-----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, OcpZBowdg2ZWMM6lCsbGpmBhSEnG+0Y2Y/E11vQDzbNe79JybQmQLqrje8WjACSZ PHBY1TVcK5FM9nuI1ojCuQ== 0000950144-01-509634.txt : 20020412 0000950144-01-509634.hdr.sgml : 20020412 ACCESSION NUMBER: 0000950144-01-509634 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 42 CONFORMED PERIOD OF REPORT: 20010831 FILED AS OF DATE: 20011129 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03208 FILM NUMBER: 1802325 BUSINESS ADDRESS: STREET 1: 1420 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30309-3002 BUSINESS PHONE: 4048531000 MAIL ADDRESS: STREET 1: 1420 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30309 10-K 1 g72719e10-k.txt NATIONAL SERVICE INDUSTRIES, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 2001 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 incorporation or organization) Identification Number) 1420 PEACHTREE STREET, N.E., ATLANTA, GEORGIA 30309-3002 (Address of principal executive offices) (Zip Code) (404) 853-1000 (Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE SECURITIES EXCHANGE ACT OF 1934:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock ($1.00 Par Value) New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Based on the closing price of $20.65 as quoted on the New York Stock Exchange on September 28, 2001, the aggregate market value of the voting stock held by nonaffiliates of the registrant, was $846,202,721. The number of shares outstanding of the registrant's common stock, $1.00 par value, was 41,225,781 shares as of September 30, 2001. DOCUMENTS INCORPORATED BY REFERENCE
LOCATION IN FORM 10-K INCORPORATED DOCUMENT --------------------- --------------------- Part III, Items 10, 11, 12, and 13 2001 Proxy Statement
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NATIONAL SERVICE INDUSTRIES, INC. AND SUBSIDIARIES TABLE OF CONTENTS
PAGE NO. ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 2 Item 3. Legal Proceedings........................................... 3 Item 4. Submission of Matters to a Vote of Security Holders......... 3 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 3 Item 6. Selected Financial Data..................................... 4 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 4 Item 7a. Quantitative and Qualitative Disclosures about Market Risk........................................................ 11 Item 8. Financial Statements and Supplementary Data................. 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 42 PART III Item 10. Directors and Executive Officers of the Registrant.......... 42 Item 11. Executive Compensation...................................... 43 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 43 Item 13. Certain Relationships and Related Transactions.............. 43 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 44 Signatures................................................................. 62 Financial Statement Schedules.............................................. 64 List of Subsidiaries....................................................... 66 Consent of Independent Public Accountants.................................. 67
PART I ITEM 1. BUSINESS National Service Industries, Inc. (the "Company" or "NSI") occupies leadership positions in the textile rental and envelope markets. NSI is headquartered in Atlanta, Georgia, and provides products and services throughout the United States. Of the Company's fiscal 2001 revenues of $563.3 million, the textile rental segment contributed 59 percent and the envelope segment contributed 41 percent. On November 7, 2001, the board of directors of National Service Industries, Inc. approved the spin-off of its lighting equipment and chemicals businesses into a separate publicly-traded company with its own management and board of directors. The spin-off will be effected on November 30, 2001 through a tax-free distribution of 100% of the outstanding shares of common stock of Acuity Brands, Inc. ("Acuity"), which is a wholly-owned subsidiary of NSI that operates the lighting equipment and chemicals businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the distribution, will receive one share of Acuity common stock for each share of NSI common stock held at that date. The historical financial statements of NSI have been restated to reflect Acuity as a discontinued operation. The Company's principal executive offices are located at 1420 Peachtree Street, N.E., Atlanta, Georgia 30309-3002 and the telephone number is (404) 853-1000. BUSINESS SEGMENTS TEXTILE RENTAL National Linen Service ("NLS") is a leading United States multi-service textile rental company, with fiscal 2001 revenues of $334.8 million. NLS serves over 50,000 customers in the dining, lodging, and healthcare industries. Its customers include restaurants, hotels, country clubs, retail stores, hospitals, clinics, and doctors' offices. Operating in 22 states, NLS delivers clean products including napkins, table and bed linens, bath towels, pillow cases, bar towels, scrubs and surgical drapery, mats, mops, and restroom supplies, and retrieves soiled linens for cleaning. NLS sells its services directly to end users through a salaried and commissioned sales force. ENVELOPE Atlantic Envelope Company ("AECO") is a leading United States manufacturer of custom envelopes and office products, serving the energy, finance, transportation, direct mail and package delivery markets. Products include custom business and courier envelopes, as well as specialty filing products. AECO has eight state-of-the-art manufacturing facilities located throughout the United States. AECO's customers include major airlines, banks, credit card companies and express delivery companies. Products are sold directly to end-users by a commissioned sales team. Specialty products are also sold through dealers. Revenues for fiscal 2001 totaled $228.5 million. FINANCIAL RESULTS BY INDUSTRY SEGMENT Sales and service revenues, operating profit (loss), total assets, and related data for each of the Company's business segments for the three years ended August 31, 2001 are included in Note 11, Business Segment Information, of the Notes to the Consolidated Financial Statements on page 41. RAW MATERIALS Paper comprises a significant portion of the envelope segment's material requirements. However, the Company purchases its paper from numerous suppliers and there were no significant shortages of materials during the three years ended August 31, 2001. 1 SEASONALITY Financial results for any particular quarter are not necessarily indicative of results to be expected for the full year and, typically, the Company's revenues are higher in the second half of its fiscal year. CUSTOMERS No single customer accounted for more than 10 percent of consolidated revenues during the fiscal years ended August 31, 2001, 2000, and 1999. However, two customers of the envelope segment represented 27 percent and 18 percent of its fiscal 2001 and fiscal 2000 revenues, respectively. The loss of either customer would adversely affect the segment. BACKLOG Sales order backlog at August 31, 2001 and 2000 was $27.8 million and $53.7 million, respectively, in the envelope segment. COMPETITION While each of the Company's businesses is highly competitive, the competitive conditions and the Company's relative position and market share vary widely from business to business. Most competitors are smaller companies that frequently specialize in one industry or geographic area, which in many instances increases the intensity of competition. The principal methods of competition include price, quality, and customer responsiveness. RESEARCH AND DEVELOPMENT The Company conducts research and development related to present and future products for its envelope segment. Research and development expenses were immaterial during the fiscal years ended August 31, 2001, 2000, and 1999. ENVIRONMENTAL MATTERS Management does not anticipate that compliance with current environmental laws and regulations will materially affect the capital expenditures or results of operations of the Company or its subsidiaries during the fiscal year ending August 31, 2002. See Note 6, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements on page 32. EMPLOYMENT As of August 31, 2001, the Company employed approximately 7,700 people. ITEM 2. PROPERTIES The general offices of the Company are located in Atlanta, Georgia. Because of the diverse nature of the operations and the large number of individual locations, it is neither practical nor meaningful to 2 describe each of the operating facilities owned or leased by the Company. The following listing summarizes the significant facility categories by business:
NUMBER OF FACILITIES DIVISION OWNED LEASED NATURE OF FACILITIES - -------- ----- ------ ------------------------ Textile Rental.............................. 34 5 Linen Processing Plants 2 27 Linen Service Centers Envelope.................................... 7 1 Manufacturing Plants -- 2 Warehouses 1 1 Offices Corporate Office............................ 1 -- Corporate Headquarters
None of the Company's individual properties is considered to have a value that is significant in relation to the Company's assets as a whole. The Company believes that its properties are well maintained, are in good working condition, and are deemed to be suitable and adequate for its present needs. The Company believes that it has additional capacity available at most of the Company's production facilities and that it could significantly increase production without substantial capital expenditures. ITEM 3. LEGAL PROCEEDINGS See Note 6, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements on page 32. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the three months ended August 31, 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS National Service Industries' common stock is listed on the New York Stock Exchange under the symbol "NSI." At August 31, 2001, there were 5,647 stockholders of record. The following table sets forth the New York Stock Exchange high and low stock prices and the dividend payments for NSI's common stock for the periods indicated.
PRICE PER SHARE* --------------------- DIVIDENDS HIGH LOW PER SHARE --------- --------- --------- 2001 First Quarter...................................... $ 20.8125 $ 18.3125 $.33 Second Quarter..................................... 26.0200 20.5625 .33 Third Quarter...................................... 25.7000 21.5400 .33 Fourth Quarter..................................... 25.7300 20.0000 .33 2000 First Quarter...................................... $ 34.0000 $ 29.2500 $.32 Second Quarter..................................... 30.1875 20.5000 .33 Third Quarter...................................... 24.3750 20.3750 .33 Fourth Quarter..................................... 23.3750 18.2500 .33
- --------------- * Price per share information does not reflect any adjustment as a result of the spin-off of the Company's lighting equipment and chemicals businesses, the effectiveness of which will be November 30, 2001. 3 ITEM 6. SELECTED FINANCIAL DATA
2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- (Dollar amounts in thousands, except per-share data) OPERATING RESULTS(1) Revenue from Continuing Operations Service revenues........................ $ 334,820 $ 321,522 $ 309,115 $ 312,746 $ 493,535 Net sales of products................... 228,462 225,190 204,510 161,037 190,212 ---------- ---------- ---------- ---------- ---------- Total revenues................. $ 563,282 $ 546,712 $ 513,625 $ 473,783 $ 683,747 ========== ========== ========== ========== ========== Net Income (Loss) income from continuing operations............................ $ (15,291) $ 17,073 $ 34,918 $ 27,169 $ 37,672 Discontinued operations, net of tax..... 42,304 82,797 89,425 81,551 69,606 ---------- ---------- ---------- ---------- ---------- Net Income..................... $ 27,013 $ 99,870 $ 124,343 $ 108,720 $ 107,278 ========== ========== ========== ========== ========== PER-SHARE DATA Basic earnings per share(1)(2): (Loss) income from continuing operations............................ $ (.37) $ .42 $ .85 $ .64 $ .83 Discontinued operations, net of tax..... 1.03 2.03 2.19 1.92 1.54 ---------- ---------- ---------- ---------- ---------- Net income..................... $ .66 $ 2.45 $ 3.04 $ 2.56 $ 2.37 ========== ========== ========== ========== ========== Diluted earnings per share (1)(2): (Loss) income from continuing operations............................ $ (.37) $ .42 $ .85 $ .63 $ .83 Discontinued operations, net of tax..... 1.03 2.03 2.18 1.90 1.53 ---------- ---------- ---------- ---------- ---------- Net income..................... $ .66 $ 2.45 $ 3.03 $ 2.53 $ 2.36 ========== ========== ========== ========== ========== Cash dividends.......................... $ 1.32 $ 1.31 $ 1.27 $ 1.23 $ 1.19 Stockholders' equity.................... $ 15.66 $ 16.37 $ 15.22 $ 13.96 $ 15.20 TOTAL ASSETS(1) Continuing operations................... $ 498,098 $ 398,904 $ 364,218 $ 319,690 $ 474,514 Discontinued operations................. 1,330,575 1,422,880 1,337,038 700,112 638,636 ---------- ---------- ---------- ---------- ---------- Total.......................... $1,828,673 $1,821,784 $1,701,256 $1,019,802 $1,113,150 ========== ========== ========== ========== ========== TOTAL DEBT(1) Continuing operations................... $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 Discontinued operations................. 608,830 636,434 544,577 81,073 27,086 ---------- ---------- ---------- ---------- ---------- Total.......................... $ 613,830 $ 641,434 $ 549,577 $ 86,073 $ 32,086 ========== ========== ========== ========== ==========
- --------------- (1) On November 7, 2001 management approved the spin-off the Company's lighting and chemical businesses. Accordingly, the Company's results of operations have been prepared with the net assets, results of operations, and cash flows related to the lighting and chemical businesses presented as discontinued operations. Prior period amounts have been restated to conform to this presentation. (2) In 1998, the Company adopted Financial Accounting Standard No. 128, "Earnings per Share." Prior period amounts have been restated in accordance with this statement. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS National Service Industries, Inc. is a service and manufacturing company operating in the textile rental and envelope segments. On November 7, 2001, the board of directors of National Service Industries, Inc. approved the spin-off of its lighting equipment and chemicals businesses into a separate publicly traded company with its own management and board of directors. The spin-off will be effected on November 30, 2001 through a tax-free 4 distribution of 100% of the outstanding shares of common stock of Acuity Brands, Inc. ("Acuity"), which is a wholly-owned subsidiary of NSI that operates the lighting equipment and chemicals businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the distribution, will receive one share of Acuity common stock for each share of NSI common stock held at that date. As a result of the approval of the spin-off subsequent to August 31, 2001 but prior to the release of the Company's financial statements, the net assets and results of operations of the lighting equipment and chemicals businesses have been reflected as discontinued operations for all periods presented herein. The Company's continuing operations consist of its textile rental and envelope segments. The following discussion should be read in conjunction with the consolidated financial statements and related notes. The continuing operations of NSI, the textile rental and envelope segments, continued in strong financial condition at August 31, 2001. Net working capital increased to $87.7 million at August 31, 2001 as compared to $65.7 million at August 31, 2000, and the current ratio remained constant at 1.9. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Continuing operations used cash of $29.1 million in 2001, compared with cash provided of $40.9 million in 2000 and $58.9 million in 1999. The reduction in 2001 related to a decrease in net income, an increase in prepayments and other current assets, an increase in payments related to employee medical and casualty insurance, and an increase in income tax payments. Prepayments and other current assets increased over the prior year as the Company incurred costs related to the spin-off of the lighting and chemical businesses. The increase in income tax payments relates to the resolution of various tax matters, all of which were fully accrued in prior periods. The decrease in cash provided by operating activities during 2000 primarily resulted from the decrease in net income. INVESTING ACTIVITIES Investing activities used cash of $24.7 million in 2001, $60.7 million in 2000, and $42.3 million in 1999. The change in fiscal 2001 investing cash flows primarily related to a decrease in capital expenditures and acquisition spending and an increase in cash provided by the sale of businesses. The change in investing cash flows during 2000 was a result of the significant increase in capital expenditures coupled with a decrease in cash provided by the sale of businesses. These items were offset somewhat by a decrease in acquisition spending during fiscal 2000. Acquisition spending during fiscal 2001 was $5.6 million and related primarily to the textile rental segment's purchase of several plants in Florida. Prior year acquisition spending of $10.1 million also related to several small acquisitions in the textile rental segment. Acquisition spending in 1999 totaled $20.6 million ($19.8 million in cash and 26,495 shares valued at $0.8 million). In February 1999, the envelope segment acquired substantially all of Gilmore Envelope, an envelope manufacturer headquartered in Los Angeles, California, for approximately $10.6 million. The Company also made several acquisitions in the textile rental segment during fiscal 1999 for approximately $10.0 million. Capital expenditures were $23.1 million in 2001, compared with $45.5 million in 2000 and $33.7 million in 1999. Current-year capital expenditures in the envelope segment related to manufacturing process improvements and information systems. The textile rental segment invested in building improvements, equipment upgrades, and information systems. Fiscal 2000 capital expenditures in the envelope segment primarily related to manufacturing process improvements, new folding capacity, and information systems. Prior-year expenditures in the textile rental segment related to replacing old equipment and delivery truck purchases and refurbishments. During 1999, the envelope segment invested in manufacturing process improvements, information systems, facility expansion, and new folding capacity and the textile rental segment's capital expenditures were for the implementation of new technology, production enhancements, and delivery truck purchases and refurbishments. 5 In 2002, capital expenditures are expected to approximate $20.3 million as the Company continues to invest capital in technology and equipment. Contractual commitments for capital spending for fiscal year 2002 approximate $4.2 million. FINANCING ACTIVITIES Financing activities used cash of $51.4 million, $49.5 million, and $90.2 million during 2001, 2000, and 1999, respectively. Cash used by financing activities during fiscal 2001 and 2000 primarily related to the payment of dividends offset somewhat by cash provided by Employee Stock Purchase Plan share issuances and stock option exercises. In addition to the payment of dividends, cash used by financing activities during 1999 also included the purchase of treasury shares under the Company's treasury share repurchase program which was suspended in the third quarter of fiscal 1999. LONG-TERM DEBT AND THE SPIN-OFF Upon completion of the spin-off on November 30, 2001, approximately $374.1 million of long-term debt will be assumed by Acuity, leaving approximately $3.0 million outstanding for the Company. The following provides a discussion of liquidity and capital resources segregated between continuing and discontinued operations. CONTINUING OPERATIONS In October 2001, NSI negotiated a $40.0 million, three-year committed credit facility with a single major US bank that will become effective at the time of the spin-off. The facility contains financial covenants including a leverage ratio, a ratio of income available for fixed charges to fixed charges, and a minimum net worth. Interest rates under the facility are based on the LIBOR rate or other rates, at the Company's option. The Company will pay an annual fee on the commitment based on the Company's leverage ratio. No amounts were outstanding under this facility at August 31, 2001, and it is expected that at the time of the spin-off approximately $2.0 million will be outstanding. Outstanding borrowings at August 31, 2001 included approximately $3.0 million in notes payable at 8.5 percent and approximately $2.0 million in uncommitted credit facility borrowings at a weighted-average interest rate of 4.95 percent. Management believes anticipated cash flows from operations and available funds from the committed credit facility are sufficient to meet the Company's planned level of capital spending and general operating cash requirements, including but not limited to any cash requirements related to litigation as further described in Note 6 to the financial statements, for at least the next twelve months. DISCONTINUED OPERATIONS In anticipation of the spin-off, management has, or is in the process of amending the following agreements which were in place for the Company as of August 31, 2001. The material terms of the agreements are expected to be consistent subsequent to the spin-off for Acuity, who will be the borrower. In May 2001, the Company entered into a three-year agreement (the "Receivables Facility") to borrow, on an ongoing basis, up to $150.0 million secured by undivided interests in a defined pool of trade accounts receivable of the lighting equipment and chemical segments. At August 31, 2001, net trade accounts receivable pledged as security for the borrowings under the Receivables Facility totaled approximately $227.8 million. Outstanding borrowings under the Receivables Facility at August 31, 2001 were $105.1 million. Interest rates under the Receivables Facility vary with commercial paper rates plus an applicable margin and the interest rate was 3.90 percent at August 31, 2001. Effective at the time of the spin-off, Acuity will assume all of NSI's borrowings and other obligations under the Receivables Facility. In July 1999, the Company entered into a $250.0 million, 364-day committed credit facility, which was renewed in June 2001 and expires in June 2002. The credit facility permits certain subsidiaries of the Company to borrow under such facility, and the Company guarantees these borrowings. Interest rates under 6 the credit facility are based on the LIBOR rate or other rates, at the Company's option. The Company pays an annual fee on the commitments based on the Company's credit rating for unsecured long-term public debt. Outstanding borrowings under the facility at August 31, 2001 were $105.0 million at an interest rate of 4.1 percent. No amounts were outstanding under the facility at August 31, 2000. This facility will be discontinued at the time of the spin-off. In October 2001, NSI, on behalf of Acuity, negotiated a $240.0 million, 364-day committed credit facility with six domestic and international banks that will become effective and will replace the Company's $250.0 million credit facility at the time of the spin-off. The facility includes an option for additional lenders to enter the agreement to provide up to a total of $300.0 million of commitments. The facility contains financial covenants including a leverage ratio of total indebtedness to EBITDA and an interest coverage ratio. Interest rates under the facility are based on the LIBOR rate or other rates, at Acuity's option. Acuity will pay an annual fee on the commitment based on Acuity's credit rating for unsecured long-term public debt. The principal lighting equipment subsidiary and the principal chemicals subsidiary of Acuity are guarantors of the facility. NSI's commercial paper program was discontinued in July 2001. Amounts outstanding under the commercial paper program were replaced by borrowings under the committed credit facility. The $236.7 million outstanding under the Company's commercial paper program at August 31, 2000 had a weighted-average interest rate of 6.8 percent. At August 31, 2001, the Company had uncommitted lines of credit totaling $111.2 million for general operating purposes, of which $16.8 million is designated as multi-currency. Outstanding borrowings under the uncommitted credit facilities at August 31, 2001 were $24.7 million, at a weighted-average interest rate of 4.95 percent. At August 31, 2001, $74.4 million in letters of credit was outstanding, primarily under the domestic uncommitted line of credit. In January 1999, the Company issued $160.0 million in ten-year publicly traded notes bearing a coupon rate of 6.0 percent. In August 2000, the Company issued $200.0 million in ten-year publicly traded notes bearing a coupon rate of 8.375 percent. Management believes current cash balances, anticipated cash flows from operations, and available funds from the committed credit facilities and the uncommitted lines of credit are sufficient to meet Acuity's planned level of cash requirements for the next twelve months. 7 RESULTS OF CONTINUING OPERATIONS
YEAR ENDED AUGUST 31 ------------------------ 2001 2000 1999 ------ ------ ------ (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) SALES AND SERVICE REVENUES: Textile Rental............................................ $334.8 $321.5 $309.1 Envelope.................................................. 228.5 225.2 204.5 ------ ------ ------ $563.3 $546.7 $513.6 ====== ====== ====== OPERATING (LOSS) PROFIT: Textile Rental............................................ $ 12.6 $ 28.2 $ 42.9 Envelope.................................................. (13.2) 5.1 17.7 ------ ------ ------ (0.6) 33.3 60.6 Corporate................................................. (21.9) (3.8) (3.5) Interest expense, net..................................... (1.8) (1.6) (1.4) ------ ------ ------ (24.3) 27.9 55.7 ====== ====== ====== (LOSS) INCOME FROM CONTINUING OPERATIONS.................... (15.3) 17.1 34.9 INCOME FROM DISCONTINUED OPERATIONS......................... 42.3 82.8 89.4 ------ ------ ------ NET INCOME.................................................. $ 27.0 $ 99.9 $124.3 ====== ====== ====== EARNINGS PER SHARE: Basic: (Loss) income from continuing operations............... $ (.37) $ .42 $ .85 Discontinued operations................................ 1.03 2.03 2.19 ------ ------ ------ Net income............................................. $ .66 $ 2.45 $ 3.04 ====== ====== ====== Diluted: (Loss) income from continuing operations............... $ (.37) $ .42 $ .85 Discontinued operations................................ 1.03 2.03 2.18 ------ ------ ------ Net income............................................. $ .66 $ 2.45 $ 3.03 ====== ====== ======
8 National Service Industries posted revenues of $563.3 million for the fiscal year ended August 31, 2001 representing a $16.6 million increase from the prior year, primarily in the textile rental segment. Revenues in 2000 were $546.7 million, representing a 6.4 percent increase in comparison to 1999, with revenues from both segments contributing to the increase. The fiscal 2001 loss from continuing operations represents a decrease in net income of $32.4 million compared to last year. The significant decrease in operating profit during the current fiscal year related to numerous factors including a weakening economy, higher medical and casualty insurance costs, restructuring charges and asset impairments, and a charge associated with estimated uninsured settlements and other related costs associated with the Company's asbestos litigation. TEXTILE RENTAL SEGMENT Textile rental segment revenues, representing all of the Company's service revenues, increased 4.1 percent during 2001 to $334.8 million, as a result of additional volume associated with several new large customer accounts, price increases, and revenues associated with acquired businesses. Fiscal 2001 operating profit was $12.6 million compared to last year's operating profit of $28.2 million. Higher employee medical and casualty insurance costs, increased labor and energy costs, a sales tax audit assessment, and severance and restructuring costs, partially offset by a gain related to a reduction in the segment's environmental liabilities, were primarily responsible for the decrease in fiscal 2001 operating profit. During the second quarter of 2001, management performed a review of the environmental liabilities recorded in connection with the textile rental segment's 1997 uniform plants divestiture. Based on the advice of the Company's environmental experts, the Company decreased its estimates for certain environmental exposures and, as a result, reduced the related liability and recorded a gain of approximately $2.1 million. The gain is included in "Gain on sale of businesses" in the accompanying "Consolidated Statements of Income." During the fourth quarter of fiscal 2001, management took actions to better position the segment for the future. These actions included a $1.2 million pretax charge related to the termination of 216 home office and field operations employees, all of whom were terminated prior to the end of the fiscal year. None of the accrual had been paid to employees as of August 31, 2001. Additionally, the segment sold two linen facilities resulting in a pre-tax loss of $0.3 million. Management plans to close two additional facilities, whose business would continue to be serviced by other existing facilities. The cost to close these facilities is estimated to be between $6.0 million and $7.0 million. Management expects to finalize it plans and complete the transfer of business to the other existing facilities during the first quarter of fiscal 2002, at which time the Company would record these restructure costs. The losses resulting from the restructuring activities and impairments in 2001 are included in "Restructuring expense, asset impairments, and other charges (income)" in the "Consolidated Statements of Income." Revenues during 2000 increased 4.0 percent to $321.5 million as a result of several small acquisitions and growth in the segment's core business. Operating profit decreased $14.7 million during this period as a result of unusual gains included in 1999 results that were not repeated in 2000. The unusual gains related to the 1997 uniform plants divestiture, 1997 restructuring activities, and other gains associated with the sale of businesses. Excluding the unusual gains, fiscal 2000 operating profit increased by $3.8 million as a result of the increase in revenue, lower workers compensation expense, and productivity improvements, offset somewhat by increased fuel costs. ENVELOPE SEGMENT Envelope segment revenues remained essentially flat with last year as higher sales volumes to strategic partners during the first quarter were offset by lower volumes in the courier and direct mail markets throughout the remainder of the year. Operating profit decreased by $18.3 million to a loss of $13.2 million. Contributing to the fiscal 2001 loss were $10.9 million in pretax charges, which included 9 $4.9 million of charges associated with closing four facilities, $3.4 million for the write-off of non-performing assets, and $2.6 million for inventory obsolescence. In addition, the segment experienced higher medical and casualty insurance costs, higher raw materials costs during the first half of the year, and costs related to reorganizing the Miami, Florida manufacturing facility. During the fourth quarter of fiscal 2001, management finalized its plans to restructure its operations to better position the segment for a continued near-term economic slowdown. Accordingly, the segment recorded a charge of $4.9 million related to its restructure activities. This charge was comprised of $1.9 million associated with terminating 151 manufacturing and salaried employees, all of whom were terminated prior to the end of the fiscal year, $1.6 million in exit expenses to close and consolidate facilities, and $1.4 million in impairments related to equipment located in the closed facilities. As of August 31, 2001, approximately $0.1 million of the accrual for severance costs had been paid to employees. Exit expenses primarily include costs of lease terminations, costs to dispose of facilities, and other union-related costs associated with closing the facilities. Impairments were recognized for those assets where the sum of the estimated undiscounted future cash flows was less than the carrying amount of the assets. Fair market values were determined based on expected future cash flows discounted at the Company's cost of capital. Unrelated to the restructure activities discussed above, the envelope segment also recorded a charge of $3.4 million primarily related to certain costs associated with the implementation of an enterprise-wide software package. During fiscal 2001, management decided to materially alter the operating methodology of the system. This change in methodology required an extensive reconfiguration of the base software and all the processes associated with the operating system. The losses resulting from the restructuring activities and impairments in 2001 are included in "Restructuring expense, asset impairments, and other charges (income)" and the charge related to inventory obsolescence was included in "Cost of products sold" in the "Consolidated Statements of Income." Envelope segment revenues increased $20.7 million, or 10.1 percent, during 2000 due to acquisitions during fiscal 1999 and growth in the segment's core business. Operating profit decreased $12.6 million to $5.1 million as a result of lower average margins from prior year acquisitions and higher paper prices, labor costs, and costs associated with initiatives to improve future productivity. In addition, fiscal 1999 operating profit included a $2.0 million pretax gain on the sale of Techno-Aide/Stumb Metal Products. CORPORATE Allocated corporate expenses in 2001 increased $18.1 million primarily due to a $16.1 million charge during the fourth quarter largely related to an increased allocated share of asbestos-related settlements previously reached by the Center for Claims Resolution on behalf of its members for which insurance coverage is uncertain. See Note 6: Commitments and Contingencies in the Notes to the Consolidated Financial Statements for a discussion of the Company's legal proceedings. In addition, allocated corporate expenses were higher due to increased employee medical and casualty insurance costs and higher costs related to strategic and operational initiatives. Allocated corporate expenses in 2000 approximated those in 1999. Interest expense remained relatively flat during fiscal years 2001, 2000, and 1999. As reported, corporate expenses represent an allocation of total Company corporate expenses using allocation methodologies believed reasonable by management. The Company anticipates that future corporate expenses will be higher than the allocated amounts. ENVIRONMENTAL MATTERS See Note 6: Commitments and Contingencies in the Notes to the Consolidated Financial Statements for a discussion of environmental matters. 10 OUTLOOK Management continues to execute its strategic plan to grow internally. Fiscal 2002 sales from the existing businesses are expected to remain in line with fiscal 2001 results due to a forecasted continuing weak economy. Excluding discontinued operations and future restructuring charges, management expects the Company to earn between 15 to 20 cents per share. This forecast includes the anticipated impact of the adoption of the recent accounting standard that no longer requires companies to amortize goodwill as well as a higher tax rate of 40 percent due to the loss of certain state tax benefits. The Company is planning to close two additional linen facilities, whose business would be serviced by other existing facilities. The cost to close these facilities is expected to be between $6.0 million and $7.0 million. Additionally, the Company expects to record a pretax charge of approximately $19.0 million upon completion of the spin-off transaction. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION Certain information contained herein constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are inherently uncertain and involve risks. Consequently, actual results may differ materially from those indicated by the forward-looking statements. Statements that may be considered forward-looking include statements concerning: (a) management's expectations with regard to projected capital expenditures and future cash flows; (b) the material terms of Acuity's financing arrangements subsequent to the spin-off; (c) the timing of and estimated costs associated with management's plans to close two additional textile rental facilities; (d) the Company's expectations or beliefs with respect to the outcome and impact of environmental issues and legal proceedings on the Company's business, financial condition, or results of operations; (e) the expected benefit of management's actions to better position the textile rental and envelope businesses for the future; (f) expected future revenue and earnings per share; (g) the expected $19.0 million pretax charge associated with the spin-off transaction; (h) expectations regarding an economic slowdown; and (i) anticipated future corporate expenses. 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 fluctuations in commodity and raw materials prices and interest rate changes; (b) unexpected developments or outcomes in the Company's legal or 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, and the achievement of sales growth across the business segments; and (d) underlying assumptions or expectations related to the spin-off transaction proving to be inaccurate or unrealized. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DISCLOSURES ABOUT MARKET RISK The Company believes that its exposure to market risks that may impact the "Consolidated Balance Sheets," "Consolidated Statements of Income," and "Consolidated Statements of Cash Flows" primarily relate to changing interest rates and commodity prices. The Company does not enter into derivative arrangements for trading or speculative purposes. INTEREST RATES The Company's credit line and fixed-rate notes are subject to interest rate fluctuations. These fluctuations expose the Company to changes in interest expense, cash flows, and the fair market value of the instruments. The Company's variable-rate debt amounted to $2.0 million at August 31, 2001. Based on outstanding borrowings at year end, a 10 percent adverse change in effective market interest rates at August 31, 2001 would result in an immaterial amount of additional interest expense. 11 COMMODITY PRICE RISK From time to time, the Company's textile rental segment enters into arrangements locking in for specified periods the prices the Company will pay for the volume of natural gas to which the contract relates. The contracts are structured to reduce the segment's exposure to changes in the price of natural gas. However, these contracts also limit the benefit the segment might have otherwise received from decreases in the price of natural gas. The Company does not believe a 10 percent adverse change in market rates of natural gas would have a material impact on its "Consolidated Balance Sheets" or "Consolidated Statements of Income." 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Management........................................ 14 Report of Independent Public Accountants.................... 15 Consolidated Balance Sheets -- August 31, 2001 and 2000..... 16 Consolidated Statements of Income for the years ended August 31, 2001, 2000, and 1999.................................. 17 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended August 31, 2001, 2000, and 1999............................................ 18 Consolidated Statements of Cash Flows for the years ended August 31, 2001, 2000, and 1999........................... 19 Notes to Consolidated Financial Statements.................. 20
13 REPORT OF MANAGEMENT NATIONAL SERVICE INDUSTRIES, INC. The management of National Service Industries, Inc. is responsible for the integrity and objectivity of the financial information in this annual report. These financial statements are prepared in conformity with generally accepted accounting principles, using informed judgments and estimates where appropriate. Where applicable, the information in other sections of this report is consistent with the financial statements. The Company maintains a system of internal controls and accounting policies and procedures designed to provide reasonable assurance that assets are safeguarded and transactions are executed and recorded in accordance with management's authorization. The audit committee of the Board of Directors, composed entirely of outside directors, is responsible for monitoring the Company's accounting and reporting practices. The audit committee meets regularly with management, the internal auditors, and the independent public accountants to review the work of each and to assure that each performs its responsibilities. Both the internal auditors and Arthur Andersen LLP have unrestricted access to the audit committee allowing open discussion, without management's presence, on the quality of financial reporting and the adequacy of internal accounting controls. James S. Balloun Brock A. Hattox Robert R. Burchfield Chairman, President, and Executive Vice President and Vice President and Controller Chief Executive Officer Chief Financial Officer
14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of National Service Industries, Inc.: We have audited the accompanying consolidated balance sheets of National Service Industries, Inc. (a Delaware corporation) and subsidiaries as of August 31, 2001 and 2000 and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended August 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Service Industries, Inc. and subsidiaries as of August 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2001 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Atlanta, Georgia November 29, 2001 15 NATIONAL SERVICE INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
AUGUST 31, ----------------------- 2001 2000 ---------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Receivables, less reserves for doubtful accounts of $1,798 in 2001 and $739 in 2000................................ $ 60,406 $ 61,291 Inventories, at the lower of cost (on a first-in, first-out basis) or market.............................. 19,195 20,723 Linens in service, net of amortization.................... 56,910 57,162 Deferred income taxes..................................... 9,138 -- Prepayments............................................... 11,300 3,058 Insurance receivable (Note 6)............................. 28,616 -- Other current assets...................................... 804 156 ---------- ---------- Total Current Assets................................ 186,369 142,390 Property, Plant, and Equipment, at cost: Land...................................................... 12,775 13,607 Buildings and leasehold improvements...................... 57,433 58,845 Machinery and equipment................................... 258,344 258,537 ---------- ---------- Total Property, Plant, and Equipment................ 328,552 330,989 Less -- Accumulated depreciation and amortization......... 157,507 148,958 ---------- ---------- Property, Plant, and Equipment - net...................... 171,045 182,031 Other Assets: Goodwill and other intangibles (Note 1)................... 37,061 38,685 Insurance receivable (Note 6)............................. 66,574 -- Other..................................................... 37,049 35,798 ---------- ---------- Total Other Assets.................................. 140,684 74,483 Net assets of discontinued operations (Note 2)............ 400,296 455,543 ---------- ---------- Total Assets........................................ $ 898,394 $ 854,447 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt...................... $ 1,011 $ 201 Commercial paper.......................................... -- 1,075 Notes payable............................................. 1,999 -- Accounts payable.......................................... 28,164 26,901 Accrued salaries, commissions, and bonuses................ 7,050 8,905 Current portion of self-insurance reserves................ 3,119 2,540 Environmental reserve (Note 6)............................ 7,291 10,125 Litigation reserve (Note 6)............................... 30,453 1,787 Deferred income taxes..................................... -- 5,346 Other accrued liabilities................................. 19,561 19,824 ---------- ---------- Total Current Liabilities........................... 98,648 76,704 Long-Term Debt, less current maturities..................... 1,990 3,724 ---------- ---------- Deferred Income Taxes....................................... 32,431 59,251 ---------- ---------- Self-Insurance Reserves, less current portion............... 12,477 19,394 ---------- ---------- Litigation Reserve (Note 6)................................. 82,917 7,148 ---------- ---------- Other Long-Term Liabilities................................. 7,303 7,016 ---------- ---------- Commitments and Contingencies (Note 6) Stockholders' Equity: Series A participating preferred stock, $.05 stated value, 500,000 shares authorized, none issued Preferred stock, no par value, 500,000 shares authorized, none issued Common stock, $1 par value, 120,000,000 shares authorized, 57,918,978 shares issued in 2001 and 2000............... 57,919 57,919 Paid-in capital........................................... 29,421 29,657 Retained earnings......................................... 995,537 1,022,974 Unearned compensation on restricted stock (Note 5)........ (880) -- Accumulated other comprehensive income items.............. (43) (37) ---------- ---------- 1,081,954 1,110,513 Less -- Treasury stock, at cost (16,693,197 shares in 2001 and 17,090,414 shares in 2000).......................... 419,326 429,303 ---------- ---------- Total Stockholders' Equity.......................... 662,628 681,210 ---------- ---------- Total Liabilities and Stockholders' Equity.......... $ 898,394 $ 854,447 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 16 NATIONAL SERVICE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED AUGUST 31, --------------------------------------- 2001 2000 1999 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER-SHARE DATA) Sales and Service Revenues: Service revenues.......................................... $334,820 $321,522 $309,115 Net sales of products..................................... 228,462 225,190 204,510 -------- -------- -------- Total sales and service revenues.................. 563,282 546,712 513,625 -------- -------- -------- Costs and Expenses: Cost of services.......................................... 192,664 183,867 180,770 Cost of products sold..................................... 183,357 177,359 154,003 Selling and administrative expenses....................... 182,106 157,121 143,989 Amortization expense...................................... 2,807 2,411 1,829 Interest expense.......................................... 1,770 1,578 1,371 Gain on sale of businesses................................ (2,359) (356) (11,220) Restructuring expense, asset impairments, and other charges (income)....................................... 26,073 -- (9,291) Other expense (income), net............................... 1,135 (3,165) (3,562) -------- -------- -------- Total costs and expenses.......................... 587,553 518,815 457,889 -------- -------- -------- (Loss) income before income tax (benefit) expense........... (24,271) 27,897 55,736 Income tax (benefit) expense................................ (8,980) 10,824 20,818 -------- -------- -------- (Loss) income from continuing operations.................... (15,291) 17,073 34,918 Income from discontinued operations, net of income taxes of $26,848 in 2001, $52,494 in 2000, and $53,160 in 1999 (Note 2).................................................. 42,304 82,797 89,425 -------- -------- -------- Net Income.................................................. $ 27,013 $ 99,870 $124,343 ======== ======== ======== BASIC EARNINGS PER SHARE (Loss) income from continuing operations.................. $ (.37) $ .42 $ .85 Discontinued operations................................... 1.03 2.03 2.19 -------- -------- -------- Net income................................................ $ .66 $ 2.45 $ 3.04 ======== ======== ======== Basic Weighted Average Number of Shares Outstanding..................................... 41,068 40,708 40,899 DILUTED EARNINGS PER SHARE (Loss) income from continuing operations.................. $ (.37) $ .42 $ .85 Discontinued operations................................... 1.03 2.03 2.18 -------- -------- -------- Net income................................................ $ .66 $ 2.45 $ 3.03 ======== ======== ======== Diluted Weighted Average Number of Shares Outstanding..................................... 41,068 40,727 41,093
The accompanying notes to consolidated financial statements are an integral part of these statements. 17 NATIONAL SERVICE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
UNEARNED COMPENSATION ACCUMULATED ON OTHER COMPREHENSIVE COMMON PAID-IN RETAINED RESTRICTED COMPREHENSIVE TREASURY INCOME STOCK CAPITAL EARNINGS STOCK INCOME ITEMS STOCK TOTAL ------------- ------- ------- ---------- ------------ ------------- --------- -------- (IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA) BALANCE, AUGUST 31, 1998... $57,919 $28,521 $ 903,974 $ -- $(43) $(400,156) $590,215 Comprehensive income: Net income.............. $124,343 -- -- 124,343 -- -- -- 124,343 Other comprehensive income, net of tax: Minimum pension liability adjustment (net of tax of $4)................. 9 -- -- -- -- 9 -- 9 -------- Comprehensive income............ $124,352 ======== Treasury stock purchased(1)............ -- -- -- -- -- (41,954) (41,954) Stock options exercised(2)............ -- 58 -- -- -- 435 493 Treasury stock issued in connection with acquisition(3).......... -- 200 -- -- -- 645 845 Employee Stock Purchase Plan issuances(4)....... -- 276 -- -- -- 2,795 3,071 Cash dividends of $1.27 per share paid on common stock................... -- -- (51,856) -- -- -- (51,856) ------- ------- ---------- ------- ---- --------- -------- BALANCE, AUGUST 31, 1999... 57,919 29,055 976,461 -- (34) (438,235) 625,166 Comprehensive income: Net income.............. $ 99,870 -- -- 99,870 -- -- -- 99,870 Other comprehensive income, net of tax: Minimum pension liability adjustment (net of tax of $1)................. (3) -- -- -- -- (3) -- (3) -------- Comprehensive income............ $ 99,867 ======== Stock options exercised(5)............ -- 98 -- -- -- 643 741 Treasury stock issued in connection with Long- Term Incentive Program(6).............. -- 1,245 -- -- -- 4,422 5,667 Employee Stock Purchase Plan issuances(7)....... -- (741) -- -- -- 3,867 3,126 Cash dividends of $1.31 per share paid on common stock................... -- -- (53,357) -- -- -- (53,357) ------- ------- ---------- ------- ---- --------- -------- BALANCE, AUGUST 31, 2000... 57,919 29,657 1,022,974 -- (37) (429,303) 681,210 Comprehensive income: Net income.............. $ 27,013 -- -- 27,013 -- -- -- 27,013 Other comprehensive income, net of tax: Minimum pension liability adjustment (net of tax of $3)................. (6) -- -- -- -- (6) -- (6) -------- Comprehensive income............ $ 27,007 ======== Stock options exercised(8)............ -- (14) -- -- -- 48 34 Treasury stock issued in connection with Long- Term Incentive Program(9).............. -- (963) -- -- -- 4,600 3,637 Restricted stock issued in connection with Long-Term Incentive Program(10)............. -- (9) -- (1,195) -- 1,204 -- Amortization and forfeitures of restricted stock grants.................. -- -- -- 315 -- -- 315 Issuance of compensatory stock options........... -- 1,855 -- -- -- -- 1,855 Employee Stock Purchase Plan issuances(11)...... -- (1,105) -- -- -- 4,125 3,020 Cash dividends of $1.32 per share paid on common stock.......... -- -- (54,450) -- -- -- (54,450) ------- ------- ---------- ------- ---- --------- -------- BALANCE, AUGUST 31, 2001... $57,919 $29,421 $ 995,537 $ (880) $(43) $(419,326) $662,628 ======= ======= ========== ======= ==== ========= ========
- --------------- (1) 1,153,099 shares, (2) 21,357 shares, (3) 26,495 shares, (4) 112,835 shares, (5) 29,350 shares, (6) 176,033 shares, (7) 153,955 shares, (8) 1,945 shares, (9) 183,124 shares, (10) 47,920 shares, (11) 164,228 shares. The accompanying notes to consolidated financial statements are an integral part of these statements. 18 NATIONAL SERVICE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31, --------------------------------- 2001 2000 1999 --------- --------- --------- (IN THOUSANDS) CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES Net (loss) income from continuing operations............. $ (15,291) $ 17,073 $ 34,918 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 27,633 25,227 22,526 Provision for losses on accounts receivable........... 2,345 2,125 906 Loss (gain) on the sale of property, plant, and equipment........................................... 996 (1,098) (1,168) Gain on sale of businesses............................ (2,359) (356) (11,220) Restructuring expense, asset impairments, and other charges (income).................................... 26,073 - (9,291) Change in assets and liabilities net of effect of acquisitions and divestitures -- Receivables......................................... (1,484) (4,126) (5,046) Inventories and linens in service, net.............. 786 1,940 (1,478) Deferred income taxes............................... (41,304) (1,343) 35,695 Prepayments and other current assets................ (13,946) 93 (2,309) Accounts payable and accrued liabilities............ (5,358) 2,000 (1,062) Self-insurance reserves and other long-term liabilities...................................... (7,228) (648) (3,585) --------- --------- --------- Net Cash (Used for) Provided by Continuing Operations..................................... (29,137) 40,887 58,886 Net Cash Provided by Discontinued Operations..... 105,187 69,296 72,970 --------- --------- --------- Net Cash Provided by Operating Activities........ 76,050 110,183 131,856 --------- --------- --------- CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES Purchases of property, plant, and equipment.............. (23,053) (45,485) (33,730) Sale of property, plant, and equipment................... 1,289 1,948 3,619 Sale of businesses....................................... 4,888 - 11,962 Acquisitions............................................. (5,596) (10,130) (19,762) Change in other assets................................... (2,182) (7,026) (4,390) --------- --------- --------- Net Cash Used for Investing Activities........... (24,654) (60,693) (42,301) --------- --------- --------- CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES Issuance (purchase) of treasury stock, net............... 3,054 3,867 (38,390) Cash dividends paid...................................... (54,450) (53,357) (51,856) --------- --------- --------- Net Cash Used for Financing Activities........... (51,396) (49,490) (90,246) --------- --------- --------- Net Change in Cash and Cash Equivalents.................... -- -- (691) Cash and Cash Equivalents at Beginning of Year............. -- -- 691 --------- --------- --------- Cash and Cash Equivalents at End of Year................... $ -- $ -- $ -- ========= ========= ========= Supplemental Cash Flow Information: Income taxes paid during the year..................... $ 68,348 $ 66,705 $ 40,799 Interest paid during the year......................... 45,186 43,977 15,660 Noncash Investing and Financing Activities: Treasury shares issued under long-term incentive plan................................................ $ 3,637 $ 5,667 $ --
The accompanying notes to consolidated financial statements are an integral part of these statements. 19 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA OR AS OTHERWISE INDICATED) NOTE 1: SUMMARY OF ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The Company's continuing operations are in two business segments -- textile rental and envelope -- each of which is a leading competitor in its respective market. The textile rental segment provides linens and dust control products to healthcare, lodging, and dining customer segments in the United States. The envelope segment produces business and specialty envelopes and office products in the United States. The envelope segment's customers include major airlines, banks, credit card companies and express delivery companies. REVENUE RECOGNITION The Company records revenues as products are shipped or as services are rendered. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all subsidiaries after elimination of significant intercompany transactions and accounts. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In particular, as further discussed in Note 6: Commitments and Contingencies, the Company has made significant estimates related to the ultimate resolution of numerous asserted and unasserted claims, as well as the ultimate reimbursement for these claims from its insurers. Actual results could differ from those estimates. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS Cash in excess of daily requirements is invested in time deposits and marketable securities and is included in the accompanying balance sheets at market value. The Company considers time deposits and marketable securities purchased with an original maturity of three months or less to be cash equivalents. Investments purchased with a maturity of more than three months and less than a year are considered short-term investments. There were no short-term investments at August 31, 2001 and 2000, and all cash balances have been attributed to discontinued operations. CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk with respect to receivables are limited due to the wide variety of customers and markets using the Company's products and services, as well as their dispersion across many different geographic areas. As a result, as of August 31, 2001, the Company does not consider itself to have any significant concentrations of credit risk. 20 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INVENTORIES AND LINENS IN SERVICE Inventories are valued at the lower of cost (on a first-in, first-out basis) or market and consisted of the following at August 31, 2001 and 2000:
2001 2000 ------- ------- Raw materials and supplies.................................. $ 6,716 $ 5,477 Work in progress............................................ 817 585 Finished goods.............................................. 11,662 14,661 ------- ------- $19,195 $20,723 ======= =======
Linens in service are recorded at cost and are generally amortized over their estimated useful lives of 15 to 50 months. GOODWILL AND OTHER INTANGIBLES The following table summarizes net goodwill and intangible assets including the useful life associated with each as of August 31:
USEFUL LIFE 2001 2000 (IN YEARS) ------- ------- ----------- Goodwill.............................................. $28,432 $29,648 10-30 Customer lists........................................ 7,866 7,964 7 Other................................................. 763 1,073 3-5 ------- ------- $37,061 $38,685 ======= =======
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recognized when the undiscounted future cash flows estimated to be generated by the asset are not sufficient to recover the unamortized balance of the asset. An impairment loss would be recognized based on the difference between the carrying value of the asset and the estimated fair value, which would be determined based on either the discounted future cash flows or other appropriate fair value methods. If the asset being tested for recoverability was acquired in a business combination, intangible assets and goodwill resulting from the acquisition that are related to the asset are included in the assessment. The Company also evaluates the amortization periods assigned to its intangible assets to determine whether events or circumstances warrant revised estimates of useful lives. DEPRECIATION For financial reporting purposes, depreciation is determined principally on a straight-line basis using estimated useful lives of plant and equipment (33 years for buildings and 3 to 16 years for machinery and equipment) while accelerated depreciation methods are used for income tax purposes. Leasehold improvements are amortized over the life of the lease or the useful life of the improvement, whichever is shorter. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. Research and development expenses amounted to $749, $536, and $415 during 2001, 2000, and 1999, respectively. 21 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) POSTRETIREMENT HEALTHCARE AND LIFE INSURANCE BENEFITS Substantially all of the Company's retiree medical plans are financed entirely by retiree contributions; therefore, the Company has no liability in connection with them. Several programs provide limited retiree life insurance and medical benefits. The liability for these plans is not material. POSTEMPLOYMENT BENEFITS Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits," requires the accrual of the estimated cost of benefits provided by an employer to former or inactive employees after employment but before retirement. The Company's accrual, which is not material, relates primarily to severance agreements and the liability for life insurance coverage for certain eligible employees. OTHER EXPENSE (INCOME), NET Other expense (income), net, is comprised primarily of gains or losses resulting from the sale of fixed assets. FREIGHT BILLED TO CUSTOMERS AND FREIGHT EXPENSE In September 2000, the Emerging Issues Task Force ("EITF") reached a final consensus on EITF 00-10, "Accounting for Shipping and Handling Fees and Costs." Specifically, EITF 00-10 addresses how the seller of goods should classify amounts billed to a customer for shipping and handling. The EITF concluded that amounts billed to a customer in a sale transaction related to shipping and handling represents revenues earned for the goods provided and should be classified as revenue. The Company adopted EITF 00-10 in fiscal 2001. Historically, the Company netted certain shipping and handling revenues charged to customers in selling and administrative expenses, and such amounts have been reclassified for all periods presented. The adoption of EITF 00-10 resulted in an increase in sales and a corresponding increase in selling and administrative expenses of $4,383, $3,242, and $2,781 for the fiscal years ended August 31, 2001, 2000, and 1999, respectively, with no impact on net income. The Company includes freight expense in selling and administrative expenses. Freight expense amounted to $8,574, $8,232 and $6,945 in fiscal 2001, 2000, and 1999, respectively. ACCOUNTING STANDARDS YET TO BE ADOPTED In July 2001, the FASB issued Statement No. 141 ("SFAS 141"), "Business Combinations," and Statement No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 141 eliminates pooling of interest accounting and requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method. SFAS 142 eliminates the amortization of goodwill and certain other intangible assets and requires the Company to evaluate goodwill for impairment on an annual basis by applying a fair value test. SFAS 142 also requires that an identifiable intangible asset which is determined to have an indefinite useful economic life not be amortized, but separately tested for impairment using a fair value-based approach. The Company will adopt SFAS 142 effective September 1, 2001. As a result, the amortization of existing goodwill and intangibles with indefinite useful lives will cease on August 31, 2001, which will result in an estimated decrease in amortization expense of approximately $975 during fiscal 2002. However, the Company will be required to test its goodwill and intangibles with indefinite useful lives for impairment under the new standard beginning in the first quarter of fiscal 2002, which could have an adverse effect on the Company's future results of operations if these assets are deemed impaired. 22 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RECLASSIFICATIONS Certain prior period amounts in the financial statements and notes have been reclassified to conform with the 2001 presentation. NOTE 2: DISCONTINUED OPERATIONS On November 7, 2001, the Company's board of directors approved the spin-off of its lighting equipment and chemicals businesses into a separate publicly-traded company with its own management and board of directors. The spin-off will be effected on November 30, 2001 through a tax-free distribution of 100% of the outstanding shares of common stock of Acuity Brands, Inc. ("Acuity"), a wholly-owned subsidiary of the Company operating the lighting equipment and chemicals businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the distribution, will receive one share of Acuity common stock for each share of NSI common stock held at that date. As a result of the November 2001 spin-off, the Company's August 31, 2001 financial statements have been prepared with these businesses' net assets, results of operations, and cash flows presented as discontinued operations. All historical statements have been restated to conform with this presentation. Summarized financial information for discontinued operations is as follows (in thousands):
AUGUST 31, --------------------- 2001 2000 --------- --------- Current Assets.............................................. $ 559,116 $ 620,979 Property, Plant, and Equipment -- net....................... 248,423 245,028 Goodwill and Other Intangibles.............................. 468,944 497,324 Other Long-Term Assets...................................... 54,092 59,549 Current Liabilities......................................... (442,067) (465,594) Long-Term Debt, less current maturities..................... (373,707) (380,518) Other Long-Term Liabilities................................. (131,503) (133,966) Accumulated other comprehensive income items................ 16,998 12,741 --------- --------- Net assets of discontinued operations....................... $ 400,296 $ 455,543 ========= =========
A summary of the operating results of the discontinued operations is as follows:
YEAR ENDED AUGUST 31, ------------------------------------ 2001 2000 1999 ---------- ---------- ---------- Sales.......................................... $1,982,700 $2,023,644 $1,701,568 ========== ========== ========== Income before provision for income taxes....... $ 69,152 $ 135,291 $ 142,585 Provision for income taxes..................... 26,848 52,494 53,160 ---------- ---------- ---------- Net income..................................... $ 42,304 $ 82,797 $ 89,425 ========== ========== ==========
In conjunction with the spin-off, the Company and Acuity will enter into various agreements that address the allocation of assets and liabilities between them and that define their relationship after the separation, including a distribution agreement, a tax disaffiliation agreement, an employee benefits agreement, and a transition services agreement. In addition, Acuity and NSI will enter into a put option agreement, whereby NSI will have the option to require Acuity to purchase the property where NSI's corporate headquarters are located for a purchase price 23 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) equal to 85 percent of the agreed-upon fair market value of the property. This put option will commence on June 1, 2002 and expire on May 31, 2003. NOTE 3: PENSION AND PROFIT SHARING PLANS The Company has several pension plans covering hourly and salaried employees. Benefits paid under these plans are based generally on employees' years of service and/or compensation during the final years of employment. The Company makes annual contributions to the plans to the extent indicated by actuarial valuations. Plan assets are invested primarily in equity and fixed income securities. The following tables reflect the status of the Company's pension plans at August 31, 2001 and 2000:
