National Service Industries, Inc. FY01 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V+IeHad3+rDffgu7Rz7SyOUSCT/IfyZPTL1IZGrNXx4alYvLkMMvrvcKyx3oZOPH fiAxncPWoBqTaGDVANvm2g== 0000070538-01-000002.txt : 20010123 0000070538-01-000002.hdr.sgml : 20010123 ACCESSION NUMBER: 0000070538-01-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL SERVICE INDUSTRIES INC CENTRAL INDEX KEY: 0000070538 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC LIGHTING & WIRING EQUIPMENT [3640] IRS NUMBER: 580364900 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03208 FILM NUMBER: 1504848 BUSINESS ADDRESS: STREET 1: 1420 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30309 BUSINESS PHONE: 4048531000 MAIL ADDRESS: STREET 1: 1420 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30309 10-Q 1 0001.htm NSI 10-Q AND EXHIBITS National Service Industries, Inc. FY01 10-Q

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Index to Exhibits on Page 15

                                   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, 2000.

                                       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 - 41,052,654 shares as of December 31, 2000

Page 2

NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES

INDEX

Page No.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (Unaudited) -
NOVEMBER 30, 2000 AND AUGUST 31, 2000 3

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) -
THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999 4

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) -
THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999 5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6-10

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-12

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 12

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS 13

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13

SIGNATURES 14

EXHIBIT INDEX 15

Page 3
                                           NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES

                                                CONSOLIDATED BALANCE SHEETS (Unaudited)
                                            (In thousands, except share and per-share data)

                                                                                            November 30,       August 31,
                                                                                                2000              2000    

ASSETS
Current Assets:
      Cash and cash equivalents                                                                   $ 3,148       $   1,510
      Receivables, less reserves for doubtful accounts of $8,269 at November 30,
                 2000 and $7,310 at August 31, 2000                                               388,299         409,448
      Inventories, at the lower of cost (on a first-in, first-out basis) or market                270,843         257,579
      Linens in service, net of amortization                                                       55,593          57,162
      Deferred income taxes                                                                         9,721          10,285
      Prepayments                                                                                  30,500          25,740 
           Total Current Assets                                                                   758,104         761,724 

Property, Plant, and Equipment, at cost:
      Land                                                                                         28,538          28,697
      Buildings and leasehold improvements                                                        209,339         206,946
      Machinery and equipment                                                                     564,549         559,483 
           Total Property, Plant, and Equipment                                                   802,426         795,126
      Less-Accumulated depreciation and amortization                                              381,788         368,067 
           Property, Plant, and Equipment-net                                                     420,638         427,059 

Other Assets:
      Goodwill and other intangibles                                                              530,677         536,009
      Other                                                                                        93,538          95,347 
           Total Other Assets                                                                     624,215         631,356 
                Total Assets                                                                   $1,802,957      $1,820,139 

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
      Current maturities of long-term debt                                                         $1,065         $   201
      Commercial paper, short-term                                                                244,645         236,706
      Notes payable                                                                                20,039          20,285
      Accounts payable                                                                            114,325         130,573
      Accrued salaries, commissions, and bonuses                                                   48,672          63,832
      Current portion of self-insurance reserves                                                    8,289           7,006
      Accrued taxes payable                                                                         6,388           1,924
      Other accrued liabilities                                                                    80,677          80,125 
           Total Current Liabilities                                                              524,100         540,652 

Long-Term Debt, less current maturities                                                           383,043         384,242 
Deferred Income Taxes                                                                              94,260          96,153 
Self-Insurance Reserves, less current portion                                                      31,517          37,484 
Other Long-Term Liabilities                                                                        96,695          93,138 

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                                                                              28,428          29,657
      Retained earnings                                                                         1,025,964       1,022,974
      Accumulated other comprehensive income items                                                (15,295)        (12,777)
                                                                                                1,097,016       1,097,773
      Less-Treasury stock, at cost (16,866,324 shares at November 30, 2000 and
           17,090,414 shares at August 31, 2000)                                                  423,674         429,303 
         Total Stockholders' Equity                                                               673,342         668,470 
                Total Liabilities and Stockholders' Equity                                     $1,802,957      $1,820,139 

The accompanying notes to consolidated financial statements are an integral part of these statements.

Page 4
                                          NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES

                                             CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                                                 (In thousands, except per-share data)


                                                                          THREE MONTHS ENDED
                                                                              NOVEMBER 30          
                                                                          2000           1999    

Sales and Service Revenues:
      Net sales of products                                              $562,652       $542,294
      Service revenues                                                     81,107         77,716 
           Total Revenues                                                 643,759        620,010 

Costs and Expenses:
      Cost of products sold                                               332,683        323,914
      Cost of services                                                     46,433         45,134
      Selling and administrative expenses                                 218,104        196,971
      Amortization expense                                                  5,047          5,166
      Interest expense, net                                                13,261          9,986
      Other expense (income), net                                           1,982         (1,013)
           Total Costs and Expenses                                       617,510        580,158 

Income before Provision for Income Taxes                                   26,249         39,852

Provision for Income Taxes                                                  9,712         15,462 

Net Income                                                               $ 16,537       $ 24,390 

Per Share:
      Basic Earnings per Share                                           $    .40       $    .60 
        Basic Weighted Average Number of Shares Outstanding                40,941         40,584 

      Diluted Earnings per Share                                         $    .40       $    .60 
         Diluted Weighted Average Number of Shares Outstanding             40,958         40,686 

The accompanying notes to consolidated financial statements are an integral part of these statements.

Page 5
                                          NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                                            (In thousands)

                                                                                                        THREE MONTHS ENDED     
                                                                                                           NOVEMBER 30         
                                                                                                      2000             1999    

Cash Provided by (Used for) Operating Activities
      Net income                                                                                      $16,537         $24,390
      Adjustments to reconcile net income to net cash provided by (used for) operating
      activities:
           Depreciation and amortization                                                               22,502          21,210
           Provision for losses on accounts receivable                                                  1,522           1,315
           (Gain) loss on the sale of property, plant, and equipment                                    1,865            (434)
           Gain on the sale of business                                                                     -            (186)
           Change in assets and liabilities net of effect of acquisitions and divestitures-
                Receivables                                                                            18,939          27,574
                Inventories and linens in service, net                                                (12,526)        (15,264)
                Deferred income taxes                                                                  (1,328)          4,368
                Prepayments and other                                                                  (4,760)         (3,421)
                Accounts payable and accrued liabilities                                              (21,169)        (30,270)
                Self-insurance reserves and other long-term liabilities                                (2,553)            426 
                      Net Cash Provided by Operating Activities                                        19,029          29,708 

Cash Provided by (Used for) Investing Activities
      Purchases of property, plant, and equipment                                                     (14,660)        (21,792)
      Sale of property, plant, and equipment                                                              589             783
      Acquisitions                                                                                       (200)        (14,030)
      Change in other assets                                                                            2,348             693 
           Net Cash Used for Investing Activities                                                     (11,923)        (34,346) 

Cash Provided by (Used for) Financing Activities
      Borrowings (repayments) of  notes payable, net                                                     (246)             91
      Issuances (repayments) of commercial paper, net (less than 90 days)                              15,601         (73,931)
      Issuances of commercial paper (greater than 90 days)                                              1,338          89,801
      Repayments of commercial paper (greater than 90 days)                                            (9,000)              -
      Repayments of long-term debt                                                                       (335)           (286)
      Treasury stock transactions, net                                                                    754           1,199
      Cash dividends paid                                                                             (13,547)        (13,014)
           Net Cash Provided by (Used for) Financing Activities                                        (5,435)          3,860 

Effect of Exchange Rate Changes on Cash                                                                   (33)             (7)

Net Change in Cash and Cash Equivalents                                                                 1,638            (785)

Cash and Cash Equivalents at Beginning of Period                                                        1,510           2,254 

Cash and Cash Equivalents at End of Period                                                            $ 3,148         $ 1,469 

Supplemental Cash Flow Information:
      Income taxes paid during the period                                                             $ 3,308         $ 9,207
      Interest paid during the period                                                                   9,674           5,511

Noncash Investing and Financing Activities:
         Treasury shares issued under long-term incentive plan                                        $ 4,551         $ 5,667
         Noncash aspects of acquisitions--
           Assets acquired                                                                            $   200         $   876
           Liabilities assumed or incurred                                                                  -              24

The accompanying notes to consolidated financial statements are an integral part of these statements.

