Page 1 of 50
Index to Exhibits on Page 14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________.
Commission file number 1-3208.
NATIONAL SERVICE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-0364900
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1420 Peachtree Street, N.E., Atlanta, Georgia 30309-3002
(Address of principal executive offices) (Zip Code)
(404) 853-1000
(Registrant's telephone number, including area code)
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 - 40,699,192 shares as of December 31, 1999.
<PAGE>
Page 2
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
----------------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS -
NOVEMBER 30, 1999 AND AUGUST 31, 1999 3
CONSOLIDATED STATEMENTS OF INCOME -
THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9-11
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 11
MARKET RISK
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
<PAGE>
Page 3
<TABLE>
<CAPTION>
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share and per-share data)
November 30, August 31,
1999 1999
----------------- -------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,469 $ 2,254
Receivables, less reserves for doubtful accounts of $7,566 at November 30,
1999 and $6,306 at August 31, 1999 356,915 382,188
Inventories, at the lower of cost (on a first-in, first-out basis) or market 234,909 218,191
Linens in service, net of amortization 57,715 58,875
Deferred income taxes 9,073 10,271
Prepayments 12,648 8,634
----------------- -------------
Total Current Assets 672,729 680,413
----------------- -------------
Property, Plant, and Equipment, at cost:
Land 27,227 25,764
Buildings and leasehold improvements 187,602 186,776
Machinery and equipment 603,958 587,719
----------------- -------------
Total Property, Plant, and Equipment 818,787 800,259
Less-Accumulated depreciation and amortization 431,893 417,946
----------------- -------------
Property, Plant, and Equipment-net 386,894 382,313
----------------- -------------
Other Assets:
Goodwill and other intangibles 546,537 551,995
Other 79,064 81,068
----------------- -------------
Total Other Assets 625,601 633,063
----------------- -------------
Total Assets $1,685,224 $1,695,789
================= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 364 $ 368
Commercial paper, short-term 120,474 102,539
Notes payable 11,562 11,471
Accounts payable 119,207 128,122
Accrued salaries, commissions, and bonuses 37,372 65,458
Current portion of self-insurance reserves 8,637 8,785
Accrued taxes payable 13,807 12,203
Other accrued liabilities 85,642 94,939
----------------- -------------
Total Current Liabilities 397,065 423,885
----------------- -------------
Long-Term Debt, less current maturities 432,852 435,199
----------------- -------------
Deferred Income Taxes 95,526 95,557
----------------- -------------
Self-Insurance Reserves, less current portion 38,710 38,828
----------------- -------------
Other Long-Term Liabilities 86,965 86,446
----------------- -------------
Stockholders' Equity:
Series A participating preferred stock, $.05 stated value, 500,000 shares
authorized, none issued
Preferred stock, no par value, 500,000 shares authorized, none issued
Common stock, $1 par value, 120,000,000 shares authorized, 57,918,978
shares issued 57,919 57,919
Paid-in capital 30,427 29,055
Retained earnings 987,837 976,461
Accumulated other comprehensive income items (9,336) (9,326)
----------------- -------------
1,066,847 1,054,109
Less-Treasury stock, at cost (17,228,036 shares at November 30, 1999 and
17,449,752 shares at August 31, 1999) 432,741 438,235
----------------- -------------
Total Stockholders' Equity 634,106 615,874
----------------- -------------
Total Liabilities and Stockholders' Equity $1,685,224 $1,695,789
================= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
Page 4
<TABLE>
<CAPTION>
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per-share data)
THREE MONTHS ENDED
NOVEMBER 30
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Sales and Service Revenues:
Net sales of products $ 542,294 $ 443,457
Service revenues 77,716 75,469
------------- -------------
Total Revenues 620,010 518,926
------------- -------------
Costs and Expenses:
Cost of products sold 327,152 261,701
Cost of services 45,134 43,737
Selling and administrative expenses 193,733 170,207
Interest expense, net 9,986 2,342
Other expense, net 4,153 9
------------- -------------
Total Costs and Expenses 580,158 477,996
------------- -------------
Income before Provision for Income Taxes 39,852 40,930
Provision for Income Taxes 15,462 15,226
------------- -------------
Net Income $ 24,390 $ 25,704
============= =============
Per Share:
Basic earnings per share $ .60 $ .62
============= =============
Basic Weighted Average Number
of Shares Outstanding 40,584 41,407
============= =============
Diluted earnings per share $ .60 $ .62
============= =============
Diluted Weighted Average
Number of Shares Outstanding 40,686 41,614
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
Page 5
NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
THREE MONTHS ENDED
NOVEMBER 30
---------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash Provided by (Used for) Operating Activities
Net income $ 24,390 $ 25,704
Adjustments to reconcile net income to net cash provided by (used for)operating activities:
Depreciation and amortization 21,210 14,444
Provision for losses on accounts receivable 1,315 1,430
Gain on the sale of property, plant, and equipment (434) (60)
Gain on the sale of business (186) -
Change in noncurrent deferred income taxes 2,614 (853)
Change in assets and liabilities net of effect of acquisitions and divestitures-
Receivables 27,853 3,445
Inventories and linens in service, net (15,264) (15,768)
Deferred income taxes 1,754 2,681
Prepayments and other (3,700) (5,420)
Accounts payable and accrued liabilities (30,270) 19,153
Self-insurance reserves and other long-term liabilities 426 1,234
------------- ---------------
Net Cash Provided by Operating Activities 29,708 45,990
------------- ---------------
Cash Provided by (Used for) Investing Activities
Purchases of property, plant, and equipment (21,792) (15,284)
Sale of property, plant, and equipment 783 362
Acquisitions (14,030) (28,498)
Change in other assets 693 2,019
------------- ---------------
Net Cash Used for Investing Activities (34,346) (41,401)
------------- ---------------
Cash Provided by (Used for) Financing Activities
Proceeds from notes payable, net 91 374
Repayments of commerical paper, net (less than 90 days) (73,931) -
Proceeds from issuances of commerical paper (greater than 90 days) 89,801 -
Borrowings of long-term debt - 28,003
Repayments of long-term debt (286) (19)
Issuances (purchases) of treasury stock, net 1,199 (7,270)
Cash dividends paid (13,014) (12,853)
------------- ---------------
Net Cash Provided by Financing Activities 3,860 8,235
------------- ---------------
Effect of Exchange Rate Changes on Cash (7) 71
------------- ---------------
Net Change in Cash and Cash Equivalents (785) 12,895
Cash and Cash Equivalents at Beginning of Period 2,254 19,146
------------- ---------------
Cash and Cash Equivalents at End of Period $ 1,469 $ 32,041
============= ===============
Supplemental Cash Flow Information:
Income taxes paid (received) during the period $ 9,207 $ (419)
Interest paid during the period 5,511 2,742
Noncash Investing and Financing Activities:
Treasury shares issued under long-term incentive plan $ 5,667 $ -
Noncash aspects of acquisitions--
Liabilities assumed or incurred $ 24 $ 5,418
Treasury stock issued - 845
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
Page 6
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, 1999 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, 1999, the consolidated results of
operations for the three months ended November 30, 1999 and 1998, and the
consolidated cash flows for the three months ended November 30, 1999 and 1998.
