FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
( X ) QUARTERLY REPORT UNDER 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 0-11399
CINTAS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
WASHINGTON 31-1188630
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6800 CINTAS BOULEVARD
P.O. BOX 625737
CINCINNATI, OHIO 45262-5737
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(513) 459-1200
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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.
Class Outstanding December 31, 1999
- -------------------------- ------------------------------
Common Stock, no par value 111,565,276
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CINTAS CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
November 30, 1999 and May 31, 1999 3
Consolidated Condensed Statements of Income -
Three Months and Six Months Ended
November 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended November 30, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
Part II. Other Information 11
Signatures 12
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
November 30, May 31,
1999 1999
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 26,430 $ 15,803
Marketable securities 67,347 72,315
Accounts receivable, net 226,996 202,079
Inventories 136,091 137,983
Uniforms and other rental items in service 209,616 200,154
Prepaid expenses 7,470 6,151
----------- -----------
Total current assets 673,950 634,485
Property, plant and equipment, at cost, net 615,121 573,087
Other assets 197,494 200,246
----------- -----------
$ 1,486,565 $ 1,407,818
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,692 $ 46,783
Accrued compensation and related liabilities 22,148 25,521
Accrued liabilities 72,014 83,209
Income taxes -
Current 4,184 --
Deferred 49,016 40,214
Long-term debt due within one year 16,117 16,370
----------- -----------
Total current liabilities 213,171 212,097
Long-term debt due after one year 260,000 283,581
Deferred income taxes 43,725 40,717
Shareholders' equity:
Preferred stock, no par value,
100,000 shares authorized, none outstanding -- --
Common stock, no par value,
300,000,000 shares authorized,
111,534,779 shares issued and outstanding
(110,949,274 at May 31, 1999) 53,345 49,974
Retained earnings 919,991 825,268
Accumulated other comprehensive income (3,667) (3,819)
----------- -----------
Total shareholders' equity 969,669 871,423
----------- -----------
$ 1,486,565 $ 1,407,818
=========== ===========
See accompanying notes.
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share data)
Three months ended Six months ended
November 30 November 30
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ----------
Revenue:
Rentals $ 349,726 $ 320,342 $ 694,243 $ 637,833
Other service 116,123 116,156 228,981 225,095
--------- --------- --------- ---------
465,849 436,498 923,224 862,928
Costs and expenses (income):
Cost of rentals 199,645 183,110 397,572 366,948
Cost of other service revenue 76,038 78,948 151,197 153,865
Selling and admin. expenses 109,334 99,226 220,721 204,554
Interest income (1,086) (1,228) (2,216) (2,477)
Interest expense 3,908 4,483 8,017 8,876
--------- --------- --------- ---------
387,839 364,539 775,291 731,766
--------- --------- --------- ---------
Income before income taxes 78,010 71,959 147,933 131,162
Income taxes 29,675 27,581 56,433 50,533
--------- --------- --------- ---------
Net income $ 48,335 $ 44,378 $ 91,500 $ 80,629
========= ========= ========= =========
Basic earnings per share $ .43 $ .40 $ .82 $ .73
========= ========= ========= =========
Diluted earnings per share $ .43 $ .39 $ .81 $ .71
========= ========= ========= =========
See accompanying notes.
<PAGE>
CINTAS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
November 30
-----------------------
1999 1998
---------- ----------
Cash flows from operating activities:
- ------------------------------------
Net income $91,500 $ 80,629
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 39,003 32,466
Amortization of deferred charges 10,553 9,191
Deferred income taxes 11,810 6,036
Change in current assets and liabilities,
net of acquisitions of businesses:
Accounts receivable (23,870) (25,322)
Inventories 2,526 (7,324)
Uniforms and other rental items in service (10,489) (12,068)
Prepaid expenses (1,307) (1,858)
Accounts payable (246) (8,375)
Accrued compensation and related liabilities (3,407) (89)
Accrued liabilities (12,266) 1,601
Income taxes payable 4,184 11,856
-------- --------
Net cash provided by operating activities 107,991 86,743
Cash flows from investing activities:
- ------------------------------------
Proceeds from divestiture of certain facilities 8,769 20,044
Capital expenditures (81,914) (89,204)
Proceeds from sale or redemption of
marketable securities 62,423 80,386
Purchase of marketable securities (57,455) (67,081)
Acquisitions of businesses, net of cash acquired (7,315) (5,099)
Other (922) 6,404
-------- --------
Net cash used by investing activities (76,414) (54,550)
Cash flows from financing activities:
- ------------------------------------
Repayment of long-term debt (23,858) (38,807)
Issuance of common stock 2,370 1,354
Pre merger dividends to former UTY owners -- (846)
Other 538 (2,851)
-------- --------
Net cash used in financing activities (20,950) (41,150)
Net increase/(decrease) in cash and cash equivalents 10,627 (8,957)
Cash and cash equivalents at beginning of period 15,803 13,423
-------- --------
Cash and cash equivalents at end of period $ 26,430 $ 4,466
======== ========
See accompanying notes.