2001 2000 ------- ------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year..................... $53,542 $53,018 Service cost................................................ 1,482 1,637 Interest cost............................................... 4,270 3,862 Actuarial loss.............................................. 5,784 872 Benefits paid............................................... (4,210) (5,946) Other....................................................... (1,136) 99 ------- ------- Benefit obligation at end of year........................... $59,732 $53,542 ======= ======= CHANGE IN PLAN ASSETS: Fair value of plan assets at beginning of year.............. $82,323 $80,510 Actual return on plan assets................................ 1,185 7,427 Employer contributions...................................... 199 42 Employee contributions...................................... 144 290 Benefits paid............................................... (4,210) (5,946) Other....................................................... (691) -- ------- ------- Fair value of plan assets at end of year.................... $78,950 $82,323 ======= ======= FUNDED STATUS: Funded status............................................... $19,218 $28,781 Unrecognized actuarial loss................................. 14,399 3,715 Unrecognized transition asset............................... (1,577) (2,209) Unrecognized prior service cost............................. 1,287 1,194 ------- ------- Prepaid pension expense..................................... $33,327 $31,481 ======= ======= AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: Prepaid benefit cost........................................ $34,465 $32,466 Accrued benefit liability................................... (1,485) (1,331) Intangible asset............................................ 279 287 Accumulated other comprehensive income...................... 68 59 ------- ------- Prepaid pension expense..................................... $33,327 $31,481 ======= =======
24 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The projected benefit obligation and accumulated benefit obligation for defined benefit pension plans with accumulated benefit obligations in excess of plan assets were $915 and $816, respectively, as of August 31, 2001, and $1,485 and $754, respectively, as of August 31, 2000. Components of net periodic benefit cost for the fiscal years ended August 31, 2001, 2000, and 1999 included the following:
2001 2000 1999 ------- ------- ------- Service cost............................................ $ 1,482 $ 1,637 $ 1,914 Interest cost........................................... 4,270 3,862 3,885 Expected return on plan assets.......................... (7,653) (7,506) (7,831) Amortization of prior service cost...................... 90 83 86 Amortization of transitional asset...................... (625) (837) (862) Recognized actuarial loss............................... 346 212 10 ------- ------- ------- Net periodic pension benefit............................ $(2,090) $(2,549) $(2,798) ======= ======= =======
Weighted average assumptions in 2001 and 2000 included the following:
2001 2000 ---- ---- Discount rate............................................... 7.75% 8.25% Expected return on plan assets.............................. 9.50% 9.50% Rate of compensation increase............................... 4.40% 4.70%
It is the Company's policy to adjust, on an annual basis, the discount rate used to determine the projected benefit obligation to approximate rates on high-quality, long-term obligations. The Company also has profit sharing and 401(k) plans to which both employees and the Company contribute. At August 31, 2001, assets of the 401(k) plans included shares of the Company's common stock with a market value of approximately $3,670. The Company recorded expense related to these plans of $822 in 2001, $438 in 2000, and $221 in 1999. 25 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 4: LONG-TERM DEBT AND LINES OF CREDIT Long-term debt at August 31, 2001 and 2000, consisted of the following:
2001 2000 ------------------------- ------------------------- CONTINUING DISCONTINUED CONTINUING DISCONTINUED OPERATIONS OPERATIONS OPERATIONS OPERATIONS ---------- ------------ ---------- ------------ 6% notes due February 2009 with an effective rate of 6.04%, net of unamortized discount of $310 in 2001 and $351 in 2000...................... $ -- $159,690 $ -- $159,649 8.375% notes due August 2010 with an effective rate of 8.398%, net of unamortized discount of $219 in 2001 and $244 in 2000...................... -- 199,781 -- 199,756 4.3% to 8.5% other notes, payable in installments to 2026.................. 3,001 14,593 3,925 21,113 ------ -------- ------ -------- 3,001 374,064 3,925 380,518 Less -- Amounts payable within one year included in current liabilities....... 1,011 357 201 -- ------ -------- ------ -------- $1,990 $373,707 $3,724 $380,518 ====== ======== ====== ========
Future annual principal payments of long-term debt are as follows:
CONTINUING DISCONTINUED FISCAL YEAR OPERATIONS OPERATIONS - ----------- ---------- ------------ 2002........................................................ $1,011 $ 357 2003........................................................ 1,102 341 2004........................................................ 888 2,687 2005........................................................ -- -- 2006........................................................ -- -- 2007 and beyond............................................. -- 370,679 ------ -------- $3,001 $374,064 ====== ========
Upon completion of the spin-off in November 2001, approximately $374,064 of long-term debt will be assumed by Acuity, leaving approximately $3,001 outstanding for the Company. The following provides a discussion of long-term debt segregated between continuing and discontinued operations. CONTINUING OPERATIONS Outstanding borrowings at August 31, 2001 included approximately $3,001 in notes payable at 8.5 percent and $1,999 in uncommitted credit facility borrowings at a weighted-average interest rate of 4.95 percent. DISCONTINUED OPERATIONS In anticipation of the spin-off, management has amended, or is in the process of amending, the following agreements which were in place for NSI as of August 31, 2001. The material terms of the agreements are expected to be consistent subsequent to the spin-off for Acuity, who will be the borrower. 26 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In May 2001, NSI entered into a three-year agreement (the "Receivables Facility") to borrow, on an ongoing basis, up to $150,000 secured by undivided interests in a defined pool of trade accounts receivable of the lighting equipment and chemical segments. At August 31, 2001, net trade accounts receivable pledged as security for the borrowings under the Receivables Facility totaled $227,754. Outstanding borrowings under the Receivables Facility at August 31, 2001 were $105,100. Interest rates under the Receivables Facility vary with commercial paper rates plus an applicable margin and the interest rate was 3.90 percent at August 31, 2001. Effective at the time of the spin-off, Acuity will assume all of NSI's borrowings and other obligations under the Receivables Facility. In July 1999, NSI entered into a $250,000, 364-day committed credit facility, which was renewed in June 2001 and expires in June 2002. The credit facility permits certain subsidiaries of NSI to borrow under such facility, and NSI guarantees these borrowings. Interest rates under the credit facility are based on the LIBOR rate or other rates, at NSI's option. NSI pays an annual fee on the commitments based on NSI's credit rating for unsecured long-term public debt. Outstanding borrowings under the facility at August 31, 2001 were $105,000 at an interest rate of 4.1 percent. No amounts were outstanding under the facility at August 31, 2000. This facility will be discontinued at the time of the spin-off. In October 2001, NSI, on behalf of Acuity, negotiated a $240,000, 364-day committed credit facility with six domestic and international banks that will become effective and will replace the Company's $250,000 credit facility at the time of the spin-off. The facility includes an option for additional lenders to enter the agreement to provide up to a total of $300,000 of commitments. The facility contains financial covenants including a leverage ratio of total indebtedness to EBITDA and an interest coverage ratio. Interest rates under the facility are based on the LIBOR rate or other rates, at Acuity's option. Acuity will pay an annual fee on the commitment based on Acuity's credit rating for unsecured long-term public debt. The principal lighting equipment subsidiary and the principal chemicals subsidiary of Acuity are guarantors of the facility. NSI's commercial paper program was discontinued in July 2001. Amounts outstanding under the commercial paper program were replaced by borrowings under the committed credit facility. The $236,706 outstanding under the Company's commercial paper program at August 31, 2000 had a weighted-average interest rate of 6.8 percent. At August 31, 2001, NSI had complimentary uncommitted lines of credit totaling $111,169 for general operating purposes, of which $16,779 is designated as multi-currency. Outstanding borrowings under the uncommitted credit facilities at August 31, 2001 were $24,666, at a weighted-average interest rate of 4.95 percent. At August 31, 2001, $74,390 in letters of credit was outstanding, primarily under the domestic uncommitted line of credit. In January 1999, NSI issued $160,000 in ten-year publicly traded notes bearing a coupon rate of 6.0 percent. In August 2000, NSI issued $200,000 in ten-year publicly traded notes bearing a coupon rate of 8.375 percent. The fair values of the $160,000 and $200,000 notes, based on quoted market prices, were approximately $152,016 and $219,380, respectively, at August 31, 2001. Excluding the $160,000 and $200,000 notes, long-term debt recorded in the accompanying balance sheets approximates fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. NOTE 5: COMMON STOCK AND RELATED MATTERS SHARES AUTHORIZED In January 1999, the stockholders approved an amendment to the Corporation's Restated Certificate of Incorporation to increase the Corporation's authorized shares of common stock from 80,000,000 to 27 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 120,000,000. The additional shares will be available for potential acquisitions, stock dividends and splits, and other purposes determined by the Board of Directors to be in the best interests of the Corporation. SHAREHOLDER RIGHTS PLAN The Company has a shareholder rights plan under which one preferred stock purchase right is presently attached to and trades with each outstanding share of the Company's common stock. The plan, which was to have expired May 19, 1998, was amended in December 1997 and extended to May 19, 2008. The rights become exercisable and transferable apart from the common stock (a) on the date that a person or group announces that they have acquired 15 percent or more of the Company's common stock or (b) ten days after a person or group makes an unsolicited offer to acquire beneficial ownership of, or the right to obtain beneficial ownership of, 15 percent or more of the Company's common stock (unless such date is extended by the Board of Directors) or (c) 20 business days before the date on which a business combination is reasonably expected to be consummated involving a person who, if the business combination is consummated, has or would acquire beneficial ownership of, or the right to obtain beneficial ownership of, 15 percent or more of the Company's common stock and that person has directly or indirectly nominated a director of the Company at the time the business combination is considered. The rights are not triggered if the Board of Directors is notified that reaching the trigger threshold was inadvertent and divestiture of sufficient stock is thereafter made. Once exercisable, each right entitles the holder to purchase one one-thousandth share of Series A Participating Preferred Stock at an exercise price of $160, subject to adjustment to prevent dilution. The rights have no voting power and, until exercised, no dilutive effect on net income per common share. The rights expire on May 19, 2008, and are redeemable under certain circumstances. If a person acquires 15 percent ownership, except in an offer approved under the plan by a majority of the nonemployee directors, each right not owned by the acquirer or related parties will entitle its holder to purchase, at the right's exercise price, common stock or common stock equivalents having a market value immediately prior to the triggering of the right of twice that exercise price. In addition, after an acquirer obtains 15 percent ownership, if the Company is involved in certain mergers, business combinations, or asset sales, each right not owned by the acquirer or related persons will entitle its holder to purchase, at the right's exercise price, shares of common stock of the other party to the transaction having a market value immediately prior to the triggering of the right of twice that exercise price. PREFERRED STOCK The Company has 1,000,000 shares of preferred stock authorized, 500,000 of which have been reserved for issuance under the shareholder rights plan. No shares of preferred stock had been issued at August 31, 2001 and 2000. 28 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EARNINGS PER SHARE The following table represents a reconciliation of basic and diluted earnings per share at August 31:
2001 2000 1999 -------- -------- -------- Basic weighted average shares outstanding (thousands)....................................... 41,068 40,708 40,899 Add: Shares of common stock assumed issued upon exercise of dilutive stock options (thousands).... -- 19 194 -------- -------- -------- Diluted weighted average shares outstanding (thousands)....................................... 41,068 40,727 41,093 ======== ======== ======== (Loss) income from continuing operations............ $(15,291) $ 17,073 $ 34,918 Income from discontinued operations, net of tax..... 42,304 82,797 89,425 -------- -------- -------- Net income.......................................... $ 27,013 $ 99,870 $124,343 ======== ======== ======== Earnings per Share: Basic: (Loss) income from continuing operations....... $ (.37) $ .42 $ .85 Income from discontinued operations............ 1.03 2.03 2.19 -------- -------- -------- Net income..................................... $ .66 $ 2.45 $ 3.04 ======== ======== ======== Diluted: (Loss) income from continuing operations....... $ (.37) $ .42 $ .85 Income from discontinued operations............ 1.03 2.03 2.18 -------- -------- -------- Net income..................................... $ .66 $ 2.45 $ 3.03 ======== ======== ========
STOCK-BASED COMPENSATION In 1990, stockholders approved the National Service Industries, Inc. Long-Term Incentive Program for the benefit of officers and other key employees. There were 1,750,000 treasury shares reserved for issuance under the program. In 1997, stockholders approved the National Service Industries, Inc. Long-Term Achievement Incentive Plan for the benefit of officers and other key employees. On January 5, 2000, the stockholders approved an amendment to the plan which, in addition to other modifications, increased the number of shares authorized for issuance under the plan from 1,750,000 to 5,750,000. Treasury shares have been reserved for issuance under the plan. Aspiration Achievement Incentive Awards were granted annually beginning in September 1996 under the Long-Term Achievement Incentive Plan. Shares may be earned and issued to participants based on a level of achievement of performance over three-year performance cycles. Amounts (credited) charged to compensation expense for 2001, 2000 and 1999 were approximately ($328), $500 and $1,100, respectively. During fiscal 2001 and 2000, 183,124 and 176,033 shares were issued under the award for the performance cycles ended August 31, 2000 and 1999, respectively. In addition, during fiscal 2001 certain participants elected to receive at-the-money options in lieu of cash or share awards. As a result, $1,855 previously accrued was reclassified to paid in capital. No shares were issued under this award as of August 31, 1999. Generally, the stock options granted under both long-term incentive programs become exercisable in four equal annual installments beginning one year from the date of the grant. 29 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In January 1993, stockholders approved the National Service Industries, Inc. 1992 Nonemployee Directors' Stock Option Plan. The stock options granted under that plan become exercisable one year from the date of the grant. There were 100,000 treasury shares reserved for issuance under the plan. During fiscal 2001, 2000, and 1999 15,000, 16,500 and 11,000 options were granted, respectively, under this plan. Under all stock option plans, the options expire ten years from the date of the grant and have an exercise price equal to the fair market value of the Company's stock on the date of the grant. At August 31, shares available for grant as options under all plans were 2,336,144 in 2001, 3,517,152 in 2000, and 694,279 in 1999, less shares required for the payment of outstanding Aspiration Achievement Incentive Awards (approximately 270,644 at August 31, 2001). Stock option transactions for the stock option plans and stock option agreements during the years ended August 31, 2001, 2000, and 1999 were as follows:
OUTSTANDING EXERCISABLE -------------------------- -------------------------- WEIGHTED WEIGHTED NUMBER OF AVERAGE NUMBER OF AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE --------- -------------- --------- -------------- Outstanding at August 31, 1998....... 1,744,646 $34.74 876,721 $29.05 Granted............................ 665,250 35.24 Exercised.......................... (21,357) 27.71 Cancelled.......................... (122,955) 39.24 --------- ------ --------- ------ Outstanding at August 31, 1999....... 2,265,584 $34.78 1,110,084 $31.30 ========= ====== ========= ====== Granted............................ 1,144,598 $27.51 Exercised.......................... (29,350) 27.44 Cancelled.......................... (27,533) 32.14 --------- ------ --------- ------ Outstanding at August 31, 2000....... 3,353,299 $32.40 1,752,011 $32.28 ========= ====== ========= ====== Granted............................ 1,874,163 $19.38 Exercised.......................... (1,945) 19.75 Cancelled.......................... (693,130) 31.26 --------- ------ --------- ------ Outstanding at August 31, 2001....... 4,532,387 $27.17 2,188,543 $31.15 ========= ====== ========= ====== Range of option exercise prices: Officers and other key employees -- $19.31 -- $29.72 (average life -- 8.1 years)............ 3,026,371 $22.46 1,013,152 $24.83 $29.72 -- $41.61 (average life -- 5.5 years)............ 1,094,016 $34.63 860,641 $34.56 $41.61 -- $46.63 (average life -- 5.9 years)............ 339,000 $44.35 255,250 $44.35 Nonemployee directors -- $22.13 -- $30.98 (average life -- 5.9 years)............ 46,000 $25.99 32,500 $27.42 $35.40 -- $44.25 (average life -- 4.7 years)............ 27,000 $39.49 27,000 $39.49
30 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During fiscal 1997, the Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for these stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in fiscal years 2001, 2000, and 1999, consistent with the provisions of SFAS No. 123, the total Company's net income and earnings per share would have been reduced to the following pro forma amounts:
2001 2000 1999 ------- ------- -------- Pro Forma Information: Net income.......................................... $21,452 $94,166 $120,141 Basic earnings per share............................ $ .52 $ 2.31 $ 2.94 Diluted earnings per share.......................... $ .52 $ 2.31 $ 2.92
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. The weighted average grant date fair value of options was $5.25, $9.18, and $13.70, respectively. The following weighted average assumptions were used to estimate fair value:
2001 2000 1999 -------- -------- -------- Dividend yield........................................ 3.5% 2.6% 2.6% Expected volatility................................... 26.6% 24.4% 36.2% Risk-free interest rate............................... 5.8% 6.9% 5.2% Expected life of options.............................. 10 years 10 years 10 years Turnover rate......................................... 5.0% 5.0% 5.0%
EMPLOYEE STOCK PURCHASE PLAN In 1998, stockholders approved the National Service Industries, Inc. Employee Stock Purchase Plan for the benefit of eligible employees. Under the plan, employees may purchase, through payroll deduction, the Company's common stock at a 15 percent discount. Shares are purchased quarterly at 85 percent of the lower of the fair market value of the Company's common stock on the first business day of the quarterly plan period or on the last business day of the quarterly plan period. There were 1,500,000 treasury shares reserved for purchase under the plan, of which 1,054,698 shares remain available for purchase at August 31, 2001. RESTRICTED STOCK In October 2000, the Company awarded 256,800 shares of restricted stock to officers and other key employees under the National Service Industries, Inc. Long-Term Achievement Incentive Plan. The shares are granted in 20 percent increments when the Company's stock price equals or exceeds certain stock price targets ranging from $22.14 to $38.50 for thirty consecutive calendar days. The shares vest ratably in four equal annual installments beginning one year from the date of grant. During the vesting period, the participants have voting rights and receive dividends, but the shares may not be sold, assigned, transferred, pledged or otherwise encumbered. If the stock price targets are not reached on or before the fifth anniversary of the award date, the corresponding shares are not granted. Additionally, granted but unvested shares are forfeited upon termination of employment, unless certain retirement criteria are met. The fair value of the restricted shares on the date of grant is amortized ratably over the vesting period. In January 2001, the first stock price target was achieved and 51,260 restricted shares were granted. Unearned compensation of $1,195 on restricted stock was recorded in fiscal 2001 based on the market 31 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) value of the shares on the date of grant and is generally being amortized over four years. The unamortized balance of unearned compensation on restricted stock is included as a separate component of stockholders' equity. The preceding information with regards to stock based compensation related to the Company as a whole. Certain balances have been allocated to discontinued operations using allocation methodologies believed to be reasonable by management. NOTE 6: COMMITMENTS AND CONTINGENCIES SELF-INSURANCE It is the Company's policy to self insure for certain insurable risks consisting primarily of physical loss to property; business interruptions resulting from such loss; and workers' compensation, comprehensive general, and auto liability. Insurance coverage is obtained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract. Based on an independent actuary's estimate of the aggregate liability for claims incurred, a provision for claims under the self-insured program is recorded and revised annually. The activity in the self-insurance liability for each of the years ended August 31 was as follows:
2001 2000 1999 -------- ------- -------- Reserve, beginning of period......................... $ 21,934 $24,005 $ 27,116 Expense.............................................. 10,944 5,216 2,684 Payments............................................. (17,282) (7,287) (5,795) -------- ------- -------- Reserve, end of period............................... $ 15,596 $21,934 $ 24,005 ======== ======= ========
LEASES The Company leases certain of its buildings and equipment under noncancelable lease agreements. Minimum lease payments under noncancelable leases related to continuing operations for years subsequent to August 31, 2001, are as follows: 2002 -- $2,955; 2003 -- $2,255; 2004 -- $1,926; 2005 -- $1,595; 2006 -- $1,596; after 2006 -- $5,735. Total rent expense was $5,582 in 2001, $4,524 in 2000, and $4,236 in 1999. LITIGATION 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 legal claims when payments associated with the claims become probable and the costs can be reasonably estimated for financial statement purposes. While management believes that its reserves are appropriate based on information currently available, the actual costs of resolving pending and future legal claims against the Company may differ substantially from the amounts reserved. Among the product liability claims to which the Company is subject are claims for personal injury or wrongful death arising from the installation and distribution of asbestos-containing insulation, primarily in the southeastern United States, by a previously divested business of the Company. Most claims against the 32 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company seek both substantial compensatory damages and punitive damages. The Company believes that many of the claims against it are without merit. The Company believes its conduct with respect to asbestos containing insulation was consistent with recognized safety standards at the relevant times, and the Company believes there is no basis for imposing punitive damages against it in connection with asbestos claims. In addition, the Company believes that it has substantial legal defenses against many of these claims, including that the Company did not manufacture any asbestos-containing building products, that the Company did not distribute or install products at certain sites where exposure is alleged, and that statutes of repose in some states bar the claims. However, there is no assurance that the Company will be successful in asserting defenses to these claims. Prior to February 1, 2001, the Center for Claims Resolution (the "CCR") handled the processing and settlement of claims on behalf of the Company and retained local counsel for the defense of claims. Pursuant to a written agreement among CCR members, the Company was responsible for varying percentages of defense and liability payments on a claim-by-claim basis for each claim in which it was named in accordance with predetermined sharing formulae. Substantially all of the Company's portion of those payments were paid directly by the Company's insurers. Since February 1, 2001, the Company has begun to retain trial counsel directly, rather than through the CCR, to defend asbestos-related claims against the Company and has engaged another outside consultant to provide claims processing and administration services for asbestos-related claims. Now that it is no longer a member of the CCR, the Company intends to be more vigorous in defending asbestos-related claims and will seek to dismiss without any settlement payment claims arising in jurisdictions or involving worksites where the Company did not distribute or install asbestos-containing products. During the past two years, some members or former members of the CCR have failed, by reason of bankruptcy or otherwise, to make payments to the CCR for their shares of certain settlement agreements the CCR had reached on behalf of its members with plaintiffs. Consequently, with respect to some settlement agreements, the CCR has been unable to make the full payments contemplated by those agreements. In some circumstances, the Company and other members of the CCR have contributed additional funds to the CCR to permit it to make certain payments contemplated by the settlement agreements. The Company has contributed approximately $500,000 to the CCR for this purpose, and it may make further such payments in the future. Some plaintiffs who are parties to settlement agreements with the CCR that contemplate payments that the CCR has been unable to make have commenced litigation against the CCR, the Company, and other members to recover amounts due under these settlement agreements. The Company believes that it should not be liable for settlement payments attributable to other members or former members of the CCR, and the Company has joined a joint defense group with other CCR members to defend these claims. The Company believes that any amount it pays, including the $500,000 it has already contributed to the CCR, on account of payments contemplated by settlement agreements entered into by the CCR on behalf of its members, should be covered either by the Company's insurance or by surety bonds and collateral provided by those former members who failed to meet their obligations. There can be no assurance, however, that the Company can actually recover any of these amounts. Accordingly, no insurance or other recovery with respect to these amounts has been recorded as an asset in the Company's financial statements. The amount of the Company's liability on account of payments contemplated by settlement agreements entered into by the CCR is uncertain. The Company has included in its reserves its estimate of the Company's potential liability in this respect, but the Company's ultimate liability for these matters could be greater than estimated if more CCR members or former members fail to meet their obligations or if the courts determine that the Company could be liable for settlement payments that were attributable to other CCR members. 33 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Several significant companies that are traditional co-defendants in asbestos claims, both members of the CCR and non-members, have sought protection under Chapter 11 of the federal bankruptcy code during the past two years. Litigation against such co-defendants generally is stayed or restricted as a result of their bankruptcy filings. The absence of these traditional defendants may increase the number of claims filed against other defendants, including the Company, and may increase the cost of resolving such claims. Due to the uncertainties surrounding the ultimate effect of these bankruptcies on remaining asbestos defendants, the effect on the amount of the Company's liabilities cannot be determined. During the fiscal year ended August 31, 2001, the Company was served with approximately 30,000 asbestos-related claims and settled approximately 16,000 claims for an average of approximately $1,035 per claim (including approximately 200 claims that were dismissed with no payment). Since the unwinding of the joint defense arrangements of the CCR effective February 1, 2001, the average settlement per claim has been approximately $1,350. As of August 31, 2001, there were approximately 34,000 open claims pending against the Company and approximately 13,000 additional claims that had been settled in principle (but not finalized) for amounts generally consistent with recent historical per-claim settlement costs. Of the open pending claims, approximately 12,000 claims were voluntarily dismissed in October 2001 without any settlement payment. As of August 31, 2001, an estimated accrual of $113.4 million for asbestos-related liabilities, before consideration of insurance recoveries, has been reflected in the accompanying financial statements, primarily in long-term liabilities. The amount of the accrual is based on the following: the Company's estimate of indemnity payments and defense costs associated with pending and future asbestos-related claims to be paid through 2004; settlements agreed to but not paid as of August 31, 2001; the Company's expected payment on account of settlement obligations of defaulting CCR members; interest on settlement payments that are subject to ongoing dispute resolution with certain insurance providers; and other legal fees and expenses. The Company's estimates of indemnity payments and defense costs associated with pending and future asbestos claims are based on the Company's estimate of the number of future asbestos-related claims and the type of disease, if any, alleged or expected to be alleged in such claims, assumptions regarding the timing and amounts of settlement payments, the status of ongoing litigation and settlement initiatives, and the advice of outside counsel with respect to the current state of the law related to asbestos claims. The ultimate liability for all pending and future claims cannot be determined with certainty due to the difficulty of forecasting the numerous variables that can affect the amount of liability. There are inherent uncertainties involved in estimating these amounts, and the Company's actual costs in future periods could exceed the Company's estimates due to changes in facts and circumstances after the date of each estimate. The Company believes that it has insurance coverage available to recover most of its asbestos-related costs. The Company has reached settlement agreements with substantially all of its relevant insurers providing for payment of substantially all asbestos-related claims (subject to retentions) up to the various policy limits, except for the Company's payments on account of settlement obligations of defaulting CCR members, as discussed above. The timing and amount of future recoveries from insurance carriers will depend on the pace of claims review and processing by such carriers and on the resolution of any remaining disputes regarding coverage under such policies. The Company believes that substantial recoveries from the insurance carriers are probable. The Company reached this conclusion after considering its prior insurance-related recoveries in respect of asbestos-related claims, existing insurance policies, settlement agreements with insurers, the apparent viability of its insurers, the advice of outside counsel with respect to the applicable insurance coverage law relating to terms and conditions of those policies, and a general assessment by the Company and its advisors of the financial condition of the relevant insurers. Accordingly, an estimated aggregate insurance recovery of $95.2 million has been reflected in the accompanying financial statements as of August 31, 2001, with respect to previously paid claims and pending and future claims estimated to be paid through 2004 and the other items included in the accrual 34 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of asbestos-related liabilities. Approximately $28.6 million of the aggregate insurance recovery and $30.5 million of the asbestos-related accrual have been classified as current assets and liabilities in the accompanying balance sheet as of August 31, 2001. Management continues to monitor claims activity, the status of lawsuits (including settlement initiatives), legislative developments, and costs incurred in order to ascertain whether an adjustment to the existing accruals should be made to the extent that historical experience may differ significantly from the Company's underlying assumptions. As additional information becomes available, the Company will reassess its liability and revise its estimates as appropriate. Management currently believes that, based on the factors discussed in the preceding paragraphs and taking into account the accruals reflected as of August 31, 2001 the resolution of asbestos-related uncertainties and the incurrence of asbestos-related costs net to related insurance recoveries should not have a material adverse effect on the Company's consolidated financial position or results of operations. However, as the Company's estimates are periodically re-evaluated, additional accruals to the liabilities reflected in the Company's financial statements may be necessary, and such accruals could be material to the results of the period in which they are recorded. Given the number and complexity of factors that affect the Company's liability and its available insurance, the actual liability and insurance recovery may differ substantially from the Company's estimates. No assurance can be given that the Company will not be subject to significant additional asbestos litigation and material additional liabilities. If actual liabilities significantly exceed the Company's estimates or if expected insurance recoveries become unavailable, due to insolvencies among the Company's primary or excess insurance carriers, disputes with carriers or otherwise, the Company's results of operations, liquidity and financial condition could be materially adversely affected. 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 $7.3 million and $10.1 million at August 31, 2001 and 2000, respectively. The actual cost of environmental issues may be lower or higher than that reserved due to the difficulty in estimating such costs and potential changes in the status of government regulations. Certain environmental laws can impose liability regardless of fault. The federal Superfund law is an example of such an environmental law. However, liability under Superfund is mitigated by the presence of other parties who will share in the costs associated with clean-up of sites. The extent of liability is determined on a case-by-case basis taking into account many factors, including the number of other parties whose status or activities also subjects them to liability regardless of fault. The Company is currently a party to, or otherwise involved in, legal proceedings in connection with state and federal Superfund sites, one of which is located on property owned by the Company. Except for the Blydenburgh Landfill matter in New York (which is discussed below), the Company believes its liability is de minimis at each of the currently active sites which it does not own where it has been named as a potentially responsible party ("PRP") due to its limited involvement at the site and/or the number of viable PRPs. For property which the Company owns on East Paris Street in Tampa, Florida, the Company was 35 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) requested by the State of Florida to clean up chlorinated solvent contamination in the groundwater beneath the property and beneath 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 presented expert evidence to the State of Florida in 1998 that the Company is not the source of the contamination, and the State has referred this matter to the Environmental Protection Agency for review. At this point in time, it is not possible to quantify the extent, if any, of the Company's exposure. In connection with the sale of certain assets, including 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 two of the properties in Texas involved in the sale. Because the Company is not the source of contamination, the Company asserted indemnification claims against the company from which it bought the properties. The prior owner is currently addressing the contamination at its expense at one of the properties, subject to a reservation of rights, and is currently reviewing NSI's claim regarding the other property. At this time, it is too early to quantify the Company's potential exposure in these matters, the likelihood of an adverse result, or the outcome of the Company's indemnification claims against the prior owner. During the second quarter of 2001, management performed a review of the other environmental liabilities recorded in connection with the textile rental segment's 1997 uniform plants divestiture. Based on the advice of the Company's environmental experts, the Company decreased its estimates for certain environmental exposures and, as a result, reduced the related liability and recorded a gain of approximately $2.1 million. The gain is included in "Gain on sale of businesses" in the accompanying "Consolidated Statements of Income." 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. The Company has also asserted an indemnification claim against the parent of Initial Services Investments, Inc., which the Company acquired in 1992 and which had previously purchased and sold certain assets of Serv-All Uniform Rental Corp. The federal district court in the Eastern District of New York denied the Company's motion for summary judgment on the issue of successor liability and granted the State of New York's motion for partial summary judgment and for a declaratory judgment that the Company is a successor to Serv-All Uniform Rental Corp. The Company and the State of New York have each filed a cross-motion for summary judgment on NSI's liability under the Comprehensive Environmental Response, Compensation, and Liability Act, which motions are currently pending. In addition, the Company retains the right to appeal the district court's judgment on successor liability once there is an appealable order entered in the case. At this stage, it is too early to quantify the Company's potential exposure, the likelihood of an adverse result, or the outcome of the Company's indemnification claim. NOTE 7: RESTRUCTURING EXPENSE, ASSET IMPAIRMENTS, AND OTHER CHARGES During 2001, management conducted reviews of its continuing operations as part of management's strategic initiative to examine under-performing operations and to position the Company for an economic slowdown. As a result of these reviews, the Company approved a significant restructuring program and recorded a related charge of $5,014 during the fourth quarter of fiscal 2001. The accrual included severance costs of $3,087 for 367 employees of the textile rental and envelope segments, all of whom were terminated prior to the end of the fiscal year, $1,582 in exit expenses to close and consolidate facilities in 36 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the envelope segment, and $345 in losses related to the sale of two textile rental businesses. As of August 31, 2001, approximately $118 of the severance accrual had been paid to employees. Exit expenses primarily include costs of lease terminations, costs to dispose of facilities, and union-related costs associated with closing facilities. Additionally, as a further result of the 2001 reviews, the Company recognized long-lived asset impairments totaling $1,602. Textile rental and envelope assets to be disposed of were reduced to state them at their estimated fair value less costs to sell. Assets to be disposed of primarily related to equipment located in the facilities included in the restructuring program noted above. After the charge, the remaining net book value of these assets was immaterial. Estimated fair market values were established based on independent appraisals or an analysis of expected future cash flows. Unrelated to the restructure activities discussed above, the envelope segment also recorded a charge of $3,341 related to certain costs associated with the implementation of an enterprise-wide software package after management decided to materially alter the operating methodology of the system. This change in methodology required an extensive reconfiguration of the base software and all the processes associated with the operating system. The losses resulting from the restructuring activities and asset impairments are included in "Restructuring expense, asset impairments, and other charges (income)" in the "Consolidated Statements of Income." In connection with the Company's 2001 assessment of the asbestos related matters further described in Note 6, a $16,116 charge related to the estimate of potential liabilities in excess of insurance recoveries has been included in "Restructuring expense, asset impairments, and other charges (income)" in the "Consolidated Statements of Income." During 1999, management performed an extensive review of the assets that were to be disposed of and the restructuring accruals established in 1997 as part of the Company's review of its textile rental, European chemical, and corporate operations. In addition to realizing lower than anticipated costs, management determined that it was more economically feasible to continue to operate certain locations that were to be disposed of in the original plan. As a result, in 1999 the related reserve and impairments were reversed and $9,291 of income was recorded and included in "Restructuring expense, asset impairments, and other charges (income)" in the "Consolidated Statements of Income." NOTE 8: ACQUISITIONS AND DIVESTITURES The Company accounts for its acquisitions as purchases. Accordingly, for each of the following acquisitions, the purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values. Acquisition spending in 2001 totaled $5,596 and related primarily to the textile rental segment's purchase of several plants in Florida. These acquisitions resulted in goodwill of $352 that is being amortized over periods ranging from 10 to 20 years. Identifiable intangibles of $1,676 are being amortized over periods ranging from 3 to 7 years and primarily include customer lists and restrictive covenants. Divestitures in 2001 primarily related to the sale of a textile rental plant located in Arkansas resulting in proceeds of approximately $2,286 and a pre-tax gain of $290. In addition, the textile rental segment restructured its operations in the fourth quarter of fiscal 2001. As part of this restructure plan, the Company sold two textile rental businesses in August 2001 resulting in proceeds of $2,602 and a net pre-tax loss of $345 which is included in "Restructuring expense, asset impairments, and other charges (income)" in the accompanying "Consolidated Statements of Income." 37 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During 2001, management performed a review of the environmental liabilities recorded in connection with the textile rental segment's 1997 uniform plants divestiture. Based on the advice of the Company's environmental experts, the Company decreased its estimates for certain environmental exposures and, as a result, reduced the related liability and recorded a gain of approximately $2,069. The gain is included in "Gain on sale of businesses" in the accompanying "Consolidated Statements of Income." Acquisition spending in 2000 of $10,130 related to several small acquisitions in the textile rental segment. Goodwill of $2,554 was recorded and is being amortized over periods ranging from 10 to 20 years. Identifiable intangibles of $5,539 are being amortized over periods ranging from 3 to 7 years and primarily include customer lists and non-compete agreements. Acquisition spending in 1999 totaled $20,607 ($19,762 in cash and 26,495 shares valued at $845). In February 1999, the envelope segment acquired substantially all of Gilmore Envelope, an envelope manufacturer headquartered in Los Angeles, California, for approximately $10,557. The Company also made several acquisitions in the textile rental segment during fiscal 1999 for approximately $10,050 resulting in additional intangibles of $4,486 related primarily to customer lists. These intangibles are being amortized over periods ranging from 3 to 7 years. Divestitures in 1999 primarily related to the envelope segment's sale of Techno-Aide/Stumb Metal Products in June 1999 for approximately $4,191. The envelope segment recognized a pre-tax gain of $1,990 on the transaction. Other divestitures during 1999 primarily related to the sale of industrial contracts in the textile rental segment resulting in proceeds of approximately $7,771 and a pre-tax gain of $4,388. During 1999, management performed an extensive review of the liabilities recorded in connection with the textile rental segment's 1997 uniform plants divestiture. In 1997, the textile rental segment accrued for items related to the sale of its uniform plants including environmental exposures, severance agreements, and costs to return leased facilities to pre-lease condition. The Company realized lower costs than originally anticipated associated with these items and, as a result, reduced the liability and recorded a gain of $3,511. The combined preliminary purchase price allocations related to the Company's acquisitions during the last three years was as follows:
2001 2000 1999 -------------- -------------- ------------------------- TEXTILE RENTAL TEXTILE RENTAL TEXTILE RENTAL ENVELOPE SEGMENT SEGMENT SEGMENT SEGMENT -------------- -------------- -------------- -------- Current assets....................... $ 911 $ 1,759 $ 1,644 $ 8,779 Property, plant and equipment........ 2,938 847 3,920 8,287 Intangibles.......................... 1,676 5,539 4,486 100 Goodwill............................. 352 2,554 -- -- Liabilities.......................... (281) (569) -- (6,609) ------ ------- ------- ------- $5,596 $10,130 $10,050 $10,557 ====== ======= ======= =======
NOTE 9: INCOME TAXES The Company accounts for income taxes using the liability approach as prescribed by SFAS No. 109, "Accounting for Income Taxes." This approach requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Using the enacted tax rates in effect for the year in which the differences are expected to reverse, deferred tax liabilities and assets are determined based on the differences between the financial reporting and the tax basis of an asset or liability. 38 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision (benefit) for income taxes from continuing operations consists of the following components:
2001 2000 1999 -------- ------- ------- Provision for current Federal taxes................... $ 2,884 $ 8,743 $13,833 Provision for current state taxes..................... 222 427 831 (Benefit) provision for deferred taxes................ (12,086) 1,654 6,154 -------- ------- ------- Total (benefit) provision for income taxes............ $ (8,980) $10,824 $20,818 ======== ======= =======
A reconciliation from the Federal statutory rate to the total provision for income taxes is as follows:
2001 2000 1999 ------- ------- ------- Federal income tax computed at statutory rate.......... $(8,495) $ 9,762 $19,507 State income tax, net of Federal income tax benefit.... (471) 689 730 Other, net............................................. (14) 373 581 ------- ------- ------- Total (benefit) provision for income taxes............. $(8,980) $10,824 $20,818 ======= ======= =======
Components of the net deferred income tax liability at August 31, 2001 and 2000 include:
2001 2000 ------- ------- Deferred tax liabilities: Depreciation.............................................. $18,960 $27,619 Amortization of linens.................................... 23,264 22,941 Pension................................................... 11,412 12,306 Intangibles............................................... 622 -- Other..................................................... 5,993 31,716 ------- ------- Total deferred tax liabilities............................ 60,251 94,582 ------- ------- Deferred tax assets: Self-insurance............................................ (9,752) (11,473) Deferred compensation..................................... (2,382) (955) Bonuses................................................... (1,340) -- Restructuring and asset impairment........................ (21,535) (15,213) Asset disposition reserves................................ (111) (191) Other assets.............................................. (1,838) (2,153) ------- ------- Total deferred tax assets................................. (36,958) (29,985) ------- ------- Net deferred tax liability.................................. $23,293 $64,597 ======= =======
39 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10: QUARTERLY FINANCIAL DATA (UNAUDITED)
INCOME SALES AND (LOSS) FROM DISCONTINUED NET SERVICE GROSS CONTINUING OPERATIONS, INCOME REVENUES PROFIT OPERATIONS NET OF TAX (LOSS) --------- ------- ----------- ------------ -------- 2001 1st Quarter................... $140,687 $48,218 $ 2,354 $14,183 $ 16,537 2nd Quarter................... 135,142 44,918 2,090 13,735 15,825 3rd Quarter................... 144,329 51,330 4,902 7,669 12,571 4th Quarter................... 143,124 42,795 (24,637) 6,717 (17,920) 2000 1st Quarter................... $133,319 $45,342 $ 4,483 $19,907 $ 24,390 2nd Quarter................... 132,455 45,276 4,398 15,878 20,276 3rd Quarter................... 140,356 48,335 4,341 16,435 20,776 4th Quarter................... 140,582 46,533 3,851 30,577 34,428
BASIC EARNINGS PER SHARE DILUTED EARNINGS PER SHARE ----------------------------------- ----------------------------------- INCOME INCOME (LOSS) FROM DISCONTINUED NET (LOSS) FROM DISCONTINUED NET CONTINUING OPERATIONS, INCOME CONTINUING OPERATIONS, INCOME OPERATIONS NET OF TAX (LOSS) OPERATIONS NET OF TAX (LOSS) ----------- ------------ ------ ----------- ------------ ------ 2001 1st Quarter............ $.06 $.34 $ .40 $ .06 $.34 $ .40 2nd Quarter............ .05 .34 .39 .05 .33 .38 3rd Quarter............ .12 .19 .31 .12 .18 .30 4th Quarter............ (.60) .16 (.44) (.60) .16 (.44) 2000 1st Quarter............ $.11 $.49 .60 $ .11 $.49 $ .60 2nd Quarter............ .11 .39 .50 .11 .39 .50 3rd Quarter............ .11 .40 .51 .11 .40 .51 4th Quarter............ .09 .75 .84 .09 .75 .84
- --------------- Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share in fiscal 2001 does not equal the total computed for the year. 40 NATIONAL SERVICE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11: BUSINESS SEGMENT INFORMATION The following table summarizes the Company's business segment information from continuing operations:
CAPITAL SALES AND EXPENDITURES SERVICE OPERATING TOTAL DEPRECIATION AMORTIZATION AND REVENUES PROFIT (LOSS) ASSETS EXPENSE EXPENSE ACQUISITIONS --------- ------------- --------- ------------ ------------ ------------ 2001 Textile Rental(1).... $334,820 $ 12,553 $ 231,422 $ 14,655 $1,828 $22,559 Envelope(2).......... 228,462 (13,145) 141,945 8,652 979 5,476 -------- -------- --------- -------- ------ ------- 563,282 (592) 373,367 23,307 2,807 28,035 Corporate(3)......... (21,909) 124,731 1,519 614 Interest Expense..... (1,770) -------- -------- --------- -------- ------ ------- $563,282 $(24,271) $ 498,098 $ 24,826 $2,807 $28,649 ======== ======== ========= ======== ====== ======= 2000 Textile Rental(1).... $321,522 $ 28,208 $ 222,957 $ 14,154 $1,432 $30,795 Envelope(2).......... 225,190 5,096 151,003 6,892 979 22,890 -------- -------- --------- -------- ------ ------- 546,712 33,304 373,960 21,046 2,411 53,685 Corporate............ (3,829) 24,944 1,770 1,930 Interest Expense..... (1,578) -------- -------- --------- -------- ------ ------- $546,712 $ 27,897 $ 398,904 $ 22,816 $2,411 $55,615 ======== ======== ========= ======== ====== ======= 1999 Textile Rental(1).... $309,115 $ 42,935 $ 203,509 $ 13,666 $ 860 $20,669 Envelope(2).......... 204,510 17,662 139,755 5,319 969 32,592 -------- -------- --------- -------- ------ ------- 513,625 60,597 343,264 18,985 1,829 53,261 Corporate............ (3,490) 20,954 1,712 231 Interest Expense..... (1,371) -------- -------- --------- -------- ------ ------- $513,625 $ 55,736 $ 364,218 $ 20,697 $1,829 $53,492 ======== ======== ========= ======== ====== =======
- --------------- (1) Gains resulting from the sale of businesses were $2,359 in 2001, $170 in 2000, and $9,230 in 1999. Gains on sale of businesses for 1999 included $3,511 related to the 1997 sale of textile rental plants to G&K Services, Inc. See Note 8: Acquisitions and Divestitures. Textile rental segment 2001 operating profit included $1,667 of charges related to restructuring activities and asset impairments. Textile rental segment 1999 operating profit included $9,291 of income related to the reversal of restructuring reserves and asset impairments. (2) Envelope segment operating profit included gains resulting from the sale of businesses of $186 in 2000 and $1,990 in 1999. Operating profit during 2001 included $8,290 of charges related to restructuring activities and asset impairments. (3) Corporate expense during 2001 included $16,116 of charges related to an increased allocated share of asbestos-related settlements previously reached by the Center for Claims Resolution on behalf of its members for which insurance coverage is uncertain. See Note 6: Commitments and Contingencies. 41 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item, with respect to directors, is included under the caption "Information Concerning Nominees" of the Company's proxy statement for the annual meeting of stockholders to be held January 3, 2002, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference. The information required by this item, with respect to beneficial ownership reporting, is included under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's proxy statement for the annual meeting of stockholders to be held January 3, 2002, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference. EXECUTIVE OFFICERS OF THE REGISTRANT Executive officers of the Company are elected at the annual organizational meeting of the Board of Directors.
NAME AND AGE OF EACH EXECUTIVE OFFICER BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS DURING THE FIVE AND POSITIONS HELD WITH THE COMPANY YEARS ENDED AUGUST 31, 2001 AND TERM IN OFFICE - -------------------------------------- --------------------------------------------------------- James S. Balloun, age 63..................... Mr. Balloun was elected Chairman and Chief Executive Chairman, President, and Officer effective February, 1996 and assumed the role of Chief Executive Officer President in October, 1996. Previously, he served and Director McKinsey & Company as a Director. Brock A. Hattox, age 53...................... Mr. Hattox was elected Executive Vice President and Chief Executive Vice President and Financial Officer effective September, 1996. Previously, Chief Financial Officer he served McDermott International, Inc. as Chief Financial Officer from 1991 to 1996. Kenneth W. Honeycutt, age 50................. Mr. Honeycutt has served as President of Lithonia Executive Vice President and Lighting since June 2000. He has been with Lithonia since President of Acuity Lighting Group 1972 in a variety of positions covering a broad range of processes and products. John K. Morgan, age 47....................... Mr. Morgan has served as President of Holophane since Executive Vice President and June 2000 and served as Executive Vice President of the President of Holophane Lithonia Lighting Group from 1999 to 2001. He joined Lithonia Lighting in 1977 and held a variety of senior management positions prior to 1999. James H. Heagle, age 57...................... Mr. Heagle has served as President of Acuity Specialty Executive Vice President and Products Group since May 2000. He previously served as President of Acuity Specialty Products President and Chief Operating Officer of Calgon Group Corporation from 1996 to 2000. Prior to Calgon, Mr. Heagle spent 24 years in various management positions with Mobil Chemical.
42
NAME AND AGE OF EACH EXECUTIVE OFFICER BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS DURING THE FIVE AND POSITIONS HELD WITH THE COMPANY YEARS ENDED AUGUST 31, 2001 AND TERM IN OFFICE - -------------------------------------- --------------------------------------------------------- Richard LeBer, age 43........................ Mr. LeBer has served as President of National Linen Executive Vice President and Service since January 2000. He previously served as Vice President of National Linen Service President of Business Development from 1996 to 2000. From 1994 to 1996, Mr. LeBer was President and CEO of Equibase Co., a privately-held information services company. He previously served as a consultant with McKinsey & Company in Atlanta. J. Randolph Zook, age 56..................... Mr. Zook has served as President of Atlantic Envelope Executive Vice President and Company since 1989. He has been with Atlantic Envelope President of Atlantic Envelope Company Company since 1970 in a variety of positions including Sales Manager, General Manager, Director of the ATENCO Filing Systems product line, and Vice President. Mr. Kenyon W. Murphy, age 44................. Mr. Murphy was elected Senior Vice President and General Senior Vice President and Counsel effective April 2000. Prior to that role, he General Counsel served as Vice President and Associate Counsel from 1996 until April 2000 and as Secretary from 1992 until 1998. Mr. Murphy joined NSI in 1985. Joseph G. Parham, Jr., age 52................ Mr. Parham has served as Senior Vice President of Human Senior Vice President, Resources since May, 2000. Previously, he served Polaroid Human Resources Eyewear as President and Chief Operating Officer.
In connection with the spin-off, each of the executive officers of the Corporation, except Brock Hattox, Richard LeBer, and J. Randolph Zook, will resign from all positions with NSI and join Acuity in similar positions. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included under the captions "Compensation of Directors," "Other Information Concerning the Board and its Committees," "Compensation Committee Interlocks and Insider Participation," "Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated Option Exercises and Fiscal Year-End Option Values," "Long-Term Incentive Plans - - Awards in Last Fiscal Year," "Employment Contracts, Severance Arrangements, and Other Agreements," and "Pension and Supplemental Retirement Benefits" of the Company's proxy statement for the annual meeting of stockholders to be held January 3, 2002, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included under the caption "Beneficial Ownership of NSI Common Stock" of the Company's proxy statement for the annual meeting of stockholders to be held January 3, 2002, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is included under the caption "Certain Relationships and Transactions" of the Company's proxy statement for the annual meeting of stockholders to be held January 3, 2002, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference. 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) Report of Management Report of Independent Public Accountants Consolidated Balance Sheets -- August 31, 2001 and 2000 Consolidated Statements of Income for the years ended August 31, 2001, 2000, and 1999 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended August 31, 2001, 2000, and 1999 Consolidated Statements of Cash Flows for the years ended August 31, 2001, 2000, and 1999 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: Report of Independent Public Accountants on Schedule II SCHEDULE NUMBER II Valuation and Qualifying Accounts Any of schedules I through V not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits filed with this report (begins on next page): Copies of such materials will be furnished to stockholders upon request at a nominal rate. Requests should be sent to Carol Morgan, Senior Vice President, General Counsel and Secretary, National Service Industries, Inc., P.O. Box 7158, Midtown Station, Atlanta, Georgia 30357-0158. 44 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST EXHIBIT 3 (a) Restated Certificate of Filed with the Securities and Incorporation Exchange Commission as part of this Form 10-K. (b) By-Laws as Amended and Restated Filed with the Securities and October 16, 2001 Exchange Commission as part of this Form 10-K. EXHIBIT 4 (a) Amended and Restated Rights Reference is made to Exhibit 4.1 Agreement dated as of December 17, 1997 of registrant's Form 8-A/A as between National Service Industries, filed with the Commission on Inc. and Wachovia Bank, N.A. (replacing December 17, 1997, which is Wachovia Bank, N.A. with First Chicago incorporated herein by reference. Trust Company) (b) First Amendment dated as of April Reference is made to Exhibit 1 of 30, 1998 between National Service registrant's Form 8-A/A-3 as Industries, Inc. and First Chicago Trust filed with the Commission on June Company of New York, to the Amended and 22, 1998, which is incorporated Restated Rights Agreement, dated as of herein by reference. December 17, 1997 between National Service Industries, Inc. and Wachovia Bank, N.A (c) Second Amendment dated as of January Reference is made to Exhibit 1 of 6, 1999 between National Service registrant's Form 8-A/A-4 as Industries, Inc. and First Chicago Trust filed with the Commission on Company of New York, to the Amended and January 12, 1999, which is Restated Rights Agreement, dated as of incorporated herein by reference. December 17, 1997 between National Service Industries, Inc. and First Chicago Trust Company of New York, as Rights Agent, as amended. EXHIBIT 10(i)A (1) US$250,000,000 Credit Agreement, Reference is made to Exhibit dated as of July 15, 1999, among (b)(8) of Amendment No. 2 to National Service Industries, registrant's Schedule 14D-1 as Inc., Wachovia Bank, N.A., The filed with the Commission on July First National Bank of Chicago, 20, 1999, which is incorporated Banc One Capital Markets, Inc., herein by reference. Wachovia Securities, Inc., Commerzbank AG, New York Branch, ABN Amro, N.V., and the other banks listed therein. (2) First Amendment to US$250,000,000 Filed with the Securities and Credit Agreement, dated as of Exchange Commission as part of July 14, 2000, among National this Form 10-K. Service Industries, Inc., Certain Listed Banks, Bank One, NA, as Syndication Agent and Wachovia Bank, NA, as Administrative Agent. (3) Second Amendment to Filed with the Securities and US$250,000,000 Credit Agreement, Exchange Commission as part of dated as of April 18, 2001 among this Form 10-K. National Service Industries, Inc., NSI Leasing, Inc., and NSI Enterprises, Inc., Certain Listed Banks, Wachovia Bank, N.A. as Administrative Agent,
45 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST Bank One, NA, as Syndication Agent, and Commerzbank Aktiengesellschaft, New York Branch, and ABN Amro, N.V., as Co-agents. (4) Third Amendment to US$250,000,000 Reference is made to Exhibit Credit Agreement, dated as of 10(i)A(1) of registrant's Form June 27, 2001, among National 10-Q for the quarter ended May Service Industries, Inc., Certain 31, 2001, which is incorporated of its Subsidiaries, Certain herein by reference. Listed Banks, Bank One, NA, as Administrative Agent, Wachovia Bank, N.A., as Syndication Agent, and SunTrust Bank, as Documentation Agent. (5) Receivables Sale Agreement Reference is made to Exhibit between NSI Enterprises, Inc., as 10(i)A(2) of registrant's Form seller, and National Service 10-Q for the quarter ended May Industries, Inc., as purchaser, 31, 2001, which is incorporated dated as of May 2, 2001. herein by reference. (6) Receivables Sale and Contribution Reference is made to Exhibit Agreement between National 10(i)A(3) of registrant's Form Service Industries, Inc., as 10-Q for the quarter ended May seller, and NSI Funding, Inc., as 31, 2001, which is incorporated buyer, dated as of May 2, 2001. herein by reference. (7) Credit and Security Agreement, Reference is made to Exhibit dated as of May 2, 2001, among 10(i)A(4) of registrant's Form NSI Funding, Inc., National 10-Q for the quarter ended May Service Industries, Inc., Blue 31, 2001, which is incorporated Ridge Asset Funding Corporation, herein by reference. Certain Liquidity Banks, and Wachovia Bank, N.A., as Agent. (8) Amendment No. 1, dated May 24, Reference is made to Exhibit 2001, to the Credit and Security 10(i)A(5) of registrant's Form Agreement between NSI Funding, 10-Q for the quarter ended May Inc., National Service 31, 2001, which is incorporated Industries, Inc., Blue Ridge herein by reference. Asset Funding Corporation, and Wachovia Bank, N.A., as Agent. (9) Performance Undertaking, dated as Reference is made to Exhibit of May 2, 2001, between National 10(i)A(6) of registrant's Form Service Industries, Inc. and NSI 10-Q for the quarter ended May Funding, Inc. 31, 2001, which is incorporated herein by reference. (10) $40,000,000 Credit Agreement Filed with the Securities and dated as of October 31, 2001 Exchange Commission as part of among National Service this Form 10-K. Industries, Inc. and Wachovia Bank, N.A., as Administrative Agent and Letter of Credit Issuer.
46 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST (11) Omnibus Amendment, dated as of Filed with the Securities and August 31, 2001, between National Exchange Commission as part of Service Industries, Inc., NSI this Form 10-K. Enterprises, Inc., L&C Spinco, Inc., The Zep Group, Inc., L&C Lighting Group, Inc., L&C Funding, Inc., Blue Ridge Asset Funding Corporation, and Wachovia Bank, N.A. EXHIBIT 10(iii)A Management Contracts and Compensatory Arrangements: (1) Restricted Stock Award Agreement Reference is made to Exhibit Effective Beginning October 24, 10(iii)A(4) of registrant's Form 2000 between National Service 10-Q for the quarter ended Industries, Inc. and: November 30, 2000, which is incorporated herein by reference. (a) James S. Balloun (b) Brock A. Hattox (c) James H. Heagle (d) Kenneth W. Honeycutt (e) Richard W. LeBer (f) John K. Morgan (g) Kenyon W. Murphy (h) Joseph G. Parham, Jr. (i) J. Randolph Zook (2) Amended and Restated Executives' Reference is made to Exhibit Deferred Compensation Plan, 10(iii)A(1) of registrant's Form Effective as of October 4, 2000 10-K for the fiscal year ended August 31, 2000, which is incorporated herein by reference. (3) Amendment No. 1 to the National Reference is made to Exhibit Service Industries, Inc. 10(iii)A(2) of registrant's Form Executives' Deferred Compensation 10-Q for the quarter ended Plan (as Amended and Restated February 28, 2001, which is October 4, 2000) Dated December incorporated herein by reference. 21, 2000 (4) (a) Restated and Amended Reference is made to Exhibit Supplemental Retirement Plan for 10(iii)A(c)-(i) of registrant's Executives of National Service Form 10-K for the fiscal year Industries, Inc. ended August 31, 1993, which is incorporated herein by reference. (b) Amendment to Restated and Reference is made to Exhibit Amended Supplemental Retirement 10(iii)A(a) of registrant's Form Plan for Executives of National 10-Q for the quarter ended Service Industries, Inc. February 28, 1994, which is incorporated herein by reference. (c) Amendment No. 2 to Restated Reference is made to Exhibit and Amended Supplemental 10(iii)A(3)(e) of registrant's Retirement Plan for Executives of Form 10-K for the fiscal year National Service Industries, ended August 31, 1996, which is Inc., Dated August 31, 1996 incorporated herein by reference.
