2,885 1,335 7,264
Interest factor related to rentals 1,115 1,020 4,079
------------------ -------------
Total fixed charges 4,000 2,355 11,343
------------------ -------------
Ratio of Earnings to Fixed Charges 11.2 19.0 16.3
================== =============
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Page 70
Exhibit 27
Financial Data Schedule
Quarter Ended November 30, 1998
Pursuant to Section 601(c) of Regulation S-K
This schedule contains summary financial information extracted from National
Service Industries, Inc. consolidated balance sheet as of November 30, 1998 and
the consolidated statement of income for the three months ended November 30,
1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
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0
0
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</TABLE>