<PAGE>
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
1. The consolidated condensed financial statements of Cintas Corporation
included herein have been prepared by Cintas, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. While we believe that the disclosures are adequately
presented, it is suggested that these consolidated condensed financial
statements be read in conjunction with the financial statements and notes
included in our most recent annual report for the fiscal year ended May 31,
1999. A summary of our significant accounting policies is presented on page
27 of our most recent annual report. There have been no material changes in
the accounting policies followed by Cintas during fiscal year 2000. Certain
fiscal 1999 amounts have been reclassified to conform to the fiscal 2000
presentation.
2. Interim results are subject to variations and are not necessarily
indicative of the results of operations for a full fiscal year. In the
opinion of management, adjustments (which include only normal recurring
adjustments) necessary for a fair statement of the results of the interim
periods shown have been made.
3. In March 1999, Cintas acquired Unitog Company, a rental and direct sale
uniform provider. The acquisition was accounted for using the pooling of
interests method of accounting. At that time, the accompanying consolidated
financial statements were restated to include the financial position and
operating results of Unitog for all periods.
4. The following table represents a reconciliation of the shares used to
calculate basic and diluted earnings per share for the respective years:
Three Months Ended Six Months Ended
November 30, November 30
-------------------- ------------------
1999 1998 1999 1998
--------- -------- ------- --------
Numerator:
Net income $ 48,335 $ 44,378 $ 91,500 $ 80,629
Denominator:
Denominator for basic earnings per
share-weighted avg. shares 111,265 110,358 111,132 110,402
======== ======== ======= ========
Effect of dilutive securities-
employee stock options 1,956 2,214 2,052 2,492
======== ======== ======= ========
Denominator for diluted earnings
per share-adjusted weighted avg.
shares and assumed conversions 113,221 112,572 113,184 112,894
======== ======== ======= ========
<PAGE>
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Three Months Ended Six Months Ended
November 30 November 30
------------------ -------------------
1999 1998 1999 1998
------- -------- -------- ---------
Basic earnings per share $ .43 $ .40 $ .82 $ .73
======== ========= ========= ======
Diluted earnings per share $ .43 $ .39 $ .81 $ .71
======== ========= ========= ======
5. The components of comprehensive income for the three and six month periods
ended November 30, 1999 and 1998 are as follows:
Three Months Ended Six Months Ended
November 30 November 30
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net income $ 48,335 $ 44,378 $ 91,500 $ 80,629
Other comprehensive income:
Foreign currency
translation adjustment 395 664 152 (2,801)
-------- -------- -------- --------
Comprehensive income $ 48,730 $ 45,042 $ 91,652 $ 77,828
======== ======== ======== ========
6. Cintas classifies its businesses into two operating segments: Rentals and
Other Services. The Rental operating segment designs and manufactures
corporate identity uniforms which it rents, along with other items, to its
customers. The Other Services operating segment involves the design,
manufacture and direct sale of uniforms to its customers as well as the
sale of ancillary services including sanitation supplies, first aid
products and services and cleanroom supplies. All of these services are
provided throughout the United States and Canada to businesses of all types
- from small service and manufacturing companies to major corporations that
employ thousands of people. Information as to the operations of our
different business segments is set forth based on the distribution of
products and services offered. Cintas evaluates performance based on
several factors of which the primary financial measures are business
segment revenue and income before income taxes.