Certain reclassifications have been made to the prior year's 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, 1999.
The results of operations for the three months ended November 30, 1999 are not
necessarily indicative of the results to be expected for the full fiscal year
because the company's revenues and income are generally higher in the second
half of its fiscal year and because of the uncertainty of general business
conditions.
2. BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Depreciation Capital
Sales and Operating and Expenditures
Service Profit Amortization Including
Three Months Ended November 30, 1999 Revenues (Loss) Expense Acquisitions
-------------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Lighting Equipment $367,595 $ 35,287 $ 12,406 $ 24,904
Chemical 119,901 8,622 2,712 1,334
Textile Rental 77,716 5,128 3,752 3,568
Envelope 54,798 3,068 1,781 4,347
------------- ------------- ----------------- ----------------
620,010 52,105 20,651 34,153
Corporate (2,267) 559 1,669
Interest expense, net (9,986)
------------- ------------- ----------------- ----------------
Total $620,010 $ 39,852 $ 21,210 $ 35,822
============= ============= ================= ================
Depreciation Capital
Sales and Operating and Expenditures
Service Profit Amortization Including
Three Months Ended November 30, 1998 Revenues (Loss) Expense Acquisitions
-------------- ------------- ----------------- ----------------
Lighting Equipment $284,077 $ 29,479 $ 6,458 $ 33,311
Chemical 116,744 8,536 2,445 2,307
Textile Rental 75,469 6,719 3,632 5,748
Envelope 42,636 3,536 1,400 2,369
-------------- ------------- ----------------- ----------------
518,926 48,270 13,935 43,735
Corporate (4,998) 509 47
Interest expense, net (2,342)
-------------- ------------- ----------------- ----------------
Total $518,926 $ 40,930 $ 14,444 $ 43,782
============== ============= ================= ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Identifiable Assets
------------------------ -------------------
November 30, 1999 August 31, 1999
------------------------ -------------------
<S> <C> <C>
Lighting Equipment $1,061,228 $1,073,936
Chemical 229,998 233,461
Textile Rental 205,238 203,509
Envelope 141,994 139,755
------------------------ -------------------
Subtotal 1,638,458 1,650,661
Corporate 46,766 45,128
------------------------ -------------------
Total $1,685,224 $1,695,789
======================== ===================
</TABLE>
<PAGE>
Page 7
3. INVENTORIES
Major classes of inventory as of November 30, 1999 and August 31, 1999 were as
follows:
<TABLE>
<CAPTION>
November 30, August 31,
1999 1999
------------ -------------
<S> <C> <C>
Raw Materials and Supplies $ 97,176 $ 99,249
Work-in-Process 18,709 16,718
Finished Goods 119,024 102,224
------------ -------------
Total $ 234,909 $ 218,191
============ =============
</TABLE>
4. EARNINGS PER SHARE
The company accounts for earnings per share using Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." Under 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>
<CAPTION>
Three Months Ended
November 30
-------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Basic earnings per common share:
Net income $ 24,390 $ 25,704
Basic weighted average shares outstanding (in thousands) 40,584 41,407
------------- ------------
Basic earnings per common share $ .60 $ .62
============= ============
Diluted earnings per common share:
Net income $ 24,390 $ 25,704
Basic weighted average shares outstanding (in thousands) 40,584 41,407
Add - Shares of common stock issuable upon
assumed exercise of dilutive stock options (in thousands) 102 207
------------- ------------
Diluted weighted average shares outstanding (in thousands) 40,686 41,614
------------- ------------
Diluted earnings per common share $ .60 $ .62
============= ============
</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,
1999 and 1998 includes only foreign currency translation adjustments. The
calculation of comprehensive income is as follows:
<TABLE>
<CAPTION>
Three Months Ended
November 30
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 24,390 $ 25,704
Other comprehensive income (loss) (10) 2,033
----------- -----------
Comprehensive Income $ 24,380 $ 27,737
=========== ===========
</TABLE>
6. ENVIRONMENTAL MATTERS
The company's operations, as well as similar operations of other companies, are
subject to comprehensive laws and regulations relating to the generation,
storage, handling, transportation, and disposal of hazardous substances and
solid and hazardous wastes and to the remediation of contaminated sites. Permits
and environmental controls are required for certain of the company's operations
to limit air and water pollution, and these permits are subject to modification,
renewal, and revocation by issuing authorities. The company believes that it is
in substantial compliance with all material environmental laws, regulations, and
permits. On an ongoing basis, the company incurs capital and operating costs
relating to environmental compliance. Environmental laws and regulations have
generally become stricter in recent years, and the cost of responding to future
changes may be substantial.
<PAGE>
Page 8
The company's environmental reserves, which are included in current liabilities,
totaled $10,900 and $11,000 at November 30, 1999 and August 31, 1999,
respectively. The actual cost of environmental issues may be substantially lower
or higher than that reserved due to the difficulty in estimating such costs,
potential changes in the status of government regulations, and the inability to
determine the extent to which contributions will be available from other
parties. The company does not believe that any amount of such costs below or in
excess of that accrued is reasonably estimable.
Certain environmental laws, such as Superfund, can impose liability for the
entire cost of site remediation upon each of the current or former owners or
operators of a site or parties who sent waste to a site where a release of a
hazardous substance has occurred regardless of fault or the lawfulness of the
original disposal activity. Generally, where there are a number of potentially
responsible parties ("PRPs") that are financially viable, liability has been
apportioned based on the type and amount of waste disposed of by each party at
such disposal site and the number of financially viable PRPs, although no
assurance can be given as to any particular site.