Page 6

NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollar amounts in thousands, except share and per-share data and as indicated)

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, 2000 has been derived from audited statements. These statements
reflect all adjustments, all of which are of a noraml, recurring nature, which
are, in the opinion of management, necessary to present fairly the consolidated
financial position as of November 30, 2000, the consolidated results of
operations for the three months ended November 30, 2000 and 1999, and the
consolidated cash flows for the three months ended November 30, 2000 and 1999.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation. Certain information
and footnote discolsures 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 inclulded in the company's Annual Report on Form 10-K for the fiscal
year ended August 31, 2000.

The results of operations for the three months ended November 30, 2000 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. RECENT ACCOUNTING STANDARDS

Newly Adopted Accounting Standards

Statement of Financial Accounting Standards ("SFAS") No. 133 (as amended by SFAS
No. 138), "Accounting for Derivative Instruments and Hedging Activities," was
issued in June of 1998 and is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Accordingly, the company adopted SFAS 133 at the
beginning of the quarter ended November 30, 2000. The adoption of this statement
did not have a material impact on the company’s consolidated financial
statements.

Accounting Standards Yet to be Adopted

In September 2000, the Emerging Issues Task Force ("EITF") reached a final
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs." Specifically, Issue 00-10 addresses how the seller of goods should
classify amounts billed to a customer for shipping and handling. The EITF
concluded that all amounts billed to a customer in a sales transaction related
to shipping and handling represent revenues earned for the goods provided and
should be classified as revenue. The company is required to and will adopt EITF
00-10 in the fourth quarter of fiscal year 2001. The company has historically
netted certain shipping and handling revenues charged to customers in cost and
expenses. The adoption of EITF 00-10 will result in an increase in sales and
service revenues and cost and expenses, with no impact on net income. The
company has not calculated the effect of this reclassification on its reported
revenues and costs.

3. BUSINESS SEGMENT INFORMATION

                                                                               Depreciation        Capital
                                                  Sales and     Operating          and          Expenditures
                                                   Service        Profit       Amortization       Including
                                                   Revenues       (Loss)         Expense        Acquisitions  
Three Months Ended November 30, 2000

Lighting Equipment                                   $377,680       $33,276           $12,583          $ 8,891
Chemical                                              126,355         6,537             2,847            2,127
Textile Rental                                         81,107         3,727             4,147            2,071
Envelope                                               58,617         1,712             2,325            1,084
                                                      643,759        45,252            21,902           14,173
Corporate                                                            (5,742)              600              687
Interest expense, net                                               (13,261)                                  
Total                                                $643,759       $26,249           $22,502          $14,860

Page 7
                                                                               Depreciation        Capital
                                                  Sales and     Operating          and          Expenditures
                                                   Service        Profit       Amortization       Including
                                                   Revenues       (Loss)         Expense        Acquisitions  
Three Months Ended November 30, 1999
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

                                                               Total Assets
                                                     November 30,        August 31,
                                                         2000                2000    
Lighting Equipment                                    $1,133,007           $1,145,927
Chemical                                                 232,861              241,645
Textile Rental                                           220,850              222,957
Envelope                                                 153,868              151,003 
Subtotal                                               1,740,586            1,761,532
Corporate                                                 62,371               58,607 
Total                                                 $1,802,957           $1,820,139

4.    INVENTORIES


Major  classes of  inventory as of November 30, 2000 and August 31, 2000 were as
follows:

                                                    November 30,          August 31,
                                                       2000                 2000     
Raw Materials and Supplies                             $101,376             $104,566
Work-in-Process                                          19,183               20,262
Finished Goods                                          150,284              132,751 
Total                                                  $270,843             $257,579

Page 8

5.    EARNINGS PER SHARE



The company  accounts  for  earnings  per share  using  Statement  of  Financial
Accounting Standards 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 would occur if dilutive  options were  exercised.  The
following table  calculates basic earnings per common share and diluted earnings
per common share at November 30:

                                                                               Three Months Ended
                                                                                  November 30         
                                                                             2000              1999   
Basic earnings per common share:
      Net income                                                            $16,537           $24,390
      Basic weighted average shares outstanding (in thousands)               40,941            40,584 
      Basic earnings per common share                                        $  .40             $ .60 

Diluted earnings per common share:
      Net income                                                            $16,537           $24,390

      Basic weighted average shares outstanding (in thousands)               40,941            40,584
               Add - Shares of common stock issuable upon assumed
               exercise of dilutive stock options (in thousands)                 17               102 
      Diluted weighted average shares outstanding (in thousands)             40,958            40,686 

      Diluted earnings per common share                                      $  .40             $ .60 




6.    COMPREHENSIVE INCOME


The  company  adopted  Statement  of  Financial  Accounting  Standards  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 three  months  ended  November  30, 2000 and 1999  includes  only
foreign  currency  translation  adjustments.  The  calculation of  comprehensive
income is as follows:


                                                                 Three Months Ended
                                                                     November 30         
                                                               2000               1999   

Net income                                                    $16,537            $24,390
Other comprehensive income (loss)                              (2,518)               (10)
       Comprehensive Income                                   $14,019            $24,380 

Page 9

7.    LEGAL PROCEEDINGS


The company is subject to various  legal claims  arising in the normal course of
business  out of the  conduct of its  current  and prior  businesses,  including
patent infringement and product liability claims. Based on information currently
available,  it is the opinion of  management  that the  ultimate  resolution  of
pending and threatened legal proceedings will not have a material adverse effect
on the company's financial  condition or results of operations.  However, in the
event of  unexpected  future  developments,  it is  possible  that the  ultimate
resolution of such matters, if unfavorable, could have a material adverse effect
on the  company's  results of  operations  in a particular  future  period.  The
company reserves for known legal claims when payments associated with the claims
become probable and the costs can be reasonably  estimated.  The actual costs of
resolving legal claims may be substantially  lower or higher than that reserved.
The company does not believe that the amount of such costs below or in excess of
that reserved is reasonably estimable.


Among the  product  liability  claims to which the company is subject are claims
arising  from  the   installation   and   distribution  of   asbestos-containing
insulation,  primarily  in  the  southeastern  United  States,  by a  previously
divested business of the company. The company has reached settlement  agreements
with  substantially all of its relevant insurers  providing for their payment of
these claims up to the various policy limits. Over the past two decades, through
November  30,  2000,  approximately  35,800  such claims  against the  company's
business have been resolved for an aggregate cost (liability  payments and other
expenses) of approximately  $40 million,  approximately $39 million of which has
been paid by  insurers.  The average  per-claim  liability  payment  made by the
company and its insurers is less than nine hundred  dollars over that period and
is slightly more than a thousand dollars over the past two years. As of November
30, 2000,  there were  approximately  31,400 similar claims pending  against the
company,  including  approximately  16,000  claims  that  have been  settled  in
principle (but not yet finalized) for amounts  generally  consistent with recent
historical  per-claim  settlement  costs.  The company  anticipates that similar
claims  will be made in the  future.  Neither  the number of such claims nor the
liabilities which may arise from them is reasonably estimable.


Since  1988 the  company  has been a  member,  together  with a number  of other
companies  that are among the  defendants  in these  claims,  of the  Center for
Claims  Resolution  (the "CCR"),  which has handled all such claims on behalf of
the company.  The company has been responsible for varying  percentages of CCR's
defense  and  liability   payments  on  a   claim-by-claim   basis  pursuant  to
predetermined  sharing  formulae;  substantially all of the company's portion of
those payments have been paid directly by the company's  insurers.  During 2000,
one member left the CCR;  another  member had its  membership  terminated by the
CCR's Board; and another member declared  bankruptcy.  These members have failed
to pay certain  financial  obligations in connection with  settlements that were
reached  while  they  were  CCR  members.   The  company   expects  to  pay  CCR
approximately five hundred thousand dollars for the company's allocated share of
the amount needed to cover defaulted  obligations  relating to paid settlements;
the CCR may  request,  and the  company  may be  subject  to claims  that it has
liability for, further payments with respect to settlements reached in principle
but not finalized.  Although the company would seek to recover any such payments
from insurance and other sources,  there is no assurance that such payments,  if
made by the company,  would be  recoverable.  In addition,  several  significant
companies  that are  traditional  co-defendants  in  similar  claims but are not
members of CCR sought  bankruptcy  protection  during 2000. The absence of these
traditional  defendants  may increase the cost of resolving  similar  claims for
other defendants, including the company and the other remaining CCR members. The
company expects that beginning on or about February 1, 2001, it will use CCR for
claims  processing  and  handling but not for sharing of  liability  costs;  the
company will also use coordinating counsel and will participate more directly in
defense of claims.