<PAGE>
CINTAS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share data)
Other
Rentals services Corporate Total
------------ --------- ---------- ----------
For the three months ended
November 30, 1999
Revenue $ 349,726 $ 116,123 $ -- $ 465,849
============ ========= ========= ==========
Income before income taxes $ 67,784 $ 13,048 $ (2,822) $ 78,010
============ ========= ========= ==========
For the three months ended
November 30, 1998
Revenue $ 320,342 $ 116,156 $ -- $ 436,498
============ ========= ========= ==========
Income before income taxes $ 61,437 $ 13,777 $ (3,255) $ 71,959
============ ========= ========= ==========
As of and for the six months
ended November 30, 1999
Revenue $ 694,243 $ 228,981 $ -- $ 923,224
============ ========= ========= ==========
Income before income taxes $ 129,828 $ 23,906 $ (5,801) $ 147,933
============ ========= ========= ==========
Total assets $ 1,150,455 $ 242,333 $ 93,777 $1,486,565
============ ========= ========= ==========
As of and for the six months
ended November 30, 1998
Revenue $ 637,833 $ 225,095 $ -- $ 862,928
============ ========= ========= ==========
Income before income taxes $ 115,558 $ 22,003 $ (6,399) $ 131,162
============ ========= ========= ==========
Total assets $ 1,061,340 $ 227,846 $ 79,315 $1,368,501
============ ========= ========= ==========
<PAGE>
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenues increased 7% for the three and six months ended November 30, over
the same periods in fiscal 1999. Net rental revenue increased 9% for the three
and six months ended November 30, over the same periods in the prior fiscal
year, due primarily to growth in the customer base. This revenue growth came
despite the disposition of linen volume occurring from September 1998 through
November 1999 and the high rate of lost business occurring at Unitog operations
prior to the merger. For the six months ended November 30, 1999 revenues from
other services increased 2% over the same period in fiscal 1999, principally as
a result of the increased sales of first aid supplies.
Net income increased 9% and 14% respectively, for the three and six months ended
November 30, over the same periods in fiscal 1999. This increase in net income
occurred even though income was recognized in the second quarter of fiscal 1999
by Unitog as a result of a $2.1 million pre-tax gain on the sale of certain
linen facilities and a $2.0 million breach of contract settlement with a former
customer. Diluted earnings per share increased 10% and 14%, respectively, for
the three and six months ended November 30 over the same periods in fiscal 1999.
Net interest expense (interest expense less interest income) was $2,822,000 and
$5,801,000, respectively, for the three and six months ended November 30
compared to $3,255,000 and $6,399,000, respectively, for the same periods in the
prior fiscal year. Net interest expense has decreased primarily due to the
repayment of long-term debt. Cintas' effective tax rate was approximately 38% in
both periods of fiscal 2000 as well as fiscal 1999.
Cash, cash equivalents and marketable securities increased by $6 million at
November 30, 1999 from May 31, 1999 primarily due to strong cash flow from
operations. These sources will be used to finance future acquisitions and
capital expenditures.
Net property, plant and equipment increased by $42 million from May 31, 1999 to
November 30, 1999. At the end of the second quarter of fiscal 2000, we had nine
uniform rental facilities in various stages of construction.
The integration of Unitog facilities and corporate functions are progressing as
planned. Activity in the second quarter of fiscal 2000 related to the Special
Charge accrual established in fiscal 1999 for the Unitog integration amounted to
$2.9 million, primarily related to severance payments. The remaining balance at
the end of the second quarter of fiscal 2000 is $2.0 million.
Financial Condition
At November 30, 1999, we had $94 million in cash, cash equivalents and
marketable securities. We believe that our current cash position, funds
anticipated to be generated from operations and the strength of our banking
relationships are sufficient to meet our anticipated operational and capital
needs requirements.
<PAGE>
CINTAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Quantitative and Qualitative Disclosures About Market Risk
In its normal operations, we have market risk exposure to interest rates. There
has been no significant change in our exposure to these risks which has been
previously disclosed.