The company is currently a party to, or otherwise involved in, legal proceedings
in connection with several state and federal Superfund sites, two of which are
located on property owned by the company. Except for the Crymes Landfill and M&J
Solvents matters in Georgia, the company believes its liability is de minimis at
each of the sites which it does not own where it has been named as a PRP. At the
Crymes Landfill and M&J Solvents sites in Georgia, since the matters are
currently in the investigative phase, the company does not know whether its
liability is de minimis but believes that its exposure at each of the sites is
not likely to result in a material adverse effect on the company due to its
limited involvement at the sites and the number of viable PRPs. For property
which the company owns on Seaboard Industrial Boulevard in Atlanta, Georgia, the
company has conducted an investigation on its and adjoining properties and
submitted a Compliance Status Report ("CSR") to the State of Georgia
Environmental Protection Division ("EPD") pursuant to the Georgia Hazardous Site
Response Act. Until EPD's review and approval of the CSR are completed, which
are not subject to a deadline, the company will not be able to determine if
remediation will be required, if the company will be solely responsible for the
cost of such remediation, or whether such cost is likely to result in a material
adverse effect on the company. For property which the company owns on East Paris
Street in Tampa, Florida, the company has been requested by the State of Florida
to clean up chlorinated solvent contamination in the groundwater on the property
and on surrounding property known as Seminole Heights Solvent Site and to
reimburse approximately $430 of costs already incurred by the State of Florida
in connection with such contamination. The company believes that it has a strong
defense due to likely off-site sources of the contamination and because
contamination from the property, if any, was due to prior owners and not the
company's operations. At this time, it is too early to quantify the company's
potential exposure or the likelihood of an adverse result.
The company is currently evaluating emissions of volatile organic compounds from
its manufacturing operations in the Atlanta, Georgia area to determine whether
it will need to install pollution control equipment or modify its operations to
comply with federal and state air pollution regulations. Until the current
evaluations are completed, the company is not able to quantify the possible cost
of compliance. However, based upon currently available information, the company
does not expect that any material expenditures will be required to achieve
compliance.
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 environmental
liabilities arising from events occurring prior to the closing, subject to
certain exceptions. The company has received notice from the buyer of the
textile rental plants of the alleged presence of perchloroethylene contamination
on one of the properties involved in the sale. The company has since asserted an
indemnification claim against the company from which it bought the property. The
prior owner is currently conducting an investigation of the contamination at its
expense, subject to a reservation of rights. At this time, it is too early to
quantify the company's potential exposure in this matter, the likelihood of an
adverse result, or the possibility that the company may be fully or partially
indemnified.
The State of New York has filed a lawsuit against the company alleging that the
company is responsible as a successor to Serv-All Uniform Rental Corp. for past
and future response costs in connection with the release or threatened release
of hazardous substances at and from the Blydenburgh Landfill in Islip, New York.
The company believes that it is not a successor to Serv-All Uniform Rental Corp.
and therefore has no liability with respect to the Blydenburgh Landfill, and it
has responded to the lawsuit accordingly. At this stage of the litigation, it is
too early to quantify the company's potential exposure or the likelihood of an
adverse result.
7. INCREASE IN SHARES AUTHORIZED UNDER LONG-TERM ACHIEVEMENT INCENTIVE PLAN
On January 5, 2000, the stockholders approved an amendment to the National
Service Industries, Inc. Long-Term Achievement Incentive Plan for the benefit of
officers and other key employees of the company. In addition to other
modifications, the amendment increases the number of shares authorized for
issuance under the plan from 1,750,000 to 5,750,000.
<PAGE>
Page 9
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 solid financial condition at November
30, 1999. Net working capital was $275.7 million, up from $256.5 million at
August 31, 1999, and the current ratio was 1.7 compared with 1.6 at August 31,
1999. At November 30, 1999, the company's percentage of debt to total
capitalization remained constant at 47.1 percent.
Results of Operations
National Service Industries generated quarterly revenue of $620.0 million in the
first quarter of fiscal 2000 compared with quarterly revenue of $518.9 million
in the first quarter of fiscal 1999. The increase was primarily due to acquired
revenue in the lighting equipment and envelope segments. The lighting equipment
segment purchased Holophane Corporation ("Holophane") in July 1999 and certain
assets of Peerless Corporation ("Peerless") in April 1999. In addition, the
envelope segment purchased substantially all of Gilmore Envelope in February
1999. For the quarter, these acquisitions generated a combined $85.0 million of
revenue that was not included in prior year results. Excluding acquisitions,
revenue increases related to growth in the company's core businesses primarily
in the lighting equipment, chemical, and envelope segments.
First quarter net income decreased by 5.1 percent, or $1.3 million, from $25.7
million, or $.62 per basic and diluted share, for the quarter ended November 30,
1998 to $24.4 million, or $.60 per basic and diluted share. Income from
acquisitions not included in prior year results and a decrease in corporate
expenses positively impacted earnings during the first quarter. However, these
items were more than offset by increased interest expense on borrowings and
amortization expense related to recent acquisitions, a charge for closing a
manufacturing facility in the lighting equipment segment, and operating profit
decreases in the textile rental and envelope segments.
The lighting equipment segment reported record first quarter revenue of $367.6
million, an increase of 29.4 percent over last year's first quarter revenue of
$284.1 million. This increase resulted primarily from the acquisitions of
Holophane and Peerless. Additionally, continued strength in the non-residential
construction market had a positive impact on first quarter lighting equipment
revenue resulting in growth in the segment's core business. Operating profit
increased 19.7 percent to $35.3 million driven by contributions from Holophane
and Peerless, offset somewhat by a $1.0 million pretax charge for closing a
manufacturing facility in California.
First quarter chemical segment revenue of $119.9 million increased 2.7 percent
from last year's $116.7 million, primarily due to higher revenue from
international locations and continued growth in the retail channel. Operating
profit increased 1.0 percent to $8.6 million primarily as a result of the
increase in revenue.
Textile rental segment revenue, representing all of the company's service
revenues, increased 3.0 percent to $77.7 million. The current year increase was
primarily related to acquired revenue and increased revenue in the segment's
base business resulting from price increases and improved customer retention.
Operating profit decreased $1.6 million from $6.7 million in the first quarter
of fiscal 1999 to $5.1 million in the first three months of fiscal 2000. Higher
delivery costs, the negative impact of two hurricanes, and contract wage
increases for production employees more than offset the increase in revenue.
Excluding unusual items in both periods, operating profit decreased 8.3 percent.
During the quarter, fiscal 1997 restructuring reserves were reduced by payments
of $.2 million and $.1 million related to severance and union related costs and
exit costs, respectively.
Envelope segment revenue increased 28.5 percent to $54.8 million, while
operating profit decreased 13.2 percent to $3.1 million from the prior year's
$3.5 million. Revenue increased due to additional sales resulting from the
Gilmore Envelope acquisition and continued volume growth in the base business.
Operating margins decreased from 8.3 percent during the first quarter of fiscal
1999 to 5.6 percent in the first quarter of fiscal 2000 as a result of lower
average margins from prior year acquisitions, higher paper prices which were
passed on to customers, and depreciation from a new enterprise resource planning
system.