47 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST (d) Amendment No. 3 to Restated Reference is made to Exhibit and Amended Supplemental 10(iii)A(1)(a) of registrant's Retirement Plan for Executives of Form 10-Q for the quarter ended National Service Industries, May 31, 2000, which is Inc., Dated September 18, 1996 incorporated herein by reference. (e) Amendment No. 4 to Restated Reference is made to Exhibit and Amended Supplemental 10(iii)A(1)(b) of registrant's Retirement Plan for Executives of Form 10-Q for the quarter ended National Service Industries, May 31, 2000, which is Inc., Dated December 1, 1996 incorporated herein by reference. (f) Appendix B to Restated and Reference is made to Exhibit Amended Supplemental Retirement 10(iii)A(e) of registrant's Form Plan for Executives of National 10-Q for the quarter ended Service Industries, Inc., February 29, 1996, which is Effective February 1, 1996 incorporated herein by reference. (g) Appendix C to Restated and Reference is made to Exhibit Amended Supplemental Retirement 10(iii)A(d) of registrant's Form Plan for Executives of National 10-Q for the quarter ended May Service Industries, Inc., 31, 1996, which is incorporated Effective May 31, 1996 herein by reference. (h) Appendix D to Restated and Reference is made to Exhibit Amended Supplemental Retirement 10(iii)A(1)(c) of registrant's Plan for Executives of National Form 10-Q for the quarter ended Service Industries, Inc., May 31, 2000, which is Effective October 18, 1996 incorporated herein by reference. (i) Appendix E to Restated and Filed with the Securities and Amended Supplemental Retirement Exchange Commission as part of Plan for Executives of National this Form 10-K. Service Industries, Inc. effective September 18, 1996 and as amended and restated June 29, 2001. (j) Appendix F to Restated and Reference is made to Exhibit Amended Supplemental Retirement 10(iii)A(g) of registrant's Form Plan for Executives of National 10-K for the fiscal year ended Service Industries, Inc. August 31, 1999, which is effective June 1, 1999. incorporated herein by reference. (k) Appendix G to Restated and Reference is made to Exhibit Amended Supplemental Retirement 10(iii)A(1)(d) of registrant's Plan for Executives of National Form 10-Q for the quarter ended Service Industries, Inc., May 31, 2000, which is Effective May 15, 2000. incorporated herein by reference. (l) Appendix H to Restated and Filed with the Securities and Amended Supplemental Retirement Exchange Commission as part of Plan for Executives of National this Form 10-K. Service Industries, Inc., Effective May 1, 2000.
48 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST (5) (a) The National Service Reference is made to Exhibit Industries, Inc. Senior 10(iii)A(f) of registrant's Form Management Benefit Plan, Dated 10-K for the fiscal year ended August 15, 1985 August 31, 1985, which is incorporated herein by reference. (b) First Amendment to National Reference is made to Exhibit Service Industries, Inc. Senior 10(iii)A(e)-(ii) of registrant's Management Benefit Plan, Dated Form 10-K for the fiscal year September 21, 1989 ended August 31, 1989, which is incorporated herein by reference. (c) Second Amendment to National Reference is made to Exhibit Service Industries, Inc. Senior 10(iii)A(d)(iii) of registrant's Management Benefit Plan, Dated Form 10-K for the fiscal year September 16, 1994 ended August 31, 1994, which is incorporated herein by reference. (d) Third Amendment to National Reference is made to Exhibit Service Industries, Inc. Senior 10(iii)A(4)(d) of registrant's Management Benefit Plan, Dated Form 10-K for the fiscal year August 31, 1996 ended August 31, 1996, which is incorporated herein by reference. (6) (a) Severance Protection Reference is made to Exhibit Agreement between National 10(iii)A(c) of registrant's Form Service Industries, Inc. and 10-Q for the quarter ended James S. Balloun (February 1, February 29, 1996, which is 1996) incorporated herein by reference. (b) Amendment to Severance Reference is made to Exhibit Protection Agreement, Dated 10(iii)A(6)(b) of registrant's August 31, 1996 Form 10-K for the fiscal year ended August 31, 1996, which is incorporated herein by reference. (7) Severance Protection Agreements Reference is made to Exhibit between National Service 10(iii)A(34) of registrant's Form Industries, Inc. and 10-K for the fiscal year ended August 31, 1999, which is incorporated herein by reference. (a) Brock A. Hattox (b) James H. Heagle (c) Kenneth W. Honeycutt (d) Richard W. LeBer (e) John K. Morgan (f) Kenyon W. Murphy (g) Joseph G. Parham, Jr. (h) J. Randolph Zook (8) (a) Bonus Letter Agreement Reference is made to Exhibit between National Service 10(iii)A(j) of registrant's Form Industries, Inc. and James S. 10-K for the fiscal year ended Balloun August 31, 1989, and to Exhibit 10(iii)A(d) of the registrant's Form 10-Q for the quarter ended
49 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST February 29, 1996, which are incorporated herein by reference. (b) Supplemental Letter Reference is made to Exhibit Agreement, Dated August 31, 1996 10(iii)A(7)(b) of registrant's Form 10-K for the fiscal year ended August 31, 1996, which is incorporated herein by reference. (9) Bonus Letter Agreements between Reference is made to Exhibit National Service Industries, Inc. 10(iii)A(35) of registrant's Form and 10-K for the fiscal year ended August 31, 1999, which is incorporated herein by reference. (a) Brock A. Hattox (b) James H. Heagle (c) Joseph G. Parham, Jr. (10) (a) Long-Term Incentive Program, Reference is made to Exhibit Dated September 20, 1989 10(iii)A(k) of registrant's Form 10-K for the fiscal year ended August 31, 1989, which is incorporated herein by reference. (b) Amendment No. 1 to Long-Term Reference is made to Exhibit Incentive Program, Dated 10(iii)A(h)(ii) of registrant's September 21, 1994 Form 10-K for the fiscal year ended August 31, 1994, which is incorporated herein by reference. (11) National Service Industries, Inc. Reference is made to Exhibit A of Long-Term Achievement Incentive registrant's Schedule 14A as Plan as Amended and Restated, filed with the Commission on Effective as of January 5, 2000 November 22, 1999, which is incorporated herein by reference. (12) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning December 18, Exchange Commission as part of 1991 between National Service this Form 10-K. Industries, Inc. and (a) Kenneth W. Honeycutt (b) J. Randolph Zook (13) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning September 16, Exchange Commission as part of 1992 between National Service this Form 10-K. Industries, Inc. and (a) Kenneth W. Honeycutt (b) John K. Morgan (c) Kenyon W. Murphy (d) J. Randolph Zook (14) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning September 15, Exchange Commission as part of 1993 between National Service this Form 10-K. Industries, Inc. and
50 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST (a) Kenyon W. Murphy (b) J. Randolph Zook (15) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning September 21, Exchange Commission as part of 1994 between National Service this Form 10-K. Industries, Inc. and (a) Kenneth W. Honeycutt (b) Kenyon W. Murphy (c) J. Randolph Zook (16) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning March 15, Exchange Commission as part of 1995 between National Service this Form 10-K. Industries, Inc. and John K. Morgan (17) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning September 20, Exchange Commission as part of 1995 between National Service this Form 10-K. Industries, Inc. and (a) Kenneth W. Honeycutt (b) Kenyon W. Murphy (c) J. Randolph Zook (18) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning March 20, Exchange Commission as part of 1996 between National Service this Form 10-K. Industries, Inc. and John K. Morgan (19) Incentive Stock Option Agreement Reference is made to Exhibit between National Service 10(iii)A(1) of registrant's Form Industries, Inc. and Brock A. 10-K for the fiscal year ended Hattox August 31, 1989, which is incorporated herein by reference. (20) Amendment to Incentive Stock Filed with the Securities and Option Agreement between National Exchange Commission as part of Service Industries, Inc. and this Form 10-K. Brock A. Hattox (21) (a) Incentive Stock Option Reference is made to Exhibit Agreements for Executive Officers 10(iii)A(5) of registrant's Form and Business Unit Presidents 10-Q for the quarter ended Effective Beginning September 17, November 30, 1996, which is 1996 between National Service incorporated herein by reference. Industries, Inc. and (i) James S. Balloun (ii) Randolph Zook (22) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning September 17, Exchange Commission as part of 1996 between National Service this Form 10-K. Industries, Inc. and (a) Kenneth W. Honeycutt (b) Richard W. LeBer
51 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST (c) John K. Morgan (d) Kenyon W. Murphy (23) Incentive Stock Option Agreements Reference is made to Exhibit for Executive Officers and 10(iii)A(7) of registrant's Form Business Unit Presidents 10-Q for the quarter ended Effective Beginning September 23, November 30, 1997, which is 1997 between National Service incorporated herein by reference. Industries, Inc. and (a) James S. Balloun (b) Brock A. Hattox (c) J. Randolph Zook (24) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning September 23, Exchange Commission as part of 1997 between National Service this Form 10-K. Industries, Inc. and (a) Kenneth W. Honeycutt (b) Richard W. LeBer (c) John K. Morgan (d) Kenyon W. Murphy (25) Incentive Stock Option Agreements Reference is made to Exhibit for Executive Officers and 10(iii)A(1) of registrant's Form Business Unit Presidents 10-Q for the quarter ended Effective Beginning September 22, November 30, 1998, which is 1998 between National Service incorporated herein by reference. Industries, Inc. and (a) James S. Balloun (b) Brock A. Hattox (c) J. Randolph Zook (26) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning September 22, Exchange Commission as part of 1998 between National Service this Form 10-K. Industries, Inc. and (a) Kenneth W. Honeycutt (b) Richard W. LeBer (c) John K. Morgan (d) Kenyon W. Murphy (27) Incentive Stock Option Agreement Reference is made to Exhibit for Executive Officers and 10(iii)A(4) of registrant's Form Business Unit Presidents 10-Q for the quarter ended Effective Beginning January 5, February 29, 2000, which is 2000 between National Service incorporated herein by reference. Industries, Inc. and (a) James S. Balloun (b) Brock A. Hattox (c) Richard W. LeBer (d) J. Randolph Zook (28) Incentive Stock Option Agreements Filed with the Securities and Effective Beginning January 5, Exchange Commission as part of 2000 between National Service this Form 10-K. Industries, Inc. and
52 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST (a) Kenneth W. Honeycutt (b) John K. Morgan (c) Kenyon W. Murphy (29) Incentive Stock Option Agreement Filed with the Securities and for Executive Officers Effective Exchange Commission as part of beginning May 1, 2000 between this Form 10-K. National Service Industries, Inc. and James H. Heagle (30) Incentive Stock Option Agreement Reference is made to Exhibit for Executive Officers Effective 10(iii)A(5) of registrant's Form beginning May 15, 2000 between 10-Q for the quarter ended May National Service Industries, Inc. 31, 2000, which is incorporated and Joseph G. Parham, Jr. herein by reference. (31) Incentive Stock Option Agreements Reference is made to Exhibit for Executive Officers and 10(iii)A(1) of registrant's Form Business Unit Presidents 10-Q for the quarter ended Effective Beginning October 24, November 30, 2000, which is 2000 between National Service incorporated herein by reference. Industries, Inc. and (a) James S. Balloun (b) Brock A. Hattox (c) James H. Heagle (d) Kenneth W. Honeycutt (e) John K. Morgan (f) Kenyon W. Murphy (g) Joseph G. Parham, Jr. (h) J. Randolph Zook (32) Nonqualified Stock Option Reference is made to Exhibit Agreement for Corporate Officers 10(iii)A(j) of registrant's Form between National Service 10-K for the fiscal year ended Industries, Inc. and Brock A. August 31, 1992, which is Hattox incorporated herein by reference. (33) Nonqualified Stock Option Filed with the Securities and Agreements Effective Beginning Exchange Commission as part of September 20, 1995 between this Form 10-K. National Service Industries, Inc. and (a) Kenneth W. Honeycutt (b) J. Randolph Zook (34) Nonqualified Stock Option Reference is made to Exhibit Agreement Effective January 3, 10(iii)A(b) of registrant's Form 1996 between National Service 10-Q for the quarter ended Industries, Inc. and James S. February 28, 1996, which is Balloun incorporated herein by reference. (35) Nonqualified Stock Option Reference is made to Exhibit Agreements for Executive Officers 10(iii)A(6) of registrant's Form and Business Unit Presidents 10-Q for the quarter ended Effective Beginning September 17, November 30, 1996, which is 1996 between National Service incorporated herein by reference. Industries, Inc. and
53 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST (a) James S. Balloun (b) Brock A. Hattox (c) J. Randolph Zook (36) Amendment to Stock Option Filed with the Securities and Agreement for Executive Officers Exchange Commission as part of Effective Beginning September 17, this Form 10-K. 1996 between National Service Industries, Inc. and Brock A. Hattox (37) Nonqualified Stock Option Filed with the Securities and Agreements Effective Beginning Exchange Commission as part of September 17, 1996 between this Form 10-K. National Service Industries, Inc. and (a) Kenneth W. Honeycutt (b) Kenyon W. Murphy (38) Nonqualified Stock Option Reference is made to Exhibit Agreements For Executive Officers 10(iii)A(8) of registrant's Form and Business Unit Presidents 10-Q for the quarter ended Effective Beginning September 23, November 30, 1997, which is 1997 between National Service incorporated herein by reference. Industries, Inc. and (a) James S. Balloun (b) Brock A. Hattox (c) J. Randolph Zook (39) Nonqualified Stock Option Filed with the Securities and Agreements Effective Beginning Exchange Commission as part of September 23, 1997 between this Form 10-K. National Service Industries, Inc. and (a) Kenneth W. Honeycutt (b) Kenyon W. Murphy (40) Nonqualified Stock Option Reference is made to Exhibit Agreements for Executive Officers 10(iii)A(2) of registrant's Form Effective Beginning September 22, 10-Q for the quarter ended 1998 between National Service November 30, 1998, which is Industries, Inc. and incorporated herein by reference. (a) James S. Balloun (b) Brock A. Hattox (c) J. Randolph Zook (41) Nonqualified Stock Option Filed with the Securities and Agreements Effective Beginning Exchange Commission as part of September 22, 1998 between this Form 10-K. National Service Industries, Inc. and (a) Kenneth W. Honeycutt (b) John K. Morgan (c) Kenyon W. Murphy (42) Nonqualified Stock Option Reference is made to Exhibit Agreements (Surrendered 10(iii)A(3) of registrant's Form Aspiration Award) between 10-Q for the quarter ended National Service
54 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST Industries, Inc. and: February 29, 2000, which is incorporated herein by reference. (a) James S. Balloun (b) Brock A. Hattox (43) Amendment to Stock Option Filed with the Securities and Agreement (Surrendered Aspiration Exchange Commission as part of Award) between National Service this Form 10-K. Industries, Inc. and Brock A. Hattox (44) Nonqualified Stock Option Reference is made to Exhibit Agreements for Executive Officers 10(iii)A(5) of registrant's Form and Business Unit Presidents 10-Q for the quarter ended Effective Beginning January 5, February 29, 2000, which is 2000 between National Service incorporated herein by reference. Industries, Inc. and: (a) James S. Balloun (b) Brock A. Hattox (c) Richard W. LeBer (d) J. Randolph Zook (45) Nonqualified Stock Option Filed with the Securities and Agreements Effective Beginning Exchange Commission as part of January 5, 2000 between National this Form 10-K. Service Industries, Inc. and (a) Kenneth W. Honeycutt (b) John K. Morgan (c) Kenyon W. Murphy (46) Nonqualified Stock Option Reference is made to Exhibit Agreements for Executive Officers 10(iii)A(2) of registrant's Form Effective Beginning October 4, 10-Q for the quarter ended 2000 between National Service November 30, 2000, which is Industries, Inc. and: incorporated herein by reference. (a) James S. Balloun (b) Brock A. Hattox (47) Nonqualified Stock Option Reference is made to Exhibit Agreements for Executive Officers 10(iii)A(3) of registrant's Form and Business Unit Presidents 10-Q for the quarter ended Effective Beginning October 24, November 30, 2000, which is 2000 between National Service incorporated herein by reference. Industries, Inc. and: (a) James S. Balloun (b) Brock A. Hattox (c) James H. Heagle (d) Kenneth W. Honeycutt (e) John K. Morgan (f) Kenyon W. Murphy (g) Joseph G. Parham, Jr. (h) J. Randolph Zook (48) (a) Benefits Protection Trust Reference is made to Exhibit Agreement Dated July 5, 1990, 10(iii)A(n) of registrant's Form between National Service 10-K for the fiscal year ended Industries,
55 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST Inc. and Wachovia Bank and Trust August 31, 1990, which is Company incorporated herein by reference. (b) Amendment to Benefits Reference is made to Exhibit Protection Trust Agreement 10(iii)A(12)(c) of registrant's between National Service Form 10-K for the fiscal year Industries, Inc. and Wachovia ended August 31, 1996, which is Bank and Trust Company and incorporated herein by reference. Adoption, Dated August 31, 1996 (c) Amendment No. 2 to Benefits Reference is made to Exhibit Protection Trust Agreement 10(iii)A(3) of registrant's Form between National Service 10-Q for the quarter ended Industries, Inc. and Wachovia November 30, 1997, which is Bank and Trust Company, Dated incorporated herein by reference. September 23, 1997 (d) Amended Schedule 1 of Reference is made to Exhibit Benefits Protection Trust 10(iii)A(4) of registrant's Form Agreement between National 10-Q for the quarter ended Service Industries, Inc. and November 30, 1997, which is Wachovia Bank and Trust Company, incorporated herein by reference. Dated September 23, 1997 (e) Amendment No. 3 to Benefits Reference is made to Exhibit Protection Trust Agreement 10(iii)A(4) of registrant's Form between National Service 10-Q for the quarter ended Industries, Inc. and Wachovia November 30, 1998, which is Bank, N.A. (formerly Wachovia incorporated herein by reference. Bank and Trust Company), Dated January 6, 1999. (49) (a) Executive Benefits Trust Reference is made to Exhibit Agreement Dated July 5, 1990, 10(iii)A(o) of registrant's Form between National Service 10-K for the fiscal year ended Industries, Inc. and Wachovia August 31, 1990, which is Bank and Trust Company incorporated herein by reference. (b) Amendment to Executive Reference is made to Exhibit Benefits Trust Agreement between 10(iii)A(13) of registrant's Form National Service Industries, Inc. 10-K for the fiscal year ended and Wachovia Bank and Trust August 31, 1996, which is Company and Adoption, Dated incorporated herein by reference. August 31, 1996 (c) Amended Schedule 1 of Reference is made to Exhibit Executive Benefits Trust 10(iii)A(5) of registrant's Form Agreement between National 10-Q for the quarter ended Service Industries, Inc. and November 30, 1997, which is Wachovia Bank, N.A. (formerly incorporated herein by reference. Wachovia Bank and Trust Company), Dated September 23, 1997 (d) Amendment No. 2 to Executive Reference is made to Exhibit Benefits Trust Agreement between 10(iii)A(5) of registrant's Form National Service Industries, Inc. 10-Q for the quarter ended and Wachovia Bank, N.A. (formerly November 30, 1998, which is Wachovia Bank and Trust Company), incorporated herein by reference. Dated January 6, 1999. (50) (a) National Service Industries, Reference is made to Exhibit Inc. 1992 Nonemployee Directors' 10(iii)A(o) of registrant's Form Stock Option Plan, Effective 10-K for the fiscal year ended September 16,
56 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST 1992 August 31, 1992, which is incorporated herein by reference. (b) First Amendment to the Reference is made to Exhibit National Service Industries, Inc. 10(iii)A(13)(b) of registrant's 1992 Nonemployee Directors' Stock Form 10-K for the fiscal year Option Plan, Dated March 24, 1998 ended August 31, 1998, which is incorporated herein by reference. (c) Second Amendment to the Reference is made to Exhibit National Service Industries, Inc. 10(iii)A(1) of registrant's Form 1992 Nonemployee Directors' Stock 10-Q for the quarter ended Option Plan, Dated January 5, November 30, 1999, which is 2000 incorporated herein by reference. (51) Nonemployee Directors' Stock Reference is made to Exhibit Option Agreement between National 10(iii)A(q) of registrant's Form Service Industries, Inc. and 10-K for the fiscal year ended August 31, 1994, which is (a) John L. Clendenin incorporated herein by reference. (b) Robert M. Holder, Jr. (c) James C. Kennedy (d) Bernard Marcus (e) John G. Medlin, Jr. (f) Dr. Betty L. Siegel (g) Barrie A. Wigmore (h) Thomas C. Gallagher (i) Herman J. Russell (j) Samuel A. Nunn (52) Stock Option Agreement for Reference is made to Exhibit Nonemployee Directors Dated March 10(iii)A of registrant's Form 19, 1997 between National Service 10-Q for the quarter ended May Industries, Inc. and 31, 1997, which is incorporated herein by reference. (a) John L. Clendenin (b) Samuel A. Nunn (53) Nonemployee Directors' Stock Reference is made to Exhibit Option Agreement Dated January 5, 10(iii)A(1) of the registrant's 2000 between National Service Form 10-Q for the quarter ended Industries, Inc. and February 29, 2000, which is incorporated herein by reference. (a) Leslie M. Baker, Jr. (b) John L. Clendenin (c) Thomas C. Gallagher (d) Bernard Marcus (e) Samuel A. Nunn (f) Ray M. Robinson (g) Herman J. Russell (h) Betty L. Siegel (i) Kathy Brittain White (j) Barrie A. Wigmore (k) Neil Williams (54) Nonemployee Directors' Stock Reference is made to Exhibit Option Agreement Dated December 10(iii)A(1) of registrant's 21, 2000
57 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST between National Service Form 10-Q for the quarter ended Industries, Inc. and February 28, 2001, which is incorporated herein by reference. (a) Leslie M. Baker, Jr. (b) John L. Clendenin (c) Thomas C. Gallagher (d) Samuel A. Nunn (e) Roy Richards, Jr. (f) Ray M. Robinson (g) Betty L. Siegel (h) Neil Williams (55) (a) National Service Industries, Reference is made to Exhibit Inc. Executive Savings Plan, 10(iii)A(s) of registrant's Form Effective September 1, 1994 10-K for the fiscal year ended August 31, 1994, which is incorporated herein by reference. (b) Amendment No. 1 to National Reference is made to Exhibit Service Industries, Inc. 10(iii)A(17)(b) of registrant's Executive Savings Plan, Dated Form 10-K for the fiscal year August 31, 1996 ended August 31, 1996, which is incorporated herein by reference. (56) (a) National Service Industries, Reference is made to Exhibit Inc. Nonemployee Director 10(iii)A(26) of registrant's Form Deferred Stock Unit Plan, 10-K for the fiscal year ended Effective June 1, 1996 August 31, 1996, which is incorporated herein by reference. (b) Amendment No. 1 to National Reference is made to Exhibit Service Industries, Inc. 10(iii)A(6) of registrant's Form Nonemployee Director Deferred 10-Q for the quarter ended Stock Unit Plan, Effective November 30, 1997, which is December 1, 1997 incorporated herein by reference. (c) Amendment No. 2 to National Reference is made to Exhibit Service Industries, Inc. 10(iii)A(19)(c) of registrant's Nonemployee Director Deferred Form 10-K for the fiscal year Stock Unit Plan, Effective ended August 31, 1998, which is December 31, 1997 incorporated herein by reference. (57) Employment Letter Agreement Reference is made to Exhibit between National Service 10(iii)A(28) of registrant's Form Industries, Inc. and Brock A. 10-K for the fiscal year ended Hattox, Dated August 26, 1996 August 31, 1996, which is incorporated herein by reference. (58) Employment Letter Agreement Reference is made to Exhibit between National Service 10(iii)A(2) of registrant's Form Industries, Inc. and James S. 10-Q for the quarter ended Balloun, Dated February 1, 1996 November 30, 1997, which is incorporated herein by reference. [refiled to disclose confidential information previously omitted and
58 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST filed separately with the Securities and Exchange Commission] (59) Employment Letter Agreement Filed with the Securities and between National Service Exchange Commission as part of Industries, Inc. and James H. this Form 10-K. Heagle Dated March 28, 2000 (60) Employment Letter Agreement Reference is made to Exhibit between National Service 10(iii)A(2) of registrant's Form Industries, Inc. and Joseph G. 10-Q for the quarter ended May Parham, Jr., Dated May 3, 2000 31, 2000, which is incorporated herein by reference. (61) Employment Letter Agreement Filed with the Securities and between National Service Exchange Commission as part of Industries, Inc. and Brock A. this Form 10-K. Hattox Effective as of November 30, 2001 (62) (a) Aspiration Achievement Filed with the Securities and Incentive Award Agreements for Exchange Commission as part of the Performance Cycle beginning this Form 10-K. September 1, 1998 between National Service Industries, Inc. and (i) James S. Balloun (ii) Brock A. Hattox (iii) Kenneth W. Honeycutt (iv) Richard W. LeBer (v) John K. Morgan (vi) J. Randolph Zook [refiled to disclose confidential information previously omitted and filed separately with the Securities and Exchange Commission] (b) Amendment of the Aspiration Filed with the Securities and Achievement Incentive Award Exchange Commission as part of Agreements for the Performance this Form 10-K. Cycle Ending August 31, 2001 between National Service Industries, Inc. and (i) James S. Balloun (ii) Brock A. Hattox (iii) Kenneth W. Honeycutt (iv) Richard W. LeBer (v) John K. Morgan [refiled to disclose confidential information previously omitted and filed separately with the Securities and Exchange Commission] (63) Aspiration Achievement Incentive Reference is made to Exhibit Award Agreements for the 10(iii)A(40) of registrant's Form Performance Cycle beginning 10-K for the fiscal year ended September 1, 1999 between August 31, 1999, which is National incorporated herein
59 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST Service Industries, Inc. and by reference, for James S. Balloun and Brock A. Hattox. Aspiration Achievement Award Agreements for Kenneth W. Honeycutt, Richard W. LeBer, John K. Morgan, Kenyon W. Murphy, and J. Randolph Zook were filed with the Securities and Exchange Commission as part of this Form 10-K. (a) James S. Balloun (b) Brock A. Hattox (c) Kenneth W. Honeycutt (d) Richard W. LeBer (e) John K. Morgan (f) Kenyon W. Murphy (g) J. Randolph Zook [a confidential portion of which has been omitted and filed separately with the Securities and Exchange Commission] (64) Aspiration Achievement Incentive Filed with the Securities and Award Agreement for the Exchange Commission as part of Performance Cycle beginning this Form 10-K. September 1, 1998 between National Service Industries, Inc. and James H. Heagle, Dated May 1, 2000 (65) Aspiration Achievement Incentive Filed with the Securities and Award Agreement for the Exchange Commission as part of Performance Cycle beginning this Form 10-K. September 1, 1998 between National Service Industries, Inc. and Joseph G. Parham, Jr., Dated May 15, 2000 [refiled to disclose confidential information previously omitted and filed separately with the Securities and Exchange Commission] (66) Aspiration Achievement Incentive Filed with the Securities and Award Agreement for the Exchange Commission as part of Performance Cycle beginning this Form 10-K. September 1, 1999 between National Service Industries, Inc. and James H. Heagle, Dated May 1, 2000 [a confidential portion of which has been omitted and filed separately with the Securities and Exchange Commission] (67) Aspiration Achievement Incentive Reference is made to Exhibit Award Agreement for the 10(iii)A(7) of registrant's Form Performance Cycle beginning 10-Q for the quarter ended May 31,
60 NATIONAL SERVICE INDUSTRIES, INC. EXHIBIT LIST September 1, 1999 between 2000, which is incorporated National Service Industries, Inc. herein by reference. and Joseph G. Parham, Jr., Dated May 15, 2000 [a confidential portion of which has been omitted and filed separately with the Securities and Exchange Commission] (68) (a) National Service Industries, Reference is made to Exhibit Inc. Supplemental Deferred 10(iii)A(9) of registrant's Form Savings Plan, Effective September 10-Q for the quarter ended 18, 1996 November 30, 1996, which is incorporated herein by reference. (b) Amendment No. 1 to National Reference is made to Exhibit Service Industries, Inc. 10(iii)A(23)(b) of registrant's Supplemental Deferred Savings Form 10-K for the fiscal year Plan, Dated December 29, 1997 ended August 31, 1999, which is incorporated herein by reference. (69) National Service Industries, Inc. Reference is made to Exhibit Management Compensation and 10(iii)A(31) of registrant's Form Incentive Plan as Amended and 10-K for the fiscal year ended Restated, Effective as of August 31, 1998, which is September 1, 1998. incorporated herein by reference. (70) Severance Letter Agreements Dated Filed with the Securities and as of October 5, 2001 Between Exchange Commission as part of National Service Industries, Inc. this Form 10-K. and (a) Richard W. LeBer (b) J. Randolph Zook (71) Employment Letter Agreement, Filed with the Securities and Dated October 24, 2001, between Exchange Commission as part of National Service Industries, Inc. the Form 10-K. and John Morgan EXHIBIT 12 Ratio of Earnings to Fixed Reference is made to Exhibit 12 Charges of registrant's Form 10-Q for the quarter ended May 31, 2000, which is incorporated herein by reference. EXHIBIT 21 List of Subsidiaries 66 EXHIBIT 23 Consent of Independent Public 67 Accountants EXHIBIT 24 Powers of Attorney Filed with the Securities and Exchange Commission as part of this Form 10-K.
(b) An 8-K was filed on June 29, 2001 related to the board of director's authorization for management to pursue a plan to spin-off the Company's lighting equipment and chemicals businesses. (c) Exhibits 2, 9, 11, 13, 18, and 22 have been omitted because they are not applicable. (d) Not applicable. 61 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL SERVICE INDUSTRIES, INC. BY: /s/ HELEN D. HAINES ------------------------------------ HELEN D. HAINES Vice President and Secretary Date: November 29, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman, President, and Chief November 29, 2001 ------------------------------------------------ Executive Officer and Director James S. Balloun * Executive Vice President and November 29, 2001 ------------------------------------------------ Chief Financial Officer Brock Hattox * Vice President and Controller November 29, 2001 ------------------------------------------------ Robert R. Burchfield * Director November 29, 2001 ------------------------------------------------ John L. Clendenin * Director November 29, 2001 ------------------------------------------------ Thomas C. Gallagher * Director November 29, 2001 ------------------------------------------------ Neil Williams * Director November 29, 2001 ------------------------------------------------ Roy Richards, Jr. * Director November 29, 2001 ------------------------------------------------ L. M. Baker, Jr. * Director November 29, 2001 ------------------------------------------------ Betty L. Siegel * Director November 29, 2001 ------------------------------------------------ Ray M. Robinson
62
SIGNATURE TITLE DATE --------- ----- ---- * Director November 29, 2001 ------------------------------------------------ Kathy Brittain White * Director November 29, 2001 ------------------------------------------------ Peter C. Browning *By: /s/ KENYON W. MURPHY Attorney-in-Fact ----------------------------------------- Kenyon W. Murphy
63 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II To National Service Industries, Inc.: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in NATIONAL SERVICE INDUSTRIES, INC. and subsidiaries' Form 10-K, and have issued our report thereon dated November 29, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 in this Form 10-K is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Atlanta, Georgia November 29, 2001 64 SCHEDULE II NATIONAL SERVICE INDUSTRIES, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED AUGUST 31, 2001, 2000, AND 1999 (IN THOUSANDS)
ADDITIONS CHARGED TO BALANCE AT ----------------------- BALANCE AT BEGINNING COSTS AND OTHER END OF OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD ---------- --------- ----------- ------------- ---------- YEAR ENDED AUGUST 31, 2001: Deducted in the balance sheet from the asset to which it applies -- Reserve for doubtful accounts.... $739 2,345 19 1,305 $1,798 ==== ===== ===== ===== ====== YEAR ENDED AUGUST 31, 2000: Deducted in the balance sheet from the asset to which it applies -- Reserve for doubtful accounts.... $639 2,125 -- 2,025 $ 739 ==== ===== ===== ===== ====== YEAR ENDED AUGUST 31, 1999: Deducted in the balance sheet from the asset to which it applies -- Reserve for doubtful accounts.... $665 906 113 1,045 $ 639 ==== ===== ===== ===== ======
- --------------- (1) Recoveries credited to reserve, reserves recorded in acquisitions, and reserves removed in sale of businesses. (2) Uncollectible accounts written off. 65 EX-3.(A) 3 g72719ex3-a.txt RESTATED CERTIFICATE OF INCORPORATION Exhibit 3(a) RESTATED CERTIFICATE OF INCORPORATION OF NATIONAL SERVICE INDUSTRIES, INC. This Restated Certificate of Incorporation of National Service Industries, Inc. (the "Corporation") was duly approved by the Board of Directors of the Corporation and only restates and integrates but does not further amend the provisions of the Corporation's Restated Certificate of Incorporation as theretofore amended or supplemented; and there is no discrepancy between these amended and supplemented provisions and the provisions of the Restated Certificate of Incorporation set forth below except as permitted by Section 245 of the General Corporation Law. The Corporation was incorporated under the name National Linen Service Corporation. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on August 20, 1928. FIRST: The name of the Corporation is and shall be NATIONAL SERVICE INDUSTRIES, INC. SECOND: The registered office of the Corporation in the State of Delaware is and shall be located at 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware 19808. The Corporation's registered agent at that location is Corporation Service Company. THIRD: The nature of the business, or objects, or purposes to be transacted, promoted, or carried on, are: To operate at wholesale or retail a linen supply and to provide the rental service for users of towels, aprons, jackets, overalls, sheets, napkins, table cloths, and linens of all kind; to carry on the business of a steam and general laundry for the purpose of washing, cleaning, purifying, scouring, bleaching, wringing, drying, ironing, dyeing, coloring, disinfecting, renovating, and preparing for use linens of all kinds and other articles to be rented to users; to buy, sell, hire, manufacture, repair, let, alter, improve, treat, and deal in all apparatus, machines, materials, and articles of all kinds which are capable of being used for any such purpose. To manufacture, purchase, or otherwise acquire, own, mortgage, pledge, sell, assign, and transfer, or otherwise dispose of, and to invest, trade, deal in, and deal with, goods, wares and merchandise, and real and personal property of every class and description. To acquire, and pay for in cash, stocks, or bonds of the Corporation, or otherwise, the good-will, rights, assets, and property, and to undertake to assume the whole or any part of the obligations or liabilities of any person, firm, association, or corporation. To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage, or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trademarks and trade names, relating to or useful in connection with any business of the Corporation. To guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of shares of the capital stock of, or any bonds, securities, or evidence of indebtedness created by, any other corporation or corporations organized under the laws of this state or any other state, country, nation, or government, and while the owner thereof to exercise all the rights, powers, and privileges of ownership. To issue bonds, debentures, or obligations of the Corporation, from time to time, for any of the objects or purposes of the Corporation, and to secure the same by mortgage, pledge, deed of trust, or otherwise. To purchase, hold, sell, and transfer the shares of its own capital stock; provided it shall not use its funds or property for the purchase of its own shares of capital stock when such use would cause any impairment of its capital; and provided further that shares of its own capital stock belonging to it shall not be voted upon, directly or indirectly. To have one or more offices, to carry on all or any of its operations and business without restriction or limit as to amount, and to purchase or otherwise acquire, hold, own, mortgage, sell, convey, or otherwise dispose of real and personal property of every class and description in any of the States, Districts, Territories, or Colonies of the United States and in any and all foreign countries, subject to the laws of such State, District, Territory, Colony, or Country. In general, to carry on any other business in connection with the foregoing, whether manufacturing or otherwise, and to have and exercise all the powers conferred by the laws of Delaware upon corporations formed under the act hereinafter referred to, and to do any or all of the things hereinbefore set forth to the same extent as natural persons might or could do. -2- To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. The foregoing clauses shall be construed both as objects and powers; and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of the Corporation. FOURTH: (A) The total number of shares of stock which the Corporation shall have authority to issue is 121,000,000. (B) Of such stock, 120,000,000 shares shall be Common Stock of the par value of $1.00 each, amounting in the aggregate to $120,000,000. (C) Of such stock, 1,000,000 shares shall be No Par Preferred Stock which may be issued from time to time, by the Board of Directors, in one or more series. All shares of a series shall be of equal rank and shall be identical, but the shares of different series need not be of equal rank and need not be identical. The Board of Directors hereby is authorized to cause shares of Serial Preferred Stock to be issued in one or more series and with respect to each such series prior to issuance to fix: (1) Voting rights. (2) The designation of the series, which may be distinguished by number, letter, or title. (3) The number of shares, which number the Board of Directors may increase or decrease. (4) The annual dividend rate. (5) The dates at which dividends, if declared, shall be payable, and the date from which such dividends shall be cumulative, if at all. (6) The terms and amount of the sinking fund, if any, provided for the purchase or redemption of shares. (7) The redemption rights and price or prices, if any, for shares. (8) The amounts payable and priorities of shares in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Corporation. (9) The number of shares of Common Stock into which such Preferred Stock -3- is convertible, if any, the conversion price or prices, and all other terms and conditions upon which such conversion may be made, if at all. Designation, Preferences, and Rights of Series A Participating Preferred Stock Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Participating Preferred Stock," which shall have a stated value of $0.05 per share, and the number of shares constituting such series shall be 500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Participating Preferred Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. Section 2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the holders of shares of Series A Participating Preferred Stock in preference to the holders of shares of Common Stock, par value $1.00 per share (the "Common Stock"), of the Corporation and any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of finds legally available for the purpose, quarterly dividends payable in cash on the first day of October, January, April and July in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00, or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock. In the event the Corporation shall at any time after May 1, 1988 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. -4- (B) The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Series A Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preferred Stock unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the shareholders of the Corporation; provided, however, that with regard to any election for the Corporation's Board of Directors (except as provided for in paragraph (C) of this Section 3), the maximum number of votes for the election of directors exercised by shares of Preferred Stock (including the Series A Participating Preferred Stock) shall not exceed the number of votes for the election of directors represented by authorized and issued shares of Common Stock entitled to vote less one, and the number of votes for the election of directors exercised by shares of Preferred Stock (including the Series A Participating Preferred Stock) shall be reduced as necessary on a pro-rata basis to effectuate this result. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as -5- one class on all matters submitted to a vote of shareholders of the Corporation. (C) (i) If at any time dividends on any Series A Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Series A Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of shareholders, and thereafter at annual meetings of shareholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if, any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice-President or the -6- Corporate Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the shareholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) In any default period, the total number of Directors on the Board of Directors shall not be less than five (5) Directors. (vi) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in, or pursuant to, the Restated Certificate of Incorporation or By-Laws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however to change thereafter in any manner provided by law or in the Restated Certificate of Incorporation or By-Laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors, even though less than a quorum. (D) Except as set forth herein, holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are -7- entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock or any shares of stock ranking on a parity with the Series A Participating Preferred Stock except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such -8- time and in such manner. Section 5. Conversion Rights. (A) Subject to the provision for adjustment hereinafter set forth, each one one-thousandth of a share of Series A Participating Preferred Stock shall, for a period of 90 days after issuance, be convertible at the option of the respective holders thereof, at the office of the Corporation and at such other place or places, if any, as the Board of Directors may determine, without the payment of further consideration, into one (1) share of Common Stock of the Corporation. (B) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the one (1) share of Common Stock into which each one one-thousandth of a share of Series A Participating Preferred Stock shall be convertible shall be adjusted by multiplying such share by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (C) At such times as the conversion rights are exercised for Series A Participating Preferred Stock, the Corporation shall, to the extent that unreserved authorized and unissued or treasury shares of Common Stock are available, reserve sufficient shares of Common Stock to permit the conversion of such Series A Participating Preferred Stock into Common Stock. In the event that sufficient unreserved authorized and unissued or treasury shares of Common Stock are not available to permit such reservation and conversion, the Corporation shall use reasonable efforts to obtain shareholder approval of an increase in the number of authorized shares of Common Stock to permit the aforementioned reservation and conversion of Series A Participating Preferred Stock into Common Stock. Section 6. Reacquired Shares. Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 7. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Participating Preferred -9- Stock shall have received, per share, the greater of 1,000 times the exercise price per Right or 1,000 times the payment made per share of Common Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in subparagraph (C) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Participating Preferred Stock and Common Stock, respectively, holders of Series A Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (B) In the event there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of -10- Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event. Section 9. Redemption. The shares of Series A Participating Preferred Stock shall not be redeemable. Section 10. Ranking. The Series A Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 11. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds (66-2/3%) of the outstanding shares of Series A Participating Preferred Stock voting separately as a class. Section 12. Fractional Shares. Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock. FIFTH: The amount of capital with which the Corporation will commence business is ten (10) shares of common stock which shares are without nominal or par value. SIXTH: The Corporation is to have perpetual existence. SEVENTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. -11- EIGHTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: To make and alter the by-laws of the Corporation, to fix the amount to be reserved as working capital over and above its capital stock paid in, to authorize and cause to be executed mortgages and liens upon the real and personal property of the Corporation. From time to time to determine whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation, (other than the stock ledger) or any of them, shall be open to inspection of stockholders; and no stockholder shall have any right of inspecting any account, book, or document of the Corporation except as conferred by statute, unless authorized by a resolution of the stockholders or Directors. By resolution or resolutions, passed by a majority of the whole Board, to designate one or more committees, each committee to consist of two or more of the Directors of the Corporation, which, to the extent provided in said resolution or resolutions or in the by-laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Such Committee or Committees shall have such name or names as may be stated in the by-laws of the Corporation or as may be determined from time to time by resolution adopted by the Board of Directors. Pursuant to the affirmative vote of the holders of at least a majority of the stock issued and outstanding, having voting power, given at a stockholders' meeting duly called for that purpose, the Board of Directors shall have power and authority at any meeting to sell, lease, or exchange all of the property and assets of the Corporation, including its good will and its corporate franchises, upon such terms and conditions as its Board of Directors deem expedient and for the best interest of the Corporation. The Corporation may in its by-laws confer powers upon its Directors in addition to the foregoing, and in addition to the powers and authorities expressly conferred upon them by statute. Both stockholders and Directors shall have power, if the by-laws so provide, to hold their meetings, and to have one or more offices within or without the State of Delaware, and to keep the books of the Corporation (subject to the provisions of the statutes) outside of the State of Delaware, at such places as may be, from time to time, designated by the Board of Directors. Except as otherwise provided in this Restated Certificate of Incorporation, no action may be taken by the stockholders, including, without limitation, amendment of this Restated Certificate or of the by-laws, except at a meeting duly called in accordance with the by-laws. -12- NINTH: The Corporation reserves the right to amend, alter, change, or repeal any provision contained in this Certificate of Incorporation, in any manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. TENTH: This Restated Certificate of Incorporation only restates and integrates but does not further amend the provisions of the Corporation's Restated Certificate of Incorporation, as heretofore amended, and there are no discrepancies between the provisions of the Certificate of Incorporation as heretofore amended and the provisions hereof: ELEVENTH: This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation on October 16, 2001, pursuant to the provisions of Chapter I, Subchapter VIII, Section 245, of the General Corporation Law of Delaware, as amended. TWELFTH: (A) In addition to any approval of the Board of Directors or any stockholder vote or consent required by the laws of the State of Delaware or any other provision of this Restated Certificate of Incorporation or otherwise, the affirmative vote or consent of the holders of two-thirds of the shares of the stock of the Corporation entitled to vote in elections of directors shall be required to authorize, adopt, or approve a Covered Transaction; however, the provisions of this Article Twelfth shall not apply to any Covered Transaction referred to in this Article Twelfth with any Interested Person if (1) the Board of Directors of the Corporation has approved a memorandum of understanding with such other Interested Person with respect to such transaction prior to the time that such Interested Person shall have become a beneficial owner of five percent (5%) or more of the shares of stock entitled to vote in elections of directors, or thereafter (2) if such Covered Transaction is otherwise approved by the Board of Directors of the Corporation, provided that a majority of the members of the Board of Directors voting for the approval of such transaction were duly elected and acting members of the Board of Directors prior to the time that such Interested Person shall have become a beneficial owner of five percent (5%) or more of the shares of stock of the Corporation entitled to vote in elections of directors. (B) For the purposes of this Article Twelfth: (1) "Affiliate" and "associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on November 1, 1977. (2) A person shall be the "beneficial owner" and "beneficially owns" shares of -13- stock of the Corporation (other than shares of the Corporation's stock held in its treasury) (a) which such person and its affiliates and associates beneficially own, directly or indirectly, whether of record or not, (b) which such person or any of its affiliates or associates has the right to acquire, pursuant to any agreement upon the exercise of conversion rights, warrants or options, or otherwise, (c) which such person or any of its affiliates or associates has the right to sell or vote pursuant to any agreement, or (d) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates or associates has any agreement, arrangement, or understanding for the purposes of acquiring, holding, voting, or disposing of securities of the Corporation. (3) "Covered Transaction" is (a) any merger or consolidation of the Corporation or any subsidiary of the Corporation with or into any Interested Person (regardless of the identity of the surviving corporation); (b) any sale, lease, or other disposition of all or any substantial part of the assets of the Corporation or any subsidiary of the Corporation to any Interested Person for cash or securities or both; (c) any issuance or delivery of securities of the Corporation or a subsidiary of the Corporation (which the beneficial owner shall have the right to vote, or to vote upon exercise, conversion, or by contract) to an Interested Person in consideration for or in exchange of any securities or other property (including cash); or (d) the liquidation of the Corporation. (4) "Interested Person" is any person which, as of the record date for the determination of stockholders entitled to notice of any Covered Transaction and to vote thereon or consent thereon, or as of the date of any such vote or consent, or immediately prior to the consummation of any Covered Transaction, beneficially owns, directly or indirectly, five percent (5%) or more of the shares of stock of the Corporation entitled to vote in elections of directors. (5) "Person" is any individual, partnership, or corporation or other entity. (6) "Subsidiary of the Corporation" is any corporation of which fifty percent (50%) or more of any class of stock is beneficially owned, directly or indirectly, by the Corporation. (C) No amendment to this Restated Certificate of Incorporation shall amend, alter, -14- change, or repeal any of the provisions of this Article Twelfth unless such amendment, in addition to receiving any stockholder vote or consent required by the laws of the State of Delaware in effect at the time, shall receive the affirmative vote or consent of the holders of two-thirds of the shares of stock of the Corporation entitled to vote in elections of directors. THIRTEENTH: (A) In addition to any approval of the Board of Directors or any stockholder vote or consent required by the laws of the State of Delaware or any other provision of this Restated Certificate of Incorporation or otherwise, there shall be required for the approval, adoption, or authorization of a Business Combination with an Interested Person the affirmative vote or consent of the holders of a majority of the shares of stock of the Corporation entitled to vote in elections of directors considered separately for the purposes of this Article Thirteenth, which are not beneficially owned, directly or indirectly, by such Interested Person; provided, however, that said majority voting requirements shall not be applicable if all of the conditions specified in subparagraphs (1) and (2) below are met or if all of the conditions specified in subparagraph (3) are met: (1) The consideration to be received per share in such Business Combination by holders of the stock of the Corporation is payable in cash or Acceptable Securities, or a combination of both, and the Acceptable Securities (plus the cash, if any) have a fair market value per share of the Corporation's stock of not less than either: (a) the highest price (including the highest per share brokerage commissions, transfer tax, and soliciting dealers fees) paid by said Interested Person in acquiring any of the Corporation's stock; or (b) a price per share obtained by multiplying the aggregate earnings per share of stock of the Corporation (appropriately adjusted for any subdivision of shares, stock dividend, or combination of shares during the period) for the four full consecutive fiscal quarters immediately preceding the record date for solicitation of votes or consents on such Business Combination by the figure obtained by dividing the highest per share price (including the highest per share brokerage commissions, transfer tax, and soliciting dealers fees) paid by such Interested Person acquiring any of the Corporation's stock by the aggregate earnings per share of the Corporation for the four full consecutive fiscal quarters immediately preceding the time when the Interested Person shall have become the beneficial owner of five percent (5%) or more of the stock of the Corporation entitled to vote in elections of directors. If any securities were issued by an Interested Person in exchange for stock of the Corporation prior to the proposed Business Combination, the fair market value of said securities at the time of issue shall be used in determining the per share price paid for said -15- stock. (2) After the Interested Person has become the beneficial owner of five percent (5%) or more of the stock of the Corporation entitled to vote in the election of directors and prior to the consummation of such Business Combination, there shall have been no reduction in the rate of dividends payable on the Corporation's stock which would result in a quarterly dividend rate per share which is less than the average quarterly dividend rate per share for the four full consecutive fiscal quarters immediately preceding the time when the Interested Person shall have become the beneficial owner of five percent (5%) or more of the stock of the Corporation unless such reduction in the rate of dividends has been approved by the Board of Directors of the Corporation and a majority of the members of the Board of Directors approving such reduction were duly elected and acting members of the Board of Directors prior to the time that such Interested Person shall have become a beneficial owner of five percent (5%) or more of the shares of the Corporation. For the purposes of this paragraph, "quarterly dividend rate per share" for any quarterly dividend shall be equal to the percentage said quarterly dividend per share bears to the earnings per share for the four full fiscal quarters immediately preceding the declaration of said quarterly dividend. (3) The Board of Directors of the Corporation has approved a memorandum of understanding with such other Interested Person with respect to such Business Combination prior to the time that such Interested Person shall have become a beneficial owner of five percent (5%) or more of the shares of stock entitled to vote in elections of directors, or thereafter if such Business Combination is otherwise approved by the Board of Directors of the Corporation, provided that a majority of the members of the Board of Directors voting for the approval of such transaction were duly elected and acting members of the Board of Directors prior to the time that such Interested Person shall have become a beneficial owner of five percent (5%) or more of the shares of stock of the Corporation entitled to vote in elections of directors. (B) For the purposes of this Article Thirteenth: (1) "Affiliate" and "associate" shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on November 1, 1977. (2) A person shall be the "beneficial owner" and "beneficially owns" shares of stock of the Corporation (other than shares of the Corporation's stock held in its treasury) (a) which such person and its affiliates and associates beneficially own, directly or indirectly, whether of record or not, (b) which such person or any of its affiliates or associates has the right to acquire, pursuant to any agreement upon the exercise of conversion rights, warrants, or options, or otherwise, (c) which such person or any of its -16- affiliates or associates has the right to sell or vote pursuant to any agreement, or (d) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its affiliates or associates has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting, or disposing of securities of the Corporation. (3) "Business Combination" is (a) any merger or consolidation of the Corporation or any subsidiary of the Corporation with or into any Interested Person (regardless of the identity of the surviving corporation); (b) any sale, lease, or other disposition of all or any substantial part of the assets of the Corporation or any subsidiary of the Corporation to any Interested Person for cash or securities or both; (c) any issuance or delivery of securities of the Corporation or a subsidiary of the Corporation (which the beneficial owner shall have the right to vote, or to vote upon exercise, conversion, or by contract) to an Interested Person in consideration for or in exchange of any securities or other property (including cash); (4) "Acceptable Securities" shall mean (a) securities of the same class or series, with the same rights, powers, and benefits and of the same denomination, term, and interest, or dividend, if any, as the securities issued and delivered by the Interested Person in exchange for the majority of the stock of the Corporation acquired by the Interested Person or (b) the class of common stock of the Interested Person which is beneficially owned by the most persons. (5) "Interested Person" is any person which, as of the record date for the determination of stockholders entitled to notice of any Business Combination and to vote thereon or consent thereto, or as of the date of any such vote or consent, or immediately prior to the consummation of any Business Combination, beneficially owns, directly or indirectly, five percent (5%) or more of the shares of stock of the Corporation entitled to vote in elections of directors. (6) "Person" is an individual, partnership, corporation, or other entity. (7) "Subsidiary of the Corporation" is any corporation of which fifty percent (50%) or more of any class of stock is beneficially owned, directly or indirectly, by the Corporation. (C) No amendment to this Restated Certificate of Incorporation shall amend, alter, -17- change, or repeal any of the provisions of this Article Thirteenth unless such amendment, in addition to receiving any stockholder vote or consent required by the laws of the State of Delaware in effect at the time, shall receive the affirmative vote or consent of the holders of a majority of the shares of stock of the Corporation entitled to vote in elections of directors which are not beneficially owned, directly or indirectly, by any person which would be an Interested Person if the vote or consent on such amendment were a vote or consent on a Business Combination. FOURTEENTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. FIFTEENTH: (A) Each person who was or is made a party to or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability, and loss (including attorneys' fees, judgments, fees, ERISA excise taxes, or penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in -18- connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of his or her heirs, executors, and administrators; provided, however, that except as provided in paragraph (B) hereof with respect to proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article or otherwise. The right to indemnification conferred in this Article shall arise only with respect to conduct subsequent to the date this Article becomes effective. (B) If a claim under paragraph (A) of this Article is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for expenses incurred in defending a proceeding in advance of its final disposition, in which case the applicable period shall be twenty days, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (C) The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of -19- the Restated Certificate of Incorporation, by-law, agreement, vote of stockholders, or disinterested directors, or otherwise. (D) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, Partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the Delaware General Corporation Law. (E) The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which restates, integrates but does not further amend the provisions of the Corporation's Restated Certificate of Incorporation, as theretofore amended or supplemented, having been duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Section 245 of the General Corporation Law of the State Of Delaware, has been executed this 16th day of October, 2001. NATIONAL SERVICE INDUSTRIES, INC. By: /s/ James S. Balloun ---------------------------------------- Name: James S. Balloun Title: Chairman of the Board, President and Chief Executive Officer -20- EX-3.(B) 4 g72719ex3-b.txt BY-LAWS, DATED OCTOBER 16, 2001 Exhibit 3(b) NATIONAL SERVICE INDUSTRIES, INC. BY - LAWS (as amended and restated October 16, 2001) (A Delaware Corporation) ARTICLE ONE OFFICES AND AGENT 1.1 Registered Office and Agent. The registered office of the Corporation within the State of Delaware shall be in the City of Wilmington, County of New Castle, and the name of the registered agent in charge thereof is Corporation Service Company. 1.2 Other Offices. In addition to its registered office within the State of Delaware, the Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may, from time to time determine or the business of the Corporation may require or make desirable. ARTICLE TWO STOCKHOLDERS' MEETINGS 2.1 Place of Meetings. All meetings of the stockholders for the election of directors or for any other purpose shall be held at any place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors or, if it fails to act, the Chairman of the Board, or if he fails to act, the President, and shall be stated in the notice of meeting or a duly executed waiver thereof. 2.2 Quorum, Adjournment. The holders of one-third of the voting power of the stock of the Corporation issued and outstanding and entitled to vote at a meeting of stockholders, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by the Delaware General Corporation Law or by the Corporation's Restated Certificate of Incorporation, as amended from time to time ("Certificate of Incorporation"). If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.3 Conduct of Meetings. At each meeting of stockholders, the Chairman of the Board shall act as chairman of the meeting. In the absence or inability or refusal to act of the Chairman of the Board, the Vice Chairman of the Board, or if a Vice Chairman has not been elected, the President, shall act as chairman of the meeting. The Secretary or, in his absence, inability or refusal to act, such person as the chairman of the meeting shall appoint shall act as secretary of the meeting and keep the minutes thereof. 2.4 Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. 2.5 Voting. Except as otherwise provided by statute or the Corporation's Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in his name on the list of stockholders of the Corporation on the record date fixed as provided in these By-Laws, as amended from time to time ("By-Laws"). Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy which is in writing or is transmitted as permitted by law, including, without limitation, electronically, via telegram, internet, interactive voice response system, or other means of electronic transmission executed or authorized by such stockholders or his attorney-in-fact and bearing a date not more than three (3) years prior to said meeting, unless said instrument provides for a longer period. Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies. Any proxy transmitted electronically shall set forth information from which it can be determined by the secretary or voting inspector of the meeting that such electronic transmission was authorized by the stockholder. At all meetings of stockholders for the election of directors a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by law or in the Corporation's Certificate of Incorporation or these By-Laws, be decided by the vote of the holders of a majority of the outstanding shares of stock entitled to vote thereon present in person or by proxy at the meeting. Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. 2.6 List of Stockholders. A complete list of the stockholders entitled to vote at each meeting of stockholders, arranged in alphabetical order, with the address of each, and the number of voting shares held by each, shall be prepared by the Secretary at least ten days before every meeting. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. -2- 2.7 Inspectors. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders. 2.8 Annual Meeting. The Annual Meeting of the Stockholders of the Corporation ("Annual Meeting") shall be held at such time and on such date as shall be designated by the Board of Directors and stated in the notice of meeting. At such meeting, the stockholders shall elect directors as provided in the Corporation's Certificate of Incorporation and By-Laws and shall transact such other business as may properly come before the meeting. 2.9 Notice of Annual Meeting. Except as otherwise expressly required by statute, written notice of the Annual Meeting stating the date, place and time of the meeting shall be given to each stockholder entitled to vote thereat, not less than ten nor more than sixty days prior to the date of the meeting. Notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Notice of any meeting shall not be required to be given to any person (i) who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or (ii) who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy. Neither the business to be transacted at, nor the purpose of, an Annual Meeting need be specified in any written waiver of notice. 2.10 Notice of Stockholder Proposals. (a) At an Annual Meeting, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the Annual Meeting (i) by, or at the direction of, the Board of Directors or (ii) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section of these By-Laws. For a proposal to be properly brought before an Annual Meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a -3- stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than forty-five (45) or more than seventy-five (75) days prior to the first anniversary of the date on which the Corporation first mailed its proxy materials for the preceding year's Annual Meeting, regardless of any postponements, deferrals, or adjournments of that meeting to a later date; provided, however, that if during the preceding year the Corporation did not hold an Annual Meeting or if the date of the Annual Meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year's Annual Meeting, notice by the stockholder to be timely must be so delivered or received not later than ninety (90) days prior to the scheduled Annual Meeting; and provided, further, however, that if less than one hundred (100) days' notice or prior public disclosure of the date of the scheduled Annual Meeting is given or made, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the day on which such notice of the date of the scheduled Annual Meeting was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the Annual Meeting (i) a brief description of the proposal desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and the number of shares of the Corporation's stock which are beneficially owned by the stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (iv) any financial interest of the stockholder in such proposal. (b) If the presiding officer of the Annual Meeting determines that a stockholder proposal was not made in accordance with the terms of this Section, he shall so declare at the Annual Meeting and any, such proposal shall not be acted upon at the Annual Meeting. (c) This provision shall not prevent the consideration and approval or disapproval at the Annual Meeting of reports of officers, directors and committees of the Board of Directors, but, in connection with such reports, no business shall be acted upon at such Annual Meeting unless stated, filed and received as herein provided. 2.11 Special Meetings. Special meetings of the stockholders ("Special Meetings"), for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chief Executive Officer, and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at all Special Meetings shall be confined to the purposes stated in the notice of meeting. 2.12 Notice of Special Meetings. Except as otherwise expressly required by statute, written notice of a special meeting, stating the date, time, place, and purpose or -4- purposes thereof, shall be given to each stockholder entitled to vote thereat not less than ten nor more than sixty days prior to the date of the meeting. Notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy. Neither the business to be transacted at, nor the purpose of, a Special Meeting need be specified in any written waiver of notice. ARTICLE THREE BOARD OF DIRECTORS 3.1 General Powers. The business and affairs of the Corporation shall be managed by or be under the direction of the Board of Directors. The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Corporation's Certificate of Incorporation directed or required to be done by the stockholders. 