The ultimate asbestos-related liability of the company is difficult to estimate.
Based  on  the  company's   experience  to  date,  the  company   believes  that
substantially  all of the  costs  it  may  incur  in  defending  and  ultimately
disposing of asbestos-related  claims will be paid by its insurers.  The company
is and will continue  monitoring  and analyzing  the trends,  developments,  and
variables  affecting  or likely to affect the  resolution  of pending and future
claims against the company.


Page 10

8.    ENVIRONMENTAL MATTERS


The company's operations,  as well as similar operations of other companies, are
subject  to  comprehensive  laws and  regulations  relating  to the  generation,
storage,  handling,  transportation,  and disposal of hazardous  substances  and
solid and hazardous wastes and to the remediation of contaminated sites. Permits
and environmental  controls are required for certain of the company's operations
to limit air and water pollution, and these permits are subject to modification,
renewal, and revocation by issuing authorities.  The company believes that it is
in substantial compliance with all material environmental laws, regulations, and
permits.  On an ongoing basis,  the company  incurs capital and operating  costs
relating to environmental  compliance.  Environmental  laws and regulations have
generally  become stricter in recent years, and the cost of responding to future
changes may be substantial.


The company's environmental reserves, which are included in current liabilities,
totaled  $10.1  million and $10.2  million at  November 30 and August 31,  2000,
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 as to the method of apportioning  the liability can be given as to any
particular site.


The company is currently a party to, or otherwise involved in, legal proceedings
in connection with 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.  The CSR is subject  to EPD's  final  approval.  Until the CSR is
finalized,  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 thousand 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.


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 potential 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.



Page 11

                                                 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  remained in solid  financial  condition at November 30,
2000. Net working capital was $234.0  million,  up from $221.1 million at August
31, 2000, and the current ratio remained  constant at 1.4. At November 30, 2000,
the company's percentage of debt to total  capitalization  increased slightly to
49.1 percent compared to 49.0 percent at August 31, 2000.


Results of Operations


National  Service  Industries  generated  revenue of $643.8 million in the three
months ended  November 30,  2000,  compared to revenue of $620.0  million in the
previous  year.  The  increase  was  related  to  growth in the  company's  core
businesses, primarily in the lighting equipment and chemical segments.


Net income  totaled  $16.5  million,  or $.40 per diluted  share,  for the three
months ended November 30, 2000, compared to net income of $24.4 million, or $.60
per diluted  share,  for the three  months ended  November 30, 1999.  Net income
declined $7.9 million primarily because of increased  interest expense and costs
incurred to  reposition  the  business  for an  anticipated  economic  slowdown.
Interest expense increased $3.3 million as a result of higher interest rates and
increased debt levels  associated  with working  capital  increases.  Additional
costs  to  reposition  the  businesses  were  associated  with the  closing  and
streamlining  of  operations  and the  rollout  of  technological  enhancements.
Management  expects these initiatives to reduce the company's cost structure and
improve  service  capability.  Anticipated  higher  interest costs and continued
investments to improve the company's cost structure are forecasted to negatively
impact  second  quarter  performance,  with first half results as much as thirty
percent lower than last year's first half results.  However,  management expects
reductions in the company's cost structure to contribute to improved second half
results.


The lighting  equipment segment reported revenue of $377.7 million for the first
quarter,  an increase of $10.1 million over the previous  year.  The increase in
revenue  resulted  primarily  from higher  sales  volumes in its core  business.
However,  a recent  slowing of order rates may indicate an initial  weakening in
the non-residential  construction market. Excluding a $1.0 million pretax charge
during the first quarter of fiscal 2000 for closing a manufacturing  facility in
California,  operating profit decreased  approximately $3.0 million,  from $35.3
million to $33.3 million,  because of planned  promotional costs associated with
home center retail sales,  increased  spending for information  technology,  and
costs to establish a Texas distribution center.


In the chemical segment,  revenue increased $6.5 million,  or 5.4 percent, due to
sales volume growth in its core business.  Operating  profit of $6.5 million was
$2.1 million lower than last year's results  primarily because of costs incurred
in  conjunction  with  the  consolidation  of the  Zep and  Selig  manufacturing
operations  and  costs  associated  with a North  American  direct  sales  force
training meeting.  Management  expects to benefit from these initiatives  during
the second half of the fiscal year through  reduced  operating costs and through
improved direct sales force effectiveness.


The textile rental segment  generated  revenue of $81.1 million during the first
quarter,  representing a 4.4 percent  increase over last year. This increase was
attributable   primarily  to  revenues  associated  with  acquired   businesses.
Operating  profit was $3.7  million  compared  to $5.1  million a year ago.  The
decline in operating  profit was primarily  related to costs incurred to close a
facility in order to reduce the segment's  cost  structure and improve  customer
service.


Envelope  segment  revenue  increased  7.0 percent  from $54.8  million to $58.6
million.  The increase was  primarily  due to higher sales  volumes to strategic
partners.  Operating  profit  decreased  $1.4 million to $1.7 million  primarily
because of costs associated with reorganizing the Miami,  Florida  manufacturing
facility.


Corporate expenses totaled $5.7 million,  compared to $2.3 million one year ago,
primarily  as a  result  of  lower-than-normal  prior-year  long-term  incentive
compensation expense.  Additionally, the provision for income taxes decreased to
37.0 percent of pretax income for the first quarter  compared to 38.8 percent in
the prior  year,  primarily  due to the  implementation  of  various  tax-saving
strategies impacting fiscal 2001.



Page 12


Liquidity and Capital Resources


Operating Activities

Operations  provided  cash of $19.0  million  during the first quarter of fiscal
2001 compared with $29.7 million during the respective period of the prior year.
Fiscal 2001 operating cash flow was lower primarily because of a decrease in net
income.


Investing Activities


Investing  activities  used cash of $11.9  million  versus $34.3  million in the
prior year.  The  improvement  in investing  cash flows  related  primarily to a
decrease in acquisition spending and a decrease in purchases of property, plant,
and equipment.  Higher acquisition  spending in fiscal 2000 was primarily due to
remaining payments associated with the 1999 acquisition of Holophane.


Capital  expenditures  totaled  $14.7  million  compared to $21.8 million in the
first quarter of last year.  In the first  quarter of fiscal 2001,  the lighting
equipment segment invested primarily in manufacturing upgrades and improvements.
Capital   expenditures  in  the  envelope  segment  were  primarily  related  to
manufacturing  process  improvements  and information  systems.  In the chemical
segment,  capital expenditures were associated with manufacturing  equipment and
facilities improvements.  Capital investments in the textile rental segment were
mainly  attributable  to building  improvements,  replacing old  equipment,  and
information systems. In the first quarter of fiscal 2000, 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.  Management  believes  current cash balances,  anticipated  cash
flows from operations,  available funds from the commercial paper program or the
committed  credit  facilities,   and  the  complimentary  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 used by financing activities totaled $5.4 million in the current-year first
quarter  compared to cash provided of $3.9 million in fiscal 2000 primarily as a
result of a decrease in cash provided by net borrowings.  First quarter dividend
payments  totaled  $13.5  million,  or 33 cents per share,  compared  with $13.0
million, or 32 cents per share, for the prior-year period.


Legal Proceedings


For information concerning legal proceedings,  including trends and developments
involving legal proceedings, see footnote 7 to the financial statements included
in this filing.


Environmental Matters


For  information  concerning  environmental  matters,  see  footnote  8  to  the
financial statements included in this filing.


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  currently  utilize  any  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 $286.8 million at November 30,
2000.  Based on  outstanding  borrowings  at quarter  end, a 10 percent  adverse
change in effective  market  interest rates at November 30, 2000 would result in
additional  annual after-tax  interest  expense of  approximately  $1.2 million.
Although a fluctuation  in interest rates would not affect  interest  expense or
cash flows related to the $160 million and $200 million  publicly  traded notes,
the company's primary fixed-rate debt, a 10 percent increase in effective market
interest rates at November 30, 2000 would decrease the fair value of these notes
to approximately $134 and $193 million, respectively.


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 2001, primarily in the lighting equipment and
chemical  segments,  represented  less than 10  percent  of  revenue,  operating
profit,  and  long-lived  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.