Corporate expenses decreased to $2.3 million primarily due to lower incentive
compensation expense. Net interest expense increased $7.6 million to $10.0
million in the quarter ended November 30, 1999 as a result of increased
borrowings to finance acquisitions. Additionally, the provision for income taxes
was 38.8 percent of pretax income for the quarter compared with 37.2 percent in
the prior-year period primarily due to goodwill acquired in the Holophane
purchase, which is not deductible for tax purposes.
<PAGE>
Page 10
Liquidity and Capital Resources
Operating Activities
Operations provided cash of $29.7 million during the first quarter of fiscal
2000 compared with $46.0 million during the first quarter of fiscal 1999. The
2000 cash flow was lower primarily because of a decrease in current liabilities
related to incentive plan payments and decreases in accounts payable. These
payments were offset somewhat by a decrease in accounts receivable, primarily in
the lighting equipment segment.
Investing Activities
Investing activities used cash of $34.3 million for the three months ended
November 30, 1999 compared with cash used of $41.4 million in the three months
ended November 30, 1998. The change in investing cash flows relates primarily to
a decrease in acquisition spending from $28.5 million during the prior-year
first quarter to $14.0 million during the first three months of fiscal 2000.
Acquisition spending during the first quarter of fiscal 2000 related primarily
to Holophane. The company purchased Holophane in July 1999 for approximately
$470.8 million, including approximately $20 million for the payoff of
Holophane's existing debt. Of the total purchase price, $454.6 million was paid
during fiscal 1999 and $13.2 million was paid during the first quarter of the
current year, which was primarily for the purchase of the remaining tendered
Holophane shares. Other acquisition spending during the first quarter related to
several minor purchases in the textile rental segment. Prior year acquisition
spending of $28.5 million was primarily due to the lighting equipment segment's
purchase of certain assets of GTY Industries, a manufacturer of
architectural-grade light fixtures for landscape, in-grade, and underwater
applications.
Capital expenditures were $21.8 million in the first three months of fiscal
2000, compared with $15.3 million in the first three months of fiscal 1999.
Capital spending during the first quarter of fiscal 2000 was primarily
attributable to the lighting equipment, envelope, and textile rental segments.
The lighting equipment segment invested in land, buildings, and equipment for a
new plant in Mexico and in manufacturing upgrades and improvements. Capital
expenditures in the envelope segment related primarily to new folding capacity.
The textile rental segment's expenditures related to replacing old equipment and
delivery truck refurbishments. The lighting equipment segment's capital
expenditures in the prior-year first quarter related to upgrading of old tooling
equipment as well as purchases of new tooling equipment for capacity expansion.
Textile rental segment expenditures 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. Management believes
current cash balances, anticipated cash flows from operations, and available
funds from the commercial paper program or the committed credit facilities, and
the complementary lines of credit 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 $3.9 million in the first quarter of
fiscal 2000 compared with cash provided of $8.2 million in the first quarter of
fiscal 1999. For the quarter ended November 30, 1999, the company increased net
borrowings by $15.7 million primarily under its commercial paper program,
compared with additional net borrowings of $28.4 million in the first quarter of
fiscal 1999. Current year borrowings were used for general corporate purposes,
including working capital requirements, capital expenditures, and financing
acquisitions. At November 30, 1999 and August 31, 1999, approximately $250
million in commercial paper was classified as long-term as the company has the
ability and the intent to refinance the commercial paper on a long-term basis
when market conditions are appropriate. Funds borrowed during the first quarter
of fiscal 1999 were used primarily to finance acquisitions, share repurchases,
and internal growth. Net cash received in connection with issuances of treasury
stock provided cash of $1.2 million in the current quarter while net purchases
of treasury stock used cash of $7.3 million in the same quarter of the prior
year. The company suspended its share repurchase program in the third quarter of
fiscal 1999. Although the company has a standing annual authorization to
repurchase 2.0 million shares plus the number of new shares issued in any one
year, the company does not plan to purchase additional shares until its debt to
capitalization is within the company's stated objective of 30 to 40 percent.
Dividend payments totaled $13.0 million, or 32 cents per share, compared with
$12.9 million, or 31 cents per share, for the prior-year period. On January 5,
2000, the regular quarterly dividend rate was increased 3.1 percent to 33 cents
per share, or an annual calendar year rate of $1.32 per share.
Environmental Matters
See Note 6: Environmental Matters for a discussion of the company's
environmental issues.
<PAGE>
Page 11
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
millennium, any of the company's computer programs that had two-digit
date-sensitive software could have interpreted a date of "00" as the year 1900
rather than the year 2000. This could have resulted in a system failure or
miscalculation causing disruption of the operation of computer hardware and
software, as well as intelligent manufacturing equipment and processes, and
telephony.
Management addressed the Year 2000 Issue in four phases: awareness, assessment,
action plan, and plan implementation. All phases of the plan were complete and
all mission critical systems were in compliance prior to the end of calendar
year 1999. The total cost incurred in connection with the Year 2000 Issue was
approximately $6 million and was funded through operating cash flows.
Approximately one-third of the total cost reflected the redeployment of existing
internal information technology resources and was not incremental to the
company.
As of January 14, 2000, all of the company's mission critical systems have been
tested and are fully operational. The company did not experience, nor does it
expect to experience, significant disruptions to its mission critical systems
related to the Year 2000 Issue. 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.
Quantitative and qualitative disclosures about market risk
The company is exposed to market risks that may impact the Consolidated Balance
Sheets, Consolidated Statements of Income, and Consolidated Statements of Cash
Flows due to changing interest rates and foreign exchange rates. The company
does not currently participate in any significant hedging activities, nor does
it utilize any significant derivative financial instruments. The following
discussion provides additional information regarding the company's market risks.
Interest Rates- Interest rate fluctuations expose the company's variable-rate
debt to changes in interest expense and cash flows. The company's variable-rate
debt, primarily commercial paper, amounted to $402.8 million at November 30,
1999. Based on outstanding borrowings at quarter end, a 10 percent adverse
change in effective market interest rates at November 30, 1999 would result in
additional annual after-tax interest expense of approximately $1.6 million. To
address this risk, the company intends to refinance approximately $250 million
of the outstanding commercial paper on a long-term, fixed-rate basis. Although a
fluctuation in interest rates would not affect interest expense or cash flows
related to the company's $160 million publicly traded notes, a 10 percent
adverse change in effective market interest rates at November 30, 1999 would
decrease the fair value of these notes to approximately $138.0 million.