3.2 Number, Qualification, Term of Office. The number of directors which constitute the entire Board of Directors of the Corporation shall be fixed by resolution of the Board of Directors from time to time, but shall in any event be not less than seven nor more than fifteen. Any decrease in the number of directors shall be effective at the time of the next succeeding Annual Meeting unless there shall be vacancies in the Board of Directors at the time the Board effects such decrease, in which case such decrease may become effective at any time prior to the next succeeding Annual Meeting to the extent of the number of vacancies. Directors need not be stockholders. Except as provided in these By-Laws, directors shall be elected at the Annual Meeting or at a Special Meeting called for such purpose, and each director shall be elected to hold office until a successor shall be elected and qualify. 3.3 Election of Directors. Nominations for the election of directors may be made by the Board of Directors or a nominating committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an Annual Meeting, ninety (90) days prior to the anniversary date of the immediately preceding Annual Meeting; and (ii) with respect to an election to be held at a Special Meeting for the election of directors, the close of business on the tenth (10th) day following the date -5- on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (A) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (B) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (C) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (D) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission as then in effect; and (E) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of the meeting shall refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. The vote necessary to elect directors shall be as set forth in these By-Laws including, without limitation, Section 2.5 hereof, unless otherwise required by the Delaware General Corporation Law. 3.4 Vacancies. Unless otherwise provided in the Corporation's Certificate of Incorporation (or by resolution of the Board of Directors, any vacancy in the Board of Directors, whether arising from death, resignation, removal, or any other cause, and any newly created directorship resulting from an increase in the number of directors, shall be filled exclusively by a majority of the directors then in office, although less than a quorum, or by the sole remaining director, and shall not be filled by the stockholders. Each director so elected shall hold office until his successor shall have been elected and qualified. 3.5 Resignations. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 3.6 Committees. (a) The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In addition, in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (b) Except to the extent restricted by the Delaware General Corporation Law or the Corporation's Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the -6- powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it. Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors. (c) Except to the extent restricted by the Delaware General Corporation Law or the Corporation's Certificate of Incorporation, the Executive Committee, if any, shall, when the Board of Directors is not in session, have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, including, without limitation, the power and authority to declare a dividend, to authorize the issuance of stock, and to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. 3.7 Compensation. The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity. ARTICLE FOUR MEETINGS OF THE BOARD 4.1 Annual Meeting. The newly elected Board shall meet, immediately after the Annual Meeting at which they were elected, for the purpose of organization or otherwise, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a majority of the whole Board shall be present. 4.2 Regular Meetings. Regular meetings of the Board shall be held within six (6) weeks following the end of each fiscal quarter at such time and place as the Board of Directors may fix. Notice of regular meetings of the Board of Directors need not be given. 4.3 Special Meetings. Special meetings of the Board may be called by the Chairman of the Board or the President. Notice of any special meeting shall be given to each director at least twelve (12) hours before the meeting by telephone or by being personally delivered or sent by telex, telecopier, or telegraph, or at least three (3) days before the meeting if delivered by mail at the address at which the director is most likely to be reached. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage prepaid, or when transmitted if sent by telex, telecopier or telegraph. Any director may waive notice of any meeting by a writing signed by the director entitled to the notice and filed with the minutes or corporate records. The attendance at or participation of the director at a meeting shall constitute waiver of notice of such meeting, unless the director at the beginning of the meeting or promptly upon his arrival objects to holding the meeting or transacting business at the -7- meeting. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Special meetings shall be called by the Chairman of the Board, President or Secretary in like manner and on like notice on the written request of two directors. 4.4 Place of Meetings. Unless otherwise specified in the notice of any meeting, meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine. 4.5 Quorum and Manner of Acting. At all meetings of the Board, one-third of the total number of directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the Delaware General Corporation Law or by the Certificate of Incorporation or by these By-Laws. However, directors attending a meeting at which less than a quorum is present shall have the power to adjourn the meeting. Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. 4.6 Conduct of Meetings. At each meeting of the Board of Directors, the Chairman of the Board shall act as chairman of the meeting and preside thereat. The Secretary or, in his absence, inability or refusal to act, such person as the chairman of the meeting shall appoint shall act as secretary of the meeting and keep the minutes thereof. 4.7 Action by Consent. Unless restricted by the Corporation's Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or committee may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or committee, as the case may be. 4.8 Telephonic Meeting. Unless restricted by the Corporation's Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting. -8- ARTICLE FIVE OFFICERS 5.1 Offices. The Board of Directors, at its first meeting after each Annual Meeting of Stockholders, shall elect the officers of the Corporation, which shall include the following: Chairman of the Board; President; one or more Vice Presidents, as the Board of Directors shall designate; Secretary; and Treasurer. The Secretary and the Treasurer may be the same person, and any Vice President may hold at the same time the office of Secretary and/or Treasurer. The Board may elect one or more Assistant Secretaries and one or more Assistant Treasurers as may be necessary or desirable for the business of the Corporation. The Board may also elect from among its members a Vice Chairman of the Board, and from among its members or former members, a Chairman Emeritus. The Board may elect such other officers as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. 5.2 Designation of Chief Executive Officer. The Board of Directors shall designate either the Chairman of the Board or the President of the Corporation as the Chief Executive officer of the Corporation. The Chief Executive Officer shall have authority over the business and affairs of the Corporation and over all other officers, agents and employees of the Corporation, subject to the control and direction of the Board of Directors. 5.3 Designation of Chief Operating Officer. The Board of Directors may designate an officer of the Corporation as the Chief Operating Officer of the Corporation. The Chief Operating Officer, if designated, shall manage and operate the business and affairs of the Corporation, subject to the control and direction of the Board of Directors, and shall report to the Chief Executive Officer. 5.4 Compensation. The salaries of all officers shall be fixed by or pursuant to the direction of the Board of Directors. 5.5 Tenure and Removal. Each officer of the Corporation shall hold office until his successor is chosen and qualifies in his stead, or until his death, or until he shall have resigned or been removed, as hereinafter provided in these By-Laws. Any officer elected or appointed by the Board of Directors may be removed at any time with or without cause by the affirmative vote of a majority of the Board of Directors. 5.6 Resignations. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt. Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective. 5.7 Vacancies. If the office of any officer becomes vacant by reason of death, -9- resignation, retirement, disqualification, removal from office, or otherwise, the Board of Directors may fill each such vacancy for the unexpired term in respect of which such vacancy occurred. 5.8 Chairman of the Board. (a) The Chairman of the Board shall be elected from among the members of the Board of Directors and shall be an officer of the Corporation. The Chairman shall preside at all meetings of the Board of Directors and of the stockholders. The Chairman shall have such powers and duties as an officer of the Corporation as provided by these By-Laws and as the Board of Directors may from time to time prescribe. (b) The Chairman may sign, execute, acknowledge and deliver, in the name and on behalf of the Corporation, all stock certificates, deeds, mortgages, bonds, contracts, documents and instruments, except where the signing thereof shall be expressly and exclusively delegated to some other officer or agent by the Board of Directors or by these By-Laws, or required by law to be otherwise signed or executed. 5.9 Chairman Emeritus. The Board of Directors may elect a former Chairman of the Board as Chairman Emeritus. The Chairman Emeritus shall be an honorary position, reflecting outstanding service and devotion to the Corporation. The Chairman Emeritus shall advise and consult with the Board of Directors, committees of the Board of Directors, and the President, on matters of interest to the Corporation, and shall perform such other duties as the Board of Directors may from time to time prescribe. 5.10 Vice Chairman of the Board. The Vice Chairman of the Board, if one shall have been elected from among the members of the Board, shall, in the absence of the Chairman or in the event of the Chairman's refusal or inability to act, preside at all meetings of the Board of Directors and stockholders, and shall perform such other duties as the Board of Directors may from time to time prescribe. 5.11 President. (a) The President shall have such powers and shall perform such duties as are provided by these By-Laws and as the Board of Directors may from time to time prescribe. The President shall, in the Chairman's absence, inability or refusal to act, perform the duties of the Chairman, other than duties to be performed by the Vice Chairman (if one shall have been elected) as prescribed under or pursuant to these By-Laws. When so acting, the President shall have all of the powers of and be subject to all the restrictions upon the Chairman, including the powers and restrictions applicable to the Chief Executive Officer if the Chairman serves in that capacity. (b) The President may sign, execute, acknowledge and deliver, in the name and on behalf of the Corporation, all stock certificates, deeds, mortgages, bonds, contracts, documents and instruments, except where the signing thereof shall be expressly and exclusively delegated to some other officer or agent by the Board of Directors or by these By-Laws or required by law to be otherwise signed or executed. 5.12 Vice President. (a) Each Vice President shall have such powers and be -10- required to perform such duties as the Board of Directors or the Chief Executive Officer may from time to time prescribe. (b) The Board of Directors may designate one or more of the Vice Presidents as Executive Vice President. The Executive Vice President (or, if more than one Executive Vice President has been designated, the Executive Vice President specified by the Board of Directors), shall, in the President's absence or disability or during a vacancy in the office of the President, perform all of the duties of the President. When so acting, the Executive Vice President shall have all the powers of, and be subject to all of the restrictions upon, the President, including the powers and restrictions applicable to the Chief Executive Officer if the President serves in that capacity. 5.13 Secretary. (a) The Secretary shall attend all sessions of the Board and all meetings of the stockholders and shall record all votes and the minutes of all such proceedings in a book to be kept for that purpose. The Secretary shall perform like duties for the Committees of the Board upon requested. He shall be custodian of the records and the seal of the Corporation and shall affix and attest the seal to all documents to be executed on behalf of the Corporation under its seal. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, in accordance with the provisions of these By-Laws and as required by the Delaware General Corporation Law, and shall perform such other duties as the Board of Directors or the Chief Executive Officer may from time to time prescribe. (b) The Assistant Secretary shall, in the Secretary's absence, inability or refusal to act, perform the duties of the Secretary, and shall perform such other duties as the Board of Directors or the Chief Executive Officer may from time to time prescribe. 5.14 Treasurer. (a) The Treasurer shall have charge and custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements, in books belonging to the Corporation, and shall deposit all corporate monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors or pursuant to its direction. (b) The Treasurer shall receive and give receipts for monies due and payable to the Corporation from any source whatsoever and shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers therefor, and shall render to the President and directors, at the regular meetings of the Board, or whenever they may require it, an account of all of his transactions as Treasurer and of the financial condition of the Corporation and in general, perform all duties incident to the office of the Treasurer and such other duties as the Board of Directors or the Chief Executive Officer may from time to time prescribe. (c) The Assistant Treasurer shall, in the Treasurer's absence, inability or refusal to act, perform the duties of the Treasurer and shall also perform such other duties as the Board of Directors or the Chief Executive Officer may from time to time prescribe. -11- ARTICLE SIX STOCK CERTIFICATES AND TRANSFER THEREOF 6.1 Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or the President or the Executive Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 6.2 Transfers of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its record; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. 6.3 Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, and accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 6.4 Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall -12- not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment or rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. (b) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (c) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. Such notice shall specify the action proposed to be consented to by stockholders. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days after the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation. Such delivery to the Corporation shall be made to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded, to the attention of the Secretary of the Corporation. Such delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. In the event of delivery to the Corporation of a written consent or written -13- consents purporting to authorize or take corporate action, and/or related revocation or revocations, (each such written consent and related revocation, individually and collectively, a "Consent"), the Secretary of the Corporation shall provide for the safekeeping of such Consent and shall as soon as practicable thereafter conduct such reasonable investigation as the Secretary deems necessary or appropriate for the purpose of ascertaining the validity of such Consent and all matters incident thereto, including, without limitation, whether holders of shares having the requisite voting power to authorize or take the action specified in the Consent have given consent. If after such investigation the Secretary shall determine that the Consent is sufficient and valid, that fact shall be certified on the records of the Corporation kept for the purpose of recording the proceedings of meetings of the stockholders, and the Consent shall be filed in such records, at which time the Consent shall become effective as stockholder action. 6.5 Lost Certificates. Any person claiming a certificate of stock to be lost, stolen or destroyed shall make an affidavit or affirmation of that fact, in such manner and form as the Board of Directors may from time to time require, in order to obtain issuance of a new certificate in place thereof. The Board of Directors may, at its discretion and as a condition precedent to any such issuance, require any such person to give the Corporation a bond in such sum as it may direct to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Upon compliance with all requirements established by the Board of Directors for any such issuance, a new certificate may be issued. 6.6 Facsimile Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may, be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 6.7 Transfer Agents and Registrars. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. 6.8 Regulations. The Board of Directors may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. ARTICLE SEVEN GENERAL PROVISIONS 7.1 Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL" and "DELAWARE." -14- 7.2 Fiscal Year. The fiscal year shall begin the first day of September in each year. 7.3 Checks, Notes, Drafts, Etc. All checks, drafts or other demands for the payment of money and notes of the Corporation shall be signed, endorsed, or accepted in the name of the Corporation by such officer or officers from time to time designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation. 7.4 Execution of Instruments. The Board of Directors may authorize any officer or officers, agent or agents, in the name of and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. 7.5 Dividends and Reserves. Subject to the provisions of statute and the Corporation's Certificate of Incorporation dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property or in shares of stock of the Corporation. 7.6 Notice. Whenever under the provisions of these By-Laws written notice is required to be given to any director, officer, or stockholder, it shall not be construed to require personal notice, but unless otherwise provided by these By-Laws, such notice shall be deemed to have been given in writing when deposited in the United States mail, postage prepaid, directed to such stockholder, officer or director at his address as it appears on the records of the Corporation. 7.7 Voting of Stock in Other Corporations. Unless otherwise provided by resolution of the Board of Directors, the Chief Executive Officer, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation. In the event one or more; attorneys or agents are appointed, the Chief Executive Officer may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent. The Chief Executive Officer may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances. 7.8 Indemnification. (a) Each director or officer or former director or officer of the Corporation or any person who may have served at its request as a director or officer of another corporation in which it owns shares of capital stock or of which it is a creditor, shall be indemnified and held harmless by the Corporation, as hereinafter provided, against any and all liabilities and counsel fees, costs and legal and other expenses (including, without limitation, fines, penalties, judgments and amounts paid in -15- settlement) reasonably incurred by or imposed on him in connection with or resulting from any claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, or any appeal therein, in which he may be or become involved or with which he may be threatened, as a party or otherwise, by reason of his now or hereafter being or having heretofore been a director or officer of the Corporation or of such other corporation, or by reason of his alleged acts or omissions as a director or officer as aforesaid, whether or not he continues to be such at the time such liabilities, fees, costs or expenses shall have been incurred, provided such director or officer shall be indemnified and held harmless against such liabilities, fees, costs and expenses, only if he acted in relation to such matters in good faith for a purpose which he reasonably believed to be in the best interests of the Corporation. (b) In discharging his duty to the Corporation, a director or officer, when acting in good faith, may rely upon financial statements of the Corporation represented to him to be correct by, the officer of the Corporation having charge of its books of accounts, or stated in a written report by an independent public or certified public accountant or firm of such accountants fairly to reflect the financial condition of such corporation. (c) Termination of a claim, action or proceeding by judgment, order, settlement (whether with or without court approval), conviction or upon a plea of guilty or of nolo contendere, or its equivalent, shall not of itself create a presumption that a director or officer did not meet the standard of conduct set forth above. (d) The grant of an indemnification provided herein, unless approved by a court in a final adjudication of a claim, action, suit, or proceeding or in connection with a court approved settlement thereof, shall be made pursuant to a direction of the Board of Directors of the Corporation, but may be granted only (i) if the Board of Directors, acting by a quorum consisting of directors not parties to such claim, action, suit or proceeding, shall have determined that in its opinion the director or officer has met the standard of conduct set forth above or (ii) in the event such a quorum is not obtainable with due diligence, then alternatively if the Board of Directors shall have received the written advice of independent legal counsel selected by it, that in the latter's judgment such applicable standard of conduct has been met. If several claims, issues, matters or actions are involved in the grant of indemnification provided herein, a director or officer may be granted indemnification by the Board of Directors to the extent of that portion of the liabilities, fees, costs and expenses which are allocable to such claims, issues, matters or actions in respect of which it is determined that such director or officer has met the standard of conduct set forth above. (e) Expenses incurred with respect to any claim, action, suit or proceeding may be advanced by the Corporation prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that he is entitled to indemnification hereunder. -16- (f) The rights to the indemnification provided herein shall inure to the benefit of the heirs, executors, administrators, or legal representatives of the persons covered hereby; shall be in addition to any rights to which any such person may otherwise be entitled by any provision of law, articles of incorporation, by-law, contract, vote of stockholders or otherwise; and shall be in addition to and not in restriction or limitation of any other privilege or power which the Corporation may lawfully exercise with respect to the indemnification or reimbursement of directors, officers and others. (g) If any part of this Section shall be found, in any action, suit or proceeding, to be invalid or ineffective, the validity and the effect of the remaining parts shall not be affected. (h) The rights of indemnification provided herein shall not arise with respect to conduct subsequent to January 5, 1987, which conduct shall be subject to the indemnification provisions set forth in Article Fifteenth of the Corporation's Certificate of Incorporation. 7.9 Amendments. These By-Laws may be adopted, amended or repealed (i) by the affirmative vote of a majority of the directors present at a meeting at which a quorum is present unless the Certificate of Incorporation or these By-Laws shall require a vote of a greater number, or (ii) by the affirmative vote of the holders of two-thirds of the voting power of all of the outstanding shares of capital stock of the Corporation at any regular or special meeting of stockholders if notice of the proposed amendment is contained in the notice of the meeting or waived by all of the stockholders entitled to vote. -17- EX-10.I(A)(2) 5 g72719ex10-ia2.txt FIRST AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10(i)A(2) FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") is dated as of the 14th day of July, 2000 among NATIONAL SERVICE INDUSTRIES, INC., the other Borrowers parties hereto (collectively, the "Borrower"), the Banks parties hereto (collectively, the "Banks"), BANK ONE, NA (formerly The First National Bank Of Chicago), as Syndication Agent (the "Syndication Agent"), WACHOVIA BANK, N.A., as Administrative Agent (the "Administrative Agent"; the Syndication Agent and the Administrative Agent are collectively referred to as the "Agents"); WITNESSETH: WHEREAS, the Borrower, the Agents and the Banks executed and delivered that certain Credit Agreement dated as of July 15, 1999 (the "Credit Agreement"); WHEREAS, the Borrower has requested and the Agents and the Banks have agreed to certain amendments to the Credit Agreement, subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Borrower, the Agents and the Banks hereby covenant and agree as follows: 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement shall have the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall from and after the date hereof refer to the Credit Agreement as amended hereby. 2. Amendment to Section 1.01. Section 1.01 of the Credit Agreement hereby is amended by deleting the definition of "Termination Date" and adding the following new definitions in the appropriate alphabetical sequence: "Termination Date" means the earlier of (i) July 13, 2001, or such later date to which it is extended by the Banks pursuant to Section 2.05(b), in their sole and absolute discretion, (ii) the date the Commitments are terminated pursuant to Section 6.01 following the occurrence of an Event of Default, or (iii) the date the Borrower terminates the Commitments entirely pursuant to Section 2.08. "Term Out Election" has the meaning set forth in Section "Term Out Maturity Date" has the meaning set forth in Section 1 3. Amendment to Section 2.05(b). Section 2.05(b) of the Credit Agreement hereby is deleted, and the following is substituted therefor: (b) Notwithstanding the foregoing, the outstanding principal amount of the Loans, if any, together with all accrued but unpaid interest thereon, if any, shall be due and payable on the Termination Date unless the Termination Date is otherwise extended by the Banks, in their sole and absolute discretion, provided, that in the event the Term Out Election is made pursuant and subject to the last (unlettered) paragraph of this Section 2.05(b), the outstanding principal amount of the Loans, together with all accrued but unpaid interest thereon, shall be due and payable on the Term Out Maturity Date. Upon the written request of the Borrower, which request shall be delivered to the Administrative Agent no more than 60 days, and not less than 30 days, prior to the then existing Termination Date, the Banks shall have the option (without any obligation whatsoever so to do) of extending the Termination Date for additional 364-day periods on each then existing Termination Date. Each Bank shall notify the Borrower and the Administrative Agent no more than 30 days, and not less than 20 days, prior to the then existing Termination Date whether or not it chooses to extend the Termination Date for such an additional 364-day period (but any Bank which fails to give such notice within such period shall be deemed not to have extended); provided, that the Termination Date shall not be extended with respect to any of the Banks unless, on or before the then existing Termination Date, as to the Commitment of any Bank which gave notice that it chooses not to extend, or which is deemed pursuant to the foregoing not to have extended (any such Bank being a "Terminating Bank"), one of the following shall occur: (i) the remaining Banks shall purchase ratable assignments (without any obligation so to do) from such Terminating Bank (in the form of an Assignment and Acceptance) in accordance with their respective percentage of the remaining Aggregate Commitments; provided, that, such Banks shall be provided such opportunity (which opportunity shall allow such Banks at least 5 Domestic Business Days in which to make a decision) prior to the Borrower finding another bank pursuant to the immediately succeeding clause (ii); and, provided, further, that, should any of the remaining Banks elect not to purchase such an assignment, then, such other remaining Banks shall be entitled to purchase an assignment from any Terminating Bank which includes the ratable interest that was otherwise available to such non-purchasing remaining Bank or Banks, as the case may be, or (ii) the Borrower shall find another bank, acceptable to the Administrative Agent, willing to accept an assignment from such Terminating Bank (in the form of an Assignment and Acceptance) on or before the then existing Termination Date, or (iii) on the then existing Termination Date, the Borrower shall reduce the aggregate Commitments in an amount equal to the Commitment of any such Terminating Bank and pay all amounts due to such Terminating Bank at that time. The Borrower shall have the right, at any time not more than 60 days and not less than (x) 30 days before the then current Termination Date, if an extension of the Termination Date has not been requested by the Borrower pursuant to the foregoing provisions, or (y) 15 days before the then current Termination Date if an extension of the Termination Date has been requested by the Borrower but not extended by the Required Banks pursuant to the foregoing provisions, to notify the Administrative Agent and the Banks that it has elected 2 (the "Term Out Election") to have the outstanding principal amount of the Loans, together with all accrued but unpaid interest thereon, become due and payable on the date (the "Term Out Maturity Date") which is 364 days after the Termination Date in effect on the date the Term Out Election is made. If the Term Out Election has been timely made: (1) the Commitments shall terminate on the Termination Date in effect on the date the Term Out Election was made, and no new Borrowings may be made thereafter, other than, during the period from the Termination Date until the Term Out Maturity Date, Borrowings made solely as Refunding Loans, with no new actual advances of money by the Banks (and such Refunding Loans during such period may be Euro-Dollar Borrowings or Base Rate Borrowings (but not Money Market Borrowings), subject to the terms and conditions pertaining to Borrowings of such types, provided, that no Interest Period may be selected which would extend beyond the Term Out Maturity Date); and (2) the Loans, together with all accrued but unpaid interest thereon, shall become due and payable on the Term Out Maturity Date. 4. Amendment to Section 5.01. Section 5.01 of the Credit Agreement hereby is amended by deleting subsections (h), (i) and (j) thereof (and all references to any such subsection and related definitions in other portions of the Credit Agreement shall be ignored and no further force or effect). 5. Amendment to Section 5.05. In order to amend clause (e)(ii) thereof, Section 5.05 of the Credit Agreement hereby is deleted and the following is substituted therefor: SECTION 5.05. Consolidations and Mergers. Each Borrower agrees that it will not, nor will the Parent permit any Subsidiary to, consolidate or merge with or into any other Person, provided that if, after giving effect to any of the following, no Default will be in existence, (a) any Subsidiary may merge or consolidate with the Parent, if the Parent is the corporation surviving such merger, (b) any Borrower may merge or consolidate with any other Borrower, (c) any Subsidiary which is a Guarantor may merge or consolidate with any other Subsidiary which is a Guarantor, (d) any Subsidiary which is not a Borrower or Guarantor may merge or consolidate with any other Subsidiary which is not a Borrower or Guarantor, or with any other Subsidiary which is a Borrower or Guarantor, if the Borrower or Guarantor, as the case may be, is the corporation surviving such merger, and (e) any Borrower or Subsidiary may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) the corporation surviving such merger is a Borrower or a Subsidiary and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing. 6. Replacement of Schedule 4.08. Schedule 4.08 to the Credit Agreement hereby is deleted and the Schedule 4.08 attached hereto is substituted therefor. 7. Restatement of Representations and Warranties. The Borrower hereby restates and renews each and every representation and warranty heretofore made by it in the Credit Agreement and the other Loan Documents as fully as if made on the date hereof and with specific reference to this First Amendment and all other loan documents executed and/or delivered in connection herewith. 3 8. Effect of Amendment. Except as set forth expressly hereinabove, all terms of the Credit Agreement and the other Loan Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Borrower. The amendments contained herein shall be deemed to have prospective application only, unless otherwise specifically stated herein. 9. Ratification. The Borrower hereby restates, ratifies and reaffirms each and every term, covenant and condition set forth in the Credit Agreement and the other Loan Documents effective as of the date hereof. 10. Counterparts. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 11. Section References. Section titles and references used in this First Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby. 12. No Default. To induce the Agent and the Banks to enter into this First Amendment and to continue to make advances pursuant to the Credit Agreement, the Borrower hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, there exists (i) no Default or Event of Default and (ii) no right of offset, defense, counterclaim, claim or objection in favor of the Borrower arising out of or with respect to any of the Loans or other obligations of the Borrower owed to the Banks under the Credit Agreement. 13. Further Assurances. The Borrower agrees to take such further actions as the Agent shall reasonably request in connection herewith to evidence the amendments herein contained to the Borrower. 14. Governing Law. This First Amendment shall be governed by and construed and interpreted in accordance with, the laws of the State of Georgia. 15. Conditions Precedent. This First Amendment shall become effective only upon execution and delivery (i) of this First Amendment by each of the parties hereto, and (ii) of the Consent and Reaffirmation of Guarantor at the end hereof by the Guarantor. [SIGNATURES COMMENCE ON NEXT PAGE] 4 IN WITNESS WHEREOF, the Borrower, the Agents and each of the Banks has caused this First Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. NATIONAL SERVICE INDUSTRIES, INC. as Borrower (SEAL) By: -------------------------------- Title: NSI LEASING, INC. as Borrower (SEAL) By: -------------------------------- Title: NSI ENTERPRISES, INC. as Borrower (SEAL) By: -------------------------------- Title: 5 BANK ONE, NA (formerly The First National Bank Of Chicago), as Syndication Agent and as a Bank (SEAL) By: -------------------------------- Title: 6 WACHOVIA BANK, N.A. as Administrative Agent and as a Bank (SEAL) By: -------------------------------- Title: 7 ABN AMRO, N.V. as a Bank (SEAL) By: -------------------------------- Title: 8 COMMERZBANK AKTIENGESELLSCHAFT, NEW YORK BRANCH, as Co-Agent. and as a Bank (SEAL) By: -------------------------------- Title: 9 THE BANK OF NEW YORK as a Bank (SEAL) By: -------------------------------- Title: 10 BANK OF AMERICA, N.A. as a Bank (SEAL) By: -------------------------------- Title: 11 MELLON BANK, N.A. as a Bank (SEAL) By: -------------------------------- Title: 12 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as a Bank (SEAL) By: -------------------------------- Title: 13 SUNTRUST BANK (formerly SunTrust Bank, Atlanta), as a Bank (SEAL) By: -------------------------------- Title: 14 CONSENT AND REAFFIRMATION OF GUARANTOR The undersigned, in its capacity as a Guarantor (i) acknowledges receipt of the foregoing First Amendment to Credit Agreement (the "First Amendment"), (ii) consents to the execution and delivery of the First Amendment by the parties thereto and (iii) reaffirms all of its obligations and covenants under the Guaranty Agreement dated as of July 15, 1999 executed by it, and agrees that none of such obligations and covenants shall be affected by the execution and delivery of the First Amendment. NATIONAL SERVICES INDUSTRIES, INC. as Guarantor (SEAL) By: -------------------------------- Title: 15 Schedule 4.08 NSI LIST OF SUBSIDIARIES
State or Other Jurisdiction of Incorporation Subsidiary or Affiliate Principal Location or Organization - ---------------------------------------------------------------------------------------------------------------- C&G Carandini SA Barcelona, Spain Spain Castlight de Mexico, S.A. de C.V. Matamoros, Tamaulipas Mexico Graham International B.V. Bergen op Zoom, Holland Netherlands HSA Acquisition Corporation Columbus, Ohio Ohio HSA Financing Corporation Tultitlan, Mexico City Mexico Holophane S.A. de C.V. Tultitlan, Mexico City Mexico Holophane Alumbrado Iberica S.r.l. Barcelona, Spain Spain Holophane Australia Corporation Pty Ltd. New South Wales, Australia Australia Holophane Canada, Inc. Brampton, Ontario Canada Holophane Europe Ltd. Milton Keynes, England United Kingdom Holophane Foundation, Inc. New York Holophane Holding Company Columbus, Ohio Ohio Holophane International, Inc. Bridgetown, Barbados Barbados Holophane Lichttechnik GmbH Dusseldorf, Germany Germany Holophane Lighting Ltd. Milton Keynes, England United Kingdom Holophane Market Development Corp. Grand Cayman, Cayman Islands British West Indies Indies ID Limited Douglas, Isle of Man Isle of Man Kem Europa B.V. Bergen op Zoom, Holland Netherlands Keplime B.V. Bergen op Zoom, Holland Netherlands Keplime Ltd. London, England United Kingdom Lithonia Lighting do Brasil Ltda. Sao Paulo, Brazil Brazil Lithonia Lighting Mexico S.A. de C.V. Monterrey, Nuevo Leon Mexico Lithonia Lighting Servicios S.A. de C.V. Monterrey, Nuevo Leon Mexico Luxfab Ltd. Milton Keynes, England United Kingdom National Airline Laundry Services, LLC Atlanta, Georgia Delaware National Empire Manufacturing Co., Inc. Atlanta, Georgia Georgia National Service Industries, Inc. Atlanta, Georgia Georgia Unincorporated Operating Divisions: Allen Envelope Antique Street Lamps Atenco Filing Systems Atlantic Envelope Company Austin Lighting Products Enforcer Products Gilmore Envelope Holophane Lithonia Lighting Lyon Folder Company MetalOptics National Chemical National Direct Source National Dust Control Service National Healthcare Linen Service National Linen Service National Uniform Service Seaboard Printing Services
16 Selig Chemical Industries Zep Manufacturing Company National Service Industries Canada Limited Partnership Calgary, Alberta Canada NSI Canadian Ventures, Inc. Calgary, Alberta Canada NSI Enterprises, Inc. Atlanta, Georgia California Unincorporated Operating Divisions: Lithonia Hydrel Lithonia Lighting Lithonia Peerless NSI Export Ltd. Bridgetown, Barbados Barbados NSI Holdings, Inc. Montreal, Quebec, Canada Canada NSI Insurance (Bermuda) Ltd. Hamilton, Bermuda Bermuda NSI International Pty Ltd. Melbourne, Australia Australia NSI Leasing, Inc. Atlanta, Georgia Delaware NSI Realty, L.P. Atlanta, Georgia Texas NSI Ventures, Inc. Atlanta, Georgia Delaware Productos Lithonia Lighting de Mexico, S.A. de C.V. Monterrey, Nuevo Leon Mexico Produits de Maintenance et de Proprete Industrielle SARL Nogent-le-Roi, France France Selig Company of Puerto Rico, Inc. Atlanta, Georgia Puerto Rico South Insulation Co., Inc. Dallas, Texas Texas The Austphane Trust Unique Lighting Solutions Pty Ltd. New South Wales, Australia Australia ZEP Belgium S.A. Brussels, Belgium Belgium ZEP Europe B.V. Bergen op Zoom, Holland Netherlands ZEP FRANCE S.A.R.L Nogent-le-Roi, France France Zep Industries S.A.S. Nogent-le-Roi, France France Zep Industries, S.A. (formerly Zep S.A.) Bern, Switzerland Switzerland Zep Industries B.V. (formerly Chemical Specialties) Bergen op Zoom, Holland Netherlands Zep International Pty Ltd. Melbourne, Australia Australia Zep Italia S.r.l. Aprilia, Italy Italy Zep Kem Italia S.r.l. Aprilia, Italy Italy Zep Manufacturing B.V. Bergen Op Zoom, Holland Netherlands
17 EX-10.I(A)(3) 6 g72719ex10-ia3.txt SECOND AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10(i)A(3) SECOND AMENDMENT TO 364 DAY CREDIT AGREEMENT THIS SECOND AMENDMENT TO 364 DAY CREDIT AGREEMENT (this "Second Amendment") is dated as of April 18, 2001 among NATIONAL SERVICE INDUSTRIES, INC. (the "Parent"), NSI LEASING, INC., and NSI ENTERPRISES, INC. (collectively, with the Parent, the "Borrowers "), the BANKS parties hereto, WACHOVIA BANK, N.A., as Administrative Agent (the "Administrative Agent"), BANK ONE, NA (as successor to The First National Bank of Chicago), as Syndication Agent, and COMMERZBANK AKTIENGESELLSCHAFT, NEW YORK BRANCH and ABN AMRO, N.V., as Co-Agents; WITNESSETH: WHEREAS, the Borrower, the Administrative Agent, the Syndication Agent, the Co-Agents and the Banks parties thereto executed and delivered that certain Credit Agreement dated as of July 15, 1999, as amended by First Amendment to Credit Agreement dated as of July 14, 2000 (as so amended, the "364 Day Credit Agreement"); WHEREAS, the Borrowers have requested certain amendments to the 364 Day Credit Agreement, and the Administrative Agent and the Required Banks have agreed to such Second Amendment, subject to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which hereby is acknowledged by the parties hereto, the Borrowers, the Administrative Agent and the Banks hereby covenant and agree as follows: 1. Definitions. Unless otherwise specifically defined herein, each term used herein which is defined in the 364 Day Credit Agreement shall have the meaning assigned to such term in the 364 Day Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the 364 Day Credit Agreement shall from and after the date hereof refer to the 364 Day Credit Agreement as amended hereby. 2. Amendments to Section 1.01. Section 1.01 of the 364 Day Credit Agreement hereby is amended by deleting the definition of "Debt" and by adding the following definitions of "Debt" and "Receivables Securitization Programs": "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under Capital Leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker's acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event such Person is a corporation), (vii) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid or to be paid under a letter of credit or similar instrument, (viii) all amounts outstanding under all asset securitization programs, (ix) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, and (x) all Debt of others Guaranteed by such Person. "Receivables Securitization Programs" means an asset securitization program proposed to be entered into by the Parent, NSI Enterprises, Inc. ("Enterprises"), National Service Industries, Inc., a Georgia corporation and a Wholly Owned Subsidiary of the Parent ("NSI Georgia") and a newly formed, bankruptcy-remote subsidiary to be organized in Delaware and to be named NSI Funding, Inc. ("NSI Funding") with Blue Ridge Asset Funding Corporation and certain liquidity banks, agented by Wachovia Bank, N.A., relating to the securitization of accounts receivable of Enterprises and accounts receivable of NSI Georgia's Lithonia Lighting, and NSI Chemicals Group divisions, and any amendment, restatement refinancing or replacement for such program, together with any other asset securitization program that may be hereafter entered into by Parent and any of its Subsidiaries relating to the securitization of the accounts receivable of Parent or such Subsidiaries; provided that the aggregate outstanding principal balance of all Debt incurred by Parent and its Subsidiaries at any one time under all such programs shall not exceed $200,000,000. 3. Amendment to Section 5.09. Section 5.09 of the 364 Day Credit Agreement hereby is amended and restated as follows: SECTION 5.09. Subsidiary Debt. The Parent shall not permit any Subsidiary which is not a Borrower or a Guarantor to incur any Debt except for (i) Debt owing to the Parent or another Subsidiary (including any Borrower), (ii) Debt under the Receivables Securitization Programs and (iii) other Debt which shall not exceed in the aggregate for all such other Debt of all such Subsidiaries an amount, together with the amount of Debt subject to Liens permitted by Section 5.15(p) (but without duplication), in excess of 25% of Stockholders' Equity as of the end of the Fiscal Quarter just ended. 4. Amendment to Section 5.15(g). Section 5.15(g) of the 364 Day Year Credit Agreement hereby is amended and restated as follows: (g) Liens on and transfers of accounts receivable in connection with (i) the Receivables Securitization Programs, up to the $200,000,000 program limit described in the definition of such term. 5. Amendments to Exhibit F (Compliance Certificate). Paragraph 1 of Exhibit F hereby is amended and restated as follows: 1. Subsidiary Debt (Section 5.09) 2 The Parent shall not permit any Subsidiary which is not a Borrower or a Guarantor to incur any Debt except for (i) Debt owing to the Parent or another Subsidiary (including any Borrower), (ii) Debt under the Receivables Securitization Programs and (iii) other Debt which shall not exceed in the aggregate for all such other Debt of all such Subsidiaries an amount, together with the amount of Debt subject to Liens permitted by Section 5.15(p) (but without duplication), in excess of 25% of Stockholders' Equity as of the end of the Fiscal Quarter just ended. (a) Subsidiary Debt not permitted by clause (i) or (ii) not in excess of $ (b) Debt subject to Liens permitted by Section 5.15(p) not in excess of $ (c) Sum of (a) and (b) $ (d) Stockholders' Equity $ ] (e) 25% of (d) $ Limitation (c) not to exceed (e) 6. Restatement of Representations and Warranties. The Borrowers hereby restate and renew each and every representation and warranty heretofore made by it in the 364 Day Credit Agreement and the other Loan Documents as fully as if made on the date hereof and with specific reference to this Second Amendment and all other loan documents executed and/or delivered in connection herewith. 7. Effect of Second Amendment. Except as set forth expressly hereinabove, all terms of the 364 Day Credit Agreement and the other Loan Documents shall be and remain in full force and effect, and shall constitute the legal, valid, binding and enforceable obligations of the Borrower. 8. Ratification. The Borrowers hereby restate, ratify and reaffirm each and every term, covenant and condition set forth in the 364 Day Credit Agreement and the other Loan Documents effective as of the date hereof. 9. Counterparts. This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts and transmitted by facsimile to the other parties, each of which when so executed and delivered by facsimile shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. 10. Section References. Section titles and references used in this Second Amendment shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreements among the parties hereto evidenced hereby. 3 11. No Default. To induce the Administrative Agent and the Banks to enter into this Second Amendment and to continue to make advances pursuant to the 364 Day Credit Agreement, the Borrower hereby acknowledges and agrees that, as of the date hereof, and after giving effect to the terms hereof, there exists (i) no Default or Event of Default and (ii) no right of offset, defense, counterclaim, claim or objection in favor of the Borrowers arising out of or with respect to any of the Loans or other obligations of the Borrowers owed to the Administrative Agent or the Banks under the 364 Day Credit Agreement. 12. Further Assurances. The Borrower agrees to take such further actions as the Administrative Agent shall reasonably request in connection herewith to evidence the amendments herein contained. 13. Governing Law. This Second Amendment shall be governed by and construed and interpreted in accordance with, the laws of the State of Georgia. 14. Conditions Precedent. This Second Amendment shall become effective only upon: (i) execution and delivery (which may be by facsimile) of this Second Amendment by the Borrowers, the Administrative Agent and the Required Banks; and (ii) the execution and delivery of the Consent and Reaffirmation of Guarantor at the end hereof by the Parent. [SIGNATURES CONTAINED ON NEXT PAGE] 4 IN WITNESS WHEREOF, the Borrowers, the Administrative Agent and each of the Required Banks has caused this Second Amendment to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. NATIONAL SERVICE INDUSTRIES, INC. NSI LEASING, INC. By: (SEAL) By: (SEAL) ------------------------ ------------------------- Name: Name: Title: Title: NSI ENTERPRISES, INC. BANK ONE, NA (as successor to The First National Bank of Chicago), as Syndication Agent and as a Bank By: (SEAL) By: (SEAL) ------------------------ ------------------------- Name: Name: Title: Title: WACHOVIA BANK, N.A., as Administrative ABN AMRO, N.V., Agent and as a Bank as Co-Agent and as a Bank By: (SEAL) By: (SEAL) ------------------------ ------------------------- Name: Name: Title: Title: COMMERZBANK AKTIENGESELLSCHAFT, THE BANK OF NEW YORK, NEW YORK BRANCH, as Co-Agent as a Bank and a Bank By: (SEAL) By: (SEAL) ------------------------ ------------------------- Name: Name: Title: Title: By: (SEAL) ------------------------ Name: Title: 5 BANK OF AMERICA, N.A. MELLON BANK, N.A., as a Bank as a Bank By: (SEAL) By: (SEAL) ------------------------ ------------------------- Name: Name: Title: Title: TORONTO DOMINION BANK, as a Bank SUNTRUST BANK (formerly Sun Trust Bank, Atlanta), as a Bank By: (SEAL) By: (SEAL) ------------------------ ------------------------- Name: Name: Title: Title: By: (SEAL) By: (SEAL) ------------------------ ------------------------- Name: Name: Title: Title: 6 CONSENT, REAFFIRMATION AND AGREEMENT OF GUARANTOR The undersigned (i) acknowledges receipt of the foregoing Second Amendment To 364 Day Credit Agreement (the "Second Amendment"), (ii) consents to the execution and delivery of the Second Amendment by the parties thereto, and (iii) reaffirms all of its obligations and covenants under the Guaranty Agreement dated as of July 15, 1999 executed by it, and agrees that none of such obligations and covenants shall be affected by the execution and delivery of the Second Amendment. NATIONAL SERVICE INDUSTRIES, INC. By: (SEAL) ------------------------ Name: Title: 7 EX-10.I(A)(10) 7 g72719ex10-ia10.txt CREDIT AGREEMENT, DATED OCTOBER 31, 2001 EXHIBT 10(i)A(10) $40,000,000 CREDIT AGREEMENT DATED AS OF OCTOBER 31, 2001 AMONG NATIONAL SERVICE INDUSTRIES, INC. THE LENDERS LISTED HEREIN AND WACHOVIA BANK, N.A., AS ADMINISTRATIVE AGENT AND LETTER OF CREDIT ISSUER WACHOVIA SECURITIES, INC. SOLE ARRANGER TABLE OF CONTENTS
PAGE ----- ARTICLE I........................................................................................................1 DEFINITIONS......................................................................................................1 SECTION 1.01 Definitions.................................................................................1 SECTION 1.02 Accounting Terms and Determinations........................................................15 SECTION 1.03 References.................................................................................15 SECTION 1.04 Use of Defined Terms.......................................................................16 SECTION 1.05 Terminology................................................................................16 ARTICLE II......................................................................................................16 THE CREDITS.....................................................................................................16 SECTION 2.01 Commitments to Lend Loans..................................................................16 SECTION 2.02 Method of Borrowing Loans..................................................................17 SECTION 2.03 Continuation and Conversion Elections......................................................19 SECTION 2.04 Notes......................................................................................19 SECTION 2.05 Maturity of Loans..........................................................................20 SECTION 2.06 Interest Rates.............................................................................20 SECTION 2.07 Fees.......................................................................................22 SECTION 2.08 Optional Termination or Reduction of Commitments...........................................23 SECTION 2.09 Mandatory Termination of Commitments.......................................................23 SECTION 2.10 Optional Prepayments.......................................................................23 SECTION 2.11 Mandatory Prepayments......................................................................24 SECTION 2.12 General Provisions as to Payments..........................................................24 SECTION 2.13 Computation of Interest and Fees...........................................................27 ARTICLE III.....................................................................................................27 LETTER OF CREDIT FACILITY.......................................................................................27 SECTION 3.01 Obligation to Issue........................................................................27 SECTION 3.02 Types and Amounts..........................................................................27 SECTION 3.03 Conditions.................................................................................27 SECTION 3.04 Issuance of Letters of Credit..............................................................28 SECTION 3.05 Reimbursement Obligations; Duties of the Issuing Lender....................................28 SECTION 3.06 Participations.............................................................................29 SECTION 3.07 Payment of Reimbursement Obligations.......................................................31 SECTION 3.08 Compensation for Letters of Credit and Letter of Credit Issuer Reporting Requirements......32 SECTION 3.09 Indemnification; Exoneration...............................................................32 ARTICLE IV......................................................................................................33 CONDITIONS TO BORROWINGS........................................................................................33 SECTION 4.01 Conditions to First Borrowing..............................................................33 SECTION 4.02 Conditions to All Borrowings and Issuance of any Letter of Credit..........................34 SECTION 4.03 Determinations Under Section 4.01..........................................................35 ARTICLE V.......................................................................................................36 REPRESENTATIONS AND WARRANTIES..................................................................................36 SECTION 5.01 Corporate Existence and Power..............................................................36 SECTION 5.02 Corporate and Governmental Authorization; No Contravention.................................36 SECTION 5.03 Binding Effect.............................................................................36 SECTION 5.04 Financial Information......................................................................36 SECTION 5.05 No Litigation..............................................................................37 SECTION 5.06 Compliance with ERISA......................................................................37
-i- SECTION 5.07 Compliance with Laws; Payment of Taxes.....................................................37 SECTION 5.08 Subsidiaries...............................................................................37 SECTION 5.09 Investment Company Act.....................................................................38 SECTION 5.10 Public Utility Holding Company Act.........................................................38 SECTION 5.11 Ownership of Property; Liens...............................................................38 SECTION 5.12 No Default.................................................................................38 SECTION 5.13 Full Disclosure............................................................................38 SECTION 5.14 Environmental Matters......................................................................38 SECTION 5.15 Capital Stock..............................................................................39 SECTION 5.16 Margin Stock...............................................................................39 SECTION 5.17 Insolvency.................................................................................39 SECTION 5.18 Insurance..................................................................................40 SECTION 5.19 Labor Matters..............................................................................40 SECTION 5.20 Spin-Off Documents.........................................................................40 ARTICLE VI......................................................................................................40 AFFIRMATIVE COVENANTS...........................................................................................40 SECTION 6.01 Information................................................................................40 SECTION 6.02 Inspection of Property, Books and Records..................................................42 SECTION 6.03 Conduct of Business and Maintenance of Existence...........................................42 SECTION 6.04 Compliance with Laws; Payment of Taxes.....................................................42 SECTION 6.05 Insurance..................................................................................42 SECTION 6.06 Maintenance of Property....................................................................42 SECTION 6.07 Environmental Matters......................................................................43 SECTION 6.08 Material Subsidiaries......................................................................43 ARTICLE VII.....................................................................................................43 NEGATIVE COVENANTS..............................................................................................43 SECTION 7.01 Use of Proceeds............................................................................44 SECTION 7.02 Consolidations, Mergers and Sales of Assets................................................44 SECTION 7.03 Change in Fiscal Year......................................................................44 SECTION 7.04 Transactions with Affiliates...............................................................44 SECTION 7.05 Restricted Payments........................................................................44 SECTION 7.06 Investments................................................................................45 SECTION 7.07 Acquisitions...............................................................................45 SECTION 7.08 Limitation on Liens and Subsidiary Debt....................................................45 SECTION 7.09 Fixed Charges Coverage.....................................................................47 SECTION 7.10 Leverage Ratio.............................................................................47 SECTION 7.11 Minimum Stockholders Equity................................................................47 SECTION 7.12 Multiemployer Plans........................................................................47 SECTION 7.13 No Restrictive Agreement...................................................................47 ARTICLE VIII....................................................................................................48 DEFAULTS........................................................................................................48 SECTION 8.01 Events of Default..........................................................................48 ARTICLE IX......................................................................................................50 THE ADMINISTRATIVE AGENT........................................................................................50 SECTION 9.01 Appointment; Powers and Immunities.........................................................50 SECTION 9.02 Reliance by Administrative Agent...........................................................51 SECTION 9.03 Defaults...................................................................................51 SECTION 9.04 Rights of Administrative Agent and its Affiliates as a Lender..............................52 SECTION 9.05 Indemnification............................................................................52 SECTION 9.06 Consequential Damages......................................................................52 SECTION 9.07 Registered Holder of Loan Treated as Owner.................................................53 SECTION 9.08 Nonreliance on Administrative Agent and Other Lenders......................................53
-ii- SECTION 9.09 Failure to Act.............................................................................53 SECTION 9.10 Successor Administrative Agent.............................................................53 SECTION 9.11 Other Agents...............................................................................54 ARTICLE X.......................................................................................................54 CHANGE IN CIRCUMSTANCES; COMPENSATION...........................................................................54 SECTION 10.01 Basis for Determining Interest Rate Inadequate or Unfair...................................54 SECTION 10.02 Illegality.................................................................................54 SECTION 10.03 Increased Cost and Reduced Return..........................................................55 SECTION 10.04 Base Rate Loans Substituted for Euro-Dollar Loans..........................................56 SECTION 10.05 Compensation...............................................................................57 SECTION 10.06 Replacement of Lenders.....................................................................57 ARTICLE XI......................................................................................................58 MISCELLANEOUS...................................................................................................58 SECTION 11.01 Notices....................................................................................58 SECTION 11.02 No Waivers.................................................................................58 SECTION 11.03 Expenses; Documentary Taxes................................................................58 SECTION 11.04 Indemnification............................................................................58 SECTION 11.05 Setoff; Sharing of Setoffs.................................................................59 SECTION 11.06 Amendments and Waivers.....................................................................60 SECTION 11.07 Independence of Covenants..................................................................60 SECTION 11.08 Successors and Assigns.....................................................................61 SECTION 11.09 Confidentiality............................................................................63 SECTION 11.10 Representation by Lenders..................................................................64 SECTION 11.11 Obligations Several........................................................................64 SECTION 11.12 Georgia Law................................................................................64 SECTION 11.13 Severability...............................................................................64 SECTION 11.14 Interest...................................................................................65 SECTION 11.15 Interpretation.............................................................................65 SECTION 11.16 Waiver of Jury Trial; Consent to Jurisdiction..............................................65 SECTION 11.17 Counterparts...............................................................................66 SECTION 11.18 Source of Funds -- ERISA...................................................................66 SECTION 11.19 Application of Existing NSI Agreement......................................................66 Schedule 1.01A List of Spin-Off Draft Documents Schedule 1.01B Fiscal Year 2002 Charges Schedule 1.01C Fiscal Year 2001 First Quarter Charges Schedule 1.01D Fiscal Year 2001 Fourth Quarter Charges Schedule 5.08 Subsidiaries Schedule 7.05 Certain Charges Excluded From Consolidated Net Income EXHIBIT A-1 Form of Note EXHIBIT A-2 Form of Swing Loan Note EXHIBIT B-1 Form of Opinion of General Counsel of the Borrower EXHIBIT B-2 Form of Opinion of Special Counsel for the Borrower EXHIBIT C Form of Guaranty EXHIBIT D Form of Notice of Borrowing EXHIBIT E Form of Notice of Continuation or Conversion EXHIBIT F Form of Compliance Certificate EXHIBIT G Form of Closing Certificate EXHIBIT H Form of Officer's Certificate (Borrower) EXHIBIT I Form of Indemnity, Subrogation and Contribution Agreement