Page 13


Cautionary Statement Regarding Forward-Looking Information


This  filing  contains  forward-looking  statements,  within the  meaning of the
Private  Securities  Litigation  Reform  Act of 1995,  that  involve  risks  and
uncertainties.  Consequently,  actual results may differ  materially  from those
indicated by the forward-looking statements.  Statements made herein that may be
considered forward looking include statements concerning: (a) anticipated future
benefits of  initiatives  undertaken to reduce the company's  cost structure and
improve the company's service capability;  (b) anticipated higher interest costs
and  investments  to improve the  company's  cost  structure and their impact on
second quarter performance;  (c) expected earnings during the first half, second
half,  and full  fiscal year of 2001;  (d)  indications  of a  weakening  in the
non-residential  construction  market;  and  (e)  the  realization  of  expected
benefits  through  reduced  operating  costs and  improved  direct  sales  force
effectiveness in the chemical segment during the second half of the fiscal year.
A variety of risks and uncertainties could cause the company's actual results to
differ materially from the anticipated  results or other expectations  expressed
in the company's forward-looking statements. The risks and uncertainties include
without  limitation the following:  (a) the uncertainty of general  business and
economic  conditions,   including  the  potential  for  a  greater-than-expected
slowdown in  non-residential  construction  awards,  interest rate changes,  and
fluctuations in commodity and raw material prices;  (b) unexpected  developments
and  outcomes in the  company's  legal and  environmental  proceedings;  (c) the
company's ability to realize the anticipated  benefits of strategic  initiatives
related  to  increased  productivity,  new  product  development,  technological
advances, cost synergies,  decreases in net working capital, and the achievement
of sales growth across the business segments;  and (d) the successful completion
of changes to manufacturing operations.



                                                      PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

For information concerning legal proceedings,  including trends and developments
involving legal proceedings, see footnote 7 to the financial statements included
in this filing.


Item 4.  Submission of Matters to a Vote of Security Holders

At the annual meeting of  stockholders  held December 21, 2000, all nominees for
director were elected to the board without  opposition and Arthur Andersen LLP's
appointment as independent auditor for the current fiscal year was ratified. The
elected board members are as follows:

James S. Balloun, Chairman                    David Levy                                  Betty L. Siegel
Leslie M. Baker, Jr.                          Sam Nunn                                    Kathy Brittain White
John L. Clendenin                             Roy Richards, Jr.                           Barrie A. Wigmore
Thomas C. Gallagher                           Ray M. Robinson                             Neil Williams

In addition, stockholders voted on the following:


                                                                                          Votes
                                                                                          Cast 
                                                                    Affirmative         Negative            Abstentions
Stockholder proposal recommending the sale of the Corporation       2,239,287           21,932,101          2,647,652

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits are listed on the Index to Exhibits (page 15).

(b)  There were no reports on Form 8-K for the three months ended November 30, 2000.


Page 14


                                                              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 9, 2001                                                               /S/ KENYON MURPHY
                                                                                       KENYON MURPHY
                                                                                       SENIOR VICE PRESIDENT AND
                                                                                       GENERAL COUNSEL



DATE     January 9, 2001                                                               /S/ BROCK HATTOX
                                                                                       BROCK HATTOX
                                                                                       EXECUTIVE VICE PRESIDENT AND
                                                                                       CHIEF FINANCIAL OFFICER

Page 15

                                                           INDEX TO EXHIBITS


                                                                                                             Page No.

EXHIBIT 10(iii)A             (1)    Incentive Stock Option Agreement for Executive Officers Effective        16
                                    Beginning October 24, 2000 between National Service Industries, Inc.
                                    and Joseph G. Parham, Jr.


                             (2)    Nonqualified Stock Option Agreement for Executive Officers Effective     23
                                    Beginning October 4, 2000 between National Service Industries, Inc.
                                    and:

                                    (a)      James S. Balloun
                                    (b)      Brock A. Hattox
                                    (c)      David Levy

                             (3)    Nonqualified Stock Option Agreement for Executive Officers Effective     29
                                    Beginning October 24, 2000 between National Service Industries, Inc.
                                    and:

                                    (a)      James S. Balloun
                                    (b)      George H. Gilmore
                                    (c)      Brock A. Hattox
                                    (d)      David Levy
                                    (e)      Joseph G. Parham, Jr.

                             (4)    Restricted Stock Award Agreement Effective Beginning October 24, 2000    36
                                    between National Service Industries, Inc. and:

                                    (a)      James S. Balloun
                                    (b)      George H. Gilmore
                                    (c)      Brock A. Hattox
                                    (d)      David Levy
                                    (e)      Joseph G. Parham, Jr.

EX-10 2 0002.htm EXHIBIT EXHIBIT 10(iii)A(1)

Exhibit 10(iii)A(1)
Page 16

INCENTIVE STOCK OPTION AGREEMENT
FOR EXECUTIVE OFFICERS AND OPERATING UNIT PRESIDENTS

THIS AGREEMENT, made as of the 24th day of October, 2000 (the "Grant Date"),
between National Service Industries, Inc., a Delaware corporation (the
"Company"), and "Name" (the "Optionee").

WHEREAS, the Company has adopted the National Service Industries, Inc. Long-Term
Achievement Incentive Plan (the "Plan") in order to provide additional incentive
to certain officers and key employees of the Company and its Subsidiaries; and

WHEREAS, the Optionee performs services for the Company or one of its
Subsidiaries; and

WHEREAS, the Committee responsible for administration of the Plan has determined
to grant the Option to the Optionee as provided herein.

NOW, THEREFORE, the parties hereto agree as follows:

1. Grant of Option.
----- -- ------

1.1 The Company hereby grants to the Optionee the right and option (the
"Option") to purchase all or any part of an aggregate of "Amount" whole Shares
subject to, and in accordance with, the terms and conditions set forth in this
Agreement.

1.2 The Option is intended to qualify as an Incentive Stock Option within the
meaning of Section 422 of the Code and shall be so construed; provided, however,
that nothing in this Agreement shall be interpreted as a representation,
guarantee, or other undertaking on the part of the Company that the Option is or
will be determined to be an Incentive Stock Option within the meaning of Section
422 of the Code. To the extent this Option is not treated as an Incentive Stock
Option, it will be treated as a Nonqualified Stock Option.

1.3 This Agreement shall be construed in accordance and consistent with, and
subject to, the provisions of the Plan (the provisions of which are incorporated
herein by reference) and, except as otherwise expressly set forth herein, the
capitalized terms used in this Agreement shall have the same definitions as set
forth in the Plan.

2. Purchase Price.
-------- -----

The price at which the Optionee shall be entitled to purchase Shares upon the
exercise of the Option shall be $19.3125 per Share.

Exhibit 10(iii)A(1)
Page 17

3. Duration of Option.
-------- -- ------

The Option shall be exercisable to the extent and in the manner provided herein
for a period of ten (10) years from the Grant Date (the "Exercise Term");
provided, however, that the Option may be earlier terminated as provided in
Section 6 hereof.

4. Exercisability of Option.
-------------- -- ------

Unless otherwise provided in this Agreement or the Plan, the Option shall
entitle the Optionee to purchase, in whole at any time or in part from time to
time. Each such right of purchase shall be cumulative and shall continue, unless
sooner exercised or terminated as herein provided during the remaining period of
the Exercise Term.

5. Manner of Exercise and Payment.
------ -- -------- --- -------

5.1 Subject to the terms and conditions of this Agreement and the Plan, the
Option may be exercised by delivery of written notice to the Company, at its
principal executive office. Such notice shall state that the Optionee is
electing to exercise the Option and the number of Shares in respect of which the
Option is being exercised and shall be signed by the person or persons
exercising the Option. If requested by the Committee, such person or persons
shall (i) deliver this Agreement to the Secretary of the Company who shall
endorse thereon a notation of such exercise and (ii) provide satisfactory proof
as to the right of such person or persons to exercise the Option.

5.2 The notice of exercise described in Section 5.1 shall be accompanied by the
full purchase price for the Shares in respect of which the Option is being
exercised, in cash, by check, or by transferring Shares to the Company having a
Fair Market Value on the day preceding the date of exercise equal to the cash
amount for which such Shares are substituted.

5.3 Upon receipt of notice of exercise and full payment for the Shares in
respect of which the Option is being exercised, the Company shall, subject to
Section 17 of the Plan, take such action as may be necessary to effect the
transfer to the Optionee of the number of Shares as to which such exercise was
effective.

5.4 The Optionee shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to any Shares subject to the Option until (i)
the Option shall have been exercised pursuant to the terms of this Agreement and
the Optionee shall have paid the full purchase price for the number of Shares in
respect of which the Option was exercised, (ii) the Company shall have issued
and delivered the Shares to the Optionee, and (iii) the Optionee's name shall
have been entered as a stockholder of record on the books of the Company,
whereupon the Optionee shall have full voting and other ownership rights with
respect to such Shares.

Exhibit 10(iii)A(1)
Page 18

6. Termination of Employment.
----------- -- ----------

6.1 In General.
-- -------

If the employment of the Optionee with the Company and its Subsidiaries shall
terminate for any reason, other than for the reasons set forth in Sections 6.2
and 7.2 below, the Option shall continue to be exercisable (to the extent the
Option was vested and exercisable on the date of the Optionee's termination of
employment) at any time within three (3) months after the date of such
termination of employment, but in no event after the expiration of the Exercise
Term.