Foreign Exchange Rates-The majority of the company's revenue, expense, and
capital purchases are transacted in U.S. dollars. International operations
during the first quarter of fiscal 2000, primarily in the lighting equipment and
chemical segments, represented approximately 9.8 percent of sales and service
revenues, 7.1 percent of operating profit (loss), and 8.6 percent of
identifiable assets. The company does not believe a 10 percent fluctuation in
average foreign currency rates would have a material effect on its consolidated
financial statements or results of operations.
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 and (b) statements made regarding management's intentions or expectations
with regard to future earnings, projected capital expenditures, future cash
flows, debt refinancing, share repurchases, and debt to capitalization
objectives. The company notes that a variety of factors could cause the
company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development, and results of the company's business
include without limitation the following: (a) the uncertainty of general
business and economic conditions, including the potential for a slowdown in
non-residential construction awards, fluctuations in commodity and raw material
prices, market demand for public debt, interest rate changes, and foreign
currency fluctuations; and (b) the ability to achieve financing objectives and
strategic initiatives, including but not limited to the achievement of synergies
related to acquisitions and the achievement of sales growth across the business
segments through a combination of increased pricing, enhanced sales force, new
products, improved customer service, and acquisitions.
<PAGE>
Page 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders held January 5, 2000, all nominees for
director were elected to the board without opposition and Arthur Andersen LLP
was appointed as independent auditor for the current fiscal year. In addition,
stockholders voted on the following:
<TABLE>
<CAPTION>
Votes Cast
----------------------------------------------------------------
Affirmative Negative Abstentions
<S> <C> <C> <C>
Proposal to approve the amended and restated
National Service Industries, Inc. Long-Term
Achievement Incentive Plan 23,995,265 3,988,112 989,912
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits are listed on the Index to Exhibits (page 14).
(b) Form 8-K/A was filed on October 12, 1999 with regard to the acquisition of
Holophane Corporation.
<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 14, 2000 /s/ DAVID LEVY
DAVID LEVY
EXECUTIVE VICE PRESIDENT, ADMINISTRATION
AND COUNSEL
DATE January 14, 2000 /s/ BROCK HATTOX
BROCK HATTOX
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
<PAGE>
Page 14
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Page No.
<S> <C> <C>
EXHIBIT 3 (a) By-Laws as Amended and Restated January 5, 2000 15
EXHIBIT 10(iii)A (1) Second Amendment to the National Service Industries, Inc. 1992 32
Nonemployee Directors' Stock Option Plan, Dated January 5, 2000
(2) Second Amendment of Aspiration Achievement Incentive Award Agreement 33
for the Performance Cycle Ended August 31, 1999 between National
Service Industries, Inc. and
(a) James S. Balloun
(b) Brock A. Hattox
(c) David Levy
(d) Stewart A. Searle III
(3) Amendment of the Aspiration Achievement Incentive Award Agreement and 34
Election Form for the Performance Cycle Ending August 31, 2000 between
National Service Industries, Inc. and
(a) James S. Balloun
(b) George H. Gilmore, Jr.
(c) Brock A. Hattox
(d) David Levy
(e) Stewart A. Searle III
(4) Amendment of the Aspiration Achievement Incentive Award Agreement for 39
the Performance Cycle Ending August 31, 2001 between National Service
Industries, Inc. and
(a) James S. Balloun
(b) George H. Gilmore, Jr.
(c) Brock A. Hattox
(d) David Levy
(e) Stewart A. Searle III
[a confidential portion of which has been omitted and filed separately
with the Securities and Exchange Commission]
(5) National Service Industries, Inc. Long-Term Achievement Incentive Plan Reference is made to
as Amended and Restated, Effective as of January 5, 2000 Exhibit A of registrant's
Schedule 14A as filed with
the Commission on
November 22, 1999, which
is incorporated herein by
reference.
EXHIBIT 27 Financial Data Schedule 50
</TABLE>
Page 15
Exhibit 3(a)
NATIONAL SERVICE INDUSTRIES, INC.
BY - LAWS
(as amended and restated January 5, 2000)
(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 16
Exhibit 3(a)
2.3 Conduct of Meetings. At each meeting of stockholders, the Chairman
of the Board shall act as chairman of the meeting. In the absence or inability
or refusal to act of the Chairman of the Board, the Vice Chairman of the Board,
or if a Vice Chairman has not been elected, the President, shall act as chairman
of the meeting. The Secretary or, in his absence, inability or refusal to act,
such person as the chairman of the meeting shall appoint shall act as secretary
of the meeting and keep the minutes thereof.
2.4 Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
2.5 Voting. Except as otherwise provided by statute or the
Corporation's Certificate of Incorporation, each stockholder of the Corporation
shall be entitled at each meeting of stockholders to one vote for each share of
capital stock of the Corporation standing in his name on the list of
stockholders of the Corporation on the record date fixed as provided in these
By-Laws, as amended from time to time ("By-Laws"). Each stockholder entitled to
vote at any meeting of stockholders may authorize another person or persons to
act for him by a proxy which is in writing or is transmitted as permitted by
law, including, without limitation, electronically, via telegram, internet,
interactive voice response system, or other means of electronic transmission
executed or authorized by such stockholders or his attorney-in-fact and bearing
a date not more than three (3) years prior to said meeting, unless said
instrument provides for a longer period. Any such proxy shall be delivered to
the secretary of the meeting at or prior to the time designated in the order of
business for so delivering such proxies. Any proxy transmitted electronically
shall set forth information from which it can be determined by the secretary or
voting inspector of the meeting that such electronic transmission was authorized
by the stockholder. At all meetings of stockholders for the election of
directors a plurality of the votes cast shall be sufficient to elect. All other
elections and questions shall, unless otherwise provided by law or in the
Corporation's Certificate of Incorporation or these By-Laws, be decided by the
vote of the holders of a majority of the outstanding shares of stock entitled to
vote thereon present in person or by proxy at the meeting. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
2.6 List of Stockholders. A complete list of the stockholders entitled
to vote at each meeting of stockholders, arranged in alphabetical order, with
the address of each, and the number of voting shares held by each, shall be
prepared by the Secretary at least ten days before every meeting. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.7 Inspectors. The Board of Directors may, in advance of any meeting
<PAGE>
Page 17
Exhibit 3(a)
of stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors. Inspectors
need not be stockholders.
2.8 Annual meeting. The Annual Meeting of the Stockholders of the
Corporation ("Annual Meeting") shall be held at such time and on such date as
shall be designated by the Board of Directors and stated in the notice of
meeting. At such meeting, the stockholders shall elect directors as provided in
the Corporation's Certificate of Incorporation and By-Laws and shall transact
such other business as may properly come before the meeting.