-iii- CREDIT AGREEMENT CREDIT AGREEMENT dated as of October 31, 2001 among NATIONAL SERVICE INDUSTRIES, INC., the LENDERS listed on the signature pages hereof and WACHOVIA BANK, N.A., as Administrative Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 DEFINITIONS. The terms as defined in this Section 1.01 shall, for all purposes of this Agreement and any amendment hereto (except as herein otherwise expressly provided or unless the context otherwise requires), have the meanings set forth herein: "Acquisition" means any transaction or series of related transactions for the purpose of, or resulting in, directly or indirectly, (a) the acquisition by the Borrower or any Subsidiary of all or substantially all of the assets of a Person (other than a Subsidiary) or of any business or division of a Person (other than a Subsidiary), (b) the acquisition by the Borrower or any Subsidiary of more than 50% of any class of Voting Stock (or similar ownership interests) of any Person (provided that formation or organization of any entity shall not constitute an "Acquisition" to the extent that the amount of the Investment in such entity is permitted under Section 7.06), or (c) a merger, consolidation, amalgamation or other combination by the Borrower or any Subsidiary with another Person (other than a Subsidiary) if the Borrower or such Subsidiary is the surviving entity; provided that in any merger involving the Borrower, the Borrower must be the surviving entity. "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.06(c). "Administrative Agent" means Wachovia Bank, N.A., a national banking association organized under the laws of the United States of America, in its capacity as administrative agent for the Lenders, and its successors and permitted assigns in such capacity. "Affiliate" of any relevant Person means (i) any Person that directly, or indirectly through one or more intermediaries, controls the relevant Person (a "Controlling Person"), (ii) any Person (other than the relevant Person or a Subsidiary of the relevant Person) which is controlled by or is under common control with a Controlling Person, or (iii) any Person (other than a Subsidiary of the relevant Person) of which the relevant Person owns, directly or indirectly, 20% or more of the common stock or equivalent equity interests. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Credit Agreement, together with all amendments and supplements hereto. "Applicable Margin" has the meaning set forth in Section 2.06(a). -1- "Assignee" has the meaning set forth in Section 11.08(c). "Authority" has the meaning set forth in Section 10.02. "Base Rate" means for any day, the rate per annum equal to the higher as of such day of (i) the Prime Rate, or (ii) one-half of one percent above the Federal Funds Rate. For purposes of determining the Base Rate for any day, changes in the Prime Rate or the Federal Funds Rate shall be effective on the date of each such change. "Base Rate Loan" means a Loan which bears or is to bear interest at a rate based upon the Base Rate, and is to be made as a Base Rate Loan pursuant to the applicable Notice of Borrowing, Notice of Continuation or Conversion, Section 2.02(f), or Article IX, as applicable. "Borrower" means National Service Industries, Inc., a Delaware corporation, and its successors and its permitted assigns. "Borrowing" means a borrowing hereunder consisting of Loans made to the Borrower by the Lenders, or of a Swing Loan by Wachovia, in either case pursuant to Article II. A Borrowing is a "Base Rate Borrowing" if such Loans are Base Rate Loans, a "Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans or a "Swing Loan Borrowing" if such Loan is a Swing Loan. "Capital Expenditures" means for any period the sum of all capital expenditures incurred during such period by the Borrower and its Consolidated Subsidiaries, as determined in accordance with GAAP. "Capital Stock" means any nonredeemable capital stock of the Borrower or any Consolidated Subsidiary (to the extent issued to a Person other than the Borrower), whether common or preferred. "CERCLA" means the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.ss.9601 et. seq. and its implementing regulations and amendments. "CERCLIS" means the Comprehensive Environmental Response Compensation and Liability Inventory System established pursuant to CERCLA. "Change of Law" shall have the meaning set forth in Section 10.02. "Closing Certificate" has the meaning set forth in Section 4.01(e). "Closing Date" means October 31, 2001. "Code" means the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. "Commitment" means, with respect to each Lender, (i) the amount set forth opposite the name of such Lender on the signature pages hereof, and (ii) as to any Lender which enters into any LSTA Assignment (whether as transferor Lender or as Assignee thereunder), the amount of -2- such Lender's Commitment after giving effect to such LSTA Assignment, in each case as such amount may be reduced from time to time pursuant to Sections 2.08 and 2.09. "Compliance Certificate" has the meaning set forth in Section 6.01(c). "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date; provided that in determining Consolidated Debt at any date, Debt described in clause (x) of the definition of "Debt" set forth in this Section shall not be included in such determination. "Consolidated EBITDA" for any period means the sum (without duplication) of (i) Consolidated Net Income for such period; (ii) Consolidated Interest Expense for such period, (iii) taxes on income of the Borrower and its Consolidated Subsidiaries for such period to the extent deducted in determining Consolidated Net Income for such period, (iv) Depreciation for such period, (v) amortization of intangible assets of the Borrower and its Consolidated Subsidiaries for such period, (vi) for the first Fiscal Quarter of the Fiscal Year ending August 31, 2002 only, those non-recurring charges identified on Schedule 1.01B, (vii) for the first Fiscal Quarter of the Fiscal Year ended August 31, 2001 only, those non-cash, non-recurring charges described on Schedule 1.01C, (viii) for the fourth Fiscal Quarter of the Fiscal Year ended August 31, 2001 only, those non-recurring charges described on Schedule 1.01D, and (ix) non-operating charges or losses, if any, of the Borrower and its Consolidated Subsidiaries for such period, minus the sum of non-operating gains, if any, of the Borrower and its Consolidated Subsidiaries for such period. In determining Consolidated EBITDA for any period, any Consolidated Subsidiary acquired during such period by the Borrower or any other Consolidated Subsidiary shall be included on a pro forma, historical basis as if it had been a Consolidated Subsidiary for the entire period. "Consolidated Fixed Charges" for any period means the sum of (i) Consolidated Interest Expense for such period, (ii) Current Maturities of Long Term Debt scheduled to be made during such period, and (iii) Insurance Settlement Payments paid during such period; provided that Consolidated Fixed Charges shall be determined without regard to discontinued operations directly related to L & C Spinco, Inc., a Delaware corporation. "Consolidated Interest Expense" for any period means interest expense in respect of Debt of the Borrower or any of its Consolidated Subsidiaries outstanding during such period. "Consolidated Net Income" means, for any period, the Net Income of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis, but excluding (i) extraordinary items and (ii) any equity interests of the Borrower or any Subsidiary in the unremitted earnings of any Person that is not a Subsidiary; provided that Consolidated Net Income shall be (i) determined without regard to discontinued operations directly relating to L & C Spinco, Inc., a Delaware corporation, and (ii) reduced by the aggregate amount of expenses incurred by the Borrower in connection with the consummation of the Spin-Off Transaction. "Consolidated Operating Profits" means, for any period, the Operating Profits of the Borrower and its Consolidated Subsidiaries. -3- "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of the Borrower in its consolidated financial statements as of such date. "Consolidated Total Assets" means, at any time, the total assets of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries, prepared in accordance with GAAP; provided that Consolidated Total Assets determined for any day prior to the Spin-Off Date shall be reduced by the L & C Spinco Net Asset Amount. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. "Current Maturities of Long Term Debt" means, for any period, all payments in respect of Long Term Debt (other than the Loans) that are required to be made by the Borrower or any Subsidiary during such period, whether or not the obligation to make such payments would constitute a current liability of the obligor under GAAP. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker's acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event such Person is a corporation), (vii) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid or to be paid under a letter of credit or similar instrument, (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (ix) all obligations of such Person with respect to interest rate protection agreements, foreign currency exchange agreements or other hedging arrangements (valued as the termination value thereof computed in accordance with a method approved by the International Swap Dealers Association and agreed to by such Person in the applicable hedging agreement, if any), (x) all principal amounts outstanding and owed to parties other than the Borrower or any Subsidiary in respect of securitizations or similar arrangements, (xi) all Debt of others Guaranteed by such Person and (xii) the principal portion of all obligations of such Person under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease under GAAP. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Rate" means, with respect to any Loan, on any day, the sum of 2% plus the then highest interest rate (including the Applicable Margin) which may be applicable to any Loans hereunder (irrespective of whether any such type of Loans are actually outstanding hereunder). -4- "Depreciation" means for any period the sum of all depreciation expenses of the Borrower and its Consolidated Subsidiaries for such period, as determined in accordance with GAAP. "Dividends" means for any period the sum of all dividends and other distributions paid or declared during such period in respect of any Capital Stock and Redeemable Preferred Stock (other than dividends paid or payable in the form of additional Capital Stock). "Dollars" or "$" means dollars in lawful currency of the United States of America. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial lenders in Georgia are authorized by law to close. "Environmental Authority" means any foreign, federal, state, local or regional government that exercises any form of jurisdiction or authority under any Environmental Requirement. "Environmental Authorizations" means all licenses, permits, orders, approvals, notices, registrations or other legal prerequisites for conducting the business of the Borrower or any Subsidiary required by any Environmental Requirement. "Environmental Judgments and Orders" means all judgments, decrees or orders arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent, or written agreements with an Environmental Authority or other entity arising from or in any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order. "Environmental Liabilities" means any liabilities, whether accrued, contingent or otherwise, arising from and in any way associated with any Environmental Requirements. "Environmental Notices" means notice from any Environmental Authority or by any other person or entity, of possible or alleged noncompliance with or liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any Environmental Authority or from any other person or entity for correction of any violation of any Environmental Requirement or any investigations concerning any violation of any Environmental Requirement. "Environmental Proceedings" means any judicial or administrative proceedings arising from or in any way associated with any Environmental Requirement. "Environmental Releases" means releases as defined in CERCLA or under any applicable state or local environmental law or regulation. "Environmental Requirements" means any legal requirement relating to health, safety or the environment and applicable to the Borrower, any Subsidiary or the Properties, including but not limited to any such requirement under CERCLA or similar state legislation and all federal, state and local laws, ordinances, regulations, orders, writs, decrees and common law. -5- "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor law. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof. "Euro-Dollar Business Day" means any Domestic Business Day on which dealings in Dollar deposits are carried out in the London interbank market. "Euro-Dollar Loan" means a Loan which bears or is to bear interest at a rate based upon the Adjusted London Interbank Offered Rate, and to be made as a Euro-Dollar Loan pursuant to a Notice of Borrowing or continued as or converted to a Euro-Dollar Loan pursuant to a Notice of Continuation or Conversion. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.06(c). "Event of Default" has the meaning set forth in Section 8.01. "Existing NSI Agreement" means the Credit Agreement dated as of July 15, 1999, among the Borrower, certain of its Subsidiaries, the Banks listed therein, Bank One, NA (as successor to The First National Bank of Chicago), as Administrative Agent, Wachovia Bank, N.A., as Syndication Agent, and SunTrust Bank (formerly SunTrust Bank, Atlanta), as Documentation Agent, as the same may have been supplemented, amended, restated or otherwise modified from time to time prior to the Closing Date. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent on such day on such transactions, as determined by the Administrative Agent. "Fiscal Quarter" means any fiscal quarter of the Borrower. "Fiscal Year" means any fiscal year of the Borrower. "Foreign Subsidiary" means any Subsidiary which is not organized or created under the laws of the United States of America or any state thereof or the District of Columbia. "GAAP" means generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.02, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without -6- limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor" shall mean the Initial Guarantor (on and after the Spin-Off Date) and each Material Subsidiary that executes a joinder agreement to the Guaranty pursuant to Section 6.08. "Guaranty" shall mean the Guaranty Agreement to be executed and delivered by the Initial Guarantor to the Administrative Agent on the Spin-Off Date, substantially in the form of Exhibit C hereto, as amended, restated, supplemented or otherwise modified from time to time. "Hazardous Materials" includes, without limitation, (a) solid or hazardous waste, as defined in the Resource Conservation and Recovery Act of 1980, 42 U.S.C. ss. 6901 et seq. and its implementing regulations and amendments, or in any applicable state or local law or regulation, (b) "hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, including, crude oil or any fraction thereof, (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation and (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time. "Income Available for Fixed Charges" for any period means Consolidated EBITDA for such period minus the sum of (i) Capital Expenditures paid during such period and (ii) Dividends (other than (i) Dividends paid or declared in each of the 4 Fiscal Quarters of the Fiscal Year ended August 31, 2001, but only to the extent that the aggregate amount of Dividends paid in such Fiscal Quarter exceeds $450,000, and (ii) Dividends paid in the Fiscal Quarter ending November 30, 2001, but only to the extent that the aggregate amount of Dividends paid in such Fiscal Quarter exceeds an amount equal to $450,000) paid or declared during such period by the Borrower in accordance with GAAP. "Indemnity, Subrogation and Contribution Agreement" shall mean that certain Indemnity, Subrogation and Contribution Agreement when and if executed by the Borrower and the Guarantors, substantially in the form of Exhibit I hereto. "Initial Borrowing" shall have the meaning set forth in Section 2.01(a). "Initial Guarantor" shall mean National Service Industries, Inc., a California corporation, and its successors and permitted assigns. -7- "Insurance Settlements" means any and all judgments entered, and any and all settlement arrangements entered into from time to time by the Borrower, or any Subsidiary, with respect to certain claims and litigation to which the Borrower or any Subsidiary is a party and which are described in the Side Letter, as such judgments and settlement arrangements may be modified, amended or supplemented. "Insurance Settlement Payments" shall mean all payments made by the Borrower or any Subsidiary in respect of Insurance Settlements to the extent such payments exceed insurance proceeds received or to be received (to the reasonable satisfaction of the Administrative Agent) by the Borrower and its Subsidiaries in connection with the same, as determined in accordance with GAAP, but excluding amounts paid by the Borrower in connection with any Potential Shortfall Liabilities. "Interest Period" means with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the first, second, third or sixth month thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: (A) any Interest Period (subject to paragraph (c) below) which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (B) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall, subject to paragraph (c) below, end on the last Euro-Dollar Business Day of the appropriate subsequent calendar month; and (C) no Interest Period may be selected which begins before the Termination Date and would otherwise end after the Termination Date. "Investment" means any investment in any Person, whether by means of (i) purchase or acquisition of all or substantially all of the assets of such Person (or of a division or line of business of such Person), (ii) purchase or acquisition of obligations or securities of such Person, (iii) capital contribution to such Person, (iv) loan or advance to such Person, (v) making of a time deposit with such Person, (vi) Guarantee or assumption of any obligation of such Person or (vii) by any other means. "IRS" means the United States Internal Revenue Service, or any successor agency performing similar functions. "L & C Spinco Net Asset Amount" means an amount equal to the amount of net assets of L & C Spinco, Inc., a Delaware corporation, as of the Closing Date, but less than $400,000,000. "Lender" means each lender listed on the signature pages hereof as having a Commitment, and its successors and assigns. -8- "Lending Office" means, as to each Lender, (i) its office located at its address set forth on the signature pages hereof (or identified on the signature pages hereof as its Lending Office) and (ii) as to any Lender which enters into any LSTA Assignment (whether as transferor Lender or as Assignee thereunder), as set forth in such LSTA Assignment, or in each case such other office as such Lender may hereafter designate as its Lending Office by notice to the Borrower and the Administrative Agent. "Letter of Credit" means a commercial letter of credit issued by the Letter of Credit Issuer for the account of the Borrower pursuant to Article III. "Letter of Credit Application Agreement" shall mean, with respect to a Letter of Credit, such form of application therefor (whether in a single or several documents) as the Letter of Credit Issuer may employ in the ordinary course of business for its own account, whether or not providing for collateral security, with such modifications thereto as may by agreed upon by the Letter of Credit Issuer and the Borrower and are not materially adverse to the interests of the Lenders; provided, however, that in the event of any conflict between the terms of any Letter of Credit Application Agreement and this Agreement, the terms of this Agreement shall control. "Letter of Credit Fee" has the meaning set forth in Section 3.08. "Letter of Credit Issuer" means Wachovia. "Letter of Credit Obligations" means, at any particular time, the sum of (a) the Reimbursement Obligations at such time, (b) the aggregate maximum amount available for drawing under the Letters of Credit at such time and (c) the aggregate maximum amount available for drawing under Letters of Credit the issuance of which has been authorized by the Letter of Credit Issuer but which have not yet been issued. "Leverage Ratio" means, for any fiscal period, the ratio of Consolidated Debt as of the last day of such fiscal period to Consolidated EBITDA for the period of 4 consecutive Fiscal Quarters ending on the last day of such fiscal period. "Lien" means, with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement which has the practical effect of constituting a security interest or encumbrance, or encumbrance or servitude of any kind in respect of such asset to secure or assure payment of a Debt or a Guarantee, whether by consensual agreement or by operation of statute or other law, or by any agreement, contingent or otherwise, to provide any of the foregoing. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means a Base Rate Loan, Euro-Dollar Loan or Swing Loan, and "Loans" means Base Rate Loans, Euro-Dollar Loans, Swing Loans, or any or all of them, as the context shall require. "Loans" means Base Rate Loans or Euro-Dollar Loans made pursuant to the terms and conditions set forth in Section 2.01. -9- "Loan Documents" means this Agreement, the Notes, the Swing Loan Note, the Guaranty, any Letter of Credit Application Agreement, any other document evidencing, relating to or securing the Loans or the Letters of Credit, and any other document or instrument delivered from time to time in connection with this Agreement, the Notes, the Swing Loan Note, the Guaranty, the Loans or the Letters of Credit, as such documents and instruments may be amended or supplemented from time to time. "London Interbank Offered Rate" has the meaning set forth in Section 2.06(c). "Long Term Debt" means any Debt of the Borrower or any Subsidiary having a maturity of more than 1 year from the date as of which the amount thereof is to be determined or having a maturity of less than 1 year but by its terms being renewable or extendible beyond 1 year from such date at the option of the obligor. "LSTA Assignment" means any form of Assignment Agreement approved from time to time by the Loan Syndications and Trading Association. "LSTA Confidentiality Agreement" means any form of Confidentiality Agreement approved from time to time by the Loan Syndications and Trading Association. "Margin Stock" means "margin stock" as defined in Regulations T, U or X. "Material Adverse Effect" means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the financial condition, operations, business, properties or prospects of the Borrower and its Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the Administrative Agent or the Lenders under the Loan Documents, or the ability of the Borrower or any Guarantor to perform its obligations under the Loan Documents to which it is a party, as applicable, or (c) the legality, validity or enforceability of any Loan Document. All determinations made by the Administrative Agent or the Required Lenders as to whether a Material Adverse Effect has occurred or exists shall be made reasonably and in good faith. "Material Subsidiary" means at any time any Subsidiary of the Borrower which has (i) total assets on the last day of the Fiscal Quarter most recently ended equal to or greater than 5% of Consolidated Total Assets on the last day of the Fiscal Quarter most recently ended, or (ii) Operating Profits for the period of 4 consecutive Fiscal Quarters most recently ended prior to such date equal to or greater than 5% of Consolidated Operating Profits for such period of 4 consecutive Fiscal Quarters. "Moody's" means Moody's Investor Service, Inc. "Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "Net Income" means, as applied to any Person for any period, the aggregate amount of net income of such Person, after taxes, for such period, as determined in accordance with GAAP. -10- "Net Proceeds of Capital Stock" means any proceeds received by the Borrower or a Consolidated Subsidiary in respect of the issuance of Capital Stock, after deducting therefrom all reasonable and customary costs and expenses incurred by the Borrower or such Consolidated Subsidiary directly in connection with the issuance of such Capital Stock. "Notes" means the promissory notes of the Borrower, substantially in the form of Exhibit A-1, evidencing the obligation of the Borrower to repay Loans, together with all amendments, consolidations, modifications, renewals and supplements thereto. "Notice of Borrowing" has the meaning set forth in Section 2.02(a). "Notice of Continuation or Conversion" has the meaning set forth in Section 2.03. "Officer's Certificate" has the meaning set forth in Section 4.01(f). "Operating Profits" means, as applied to any Person for any period, the operating income of such Person for such period, as determined in accordance with GAAP. "Participant" has the meaning set forth in Section 11.08(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Performance Pricing Determination Date" has the meaning set forth in Section 2.06(a). "Permitted Acquisition" means any Acquisition by the Borrower or a Subsidiary of any business which is engaged in the same or similar line of business as the Borrower and its Subsidiaries, with respect to which each of the following requirements shall have been satisfied: (a) as of the closing of such Acquisition, such Acquisition has been approved and recommended by the board of directors of the Person to be acquired or from which such business is to be acquired; (b) the Purchase Price of such Acquisition does not exceed $20,000,000; (c) not less than 10 Domestic Business Days prior to the closing of such Acquisition, the Borrower shall have delivered to the Administrative Agent a certificate, (A) certifying compliance with the terms and conditions of the Loan Documents, after giving effect to such Acquisition, and (B) including pro forma income and balance sheet projections for the Borrower and its Consolidated Subsidiaries (after giving effect to such Acquisition); (d) as of the closing of such Acquisition, after giving effect to such Acquisition, the acquiring party must not be "insolvent" and the Borrower and its Consolidated Subsidiaries, on a consolidated basis, must not be "insolvent" (as "insolvent" is defined in Section 5.17); and (e) as of the closing of such Acquisition, no Default shall exist or occur as a result of, and after giving effect to, such Acquisition. -11- "Person" means an individual, a corporation, a partnership, an unincorporated association, a trust or any other entity or organization, including, but not limited to, a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding 5 plan years made contributions. "Potential Shortfall Liabilities" means any potential liability of the Borrower relating to the re-allocation of shares of insolvent parties under prior group settlement agreements which are described in the Side Letter. "Prime Rate" refers to that interest rate so denominated and set by Wachovia from time to time as an interest rate basis for borrowings. The Prime Rate is but one of several interest rate bases used by Wachovia. Wachovia lends at interest rates above and below the Prime Rate. "Properties" means all real property owned, leased or otherwise used or occupied by the Borrower or any Subsidiary, wherever located. "Proprietary Information" has the meaning set forth in Section 11.09. "Purchase Price" means, with respect to any Acquisition, all direct, indirect, and deferred cash payments made to or for the benefit of the Person being acquired (or whose assets are being acquired), its shareholders, officers, directors, employees, or Affiliates in connection with such Acquisition, including, without limitation, the amount of any Debt being assumed in connection with such Acquisition, seller financing, and payments (but only to the extent that the amount of such payments materially exceeds the amount of payments customarily paid in connection with similar agreements entered into with acquisitions similar to the Acquisition) under non-competition or consulting agreements entered into in connection with such Acquisition and similar agreements (and including the value of any other non-cash consideration and the value of any stock, options, or warrants or other rights to acquire stock issued as part of the consideration in such transaction); provided that, for the purposes hereof, non-competition agreements and consulting agreements shall be valued at their present value discounted over the term of such agreement at the Base Rate in effect at the time of the Acquisition. "Quarterly Payment Date means each March 31, June 30, September 30 and December 31, or, if any such day is not a Domestic Business Day, the next succeeding Domestic Business Day. "Redeemable Preferred Stock" of any Person means any preferred stock issued by such Person which is at any time prior to the Termination Date either (i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof. -12- "Register" has the meaning set forth in Section 11.08(c). "Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Reimbursement Obligations" means the reimbursement or repayment obligations of the Borrower to the Letter of Credit Issuer pursuant to Section 3.05 with respect to Letters of Credit. "Related Fund" means, with respect to any Lender that is a fund that invests in lender loans, any other fund that invests in lender loans and is advised or managed by the same investment advisor as such Lender. "Reported Net Income" means, for any period, the Net Income of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis. "Required Lenders" means at any time Lenders having more than 50% of the aggregate amount of the Commitments or, if the Commitments are no longer in effect, Lenders whose outstanding principal amount of Loans and pro rata share of Letter of Credit Obligations exceed 50% of the sum of the aggregate outstanding principal amount of the Loans and the Letter of Credit Obligations. "Restricted Payment" means (i) any dividend or other distribution on any shares of the Borrower's Capital Stock (except dividends payable solely in shares of its Capital Stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's Capital Stock (except shares acquired upon the conversion thereof into other shares of its Capital Stock) or (b) any option, warrant or other right to acquire shares of the Borrower's Capital Stock. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. "Side Letter" means that certain letter from the Borrower to the Administrative Agent, dated October 3, 2001, which describes certain (i) claims and litigation to which the Borrower and/or its Subsidiaries are parties, and (ii) potential liabilities of the Borrower relating to the re-allocation of shares of insolvent parties under prior group settlement agreements. "Spin-Off Date" means the date on which the Spin-Off Transaction is consummated in accordance with the Spin-Off Documents. -13- "Spin-Off Documents" means the Spin-Off Draft Documents, with no material changes thereto, unless such material changes are approved by the Administrative Agent (such approval not to be unreasonably withheld), as executed and delivered by all the parties thereto. "Spin-Off Draft Documents" means the most recent drafts of those documents set forth on Schedule 1.01A, in the form most recently delivered to the Administrative Agent on or prior to the Closing Date. "Spin-Off Period Termination Date" means December 31, 2001, but only if the Spin-Off Date has not occurred prior to such date. "Spin-Off Transaction" means the transaction contemplated by the Spin-Off Documents. "Stockholders' Equity" means, at any time, the shareholders' equity of the Borrower and its Consolidated Subsidiaries, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with GAAP, but excluding any Redeemable Preferred Stock of the Borrower or any of its Consolidated Subsidiaries. "Subsidiary" of any Person means a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interest having such power only by reason of the happening of a contingency) to elect a majority of the board of directors of other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Swing Loan" means a Loan made by Wachovia pursuant to Section 2.01(b). "Swing Loan Note" means the promissory note of the Borrower substantially in the form of Exhibit A-2, evidencing the obligation of the Borrower to repay the Swing Loans, together with all amendments, consolidations, modifications, renewals and supplements thereto. "Swing Loan Rate" means for any day the rate per annum equal to the Federal Funds Rate for such day plus the Applicable Margin for such day plus 0.10% per annum. "Taxes" has the meaning set forth in Section 2.12(c). "Termination Date" means the earlier of (i) October 31, 2004; (ii) the Spin-Off Period Termination Date; (iii) the date the Commitments are terminated pursuant to Section 8.01 following the occurrence of an Event of Default; or (iv) the date the Borrower terminates the Commitments entirely pursuant to Section 2.08. "Third Parties" means all lessees, sublessees, licensees and other users of the Properties, excluding those users of the Properties in the ordinary course of the Borrower's business and on a temporary basis. -14- "Unfunded Vested Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all vested nonforfeitable benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the Controlled Group to the PBGC or the Plan under Title IV of ERISA. "Unused Commitment" means at any date, with respect to any Lender, an amount equal to its Commitment less the aggregate outstanding principal amount of its Loans (but not Swing Loans) and its pro rata share of the Letter of Credit Obligations. "Voting Stock" means securities (as such term is defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Wachovia" means Wachovia Bank, N.A., a national banking association, and its successors. "Wholly Owned Subsidiary" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except (i) directors' qualifying shares, (ii) Redeemable Preferred Stock, and (iii) in the case of any Foreign Subsidiary, such nominal ownership interests which are required to be held by third parties under the laws of the foreign jurisdiction under which such Foreign Subsidiary was incorporated or organized) are at the time directly or indirectly owned by the Borrower. SECTION 1.02 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants or otherwise required by a change in GAAP) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Lenders unless with respect to any such change concurred in by the Borrower's independent public accountants or required by GAAP, in determining compliance with any of the provisions of this Agreement or any of the other Loan Documents: (i) the Borrower shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (ii) the Required Lenders shall so object in writing within 30 days after the delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 5.01 hereof, shall mean the financial statements referred to in Section 4.04). SECTION 1.03 REFERENCES. Unless otherwise indicated, references in this Agreement to "Articles", "Exhibits", "Schedules", "Sections" and other Subdivisions are references to articles, exhibits, schedules, Sections and other subdivisions hereof. -15- SECTION 1.04 USE OF DEFINED TERMS. All terms defined in this Agreement shall have the same defined meanings when used in any of the other Loan Documents, unless otherwise defined therein or unless the context shall require otherwise. SECTION 1.05 TERMINOLOGY. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular. Titles of Articles and Sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. ARTICLE II THE CREDITS SECTION 2.01 COMMITMENTS TO LEND LOANS. (a) Each Lender severally agrees, on the terms and conditions set forth herein, to make Loans to the Borrower from time to time before the Termination Date; provided that, (i) immediately after each such Loan is made, the aggregate outstanding principal amount of Loans by such Lender and such Lender's pro rata share of all Letter of Credit Obligations shall not exceed the amount of its Commitment, and (ii) the aggregate outstanding principal amount of all Loans and the Letter of Credit Obligations shall not exceed the aggregate amount of the Commitments. Each Borrowing, other than the first Borrowing, under this Section shall be in an aggregate principal amount of $1,000,000 or any larger integral multiple of $100,000 (except that any such Borrowing may be in the aggregate amount of the Unused Commitments) and shall be made from the several Lenders ratably in proportion to their respective Commitments. Notwithstanding anything to the contrary in this Agreement or any other Loan Document, the first Borrowing under this Agreement (the "Initial Borrowing") shall not exceed $2,000,000 prior to the Spin-Off Date. Within the foregoing limits, the Borrower may borrow under this Section, repay or, to the extent permitted by Section 2.10, prepay Loans and reborrow under this Section at any time before the Termination Date. (b) In addition to the foregoing, Wachovia shall from time to time, so long as it is a Lender and the Administrative Agent under this Agreement, upon the request of the Borrower, if the applicable conditions precedent in Article IV have been satisfied, make Swing Loans to the Borrower in an aggregate principal amount at any time outstanding not exceeding $10,000,000 and with a maturity date of up to 30 days (but in no event later than the Termination Date) as specified by the Company in such request; provided that, immediately after such Swing Loan is made, the conditions set forth in clauses (i) and (ii) of Section 2.01(a) shall have been satisfied. Each Swing Loan Borrowing under this Section 2.01(b) shall be in an aggregate principal amount of $200,000 or any larger multiple of $100,000. Within the foregoing limits, the Borrower may borrow under this Section 2.01(b), prepay and reborrow under this Section 2.01(b) at any time before the Termination Date. Subject to Section 2.01(a)(ii), Swing Loans shall not be considered a utilization of the Commitment of Wachovia or of any other Lender hereunder. At any time following the occurrence of a Default, upon the request of -16- Wachovia, each Lender other than Wachovia shall, on the second Domestic Business Day after such request is made, purchase a participating interest in Swing Loans in an amount equal to its ratable share (based upon its respective Commitment) of such Swing Loans and upon such purchase such Swing Loans shall automatically be converted into Base Rate Loans, all without regard to whether any of the conditions set forth in Section 4.02 have not been satisfied at the time of such conversion or purchase. On such second Domestic Business Day, each Lender will immediately transfer to Wachovia, in immediately available funds, the amount of its participation. Whenever, at any time after Wachovia has received from any such Lender its participating interest in a Swing Loan, the Administrative Agent receives any payment on account thereof, the Administrative Agent will distribute to such Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); provided, however, that in the event that such payment received by the Administrative Agent is required to be returned, such Lender will return to the Administrative Agent any portion thereof previously distributed by the Administrative Agent to it. Each Lender's obligation to purchase such participating interests shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation: (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or any other Person may have against Wachovia requesting such purchase or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or the termination of the Commitments; (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any other Person; (iv) any breach of this Agreement by the Borrower or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION 2.02 METHOD OF BORROWING LOANS. (a) The Borrower shall give the Administrative Agent notice (a "Notice of Borrowing"), which shall be substantially in the form of Exhibit D, prior to (i) 11:00 A.M. (Atlanta, Georgia time) on the same Domestic Business Day of each Base Rate Borrowing or Swing Loan Borrowing (provided that a notice of a Swing Loan Borrowing may be given telephonically by the Borrower by such time, if such notice is confirmed in writing prior to 4:00 P.M. (Atlanta, Georgia time) on such day), and (ii) 12:00 P.M. (Atlanta, Georgia time) at least 3 Euro-Dollar Business Days before each Euro-Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Borrowing, (iii) whether the Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans, or stating that such Borrowing is to be a Swing Loan Borrowing, and (iv) in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. -17- (b) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Lender of the contents thereof and (unless such Borrowing is a Swing Loan Borrowing) of such Lender's ratable share of such Borrowing and such Notice of Borrowing, once received by the Administrative Agent, shall not thereafter be revocable by the Borrower. (c) Not later than 12:00 P.M. (Atlanta, Georgia time) on the date of each Borrowing, each Lender shall (except as provided in paragraph (d) of this Section) make available its ratable share of such Borrowing, in Federal or other funds immediately available in Atlanta, Georgia, to the Administrative Agent at its address determined pursuant to Section 10.01. Unless the Administrative Agent determines that any applicable condition specified in Article III has not been satisfied, the Administrative Agent will make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address. Unless the Administrative Agent receives notice from a Lender, at the Administrative Agent's address referred to in or specified pursuant to Section 10.01, no later than 4:00 P.M. (local time at such address) on the Domestic Business Day before the date of a Borrowing stating that such Lender will not make a Loan in connection with such Borrowing, the Administrative Agent shall be entitled to assume that such Lender will make a Loan in connection with such Borrowing and, in reliance on such assumption, the Administrative Agent may (but shall not be obligated to) make available such Lender's ratable share of such Borrowing to the Borrower for the account of such Lender. If the Administrative Agent makes such Lender's ratable share available to the Borrower and such Lender does not in fact make its ratable share of such Borrowing available on such date, the Administrative Agent shall be entitled to recover such Lender's ratable share from such Lender or the Borrower (and for such purpose shall be entitled to charge such amount to any account of the Borrower maintained with the Administrative Agent), together with interest thereon for each day during the period from the date of such Borrowing until such sum shall be paid in full at a rate per annum equal to (x) the Federal Funds Rate from the date such payment is due until the 3rd Domestic Business Day following such date, and (y) the Base Rate thereafter, provided that (i) any such payment by the Borrower of such Lender's ratable share and interest thereon shall be without prejudice to any rights that the Borrower may have against such Lender and (ii) until such Lender has paid its ratable share of such Borrowing, together with interest pursuant to the foregoing, it will have no interest in or rights with respect to such Borrowing for any purpose hereunder. If the Administrative Agent does not exercise its option to advance funds for the account of such Lender, it shall forthwith notify the Borrower of such decision. Unless the Administrative Agent determines that any applicable condition specified in Article IV has not been satisfied, Wachovia will make available to the Borrower at Wachovia's Lending Office the amount of any such Borrowing which is a Swing Loan Borrowing. (d) Notwithstanding anything to the contrary contained in this Agreement, no Borrowing may be made if there shall have occurred a Default, which Default shall not have been cured or waived. (e) In the event that a Notice of Borrowing fails to specify whether the Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans, such Loans shall be made as Base Rate Loans. If the Borrower is otherwise entitled under this Agreement to repay any Loans maturing at the end of an Interest Period applicable thereto with the proceeds of a new Borrowing, and the Borrower fails to repay such Loans using its own moneys and fails to -18- give a Notice of Borrowing in connection with such new Borrowing, a new Borrowing shall be deemed to be made on the date such Loans mature in an amount equal to the principal amount of the Loans so maturing, and the Loans comprising such new Borrowing shall be Base Rate Loans. (f) Notwithstanding anything to the contrary contained herein, there shall not be more than 10 Interest Periods outstanding at any given time. SECTION 2.03 CONTINUATION AND CONVERSION ELECTIONS. By delivering a notice (a "Notice of Continuation or Conversion"), which shall be substantially in the form of Exhibit E, to the Administrative Agent on or before 12:00 P.M., Atlanta, Georgia time, on a Domestic Business Day (or Euro-Dollar Business Day, in the case of Euro-Dollar Loans outstanding), the Borrower may from time to time irrevocably elect, by notice on the same Domestic Business Day, in the case of Base Rate Loans, or 3 Euro-Dollar Business Days, in the case of Euro-Dollar Loans, that all, or any portion in an aggregate principal amount of $1,000,000 or any larger integral multiple of $100,000 be, (i) in the case of Base Rate Loans, converted into Euro-Dollar Loans or (ii) in the case of Euro-Dollar Loans, converted into Base Rate Loans or continued as Euro-Dollar Loans (in the absence of delivery of a Notice of Continuation or Conversion with respect to any Euro-Dollar Loan at least 3 Euro-Dollar Business Days before the last day of the then current Interest Period with respect thereto, such Euro-Dollar Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that (x) each such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Lenders that have made such Loans, and (y) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, any Euro-Dollar Loan when any Default has occurred and is continuing. SECTION 2.04 NOTES. (a) Upon request of any Lender, made through the Administrative Agent, the Loans of each Lender may be evidenced by a single Note payable to the order of such Lender for the account of its Lending Office in an amount equal to the original principal amount of such Lender's Commitment. The Swing Loans shall be evidenced by a single Swing Loan Note payable to the order of Wachovia in the original principal amount of $5,000,000. (b) Upon receipt of any Lender's Note pursuant to Section 4.01(b), the Administrative Agent shall deliver such Note to such Lender. Each Lender shall record, and prior to any transfer of its Note shall endorse on the schedules forming a part thereof appropriate notations to evidence, the date, amount and maturity of, and effective interest rate for, each Loan made by it, the date and amount of each payment of principal made by the Borrower with respect thereto, and such schedules of each such Lender's Note shall constitute rebuttable presumptive evidence of the respective principal amounts owing and unpaid on such Lender's Note; provided that the failure of any Lender to make, or any error in making, any such recordation or endorsement shall not affect the obligation of the Borrower hereunder or under the Notes or the ability of any Lender to assign its Note. Each Lender is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of any Note a continuation of any such schedule as and when required. Each reference in this paragraph (b), other than in the first sentence of this paragraph (b), to "Lender," "Note" or "Notes," or "Loan" shall be deemed to -19- include Wachovia (in its capacity as the Person making the Swing Loans), the Swing Loan Note and any Swing Loan, respectively. SECTION 2.05 MATURITY OF LOANS. Each Loan (other than a Swing Loan) shall mature, and the principal amount thereof together will all accrued, but unpaid interest thereon shall be due and payable on the Termination Date. Each Swing Loan shall mature, and the principal amount thereof together with all accrued, but unpaid interest thereon shall be due and payable on the maturity date for such Swing Loan as determined in accordance with Section 2.01(b). SECTION 2.06 INTEREST RATES. (a) "Applicable Margin" means: (i) for the period commencing on the Closing Date to and including the first Performance Pricing Determination Date, (x) for any Base Rate Loan, 0%, and (y) for any Euro-Dollar Loan or Swing Loan, .725%; and (ii) from and after the first Performance Pricing Determination Date, (x) for any Base Rate Loan, 0.00% and (y) for each Euro-Dollar Loan and Swing Loan, the percentage determined on each Performance Pricing Determination Date by reference to the table set forth below as to such type of Loan and the Leverage Ratio for the quarterly or annual period ending immediately prior to such Performance Pricing Determination Date.
LEVERAGE RATIO APPLICABLE MARGIN -------------- ----------------- < 1.0 to 1.0 .725% > 1.0 to 1.0 but .800% - < 2.0 to 1.0 > 2.0 to 1.0 but .875% - < 2.5 to 1.0 > 2.5 to 1.0 1.00% -
In determining interest for purposes of this Section 2.06 and fees for purposes of Section 2.07, the Borrower and the Lenders shall refer to the Borrower's most recent consolidated quarterly and annual (as the case may be) financial statements delivered pursuant to Section 6.01(a) or (b), as the case may be. If such financial statements require a change in interest pursuant to this Section 2.06 or fees pursuant to Section 2.07, the Borrower shall deliver to the Administrative Agent, along with such financial statements, a notice to that effect, which notice shall set forth in reasonable detail the calculations supporting the required change. The "Performance Pricing Determination Date" is the date which is (a) 45 days after the end of each of the first 3 Fiscal Quarters of each Fiscal Year and (b) 90 days after the end of the 4th Fiscal Quarter of each Fiscal Year. Any such required change in interest and fees shall become effective on such Performance Pricing Determination Date, and shall be in effect until the next -20- Performance Pricing Determination Date, provided that: (i) for Euro-Dollar Loans and Swing Loans, changes in interest shall only be effective for Interest Periods commencing on or after the Performance Pricing Determination Date; and (ii) no fees or interest shall be decreased pursuant to this Section 2.06 or Section 2.07 if an Event of Default is in existence on the Performance Pricing Determination Date. (b) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day plus the Applicable Margin. Such interest shall be payable on each Quarterly Payment Date while such Base Rate Loan is outstanding and on the date such Base Rate Loan is converted to a Euro-Dollar Loan. Any overdue principal of and, to the extent permitted by applicable law, overdue interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted London Interbank Offered Rate for such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 3 months, at intervals of 3 months after the first day thereof. Any overdue principal of and, to the extent permitted by law, overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upwards, if necessary, to the next higher 1/100th of 1%) by dividing (i) the applicable London Interbank Offered Rate for such Interest Period by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Euro-Dollar Loan means for the Interest Period of such Euro-Dollar Loan, the rate per annum determined on the basis of the offered rate for deposits in Dollars of amounts equal or comparable to the principal amount of such Euro-Dollar Loan offered for a term comparable to such Interest Period, which rates appear on Telerate Page 3750 effective as of 11:00 A.M., London time, 2 Euro-Dollar Business Days prior to the first day of such Interest Period, provided that if no such offered rates appear on such page, the "London Interbank Offered Rate" for such Interest Period will be the arithmetic average (rounded upward, if necessary, to the next higher 1/100th of 1%) of rates quoted by not less than 2 major lenders in New York City, selected by the Administrative Agent, at approximately 10:00 A.M., New York City time, 2 Euro-Dollar Business Days prior to the first day of such Interest Period, for deposits in Dollars offered by leading European banks for a period comparable to such Interest Period in an amount comparable to the principal amount of such Euro-Dollar Loan. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member lender of the Federal Reserve System in respect of "Eurocurrency liabilities" (or in -21- respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) Each Swing Loan, unless converted to a Base Rate Loan as provided in Section 2.01(b), shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it is converted to a Base Rate Loan as provided in Section 2.01(b), at the Swing Loan Rate for such day. Such interest shall be payable on the maturity date of such Swing Loan and on the date of any conversion of such Swing Loan to a Base Rate Loan in accordance with Section 2.01(b). (e) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the Lenders by telecopier of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) After the occurrence and during the continuance of an Event of Default, the principal amount of the Loans (and, to the extent permitted by applicable law, all accrued interest thereon) may, at the election of the Required Lenders, bear interest at the Default Rate. SECTION 2.07 FEES. The Borrower shall pay to the Administrative Agent, for the ratable account of each Lender, a facility fee, calculated in the manner provided in the last paragraph of Section 2.06(a)(ii), on the aggregate amount of such Lender's Commitment (without taking into account the amount of the outstanding Loans made by such Lender), at a rate per annum equal to: (i) for the period commencing on the Closing Date to and including the first Performance Pricing Determination Date, .15%; and (ii) from and after the first Performance Pricing Determination Date, the percentage determined on each Performance Pricing Determination Date by reference to the table set forth below and the Leverage Ratio for the quarterly or annual period ending immediately prior to such Performance Pricing Determination Date: -22-
LEVERAGE RATIO FACILITY FEE -------------- ------------ < 1.0 to 1.0 .15% > 1.0 to 1.0 but .20% - < 2.0 to 1.0 > 2.0 to 1.0 but .25% - < 2.5 to 1.0 > 2.5 to 1.0 .375% -
Such facility fees shall accrue from and including the Closing Date to (but excluding) the Termination Date and shall be payable on each Quarterly Payment Date and on the Termination Date. SECTION 2.08 OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower may, upon at least 3 Domestic Business Days' notice to the Administrative Agent, terminate at any time, or proportionately reduce the Unused Commitments from time to time by an aggregate amount of at least $5,000,000 or any larger integral multiple of $1,000,000. If the Commitments are terminated in their entirety, all accrued fees (as provided under Section 2.07) shall be due and payable on the effective date of such termination. SECTION 2.09 MANDATORY TERMINATION OF COMMITMENTS. The Commitments shall terminate on the Termination Date and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.10 OPTIONAL PREPAYMENTS. (a) The Borrower may, upon notice to the Administrative Agent on or before 12:00 P.M. (Atlanta, Georgia time) on the date of any such prepayment, prepay any Base Rate Borrowing in whole at any time, or from time to time in part in amounts aggregating at least $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Base Rate Loans of the several Lenders included in such Base Rate Borrowing. (b) Subject to any payments required pursuant to the terms of Article X for such Euro-Dollar Loan, upon three (3) Domestic Business Day's prior written notice, the Borrower may prepay in minimum amounts of $1,000,000 with additional increments of $100,000 (or any lesser amount equal to the outstanding balance of such Loan) all or any portion of the principal amount of any Euro-Dollar Loan prior to the last day of the Interest Period then applicable thereto. (c) The Borrower may, upon notice to the Administrative Agent on or before 12:00 P.M. (Atlanta, Georgia time) on the date of any such prepayment, prepay any Swing Loan Borrowing in whole at any time, or from time to time in part in minimum amounts of $200,000, with additional increments of $100,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. -23- (d) Upon receipt of a notice of prepayment pursuant to this Section 2.10, the Administrative Agent shall promptly notify each Lender of the contents thereof and of such Lender's ratable share of such prepayment and such notice, once received by the Administrative Agent, shall not thereafter be revocable by the Borrower. SECTION 2.11 MANDATORY PREPAYMENTS. On each date on which the conditions set forth in clauses (i) or (ii) of Section 2.01 are not satisfied (including, without limitation, by reason of the reduction of the Commitments pursuant to Section 2.08), the Borrower shall repay or prepay such principal amount of the outstanding Loans, if any (together with interest accrued thereon and any amount due under Section 10.05), or in the event that all outstanding Loans have been paid in full, then fully cash collateralize the Letter of Credit Obligations in a manner satisfactory to the Administrative Agent as may be necessary so that after such payment the aggregate unpaid principal amount of the Loans plus the aggregate amount of the Letter of Credit Obligations with respect to which cash collateral has not been delivered to the Administrative Agent does not exceed the aggregate amount of the Commitments as then reduced. Each such payment or prepayment shall be applied first to any Swing Loans outstanding, and then ratably to the Loans of the Lenders outstanding on the date of payment or prepayment in the following order of priority: (i) first, to Base Rate Loans; and (ii) second, to Euro-Dollar Loans. Any cash collateral held by the Administrative Agent shall be applied to the payment of Letter of Credit Obligations as they become due. SECTION 2.12 GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, without any setoff, counterclaim or any deduction whatsoever, not later than 11:00 A.M. (Atlanta, Georgia time) on the date when due, in Federal or other funds immediately available in Atlanta, Georgia, to the Administrative Agent at its address referred to in Section 10.01. The Administrative Agent will promptly distribute, first, to Wachovia each such payment received on account of the Swing Loans and, second, to each Lender its ratable share of each such payment received by the Administrative Agent for the account of the Lenders. (b) Whenever any payment of principal of, or interest on, the Base Rate Loans or Swing Loans or of fees hereunder shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. (c) All payments of principal, interest and fees and all other amounts to be made by the Borrower pursuant to this Agreement with respect to any Loan or fee relating thereto shall be paid without deduction for, and free from, any tax, imposts, levies, duties, deductions, or withholdings of any nature now or at anytime hereafter imposed by any governmental authority or by any taxing authority thereof or therein excluding in the case of each Lender, taxes imposed on or measured by its net income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender is organized or any political subdivision -24- thereof and, in the case of each Lender, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender's applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, imposts, levies, duties, deductions or withholdings of any nature being "Taxes"). In the event that the Borrower is required by applicable law to make any such withholding or deduction of Taxes with respect to any Loan or fee or other amount, the Borrower shall pay such deduction or withholding to the applicable taxing authority, shall promptly furnish to any Lender in respect of which such deduction or withholding is made all receipts and other documents evidencing such payment and shall pay to such Lender additional amounts as may be necessary in order that the amount received by such Lender after the required withholding or other payment shall equal the amount such Lender would have received had no such withholding or other payment been made. If no withholding or deduction of Taxes are payable in respect to any Loan or fee relating thereto, the Borrower shall furnish any Lender, at such Lender's request, a certificate from each applicable taxing authority or an opinion of counsel acceptable to such Lender, in either case stating that such payments are exempt from or not subject to withholding or deduction of Taxes. If the Borrower fails to provide such original or certified copy of a receipt evidencing payment of Taxes or certificate(s) or opinion of counsel of exemption, the Borrower hereby agrees to compensate such Lender for, and indemnify it with respect to, the tax consequences of the Borrower's failure to provide evidence of tax payments or tax exemption. Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower and the Administrative Agent on or prior to the Closing Date, or in the case of a Lender that is an Assignee of an interest under this Agreement pursuant to Section 11.08(c) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment), on the date of such assignment to such Lender, (i) two accurate and complete original signed copies of IRS Form W-8BEN, W-8ECI, or W-8IMY (or successor or other applicable forms prescribed by the IRS) certifying to such Lender's entitlement to a complete exemption from United States withholding tax on interest payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver the applicable form pursuant to clause (i) above, two accurate and complete original signed copies of IRS Form W-8BEN (or successor form), certifying to such Lender's entitlement to a complete exemption from United States withholding tax on payments of interest to be made under this Agreement and under any Note; provided, however, that in the event that a Lender provides the Borrower or the Administrative Agent with an IRS Form W-8IMY (or substitute form) indicating that it is a "flow through" entity, as defined in Treasury Regulations promulgated under Section 1441 of the Code, or otherwise, not a beneficial owner of interest payments under this Agreement and under any Note, such Lender agrees, on or prior to the Closing Date, or the date of assignment to such Lender, as applicable, to take any actions necessary, and to deliver to the Borrower and the Administrative Agent all forms necessary, to establish such Lender's entitlement to a complete exemption from United States withholding tax on payments of interest to be made under this Agreement and under any Note, including causing its partners, members, beneficiaries, beneficial owners, and their beneficial owners, if any, to take any actions and deliver any forms necessary to establish such exemption. Notwithstanding the foregoing, (i) a fiscally transparent entity may provide an IRS Form W-8BEN to claim a treaty exemption to the extent that such entity is receiving interest and is not treated as fiscally transparent by its own jurisdiction, provided the satisfaction of such conditions entitles the Lender to an exemption from -25- withholding at the time such Lender becomes a party to this Agreement and (ii) a withholding foreign partnership, withholding foreign trust, and qualified intermediary shall only provide such information as is required by Treasury Regulations promulgated under Code Section 1441. For purposes of this Agreement, the term "Forms" shall include any attachments for to IRS Forms W-8 IMY required to be filed by the Lender. In addition, each Lender agrees that from time to time after the date of the Initial Borrowing, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, such Lender will deliver to the Borrower and the Administrative Agent two new accurate and complete original signed copies of an IRS Form W-8BEN, W-8ECI, or W-8IMY, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender (or its partners, members, beneficiaries, or beneficial owners) to a continued exemption from United States withholding Tax on interest payments under this Agreement and any Note, or it shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such form; provided, however, that no Lender shall be required to deliver an IRS Form W8-BEN, W-8ECI, or W-8IMY under this Section 2.12(c) to the extent that the delivery of such form is not authorized by law; provided, further, however, that any Lender which does not deliver the applicable form pursuant to this Section 2.12(c) shall be entitled to additional payment or indemnification pursuant to this Section only if and to the extent (i) such failure results solely from a change in law or (ii) the Tax to which such additional payment or indemnification relates would have been imposed regardless of whether such Lender provided such forms. Notwithstanding anything to the contrary contained in this Agreement, any Lender that has not provided to the Borrower the IRS Forms required to be provided to the Borrower pursuant to this Section 2.12(c) shall not be entitled to any payment of additional amounts pursuant to this Section 2.12(c) or indemnification under this Section 2.12(c) with respect to any deduction or withholding which would not have been required if such Lender had provided such forms. In the event any Lender receives a refund of any Taxes paid by the Borrower pursuant to this Section 2.12(c), it will pay to the Borrower the amount of such refund promptly upon receipt thereof; provided that if at any time thereafter it is required to return such refund, the Borrower shall promptly repay to it the amount of such refund. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower and the Lenders contained in this Section 2.12(c) shall be applicable with respect to any Participant or Assignee, and any calculations required by such provisions (i) shall be made based upon the circumstances of such Participant (provided that the aggregate amount paid by the Borrower to any such Participant shall not exceed the amount that would have been paid to the Lender that sold such participation to such Participant with respect to that portion of the Loans in which such Participant has purchased a participation) or Assignee, and (ii) constitute a continuing agreement and shall survive the termination of this Agreement and the payment in full or cancellation of the Notes and the Swing Loan Note. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent on such date, each -26- Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender, together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate for the first three (3) Domestic Business Days after the date such payment is due and at the Base Rate thereafter. SECTION 2.13 COMPUTATION OF INTEREST AND FEES. Interest on Base Rate Loans and Swing Loans shall be computed on the basis of a year of 365 or 366 days, as applicable, and paid for the actual number of days elapsed (including the first day but excluding the last day). Interest on Euro-Dollar Loans shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed, calculated as to each Interest Period from and including the first day thereof to but excluding the last day thereof. Facility fees and any other fees payable hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). ARTICLE III LETTER OF CREDIT FACILITY SECTION 3.01 OBLIGATION TO ISSUE. Subject to the terms and conditions of this Agreement, and in reliance upon the representations and warranties of the Borrower herein set forth, the Letter of Credit Issuer shall issue for the account of Borrower, one or more Letters of Credit denominated in Dollars, in accordance with this Article III, from time to time during the period commencing on the Closing Date and ending on the Domestic Business Day prior to the Termination Date. SECTION 3.02 TYPES AND AMOUNTS. The Letter of Credit Issuer shall have no obligation to issue any Letter of Credit at any time: (a) if the aggregate maximum amount then available for drawing under Letters of Credit, after giving effect to the issuance of the requested Letter of Credit, shall exceed any limit imposed by law or regulation upon the Letter of Credit Issuer; (b) if, after giving effect to the issuance of the requested Letter of Credit, (i) the aggregate Letter of Credit Obligations would exceed $7,500,000, or (ii) the conditions set forth in clauses (i) and (ii) of Section 2.01 would not be satisfied; (c) which has an expiration date (i) more than one year after the date of issuance or (ii) later than 5 Business Days prior to the Termination Date. SECTION 3.03 CONDITIONS. In addition to being subject to the satisfaction of the conditions contained in Article IV, the obligation of the Letter of Credit Issuer to issue any Letter of Credit is subject to the satisfaction of the following conditions: -27- (a) the Borrower shall have delivered to the Letter of Credit Issuer at such times and in such manner as the Letter of Credit Issuer may prescribe, a Letter of Credit Application Agreement and such other documents and materials as may be required pursuant to the terms thereof, all satisfactory in form and substance to the Letter of Credit Issuer and the terms of the proposed Letter of Credit shall be satisfactory in form and substance to the Letter of Credit Issuer; and (b) as of the date of issuance no order, judgment or decree of any court, arbitrator or Authority shall purport by its terms to enjoin or restrain the Letter of Credit Issuer from issuing the Letter of Credit and no law, rule or regulation applicable to the Letter of Credit Issuer and no request or directive (whether or not having the force of law) from any Authority with jurisdiction over the Letter of Credit Issuer shall prohibit or request that the Letter of Credit Issuer refrain from the issuance of letters of credit generally or the issuance of that Letter of Credit. SECTION 3.04 ISSUANCE OF LETTERS OF CREDIT. (a) Request for Issuance. At least two Domestic Business Days before the effective date for any Letter of Credit, the Borrower shall give the Letter of Credit Issuer a written notice containing the original signature of an authorized officer or employee of such Borrower. Such notice shall be irrevocable and shall specify the original face amount of the Letter of Credit requested, the effective date (which day shall be a Domestic Business Day) of issuance of such requested Letter of Credit, the date on which such requested Letter of Credit is to expire, the amount of then outstanding Letter of Credit Obligations, the purpose for which such Letter of Credit is to be issued, whether such Letter of Credit may be drawn in single or partial draws and the Person for whose benefit the requested Letter of Credit is to be issued. (b) Issuance; Notice of Issuance. If the conditions set forth or referred to in Section 3.03 are satisfied, the Letter of Credit Issuer shall issue the requested Letter of Credit. (c) No Extension or Amendment. The Letter of Credit Issuer shall not extend or amend any Letter of Credit if the issuance of a new Letter of Credit having the same terms as such Letter of Credit as so amended or extended would be prohibited by Section 3.02 or Section 3.03. SECTION 3.05 REIMBURSEMENT OBLIGATIONS; DUTIES OF THE ISSUING LENDER. (a) Reimbursement. Notwithstanding any provisions to the contrary in any Letter of Credit Application Agreement: (i) the Borrower shall reimburse the Letter of Credit Issuer for drawings under a Letter of Credit issued by it no later than 1 Domestic Business Day after notice by the Letter of Credit Issuer to the Borrower of the payment by the Letter of Credit Issuer; (ii) any Reimbursement Obligation with respect to any Letter of Credit shall bear interest from the date of the relevant drawing under the pertinent Letter of Credit until the date of payment in full thereof at a rate per annum equal to (A) from and -28- including the date of such drawing and until the Domestic Business Day after the date on which notice of such drawing is given by the Letter of Credit Issuer to the Borrower in accordance with clause (i) of this paragraph (a), the Base Rate and (B) thereafter, the Default Rate; and (iii) in order to implement the foregoing, upon the occurrence of a draw under any Letter of Credit, unless the Letter of Credit Issuer is reimbursed in accordance with subsection (i) above, the Borrower irrevocably authorizes the Letter of Credit Issuer and the Administrative Agent to treat such nonpayment as a Notice of Borrowing in the amount of such Reimbursement Obligation and the Lenders to make Loans to Borrower in such amount regardless of whether the conditions precedent to the making of Loans hereunder have been met. The Borrower further authorizes the Administrative Agent to credit the proceeds of such Loan so as to immediately eliminate the liability of the Borrower for Reimbursement Obligations under such Letter of Credit. (b) Duties of the Letter of Credit Issuer. Any action taken or omitted to be taken by the Letter of Credit Issuer in connection with any Letter of Credit, if taken or omitted in the absence of willful misconduct or gross negligence, shall not put the Letter of Credit Issuer under any resulting liability to any Lender, or relieve that Lender of its obligations hereunder to the Letter of Credit Issuer. Subject to the immediately preceding sentence, in determining whether to pay under any Letter of Credit, the Letter of Credit Issuer shall have no obligation relative to the Lenders other than to confirm that any documents required to have been delivered under such Letter of Credit appear to comply on their face with the requirements of such Letter of Credit. SECTION 3.06 PARTICIPATIONS. (a) Purchase of Participations. Immediately upon issuance by the Letter of Credit Issuer of any Letter of Credit in accordance with the procedures set forth in Section 3.04, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Letter of Credit Issuer, without recourse or warranty, an undivided interest and participation, to the extent of such Lender ratable share of the aggregate Commitments, in such Letter of Credit. (b) Sharing of Letter of Credit Payments. In the event that the Letter of Credit Issuer makes any payment under any Letter of Credit for which the applicable Borrower shall not have repaid such amount to the Letter of Credit Issuer pursuant to Section 3.07 or which cannot be paid by a Loan pursuant to Subsection (iii) of Section 3.05, the Letter of Credit Issuer shall promptly notify each Lender of such failure, and each Lender shall promptly and unconditionally pay to the Letter of Credit Issuer such Lender's ratable share of the amount of such payment in Dollars and in same day funds. If the Letter of Credit Issuer so notifies such Lender prior to 11:00 A.M. (Atlanta, Georgia time) on any Domestic Business Day, such Lender shall make available to the Letter of Credit Issuer its ratable share of the amount of such payment on such Domestic Business Day in same day funds. If and to the extent such Lender shall not have so made its ratable share of the amount of such payment available to the Letter of Credit Issuer, such Lender agrees to pay to the Letter of Credit Issuer forthwith on demand such amount together with interest thereon, for each day from the date such payment was first due until the -29- date such amount is paid to the Letter of Credit Issuer at the Federal Funds Rate for the first 3 days and thereafter at the Base Rate. The failure of any Lender to make available to the Letter of Credit Issuer its ratable share of any such payment shall neither relieve nor increase the obligation of any other Lender hereunder to make available to the Letter of Credit Issuer its ratable share of any payment on the date such payment is to be made. (c) Sharing of Reimbursement Obligation Payments. Whenever the Letter of Credit Issuer receives a payment on account of a Reimbursement Obligation, including any interest thereon, as to which the Letter of Credit Issuer has received any payments from the Lenders pursuant to this Section 3.06, it shall promptly pay to each Lender which has funded its participating interest therein, in Dollars and in the kind of funds so received, an amount equal to such Lender's ratable share thereof. Each such payment shall be made by the Letter of Credit Issuer on the Domestic Business Day on which the funds are paid to such Person, if received prior to 11:00 am. (Atlanta, Georgia time) on such Domestic Business Day, and otherwise on the next succeeding Domestic Business Day. (d) Obligations Irrevocable. The obligations of the Lenders to make payments to the Letter of Credit Issuer with respect to a Letter of Credit shall be irrevocable, not subject to any qualification or exception whatsoever and shall be made in accordance with, but not subject to, the terms and conditions of this Agreement under all circumstances including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Letter of Credit Issuer, the Administrative Agent, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions; (iii) any draft, certificate or any other document presented under the Letter of Credit proves to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) payment by the Letter of Credit Issuer under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (vi) payment by the Letter of Credit Issuer under any Letter of Credit against presentation of any draft or certificate that does not comply with the terms of such Letter of Credit, except payment resulting from the gross negligence or willful misconduct of the Letter of Credit Issuer; or -30- (vii) any other circumstances or happenings whatsoever, whether or not similar to any of the foregoing, except circumstances or happenings resulting from the gross negligence or willful misconduct of the Letter of Credit Issuer. SECTION 3.07 PAYMENT OF REIMBURSEMENT OBLIGATIONS. (a) Payments to Issuing Lender. The Borrower agrees to pay to the Letter of Credit Issuer the amount of all Reimbursement Obligations, interest and other amounts payable to the Letter of Credit Issuer under or in connection with any Letter of Credit issued for such Borrower's account immediately when due, irrespective of: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Letter of Credit Issuer, the Administrative Agent, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions; (iii) any draft, certificate or any other document presented under the Letter of Credit proves to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) payment by the Letter of Credit Issuer under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (vi) payment by the Letter of Credit Issuer under any Letter