Impact of Year 2000
We have completed the changes required to ensure that all of our software,
hardware and operating equipment will function properly with respect to dates in
the year 2000 and thereafter. The total cost of these changes was not material
and has been expensed as incurred. We incurred the majority of our Year 2000
costs during fiscal 1998, with substantially all of the remaining costs expensed
in fiscal 1999. As of the date of this filing, our ability to manufacture and
distribute products and services has not been adversely affected by Year 2000
issues.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides safe harbor from
civil litigation for forward-looking statements. This report contains
forward-looking statements that reflect our views as to future performance.
These statements are based on our expectations concerning future events which
involve a number of risks and uncertainties such as the performance and costs of
integration of acquisitions, fluctuations in costs of materials and labor, the
outcome of pending environmental matters and Year 2000 issues.
<PAGE>
CINTAS CORPORATION
Part II. Other Information
Item 4. Submission of matters to a vote of security holders
Cintas' Annual Shareholders' meeting was held on October 20,
1999, at which the following issues were voted upon by
shareholders:
Issue No. 1
Authority to establish the number of Directors to be elected at the Meeting
at eight.
FOR 97,538,157 AGAINST 446,335 ABSTAIN 60,252 BROKER NON-VOTES 0
---------- ------- ------ ---
Issue No. 2
Authority to elect eight Directors.
Shares -
Withheld
Name Shares For Authority
- ------------------- ---------- ----------
Richard T. Farmer 96,405,493 1,639,251
Scott D. Farmer 96,392,678 1,652,066
Gerald V. Dirvin 96,558,337 1,486,407
James J. Gardner 96,284,523 1,760,221
Roger L. Howe 96,564,334 1,480,410
Donald P. Klekamp 95,950,730 2,094,014
Robert J. Kohlhepp 96,406,548 1,638,196
John S. Lillard 96,546,745 1,497,999
<PAGE>
CINTAS CORPORATION
Issue No. 3
Proposal for the new stock option plan.
FOR 76,216,312 AGAINST 12,268,532 ABSTAIN 214,209 BROKER NON-VOTES 9,345,691
---------- ---------- ------- ---------
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit Index
Exhibit Number Description of Exhibit
-------------- -----------------------
10.13 1999 Stock Option Plan
27 Financial Data Schedule
(b.) No reports were filed on Form 8-K during the quarter.
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.
CINTAS CORPORATION
(Registrant)
/s/William C. Gale
-----------------------------------
Date: January 10, 2000 William C. Gale
Vice President and Chief Financial
Officer (Chief Accounting Officer)
CINTAS CORPORATION
1999
Stock Option Plan
ARTICLE 1
OBJECTIVES
Cintas Corporation has established this Stock Option Plan effective October
20, 1999, as an incentive to attract, retain and motivate dedicated and loyal
employees of outstanding ability, to stimulate the efforts of such persons in
meeting Cintas Corporation's objectives and to encourage ownership of Cintas
Corporation Common Stock by employees.
ARTICLE 2
DEFINITIONS
2.1 For purposes of the Plan, the following terms shall have the definition
which is attributed to them, unless another definition is clearly indicated by a
particular usage and context.
2.1.1 "Code" means the Internal Revenue Code of 1986.
2.1.2 "Cintas" means Cintas Corporation and any subsidiary of Cintas
Corporation, as the term "subsidiary" is defined in Section 424(f) of the
Code.
2.1.3 "Date of Exercise" means the date on which Cintas has received a
written notice of exercise of an Option, in such form as is acceptable to
the Committee, and full payment of the purchase price or a copy of
irrevocable directions to a broker-dealer to deliver the Option Price to
Cintas pursuant to Section hereof.
2.1.4 "Date of Grant" means the date on which an Option is awarded.
2.1.5 "Eligible Employee" means any individual who performs services
for Cintas and is treated as an Employee for federal income tax purposes.
2.1.6 "Effective Date" means October 20, 1999.
2.1.7 "Fair Market Value" means the last sale price reported on any
stock exchange or over-the-counter trading system on which Shares are
trading on a specified date. If no sale has been made on the specified
date, the prices on the last preceding date shall be used. If the Shares
are not so trading, the average of the closing bid and ask prices for a
Share on the specified date or the last previous date on which bid and ask
prices are available shall be utilized. 2.1.8 "Incentive Stock Option"
shall have the same meaning as given to that term by Section 422 of the
Code.
<PAGE>
2.1.8 "Incentive Stock Option" shall have the same meaning as given
to that term by Section 422 of the Code.