6.2 Termination of Employment Due to Death, Disability, or Retirement.
----------- -- ---------- --- -- ------ ----------- -- ----------

If the Optionee's termination of employment is due to death, Disability, or
Retirement (termination on or after age 65), or if Optionee terminates
employment after age 55, the following shall apply:

(a) Termination Due To Death. In the event the Optionee dies while actively
employed, the Option shall become immediately and fully exercisable, and shall
remain exercisable at any time prior to the expiration of the lesser of one (1)
year from the date of death or the remaining Exercise Term, by (A) such
person(s) that have acquired the Optionee's rights under such Options by will or
by the laws of descent and distribution, or (B) if no such person described in
(A) exists, the Optionee's estate or representative of the Optionee's estate.

(b) Termination by Disability. In the event the employment of the Optionee is
terminated by reason of Disability, the Option shall become immediately and
fully exercisable as of the date the Committee determines the Optionee
terminated for Disability and shall remain exercisable at any time prior to the
expiration of the lesser of one (1) year from the date of termination or the
remaining Exercise Term.

(c) Termination by Retirement. In the event the employment of the Optionee is
terminated by reason of Retirement, the Option shall continue to vest in
accordance with the original schedule (just as if the Optionee had remained
employed) and shall remain exercisable at any time prior to the expiration of
the lesser of five (5) years from the date of termination or the remaining
Exercise Term. In the event of the Optionee's death after Retirement, the Option
shall continue to vest and be exercisable in accordance with this subsection (c)
as if the Optionee had lived and the Option shall be exercisable by the persons
described in (a) above.

Exhibit 10(iii)A(1)
Page 19

(d) Termination After Attaining Age 55. If the Optionee terminates employment
(other than as a result of death or Disability) after attaining age 55 but prior
to age 65, unless the Committee determines otherwise at the time of such
termination, the Option shall continue to vest in accordance with the original
schedule (just as if the Optionee had remained employed) and shall remain
exercisable at any time prior to the expiration of the lesser of five (5) years
or the remaining Exercise Term. In the event of the Optionee's death after
Retirement, the Option shall continue to vest and be exercisable in accordance
with this subsection (d) as if the Optionee had lived and the Option shall be
exercisable by the persons described in (a) above.

7. Effect of Change in Control.
------ -- ------ -- -------

7.1 Notwithstanding anything contained to the contrary in this Agreement, in the
event of a Change in Control, (i) the Option shall become immediately and fully
exercisable, and (ii) the Optionee will be permitted to surrender for
cancellation within sixty (60) days after such Change in Control, the Option or
any portion of the Option to the extent not yet exercised, and the Optionee
shall be entitled to receive immediately a cash payment in an amount equal to
the excess, if any, of (A) the Fair Market Value, at the time of surrender, of
the Shares subject to the Option or portion thereof surrendered, over (B) the
aggregate purchase price for such Shares under the Option; provided, however,
that if the Option was granted within six (6) months prior to the Change in
Control and the Optionee may be subject to liability under Section 16(b) of the
Exchange Act, the Optionee shall be entitled to surrender the Option, or any
portion of the Option, for cancellation during the sixty (60) day period
following the expiration of six (6) months from the Grant Date and to receive
the amount described above with respect to such surrender for cancellation.

7.2 If the employment of the Optionee is terminated within two (2) years
following a Change in Control, all vested Options shall continue to be
exercisable at any time within three (3) years after the date of such
termination of employment, but in no event after expiration of the Exercise
Term.

8. Nontransferability.
------------------

The Option shall not be transferable other than by will or by the laws of
descent and distribution. During the lifetime of the Optionee, the Option shall
be exercisable only by the Optionee.

9. No Right to Continued Employment.
-- ----- -- --------- ----------

Nothing in this Agreement or the Plan shall be interpreted or construed to
confer upon the Optionee any right with respect to continuance of employment by

Exhibit 10(iii)A(1)
Page 20

the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in
any way with the right of the Company or a Subsidiary to terminate the
Optionee's employment at any time.

10. Adjustments.
-----------

In the event of a Change in Capitalization, the Committee may make appropriate
adjustments to the number and class of Shares or other stock or securities
subject to the Option and the purchase price for such Shares or other stock or
securities. The Committee's adjustment shall be made in accordance with the
provisions of Section 11 of the Plan and shall be effective and final, binding,
and conclusive for all purposes of the Plan and this Agreement.

11. Terminating Events.
----------- ------

Subject to Section 7 hereof, upon the effective date of (i) the liquidation or
dissolution of the Company or (ii) a merger or consolidation of the Company (a
"Transaction"), the Option shall continue in effect in accordance with its terms
and the Optionee shall be entitled to receive in respect of all Shares subject
to the Option, upon exercise of the Option, the same number and kind of stock,
securities, cash, property, or other consideration that each holder of Shares
was entitled to receive in the Transaction.

12. Withholding of Taxes and Notice of Disposition.
----------- -- ----- --- ------ -- -----------

12.1 The Company shall have the right to deduct from any distribution of cash to
the Optionee an amount equal to the federal, state, and local income taxes and
other amounts as may be required by law to be withheld (the "Withholding Taxes")
with respect to the Option. If the Optionee is entitled to receive Shares upon
exercise of the Option, the Optionee shall pay the Withholding Taxes (if any) to
the Company in cash prior to the issuance of such Shares. In satisfaction of the
Withholding Taxes, the Optionee may make a written election (the "Tax
Election"), which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the Shares issuable to him or her upon
exercise of the Option, having an aggregate Fair Market Value equal to the
withholding Taxes, provided that, if the Optionee may be subject to liability
under Section 16(b) of the Exchange Act, the election must comply with the
requirements applicable to Share transactions by such Optionees.

12.2 If the Optionee makes a disposition, within the meaning of Section 424(c)
of the Code and regulations promulgated thereunder, of any Share or Shares
issued to him pursuant to his exercise of the Option within the two-year period
commencing on the day after the Grant Date or within the one-year period
commencing on the day after the date of transfer of such Share or Shares to the
Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of
such disposition, notify the Company thereof, by delivery of written notice to
the Company at its principal executive office, and immediately deliver to the
Company the amount of Withholding Taxes.

Exhibit 10(iii)A(1)
Page 21

13. Employee Bound by the Plan.
-------- ----- -- --- ----

The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be
bound by all the terms and provisions thereof.

14. Modification of Agreement.
------------ -- ---------

This Agreement may be modified, amended, suspended, or terminated, and any terms
or conditions may be waived, but only by a written instrument executed by the
parties hereto.

15. Severability.
------------

Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.

16. Governing Law.
--------- ---

The validity, interpretation, construction, and performance of this Agreement
shall be governed by the laws of the State of Delaware without giving effect to
the conflicts of laws principles thereof.

17. Successors in Interest.
---------- -- --------

This Agreement shall inure to the benefit of and be binding upon each successor
corporation. This Agreement shall inure to the benefit of the Optionee's legal
representatives. All obligations imposed upon the Optionee and all rights
granted to the Company under this Agreement shall be final, binding, and
conclusive upon the Optionee's heirs, executors, administrators, and successors.

18. Resolution of Disputes.
---------- -- --------

Any dispute or disagreement which may arise under, or as a result of, or in any
way relate to, the interpretation, construction, or application of this
Agreement shall be determined by the Committee. Any determination made hereunder
shall be final, binding, and conclusive on the Optionee and the Company for all
purposes.

Exhibit 10(iii)A(1)
Page 22

ATTEST: NATIONAL SERVICE INDUSTRIES, INC.

____________________________________________ By:__________________________________________________
Secretary James S. Balloun
Chairman, President, and
Chief Executive Officer

--------------------------------------------------
Name

EX-10 3 0003.htm EXHIBIT EXHIBIT 10(iii)A(2)

Exhibit 10(iii)A(2)
Page 23
NONQUALIFIED STOCK OPTION AGREEMENT
(SURRENDERED ASPIRATION AWARD)

THIS AGREEMENT, made as of the 4th day of October, 2000 (the "Grant Date"),
between National Service Industries, Inc., a Delaware corporation (the
"Company"), and "Name" (the "Optionee").

WHEREAS, the Optionee performs services for the Company and/or one of its
Subsidiaries; and

WHEREAS, the Committee responsible for administration of the Plan has determined
to grant the Option to the Optionee as provided herein, in accordance with the
election previously made by the Optionee to surrender all or a portion of
Optionee's Aspiration Achievement Incentive Award in exchange for Options.