2.9 Notice of Annual Meeting. Except as otherwise expressly required by
statute, written notice of the Annual Meeting stating the date, place and time
of the meeting shall be given to each stockholder entitled to vote thereat, not
less than ten nor more than sixty days prior to the date of the meeting. Notice
is given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the Corporation.
Notice of any meeting shall not be required to be given to any person (i) who
attends such meeting, except when such person attends the meeting in person or
by proxy for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, or (ii) who, either before or after the meeting, shall submit a signed
written waiver of notice, in person or by proxy. Neither the business to be
transacted at, nor the purpose of, an Annual Meeting need be specified in any
written waiver of notice.
2.10 Notice of Stockholder Proposals. (a) At an Annual Meeting, only
such business shall be conducted, and only such proposals shall be acted upon,
as shall have been brought before the Annual Meeting (i) by, or at the direction
of, the Board of Directors or (ii) by any stockholder of the Corporation who
complies with the notice procedures set forth in this Section of these By-Laws.
For a proposal to be properly brought before an Annual Meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Corporation not less than forty-five (45) or more than seventy-five
<PAGE>
Page 18
Exhibit 3(a)
(75) days prior to the first anniversary of the date on which the Corporation
first mailed its proxy materials for the preceding year's Annual Meeting,
regardless of any postponements, deferrals, or adjournments of that meeting to a
later date; provided, however, that if during the preceding year the Corporation
did not hold an Annual Meeting or if the date of the Annual Meeting is advanced
more than thirty (30) days prior to or delayed by more than thirty (30) days
after the anniversary of the preceding year's Annual Meeting, notice by the
stockholder to be timely must be so delivered or received not later than ninety
(90) days prior to the scheduled Annual Meeting; and provided, further, however,
that if less than one hundred (100) days' notice or prior public disclosure of
the date of the scheduled Annual Meeting is given or made, notice by the
stockholder to be timely must be so delivered or received not later than the
close of business on the tenth (10th) day following the earlier of the day on
which such notice of the date of the scheduled Annual Meeting was mailed or the
day on which such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the Annual Meeting (i) a brief description of the proposal desired to be
brought before the Annual Meeting and the reasons for conducting such business
at the Annual Meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business and any other
stockholders known by such stockholder to be supporting such proposal, (iii) the
class and the 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
<PAGE>
Page 19
Exhibit 3(a)
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.
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
<PAGE>
Page 20
Exhibit 3(a)
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.
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.
<PAGE>
Page 21
Exhibit 3(a)
(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.
3.7 Compensation. The Board of Directors shall have authority to fix
the compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity.
ARTICLE FOUR
MEETINGS OF THE BOARD
4.1 Annual Meeting. The newly elected Board shall meet, immediately
after the Annual Meeting at which they were elected, for the purpose of
organization or otherwise, and no notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the meeting, provided
a majority of the whole Board shall be present.
4.2 Regular Meetings. Regular meetings of the Board shall be held
within six (6) weeks following the end of each fiscal quarter at such time and
place as the Board of Directors may fix. Notice of regular meetings of the Board
of Directors need not be given.
4.3 Special Meetings. Special meetings of the Board may be called by
the Chairman of the Board or the President. Notice of any special meeting shall
be given to each director at least twelve (12) hours before the meeting by
telephone or by being personally delivered or sent by telex, telecopier, or
telegraph, or at least three (3) days before the meeting if delivered by mail at
the address at which the director is most likely to be reached. Such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage prepaid, or when transmitted if sent by telex,
telecopier or telegraph. Any director may waive notice of any meeting by a
writing signed by the director entitled to the notice and filed with the minutes
or corporate records. The attendance at or participation of the director at a
meeting shall constitute waiver of notice of such meeting, unless the director
at the beginning of the meeting or promptly upon his arrival objects to holding
the meeting or transacting business at the meeting. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Special meetings
shall be called by the Chairman of the Board, President or Secretary in like
manner and on like notice on the written request of two directors.
4.4 Place of Meetings. Unless otherwise specified in the notice of any
meeting, meetings of the Board of Directors shall be held at such place or
places, within
<PAGE>
Page 22
Exhibit 3(a)
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
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
<PAGE>
Page 23
Exhbit 3(a)
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
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,
<PAGE>
Page 24
Exhibit 3(a)
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.
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
<PAGE>
Page 25
Exhibit 3(a)
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.
(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
<PAGE>
Page 26
Exhibit 3(a)
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.
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;
<PAGE>
Page 27
Exhibit 3(a)
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
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
<PAGE>
Page 28
Exhibit 3(a)
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
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
<PAGE>
Page 29
Exhibit 3(a)
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.
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.
<PAGE>
Page 30
Exhibit 3(a)
(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
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
<PAGE>
Page 31
Exhibit 3(a)
vote of a greater number, or (ii) by the affirmative vote of the holders of
two-thirds of the voting power of all of the outstanding shares of capital stock
of the Corporation at any regular or special meeting of stockholders if notice
of the proposed amendment is contained in the notice of the meeting or waived by
all of the stockholders entitled to vote.
Page 32
Exhibit 10(iii)A(1)
SECOND AMENDMENT
TO THE
NATIONAL SERVICE INDUSTRIES, INC.
1992 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
THIS AMENDMENT made as of January 5, 2000, by National Service
Industries, Inc. ("NSI");
W o I o T o N o E o S o S o E o T o H:
WHEREAS, the 1992 Nonemployee Directors' Stock Option Plan (the "Plan")
was approved by the Board of Directors of NSI on September 16, 1992, and by the
stockholders of NSI on January 6, 1993, and was subsequently amended on March
24, 1998; and
WHEREAS, pursuant to the power of amendment set forth in Section 9 of
the Plan and action of the Board of Directors of NSI on January 5, 2000;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 5.2 of the Plan is amended by replacing "1,000" with
"1,500", so that Section 5.2 now reads in its entirety as follows:
5.2 Number of Shares.Each Option granted shall be in respect
of a number of Shares equal to 1,500, subject to adjustment as
provided in Section 7.
2. Except as hereby modified, the Plan shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first written above.
ATTEST: NATIONAL SERVICE INDUSTRIES, INC.
By: /s/ James S. Balloun
Secretary James S. Balloun
Chairman of the Board, President and
Chief Executive Officer
(CORPORATE SEAL)
Page 33
Exhibit 10(iii)A(2)
Name
National Service Industries, Inc.