2.1.9 "Nonqualified Stock Option" means any Option granted under the
Plan which is not considered an Incentive Stock Option.
2.1.10 "Option" means the right to purchase a stated number of Shares
at a specified price. The option may be granted to an Eligible Employee
subject to the terms of this Plan, and such other conditions and
restrictions as the Committee deems appropriate. Each Option shall be
designated by the Committee to be either an Incentive Stock Option or a
Nonqualified Stock Option.
2.1.11 "Option Price" means the purchase price per Share subject to an
Option and shall be fixed by the Committee, but shall not be less than 100%
of the Fair Market Value of a Share on the Date of Grant.
2.1.12 "Permanent and Total Disability" shall mean any medically
determinable physical or mental impairment rendering an individual unable
to engage in any substantial gainful activity, which disability can be
expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than 12 months.
2.1.13 "Plan" means this 1999 Option Plan as it may be amended.
2.1.14 "Share" means one share of the Common Stock of Cintas.
ARTICLE 3
ADMINISTRATION
3.1 The Plan shall be administered by a committee designated by the Board
of Directors of Cintas. The Committee shall be comprised of two or more
directors each of whom shall be a "Non-Employee Director" as defined in Rule
16b-3 of the Securities Exchange Act of 1934 (the "Act") and an "outside
director" to the extent required by Section 162(m) of the Code ("Section
162(m)"), as such Rule and Section may be amended, superseded or interpreted
hereafter.
3.2 Except as specifically limited by the provisions of the Plan, the
Committee in its discretion shall have the authority to:
3.2.1 Determine which Eligible Employees shall be granted Options;
3.2.2 Determine the number of Shares which may be subject to each
Option;
3.2.3 Determine the Option Price;
<PAGE>
3.2.4 Determine the term of each Option;
3.2.5 Determine whether each Option is an Incentive Stock Option or
Nonqualified Stock Option;
3.2.6 Interpret the provisions of the Plan and decide all questions of
fact arising in its application; and
3.2.7 Prescribe such rules and procedures for Plan administration as
from time to time it may deem advisable.
3.3 Any action, decision, interpretation or determination by the Committee
with respect to the application or administration of this Plan shall be final
and binding upon all persons, and need not be uniform with respect to its
determination of recipients, amount, timing, form, terms or provisions of
Options.
3.4 No member of the Committee shall be liable for any action or
determination taken or made in good faith with respect to the Plan or any Option
granted hereunder, and to the extent permitted by law, all members shall be
indemnified by Cintas for any liability and expenses which may occur from any
claim or cause of action.
3.5 The Chief Executive Officer may, without participation by the
Committee, grant options to purchase up to 2,000 shares per Eligible Employee
per year to Eligible Employees who are not executive officers of the Company. In
exercising such authority, the Chief Executive Officer shall have the authority
to:
3.5.1 Determine which Eligible Employees shall be granted Options;
3.5.2 Determine the number of Shares which may be subject to each
Option;
3.5.3 Determine the Option Price;
3.5.4 Determine the term of each Option; and
3.5.5 Determine whether each Option is an Incentive Stock Option or
Nonqualified Stock Option.
ARTICLE 4
SHARES SUBJECT TO PLAN
4.1 The number of Shares that may be made subject to Options granted under
the Plan is 6,000,000. Except as provided in Section , upon lapse or termination
of any Option for any reason without being completely exercised, the Shares
which were subject to such Option may again be subject to other Options.
<PAGE>
4.2 The maximum number of Shares with respect to which options may be
granted to any employee during each fiscal year of Cintas is 100,000. If an
Option is canceled, it continues to be counted against the maximum number of
Shares for which Options may be granted to an employee. If an Option is
repriced, the transaction is treated as a cancellation of the Option and a grant
of a new Option.
ARTICLE 5
GRANTING OF OPTIONS
The Committee may, from time to time, prior to October 19, 2009, grant
Options to Eligible Employees on such terms and conditions as the Committee may
determine. More than one Option may be granted to the same Eligible Employee.