NOW, THEREFORE, the parties hereto agree as follows:

1. Grant of Option.
----- -- ------

1.2 The Option is not intended to qualify as an Incentive Stock Option within
the meaning of Section 422 of the Code.

2. Purchase Price.
-------- -----

The price at which the Optionee shall be entitled to purchase Shares upon the
exercise of the Option shall be $19.4375 per Share.

3. Duration of Option.
-------- -- ------

Exhibit 10(iii)A(2)
Page 24

4. Exercisability of Option.
-------------- -- ------

The Option is, immediately upon grant, fully vested and exercisable, subject to
expiration and termination as provided herein.

5. Manner of Exercise and Payment.
------ -- -------- --- -------

6. Termination of Employment.
----------- -- ----------

6.1 In General.
-- -------

6.2 Termination of Employment Due to Specified Reasons.
----------- -- ---------- --- -- --------- --------

If the Optionee's termination of employment is due to death, Disability,

Exhibit 10(iii)A(2)
Page 25

Retirement (termination on or after age 65), termination by the Company other
than for cause, termination after attaining age 55, or voluntary termination,
the following shall apply:

(a) Termination Due To Death. In the event the Optionee dies while actively
employed, the Option shall remain exercisable until seven (7) years after the
date of grant or one (1) year after the date of termination, whichever is later
(but in any event not beyond the Exercise Term), by (A) a Permitted Transferee
(as defined in Section 8 below), if any, or such person(s) that have acquired
the Optionee's rights under such Option by will or by the laws of descent and
distribution, or (B) if no such person described in (A) exists, the Optionee's
estate or representative of the Optionee's estate.

(b) Termination by Disability. In the event the employment of the Optionee is
terminated by reason of Disability, the Option shall remain exercisable until
seven (7) years after the date of grant or one (1) year after the date the
Committee determines the Optionee terminated for Disability, whichever is later
(but in any event not beyond the Exercise Term). In the event of the Optionee's
death after such termination, the Option shall continue to be exercisable in
accordance with this subsection (b) as if the Optionee had lived and the Options
shall be exercisable by the persons described in (a) above.

(c) Termination by Retirement or by the Company Without Cause. In the event the
employment of the Optionee is terminated by reason of Retirement (at or after
age 65) or by the Company for any reason other than for cause, the Option shall
remain exercisable until seven (7) years after the date of grant or five (5)
years after the date of termination, whichever is later (but in any event not
beyond the Exercise Term). In the event of the Optionee's death after such
Retirement or termination, the Option shall continue to be exercisable in
accordance with this subsection (c) as if the Optionee had lived and the Options
shall be exercisable by the persons described in (a) above.

(d) Termination After Attaining Age 55. In the event the Optionee terminates
employment (other than as a result of death or Disability) after attaining age
55 but prior to age 65, unless the Committee determines otherwise at the time of
such termination, the Option shall remain exercisable until five (5) years after
the date of grant (but not beyond the Exercise Term). In the event of the
Optionee's death after such termination, the Option shall continue to be
exercisable in accordance with this subsection (d) as if the Optionee had lived
and the Options shall be exercisable by the persons described in (a) above.

Exhibit 10(iii)A(2)
Page 26

(e) Voluntary Termination. In the event Optionee voluntarily terminates
employment, the Options shall remain exercisable until ninety (90) days after
the date of termination (but not beyond the Exercise Term).

7. Effect of Change in Control.
------ -- ------ -- -------

7.1 Notwithstanding anything contained to the contrary in this Agreement, in the
event of a Change in Control, the Optionee shall be permitted to surrender for
cancellation within sixty (60) days after such Change in Control, the Option or
any portion of the Option to the extent not yet exercised, and the Optionee
shall be entitled to receive immediately a cash payment in an amount equal to
the excess, if any, of (A) the greater of (x) the Fair Market Value on the date
preceding the date of surrender, of the shares subject to the Option or portion
of the Option surrendered, or (y) the Adjusted Fair Market Value of the Shares
subject to the Option or portion thereof surrendered, over (B) the aggregate
purchase price for such Shares under the Option; provided, however, that if the
Option was granted within six (6) months prior to the Change in Control and the
Optionee may be subject to liability under Section 16(b) of the Exchange Act,
the Optionee shall be entitled to surrender the Option, or any portion of the
Option, for cancellation during the sixty (60) day period following the
expiration of six (6) months from the Grant Date and to receive the amount
described above with respect to such surrender for cancellation.

7.2 If the employment of the Optionee is terminated within two (2) years
following a Change in Control, the Option shall continue to be exercisable at
any time until seven (7) years after the date of grant or three (3) years after
the date of such termination of employment, whichever is later, but in no event
after expiration of the Exercise Term.

8. Nontransferability.
------------------

The Option shall not be transferable other than by will or by the laws of
descent and distribution. Notwithstanding the foregoing, the Option may be
transferred, in whole or in part, without consideration, by written instrument
signed by the Optionee, to any members of the immediate family of the Optionee
(i.e., spouse, children, and grandchildren), any trusts for the benefit of such
family members or any partnerships whose only partners are such family members
(the "Permitted Transferees"). Appropriate evidence of any such transfer to the
Permitted Transferees shall be delivered to the Company at its principal
executive office. If all or part of the Option is transferred to a Permitted
Transferee, the Permitted Transferee's rights hereunder shall be subject to the
same restrictions and limitations with respect to the Option as the Optionee.
During the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee, or if applicable, by the Permitted Transferees.

Exhibit 10(iii)A(2)
Page 27

9. No Right to Continued Employment.
-- ----- -- --------- ----------

Nothing in this Agreement or the Plan shall be interpreted or construed to
confer upon the Optionee any right with respect to continuance of employment by
the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in
any way with the right of the Company or a Subsidiary to terminate the
Optionee's employment at any time.

10. Adjustments.
-----------

11. Terminating Events.
----------- ------

12. Withholding of Taxes.
----------- -- -----

The Company shall have the right to deduct from any distribution of cash to the
Optionee an amount equal to the federal, state, and local income taxes and other
amounts as may be required by law to be withheld (the "Withholding Taxes") with
respect to the Option. If the Optionee is entitled to receive Shares upon
exercise of the Option, the Optionee shall pay the Withholding Taxes to the
Company in cash prior to the issuance of such Shares. In satisfaction of the
Withholding Taxes, the Optionee may make a written election (the "Tax
Election"), which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the Shares issuable to him or her upon
exercise of the Option, having an aggregate Fair Market Value equal to the
withholding Taxes, provided that, if the Optionee may be subject to liability
under Section 16(b) of the Exchange Act, the election must comply with the
requirements applicable to Share transactions by such Optionees.

13. Employee Bound by the Plan.
-------- ----- -- --- ----

The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be
bound by all the terms and provisions thereof.

Exhibit 10(iii)A(2)
Page 28

14. Modification of Agreement.
------------ -- ---------

This Agreement may be modified, amended, suspended, or terminated, and any terms
or conditions may be waived, but only by a written instrument executed by the
parties hereto.

15. Severability.
------------

16. Governing Law.
--------- ---

The validity, interpretation, construction, and performance of this Agreement
shall be governed by the laws of the State of Delaware without giving effect to
the conflicts of laws principles thereof.

17. Successors in Interest.
---------- -- --------

18. Resolution of Disputes.
---------- -- --------

ATTEST: NATIONAL SERVICE INDUSTRIES, INC.

____________________________________________ By:__________________________________________________
Secretary James S. Balloun
Chairman, President, and
Chief Executive Officer

--------------------------------------------------
Name of Optionee: "Name"

EX-10 4 0004.htm EXHIBIT EXHIBIT 10(iii)A(3)

Exhibit 10(iii)A(3)
Page 29

NONQUALIFIED STOCK OPTION AGREEMENT
FOR EXECUTIVE OFFICERS AND OPERATING UNIT PRESIDENTS

THIS AGREEMENT, made as of the 24th day of October, 2000 (the "Grant Date"),
between National Service Industries, Inc., a Delaware corporation (the
"Company"), and "Name" (the "Optionee").

WHEREAS, the Optionee performs services for the Company and/or one of its
Subsidiaries; and

WHEREAS, the Committee responsible for administration of the Plan has determined
to grant the Option to the Optionee as provided herein.

NOW, THEREFORE, the parties hereto agree as follows:

1. Grant of Option.
----- -- ------

1.2 The Option is not intended to qualify as an Incentive Stock Option within
the meaning of Section 422 of the Code.

2. Purchase Price.
-------- -----

The price at which the Optionee shall be entitled to purchase Shares upon the
exercise of the Option shall be $19.3125 per Share.