of Credit against presentation of any draft or certificate that does not comply with the terms of such Letter of Credit, except payment resulting from the gross negligence or willful misconduct of the Letter of Credit Issuer; or (vii) any other circumstances or happenings whatsoever, whether or not similar to any of the foregoing, except in each case above upon circumstances or happenings resulting from the gross negligence or willful misconduct of the Letter of Credit Issuer. (b) Recovery or Avoidance of Payments. In the event any payment by or on behalf of the Borrower received by the Letter of Credit Issuer with respect to a Letter of Credit and distributed by the Letter of Credit Issuer to the Lenders on account of their participations is thereafter set aside, avoided or recovered from the Letter of Credit Issuer in connection with any receivership, liquidation or bankruptcy proceeding, each Lender that received such distribution shall, upon demand by the Letter of Credit Issuer, contribute such Lender's ratable share of the -31- amount set aside, avoided or recovered, together with interest at the rate required to be paid by the Letter of Credit Issuer upon the amount required to be repaid by it. SECTION 3.08 COMPENSATION FOR LETTERS OF CREDIT AND LETTER OF CREDIT ISSUER REPORTING REQUIREMENTS. (a) Letter of Credit Fees. In consideration of the issuance of Letters of Credit hereunder, the Borrower promises to pay to the Administrative Agent for the account of each Lender a fee (the "Letter of Credit Fee") on such Lender's pro rata share of the average daily maximum amount available to be drawn under each such Letter of Credit computed at a per annum rate for each day from the date of issuance of each Letter of Credit to the date of expiration of each Letter of Credit equal to the Applicable Margin from time to time in effect with respect to Euro-Dollar Loans. Letter of Credit Fees payable hereunder shall be payable quarterly in arrears on each Quarterly Payment Date and shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). The Administrative Agent shall promptly remit such Letter of Credit Fees, when paid, to the Lenders in accordance with their ratable shares thereof. (b) Letter of Credit Issuer Charges. The Borrower shall pay to the Letter of Credit Issuer, solely for its own account, the standard charges assessed by the Letter of Credit Issuer in connection with the issuance, administration, amendment and payment or cancellation of Letters of Credit issued hereunder, which charges shall be those typically charged by the Letter of Credit Issuer to its customers generally having credit and other characteristics similar to the Borrower, as determined in good faith by the Letter of Credit Issuer. SECTION 3.09 INDEMNIFICATION; EXONERATION. (a) Indemnification. In addition to amounts payable as elsewhere provided in this Article III, the Borrower shall protect, indemnify, pay and save the Letter of Credit Issuer, the Administrative Agent and each Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) which the Letter of Credit Issuer, the Administrative Agent, or any Lender may incur or be subject to as a consequence of (i) the issuance of any Letter of Credit or (ii) the failure of the Letter of Credit Issuer to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future dejure or de facto government or Authority, other than as shall result from its gross negligence or willful misconduct, as determined by a court of competent jurisdiction. (b) Assumption of Risk by Borrower. As between the Borrower, the Letter of Credit Issuer, the Administrative Agent and Lenders, the Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued for such Borrower's account by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Letter of Credit Issuer, the Administrative Agent and the Lenders shall not be responsible for (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged, (ii) the validity or sufficiency of any instrument transferring or -32- assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason, (iii) failure of the beneficiary of a Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit, (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher, for errors in interpretation of technical terms, (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof, (vii) the misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (viii) any consequences arising from causes beyond the control of the Letter of Credit Issuer, the Administrative Agent and the Lenders. (c) Exoneration. In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Letter of Credit Issuer under or in connection with the Letters of Credit or any related certificates shall not put the Letter of Credit Issuer, the Administrative Agent or any Lender under any resulting liability to the Borrower or relieve the Borrower of any of its obligations hereunder to any such Person, absent gross negligence or willful misconduct on the part of any such Person. ARTICLE IV CONDITIONS TO BORROWINGS SECTION 4.01 CONDITIONS TO FIRST BORROWING. The obligation of each Lender to make a Loan on the occasion of the first Borrowing is subject to the satisfaction of the conditions set forth in Section 4.02 and receipt by the Administrative Agent of the following (as to the documents described in paragraphs (a), (d), (e) and (f) below, in sufficient number of counterparts for delivery of a counterpart to each Lender and retention of one counterpart by the Administrative Agent): (a) from each of the parties hereto of either (i) a duly executed counterpart of this Agreement signed by such party or (ii) a facsimile transmission of such executed counterpart (with the original to be sent to the Administrative Agent by overnight courier); (b) a duly executed Note for the account of each Lender, if such Lender has requested the delivery of such Notes, and a Swing Line Note to Wachovia, pursuant to Section 2.04; (c) a duly signed counterpart of the Side Letter, in form and substance satisfactory to the Administrative Agent; (d) opinion letters of Kenyon W. Murphy, General Counsel of the Borrower, and Kilpatrick Stockton LP, special counsel to the Borrower, each dated as of the Closing Date, substantially in the forms of Exhibit B-1 and Exhibit B-2, respectively, and covering such additional matters relating to the transactions contemplated hereby as the Administrative Agent or any Lender may reasonably request; -33- (e) a certificate (the "Closing Certificate") substantially in the form of Exhibit G), dated as of the Closing Date, signed by a principal financial officer of the Borrower, to the effect that (i) no Default has occurred and is continuing on the date of the first Borrowing and (ii) the representations and warranties of the Borrower contained in Article V are true on and as of the date of the first Borrowing hereunder; (f) all documents which the Administrative Agent or any Lender may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes and the Swing Loan Note, and any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent, including, without limitation, certificates of the Borrower substantially in the form of Exhibit H (the "Officer's Certificate"), signed by the Secretary or an Assistant Secretary of the Borrower, certifying as to the names, true signatures and incumbency of the officer or officers of the Borrower authorized to execute and deliver the Loan Documents, and certified copies of the following items for the Borrower: (i) the Certificate of Incorporation, (ii) the Bylaws, (iii) a certificate of the Secretary of State of the State of Delaware as to the good standing of the Borrower as a Delaware corporation, and (iv) the action taken by the Board of Directors of each of the Borrower authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party; (g) true, correct and complete copies of the Spin-Off Draft Documents; (h) evidence that all fees due and payable to the Administrative Agent and the Lenders on the Closing Date have been paid in full (including without limitation, an upfront fee to each Lender in an amount equal to 0.10% of such Lender's Commitment); and (i) such other documents or items as the Administrative Agent, any Lender, or their counsel may reasonably request. In addition, if the Borrower desires funding of a Euro-Dollar Loan on the Closing Date, the Administrative Agent shall have received, the requisite number of days prior to the Closing Date, a funding indemnification letter satisfactory to it, pursuant to which (i) the Administrative Agent and the Borrower shall have agreed upon the interest rate, amount of Borrowing and Interest Period for such Euro-Dollar Loan, and (ii) the Borrower shall indemnify the Lenders from any loss or expense arising from the failure to close on the anticipated Closing Date identified in such letter or the failure to borrow such Euro-Dollar Loan on such date. SECTION 4.02 CONDITIONS TO ALL BORROWINGS AND ISSUANCE OF ANY LETTER OF CREDIT. The obligation of each Lender to make a Loan on the occasion of each Borrowing or of Wachovia to make a Swing Loan and the obligation of the Letter of Credit Issuer to issue any Letter of Credit are subject to the satisfaction of the conditions set forth in Section 4.01 and the following conditions (other than in the case of the Initial Borrowing, the conditions stated in paragraphs (e) and (f) of this Section; provided that once the conditions stated in paragraphs (e) and (f) of this Section have been satisfied in connection with a Borrowing, they shall be deemed to have been satisfied with respect to all subsequent Borrowings): -34- (a) receipt by the Administrative Agent of a Notice of Borrowing or receipt by the Letter of Credit Issuer of a request from the Borrower for the issuance of a Letter of Credit pursuant to Section 3.04(a); (b) the fact that, immediately before and after such Borrowing (or issuance of such Letter of Credit), no Default shall have occurred and be continuing; (c) the fact that the representations and warranties of the Borrower contained in Article V of this Agreement shall be true in all material respects on and as of the date of such Borrowing or issuance of such Letter of Credit (except to the extent any such representation or warranty is expressly made as of a prior date); (d) the fact that, immediately after such Borrowing or issuance of such Letter of Credit, the conditions set forth in clauses (i) and (ii) of Section 2.01(a) shall have been satisfied; (e) receipt by the Administrative Agent of true, correct and complete copies of the executed Spin-Off Documents, and (f) receipt by the Administrative Agent of evidence of consummation of the Spin-Off Transaction. Each Borrowing and each Notice of Continuation or Conversion and each request for the issuance of a Letter of Credit hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing or date of issuance of such Letter of Credit as to the truth and accuracy of the facts specified in paragraphs (b), (c) and (d) of this Section; provided, that (i) if such Notice of Continuation or Conversion is to a Euro-Dollar Loan, such Notice of Continuation or Conversion shall be deemed to be such a representation and warranty by the Borrower only as to the matters set forth in paragraphs (b) and (d) above, and (ii) if such Notice of Continuation or Conversion is to a Base Rate Loan, Notice of Continuation or Conversion shall be deemed to be a representation and warranty by the Borrower only as to the matters set forth in paragraph (d) above. SECTION 4.03 DETERMINATIONS UNDER SECTION 4.01. For purposes of determining compliance with the conditions specified in Section 4.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Lender prior to the Closing Date, specifying its objection thereto. -35- ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Administrative Agent, the Letter of Credit Issuer and each Lender that: SECTION 5.01 CORPORATE EXISTENCE AND POWER. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary and where the failure to be so qualified, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 5.02 CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Borrower of this Agreement, the Notes, the Swing Loan Note and the other Loan Documents (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of or filing with, any governmental body, agency or official, in any case which has not been taken or made, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries, and (v) do not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 5.03 BINDING EFFECT. This Agreement constitutes a valid and binding agreement of the Borrower enforceable in accordance with its terms, and the Notes, the Swing Loan Note and the other Loan Documents, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower enforceable in accordance with their respective terms, provided that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally. SECTION 5.04 FINANCIAL INFORMATION. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of August 31, 2000, and the related consolidated statements of income, shareholders' equity and cash flows for the Fiscal Year then ended, reported on by Arthur Anderson LLP, copies of which have been delivered to each of the Lenders, and the unaudited consolidated financial statements of the Borrower for the interim period ended May 31, 2001, copies of which have been delivered to each of the Lenders, fairly present in all material respects, in conformity with GAAP, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such dates and their consolidated results of operations and cash flows for such periods stated. (b) Other than the Spin-Off Transaction, and except for the disclosures made on Schedules 1.01B, 1.01C and 1.01D, since August 31, 2000, there has been no event, act, -36- condition or occurrence (including, but not limited to, those arising directly or indirectly from the claims and litigation described in the Side Letter) having, or which could reasonably be expected to have, alone or in the aggregate, a Material Adverse Effect. SECTION 5.05 NO LITIGATION. There is no action, suit or proceeding pending, or to the knowledge of the Borrower threatened, against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect. SECTION 5.06 COMPLIANCE WITH ERISA. (a) The Borrower and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA in excess of $1,000,000 in the aggregate. (b) Neither the Borrower nor any member of the Controlled Group has incurred any withdrawal liability with respect to any Multiemployer Plan under Title IV of ERISA, and no such liability is expected to be incurred. SECTION 5.07 COMPLIANCE WITH LAWS; PAYMENT OF TAXES. The Borrower and its Subsidiaries are in compliance with all applicable laws, regulations and similar requirements of governmental authorities, except where such compliance is being contested in good faith through appropriate proceedings or where non-compliance, alone or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. There have been filed on behalf of the Borrower and its Subsidiaries all Federal, state, local and foreign income, excise, property and other material tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf of the Borrower or any Subsidiary have been paid, except where the amount due is being contested in good faith through appropriate proceedings or where the failure to make payment of the amount due could not reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. The Borrower has not given or been requested to give a waiver of the statute of limitation relating to the payment of Federal, state, local or foreign taxes. SECTION 5.08 SUBSIDIARIES. Each of the Borrower's Subsidiaries is a corporation, limited partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary (except where the failure to be so qualified, alone or in the aggregate, could not reasonably be expected to have a Material Adverse Effect), and has all powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. As of the Closing Date, the Borrower has no Subsidiaries except for those Subsidiaries listed on Schedule 5.08, which accurately sets forth each such Subsidiary's complete name and jurisdiction of incorporation or organization. -37- SECTION 5.09 INVESTMENT COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 5.10 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. SECTION 5.11 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and its Consolidated Subsidiaries has title to its properties sufficient for the conduct of its business, and none of such property is subject to any Lien except as permitted in Section 7.08. SECTION 5.12 NO DEFAULT. Neither the Borrower nor any of its Consolidated Subsidiaries is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 5.13 FULL DISCLOSURE. All information heretofore furnished by the Borrower to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Administrative Agent or any Lender will be, true, accurate and complete in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. The Borrower has disclosed to the Lenders in writing any and all facts which, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect. SECTION 5.14 ENVIRONMENTAL MATTERS. (a) Neither the Borrower nor any Subsidiary is subject to any Environmental Liability which, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect and neither the Borrower nor any Subsidiary has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA, if such designation or designations, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect. None of the Properties has been identified on any current or proposed (i) National Priorities List under 40 C.F.R. ss. 300, (ii) CERCLIS list or (iii) any list arising from a state statute similar to CERCLA, if such identification could, alone or in the aggregate with the identification of other Properties, reasonably be expected to have a Material Adverse Effect. (b) No Hazardous Materials have been or are being used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed or otherwise handled at, or shipped or transported to or from the Properties or are otherwise present at, on, in or under the Properties, or, to the best of the knowledge of the Borrower, at or from any adjacent site or facility, except for Hazardous Materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed, or otherwise handled in compliance with all applicable Environmental Requirements, unless such non-compliance, alone or in the aggregate, -38- could reasonably be expected to have a Material Adverse Effect; provided that the representations made by the Borrower in this paragraph with respect to any Property and the period prior to the first date on which the Borrower or any Subsidiary owned or leased such Property shall be limited to the best knowledge of the Borrower. (c) The Borrower, and each of its Subsidiaries and Affiliates, has procured all Environmental Authorizations necessary for the conduct of its business, except where the failure to have any such Environmental Authorization, alone or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and is in compliance with all Environmental Requirements in connection with the operation of the Properties and the Borrower's, and each of its Subsidiary's and Affiliate's, respective businesses, except where non-compliance, alone or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. SECTION 5.15 CAPITAL STOCK. All Capital Stock, debentures, bonds, notes and all other securities of the Borrower and its Subsidiaries presently issued and outstanding are validly and properly issued in accordance with all applicable laws, including, but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws. The issued shares of Capital Stock of the Borrower's Wholly Owned Subsidiaries are owned by the Borrower free and clear of any Lien (other than any outstanding shares of preferred stock issued by such Wholly-Owned Subsidiary, to the extent such shares or the rights or claims represented thereby would constitute a Lien) or adverse claim. At least a majority of the issued shares of capital stock of each of the Borrower's other Subsidiaries (other than Wholly Owned Subsidiaries) is owned by the Borrower free and clear of any Lien or adverse claim. SECTION 5.16 MARGIN STOCK. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation T, U or X. SECTION 5.17 INSOLVENCY. After giving effect to the execution and delivery of the Loan Documents and the making of the Loans under this Agreement: (i) the Borrower will not (x) be "insolvent," within the meaning of such term as used in O.C.G.A. ss. 18-2-22 or as defined in ss. 101 of the "Bankruptcy Code", or Section 2 of either the "UFTA" or the "UFCA" (to the extent applicable), or as defined or used in any "Other Applicable Law" (as those terms are defined below), or (y) be unable to pay its debts generally as such debts become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA or Section 6 of the UFCA, or (z) have an unreasonably small capital to engage in any business or transaction, whether current or contemplated, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA or Section 5 of the UFCA; and (ii) the obligations of the Borrower under the Loan Documents and with respect to the Loans will not be rendered avoidable under any Other Applicable Law. For purposes of this Section 5.17, "Bankruptcy Code" means Title 11 of the United States Code, "UFTA" means the Uniform Fraudulent Transfer Act, "UFCA" means the Uniform Fraudulent Conveyance Act, and "Other Applicable Law" means any other applicable law pertaining to fraudulent transfers or acts voidable by creditors, in each case as such law may be amended from time to time. -39- SECTION 5.18 INSURANCE. The Borrower and each of its Subsidiaries has (either in the name of the Borrower or in such Subsidiary's own name) insurance, which includes self-insurance which is reasonable and in accordance with sound industry practice taking into account the nature of their respective businesses, on all their respective properties in at least such amounts and against at least such risks as are usually insured against in the same geographic area by companies of established repute engaged in the same or similar business. SECTION 5.19 LABOR MATTERS. Except as could not reasonably be expected to have, alone or in the aggregate, a Material Adverse Effect, (a) there are no strikes or lockouts against the Borrower or any of its Subsidiaries pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened; (b) the hours worked by and payments made to employees of the Borrower or any of its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable federal, state, local or foreign law dealing with such matters; and (c) all payments due from the Borrower or any of its Subsidiaries, or for which any claim may be made against the Borrower or any of its Subsidiaries, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or its Subsidiary, as appropriate. SECTION 5.20 SPIN-OFF DOCUMENTS. For any period on and after the Spin-Off Date, the Spin-Off Documents are in full force and effect and have not been modified, amended or supplemented since delivery thereof to the Administrative Agent as contemplated by Section 4.02(e). ARTICLE VI AFFIRMATIVE COVENANTS The Borrower covenants and agrees that, so long as any Lender has any Commitment or any amount payable under this Agreement or any other Loan Document remains unpaid: SECTION 6.01 INFORMATION. The Borrower will deliver to the Administrative Agent and each of the Lenders: (a) as soon as available and in any event within 90 days after the end of each Fiscal Year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income, shareholders' equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous fiscal year, all certified by Arthur Anderson LLP or other independent public accountants of nationally recognized standing, with such certification to be free of exceptions and qualifications not acceptable to the Required Lenders; (b) as soon as available and in any event within 45 days after the end of each of the first 3 Fiscal Quarters of each Fiscal Year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related statement of income and statement -40- of cash flows for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in each case in comparative form the figures for the corresponding Fiscal Quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) above, a certificate, substantially in the form of Exhibit F (a "Compliance Certificate"), of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 7.05, 7.06, 7.08, 7.09, 7.10 and 7.11 on the date of such financial statements; (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; and (iii) setting forth the Leverage Ratio as of the most recent Performance Pricing Determination Date and the Applicable Margin for Euro-Dollar Loans in effect as a result thereof; (d) within 5 Domestic Business Days after any officer of the Borrower becomes aware of the occurrence of any Default, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (e) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Borrower shall have filed with the Securities and Exchange Commission; (g) if and when any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice, but only to the extent the matters described in this paragraph (g) as to which notice is otherwise to be given, alone or in the aggregate, give rise to or relate to, or could reasonably be expected to give rise to or relate to, obligations of the Controlled Group in excess of $1,000,000; (h) prompt written notice of any legal or arbitral proceedings, or of any proceedings, by or before any governmental or regulatory authority or agency, and any material development in respect of such proceedings, affecting the Borrower or any of its Subsidiaries, if an adverse determination in any such proceeding could reasonably be expected to have, alone or in the aggregate, a Material Adverse Effect; and -41- (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Lender, may reasonably request. SECTION 6.02 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Borrower will (i) keep, and cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all material dealings and transactions in relation to its business and activities; and (ii) permit, and cause each Subsidiary to permit, representatives of the Administrative Agent or any Lender at the Administrative Agent's or such Lender's expense prior to the occurrence of a Default and at the Borrower's expense after the occurrence of a Default to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants. The Borrower agrees to cooperate and assist in, and shall have a right to have reasonable prior notice of, and a right to be present at, such visits and inspections, in each case at such reasonable times and as often as may reasonably be desired. SECTION 6.03 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Borrower shall, and shall cause each Subsidiary to, maintain its corporate existence and carry on its business in substantially the same manner and in substantially the same fields as such business is now carried on and maintained. SECTION 6.04 COMPLIANCE WITH LAWS; PAYMENT OF TAXES. The Borrower will, and will cause each of its Subsidiaries and each member of the Controlled Group to, comply with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to PBGC), except where the necessity of such compliance is being contested in good faith through appropriate proceedings diligently pursued or where non-compliance could not, alone or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Borrower will, and will cause each of its Subsidiaries to, pay promptly when due all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a lien against the property of the Borrower or any Subsidiary, except liabilities being contested in good faith and against the Borrower will set up reserves in accordance with GAAP. SECTION 6.05 INSURANCE. The Borrower will maintain, and will cause each of its Subsidiaries to maintain (either in the name of the Borrower or in such Subsidiary's own name) insurance, which may include self-insurance which is reasonable and in accordance with sound industry practice taking into account the nature of their respective businesses, on all its property in at least such amounts and against at least such risks as are usually insured against in the same geographic area by companies of established repute engaged in the same or similar business. SECTION 6.06 MAINTENANCE OF PROPERTY. The Borrower shall, and shall cause each Subsidiary to, maintain all of its material properties and assets in good condition, repair and working order, ordinary wear and tear excepted. -42- SECTION 6.07 ENVIRONMENTAL MATTERS. (a) The Borrower shall furnish to the Lenders and the Administrative Agent prompt written notice of all material Environmental Liabilities, pending, threatened or anticipated Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders, and Environmental Releases at, on, in, under or in any way affecting the Properties or any adjacent property, if such Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders or Environmental Releases relate to matters that could reasonably be expected to have, along or in the aggregate, a Material Adverse Effect, and all facts, events, or conditions that could lead to any of the foregoing. (b) The Borrower will, and will cause each of its Subsidiaries to, handle and use all Hazardous Materials in compliance in all material respects with all applicable Environmental Requirements. (c) The Borrower agrees that upon the occurrence of a material Environmental Release at or on any of the Properties it will act immediately to investigate the extent of, and to take action required under applicable law with respect to, such Environmental Release, in accordance with all applicable Environmental Requirements. SECTION 6.08 MATERIAL SUBSIDIARIES. On the Spin-Off Date, the Borrower shall cause the Initial Guarantor to execute and deliver the Guaranty to the Administrative Agent, together with those items required with respect to the Borrower pursuant to Section 4.01(c) and (e), modified appropriately to refer to the Initial Guarantor. Thereafter, the Borrower shall cause any Person which becomes a Material Subsidiary to become a party to, and agree to be bound by the terms of, the Guaranty and the Indemnity, Subrogation and Contribution Agreement pursuant to joinder agreements in form and substance satisfactory to the Administrative Agent executed and delivered to the Administrative Agent within 10 Domestic Business Days after the day on which such Person became a Material Subsidiary (and in the case of the first Material Subsidiary becoming a party to the Guaranty pursuant to this Section following the Spin-Off Date, instead of a joinder agreement to the Indemnity, Subrogation and Contribution Agreement, the Borrower, the Initial Guarantor and such Material Subsidiary shall execute and deliver to the Administrative Agent the Indemnity, Subrogation and Contribution Agreement). The Borrower shall also cause the items specified in Section 4.01(c) and (e) to be delivered to the Administrative Agent concurrently with the joinder agreements (or the Indemnity, Subrogation and Contribution Agreement, as the case may be) referred to above, modified appropriately to refer to such joinder agreements (or the Indemnity, Subrogation and Contribution Agreement, as the case may be) and such Material Subsidiary (and, in the case of the Indemnity, Subrogation and Contribution Agreement, the Initial Guarantor and the Borrower). ARTICLE VII NEGATIVE COVENANTS The Borrower covenants and agrees that, so long as any Lender has any Commitment or any amount payable under this Agreement or any other Loan Document remains unpaid: - 43 - SECTION 7.01 USE OF PROCEEDS. No portion of the proceeds of the Loans will be used by the Borrower or any Subsidiary (i) in connection with, whether directly or indirectly, any tender offer for, or other acquisition of, stock of any corporation with a view towards obtaining control of such other corporation, unless the provisions of Section 7.06 would not be violated, (ii) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, or (iii) for any purpose in violation of any applicable law or regulation. SECTION 7.02 CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. Other than consummation of the Spin-Off Transaction, the Borrower will not, nor will it permit any Subsidiary to, consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person, or discontinue or eliminate any business line or segment, provided that (a) the Borrower may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) the Borrower is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (b) Subsidiaries of the Borrower may merge with one another, and (c) the foregoing limitation on the sale, lease or other transfer of assets and on the discontinuation or elimination of a business line or segment shall not prohibit (i) the sale of inventory or the sale or transfer of other assets, of the Borrower or any Subsidiary, in any case in the ordinary course of business, or (ii) during any Fiscal Quarter, a transfer of assets or the discontinuance or elimination of a business line or segment (in a single transaction or in a series of related transactions) unless the aggregate assets to be so transferred or utilized in a business line or segment to be so discontinued, when combined with all other assets transferred, and all other assets utilized in all other business lines or segments discontinued, during such Fiscal Quarter and the immediately preceding 3 Fiscal Quarters, constituted more than 10% of Consolidated Total Assets at the end of the most recent Fiscal Year immediately preceding such Fiscal Quarter. SECTION 7.03 CHANGE IN FISCAL YEAR. Without the prior written consent of the Required Lenders (which consent shall not be unreasonably withheld) the Borrower will not change its Fiscal Year. SECTION 7.04 TRANSACTIONS WITH AFFILIATES. Neither the Borrower nor any of its Subsidiaries shall enter into, or be a party to, any transaction with any Affiliate of the Borrower or such Subsidiary (which Affiliate is not the Borrower or a Wholly Owned Subsidiary), except for (i) the Spin-Off Transaction or (ii) as permitted by law and in the ordinary course of business and pursuant to terms which are no less favorable to the Borrower or such Subsidiary than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate. SECTION 7.05 RESTRICTED PAYMENTS. The Borrower will not declare or make any Restricted Payment after September 1, 2001, if the aggregate amount of such Restricted Payments would exceed (a) in the case of the Fiscal Year ending August 31, 2002, the greater of $2,000,000 and 35% of Consolidated Net Income for such Fiscal Year, and (b) in the case of any subsequent Fiscal Year, 35% of cumulative Consolidated Net Income for all fiscal periods beginning September 1, 2001 (excluding in each case in the calculation of Consolidated Net Income those charges set forth on Schedule 7.05 hereto); provided that (i) any Restricted Payment made in connection with the consummation of the Spin-Off Transaction (including the - 44 - dividends paid with respect to the Fiscal Quarter ending November 30, 2001) shall not be prohibited by this Section or be included as a Restricted Payment for the purpose of determining compliance with this Section and (ii) after giving effect to the payment of any Restricted Payments, no Default shall be in existence or be created thereby. SECTION 7.06 INVESTMENTS. Neither the Borrower nor any of its Subsidiaries shall make Investments in any Person except (i) loans or advances to employees not exceeding $1,000,000 in the aggregate principal amount outstanding at any time, in each case made in the ordinary course of business and consistent with practices existing on the Closing Date; (ii) deposits required by government agencies or public utilities, (iii) Investments in direct obligations of the United States Government maturing within one year, (iv) Investments in certificates of deposit, bankers acceptances and time deposits issued by a United States bank whose long-term certificates of deposit are rated at least A- or the equivalent thereof by S&P and A3 or the equivalent thereof by Moody's, (v) Investments in commercial paper rated A1 or the equivalent thereof by S&P or P1 or the equivalent thereof by Moody's and in either case maturing within 9 months after the date of acquisition, (vi) Investments in tender bonds the payment of the principal of and interest on which is fully supported by a letter of credit issued by a United States bank whose long-term certificates of deposit are rated at least AA or the equivalent thereof by S&P and Aa or the equivalent thereof by Moody's, (vii) Acquisitions permitted by Section 7.07, (viii) Investments in Subsidiaries, (ix) Investments or loans or advances by the Borrower to or in any Guarantor or Investments or loans or advances by any Subsidiary in or to the Borrower or any Guarantor, and (x) other Investments which do not at any time exceed an aggregate amount outstanding equal to $20,000,000; provided, however, immediately after giving effect to the making of any Investment, no Default shall have occurred and be continuing. SECTION 7.07 ACQUISITIONS. Neither the Borrower nor any of its Subsidiaries shall consummate, or enter into any agreement providing for the consummation by the Borrower or any of its subsidiaries, of, any Acquisition other than a Permitted Acquisition; provided that the aggregate Purchase Price paid for such Permitted Acquisitions from and after the Closing Date shall not exceed $60,000,000. SECTION 7.08 LIMITATION ON LIENS AND SUBSIDIARY DEBT. Neither the Borrower nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, and the Borrower shall not permit any Subsidiary to incur any Debt, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal amount not exceeding $0; (b) any Lien existing on any specific fixed asset of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any specific fixed asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset, provided that such Lien attaches to such asset concurrently with or within 18 months after the acquisition or completion of construction thereof; - 45 - (d) any Lien on any specific fixed asset of any corporation existing at the time such corporation is merged or consolidated with or into the Borrower or a Subsidiary and not created in contemplation of such event; (e) any Lien existing on any specific fixed asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition; (f) Liens securing Debt owing by any Subsidiary to the Borrower; (g) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing paragraphs of this Section, provided that (i) such Debt is not secured by any additional assets, and (ii) the amount of such Debt secured by any such Lien is not increased; (h) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with generally accepted accounting principles; (i) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law, created in the ordinary course of business and for amounts not past due for more than 60 days or which are being contested in good faith by appropriate proceedings which are sufficient to prevent imminent foreclosure of such Liens, are promptly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with generally accepted accounting principles; (j) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts(other than for the repayment of Debt), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (k) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and other restrictions, charges or encumbrances (whether or not recorded) affecting the use of real property; (l) Liens with respect to judgments and attachments which do not result in an Event of Default; (m) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other obligations arising in the ordinary course of business; - 46 - (n) Liens incidental to the conduct of its business or the ownership of its assets which (i) do not secure Debt and (ii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (o) any Lien on Margin Stock; (p) Debt owing to the Borrower or a Guarantor; and (q) Liens not otherwise permitted by the foregoing paragraphs of this Section securing Consolidated Debt (other than indebtedness represented by the Notes or the Swing Loan Note), and Debt of Subsidiaries not otherwise permitted by paragraph (p), in an aggregate principal amount at any time outstanding not to exceed 10% of Consolidated Total Assets. SECTION 7.09 FIXED CHARGES COVERAGE. At the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending November 30, 2001, the ratio of Income Available for Fixed Charges to Consolidated Fixed Charges for the period of 4 consecutive Fiscal Quarters then ended shall not be less than 1.5 to 1.0. SECTION 7.10 LEVERAGE RATIO. As of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending November 30, 2001, the Leverage Ratio for the period of 4 consecutive Fiscal Quarters then ended will not at any time exceed 3.0 to 1.00. SECTION 7.11 MINIMUM STOCKHOLDERS EQUITY. Stockholders Equity will at no time be less than $210,000,000 plus the sum of (i) 50% of the cumulative Reported Net Income of the Borrower and its Consolidated Subsidiaries during any period after August 31, 2001 (taken as one accounting period), calculated quarterly at the end of each Fiscal Quarter but excluding from such calculations of Reported Net Income for purposes of this clause (i), any Fiscal Quarter in which the Reported Net Income of the Borrower and its Consolidated Subsidiaries is negative, and (ii) 100% of the cumulative Net Proceeds of Capital Stock received during any period after August 31, 2001, calculated quarterly at the end of each Fiscal Quarter. SECTION 7.12 MULTIEMPLOYER PLANS. The Borrower shall not permit the aggregate complete or partial withdrawal liability under Title IV of ERISA with respect to Multiemployer Plans incurred by the Borrower and members of the Controlled Group to exceed $1,000,000 at any time. For purposes of this Section 7.12, the amount of withdrawal liability of the Borrower and members of the Controlled Group at any date shall be the aggregate present value of the amount claimed to have been incurred less any portion thereof which the Borrower and members of the Controlled Group have paid or as to which the Borrower reasonably believes, after appropriate consideration of possible adjustments arising under Sections 4219 and 4221 of ERISA, it and members of the Controlled Group will have no liability, provided that the Borrower shall obtain prompt written advice from independent actuarial consultants supporting such determination. SECTION 7.13 NO RESTRICTIVE AGREEMENT. Except for the Loan Documents, the Borrower will not, nor will it permit any of its Subsidiaries to, enter into, after the date of this Agreement, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, any of the following by the Borrower or any Subsidiary: the - 47 - incurrence or payment of Debt, the granting of Liens, the declaration or payment of dividends or other distributions in respect of stock of the Borrower or any Subsidiary, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition or property, real, personal or mixed, tangible or intangible; provided, however, that any such indenture, agreement, instrument or other arrangement executed and delivered by the Borrower for the sole purpose of financing the acquisition of assets of the Borrower may impose materially adverse conditions solely upon the sale, assignment, transfer or other disposition of the assets being financed pursuant to such indenture, agreement, instrument or other arrangement. ARTICLE VIII DEFAULTS SECTION 8.01 EVENTS OF DEFAULT. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan or any Reimbursement Obligation or shall fail to pay any interest on any Loan within 5 Domestic Business Days after such interest shall become due, or shall fail to pay any fee or other amount payable hereunder within 5 Domestic Business Days after such fee or other amount becomes due; or (b) the Borrower shall fail to observe or perform any covenant contained in Sections 6.01(d) or 6.02(ii) or Article VII; or (c) the Borrower shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Agreement (other than those covered by paragraph (a) or (b) above) and such failure shall not have been cured within 30 days after the earlier to occur of (i) written notice thereof has been given to the Borrower by the Administrative Agent at the request of any Lender or (ii) the Borrower otherwise becomes aware of any such failure; or (d) any representation, warranty, certification or statement made by the Borrower in Article V of this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect or misleading in any material respect when made (or deemed made); or (e) the Borrower or any Subsidiary shall fail to make any payment in respect of Debt outstanding in an aggregate principal amount equal to or greater than $5,000,000 (other than the Notes and the Swing Loan Note) after any applicable grace period (or if there are no applicable grace periods, when due); or (f) any event or condition shall occur which results in the acceleration of the maturity of Debt outstanding in an aggregate principal amount equal to or greater than $5,000,000 of the Borrower or any Subsidiary (including, without limitation, any required mandatory prepayment or "put" of such Debt to the Borrower or any Subsidiary) or enables (or, with the giving of notice or lapse of time or both, would enable) the holders of such Debt or commitment or any Person acting on such holders' behalf to accelerate the maturity thereof or - 48 - terminate any such commitment (including, without limitation, any required mandatory prepayment or "put" of such Debt to the Borrower or any Subsidiary); or (g) the Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally, or shall admit in writing its inability, to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or (i) if any of the following shall occur and could reasonably be expected to have, alone or in the aggregate, a Material Adverse Effect: the Borrower or any member of the Controlled Group shall fail to pay when due any material amount which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by the Borrower, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or (j) one or more judgments or orders for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower or any Subsidiary and such judgment or order shall continue unsatisfied or unstayed for a period of 30 days; or (k) a federal tax lien shall be filed against the Borrower or any Subsidiary under Section 6323 of the Code or a lien of the PBGC shall be filed against the Borrower or any Subsidiary under Section 4068 of ERISA and in either case such lien shall remain undischarged for a period of 30 days after the date of filing; or (l) (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange - 49 - Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of the voting stock of the Borrower; or (ii) as of any date a majority of the Board of Directors of the Borrower consists of individuals who were not either (A) directors of the Borrower as of the corresponding date of the previous year, (B) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A), or (C) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A) and individuals described in clause (B); or (m) if the Guaranty shall cease to be in full force and effect, or if any Guarantor or any Person on behalf of Guarantor shall deny or disaffirm any Guarantor's obligations under the Guaranty or shall assert that any obligations under the Guaranty are invalid or unenforceable. then, and in every such event, (i) the Administrative Agent shall, if requested by the Required Lenders, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) the Administrative Agent shall, if requested by the Required Lenders, by notice to the Borrower declare the Notes and the Swing Loan Note (together with accrued interest thereon), and all other amounts payable hereunder and under the other Loan Documents, to be, and the Notes and the Swing Loan Note (together with accrued interest thereon), and all other amounts payable hereunder and under the other Loan Documents shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, together with interest at the Default Rate accruing on the principal amount thereof from and after the date of such Event of Default; provided that if any Event of Default specified in paragraph (g) or (h) above occurs with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Lenders, the Commitments shall thereupon terminate and the Notes and the Swing Loan Note (together with accrued interest thereon) and all other amounts payable hereunder and under the other Loan Documents shall automatically and without notice become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, together with interest thereon at the Default Rate accruing on the principal amount thereof from and after the date of such Event of Default. Notwithstanding the foregoing, the Administrative Agent shall have available to it all other remedies at law or equity. In addition to the foregoing, if an Event of Default shall have occurred and be continuing, the Borrower, automatically and immediately and without the need for any demand by the Agent or any Lender, shall be obligated to deposit with the Administrative Agent cash collateral in an amount equal to 100% of the aggregate undrawn amounts available under all outstanding Letters of Credit. ARTICLE IX THE ADMINISTRATIVE AGENT SECTION 9.01 APPOINTMENT; POWERS AND IMMUNITIES. Each Lender hereby irrevocably appoints and authorizes the Administrative Agent to act as its Administrative Agent - 50 - hereunder and under the other Loan Documents with such powers as are specifically delegated to the Administrative Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Administrative Agent: (a) shall have no duties or responsibilities except as expressly set forth in this Agreement and the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee for any Lender; (b) makes no warranty or representation to any Lender and shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any Lender under, this Agreement or any other Loan Document, or for the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Borrower to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document except to the extent requested by the Required Lenders, and then only on terms and conditions satisfactory to the Administrative Agent, and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Loan Document or any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. The Administrative Agent may employ Administrative Agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such Administrative Agents or attorneys-in-fact selected by it with reasonable care. The provisions of this Article IX are solely for the benefit of the Administrative Agent and the Lenders, and the Borrower shall not have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement and under the other Loan Documents, the Administrative Agent shall act solely as Administrative Agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower. The duties of the Administrative Agent shall be ministerial and administrative in nature, and the Administrative Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender. SECTION 9.02 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants or other experts selected by the Administrative Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions signed by the Required Lenders, and such instructions of the Required Lenders in any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. SECTION 9.03 DEFAULTS. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default (other than the nonpayment of principal of or interest on the Loans) unless the Administrative Agent has received notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default or an Event of Default, the Administrative Agent shall give prompt - 51 - notice thereof to the Lenders. The Administrative Agent shall (subject to Section 11.06) take such action hereunder with respect to such Default or Event of Default as shall be directed by the Required Lenders, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. SECTION 9.04 RIGHTS OF ADMINISTRATIVE AGENT AND ITS AFFILIATES AS A LENDER. With respect to its Commitment and the Loans made by it and any of its Affiliates, Wachovia (and any successor acting as Administrative Agent hereunder) in its capacity as a Lender hereunder and any Affiliate of Wachovia in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Wachovia in its individual capacity and any Affiliate of the Administrative Agent in its individual capacity. Wachovia (and any successor acting as Administrative Agent hereunder) and any Affiliate thereof may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower (and any of the Borrower's Affiliates) as if it were not acting as the Administrative Agent, and Wachovia and any Affiliate thereof may accept fees and other consideration from the Borrower or any Subsidiary or Affiliate thereof for services in connection with this Agreement or any other Loan Document or otherwise without having to account for the same to the Lenders. SECTION 9.05 INDEMNIFICATION. Each Lender severally agrees to indemnify the Administrative Agent, to the extent the Administrative Agent shall not have been reimbursed by the Borrower, ratably in accordance with its Commitment, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including, without limitation, counsel fees and disbursements) or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Borrower is obligated to pay under Section 11.03 or any amount the Borrower is obligated to pay under Section 11.04, but excluding, unless a Default has occurred and is continuing, the normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or any such other documents; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Administrative Agent. If any indemnity furnished to the Administrative Agent for any purpose shall, in the opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. SECTION 9.06 CONSEQUENTIAL DAMAGES. THE ADMINISTRATIVE AGENT SHALL NOT BE RESPONSIBLE OR LIABLE TO ANY LENDER, THE BORROWER OR ANY OTHER PERSON OR ENTITY FOR ANY PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THIS - 52 - AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. SECTION 9.07 REGISTERED HOLDER OF LOAN TREATED AS OWNER. The Administrative Agent may deem and treat each Person in whose name a Loan is registered as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Administrative Agent and the provisions of Section 11.08(c) have been satisfied. Any requests, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of that Note or of any Note or Notes issued in exchange therefor or replacement thereof. SECTION 9.08 NONRELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Loan Documents. The Administrative Agent shall not be required to keep itself (or any Lender) informed as to the performance or observance by the Borrower of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any other Person. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder or under the other Loan Documents, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Person (or any of their Affiliates) which may come into the possession of the Administrative Agent or any of its Affiliates. SECTION 9.09 FAILURE TO ACT. Except for action expressly required of the Administrative Agent hereunder or under the other Loan Documents, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Lenders of their indemnification obligations under Section 9.05 against any and all liability and expense which may be incurred by the Administrative Agent by reason of taking, continuing to take, or failing to take any such action. SECTION 9.10 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent's notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent. Any successor Administrative Agent shall be a United States bank or other financial institution which has a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative - 53 - Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article IX shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder. SECTION 9.11 OTHER AGENTS. The Borrower and each Lender hereby acknowledges that any Lender designated as an "Agent" on the signature pages hereof (other than the Administrative Agent) shall not have any obligations, duties or liabilities hereunder other than in its capacity as a Lender. ARTICLE X CHANGE IN CIRCUMSTANCES; COMPENSATION SECTION 10.01 BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If on or prior to the first day of any Interest Period: (a) the Administrative Agent determines that deposits in Dollars (in the applicable amounts) are not being offered in the relevant market for such Interest Period, or (b) the Required Lenders advise the Administrative Agent that the London Interbank Offered Rate as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Lenders of funding Euro-Dollar Loans for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Lenders to make Euro-Dollar Loans specified in such notice, or to permit continuations or conversions into Euro-Dollar Loans, shall be suspended. Unless the Borrower notifies the Administrative Agent at least 2 Euro-Dollar Business Days before the date of any Borrowing of Euro-Dollar Loans for which a Notice of Borrowing has previously been given, or continuation or conversion into such Euro-Dollar Loans for which a Notice of Continuation or Conversion has previously been given, that it elects not to borrow or so continue or convert on such date, such Borrowing shall instead be made as a Base Rate Borrowing, or such Euro-Dollar Loan shall be converted to a Base Rate Loan. SECTION 10.02 ILLEGALITY. If, after the date hereof, the adoption of any applicable law, rule or regulation, or any change therein or any existing or future law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (any such agency being referred to as an "Authority" and any such event being referred to as a "Change of Law"), or compliance by the Letter of Credit Issuer or any Lender (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority shall make it unlawful or impossible for the Letter of Credit Issuer or any Lender (or its Lending Office) to make, maintain or fund its Euro-Dollar Loans and the Letter of Credit Issuer or such Lender shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof - 54 - to the other Lenders and the Borrower, whereupon until the Letter of Credit Issuer or such Lender notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of the Letter of Credit Issuer or such Lender to make or permit continuations or conversions of Euro-Dollar Loans and the obligation of the Letter of Credit Issuer to issue the Letter of Credit, as applicable. Before giving any notice to the Administrative Agent pursuant to this Section, the Letter of Credit Issuer or such Lender shall designate a different Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of the Letter of Credit Issuer or such Lender, be otherwise disadvantageous to the Letter of Credit Issuer or such Lender. If such Lender shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity, and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each Euro-Dollar Loan of such Lender, together with accrued interest thereon and any amount due such Lender pursuant to Section 10.05(a). Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Lender (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Lenders), and such Lender shall make such a Base Rate Loan. SECTION 10.03 INCREASED COST AND REDUCED RETURN. (a) If after the date hereof, a Change of Law or compliance by the Letter of Credit Issuer or any Lender (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority: (i) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by the Letter of Credit Issuer or any Lender (or its Lending Office); or (ii) shall impose on the Letter of Credit Issuer or any Lender (or its Lending Office) or on the London interbank market any other condition affecting its Euro-Dollar Loans, its Notes or its obligation to make Euro-Dollar Loans, or the Letters of Credit, the obligation of the Letter of Credit Issuer to issue any Letter of Credit or the obligation of any Lender to purchase a participation interest in any such Letter of Credit; and the result of any of the foregoing is to increase the cost to the Letter of Credit Issuer or such Lender (or its Lending Office) of making or maintaining any Letter of Credit or any Loan, as applicable, or to reduce the amount of any sum received or receivable by the Letter of Credit Issuer or such Lender (or its Lending Office) under this Agreement or under its Notes with respect thereto, by an amount deemed by the Letter of Credit Issuer or such Lender to be material, then, within 15 days after demand by the Letter of Credit Issuer or such Lender (with a copy to the Administrative Agent), the Borrower shall pay to the Letter of Credit Issuer or such Lender such additional amount or amounts as will compensate such Letter of Credit Issuer or Lender for such increased cost or reduction. - 55 - (b) If any Lender shall have determined that after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof, or compliance by any Lender (or its Lending Office or the bank holding company of which such Lender is a Subsidiary) with any request or directive regarding capital adequacy (whether or not having the force of law) of any Authority, has or would have the effect of reducing the rate of return on such Lender's (or such bank holding company's) capital as a consequence of its obligations hereunder to a level below that which the Letter of Credit Issuer or such Lender (or such bank holding company) could have achieved but for such adoption, change or compliance (taking into consideration the Letter of Credit Issuer or such Lender's (or such bank holding company's) policies with respect to capital adequacy) by an amount deemed by the Letter of Credit Issuer or such Lender to be material, then from time to time, within 15 days after demand by the Letter of Credit Issuer or such Lender, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender (or such bank holding company) for such reduction. (c) The Letter of Credit Issuer or affected Lender, as applicable, will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle the Letter of Credit Issuer or such Lender to compensation pursuant to this Section and will (in the case of a Lender) designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. A reasonably detailed certificate of the Letter of Credit Issuer or any Lender claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, the Letter of Credit Issuer or such Lender may use any reasonable averaging and attribution methods. (d) The provisions of this Section 10.03 shall be applicable with respect to any Participant or Assignee, and any calculations required by such provisions shall be made based upon the circumstances of such Participant or Assignee. SECTION 10.04 BASE RATE LOANS SUBSTITUTED FOR EURO-DOLLAR LOANS. If (i) the obligation of any Lender to make or maintain Euro-Dollar Loans has been suspended pursuant to Section 10.02 or (ii) any Lender has demanded compensation under Section 10.03, and the Borrower shall, by at least 5 Euro-Dollar Business Days' prior notice to such Lender through the Administrative Agent, have elected that the provisions of this Section shall apply to such Lender, then, unless and until such Lender notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply: (a) all Loans which would otherwise be made by such Lender as, or permitted to be continued as or converted into Euro-Dollar Loans shall instead be made as or converted into Base Rate Loans, (in all cases interest and principal on such Loans shall be payable contemporaneously with the related Euro-Dollar Loans of the other Lenders), and (b) after each of its Euro-Dollar Loans has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead. - 56 - SECTION 10.05 COMPENSATION. Upon the request of any Lender, delivered to the Borrower and the Administrative Agent, the Borrower shall pay to such Lender such amount or amounts as shall compensate such Lender for any loss, cost or expense incurred by such Lender as a result of: (a) any payment or prepayment (pursuant to Section 2.10, 2.12, 8.01, 10.02 or otherwise) of a Euro-Dollar Loan on a date other than the last day of an Interest Period for such Loan; or (b) any failure by the Borrower to prepay a Euro-Dollar Loan on the date for such prepayment specified in the relevant notice of prepayment hereunder; or (c) any failure by the Borrower to borrow a Euro-Dollar Loan on the date for the Borrowing of which such Euro-Dollar Loan; such compensation to include, without limitation, an amount equal to the excess, if any, of (x) the amount of interest which would have accrued on the amount so paid or prepaid or not prepaid or borrowed for the period from the date of such payment, prepayment or failure to prepay or borrow to the last day of the then current Interest Period for such Euro-Dollar Loan (or, in the case of a failure to prepay or borrow, the Interest Period for such Euro-Dollar Loan which would have commenced on the date of such failure to prepay or borrow) at the applicable rate of interest for such Euro-Dollar Loan provided for herein over (y) the amount of interest (as reasonably determined by such Lender) such Lender would have paid on deposits in Dollars of comparable amounts having terms comparable to such period placed with it by leading lenders in the London interbank market (if such Loan is a Euro-Dollar Loan). A reasonably detailed certificate of any Lender claiming compensation under this Section and setting forth the amount to be paid to it hereunder shall be conclusive in the absence of manifest error. SECTION 10.06 REPLACEMENT OF LENDERS. If any Lender (a "Notice Lender") makes demand for amounts owed under Section 10.03 (other than due to any change in the Eurodollar Reserve Percentage), or gives notice under Section 10.02 that it can no longer participate in Euro-Dollar Loans, then in each case the Borrower shall have the right, if no Default or Event of Default exists, and subject to the terms and conditions set forth in Section 11.08(c), to designate an assignee (a "Replacement Lender") to purchase the Notice Lender's share of outstanding Loans and all other obligations hereunder and to assume the Notice Lender's obligations to the Borrower under this Agreement; provided, that, any Replacement Lender must be reasonably acceptable to the Administrative Agent (and, in any event, may not be an Affiliate of the Borrower). Subject to the foregoing, the Notice Lender agrees to assign to the Replacement Lender its share of outstanding Loans and its Commitment, and to delegate to the Replacement Lender its obligations to the Borrower under this Agreement and its future obligations to the Administrative Agent under this Agreement, all in accordance with Section 11.08(c). Upon such sale and delegation by the Notice Lender and the purchase and assumption by the Replacement Lender, and compliance with the provisions of Section 11.08(c), the Notice Lender shall cease to be a "Lender" hereunder and the Replacement Lender shall become a "Lender" under this Agreement; provided, however, that any Notice Lender shall continue to be entitled to the indemnification provisions contained elsewhere herein. - 57 - ARTICLE XI MISCELLANEOUS SECTION 11.01 NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including telecopier or similar writing) and shall be given to such party at its address or telecopier number set forth on the signature pages hereof or such other address or telecopier number as such party may hereafter specify for the purpose by notice to each other party; provided that from and after the Spin-Off Date, notices, requests and other communications to be given to the Borrower shall be addressed to the attention of Brock A. Hattox, Phone: (404) 853-1215, Fax: (404) 853-1272. Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section and the confirmation is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent under Article II or Article X shall not be effective until received. SECTION 11.02 NO WAIVERS. No failure or delay by the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any Note or the Swing Loan Note or other Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 11.03 EXPENSES; DOCUMENTARY TAXES. The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Administrative Agent, including actual and reasonable fees and disbursements of special counsel for the Administrative Agent, in connection with the preparation of this Agreement and the other Loan Documents, any waiver or consent hereunder or thereunder or any amendment hereof or thereof or any Default or alleged Default hereunder or thereunder and (ii) if a Default occurs, all reasonable out-of-pocket expenses incurred by the Administrative Agent and the Lenders, including actual and reasonable fees and disbursements of counsel, in connection with such Default and collection and other enforcement proceedings resulting therefrom, including reasonable out-of-pocket expenses incurred in enforcing this Agreement and the other Loan Documents. The Borrower shall indemnify the Administrative Agent and each Lender against any transfer taxes, documentary taxes, assessments or charges made by any Authority by reason of the execution and delivery of this Agreement or the other Loan Documents. SECTION 11.04 INDEMNIFICATION. The Borrower shall indemnify the Administrative Agent, the Lenders and each Affiliate thereof and their respective directors, officers, employees and Administrative Agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any transaction contemplated by this Agreement or any other Loan Document or any actual or proposed use by the Borrower of the proceeds of any extension of credit by any Lender hereunder or breach by the Borrower of this Agreement or any other Loan Document or from any investigation, litigation (including, without limitation, any actions taken by the Administrative Agent or any of the Lenders to enforce this Agreement or any of the other Loan Documents) or other proceeding (including, without limitation, any threatened investigation or proceeding) relating to the foregoing, and the Borrower shall reimburse the Administrative Agent and each Lender, and each Affiliate thereof and their respective directors, officers, employees and Administrative Agents, upon demand for any expenses (including, without - 58 - limitation, actual and reasonable legal fees) incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages or expenses which are determined by a final judgment of a court to have been incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified. In the case of any investigation, litigation or other proceeding to which the indemnity in this Section applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower or any Subsidiary or Affiliate thereof, or any of their respective directors, shareholders, or creditors or an Indemnified Party, or any other Person or any Indemnified Party is otherwise a party thereto and whether or not any transaction contemplated by this Agreement or any other Loan Document is consummated. Without in any way limiting Section 9.06, the Borrower agrees, on its own behalf and on behalf of each of its Subsidiaries and Affiliates, not to assert any claim against the Administrative Agent, any Lender, any of their respective Affiliates, or any of their respective directors, officers, employees, attorneys, agents and advisors, on any theory of liability, for special, indirect, consequential or punitive damages arising out of otherwise relating to this Agreement or any of the other Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of any of the Loans. SECTION 11.05 SETOFF; SHARING OF SETOFFS. (a) The Borrower hereby grants to the Administrative Agent and each Lender and to Wachovia as to the Swing Loan Note a right of set-off for all indebtedness and obligations owing to them from the Borrower against all deposits or deposit accounts, of any kind, or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to the Administrative Agent or any such Lender or Wachovia or otherwise in the possession or control of the Administrative Agent or any such Lender or Wachovia for any purpose for the account or benefit of the Borrower and including any balance of any deposit account or of any credit of the Borrower with the Administrative Agent or any such Lender or Wachovia, whether now existing or hereafter established hereby authorizing the Administrative Agent and each Lender or Wachovia at any time or times with or without prior notice during the existence of an Event of Default to apply such balances or any part thereof to such of the indebtedness and obligations owing by the Borrower to the Lenders and/or the Administrative Agent or Wachovia then past due and in such amounts as they may elect, and whether or not the collateral, if any, or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this paragraph, all remittances and property shall be deemed to be in the possession of the Administrative Agent or any such Lender or Wachovia as soon as the same may be put in transit to it by mail or carrier or by other bailee. Any Lender or Wachovia exercising its right of set-off pursuant to this Section agrees to notify the Borrower of such exercise promptly following such exercise; provided that the failure to give any such notice shall not affect the validity of the exercise of any such right of set-off. - 59 - (b) Each Lender agrees that if it shall, by exercising any right of setoff or counterclaim or resort to collateral security or otherwise, receive payment of a proportion of the aggregate amount of principal and interest owing with respect to the Note held by it which is greater than the proportion received by any other Lender in respect of the aggregate amount of all principal and interest owing with respect to the Note held by such other Lender, the Lender receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Lenders owing to such other Lenders, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Lenders owing to such other Lenders shall be shared by the Lenders pro rata; provided that (i) nothing in this Section shall impair the right of any Lender to exercise any right of setoff or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes, and (ii) if all or any portion of such payment received by the purchasing Lender is thereafter recovered from such purchasing Lender, such purchase from each other Lender shall be rescinded and such other Lender shall repay to the purchasing Lender the purchase price of such participation to the extent of such recovery together with an amount equal to such other Lender's ratable share (according to the proportion of (x) the amount of such other Lender's required repayment to (y) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 11.06 AMENDMENTS AND WAIVERS. Any provision of this Agreement, the Notes or any other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if the rights or duties of the Administrative Agent are affected thereby, by the Administrative Agent); provided that, no such amendment or waiver shall, (a) unless signed by each Lender directly affected thereby (i) increase the Commitment of any Lender, (ii) reduce the principal of or the rate of interest on any Loan or any fees (other than fees payable to the Administrative Agent) hereunder, (iii) extend the date fixed for any payment of principal of or interest on any Loan or any fees hereunder, (iv) reduce the amount of principal, interest or fees due on any date fixed for the payment thereof, (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the percentage of Lenders, which shall be required for the Lenders or any of them to take any action under this Section or any other provision of this Agreement, (vi) change the manner of application of any payments made under this Agreement or the Notes, (vii) release or substitute all or any substantial part of the collateral (if any) held as security for the Loans, or (viii) release any Guarantee given to support payment of the Loans, or (b) amend, modify or waive any provision of Section 2.01(b) or the Swing Loan Note without the consent of Wachovia. SECTION 11.07 INDEPENDENCE OF COVENANTS. All covenants under this Agreement and the other Loan Documents shall be given independent effect so that if a particular action or condition is not permitted by any such covenant, the fact that it would be permitted by an - 60 - exception to, or would be otherwise allowed by, another covenant shall not avoid the occurrence of a Default if such action is taken or such condition exists. SECTION 11.08 SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that the Borrower may not assign or otherwise transfer any of its rights or obligations under this Agreement. (b) Any Lender may at any time sell to one or more Persons (each a "Participant") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment hereunder or any other interest of such Lender hereunder. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. In no event shall a Lender that sells a participation be obligated to the Participant to take or refrain from taking any action hereunder except that such Lender may agree that it will not (except as provided below), without the consent of the Participant, agree to (i) the extension of any date fixed for the payment of principal of or interest on the related loan or loans, (ii) the reduction of the amount of any principal, interest or fees due on any date fixed for the payment thereof with respect to the related loan or loans, (iii) the reduction of the principal of the related loan or loans, (iv) any reduction in the rate at which either interest is payable thereon or (if the Participant is entitled to any part thereof) fee is payable hereunder from the rate at which the Participant is entitled to receive interest or fee (as the case may be) in respect of such participation, (v) the release or substitution of all or any substantial part of the collateral (if any) held as security for the Loans, or (vi) the release of any Guarantee given to support payment of the Loans. Each Lender selling a participating interest to any Person other than an Affiliate or Related Fund of such Lender in any Loan, Note, Commitment or other interest under this Agreement, shall, within 10 Domestic Business Days of such sale, provide the Borrower and the Administrative Agent with written notification stating that such sale has occurred and identifying the Participant and the interest purchased by such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Article X with respect to its participation in Loans outstanding from time to time. (c) Any Lender may at any time assign to one or more commercial banks, finance companies, insurance companies or other financial institution or fund which, in each case, in the ordinary course of business extends credit of the type contemplated herein and whose becoming an assignee would not constitute a prohibited transaction under Section 4975 of ERISA (each an "Assignee") all or a proportionate part of its rights and obligations under this Agreement, the Notes and the other Loan Documents, and such Assignee shall assume all such rights and obligations, pursuant to an LSTA Assignment, executed by such Assignee, such transferor Lender and the Administrative Agent (and, in the case of an Assignee that is not then a Lender or an Affiliate or Related Fund of a Lender), subject to clause (iii) below, by the Borrower); provided that (i) no interest may be sold by a Lender pursuant to this paragraph (c) unless the Assignee shall agree to assume ratably equivalent portions of the transferor Lender's Commitment, (ii) if a Lender is assigning only a portion of its Commitment, then, the amount of the Commitment being assigned (determined as of the effective date of the assignment) shall be in an amount not less than $5,000,000 (except that there shall be no such minimum if the assignment is to any Lender or any Affiliate or Related Fund of any Lender), and (iii) no interest may be sold by a Lender pursuant to this paragraph (c) - 61 - to any Assignee that is not then a Lender or an Affiliate or Related Fund of a Lender without the consent of the Administrative Agent and (unless an Event of Default has occurred and is continuing) the Borrower, which consent shall not be unreasonably withheld. Upon (A) execution of an LSTA Assignment by such transferor Lender, such Assignee, the Administrative Agent and (if applicable) the Borrower, (B) delivery of an executed copy of the LSTA Assignment to the Borrower and the Administrative Agent, (C) payment by such Assignee to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such Assignee, (D) payment of a processing and recordation fee to the Administrative Agent of (1) if such Assignee is a Lender or an Affiliate or Related Fund of a Lender, $1,000), and (ii) for any other Assignee, $3,500, and (E) recordation of such assignment on the Register, as defined and provided below, such Assignee shall for all purposes be a Lender party to this Agreement and shall have all the rights and obligations of a Lender under this Agreement to the same extent as if it were an original party hereto with a Commitment as set forth in such instrument of assumption, and the transferor Lender shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by the Borrower, the Lenders or the Administrative Agent shall be required. The Borrower hereby designates the Administrative Agent to serve as the Borrower's Administrative Agent, solely for purposes of this Section 11.08(c), to maintain a register (the "Register") on which it will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation shall not affect the Borrower's obligations in respect of such Loans. With respect to any Lenders, the transfer of any Commitment of such Lenders and the rights to the principal of, and interest on, any Loan shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitment and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitment and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitment and Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered LSTA Assignment pursuant to this Section 11.08(c). Coincident with the delivery of such an LSTA Assignment to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Commitment and/or Loan, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender any Note evidencing such Commitment and/or Loan, and thereupon one or more new Notes in the aggregate principal amount so assigned shall be issued to the new Lender and, if applicable, a new Note shall be issued to the assigning or transferor Lender in the remaining aggregate principal amount of its Commitment and/or Loan not so assigned. The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 11.08(c); but excluding any such losses, claims, damages and liabilities which are determined by a final, non-appealable judgment of a court to - 62 - have been incurred by reason of the gross negligence or willful misconduct of the Administrative Agent. Each Lender agrees to indemnify the Borrower and the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Borrower or the Administrative Agent by reason of the inaccuracy of any information which is furnished by such Lender concerning such Lender or its Lending Office or the amount assigned pursuant to the LSTA Assignment. (d) Subject to the provisions of Section 11.09, the Borrower authorizes each Lender to disclose to any Participant or Assignee and any prospective Participant or Assignee which has executed on LSTA Confidentiality Agreement any and all financial information in such Lender's possession concerning the Borrower which has been delivered to such Lender by the Borrower pursuant to this Agreement or which has been delivered to such Lender by the Borrower in connection with such Lender's credit evaluation prior to entering into this Agreement. (e) No Participant or Assignee shall be entitled to receive any greater payment under Section 10.03 than the transferor Lender would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 10.02 or 10.03 requiring such Lender to designate a different Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) Anything in this Section 11.08 to the contrary notwithstanding, any Lender may assign and pledge all or any portion of the Loans and/or obligations owing to it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, provided that any payment in respect of such assigned Loans and/or obligations made by the Borrower to the assigning and/or pledging Lender in accordance with the terms of this Agreement shall satisfy the Borrower's obligations hereunder in respect of such assigned Loans and/or obligations to the extent of such payment. No such assignment shall release the assigning and/or pledging Lender from its obligations hereunder. SECTION 11.09 CONFIDENTIALITY. Unless otherwise agreed to in writing by the Borrower, each Lender and the Administrative Agent hereby agrees to keep all Proprietary Information confidential and not to disclose or reveal any Proprietary Information to any Person other than its (or its Affiliates') directors, officers, employees, agents or representatives who reasonably require such information in connection with their activities concerning this Agreement or the transactions contemplated hereby and to actual or potential Assignees or Participants, and then only upon a confidential basis in any such case; provided, however, that the Administrative Agent or any Lender may disclose Proprietary Information (i) to any other Lender, (ii) to the extent reasonably required in connection with any litigation to which the Administrative Agent, any Lender or their respective Affiliates may be a party, (iii) to the extent reasonably required in connection with the exercise of any remedy hereunder, (iv) as required by law, rule, regulation or judicial process, (v) to its attorneys, accountants or other consultants (but only on a confidential basis), and (vi) to bank regulatory authorities or other governmental authorities. For purposes of this Agreement, the term "Proprietary Information" shall mean all - 63 - information about the Borrower or any of its Subsidiaries which has been furnished to the Administrative Agent or any Lender by or on behalf of the Borrower or any of its Subsidiaries before or after the date hereof or which is obtained by any Lender or the Administrative Agent in the course of any visit or inspection made pursuant to Section 6.02; provided, however, that the term "Proprietary Information" does not include information which (x) is or becomes publicly available (other than as a result of a breach of this Section 11.09), (y) is possessed by or available to the Administrative Agent or any Lender on a non-confidential basis prior to its disclosure to the Administrative Agent or such Lender by the Borrower or any Subsidiary or (z) becomes available to the Administrative Agent or any Lender on a non-confidential basis from a Person which, to the knowledge of the Administrative Agent or such Lender, as the case may be, is not bound by a confidentiality agreement with the Borrower or any of its Subsidiaries and is not otherwise prohibited from transmitting such information to the Administrative Agent or such Lender. In the event the Administrative Agent or any Lender is required to disclose any Proprietary Information by virtue of clause (ii) (but only if and to the extent such disclosure has not been sought by the Administrative Agent or any Lender, and if the Borrower is not a party to such litigation), (iv) or (v) above, to the extent such Lender or the Administrative Agent (as the case may be) determines in good faith that it is permissible by law so to do, it shall promptly notify the Borrower of same so as to allow the Borrower or its Subsidiaries to seek a protective order or to take other appropriate action; provided, however, that neither any Lender nor the Administrative Agent shall be required to delay compliance with any directive to disclose any such information so as to allow the Borrower or any of its Subsidiaries to effect any such action. SECTION 11.10 REPRESENTATION BY LENDERS. Each Lender hereby represents that it is a commercial lender or financial institution which makes loans in the ordinary course of its business and that it will make its Loans hereunder for its own account in the ordinary course of such business; provided that, subject to Section 11.08, the disposition of the Note or Notes held by that Lender shall at all times be within its exclusive control. SECTION 11.11 OBLIGATIONS SEVERAL. The obligations of each Lender hereunder are several, and no Lender shall be responsible for the obligations or commitment of any other Lender hereunder. Nothing contained in this Agreement and no action taken by the Lenders pursuant hereto shall be deemed to constitute the Lenders to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement or any other Loan Document and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. SECTION 11.12 GEORGIA LAW. This Agreement, each Note and the Swing Loan Note shall be construed in accordance with and governed by the law of the State of Georgia. SECTION 11.13 SEVERABILITY. In case any one or more of the provisions contained in this Agreement, the Notes, the Swing Loan Note or any of the other Loan Documents should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby and shall be enforced to the greatest extent permitted by law. - 64 - SECTION 11.14 INTEREST. In no event shall the amount of interest, and all charges, amounts or fees contracted for, charged or collected pursuant to this Agreement, the Notes, the Swing Loan Note or the other Loan Documents and deemed to be interest under applicable law (collectively, "Interest") exceed the highest rate of interest allowed by applicable law (the "Maximum Rate"), and in the event any such payment is inadvertently received by any Lender, then the excess sum (the "Excess") shall be credited as a payment of principal, unless the Borrower shall notify such Lender in writing that it elects to have the Excess returned forthwith. It is the express intent hereof that the Borrower not pay and the Lenders not receive, directly or indirectly in any manner whatsoever, interest in excess of that which may legally be paid by the Borrower under applicable law. The right to accelerate maturity of any of the Loans does not include the right to accelerate any interest that has not otherwise accrued on the date of such acceleration, and the Administrative Agent and the Lenders do not intend to collect any unearned interest in the event of any such acceleration. All monies paid to the Administrative Agent or the Lenders hereunder or under any of the Notes, the Swing Loan Note or the other Loan Documents, whether at maturity or by prepayment, shall be subject to rebate of unearned interest as and to the extent required by applicable law. By the execution of this Agreement, the Borrower covenants, to the fullest extent permitted by law, that (i) the credit or return of any Excess shall constitute the acceptance by the Borrower of such Excess, and (ii) the Borrower shall not seek or pursue any other remedy, legal or equitable , against the Administrative Agent or any Lender, based in whole or in part upon contracting for charging or receiving any Interest in excess of the Maximum Rate. For the purpose of determining whether or not any Excess has been contracted for, charged or received by the Administrative Agent or any Lender, all interest at any time contracted for, charged or received from the Borrower in connection with this Agreement, the Notes, the Swing Loan Note or any of the other Loan Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread in equal parts throughout the full term of the Commitments. The Borrower, the Administrative Agent and each Lender shall, to the maximum extent permitted under applicable law, (i) characterize any non-principal payment as an expense, fee or premium rather than as Interest and (ii) exclude voluntary prepayments and the effects thereof. The provisions of this Section shall be deemed to be incorporated into each Note, the Swing Loan Note and each of the other Loan Documents (whether or not any provision of this Section is referred to therein). All such Loan Documents and communications relating to any Interest owed by the Borrower and all figures set forth therein shall, for the sole purpose of computing the extent of obligations hereunder and under the Notes, the Swing Loan Note and the other Loan Documents be automatically recomputed by the Borrower, and by any court considering the same, to give effect to the adjustments or credits required by this Section. SECTION 11.15 INTERPRETATION. No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. SECTION 11.16 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. The Borrower (a) and each of the Lenders and the Administrative Agent irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding arising out of this Agreement, any of the other Loan Documents, or any of the transactions contemplated hereby or thereby, (b) submits to the nonexclusive personal jurisdiction in Fulton County of the - 65 - State of Georgia, the courts thereof and the United States District Courts sitting therein, for the enforcement of this Agreement, the Notes and the other Loan Documents, (c) waives any and all personal rights under the law of any jurisdiction to object on any basis (including, without limitation, inconvenience of forum) to jurisdiction or venue within Fulton County of the State of Georgia for the purpose of litigation to enforce this Agreement, the Notes or the other Loan Documents, and (d) agrees that service of process may be made upon it in the manner prescribed in Section 11.01 for the giving of notice to the Borrower. Nothing herein contained, however, shall prevent the Administrative Agent from bringing any action or exercising any rights against any security and against the Borrower personally, and against any assets of the Borrower, within any other state or jurisdiction. SECTION 11.17 COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 11.18 SOURCE OF FUNDS -- ERISA. Each of the Lenders hereby severally (and not jointly) represents to the Borrower that no part of the funds to be used by such Lender to fund the Loans hereunder from time to time constitutes (i) assets allocated to any separate account maintained by such Lender in which any employee benefit plan (or its related trust) has any interest nor (ii) any other assets of any employee benefit plan. As used in this Section, the terms "employee benefit plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. SECTION 11.19 APPLICATION OF EXISTING NSI AGREEMENT. (a) Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document (other than as specifically provided below in paragraph (b) of this Section), (i) prior to the Spin-Off Date, the representations and warranties, covenants and Events of Default (and definitions of defined terms as and where used in such provisions) set forth in this Agreement shall not apply and instead the representations and warranties, covenants and Events of Default (and definitions of defined terms as and where used in such provisions) set forth in the Existing NSI Agreement shall be deemed to apply and shall be incorporated in this Agreement by this reference to the same extent as if fully set forth herein. (b) Notwithstanding paragraph (a) of this Section 11.19, (i) Section 5.04(b) of this Agreement (and not Section 4.04(b) of the Existing NSI Agreement) shall apply at all times on and after the Closing Date, (ii) Section 8.01(a) of this Agreement (and not Section 6.01 of the Existing NSI Agreement) shall apply at all times on and after the Closing Date, and (iii) references to "Borrower" or "Borrowers," "this Agreement," "Administrative Agent," "Loan" or "Loans," "Note" or "Notes," "Bank" or "Banks," "Default" or "Event of Default," or "Required Banks" contained in any of such representations and warranties, covenants or Events of Default (or definitions of defined terms as and where used in any of such provisions) set forth in the Existing NSI Agreement shall be deemed to refer, respectively, to the Borrower, this Agreement, the Administrative Agent, Loan or Loans, Note, Notes or Swing Loan Notes, a Lender or Lenders, a Default or Event of Default, or Required Lenders, all as such terms are defined in this Agreement. - 66 - [REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] - 67 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, under seal, by their respective authorized officers as of the day and year first above written. NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation By: /s/ Brock A. Hattox (SEAL) -------------------------------------------- Name: Brock A. Hattox Title: Executive Vice President and Chief Financial Officer National Service Industries, Inc. 1420 Peachtree Street, N.E. Atlanta, Georgia 30309-3002 Attention: Mr. Chet Popkowski Phone: 404-853-1405 Fax: 404-853-1330 E-mail: chet.popkowski@nationalservice.com with a copy to: National Service Industries, Inc. 1420 Peachtree Street, N.E. Atlanta, Georgia 30309-3002 Attention: Mr. Ken Murphy Phone: 404-853-1440 Fax: 404-853-1015 E-mail: ken.murphy@nationalservice.com - 68 - COMMITMENT WACHOVIA BANK, N.A., as Administrative Agent, as a Lender and as the Letter of Credit Issuer $40,000,000 By: /s/ Karin E. Reel (SEAL) ------------------------------------- Name: Karin E. Reel Title Vice President Lending Office -------------- Wachovia Bank, N.A. 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Karin E. Reel Telecopier number: 404-332-4058 Confirmation number: 404-332-5187 - 69 - SCHEDULE 1.01A List of Spin-Off Draft Documents 1. Agreement and Plan of Distribution, by and between National Service Industries, Inc. and L & C Spinco, Inc. 2. Transition Services Agreement, by and between National Service Industries, Inc. and L & C Spinco, Inc. 3. Tax Disaffiliation Agreement, by and between National Service Industries, Inc., National Service Industries, Inc., and L & C Spinco, Inc. 4. Lease Agreement, by and between NSI Enterprises, Inc. and L & C Spinco, Inc. 5. Employee Benefits Agreement between National Service Industries, Inc. and L & C Spinco, Inc. 6. Indemnification Agreement between L & C Spinco, Inc. and certain Indemnitees identified therein. - 1 - SCHEDULE 1.01B Fiscal Year 2002 Charges NATIONAL SERVICE INDUSTRIES FIRST QUARTER OF FISCAL YEAR 2002 ESTIMATED NON-RECURRING CHARGES
($000'S) LINEN Louisville facility closing/consolidation $4,000 Ft. Lauderdale facility closing/consolidation $3,000 ------ TOTAL $7,000
- 2 - SCHEDULE 1.01C Fiscal Year 2001 First Quarter Charges NATIONAL SERVICE INDUSTRIES FIRST QUARTER OF FISCAL YEAR 2001 NON-CASH, NON-RECURRING CHARGES
($000'S) -------- LINEN Little Rock facility closing $1,730 ------ TOTAL $1,730
- 3 - SCHEDULE 1.01D Fiscal Year 2001 Fourth Quarter Charges NATIONAL SERVICE INDUSTRIES FOURTH QUARTER OF FISCAL YEAR 2001 CHARGES
($000'S) --------- Linen Pension true up $ 444 Legal accrual 75 Energy bills 93 Alabama sales tax 103 Dallas fire 250 R&D 249 EEOC claims 340 FUTA & SUI 440 Relocation & recruiting 45 Bonus reversal (500) --------- Other operational $ 1,539 Franklin 774 Ft. Lauderdale 171 Lexington (429) Severance 1,026 --------- Restructuring 1,542 F&F Dust Property 125 Workers Comp 2,192 Medical 1,111 --------- Change in Est 3,303 Sales and Use tax 1,860 --------- Subtotal $ 8,369 AECO A/R $ 996 Clean-up A/P and intercompany 465 --------- Other Operational 1,461 California 3,078 Florida 1,495 Seaboard 210 Nashville 123 --------- Restructuring 4,906 Obsolete inventory 2,588
- 4 - Division assets 43 Baan 3,341 --------- Asset writedown 3,384 Workers Comp 1,022 Medical 1,394 --------- Changes in estimates 2,416 Sales & Use tax 1,552 --------- Subtotal $ 16,307 --------- Corporate Changes in estimates 799 Asbestos 16,116 --------- Subtotal 16,915 Total $ 41,591
- 5 - SCHEDULE 5.08 NATIONAL SERVICE INDUSTRIES, INC (DELAWARE) SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------------- COMPANY NAME STATE/COUNTRY OF DATE OF US TAX ID FOREIGN TAX ID INCORPORATION INCORPORATION NUMBER NUMBER - --------------------------------------------------------------------------------------------------------------------------------- National Service Industries, Inc. California September 25, 1992 77-0319365 - --------------------------------------------------------------------------------------------------------------------------------- L & C Spinco, Inc. Delaware June 27, 2001 58-2632672 - --------------------------------------------------------------------------------------------------------------------------------- L&C Lighting Group, Inc. Delaware July 3, 2001 58-2633371 - --------------------------------------------------------------------------------------------------------------------------------- The Zep Group, Inc. Delaware July 3, 2001 58-2633373 - --------------------------------------------------------------------------------------------------------------------------------- LHP Enterprises, Inc. Delaware July 3, 2001 58-2633376 - --------------------------------------------------------------------------------------------------------------------------------- Zep Enterprises, Inc. Delaware July 3, 2001 58-2633378 - --------------------------------------------------------------------------------------------------------------------------------- National Service Industries Alberta, Canada April 12, 2000 52-2254351 Canada LP - --------------------------------------------------------------------------------------------------------------------------------- NSI Funding, Inc. Delaware April 24, 2001 58-2616706 - --------------------------------------------------------------------------------------------------------------------------------- LuxFab Limited UK February 28, 1989 3704370016439 - --------------------------------------------------------------------------------------------------------------------------------- Castlight de Mexico, S.A. de C.V. Mexico September 11, 1990 - --------------------------------------------------------------------------------------------------------------------------------- NSI Leasing, Inc. Delaware October 26, 1994 58-2136874 - --------------------------------------------------------------------------------------------------------------------------------- Holophane Canada Inc. Ontario, Canada June 20, 1989 - --------------------------------------------------------------------------------------------------------------------------------- Productos Lithonia Lighting de Mexico October 20, 1994 Mexico SA de CV - --------------------------------------------------------------------------------------------------------------------------------- Lithonia Lighting de Mexico SA Mexico October 20, 1994 LLM9410208W4 de CV - --------------------------------------------------------------------------------------------------------------------------------- Servicios Administrativo s de Mexico October 20, 1994 NIM941020A90 Lithonia Lighting de Mexico de CV - --------------------------------------------------------------------------------------------------------------------------------- Holophane Europe Ltd. UK March 29, 1989 3702370015907 - --------------------------------------------------------------------------------------------------------------------------------- Holophane Lighting Ltd. UK January 4, 1999 (Inactive) - --------------------------------------------------------------------------------------------------------------------------------- Holophane Lichttechnik GMBH Germany January 5, 1996 HRB 32909 - ---------------------------------------------------------------------------------------------------------------------------------
- 6 -
- --------------------------------------------------------------------------------------------------------------------------------- COMPANY NAME STATE/COUNTRY OF DATE OF US TAX ID FOREIGN TAX ID INCORPORATION INCORPORATION NUMBER NUMBER - --------------------------------------------------------------------------------------------------------------------------------- Holophane Alumbrado Iberica SL Spain May 6, 1999 - --------------------------------------------------------------------------------------------------------------------------------- C&G Carandini S.A. Spain December 30, 1926 - --------------------------------------------------------------------------------------------------------------------------------- HSA Acquisition Corporation Ohio May 29, 1998 31-1600314 - --------------------------------------------------------------------------------------------------------------------------------- ID Limited Isle of Man March 11, 1980 - --------------------------------------------------------------------------------------------------------------------------------- Holophane SA de CV Mexico September 11, 1990 - --------------------------------------------------------------------------------------------------------------------------------- Lithonia Lighting do Brasil Ltda Brazil March 23, 1999 - --------------------------------------------------------------------------------------------------------------------------------- Selig Company of Puerto Rico Puerto Rico January 31, 1964 66-0256538 - --------------------------------------------------------------------------------------------------------------------------------- NSI Insurance Ltd. Bermuda February 14, 1990 98-0230326 - --------------------------------------------------------------------------------------------------------------------------------- NSI Holdings, Inc. Quebec, Canada January 1, 1990 - --------------------------------------------------------------------------------------------------------------------------------- Zep Europe BV Netherlands August 26, 1992 - --------------------------------------------------------------------------------------------------------------------------------- Zep Belgium SA Belgium September 27, 1992 - --------------------------------------------------------------------------------------------------------------------------------- Graham International BV Netherlands August 14, 1979 VAT- NL008871280B02; COC-24131864 - --------------------------------------------------------------------------------------------------------------------------------- KEM Europa B.V. Netherlands October 13, 1986 VAT- NL08871280B05; COC-20052512 - --------------------------------------------------------------------------------------------------------------------------------- Zep Industries B.V. Netherlands November 18, 1995 - --------------------------------------------------------------------------------------------------------------------------------- Zep Manufacturing B.V. Netherlands October 13, 1986 - --------------------------------------------------------------------------------------------------------------------------------- Zep Industries SA (Switzerland) Switzerland December 16, 1975 CH-217-0130370-8 - --------------------------------------------------------------------------------------------------------------------------------- Zep (Italia) S.R.L. Italy September 29, 1992 01597840592 - --------------------------------------------------------------------------------------------------------------------------------- Zep KEM Italia S.R.L (in Italy September 19, 1992 01597830593 liquidation since 5/26/95) - --------------------------------------------------------------------------------------------------------------------------------- NSI Chile Ltda Chile July 20, 2000 - --------------------------------------------------------------------------------------------------------------------------------- Keplime BV Netherlands April 23, 1987 - ---------------------------------------------------------------------------------------------------------------------------------
- 7 - SCHEDULE 7.05 CERTAIN CHARGES EXCLUDED FROM CONSOLIDATED NET INCOME National Service Industries After-Tax Charges
($000's) Pre-Tax After-Tax ------- --------- First quarter of Fiscal Year 2002 estimated non-recurring charges per Schedule 1.01B $ 7,000 $ 4,200 First quarter of Fiscal Year 2001 non-cash, non-recurring charges per Schedule 1.01C $ 1,730 $ 1,090 Fourth quarter of Fiscal Year 2001 charges per Schedule 1.01D $41,591 $26,202
- 8 - EX-10.I(A)(11) 8 g72719ex10-ia11.txt OMNIBUS AMENDMENT, DATED AUGUST 31, 2001 EXHIBIT 10(i)A(11) OMNIBUS AMENDMENT THIS OMNIBUS AMENDMENT (this "AMENDMENT"), dated as of August 31, 2001, is by and among National Service Industries, Inc., a Delaware corporation ("NSI-DELAWARE"), NSI Enterprises, Inc., a California corporation ("NSI ENTERPRISES"), National Service Industries, Inc., a Georgia corporation ("NSI GEORGIA" and, together with NSI-Delaware and NSI Enterprises, the "EXISTING COMPANIES"), L & C Spinco, Inc., a Delaware corporation ("SPINCO"), The Zep Group, Inc., a Delaware corporation ("ZEP"), L & C Lighting Group, Inc., a Delaware corporation ("L & C LIGHTING"), L & C Funding, Inc., a Delaware corporation formerly known as NSI Funding, Inc. ("SPC" and, together with Spinco, Zep and L & C Lighting, the "SUCCESSOR COMPANIES"), Blue Ridge Asset Funding Corporation, a Delaware corporation ("BLUE RIDGE"), and Wachovia Bank, N.A., individually ("WACHOVIA") and as agent (in such latter capacity, the "AGENT"), and pertains to (a) that certain Receivables Sale Agreement, dated as of May 2, 2001, by and between NSI Enterprises and NSI Georgia and collaterally assigned first, to SPC and then, to the Agent (the "RSA"), (b) that certain Receivables Sale and Contribution Agreement, dated as of May 2, 2001, by and between NSI Georgia and SPC (the "RSCA"), (c) that certain Credit and Security Agreement, dated as of May 2, 2001, by and among SPC, as Borrower, NSI Georgia, as initial Servicer, Wachovia, as the sole initial Liquidity Bank, Blue Ridge and the Agent (as heretofore amended, the "CSA"), and (d) that certain Performance Undertaking dated as of May 2, 2001, by and between NSI-Delaware and SPC and collaterally assigned to the Agent (the "PERFORMANCE UNDERTAKING" and, together with the RSA, the RSCA and the CSA, the "SUBJECT AGREEMENTS"). Capitalized terms used and not otherwise defined herein shall have the meanings attributed to them in the Subject Agreements. W I T N E S S E T H : WHEREAS, on the date hereof, the Existing Companies and certain of their affiliates are engaging in a reorganization pursuant to an Agreement and Plan of Distribution (the "REORGANIZATION"); WHEREAS, immediately following the Reorganization (the "EFFECTIVE TIME"), certain of the parties to the Subject Agreements will be replaced with certain of the parties hereto, all as more fully provided herein; and WHEREAS, some time after the Effective Time, NSI-Delaware will distribute ratably to its shareholders, all of Spinco's outstanding capital stock (the "DISTRIBUTION"); NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. NSI-Delaware. Effective from and after the Effective Time, any and all references in any of the Subject Agreements to NSI-Delaware, individually or as Performance Guarantor, are hereby replaced with NSI-Delaware and Spinco, jointly and severally. Effective immediately after the Distribution, any and all references in any of the Subject Agreements to NSI-Delaware and Spinco, jointly and severally, are hereby replaced with Spinco. 2. NSI Enterprises. Effective from and after the Effective Time, any and all references in any of the Subject Agreements (including, without limitation, references in provisions inserted by this Amendment) to NSI Enterprises are hereby replaced with Zep. 3. NSI Georgia. Effective from and after the Effective Time, any and all references in any of the Subject Agreements (including, without limitation, references in provisions inserted by this Amendment) to NSI Georgia are hereby replaced with L & C Lighting. 4. NSI Funding, Inc. Effective from and after the Effective Time, any and all references in any of the Subject Agreements to "NSI Funding, Inc." are hereby replaced with "L & C Funding, Inc." 5. Other Amendments. Effective from and after the Effective Time: (a) Exhibit II to each of the RSA and RSCA and Exhibit III to the CSA are hereby amended and restated in their entirety to read as set forth in Annex I to this Amendment, (b) The definition of "RECEIVABLE" in the RSA is hereby amended and restated in its entirety to read as follows: "RECEIVABLE" means all indebtedness and other obligations owed to NSI Enterprises (at the times it arises, and before giving effect to any transfer or conveyance under the Agreement), including, without limitation, any indebtedness, obligation or interest constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale of goods or the rendering of services by NSI Enterprises and further includes, without limitation, the obligation to pay any Finance Charges with respect thereto (except that, for purposes of this definition, Receivables generated from NSI Enterprises's "Selig Chemical" operations shall not be considered "Receivables" for purposes of this definition unless and until (i) the Obligors on the Receivables originated by NSI Enterprises's "Selig Chemical" operations are instructed to pay all Collections on such Receivables directly to a Lock-Box or Collection Account in accordance with Section 8.2(b) of the Credit and Security Agreement, and (ii) the Agent has expressly consented in writing to such Receivables being considered as "Receivables" for purposes of this definition). Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; PROVIDED, FURTHER, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless or whether the account debtor or NSI Enterprises treats such indebtedness, rights or obligations as a separate payment obligation. (c) The definition of "RECEIVABLE" in the RSCA is hereby amended and restated in its entirety to read as follows: "RECEIVABLE" means (a) any "Receivable" under and as defined in the First-Step Sale Agreement which is conveyed to NSI Georgia in accordance with the terms thereof, or (b) all indebtedness and other obligations owed to NSI Georgia (at the times it arises, and before giving effect to any transfer or conveyance under the Agreement), including, without limitation, any indebtedness, obligation or interest constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale of goods or the rendering of services by NSI Georgia's "Lithonia Lighting" division, and further includes, without limitation, the obligation to pay any Finance Charges with respect thereto. Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; PROVIDED, FURTHER, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless or whether the Obligor or NSI Georgia treats such indebtedness, rights or obligations as a separate payment obligation. 6. Further Assurances. Each of the Existing Companies and the Successor Companies agrees to execute and deliver to the Agent such UCC financing statements and amendments thereto or other similar instruments or documents as may be necessary to perfect the interests in the Receivables, Related Security and other collateral purported to be conveyed under the RSA, the RSCA and the CSA and agrees that the Agent may, to the fullest extent permitted by applicable law, file any such financing statement or amendment without the signature of such Existing Company or Successor Company, as the case may be. 7. Notices. All notices and other communications to any of the Successor Companies or to the SPC provided for under the Subject Agreements shall be made in writing and shall be addressed to it at the address set forth beneath its signature to this Amendment.. 8. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF GEORGIA. 9. CONSENT TO JURISDICTION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW: (A) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR GEORGIA STATE COURT SITTING IN FULTON COUNTY, GEORGIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE SUBJECT AGREEMENTS, OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION THEREWITH OR DELIVERED THEREUNDER AND (B) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. 10. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AMENDMENT, THE SUBJECT AGREEMENTS OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION THEREWITH OR DELIVERED THEREUNDER OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER 11. Bankruptcy Petition. Each of the Existing Companies and the Successor Companies hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness owed by Blue Ridge, it will not institute against, or join any other Person in instituting against, Blue Ridge any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. 12. Miscellaneous. Each of the Subject Agreements, as modified hereby, is hereby ratified and confirmed by the Successor Companies, Wachovia, Blue Ridge and the Agent. Unless otherwise specified, references herein to "SECTION" shall mean a reference to sections of this Amendment. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered as of the date first above written. NATIONAL SERVICE INDUSTRIES, INC., A DELAWARE CORPORATION By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------- NSI ENTERPRISES, INC., A CALIFORNIA CORPORATION By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------- NATIONAL SERVICE INDUSTRIES, INC., A GEORGIA CORPORATION By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------- L & C SPINCO, INC., A DELAWARE CORPORATION By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------- ADDRESS FOR NOTICES: NSI Center 1420 Peachtree Street, N.E. Atlanta, Georgia 30309 Attention: Treasurer Telecopier: 404-853-1330 Telephone: 404-853-1368 THE ZEP GROUP, INC., A DELAWARE CORPORATION By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------- ADDRESS FOR NOTICES: NSI Center 1420 Peachtree Street, N.E. Atlanta, Georgia 30309 Attention: Treasurer Telecopier: 404-853-1330 Telephone: 404-853-1368 L & C LIGHTING GROUP, INC., A DELAWARE CORPORATION By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------- ADDRESS FOR NOTICES: NSI Center 1420 Peachtree Street, N.E. Atlanta, Georgia 30309 Attention: Treasurer Telecopier: 404-853-1330 Telephone: 404-853-1368 L & C FUNDING, INC., A DELAWARE CORPORATION FORMERLY KNOWN AS NSI FUNDING, INC. By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------- ADDRESS FOR NOTICES: NSI Center 1420 Peachtree Street, N.E. Atlanta, Georgia 30309 Attention: Treasurer Telecopier: 404-853-1330 Telephone: 404-853-1368 WACHOVIA BANK, N.A., INDIVIDUALLY AND AS AGENT By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------- BLUE RIDGE ASSET FUNDING CORPORATION BY: WACHOVIA BANK, N.A., ITS ATTORNEY-IN-FACT By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------- ANNEX I TO OMNIBUS AMENDMENT EXHIBIT II TO RSA Chief Executive Office; Principal Place of Business; Locations of Records; Federal Employer Identification Number; Other Names CHIEF EXECUTIVE OFFICE: 1420 Peachtree Street Atlanta, Georgia 30309 PRINCIPAL PLACE OF BUSINESS: 1420 Peachtree Street Atlanta, Georgia 30309 LOCATIONS OF RECORDS: 1420 Peachtree Street Atlanta, Georgia 30309 Highway 41 North Emerson, Georgia 30137 1310 Seaboard Industrial Blvd. Atlanta, Georgia 30318 FEDERAL EMPLOYER IDENTIFICATION NUMBER: 58-2633373 LEGAL, TRADE AND ASSUMED NAMES: Enforcer Products National Chemical Zep Aviation Zep Manufacturing Company, Armor All Products division Selig Chemical Industries Selig Industries Zep Manufacturing Company Zep Manufacturing Company of Canada EXHIBIT II TO RSCA Places of Business; Locations of Records; Federal Employer Identification Number(s); Other Names PLACES OF BUSINESS: 1420 Peachtree Street Atlanta, Georgia 30309 LOCATIONS OF RECORDS: 1420 Peachtree Street Atlanta, Georgia 30309 One Lithonia Way Conyers, Georgia 30012 FEDERAL EMPLOYER IDENTIFICATION NUMBER: 58-2633371 LEGAL, TRADE AND ASSUMED NAMES: Lithonia Lighting Major Reflector Holophane Metal Optics Austin Lighting Products Antique Street Lamps Peerless Lighting Hydrel EXHIBIT III TO CSA PLACES OF BUSINESS OF THE LOAN PARTIES; LOCATIONS OF RECORDS; FEDERAL EMPLOYER IDENTIFICATION NUMBER(S) PLACES OF BUSINESS: 1420 Peachtree Street Atlanta, Georgia 30309 LOCATIONS OF RECORDS: 1420 Peachtree Street Atlanta, Georgia 30309 One Lithonia Way Conyers, Georgia 30012 Highway 41 North Emerson, Georgia 30137 1310 Seaboard Industrial Blvd. Atlanta, Georgia 30318 FEDERAL EMPLOYER IDENTIFICATION NUMBER: L&C Lighting: 58-2633371 The Zep Group: 58-2633373 Borrower: 58-2616706 PRIOR BORROWER LEGAL NAMES, BORROWER TRADE AND ASSUMED NAMES: None 11 EX-10.III(A)(4)(I) 9 g72719ex10-iiia4i.txt APPENDIX E TO SUPPLEMENTAL RETIREMENT PLAN Exhibit 10(iii)A(4)(i) APPENDIX E (as amended and restated June 29, 2001) E.1 Eligible Individual Brock A. Hattox E.2 Effective Date Pursuant to Section 2.1(b), the Eligible Individual's date of participation shall be September 18, 1996. E.3 Special Provisions The following special provision shall apply to the Eligible Individual's participation in the Plan. (a) The Eligible Individual will qualify as a Vested Terminee if he completes 5 years of employment with NSI from September 9, 1996 to his Termination Date. (b) If the Eligible Individual terminates employment with NSI after attaining age 55, the Eligible Individual shall be eligible for Early Retirement under Sections 1.1(a)(2) and 3.3, and his benefit will be determined as if he had completed an additional five (5) years of service (including Credited Service and Eligible Service, but not to exceed a total of 20 years) and was five (5) years older (but not to exceed age 65). Except as otherwise specifically provided in this Appendix E, the Eligible Individual's benefits under the Plan shall be determined in the same manner as for other participants. EX-10.III(A)(4)(L) 10 g72719ex10-iiia4l.txt APPENDIX H TO SUPPLEMENTAL RETIREMENT PLAN Exhibit 10(iii)A(4)(L) APPENDIX H E.1. Eligible Individual James H. Heagle E.2. Effective Date Pursuant to the Eligible Individual's employment agreement letter, dated March 28, 2000, and Section 2.1(b) of the Plan, for purposes of the Plan the Eligible Individual' date of participation shall be May 1, 2000. EX-10.III(A)(12) 11 g72719ex10-iiia12.txt INCENTIVE STOCK OPTION AGREEMENT Exhibit 10(iii)A(12) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 18th day of December 1991 (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 one of the 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 $19.75 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, (Para). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon Termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's Termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such Termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder, shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ________________________________ By: ______________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer __________________________________________ Name of Optionee: ((Name)) EX-10.III(A)(13) 12 g72719ex10-iiia13.txt INCENTIVE STOCK OPTION AGREEMENT Exhibit 10(iii)A(13) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 16th day of September 1992 (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 one of the 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 $24.25 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon Termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's Termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such Termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder, shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ______________________________ By: ___________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer _______________________________________ Name of Optionee: ((Name)) EX-10.III(A)(14) 13 g72719ex10-iiia14.txt INCENTIVE STOCK OPTION AGREEMENT Exhibit 10(iii)A(14) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 15th day of September 1993 (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 one of the 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 $25.25 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon Termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's Termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such Termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder, shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ______________________________________ By: __________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ______________________________________ Name of Optionee: ((Name)) EX-10.III(A)(15) 14 g72719ex10-iiia15.txt INCENTIVE STOCK OPTION AGREEMENT Exhibit 10(iii)A(15) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 21st day of September 1994 (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 one of the 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 $26.25 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon Termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's Termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such Termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder, shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. __________________________________ By: ___________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer _______________________________________ Name of Optionee: ((Name)) EX-10.III(A)(16) 15 g72719ex10-iiia16.txt INCENTIVE STOCK OPTION AGREEMENT EXHIBIT 10(iii)A(16) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 15th day of March 1995 (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 one of the 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 $26.375 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon Termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's Termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such Termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder, shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ___________________________________ By:________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer _______________________________ Name of Optionee: ((Name)) EX-10.III(A)(17) 16 g72719ex10-iiia17.txt INCENTIVE STOCK OPTION AGREEMENT Exhibit 10(iii)A(17) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 20th day of September 1995 (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 one of the 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 $30.75 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon Termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's Termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such Termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder, shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. _________________________________ By:___________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ____________________________________ Name of Optionee: ((Name)) EX-10.III(A)(18) 17 g72719ex10-iiia18.txt INCENTIVE STOCK OPTION AGREEMENT Exhibit 10(iii)A(18) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 20th day of March 1996 (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 one of the 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 $33.50 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon Termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's Termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such Termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder, shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. _____________________________________ By:________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer _______________________________ Name of Optionee: ((Name)) EX-10.III(A)(20) 18 g72719ex10-iiia20.txt AMENDMENT TO INCENTIVE STOCK OPTION AGREEMENT EXHIBIT 10(iii)A(20) NATIONAL SERVICE INDUSTRIES AMENDMENT TO STOCK OPTION AGREEMENTS THIS AMENDMENT made and entered into as of the 24th day of July, 2001, by and between National Service Industries, Inc., a Delaware corporation (the "Company") and Brock A. Hattox ("Optionee"). WHEREAS, the Company has previously adopted the National Service Industries, Inc. Long-Term Incentive Program ("LTIP") and the National Service Industries, Inc. Long-Term Achievement Incentive Plan ("LTAIP") to provide additional incentives to certain officers and key employees of the Company and its Subsidiaries; and WHEREAS, the Optionee has been granted the Incentive Stock Options (ISOs) and Nonqualified Stock Options (NQSOs) listed on Exhibits A, B, and C attached hereto (collectively the "Options") under the LTIP and the LTAIP; and WHEREAS, the terms and conditions of the grants of the Options are reflected in Stock Option Agreements (the "Stock Option Agreements") between the Company and Optionee; and WHEREAS, the Company and the Optionee desire to amend the Stock Option Agreements for the Options in the manner hereinafter provided; NOW, THEREFORE, the parties agree as follows: 1. Each of the Stock Option Agreements for the Options listed on Exhibit A attached hereto is hereby amended to renumber the existing Section 6.1 as Section 6.1(a) and to insert the following as a new subsection 6.1(b): "(b) 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 until five (5) years after the date of termination (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 (b) as if the Optionee had lived and the Option shall be exercisable by the persons described in (a) above." 2. The Stock Option Agreement for the Option listed on Exhibit B attached hereto is hereby amended to insert the following as a new subsection 6.2(d): "(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 until five (5) years after the date of termination (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 Option shall be exercisable by the persons described in (a) above." 3. Each of the Stock Option Agreements for the Options listed on Exhibit C attached hereto is hereby amended to delete the existing Section 6.2 in its entirety and to substitute the following in lieu thereof: "6.2 Termination of Employment Due to Specified Reasons. If the Optionee's termination of employment is due to death, Disability, 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 five (5) years 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 five (5) years 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 2 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 continue to vest in accordance with the original schedule (just as if the Optionee had remained employed) and shall remain exercisable until five (5) years after the date of termination (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 (d) as if the Optionee had lived and the Options shall be exercisable by the persons described in (a) above. (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)." 4. This Amendment shall be effective as of July 24, 2001. Except as hereby modified, the Stock Option Agreements shall remain in full force and effect. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day and year first written above. NATIONAL SERVICE INDUSTRIES, INC. By: -------------------------------------- 3 ----------------------------------------- BROCK A. HATTOX 4 Exhibit A
- ---------------------------------------------------------------------------------------------------------------------- Expiration Grant Date Date Plan ID Grant Type # Options Option Price - ---------------------------------------------------------------------------------------------------------------------- 9/9/1996 9/9/2006 LTIP ISO 10,524 $38.00 - ---------------------------------------------------------------------------------------------------------------------- 9/9/1996 9/9/2006 LTIP NQSO 9,476 $38.00 - ----------------------------------------------------------------------------------------------------------------------
5 Exhibit B
- ---------------------------------------------------------------------------------------------------------------------- Expiration Grant Date Date Plan ID Grant Type # Options Option Price - ---------------------------------------------------------------------------------------------------------------------- 9/17/1996 9/17/2006 LTIP NQSO 20,000 $38.00 - ----------------------------------------------------------------------------------------------------------------------
6 Exhibit C
- ---------------------------------------------------------------------------------------------------------------------- Expiration Grant Date Date Plan ID Grant Type # Options Option Price - ---------------------------------------------------------------------------------------------------------------------- 1/5/2000 1/5/2010 LTAIP NQSO 65,001 $27.6875 - ---------------------------------------------------------------------------------------------------------------------- 10/4/2000 10/4/2010 LTAIP NQSO 57,312 $19.4375 - ----------------------------------------------------------------------------------------------------------------------
7 EX-10.III(A)(22) 19 g72719ex10-iiia22.txt INCENTIVE STOCK OPTION AGREEMENTS Exhibit 10(iii)A(22) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 17th day of September 1996 (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 one of the 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 $38.00 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon Termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's Termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such Termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder, shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ___________________________________ By:_______________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ________________________________ Name of Optionee: ((Name)) EX-10.III(A)(24) 20 g72719ex10-iiia24.txt INCENTIVE STOCK OPTION AGREEMENTS Exhibit 10(iii)A(24) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 23rd day of September 1997 (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 one of the 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 $44.3125 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon Termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's Termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such Termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder, shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ___________________________________ By:________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ___________________________________ Name of Optionee: ((Name)) EX-10.III(A)(26) 21 g72719ex10-iiia26.txt INCENTIVE STOCK OPTION AGREEMENTS Exhibit 10(iii)A(26) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 22nd day of September, 1998 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation (the "Company"), and ((Name)) (the "Optionee"). WHEREAS, the Company has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentive to certain officers and key employees of the Company and its Subsidiaries; and WHEREAS, the Optionee performs services for one of the Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant the Option to the Optionee as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 The Company hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of an aggregate of ((Amount)) whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement. 1.2 The Option is intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code and shall be so construed; provided, however, that nothing in this Agreement shall be interpreted as a representation, guarantee or other undertaking on the part of the Company that the Option is or will be determined to be an Incentive Stock Option within the meaning of Section 422 of the Code. To the extent this Option is not treated as an Incentive Stock Option, it will be treated as a Nonqualified Stock Option. 1.3 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $35.0625 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check, or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. -2- 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 Section 6.2 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, Retirement or Change in Control. If the Optionee's termination of employment is due to Death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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 of the Option 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. -3- 8. Nontransferability. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 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. 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 -4- transactions by such Optionees. 12.2 If the Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to him pursuant to his exercise of the Option within the two-year period commencing on the day after the Grant Date or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators, and successors. -5- 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. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. __________________________________ By:_________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ____________________________________ Name of Optionee: ((Name)) -6- EX-10.III(A)(28) 22 g72719ex10-iiia28.txt INCENTIVE STOCK OPTION AGREEMENTS Exhibit 10(iii)A(28) INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 5th day of January, 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 one of the 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 $27.6875 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check, or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. -2- 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 Section 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 of employment 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 be exercisable (to the extent the Option was vested and exercisable on the date of termination of employment) 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 be exercisable in accordance with this -3- subsection (c) as if the Optionee had lived and the Option shall be exercisable by the persons described in (a) above. (d) Termination After Attaining Age 55. If the Optionee terminates employment (other than as a result of death or Disability) after attaining age 55 but prior to age 65, unless the Committee determines otherwise at the time of such termination, the Option shall continue to be exercisable (to the extent the Option was vested and exercisable on the date of termination of employment) 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 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 of the Option 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. -4- 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. 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. 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 -5- pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 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, Permitted Transferees, administrators, and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on the Optionee and the Company for all purposes. -6- ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ______________________________ By:_________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ______________________________ Name of Optionee: ((Name)) -7- EX-10.III(A)(29) 23 g72719ex10-iiia29.txt INCENTIVE STOCK OPTION AGREEMENTS Exhibit 10(iii)A(29) INCENTIVE STOCK OPTION AGREEMENT FOR EXECUTIVE OFFICERS AND OPERATING UNIT PRESIDENTS THIS AGREEMENT, made as of the 1st day of May, 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 $22.1875 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check, or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. -2- 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. -3- (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 the -4- 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. -5- 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. -6- ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ______________________________ By:_________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ____________________________________ Name of Optionee: ((Name)) -7- EX-10.III(A)(33) 24 g72719ex10-iiia33.txt NONQUALIFIED STOCK OPTION AGREEMENTS Exhibit 10(iii)A(33) NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 20th day of September, 1995 (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 one of the Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant the Option to the Optionee as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 The Company hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of an aggregate of ((Amount)) whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement. 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. 1.3 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $30.75 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)), and each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 6. Termination of Employment. 6.1 In General. If the employment of the Optionee with the Company and its Subsidiaries shall terminate for any reason, other than for the reasons set forth in Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) a Permitted Transferee (as defined in Section 8 below), if any, or such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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. Transferability. The Option shall not be transferable other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the Option may be transferred, in whole or in part, without consideration, by written instrument signed by the Optionee, to any members of the immediate family of the Optionee (i.e., spouse, children and grandchildren), any trusts for the benefit of such family members or any partnerships whose only partners are such family members (the "Permitted Transferees"). Appropriate evidence of any such transfer to the Permitted Transferees shall be delivered to the Company at its principal executive office. If all or part of the Option is transferred to a Permitted Transferee, the Permitted Transferee's rights hereunder shall be subject to the same restrictions and limitations with respect to the Option as the Optionee. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee, or if applicable, by the Permitted Transferees. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 10. Adjustments. In the event of a Change in Capitalization, the Committee may make appropriate adjustments to the number and class of Shares or other stock or securities subject to the Option and the purchase price for such Shares or other stock or securities. The Committee's adjustment shall be made in accordance with the provisions of Section 11 of the Plan and shall be effective and final, binding and conclusive for all purposes of the Plan and this Agreement. 11. Terminating Events. Subject to Section 7 hereof, upon the effective date of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Option shall continue in effect in accordance with its terms and the Optionee shall be entitled to receive in respect of all Shares subject to the Option, upon exercise of the Option, the same number and kind of stock, securities, cash, property or other consideration that each holder of Shares was entitled to receive in the Transaction. 12. Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to the Optionee an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to the Option. If the Optionee is entitled to receive Shares upon exercise of the Option, the Optionee shall pay the Withholding Taxes to the Company in cash prior to the issuance of such Shares. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares issuable to him or her upon exercise of the Option, having an aggregate Fair Market Value equal to the Withholding Taxes, provided that, if the Optionee may be subject to liability under Section l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 14. Modification of Agreement. This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 15. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 17. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon each successor corporation. This Agreement shall inure to the benefit of the Optionee's legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee's heirs, executors, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ______________________________ By:_________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ____________________________________ Name of Optionee: ((Name)) EX-10.III(A)(36) 25 g72719ex10-iiia36.txt AMENDMENT TO INCENTIVE STOCK OPTION AGREEMENT EXHIBIT 10(iii)A(36) NATIONAL SERVICE INDUSTRIES AMENDMENT TO STOCK OPTION AGREEMENTS THIS AMENDMENT made and entered into as of the 24th day of July, 2001, by and between National Service Industries, Inc., a Delaware corporation (the "Company") and Brock A. Hattox ("Optionee"). WHEREAS, the Company has previously adopted the National Service Industries, Inc. Long-Term Incentive Program ("LTIP") and the National Service Industries, Inc. Long-Term Achievement Incentive Plan ("LTAIP") to provide additional incentives to certain officers and key employees of the Company and its Subsidiaries; and WHEREAS, the Optionee has been granted the Incentive Stock Options (ISOs) and Nonqualified Stock Options (NQSOs) listed on Exhibits A, B, and C attached hereto (collectively the "Options") under the LTIP and the LTAIP; and WHEREAS, the terms and conditions of the grants of the Options are reflected in Stock Option Agreements (the "Stock Option Agreements") between the Company and Optionee; and WHEREAS, the Company and the Optionee desire to amend the Stock Option Agreements for the Options in the manner hereinafter provided; NOW, THEREFORE, the parties agree as follows: 1. Each of the Stock Option Agreements for the Options listed on Exhibit A attached hereto is hereby amended to renumber the existing Section 6.1 as Section 6.1(a) and to insert the following as a new subsection 6.1(b): "(b) 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 until five (5) years after the date of termination (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 (b) as if the Optionee had lived and the Option shall be exercisable by the persons described in (a) above." 2. The Stock Option Agreement for the Option listed on Exhibit B attached hereto is hereby amended to insert the following as a new subsection 6.2(d): "(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 until five (5) years after the date of termination (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 Option shall be exercisable by the persons described in (a) above." 3. Each of the Stock Option Agreements for the Options listed on Exhibit C attached hereto is hereby amended to delete the existing Section 6.2 in its entirety and to substitute the following in lieu thereof: "6.2 Termination of Employment Due to Specified Reasons. If the Optionee's termination of employment is due to death, Disability, 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 five (5) years 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 five (5) years 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 2 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 continue to vest in accordance with the original schedule (just as if the Optionee had remained employed) and shall remain exercisable until five (5) years after the date of termination (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 (d) as if the Optionee had lived and the Options shall be exercisable by the persons described in (a) above. (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)." 4. This Amendment shall be effective as of July 24, 2001. Except as hereby modified, the Stock Option Agreements shall remain in full force and effect. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day and year first written above. NATIONAL SERVICE INDUSTRIES, INC. By: -------------------------------------- 3 ----------------------------------------- BROCK A. HATTOX 4 Exhibit A