ARTICLE 6
TERMS OF OPTIONS
6.1 Subject to specific provisions relating to Incentive Stock Options set
forth in Article and as provided below, each Option shall be for a term of ten
years from the Date of Grant. Each option may be exercised for up to 20% of the
total Shares covered by the Option commencing on the fifth anniversary of the
Date of Grant with an additional 20% of the total Shares covered by the Option
becoming exercisable on each succeeding anniversary until the Option is
exercisable to its full extent. This right of exercise shall be cumulative and
shall be exercisable in whole or in part.
The Committee, at its sole discretion, may permit particular holders of
Options to exercise an Option to a greater extent than provided herein and may
establish different exercise schedules and impose other conditions upon exercise
for any particular Option or group of Options. The term of any Option shall not
be less than one or more than ten years from the date of grant and in no
circumstances exercisable during the first twelve months of the term of said
Option.
6.2 Nothing contained in this Plan or in any Option granted pursuant to it
shall confer upon any employee the right to continue in the employ of the
Company or to interfere in any way with the right of the Company to terminate
employment at any time.
6.3 Nothing contained in this Plan or in any Option granted pursuant to it
shall confer upon any employee any right to continue in the employ of Cintas or
to interfere in any way with the right of Cintas to terminate employment at any
time. So long as a holder of an Option shall continue to be an employee of
Cintas, the Option shall not be affected by any change of the employee's duties
or position.
<PAGE>
ARTICLE 7
EXERCISE OF OPTIONS
7.1 Any person entitled to exercise an Option in whole or in part, may do
so by delivering a written notice of exercise to Cintas Corporation, Attention
Corporate Secretary, at its principal office. The written notice shall specify
the number of Shares for which an Option is being exercised and the grant date
of the option being exercised and shall be accompanied by full payment of the
Option Price for the Shares being purchased and any withholding taxes.
7.2 An Option may also be exercised by delivering a written notice of
exercise to Cintas, Attention Corporate Secretary, accompanied by irrevocable
instructions to deliver shares to a broker-dealer acceptable to Cintas and a
copy of irrevocable instructions to the broker-dealer to deliver the Option
Price and any withholding taxes to Cintas.
ARTICLE 8
PAYMENT OF OPTION PRICE
In the sole discretion of the Committee, payment of the Option Price may be
made in cash, by the tender of Shares which have been owned at least six months
and which have a Fair Market Value equal to the purchase price or by any
combination of cash and such Shares.
ARTICLE 9
INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
9.1 The Committee in its discretion may designate whether an Option is to
be an Incentive Stock Option or a Nonqualified Stock Option. The Committee may
grant both an Incentive Stock Option and a Nonqualified Stock Option to the same
individual. However, where both an Incentive Stock Option and a Nonqualified
Stock Option are awarded at one time, such Options shall be deemed to have been
awarded in separate grants, shall be clearly identified, and in no event will
the exercise of one such Option affect the right to exercise the other such
Option.
9.2 Any option designated by the Committee as an Incentive Stock Option
will be subject to the general provisions applicable to all Options granted
under the Plan plus the following specific provisions:
9.2.1 At the time the Incentive Stock Option is granted, if the
Eligible Employee owns, directly or indirectly, stock representing more
than 10% of (i) the total combined voting power of all classes of stock of
Cintas, or (ii) a corporation that owns 50% or more of the total combined
voting power of all classes of stock of Cintas, then:
<PAGE>
9.2.1.1 The Option Price must equal at least 110% of the Fair
Market Value on the Date of Grant; and
9.2.1.2 The term of the Option shall not be greater than five
years from the Date of Grant.
9.2.2 The aggregate Fair Market Value of Shares (determined at the
Date of Grant) with respect to which Incentive Stock Options are
exercisable by an Eligible Employee for the first time during any calendar
year under this Plan or any other plan maintained by Cintas shall not
exceed $100,000.
9.3 If any Option is not granted, exercised, or held pursuant to the
provisions noted immediately above, it will be considered to be a Nonqualified
Stock Option to the extent that the grant is in conflict with these
restrictions.
ARTICLE 10
TRANSFERABILITY OF OPTIONS
During the lifetime of an Eligible Employee to whom an Option has been
granted, such Option is not transferable voluntarily or by operation of law and
may be exercised only by such individual. Upon the death of an Eligible Employee
to whom an Option has been granted, the Option may be transferred to the
beneficiaries or heirs of the holder of the Option by will or by the laws of
descent and distribution.