3. Duration of Option.
-------- -- ------

Exhibit 10(iii)A(3)
Page 30

4. Exercisability of Option.
-------------- -- ------

Unless otherwise provided in this Agreement or the Plan, the Option shall
entitle the Optionee to purchase, in whole at any time or in part from time to
time, "Para", and each such right of purchase shall be cumulative and shall
continue, unless sooner exercised or terminated as herein provided during the
remaining period of the Exercise Term.

5. Manner of Exercise and Payment.
------ -- -------- --- -------

6. Termination of Employment.
----------- -- ----------

6.1 In General.
-- -------

If the employment of the Optionee with the Company and its Subsidiaries shall
terminate for any reason, other than for the reasons set forth in Sections 6.2

Exhibit 10(iii)A(3)
Page 31

and 7.2 below, the Option shall continue to be exercisable (to the extent the
Option was vested and exercisable on the date of the Optionee's termination of
employment) at any time within three (3) months after the date of such
termination of employment, but in no event after the expiration of the Exercise
Term.

6.2 Termination of Employment Due to Death, Disability, or Retirement.
----------- -- ---------- --- -- ------ ----------- -- ----------

If the Optionee's termination of employment is due to death, Disability, or
Retirement (termination on or after age 65), or if Optionee terminates
employment after age 55, the following shall apply:

(a) Termination Due To Death. In the event the Optionee dies while actively
employed, the Option shall become immediately and fully exercisable, and shall
remain exercisable at any time prior to the expiration of the lesser of one (1)
year from the date of death or the remaining Exercise Term, by (A) a Permitted
Transferee (as defined in Section 8 below), if any, or such person(s) that have
acquired the Optionee's rights under such Options by will or by the laws of
descent and distribution, or (B) if no such person described in (A) exists, the
Optionee's estate or representative of the Optionee's estate.

(c) Termination by Retirement. In the event the employment of the Optionee is
terminated by reason of Retirement, the Option shall continue to vest in
accordance with the original schedule (just as if the Optionee had remained
employed) and shall remain exercisable at any time prior to the expiration of
the lesser of five (5) years from the date of termination or the remaining
Exercise Term. In the event of the Optionee's death after Retirement, the
Options shall continue to vest and be exercisable in accordance with this
subsection (c) as if the Optionee had lived and the Option shall be exercisable
by the persons described in (a) above.

Exhibit 10(iii)A(3)
Page 32

termination, the Option shall continue to vest in accordance with the original
schedule (just as if the Optionee had remained employed) and shall remain
exercisable at any time prior to the expiration of the lesser of five (5) years
from the date of termination or the remaining Exercise Term. In the event of the
Optionee's death after Retirement, the Option shall continue to vest and be
exercisable in accordance with this subsection (d) as if the Optionee had lived
and the Option shall be exercisable by the persons described in (a) above.

7. Effect of Change in Control.
------ -- ------ -- -------

7.1 Notwithstanding anything contained to the contrary in this Agreement, in the
event of a Change in Control, (i) the Option shall become immediately and fully
exercisable, and (ii) the Optionee will be permitted to surrender for
cancellation within sixty (60) days after such Change in Control, the Option or
any portion of the Option to the extent not yet exercised, and the Optionee
shall be entitled to receive immediately a cash payment in an amount equal to
the excess, if any, of (A) the greater of (x) the Fair Market Value on the date
preceding the date of surrender, of the shares subject to the Option or portion
of the Option surrendered, or (y) the Adjusted Fair Market Value of the Shares
subject to the Option or portion thereof surrendered, over (B) the aggregate
purchase price for such Shares under the Option; provided, however, that if the
Option was granted within six (6) months prior to the Change in Control and the
Optionee may be subject to liability under Section 16(b) of the Exchange Act,
the Optionee shall be entitled to surrender the Option, or any portion of the
Option, for cancellation during the sixty (60) day period following the
expiration of six (6) months from the Grant Date and to receive the amount
described above with respect to such surrender for cancellation.

8. Nontransferability.
------------------

Exhibit 10(iii)A(3)
Page 33

9. No Right to Continued Employment.
-- ----- -- --------- ----------

10. Adjustments.
-----------

11. Terminating Events.
----------- ------

12. Withholding of Taxes.
----------- -- -----

Exhibit 10(iii)A(3)
Page 34

13. Employee Bound by the Plan.
-------- ----- -- --- ----

The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be
bound by all the terms and provisions thereof.

14. Modification of Agreement.
------------ -- ---------

This Agreement may be modified, amended, suspended, or terminated, and any terms
or conditions may be waived, but only by a written instrument executed by the
parties hereto.

15. Severability.
------------

16. Governing Law.
--------- ---

The validity, interpretation, construction, and performance of this Agreement
shall be governed by the laws of the State of Delaware without giving effect to
the conflicts of laws principles thereof.

17. Successors in Interest.
---------- -- --------

18. Resolution of Disputes.
---------- -- --------

Exhibit 10(iii)A(3)
Page 35

ATTEST: NATIONAL SERVICE INDUSTRIES, INC.

____________________________________________ By:__________________________________________________
Secretary James S. Balloun
Chairman, President, and
Chief Executive Officer

--------------------------------------------------
Name of Optionee

EX-10 5 0005.htm EXHIBIT EXHIBIT 10(iii)A(4)

Exhibit 10(iii)A(4)
Page 36

                        NATIONAL SERVICE INDUSTRIES, INC.
                      LONG-TERM ACHIEVEMENT INCENTIVE PLAN
                        RESTRICTED STOCK AWARD AGREEMENT



THIS  AGREEMENT,  made and entered into as of the 24th day of October,  2000, by
and between  NATIONAL SERVICE  INDUSTRIES,  INC., a Delaware  Corporation,  (the
"Company") and ("Grantee").



              W o I o T o N o E o S o S o E o T o H t o h o a o t:



WHEREAS,  the Company maintains the National Service Industries,  Inc. Long-Term
Achievement  Incentive  Plan (the "Plan"),  and Grantee has been selected by the
Committee to receive one or more Restricted Stock Awards under the Plan;

NOW,  THEREFORE,  IT IS AGREED,  by and  between the  Company  and  Grantee,  as
follows:

1.       Awards of Restricted Stock

1.1 The  Company  hereby  grants  to  Grantee  an award of  Shares  of
restricted stock ("Restricted  Stock"),  subject to, and in accordance with, the
restrictions,  terms, and conditions set forth in this Agreement. The grant date
of this award of Restricted  Stock is October 24, 2000 (the "Grant  Date"),  and
the average of the high and low prices of a Share on the New York Stock Exchange
on the Grant Date is $19.25.

1.2 This Agreement  (including any appendices)  shall be construed in accordance
with,  and subject to, the  provisions of the Plan (the  provisions of which are
incorporated  herein by reference) and, except as otherwise  expressly set forth
herein,  the  capitalized  terms  used in this  Agreement  shall  have  the same
definitions as set forth in the Plan.

2.       Restrictions

2.1 Subject to Sections 2.3, 2.4, and 2.6 below,  the Restricted Stock shall not
begin to vest until the date (the  "Vesting  Start  Date") on which the  closing
price  of the  Company's  common  stock  on the New York  Stock  Exchange  for a
consecutive 30-day period (the "Stock Price Target") equals or exceeds the Stock
Price Target  indicated  below with respect to the Shares of  Restricted  Stock;
provided,  however,  that if the Stock  Price  Target has not  reached the level
provided  below on or  before  the fifth  anniversary  of the  Grant  Date,  all
corresponding  Shares of  Restricted  Stock for such Stock Price Target shall be
immediately forfeited and shall not be subject to any future vesting.

Exhibit 10(iii)A(4)
Page 37
                          Number of Shares                  Stock Price Target
                         of Restricted Stock              for Vesting Start Date
                         -------------------              ----------------------

                             Target Shares                       $22.1375
                             Target Shares                       $25.0250
                             Target Shares                       $27.9125
                             Target Shares                       $30.8000
                             Target Shares                       $33.6875

2.2 Except as  provided in Section  2.3,  2.4,  and 2.6 below,  once the Vesting
Start Date has been  reached  for a portion of the Shares of  Restricted  Stock,
those  Shares  of  Restricted  Stock  shall  vest as  follows  during  Grantee's
employment:  on each anniversary of the Vesting Start Date (each such date shall
be a "Vesting Date"), 25% of the Shares of Restricted Stock shall vest such that
on the 4th  anniversary of the Vesting Start Date (the "Final Vesting Date") all
of those Shares of Restricted Stock shall be fully vested.