1420 Peachtree Street, NE
Atlanta, Georgia 30309-3002
Re: Amendment of Aspiration Award Agreement
for the Performance Cycle Ended August 31,1999
Dear ((Familiar)):
As you know, you and NSI previously entered into an agreement amending the
Aspiration Achievement Incentive Award Agreement dated September 17, 1996
("Aspiration Award Agreement") relating to the Performance Cycle ended August
31, 1999. Under that amendment, you elected to receive payment of all or a
portion of your Award under the Aspiration Award Agreement in the form of stock
options to be determined based on the Fair Market Value of NSI's stock, and the
associated exchange rate, as of the Determination Date, each as defined in the
amendment. As of October 7, 1999 (the Determination Date), the Fair Market Value
of NSI's stock was $32.8125 and the associated exchange rate was 24.35%. Based
on these factors, $((Cash)) of your award would be exchanged for options for
((Option)) shares. It was originally contemplated that the options would be
granted to you on October 7, 1999.
Because of the inadequate number of shares remaining under the Long-Term
Achievement Incentive Plan (the "Plan"), NSI proposes that (a) the options be
granted to you in January 2000 after the shareholders have approved the amended
and restated Plan (with the option covering the number of shares calculated as
of October 7, 1999 but the exercise price set as of the date of the grant) and
(b) in the event the shareholders do not approve the amended and restated Plan,
that the Award be paid in cash or as otherwise determined by the Committee.
Please confirm your acceptance of the foregoing by executing this letter
agreement in the space provided below.
National Service Industries, Inc.
By:/s/ James S. Balloun
James S. Balloun
Chairman, President, and
Accepted and Agreed to: Chief Executive Officer
- --------------------------------------------
Date: _____________________________________
Page 34
Exhibit 10(iii)A(3)
AMENDMENT OF
ASPIRATION ACHIEVEMENT INCENTIVE
AWARD AGREEMENT
AND
ELECTION FORM
WHEREAS, the undersigned Participant was granted an Aspiration Award
under the NSI Long-Term Achievement Incentive Plan (the "Plan") for the
Performance Cycle ending August 31, 2000; and
WHEREAS, under the Plan, the amount (if any) of the Aspiration Award
the Participant will receive for such Performance Cycle is currently uncertain;
and
WHEREAS, the Plan has been amended to permit the Participant to receive
all or a portion of the Aspiration Award in a different form;
NOW, THEREFORE, the Participant hereby elects to receive any Aspiration
Award earned for the Performance Cycle ending August 31, 2000 in the manner
provided below and agrees to amend the Aspiration Achievement Incentive Award
Agreement in accordance with such election:
1. Amendment To Exchange Award For Stock Options. By checking "YES"
below, you are electing to amend your Aspiration Achievement Incentive Award
Agreement for the Performance Cycle ending August 31, 2000 to provide that the
Award or portion of your Award that you specify below will be exchanged for the
grant of Options to acquire NSI stock under the terms and subject to the
limitations set forth below.
2. Exchange Formula. The number of Options you will receive will be
<PAGE>
Page 35
Exhibit 10(iii)(A)(3)
determined as follows: the amount of the Award to be exchanged will be divided
by $12.29 (the value of an Option for one Share of NSI stock as of September 8,
1999, based on Black-Scholes methodology) and multiplied by 1.5. The Options are
expected to be granted in October 2000, after approval of an amended and
restated Plan by stockholders of National Service Industries, Inc. in January
2000. The exercise price for each Option will be the closing price of one Share
of NSI stock on the New York Stock Exchange on the date of the grant. In the
event stockholders do not approve the amended and restated Plan, the Executive
Resource and Compensation Committee of the Board of Directors (the "Committee")
will have discretion to pay the Award in Shares of NSI stock or in cash (or any
combination of stock and cash) without regard to your exchange election. Any
unexchanged portion of your Award will be payable half in NSI stock and half in
cash.
3. Adjustment to Award Value. Originally, one-half of the Aspiration
Award, determined as of August 31, 2000, was to have been paid in cash and
one-half in NSI stock. If you elect to amend your Agreement, the value of the
component of your Aspiration Award which would have originally been paid in NSI
stock will be adjusted to reflect any change in NSI's stock price during the
period August 31, 2000 to the Determination Date (meaning that date in October
2000 on which the Committee determines the amount of the Award earned and
payable). The total value of the Award at the Determination Date will therefore
be equal to the total of (a) the amount of the Award as of August 31, 2000 and
(b) the amount (either gain or loss) calculated by multiplying (i) the number of
Shares you would have originally received by (ii)
<PAGE>
Page 36
Exhibit 10(iii)(A)(3)
the amount resulting from subtracting the Fair Market Value of NSI stock on
August 31 from the Fair Market Value at the Determination Date.
4. Limitation on Number of Options. The exchange will be limited by the
size of your Award payment and may be further reduced, on a pro rata basis, for
Options elected in excess of the aggregate number of Options granted to you in
fiscal 2000 (or a fraction thereof determined by the Committee on the
Determination Date), if the total number of Options elected by all participants
exceeds the pool of Options available for exchange. It is the intention of the
Committee that a total of up to 400,000 Options will be available for exchange.
The final number of Options available will be established by the Committee at
the Determination Date, and your election will be adjusted in accordance with
the final number of Options available.
5. Tax Treatment. The amount of your Aspiration Award exchanged for
Options should not be currently taxable (i.e., it should be treated much like a
bonus deferral). The Options will be nonqualified options under the Plan. Please
see the description of the tax treatment for nonqualified options attached
hereto as Exhibit "1". Of course, you should consult your tax advisor.
6. Terms of Stock Options. The Options will be nonqualified stock
options, will be fully vested at the time of receipt, and will have a ten-year
term except as follows:
(a) in the case of termination due to death, Disability,
Retirement at or after age 65, or involuntary termination by the
Company (other than for Cause), the Options will remain exercisable
until seven years after the date of grant, or one year after the date
of termination,
<PAGE>
Page 37
Exhibit 10(iii)(A)(3)
whichever is later;
(b) in the case of voluntary termination, the Options will
remain exercisable until 90 days after the date of termination; and
(c) in the case of involuntary termination for "Cause", the
Options will expire on the date of termination.
The Options will generally have such other terms and conditions as the
nonqualified Options granted by the Company in fiscal 2000.
- --------------------------------------------------------------------------------
ELECTION
_____ YES, I elect to amend my Agreement to provide for the exchange of my
Award, to the fullest extent possible, for the grant of Options to acquire NSI
stock, under the terms set forth above, to the following extent:
[ ] In exchange for $__________ of my Award (minimum $1,000).
[ ] In exchange for _________% of my Award (minimum $1,000).
[ ] In exchange for the grant of_________ Options (minimum 100 options).
The portion of the Award elected above (whether measured in dollars, percentage,
or Options) will be surrendered from the total value of the Award at the
Determination Date. The calculation of Options granted in the exchange will be
rounded down to the next whole amount.
_____ NO, I elect to continue to receive the entire Award payment half in NSI
stock and half in cash.