ARTICLE 11
TERMINATION OF OPTIONS
11.1 An Option will terminate as follows:
11.1.1 Upon exercise or expiration by its terms.
11.1.2 Upon termination of employment for reasons other than cause,
the then-exercisable portion of any Option will terminate on the 60th day
after the date of termination. The portion not exercisable will terminate
on the date of termination of employment. For purposes of the Plan, a leave
of absence approved by the Company shall not be deemed to be termination of
employment.
11.1.3 If an Eligible Employee holding an Option dies or becomes
subject to Permanent and Total Disability while employed by the Company, or
within sixty days after termination of employment for any reason other than
cause, or retires after age 50 through a plan of retirement acceptable to
the Company, then in each such case, such an Option may be exercised to the
extent exercisable on the date of termination of employment at any time
<PAGE>
within one year after the date of such death, occurrence of Permanent and
Total Disability or retirement. The Option may be exercised by such person
or that person's estate or guardian, or by those persons to whom the Option
may have been transferred by will or by the laws of descent and
distribution.
11.1.4 Options shall terminate immediately if employment is terminated
for cause. Cause is defined as including, but not limited to, theft of or
intentional damage to Company property, excessive use of alcohol, the use
of illegal drugs, the commission of a criminal act, or willful violation of
Cintas policy prohibiting employees from disposing of Shares for personal
gain based on knowledge of Cintas' activities or results when such
information is not available to the general public.
11.1.5 If an Eligible Employee holding an Option violates any term of
any written employment or noncompetition agreement between the Company and
the Eligible Employee, all existing Options held by such Employee will
terminate. In addition, if at the time of such violation the Employee has
exercised Options but has not received certificates for the Shares to be
issued, Cintas may void the Option and its exercise. Any such actions by
Cintas shall be in addition to any other rights or remedies available to
Cintas in such circumstances.
11.2 Except as provided in Articles 11 and hereof, in no event will the
continuation of the term of an Option beyond the date of termination of
employment allow the grantee, or his beneficiaries, heirs or assigns, to accrue
additional rights under the Plan, or to purchase more Shares through the
exercise of an Option than could have been purchased on the day that employment
was terminated. In addition, notwithstanding anything contained herein, no
option may be exercised in any event after the expiration of ten years from the
date of grant of such option.
11.3 The Committee, in its discretion, may as to any particular outstanding
Nonqualified Stock Option or upon the grant of any Nonqualified Stock Option,
establish terms and conditions which are different from those otherwise
contained in this Article , by, without limitation, providing that upon
termination of employment for any designated reason, vesting may occur in whole
or in part at such time and that such Option may be exercised for any period
during the remaining term of the Option, not to exceed ten years from the Date
of Grant.
ARTICLE 12
ADJUSTMENTS TO SHARES AND OPTION PRICE
12.1 In the event of changes in the outstanding Common Stock of Cintas as a
result of stock dividends, stock splits, reclassifications, reorganizations,
redesignations, mergers, consolidations, recapitalizations, combinations or
exchanges of Shares, or other such changes, the number and class of Shares for
<PAGE>
all purposes covered by the Plan and number and class of Shares and price per
Share for each outstanding Option covered by the Plan shall be appropriately
adjusted by the Committee.
12.2 The Committee shall make appropriate adjustments in the Option Price
to reflect any spin-off of assets, extraordinary dividends or other
distributions to shareholders.
12.3 In the event of the dissolution or liquidation of Cintas or any
merger, consolidation, combination, exchange or other transaction in which
Cintas is not the surviving corporation or in which the outstanding Shares of
Cintas are converted into cash, other securities or other property, each
outstanding Option shall terminate as of a date fixed by the Committee. The
Committee shall give not less than 20 days written notice of the date of
expiration to each holder of an Option. Each such holder shall have the right
during such period following notice to exercise the Option as to all or any part
of the Shares for which it is exercisable at the time of such notice.