On each Vesting Date,  Grantee  shall own the Vested Shares of Restricted  Stock
free and clear of all  restrictions  imposed  by this  Agreement  (except  those
imposed by Section 3.4 below).  The Company shall deliver a  certificate(s)  for
the Vested Shares of Restricted Stock to Grantee as soon as practical after each
Vesting Date. For purposes of this  Agreement,  employment  with a Subsidiary of
the Company shall be considered employment with the Company.

2.3 In the  event,  prior to the Final  Vesting  Date,  (i)  Grantee  dies while
actively employed by the Company, or (ii) Grantee has his employment  terminated
by reason of Disability,  any Restricted  Stock for which the appropriate  Stock
Price  Target has been  reached  and a Vesting  Start Date has been  established
shall become fully vested and  nonforfeitable  as of the date of Grantee's death
or Disability and all Restricted  Stock for which the Stock Price Target has not
been  reached  shall  be  immediately  forfeited.   The  Company  shall  deliver
certificate(s)   for  the  vested  Restricted  Stock,  free  and  clear  of  any
restrictions  imposed by this Agreement (except for Section 3.4) to Grantee (or,
in the event of death,  his surviving spouse or, if none, to his estate) as soon
as practical after his date of death or termination for Disability.

2.4 If Grantee  retires  from the Company on or after  attaining  (i) age 65, or
(ii)  age 55 with 10 years of  service,  the  vesting  of the  Restricted  Stock
(including the commencement of vesting by establishing a Vesting Start Date upon
reaching a Stock  Price  Target)  shall  continue  as if Grantee  were an active
employee,  unless  within  two (2)  years  of his  date of  termination  Grantee
violates  the  Restrictive  Covenant  (Non-Competition  Agreement)  attached  as
Exhibit  "A"  hereto,  at which time all  unvested  Shares of  Restricted  Stock
(whether or not a Vesting Start Date has been established for such Shares) shall
immediately be forfeited. If Grantee dies after retiring under this Section 2.4,
but prior to the Final Vesting Date for any Shares of Restricted Stock, then any
Restricted  Stock for which the appropriate  Stock Price Target has been reached

Exhibit 10(iii)A(4)
Page 38

and a Vesting  Start Date has been  established  shall  become  fully vested and
nonforfeitable  as of the date of Grantee's  death and all Restricted  Stock for
which  the  Stock  Price  Target  has not  been  reached  shall  be  immediately
forfeited.

2.5 Except for death or  Disability  as provided in Section 2.3 or retirement as
provided in Section 2.4, if Grantee  terminates his employment or if the Company
terminates  Grantee prior to the Final Vesting Date, the Restricted  Stock shall
cease  to vest  further,  the  unvested  Shares  of  Restricted  Stock  shall be
immediately  forfeited,  and Grantee  shall only be  entitled to the  Restricted
Stock that is vested as of his date of termination.

2.6  Notwithstanding  the other provisions of this Agreement,  in the event of a
Change  in  Control  prior to  Grantee's  Final  Vesting  Date,  all  Shares  of
Restricted Stock (whether or not the  corresponding  Stock Price Target had been
attained)  shall become fully  vested and  nonforfeitable  as of the date of the
Change in  Control.  On the date of the Change in  Control,  the  Company  shall
deliver to Grantee a certificate(s)  for the Restricted Stock, free and clear of
any restrictions imposed by this Agreement.

2.7 The Restricted Stock may not be sold,  assigned,  transferred,  pledged,  or
otherwise  encumbered prior to the date Grantee becomes vested in the Restricted
Stock.

3.       Stock; Dividends; Voting

3.1 The Restricted  Stock shall be registered on the Company's books in the name
of Grantee  only as of the  respective  Vesting  Start  Date for such  Shares of
Restricted Stock. The Company may issue stock certificates or evidence Grantee's
interest by using a book entry  account.  Physical  possession or custody of any
stock  certificates  that are issued shall be retained by the Company until such
time as the Shares are vested in accordance with Section 2. The Company reserves
the  right  to  place a  legend  on the  stock  certificate(s)  restricting  the
transferability  of such  certificates and referring to the terms and conditions
(including forfeiture) of this Agreement and the Plan.

3.2 After a Vesting  Start Date has occurred  with respect to certain  Shares of
Restricted  Stock,  Grantee shall be entitled to receive  dividends and/or other
distributions declared on such Restricted Stock and Grantee shall be entitled to
vote such Restricted Stock,  provided that these rights shall cease in the event
such Restricted Stock is forfeited.

3.3 In the event of a Change in  Capitalization,  the number and class of Shares
or other securities that Grantee shall be entitled to, and shall hold,  pursuant
to this  Agreement  shall be  appropriately  adjusted  or changed to reflect the
Change in Capitalization, provided that any such additional Shares or additional
or different  shares or securities  shall remain subject to the  restrictions in
this Agreement.

Exhibit 10(iii)A(4)
Page 39

3.4 Grantee  represents and warrants that he is acquiring the  Restricted  Stock
for  investment  purposes  only,  and not with a view to  distribution  thereof.
Grantee  is aware  that the  Restricted  Stock may not be  registered  under the
federal  or any  state  securities  laws and  that,  in  addition  to the  other
restrictions  on the Shares,  they will not be able to be transferred  unless an
exemption from registration is available or the Shares are registered. By making
this award of Restricted Stock, the Company is not undertaking any obligation to
register the Restricted Stock under any federal or state securities laws.

4.       No Right to Continued Employment

Nothing in this  Agreement  or the Plan shall be  interpreted  or  construed  to
confer upon Grantee any right with respect to  continuance  of employment by the
Company or a subsidiary,  nor shall this  Agreement or the Plan interfere in any
way with  the  right of the  Company  or a  Subsidiary  to  terminate  Grantee's
employment at any time.

5.       Taxes and Withholding

Grantee  shall be  responsible  for all federal,  state,  and local income taxes
payable with respect to this award of Restricted  Stock.  Grantee shall have the
right to make  such  elections  under  the  Internal  Revenue  Code of 1986,  as
amended, as are available in connection with this award of Restricted Stock. The
Company  and  Grantee  agree to report  the value of the  Restricted  Stock in a
consistent  manner for federal  income tax purposes.  The Company shall have the
right to retain and withhold from any payment of Restricted  Stock the amount of
taxes required by any  government to be withheld or otherwise  deducted and paid
with respect to such payment. At its discretion, the Company may require Grantee
to  reimburse  the  Company for any such taxes  required to be withheld  and may
withhold  any  distribution  in  whole  or  in  part  until  the  Company  is so
reimbursed.  In lieu thereof,  the Company shall have the right to withhold from
any other cash amounts due to Grantee an amount equal to such taxes  required to
be withheld  or withhold  and cancel (in whole or in part) a number of shares of
Restricted Stock having a market value not less than the amount of such taxes.

6.       Grantee Bound By The Plan

Grantee hereby acknowledges receipt of a copy of the Plan and the prospectus for
the Plan, and agrees to be bound by all the terms and provisions thereof.

7.       Modification of Agreement

This Agreement may be modified, amended, suspended, or terminated, and any terms
or conditions may be waived,  but only by a written  instrument  executed by the
parties hereto.

Exhibit 10(iii)A(4)
Page 40

8.       Severability

Should  any  provision  of  this  Agreement  be held  by a  court  of  competent
jurisdiction  to be  unenforceable  or invalid  for any  reason,  the  remaining
provisions  of this  Agreement  shall not be affected by such  holding and shall
continue in full force in accordance with their terms.

9.       Governing Law

The validity,  interpretation,  construction,  and performance of this Agreement
shall be governed by the laws of the State of Delaware  without giving effect to
the conflicts of laws principles thereof.

10.      Successors in Interest

This  Agreement  shall inure to the benefit of, and be binding upon, the Company
and  its   successors   and   assigns,   whether   by   merger,   consolidation,
reorganization,  sale of assets, or otherwise. This Agreement shall inure to the
benefit of Grantee's legal representatives. All obligations imposed upon Grantee
and all rights  granted to the  Company  under  this  Agreement  shall be final,
binding,  and conclusive upon Grantee's heirs,  executors,  administrators,  and
successors.

11.      Resolution of Disputes

Any dispute or disagreement  which may arise under, or as a result of, or in any
way relate to the interpretation, construction, or application of this Agreement
shall be determined by the Committee.  Any determination made hereunder shall be
final, binding, and conclusive on Grantee and the Company for all purposes.

Exhibit 10(iii)A(4)
Page 41

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

ATTEST:                                                 NATIONAL SERVICE INDUSTRIES, INC.



____________________________________________         By:__________________________________________________
         Helen D. Haines, Secretary                        James S. Balloun,
                                                           Chairman, President, and
                                                           Chief Executive Officer


                                                     GRANTEE:

                                                        ---------------------------------------------------
                                                           Name

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