<PAGE>
Page 38
Exhibit 10(iii)(A)(3)
In order to make this election effective, sign and date this form
below and return it to Helen Haines prior to November 23, 1999.
The undersigned hereby agrees to amend the Aspiration Achievement
Incentive Award Agreement in accordance with the above election.
---------------------------
Grantee
---------------------------
Date
Received and Award Agreement
Amendment approved
on behalf of
National Service Industries, Inc.:
By:/s/ Helen D. Haines
Helen D. Haines
- ---------------------------------------
Date
Page 39
Exhibit 10(iii)A(4)
AMENDMENT OF
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT
FOR THE PERFORMANCE CYCLE ENDING AUGUST 31, 2001
WHEREAS, the undersigned Grantee was granted an Aspiration Achievement
Incentive Award ("Aspiration Award") under the NSI Long-Term Achievement
Incentive Plan (the "Plan") for the Performance Cycle ending August 31, 2001, as
evidenced by an Aspiration Achievement Incentive Award Agreement dated September
22, 1998 (the "Agreement"); and
WHEREAS, NSI, the Company, and the Grantee desire to amend the
Agreement as set forth hereafter;
NOW THEREFORE, the parties do hereby agree as follows:
1. Appendix A to the Agreement is amended by deleting the original
Appendix A and substituting the Appendix A attached hereto for all purposes of
the Agreement. The revised Appendix A reflects revised economic profit
measurement that incorporates the business of Holophane Corporation and its
subsidiaries.
2. Capitalized terms used but not defined herein shall have the meaning
set forth in the Plan.
IN WITNESS WHEREOF, this Amendment has been duly executed by the
parties to the Agreement.
NATIONAL SERVICE INDUSTRIES, INC.
By:/s/ James S. Balloun
James S. Balloun
Chairman, President and Chief Executive Officer
NATIONAL SERVICE INDUSTRIES, INC. (GA)
By:/s/ James S. Balloun
James S. Balloun
Chairman, President and Chief Executive Officer
------------------------------------
Name of Grantee: Grantee
<PAGE>
Page 40
EXHIBIT 10(iii)A(4)
Revised Appendix A
Aspiration Award Program Illustration - FY 1999-2001
Name: James S. Balloun
Position: Chairman & Chief Executive Officer
Division: Corporate
Salary: $800,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 100,000 $ 400,000 $ 2,000,000
</TABLE>
**Confidential information has been ommitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 41
EXHIBIT 10(iii)A(4)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1999 - 2001 PERFORMANCE PERIOD
NSI CORPORATE
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.01562
b = 0.07813
Above Commitment Level EP:
a = 0.03390
b =-1.00000
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 42
EXHIBIT 10(iii)A(4)
Revised Appendix A
Aspiration Award Program Illustration - FY 1999-2001
Name: George H. Gilmore, Jr.
Position: Executive Vice President and Group President
Division: Corporate
Salary: $450,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 40,500 $ 162,000 $ 810,000
</TABLE>
**Confidential information has been ommitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 43
EXHIBIT 10(iii)A(4)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1999 - 2001 PERFORMANCE PERIOD
CHEMICAL GROUP, NATIONAL LINEN SERVICE, AND AECO OPERATIONS
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.06466
b =-1.46336
Above Commitment Level EP:
a = 0.13746
b =-4.23711
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 44
EXHIBIT 10(iii)A(4)
Revised Appendix A
Aspiration Award Program Illustration - FY 1999-2001
Name: Brock A. Hattox
Position: SVP, Chief Financial Officer
Division: Corporate
Salary: $380,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 45,600 $ 182,400 $ 912,000
</TABLE>
**Confidential information has been ommitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 45
EXHIBIT 10(iii)A(4)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1999 - 2001 PERFORMANCE PERIOD
NSI CORPORATE
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.01562
b = 0.07813
Above Commitment Level EP:
a = 0.03390
b =-1.00000
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 46
EXHIBIT 10(iii)A(4)
Revised Appendix A
Aspiration Award Program Illustration - FY 1999-2001
Name: David Levy
Position: EVP, Administration & Counsel
Division: Corporate
Salary: $365,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 43,800 $ 175,200 $ 876,000
</TABLE>
**Confidential information has been ommitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 47
EXHIBIT 10(iii)A(4)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1999 - 2001 PERFORMANCE PERIOD
NSI CORPORATE
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.01562
b = 0.07813
Above Commitment Level EP:
a = 0.03390
b =-1.00000
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<PAGE>
Page 48
EXHIBIT 10(iii)A(4)
Revised Appendix A
Aspiration Award Program Illustration - FY 1999-2001
Name: Stewart A. Searle III
Position: SVP, Corporate Developement
Division: Corporate
Salary: $240,000
<TABLE>
<S> <C> <C> <C>
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit (in millions) ** ** **
Individual AAI Opportunity $ 28,800 $ 115,200 $ 576,000
</TABLE>
**Confidential information has been ommitted and filed separately with the
Securities and Exchange Commission.
<PAGE>
Page 49
EXHIBIT 10(iii)A(4)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1999 - 2001 PERFORMANCE PERIOD
NSI CORPORATE
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.01562
b = 0.07813
Above Commitment Level EP:
a = 0.03390
b =-1.00000
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Page 50
EXHIBIT 27
Financial Data Schedule
Quarter Ended November 30, 1999
Pursuant to Section 601(c) of Regulation S-K
This schedule contains summary financial information extracted from National
Service Industries, Inc. consolidated balance sheet as of November 30, 1999 and
the consolidated statement of income for the three months ended November 30,
1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-1-1999
<PERIOD-END> NOV-30-1999
<CASH> 1,469
<SECURITIES> 0
<RECEIVABLES> 364,481
<ALLOWANCES> 7,566
<INVENTORY> 234,909
<CURRENT-ASSETS> 672,729
<PP&E> 818,787
<DEPRECIATION> 431,893
<TOTAL-ASSETS> 1,685,224
<CURRENT-LIABILITIES> 397,065
<BONDS> 432,852
0
0
<COMMON> 57,919
<OTHER-SE> 576,187
<TOTAL-LIABILITY-AND-EQUITY> 1,685,224
<SALES> 542,294
<TOTAL-REVENUES> 620,010
<CGS> 327,152
<TOTAL-COSTS> 372,286
<OTHER-EXPENSES> 196,502
<LOSS-PROVISION> 1,315
<INTEREST-EXPENSE> 10,055
<INCOME-PRETAX> 39,852
<INCOME-TAX> 15,462
<INCOME-CONTINUING> 24,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,390
<EPS-BASIC> .60
<EPS-DILUTED> .60
</TABLE>