12.4 All outstanding Options shall become immediately exercisable in full
if a change in control of Cintas occurs. For purposes of this Agreement, a
"change in control of Cintas" shall be deemed to have occurred if (a) any
"person", as such term is used in Sections 13(d) and 14(d) of the Act, other
than (i) a trustee or other fiduciary holding securities under an employee
benefit plan of Cintas or (ii) a member of the Farmer Family or a group
comprised solely of members of the Farmer Family becomes the "beneficial owner,"
as defined in Rule 13d-3 under the Act, directly or indirectly, of securities of
Cintas representing 30% or more of the combined voting power of Cintas' then
outstanding securities; or (b) during any period of one year (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board of Directors and any new director
whose election by the Board or nomination for election by Cintas' Shareholders
was approved by a vote of at least two-thirds (2/3) of the Directors then still
in office who either were Directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof. For purposes of this provision, the
term "Farmer Family" shall include Richard T. Farmer and Joyce E. Farmer, their
respective lineal descendants, spouses of their lineal descendants, the estate
of any person falling within the scope of any of the preceding categories and an
inter vivos or testamentary trust whose beneficiaries consist solely of persons
falling within the scope of any of the previous categories.
ARTICLE 13
OPTION AGREEMENTS
13.1 All Options granted under the Plan shall be evidenced by a written
agreement in such form or forms as the Committee in its sole discretion may
determine.
13.2 Each optionee, by acceptance of an Option under this Plan, shall be
deemed to have consented to be bound, on the optionee's own behalf and on behalf
of the optionee's heirs, assigns and legal representatives, by all terms and
conditions of this Plan.
<PAGE>
ARTICLE 14
AMENDMENT OR DISCONTINUANCE OF PLAN
14.1 The Board of Directors of Cintas may at any time amend, suspend, or
discontinue the Plan; provided, however, that no amendments by the Board of
Directors of Cintas shall, without further approval of the shareholders of
Cintas:
14.1.1 Change the definition of Eligible Employees;
14.1.2 Except as provided in Articles and hereof, increase the number
of Shares which may be subject to Options granted under the Plan; or
increase the maximum number of Shares with respect to which Options may be
granted to any eligible Employee of Cintas during any fiscal year;
14.1.3 Cause the Plan or any Option granted under the Plan to fail to
meet the conditions for exclusion of application of the $1 million
deduction limitation imposed by Section 162(m) of the Code; or
14.1.4 Cause any Option granted as an Incentive Stock Option to fail
to qualify as an "Incentive Stock Option" as defined by Section 422 of the
Code.
14.2 No amendment or termination of the Plan shall impair any Option
granted under the Plan without the consent of the holder thereof.
14.3 This Plan shall continue in effect until the expiration of all Options
granted under the Plan unless terminated earlier in accordance with this Article
; provided, however, that it shall otherwise terminate and no options shall be
granted ten years after the Effective Date.
ARTICLE 15
EFFECTIVE DATE
This Plan shall become effective as of October 20, 1999.
ARTICLE 16
MISCELLANEOUS
16.1 Nothing contained in this Plan or in any action taken by the Board of
Directors or Shareholders of Cintas shall constitute the granting of an Option.
An Option shall be granted only at such time as a written agreement shall have
been executed and delivered to the respective employee and the employee shall
have executed such agreement respecting the Option in conformance with the
provisions of the Plan.
<PAGE>
16.2 Certificates for Shares purchased through exercise of Options will be
issued on or about the 60th day after exercise of the Option and payment
therefore as called for by the terms of the Option. Cintas shall not be required
to issue certificates to any person exercising Options more often than once each
quarter of each fiscal year. No persons holding an Option or entitled to
exercise an Option granted under this Plan shall have any rights or privileges
of a Shareholder of Cintas with respect to any Shares issuable upon exercise of
such Option until certificates representing such Shares shall have been issued
and delivered. No Shares shall be issued and delivered upon exercise of an
Option unless and until Cintas, in the opinion of its counsel, has complied with
all applicable registration requirements of the Securities Act of 1933 and any
applicable state securities laws and with any applicable listing requirements of
any national securities exchange on which Cintas securities may then be listed
as well as any other requirements of law.
16.3 This Plan shall continue in effect until the expiration of all Options
granted under the Plan unless terminated earlier in accordance with Article 14;
provided, however, that it shall otherwise terminate ten years after the
Effective Date of October 20, 1999.
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<PERIOD-END> NOV-30-1999
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