- ---------------------------------------------------------------------------------------------------------------------- Expiration Grant Date Date Plan ID Grant Type # Options Option Price - ---------------------------------------------------------------------------------------------------------------------- 9/9/1996 9/9/2006 LTIP ISO 10,524 $38.00 - ---------------------------------------------------------------------------------------------------------------------- 9/9/1996 9/9/2006 LTIP NQSO 9,476 $38.00 - ----------------------------------------------------------------------------------------------------------------------
5 Exhibit B
- ---------------------------------------------------------------------------------------------------------------------- Expiration Grant Date Date Plan ID Grant Type # Options Option Price - ---------------------------------------------------------------------------------------------------------------------- 9/17/1996 9/17/2006 LTIP NQSO 20,000 $38.00 - ----------------------------------------------------------------------------------------------------------------------
6 Exhibit C
- ---------------------------------------------------------------------------------------------------------------------- Expiration Grant Date Date Plan ID Grant Type # Options Option Price - ---------------------------------------------------------------------------------------------------------------------- 1/5/2000 1/5/2010 LTAIP NQSO 65,001 $27.6875 - ---------------------------------------------------------------------------------------------------------------------- 10/4/2000 10/4/2010 LTAIP NQSO 57,312 $19.4375 - ----------------------------------------------------------------------------------------------------------------------
7 EX-10.III(A)(37) 26 g72719ex10-iiia37.txt NONQUALIFIED STOCK OPTION AGREEMENTS Exhibit 10(iii)A(37) NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 17th day of September, 1996 (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 one of the Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant the Option to the Optionee as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 The Company hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of an aggregate of ((Amount)) whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement. 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. 1.3 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $38.00 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)), and each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 6. Termination of Employment. 6.1 In General. If the employment of the Optionee with the Company and its Subsidiaries shall terminate for any reason, other than for the reasons set forth in Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) a Permitted Transferee (as defined in Section 8 below), if any, or such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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. Transferability. The Option shall not be transferable other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the Option may be transferred, in whole or in part, without consideration, by written instrument signed by the Optionee, to any members of the immediate family of the Optionee (i.e., spouse, children and grandchildren), any trusts for the benefit of such family members or any partnerships whose only partners are such family members (the "Permitted Transferees"). Appropriate evidence of any such transfer to the Permitted Transferees shall be delivered to the Company at its principal executive office. If all or part of the Option is transferred to a Permitted Transferee, the Permitted Transferee's rights hereunder shall be subject to the same restrictions and limitations with respect to the Option as the Optionee. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee, or if applicable, by the Permitted Transferees. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 10. Adjustments. In the event of a Change in Capitalization, the Committee may make appropriate adjustments to the number and class of Shares or other stock or securities subject to the Option and the purchase price for such Shares or other stock or securities. The Committee's adjustment shall be made in accordance with the provisions of Section 11 of the Plan and shall be effective and final, binding and conclusive for all purposes of the Plan and this Agreement. 11. Terminating Events. Subject to Section 7 hereof, upon the effective date of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Option shall continue in effect in accordance with its terms and the Optionee shall be entitled to receive in respect of all Shares subject to the Option, upon exercise of the Option, the same number and kind of stock, securities, cash, property or other consideration that each holder of Shares was entitled to receive in the Transaction. 12. Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to the Optionee an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to the Option. If the Optionee is entitled to receive Shares upon exercise of the Option, the Optionee shall pay the Withholding Taxes to the Company in cash prior to the issuance of such Shares. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares issuable to him or her upon exercise of the Option, having an aggregate Fair Market Value equal to the Withholding Taxes, provided that, if the Optionee may be subject to liability under Section l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 14. Modification of Agreement. This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 15. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 17. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon each successor corporation. This Agreement shall inure to the benefit of the Optionee's legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee's heirs, executors, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ______________________________ By:_________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ____________________________________ Name of Optionee: ((Name)) EX-10.III(A)(39) 27 g72719ex10-iiia39.txt NONQUALIFIED STOCK OPTION AGREEMENT Exhibit 10(iii)A(39) NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 23rd day of September, 1997 (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 one of the Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant the Option to the Optionee as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 The Company hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of an aggregate of ((Amount)) whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement. 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. 1.3 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $44.3125 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)), and each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 6. Termination of Employment. 6.1 In General. If the employment of the Optionee with the Company and its Subsidiaries shall terminate for any reason, other than for the reasons set forth in Section 6.2 below, the Optionee's right to exercise any then outstanding Options (whether or not vested) shall terminate immediately upon termination of employment. 6.2 Termination of Employment Due to Death, Disability, Retirement or Change in Control. If the Optionee's termination of employment is due to death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) a Permitted Transferee (as defined in Section 8 below), if any, or such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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. Transferability. The Option shall not be transferable other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the Option may be transferred, in whole or in part, without consideration, by written instrument signed by the Optionee, to any members of the immediate family of the Optionee (i.e., spouse, children and grandchildren), any trusts for the benefit of such family members or any partnerships whose only partners are such family members (the "Permitted Transferees"). Appropriate evidence of any such transfer to the Permitted Transferees shall be delivered to the Company at its principal executive office. If all or part of the Option is transferred to a Permitted Transferee, the Permitted Transferee's rights hereunder shall be subject to the same restrictions and limitations with respect to the Option as the Optionee. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee, or if applicable, by the Permitted Transferees. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 10. Adjustments. In the event of a Change in Capitalization, the Committee may make appropriate adjustments to the number and class of Shares or other stock or securities subject to the Option and the purchase price for such Shares or other stock or securities. The Committee's adjustment shall be made in accordance with the provisions of Section 11 of the Plan and shall be effective and final, binding and conclusive for all purposes of the Plan and this Agreement. 11. Terminating Events. Subject to Section 7 hereof, upon the effective date of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Option shall continue in effect in accordance with its terms and the Optionee shall be entitled to receive in respect of all Shares subject to the Option, upon exercise of the Option, the same number and kind of stock, securities, cash, property or other consideration that each holder of Shares was entitled to receive in the Transaction. 12. Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to the Optionee an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to the Option. If the Optionee is entitled to receive Shares upon exercise of the Option, the Optionee shall pay the Withholding Taxes to the Company in cash prior to the issuance of such Shares. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares issuable to him or her upon exercise of the Option, having an aggregate Fair Market Value equal to the Withholding Taxes, provided that, if the Optionee may be subject to liability under Section l6(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 14. Modification of Agreement. This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 15. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 17. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon each successor corporation. This Agreement shall inure to the benefit of the Optionee's legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee's heirs, executors, Permitted Transferees, administrators and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. _________________________________ By:_________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ____________________________________ Name of Optionee: ((Name)) EX-10.III(A)(41) 28 g72719ex10-iiia41.txt NONQUALIFIED STOCK OPTION AGREEMENTS Exhibit 10(iii)A(41) NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 22nd day of September, 1998 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation (the "Company"), and ((Name)) (the "Optionee"). WHEREAS, the Company has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentive to certain officers and key employees of the Company and its Subsidiaries; and WHEREAS, the Optionee performs services for one of the Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant the Option to the Optionee as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 The Company hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of an aggregate of ((Amount)) whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement. 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. 1.3 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $35.0625 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)), and each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check, or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 6. Termination of Employment. 6.1 In General. If the employment of the Optionee with the Company and its -2- Subsidiaries shall terminate for any reason, other than for the reasons set forth in Section 6.2 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, Retirement or Change in Control. If the Optionee's termination of employment is due to Death, Disability or Retirement (termination of employment on or after age 65), or within two (2) years following a Change in Control, 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) years after the date of such termination of employment, but in no event after the expiration of the Exercise Term. In the event of the Optionee's death, the Option shall be exercisable, to the extent provided in the Plan and this Agreement by (A) a Permitted Transferee (as defined in Section 8 below), if any, or such persons that have acquired Optionee's rights by will or the laws of descent and distribution, or (B) if no such person in (A) exists, by the Optionee's estate or a representative of the Optionee's estate. 7. Effect of Change in Control. 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. Transferability. 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 -3- whole or in part, without consideration, by written instrument signed by the Optionee, to any members of the immediate family of the Optionee (i.e., spouse, children, and grandchildren), any trusts for the benefit of such family members or any partnerships whose only partners are such family members (the "Permitted Transferees"). Appropriate evidence of any such transfer to the Permitted Transferees shall be delivered to the Company at its principal executive office. If all or part of the Option is transferred to a Permitted Transferee, the Permitted Transferee's rights hereunder shall be subject to the same restrictions and limitations with respect to the Option as the Optionee. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee, or if applicable, by the Permitted Transferees. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 10. Adjustments. In the event of a Change in Capitalization, the Committee may make appropriate adjustments to the number and class of Shares or other stock or securities subject to the Option and the purchase price for such Shares or other stock or securities. The Committee's adjustment shall be made in accordance with the provisions of Section 11 of the Plan and shall be effective and final, binding, and conclusive for all purposes of the Plan and this Agreement. 11. Terminating Events. Subject to Section 7 hereof, upon the effective date of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Option shall continue in effect in accordance with its terms and the Optionee shall be entitled to receive in respect of all Shares subject to the Option, upon exercise of the Option, the same number and kind of stock, securities, cash, property, or other consideration that each holder of Shares was entitled to receive in the Transaction. 12. Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to the Optionee an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to the Option. If the Optionee is entitled to receive Shares upon exercise of the Option, the Optionee shall pay the Withholding Taxes to the Company in cash prior to the issuance of -4- such Shares. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares issuable to him or her upon exercise of the Option, having an aggregate Fair Market Value equal to the withholding Taxes, provided that, if the Optionee may be subject to liability under Section 16(b) of the Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 14. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 15. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 16. Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 17. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon each successor corporation. This Agreement shall inure to the benefit of the Optionee's legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding, and conclusive upon the Optionee's heirs, executors, Permitted Transferees, administrators, and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be -5- determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on the Optionee and the Company for all purposes. 19. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. _________________________________ By:_________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ____________________________________ Name of Optionee: ((Name)) -6- EX-10.III(A)(43) 29 g72719ex10-iiia43.txt AMENDMENT TO INCENTIVE STOCK OPTION AGREEMENT Exhibit 10(iii)A(43) NATIONAL SERVICE INDUSTRIES AMENDMENT TO STOCK OPTION AGREEMENTS THIS AMENDMENT made and entered into as of the 24th day of July, 2001, by and between National Service Industries, Inc., a Delaware corporation (the "Company") and Brock A. Hattox ("Optionee"). WHEREAS, the Company has previously adopted the National Service Industries, Inc. Long-Term Incentive Program ("LTIP") and the National Service Industries, Inc. Long-Term Achievement Incentive Plan ("LTAIP") to provide additional incentives to certain officers and key employees of the Company and its Subsidiaries; and WHEREAS, the Optionee has been granted the Incentive Stock Options (ISOs) and Nonqualified Stock Options (NQSOs) listed on Exhibits A, B, and C attached hereto (collectively the "Options") under the LTIP and the LTAIP; and WHEREAS, the terms and conditions of the grants of the Options are reflected in Stock Option Agreements (the "Stock Option Agreements") between the Company and Optionee; and WHEREAS, the Company and the Optionee desire to amend the Stock Option Agreements for the Options in the manner hereinafter provided; NOW, THEREFORE, the parties agree as follows: 1. Each of the Stock Option Agreements for the Options listed on Exhibit A attached hereto is hereby amended to renumber the existing Section 6.1 as Section 6.1(a) and to insert the following as a new subsection 6.1(b): "(b) 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 until five (5) years after the date of termination (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 (b) as if the Optionee had lived and the Option shall be exercisable by the persons described in (a) above." 2. The Stock Option Agreement for the Option listed on Exhibit B attached hereto is hereby amended to insert the following as a new subsection 6.2(d): "(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 until five (5) years after the date of termination (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 Option shall be exercisable by the persons described in (a) above." 3. Each of the Stock Option Agreements for the Options listed on Exhibit C attached hereto is hereby amended to delete the existing Section 6.2 in its entirety and to substitute the following in lieu thereof: "6.2 Termination of Employment Due to Specified Reasons. If the Optionee's termination of employment is due to death, Disability, 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 five (5) years 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 five (5) years 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 2 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 continue to vest in accordance with the original schedule (just as if the Optionee had remained employed) and shall remain exercisable until five (5) years after the date of termination (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 (d) as if the Optionee had lived and the Options shall be exercisable by the persons described in (a) above. (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)." 4. This Amendment shall be effective as of July 24, 2001. Except as hereby modified, the Stock Option Agreements shall remain in full force and effect. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day and year first written above. NATIONAL SERVICE INDUSTRIES, INC. By:_________________________________ 3 ____________________________________ BROCK A. HATTOX 4 Exhibit A
Expiration Grant Date Date Plan ID Grant Type # Options Option Price - -------------------------------------------------------------------------------- 9/9/1996 9/9/2006 LTIP ISO 10,524 $38.00 9/9/1996 9/9/2006 LTIP NQSO 9,476 $38.00
5 Exhibit B
Expiration Grant Date Date Plan ID Grant Type # Options Option Price - -------------------------------------------------------------------------------- 9/17/1996 9/17/2006 LTIP NQSO 20,000 $38.00
6 Exhibit C
Expiration Grant Date Date Plan ID Grant Type # Options Option Price - -------------------------------------------------------------------------------- 1/5/2000 1/5/2010 LTAIP NQSO 65,001 $27.6875 10/4/2000 10/4/2010 LTAIP NQSO 57,312 $19.4375
7 EX-10.III(A)(45) 30 g72719ex10-iiia45.txt NONQUALIFIED STOCK OPTION AGREEMENTS Exhibit 10(iii)A(45) NONQUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 5th day of January, 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 one of the Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant the Option to the Optionee as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 The Company hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of an aggregate of ((Amount)) whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement. 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. 1.3 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $27.6875 per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the "Exercise Term"); provided, however, that the Option may be earlier terminated as provided in Section 6 hereof. 4. Exercisability of Option. Unless otherwise provided in this Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, ((Para)). Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided during the remaining period of the Exercise Term. 5. Manner of Exercise and Payment. 5.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 5.2 The notice of exercise described in Section 5.1 shall be accompanied by the full purchase price for the Shares in respect of which the Option is being exercised, in cash, by check, or by transferring Shares to the Company having a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted. 5.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 17 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 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 Section -2- 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 of employment 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 persons 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 be exercisable (to the extent the Option was vested and exercisable on the date of termination of employment) 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 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. (d) Termination After Attaining Age 55. If the Optionee terminates employment (other than as a result of death or Disability) after -3- attaining age 55 but prior to age 65, unless the Committee determines otherwise at the time of such termination, the Option shall continue to be exercisable (to the extent the Option was vested and exercisable on the date of termination of employment) 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 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. 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. Transferability. 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 -4- Company at its principal executive office. If all or part of the Option is transferred to a Permitted Transferee, the Permitted Transferee's rights hereunder shall be subject to the same restrictions and limitations with respect to the Option as the Optionee. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee, or if applicable, by the Permitted Transferees. 9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary to terminate the Optionee's employment at any time. 10. Adjustments. In the event of a Change in Capitalization, the Committee may make appropriate adjustments to the number and class of Shares or other stock or securities subject to the Option and the purchase price for such Shares or other stock or securities. The Committee's adjustment shall be made in accordance with the provisions of Section 11 of the Plan and shall be effective and final, binding, and conclusive for all purposes of the Plan and this Agreement. 11. Terminating Events. Subject to Section 7 hereof, upon the effective date of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Option shall continue in effect in accordance with its terms and the Optionee shall be entitled to receive in respect of all Shares subject to the Option, upon exercise of the Option, the same number and kind of stock, securities, cash, property, or other consideration that each holder of Shares was entitled to receive in the Transaction. 12. Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to the Optionee an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to the Option. If the Optionee is entitled to receive Shares upon exercise of the Option, the Optionee shall pay the Withholding Taxes to the Company in cash prior to the issuance of such Shares. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares issuable to him or her upon exercise of the Option, having an aggregate Fair Market Value equal to the withholding Taxes, provided that, if the Optionee may be subject to liability under Section 16(b) of the -5- Exchange Act, the election must comply with the requirements applicable to Share transactions by such Optionees. 13. Employee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 14. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 15. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 16. Governing Law. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 17. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon each successor corporation. This Agreement shall inure to the benefit of the Optionee's legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding, and conclusive upon the Optionee's heirs, executors, Permitted Transferees, administrators, and successors. 18. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on the Optionee and the Company for all purposes. -6- ATTEST: NATIONAL SERVICE INDUSTRIES, INC. _________________________________ By:_________________________________ Secretary James S. Balloun Chairman, President, and Chief Executive Officer ____________________________________ Name of Optionee: ((Name)) -7- EX-10.III(A)(59) 31 g72719ex10-iiia59.txt EMPLOYMENT LETTER AGREEMENT Exhibit 10(iii)A(59) March 28, 2000 Mr. James H. Heagle 520 Salem Heights Drive Gibsonia, Pennsylvania 15044 Dear Jim: This letter will confirm the terms of your employment by National Service Industries, Inc. ("NSI"), effective May 1, 2000 (the "Effective Date"). We are enthusiastic about your decision to join NSI and look forward to working with you to build a bigger, stronger NSI. The terms of your employment will be as follows: 1. Title and Duties - As President, NSI Chemicals, you will report to George Gilmore, Executive Vice President and Group President. You will have responsibility for NSI Chemicals business and any other duties consistent with your position which may be assigned to you by Mr. Gilmore. You will devote substantially all of your working time and attention to the business and affairs of NSI Chemicals. 2. Base Salary - Your base salary will be Twenty-five Thousand Dollars ($25,000) per month or the equivalent annual rate of Three Hundred Thousand Dollars ($300,000), subject to review for increases. In addition, you will receive a signing bonus of Ten Thousand Dollars ($10,000) payable within thirty (30) days after the Effective Date. 3. Annual Incentive Compensation - You will participate in the NSI Management Compensation and Incentive Plan (the "AIP") for the fiscal year beginning September 1, 2000 with a target bonus equal to 45% of your base salary. You will participate in the AIP for the fiscal year ending August 31, 2000 on a pro rata basis for the period of your employment. 4. Long-Term Achievement Incentive Plan - You will receive a grant of employee stock options for ten thousand (10,000) shares of stock under our current long- Page 2 J.H. Heagle March 28, 2000 term incentive plan upon your arrival at NSI. You will also be entitled to participate in the current long-term incentive plan on a prorated basis for the number of months you are employed with NSI during the remainder of the three-year cycle ending August 31, 2001 and the remainder of the three-year cycle ending August 31, 2002 based on the performance of NSI's Chemical Group. In addition, you will participate in the Plan for the three-year cycle beginning September 1, 2000 on a comparable basis with operating unit presidents. This Plan provides for annual grants of stock options and annual "aspiration awards" having a total value equal to 160% of salary at commitment (or target) level performance. Stock options represent 30% of total value (or 48% of salary) and aspiration awards represent 70% of total value (or 112% of salary) at commitment level performance. The payout for aspiration awards for aspiration level performance is equal to five times the value of the payout for commitment level performance (or 560% of salary). Failure to achieve threshold level performance will result in no payout. 5. Retirement Plans - Upon satisfying the eligibility requirements, you will be eligible to participate in NSI's tax-qualified retirement plans, NSI Pension Plan C, and the NSI 401(k) Plan for Corporate Office Employees. In addition, upon employment, you will become a participant in the Supplemental Pension Plan for National Service Industries, Inc. (the "SPP"). 6. Medical, Life Insurance, and Other Employee Benefits - You will be covered by, or eligible to participate in, the medical, dental, life insurance, disability, deferred compensation, and other benefit programs generally made available by NSI to its operating unit presidents and their families, including a car allowance of Four Hundred Dollars ($400) per month. We will reimburse you for your COBRA expenses until you are covered under our program. You will be eligible to participate in NSI's financial planning program. You will also be entitled to four (4) weeks vacation per calendar year. 7. Relocation Expenses - NSI will pay the following relocation expenses: (a) your expenses for moving your household effects to Atlanta; (b) rent for an apartment and storage of your personal effects in Atlanta, pending your move into your new home in Atlanta on or before February 1, 2001; (c) brokerage and closing costs (up to two points) you incur in connection with the sale of your home in Gibsonia and the purchase of a home in Page 3 J.H. Heagle March 28, 2000 Atlanta; (d) reasonable travel expenses to and from Gibsonia for you and your wife and children until you have moved your residence to Atlanta; and (e) a one-time payment of one month's salary for your assistance in the relocation. The foregoing payments will be "grossed up" so that, to the extent reasonably practicable, they will represent your after-tax cost for covered expenses. In addition to the foregoing, we will assist you in obtaining a bridge loan should you purchase a home in Atlanta before selling your home in Gibsonia. As we discussed, you will put your home in Gibsonia on the market within ninety (90) days after the Effective Date. If you have not sold your home by February 1, 2001, NSI will engage a home buying service to purchase your home. 8. Employment at Will/Severance Payment/Change in Control - Your employment will be at will and may be terminated by either NSI or you at any time for any reason, with or without notice. Except in the event of termination in connection with a Change in Control of NSI (as defined in the Severance Protection Agreement that will cover you), you will be entitled to the following severance payment: - If your employment is terminated for any reason other than voluntary termination, termination upon death or Disability (as defined below), or termination by NSI for Cause (as defined below), you will receive a severance payment (payable in semi-monthly installments) equal to your then current salary for a period of twelve (12) months, subject to your execution of a release and severance agreement in a form acceptable to both parties. For purposes of entitlement to a severance benefit, "Cause" shall mean any act(s) on your part that constitutes fraud, a felony involving dishonesty, a breach of fiduciary duty, insubordination, or gross malfeasance or habitual neglect of your duties for NSI, and "Disability" shall mean a physical or mental infirmity which impairs your ability to substantially perform your duties as President, NSI Chemicals with or without reasonable accommodation for a period of one hundred eighty (180) consecutive days. With respect to Change in Control situations, you will be covered by a Severance Protection Agreement with the same provisions as are applicable to NSI's operating unit Page 4 J.H. Heagle March 28, 2000 presidents. In the event of your termination in connection with a Change in Control that entitles you to benefits under the Severance Protection Agreement, you will receive the greater of the payments and benefits provided under the Severance Protection Agreement (after consideration of any tax penalties) or the severance payments described above. 9. Relocation of Residence to Atlanta - You will relocate your residence to Atlanta and complete the move of your family on or before February 1, 2001. The base salary, annual incentive, long-term incentives, nonqualified retirement benefits, and any severance payments will be structured to ensure the tax deductibility to NSI of the payments and benefits under the Internal Revenue Code of 1986. We can provide additional information on these issues if you so desire. We will prepare an SPP amendment and Severance Protection Agreement to evidence the arrangements set forth in this letter. We are delighted you are joining NSI and we look forward to a long and mutually satisfactory relationship. This letter outlines your employment relationship with NSI; if you agree with the employment terms as outlined above, please sign and date both copies of this letter agreement and return one copy to me at your earliest convenience. Sincerely, /s/ George H. Gilmore, Jr. George H. Gilmore Jr. ACCEPTED AND AGREED TO THIS _____ DAY OF _____________, 2000 /s/ James H. Heagle James H. Heagle EX-10.III(A)(61) 32 g72719ex10-iiia61.txt EMPLOYMENT AGREEMENT Exhibit 10(iii)A(61) EMPLOYMENT AGREEMENT This Employment Agreement entered into as of the 27th day of November, 2001, by and between NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation (the "Company"), and Brock A. Hattox, an individual resident of the State of Georgia (the "Executive"), the terms and conditions of which are as follows: SECTION 1. TERM OF EMPLOYMENT (a) The Company shall employ Executive as Chairman, President and Chief Executive Officer during the term of his employment, subject to the terms and conditions set forth in this Employment Agreement, and Executive hereby accepts such employment. Executive shall perform the responsibilities of a Chairman, President and Chief Executive Officer and such additional executive duties and responsibilities commensurate with his position, as shall be assigned to him in accordance with the terms of this Agreement. (b) The Company and Executive acknowledge that it is currently the intention of the Company to spin-off ACUITY BRANDS, INC., a Delaware corporation ("Acuity") and a wholly-owned subsidiary of the Company, by means of a distribution of all of Acuity's issued and outstanding common stock in a tax-free dividend to the Company's stockholders (the "Spin-off"). Such date as the Spin-off is effective shall be termed the "Effective Date." (c) Subject to the terms and conditions set forth in this Employment Agreement, the Company agrees to employ Executive and Executive agrees to be employed by the Company for an initial term ("Initial Term") of three years, commencing on the Effective Date, and ending on the third anniversary of the Effective Date; provided, however, the Initial Term automatically shall extend for one additional year on the first anniversary of the Effective Date and on each subsequent anniversary of the Effective Date, unless the Company or Executive notifies the other pursuant to Section 6(a) that no such extension will be effected at least ninety (90) days before the first anniversary date or any subsequent anniversary date. The Initial Term described in this Section 1 and any extensions of such Initial Term, shall be referred to in this Employment Agreement as the "Term". SECTION 2. POSITION AND DUTIES AND RESPONSIBILITIES (a) Position. Executive shall be the Chairman, President and Chief Executive Officer of the Company. (b) Duties and Responsibilities. Executive's duties and responsibilities shall be those normally associated with Executive's position as a Chairman, President and Chief Executive Officer plus any additional duties and responsibilities that the Company's Board of Directors from time to time may assign orally or in writing to Executive. Executive shall report to the Company's Board of Directors and shall have such powers as may be delegated to him by such Board. Executive shall undertake to perform all Executive's duties and responsibilities for the Company in good faith and on a full-time basis and shall at all times act in the course of Executive's employment under this Employment Agreement in the best interest of the Company. SECTION 3. COMPENSATION AND BENEFITS (a) Base Salary. Executive's initial base salary shall be Six Hundred Thousand Dollars ($600,000) per year (the "Base Salary"), which Base Salary shall be payable in accordance with the Company's standard payroll practices and policies for executive officers and shall be subject to such withholdings as required by law or as otherwise permissible under such practices or policies. The Base Salary shall be subject to periodic adjustments as determined by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"). (b) Conversion of NSI Options. The Executive currently has 353,813 options to acquire shares of Common Stock of the Company. Of these options, 122,313 were granted in lieu of aspiration award payments of $988,934.31 and 231,500 were granted under the Company's option plans. As soon as practicable after execution of this Agreement and before the Effective Date, the Company will pay the Executive $988,934.31 in cash (subject to applicable withholding taxes) upon the surrender of the 122,313 options. With respect to the remaining 231,500 options, these options will be addressed in connection with the Spin-Off and Executive will be treated in a manner consistent with other executive officers of the Company. (c) Annual Bonus and Other Incentive Compensation. Executive during the Term shall be eligible to receive an annual bonus of 60% of Base Salary based upon achieving targeted financial objectives, provided the Executive may, in accordance with the annual bonus plan established by the Compensation Committee, receive a greater or lesser annual bonus if such targeted financial objectives are exceeded or only partially met. Executive shall also be eligible to participate in such other annual bonus and incentive compensation programs as the Compensation Committee shall make available to executive officers. (d) Employee Benefit Plans. Executive shall be eligible to participate in the employee benefit plans, programs and policies (including any executive life insurance program) maintained by the Company that cover executive officers in accordance with the terms and conditions of such plans, programs and policies as in effect from time to time. (e) Stock Option and Stock Grants. On and after the Effective Date, Executive will be eligible to receive annual grants of stock options, restricted stock and other long-term incentive awards equal in value to 260% of his Base Salary. The nature and structure of such grants shall be determined by the Board of Directors. (f) Vacation. Executive shall be entitled to four weeks of vacation (or such larger amount as Executive may be entitled to under Company policy) during each successive one year period in the Term, which vacation time shall be taken at such time or times in each such one year period so as not to materially and adversely interfere with the business of the Company. -2- Executive shall have the right to carryover unused vacation from any such one year period to any other such one year period, in accordance with Company policy for executives. (g) Business Expenses. Executive shall have a right to be promptly reimbursed for Executive's reasonable and appropriate business expenses which Executive actually incurs in connection with the performance of Executive's duties and responsibilities under this Employment Agreement in accordance with the Company's expense reimbursement policies and procedures for its senior executive officers. (h) Directors' and Officers' Insurance. Effective as of the Effective Date, the Company shall take all reasonable steps to ensure that Executive has been provided coverage under directors' and officers' liability insurance, the terms of which insurance shall be substantially similar to the terms contained in such directors' and officers' liability insurance which is in place for the Company's directors and executive officers on the Effective Date. (i) SERP. Upon his employment in September 1996, Executive became an eligible executive under the Supplemental Retirement Plan for Executives of National Service Industries, Inc. (the "SERP") and certain special provisions for Executive's SERP benefit are set forth in Appendix E of the SERP. Appendix E to the SERP has previously been amended to provide that, upon termination on or after age 55, Executive will be (1) credited with five additional years of service, thereby becoming eligible for Early Retirement upon attainment of age 55 and increasing his benefit (e.g., 12/20 of the full benefit rather than 7/20) and (2) treated as being five years older so that if he commenced benefits at age 55, he would be treated as commencing at age 60, with five years of reduction for early commencement rather than ten. As of the Effective Date, Appendix E shall be further amended to provide that Executive will be allowed to make an election at retirement to be paid his benefit in an immediate lump sum payment calculated by discounting the future payment stream at an interest rate equal to the lesser of the GATT interest rate or the PBGC immediate annuity rate with an assumed life span to age 85, or in annual installments over a period of up to five years, or in accordance with the usual SERP payout rules. (j) Pension Plan. Executive will continue to participate in a pension plan of the Company. (k) Severance Protection Agreement. Executive will continue to be covered by a Severance Protection Agreement comparable to the agreement in effect on the Effective Date, amended to the extent necessary to reflect the terms of this Agreement. SECTION 4. TERMINATION OF EMPLOYMENT (a) Termination By The Company Other Than For Cause Or Disability Or By Executive For Good Reason. (1) The Company shall have the right to terminate Executive's employment at any time, and Executive shall have the right to resign at any time. However, a proper notice under Section 1 that no extension of Executive's Term will be effected shall not constitute a termination of Executive's employment by the Company or a resignation by -3- Executive. If either the Company or Executive elects to give such notice, the Company's only obligation to Executive under this Employment Agreement after the expiration of the Term shall be to pay Executive's earned but unpaid Base Salary until the date the Term expired and any earned, but unpaid bonus. (2) If the Company terminates Executive's employment other than for Cause, death or Disability or if Executive resigns for Good Reason, the Company shall (in lieu of any other severance benefits under any of the Company's employee benefit plans, programs or policies except for his rights under the Severance Protection Agreement as provided in (4) below) pay or provide to Executive the following: (i) Executive will continue to receive his Base Salary as then in effect for the remaining Term of this Agreement or if his termination occurs after the first anniversary of the Effective Date, for a period of twenty-four (24) months (such period is hereinafter referred to as the "Severance Period"), payable in the same manner as it was being paid on his date of termination; (ii) Executive will be paid monthly an amount equal to $30,000 (his target bonus of $360,000 divided by 12), subject to withholding of applicable taxes, for the Severance Period; (iii) Executive will continue to receive the healthcare and life insurance coverages in effect on his date of termination for the Severance Period just as if he had remained an active employee, subject to Executive paying the customary employee portion of such coverages, provided that if the Company cannot continue to cover Executive under its plans, the Company will separately provide Executive with comparable coverages or pay Executive in a lump sum the costs of such coverages; and (iv) If Executive's employment is terminated prior to his attaining age 55, he will be treated for all purposes under the SERP as if he had continued to remain actively employed until he reached age 55. (3) If the Company terminates Executive's employment other than for Cause, death or Disability or if Executive resigns for Good Reason, Executive shall become immediately fully vested in (i) all restricted stock previously granted to Executive, including any restricted shares of Common Stock granted pursuant to Section 3 (e), and (ii) all stock options previously granted to Executive, in which event all such options shall be fully exercisable by Executive and shall remain exercisable for 12 months after Executive's date of termination (unless the option provides for a longer exercise period). (4) If Executive's employment is terminated under circumstances qualifying Executive for compensation and benefits under this Section 4(a) and he also qualifies for compensation and benefits under the Severance Protection Agreement, Executive shall be entitled to receive whichever compensation and benefits are greater and there shall be no duplication of compensation or benefits. -4- (b) Termination By the Company For Cause or By Executive Other Than For Good Reason. (1) The Company shall have the right to terminate Executive's employment at any time for Cause, and Executive shall have the right to resign at any time other than for Good Reason. (2) If the Company terminates Executive's employment for Cause or Executive resigns other than for Good Reason, the Company's only obligation to Executive under this Employment Agreement shall be to pay Executive's earned but unpaid Base Salary then in effect under Section 3(a), if any, up to the date Executive's employment terminates. If Executive is terminated for Cause, further vesting of Executive's stock options, shall cease. Furthermore, if terminated for Cause, further vesting of Executive's restricted stock grants shall cease and Executive shall forfeit all further vesting of any restricted stock grants. (c) Cause. The term "Cause" as used in this Employment Agreement means, (1) Executive has engaged in conduct which in the reasonable judgment of the Company's Board of Directors constitutes gross negligence, gross misconduct or gross neglect in the performance of Executive's duties and responsibilities under this Employment Agreement, including conduct resulting or intending to result directly or indirectly in gain or personal enrichment for Executive at the Company's expense; or (2) Executive has been convicted of a felony or of any crime involving fraud, embezzlement or theft. With respect to clause (1) above, Executive shall not be deemed to have been terminated for "Cause" until there shall have been delivered to him written notice, not less than 30 days prior to the proposed termination date, specifying the basis for such termination. (d) Good Reason. The term "Good Reason" means, (1) Any material reduction in Executive's Base Salary; (2) A material reduction in Executive's job functions, duties or responsibilities, or a similar change in Executive's reporting relationships; (3) The failure by the Company to continue in effect any material compensation plan in which Executive participates on the Effective Date (unless such plan is replaced by a comparable plan) or to continue to provide Executive with benefits substantially comparable to those in effect on the Effective Date; (4) The relocation of the Company's principal executive offices to a location more than fifty (50) miles from Atlanta, Georgia, unless the Executive consents to such relocation; or -5- (5) Any material breach of any of the terms of this Employment Agreement by the Company. (e) Termination for Disability or Death. (1) The Company shall have the right to terminate Executive's employment on or after the date Executive has a Disability, and Executive's employment shall terminate at Executive's death. (2) If Executive's employment terminates under this Section 4(e), the Company's only obligation under this Employment Agreement shall be to pay Executive or, if Executive dies, Executive's estate, any earned but unpaid Base Salary then in effect under Section 3(a) through the date Executive's employment terminates, provided that Executive shall have such rights under the Company's benefit plans as are provided in such plans. The term "Disability" as used in this Employment Agreement shall have the same meaning as under the Company's long-term disability plan and if no such plan is in effect, then Disability shall mean the suffering by Executive for at least a 180 consecutive day period of a physical or mental condition resulting from bodily injury, disease, or mental disorder which renders Executive incapable of continuing even with reasonable accommodation to perform the essential functions of Executive's job. The Company's Board of Directors shall determine whether Executive has a Disability. If Executive disputes such determination, the issue shall be submitted to a panel consisting of three physicians who specialize in the physical or mental condition from which Executive suffers, one appointed and paid by the Company, one appointed and paid by Executive and the third appointed by these two physicians and paid one-half by the Company and one-half by Executive. The determination as to whether Executive has a Disability shall be made by such panel and shall be binding on the Company and on Executive. (f) Benefits at Termination of Employment. Upon Executive's termination of employment, Executive shall have the right to receive any benefits payable under the Company's employee benefit plans, programs and policies which Executive otherwise has a nonforfeitable right to receive under the terms of such plans, programs and policies (other than severance benefits) independent of Executive's rights under this Employment Agreement, without regard to the reason for such termination of employment. -6- SECTION 5. COVENANTS BY EXECUTIVE (a) The Company's Property. (1) Upon the termination of Executive's employment for any reason or, if earlier, upon the Company's request, Executive shall promptly return all "Property" which had been entrusted or made available to Executive by the Company. (2) The term "Property" means all records, files, memoranda, reports, price lists, customer lists, drawings, plans, sketches, keys, codes, computer hardware and software and other property of any kind or description prepared, used or possessed by Executive during Executive's employment by the Company and, if applicable, any of its affiliates (and any duplicates of any such property) together with any and all information, ideas, concepts, discoveries, and inventions and the like conceived, made, developed or acquired at any time by Executive individually or, with others during Executive's employment which relate to the Company business, products or services. (b) Trade Secrets. (1) Executive agrees that Executive will hold in a fiduciary capacity for the benefit of the Company, and any of its affiliates, and will not directly or indirectly use or disclose, any "Trade Secret" that Executive may have acquired during the term of Executive's employment by the Company or any of its affiliates for so long as such information remains a Trade Secret. (2) The term "Trade Secret" means information, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers that (a) derives economic value, actual or potential, from not being generally known to, and not being generally readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (b) is the subject of reasonable efforts by the Company and any of its affiliates to maintain its secrecy. (3) This Section 5(b) and Section 5(c) are intended to provide rights to the Company which are in addition to, not in lieu of, those rights the Company has under the common law or applicable statutes for the protection of trade secrets. (c) Confidential Information. (1) Executive, while employed under this Employment Agreement and thereafter during the "Restricted Period", shall hold in a fiduciary capacity for the benefit of the Company and any of its affiliates, and shall not directly or indirectly use or disclose, any "Confidential Information" that Executive may have acquired (whether or not developed or compiled by Executive and whether or not Executive is authorized to -7- have access to such information) during the term of, and in the course of, or as a result of Executive's employment by the Company or any of its affiliates. (2) The term "Confidential Information" means any secret, confidential or proprietary information possessed by the Company or any of its affiliates relating to their businesses, including, without limitation, trade secrets, customer lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies, price lists, market studies, business plans, operational methods, marketing plans or strategies, legal advice and communications with the Company's counsel, product development techniques or flaws, computer software programs (including object code and source code), data and documentation data, base technologies, systems, structures and architectures, inventions and ideas, past current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans and new personnel acquisition plans (not otherwise included in the definition of a Trade Secret under this Employment Agreement) that has not become generally available to the public by the act of one who has the right to disclose such information without violating any right of the Company or any of its affiliates. Confidential Information may include, but not be limited to, future business plans, licensing strategies, advertising campaigns, information regarding customers, executives and independent contractors and the terms and conditions of this Employment Agreement. (d) Restricted Period. The term "Restricted Period" as used in the Employment Agreement shall mean the two-year period which starts on the date Executive's employment terminates with the Company without regard to whether such termination comes before or after the end of the Term. (e) Nonsolicitation of Customers or Employees. (1) Executive (i) while employed under this Employment Agreement shall not, on Executive's own behalf or on behalf of any person, firm, partnership, association, corporation or business organization, entity or enterprise (other than the Company or one of its affiliates), solicit Competing Business of customers of the Company or any of its affiliates and (ii) during the Restricted Period shall not, on Executive's own behalf or on behalf of any person, firm, partnership, association, corporation or business organization, entity or enterprise, solicit Competing Business of customers of the Company or any of its affiliates with whom Executive within the twenty-four month period immediately preceding the beginning of the Restricted Period had or made contact with in the course of Executive's employment by the Company. (2) Executive (i) while employed under this Employment Agreement shall not, either directly or indirectly, call on, solicit or attempt to induce any other officer, employee or independent contractor of the Company or any of its affiliates to terminate his or her employment with the Company or any of its affiliates and shall not assist any other person or entity in such a solicitation (regardless of whether any such officer, -8- employee or independent contractor would commit a breach of contract by terminating his employment), and (ii) during the Restricted Period, shall not, either directly or indirectly, call on, solicit or attempt to induce any other officer, employee or independent contractor of the Company or any of its affiliates with whom Executive had contact, knowledge of, or association in the course of Executive's employment with the Company or any of its affiliates as the case may be, during the twelve month period immediately preceding the beginning of the Restricted Period, to terminate his employment with the Company or any of its affiliates and shall not assist any other person or entity in such a solicitation (regardless of whether any such officer, employee or independent contractor would commit a breach of contract by terminating his employment). (3) The term "Competing Business" as used in this Employment Agreement means (i) the business of selling, renting, leasing or otherwise distributing, directly or indirectly, textiles, including, without limitation, napkins, table and bed linens, bath towels, pillow cases, bar towels, scrubs and surgical drapery, mats, mops, and restroom supplies and (ii) the business of manufacturing, producing and distributing, directly or indirectly, envelopes, including, without limitation, custom business and courier envelopes, as well as specialty filing products. (f) Noncompetition Obligation. Executive, while employed under this Employment Agreement and thereafter during the Restricted Period and within the United States of America and her territories and commonwealths, shall not organize or form any other business that will conduct Competing Business and shall not engage in the executive management of, or provide consulting concerning the executive management of, Competing Business on behalf of any business other than the Company or its affiliates. Executive acknowledges and agrees that the geographic areas identified in this Section 5(f) are areas in which Executive performs services for the Company by being actively engaged as a member of the Company's executive management team in the Company's operations in these areas. (g) Reasonable and Continuing Obligations. Executive agrees that Executive's obligations under this Section 5 are obligations which will continue beyond the date Executive's employment terminates and that such obligations are reasonable and necessary to protect the Company's legitimate business interests. The Company in addition shall have the right to take such other action as the Company deems necessary or appropriate to compel compliance with the provisions of this Section 5. (h) Remedy for Breach. Executive agrees that the remedies at law of the Company for any actual or threatened breach by Executive of the covenants in this Section 5 would be inadequate and that the Company shall be entitled to specific performance of the covenants in this Section 5, including entry of an ex parte, temporary restraining order in state or federal court, preliminary and permanent injunctive relief against activities in violation of this Section 5, or both, or other appropriate judicial remedy, writ or order, in addition to any damages and legal expenses which the Company may be legally entitled to recover. Executive acknowledges and agrees that the covenants in this Section 5 shall be construed as agreements independent of any other provision of this or any other agreement between the Company and Executive, and that the -9- existence of any claim or cause of action by Executive against the Company, whether predicated upon this Employment Agreement or any other agreement, shall not constitute a defense to the enforcement by the Company of such covenants. SECTION 6. MISCELLANEOUS (a) Notices. Notices and all other communications shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail. Notices to the Company shall be sent to National Service Industries, Inc., 1420 Peachtree Street, N.E., Atlanta, Georgia, 30309, Attention: Corporate Secretary. Notices and communications to Executive shall be sent to the address Executive most recently provided to the Company. (b) No Waiver. Except for the notice described in Section 6(a), no failure by either the Company or Executive at any time to give notice of any breach by the other of, or to require compliance with, any condition or provision of this Employment Agreement shall be deemed a waiver of any provisions or conditions of this Employment Agreement. (c) Delaware Law. This Employment Agreement shall be governed by Delaware law without reference to the choice of law principles thereof. (d) Assignment. This Employment Agreement shall be binding upon and inure to the benefit of the Company and any successor to all or substantially all of the business or assets of the Company, other than Acuity. The Company may assign this Employment Agreement to any affiliate or successor, and no such assignment shall be treated as a termination of Executive's employment under this Employment Agreement. Executive's rights and obligations under this Employment Agreement are personal and shall not be assigned or transferred. (e) Other Agreements. This Employment Agreement replaces and merges any and all previous agreements and understandings regarding all the terms and conditions of Executive's employment relationship with the Company, and this Employment Agreement constitutes the entire agreement between the Company and Executive with respect to such terms and conditions, except for rights under other agreements referred to in this Agreement. (f) Amendment. No amendment to this Employment Agreement shall be effective unless it is in writing and signed by the Company and by Executive. (g) Invalidity. If any part of this Employment Agreement is held by a court of competent jurisdiction to be invalid or otherwise unenforceable, the remaining part shall be unaffected and shall continue in full force and effect, and the invalid or otherwise unenforceable part shall be deemed not to be part of this Employment Agreement. (h) Attorney's Fees. In the event Executive incurs legal fees and expenses in seeking to enforce any rights to compensation and benefits under this Agreement and is successful, in whole or in part, in obtaining or enforcing any material rights to compensation or benefits through negotiation, settlement, litigation, arbitration or otherwise, the Company shall promptly -10- pay Executive's reasonable legal fees and expenses incurred in enforcing Executive's rights under this Agreement. IN WITNESS WHEREOF, the Company and Executive have executed this Employment Agreement as of the date first above written to be effective on the Effective Date. NATIONAL SERVICE INDUSTRIES, INC. EXECUTIVE By: /s/ James S. Balloun /s/ Brock A. Hattox ------------------------------------ ----------------------------------- Name: James S. Balloun Brock A. Hattox Title: Chairman, President and Chief Executive Officer -11- EX-10.III(A)(62)(A) 33 g72719ex10-iiia62a.txt ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENTS Exhibit 10(iii)A(62)(a) ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR KEY EMPLOYEES OF OPERATING UNITS THIS AGREEMENT, made as of the 22nd day of September, 1998 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation ("NSI"), and NATIONAL SERVICE INDUSTRIES, INC. (GA), a Subsidiary of NSI (together, the "Company"), and ((Grantee)) (the "Grantee"). WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and WHEREAS, the Grantee, as a key employee of the above-referenced Subsidiary, performs services with respect to the ((DIVISION)) operations of the Company (the "Operations"); and WHEREAS, the Committee responsible for administration of the Plan has determined to grant to the Grantee an Aspiration Achievement Incentive Award as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Aspiration Award. 1.1 The Company hereby grants to the Grantee an Aspiration Achievement Incentive Award (the "Award"), which has a value determined as provided in Section 2 below based upon the performance of the Operations during the Performance Cycle from September 1, 1998 to August 31, 2001. As provided in the Plan, Grantee's right to payment of this Award is dependent upon Grantee's continued employment in Grantee's current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee's employment terminates prior to the end of the Performance Cycle. 1.2 The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Performance Measure and Performance Levels. The Committee has established the performance measure (the "Performance Measure"), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 3. Determination of Aspiration Award. 3.1 Determination Notice. As soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of the Operations with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust the Operations' financial results for the Performance Cycle to exclude the effect of unusual charges or income items or other events, including acquisitions or dispositions of businesses or assets, gains and losses resulting from divestitures, currency fluctuations, changes in tax laws, or changes in accounting treatment, which are distortive of financial results for the Performance Cycle. The Committee may also increase or decrease the amount of the Award otherwise payable to Grantee if, in the Committee's view, the financial performance of the Operations during the Performance Cycle justifies such adjustment, regardless of the extent to which the Performance Measure has been achieved. The Company will notify the Grantee (or the executors or administrators of the Grantee's estate, if applicable) of the Committee's determination (the "Determination Notice"). The Determination Notice shall specify the performance level of the Operations with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. The amount Grantee is entitled to receive will be paid one-half in cash and one-half in Shares, with the Shares being valued at their Fair Market Value as of the last day of the Performance Cycle. 3.2 Revision of Performance Levels. At any time prior to the end of a Performance Cycle, the Committee may revise the performance levels for the Performance Measure and the Award amounts if unforeseen events (including, without limitation, a Change in Capitalization, an equity restructuring, an acquisition, or a divestiture) occur which have a substantial effect on the performance of the Operations and which in the judgment of the Committee make the application of the performance levels unfair unless a revision is made. -2- 4. Termination of Employment. 4.1 In General. Except as provided in Sections 4.2, 4.3, and 4.4 below, in the event that the Grantee's employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by the Grantee. 4.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of the Grantee is terminated by reason of death, Disability, or Retirement (on or after age 65) during a Performance Cycle, the Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle. 4.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then the Grantee's Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to the Grantee. The Committee shall determine the amount of the Award under this Section 4.3, subject to the terms of this section, and no downward adjustment of the Award shall be permitted. The Award will be paid in full in cash, unless the Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to the Grantee under this Section 4.3, the Fair Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction, or other event which resulted in a Change in Control. 4.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the commencement of the Performance Cycle and prior to the end of the Performance Cycle, the Grantee shall be entitled to a prorated payout of the Award based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the -3- full length of the Performance Cycle; provided, that payment shall be made only to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved during the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle. 5. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted to confer upon the Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Grantee's employment at any time. 6. Nonassignment. The Grantee shall not have the right to assign, alienate, pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits shall be null and void and not recognized by the Plan or the Company. 7. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 8. Severability; Governing Law. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 9. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee's heirs, executors, and administrators. -4- 10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on the Grantee and the Company for all purposes. 11. Withholding of Taxes. The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, the Grantee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. 12. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Award pursuant hereto is subject to the approval of the Plan by the stockholders of NSI in accordance with the terms of the Plan. NATIONAL SERVICE INDUSTRIES, INC. By:________________________________________________ JAMES S. BALLOUN Chairman, President and Chief Executive Officer NATIONAL SERVICE INDUSTRIES, INC. (GA), Subsidiary By:________________________________________________ JAMES S. BALLOUN Chairman, President and Chief Executive Officer ____________________________________________________ Name of Grantee: ((Grantee)) -5- Aspiration Achievement Incentive Award Appendix A - Key Employees
Name Richard W. LeBer Kenneth W. Honeycutt John K. Morgan - -------------------- --------------------------- ----------------------- ----------------------- Position SVP, Bus. Development VP, HiTek Group VP, Sales & Marketing Salary $198,485 $225,000 $205,000 Division National Linen Service Lithonia Lithonia Total LTI Multiple 80% 80% 50% AAI % of LTI 70% 70% 70% FY 99-01 Threshold (1) 72 72 Commitment 16 88 88 Aspiration 28 165 165 Individual AAI Opportunity Threshold $27,788 $31,500 $28,700 Commitment $111,152 $126,000 $114,800 Aspiration $555,758 $630,000 $574,000
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR OPERATING UNIT PRESIDENTS THIS AGREEMENT, made as of the 22nd day of September, 1998 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation ("NSI"), and NATIONAL SERVICE INDUSTRIES, INC. (GA), a Subsidiary of NSI (together, the "Company"), and ((GRANTEE)) (the "Grantee"). WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and WHEREAS, the Grantee, as an executive of the above-referenced Subsidiary, performs services with respect to the ((DIVISION)) operations of the Company (the "Operations"); and WHEREAS, the Committee responsible for administration of the Plan has determined to grant to the Grantee an Aspiration Achievement Incentive Award as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Aspiration Award. 1.1 The Company hereby grants to the Grantee an Aspiration Achievement Incentive Award (the "Award"), which has a value determined as provided in Section 2 below based upon the performance of the Operations during the Performance Cycle from September 1, 1998 to August 31, 2001. As provided in the Plan, Grantee's right to payment of this Award is dependent upon Grantee's continued employment in Grantee's current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee's employment terminates prior to the end of the Performance Cycle. 1.2 The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Performance Measure and Performance Levels. The Committee has established the performance measure (the "Performance Measure"), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 3. Determination of Aspiration Award. 3.1 Determination Notice. As soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of the Operations with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust the Operations' financial results for the Performance Cycle to exclude the effect of unusual charges or income items or other events, including acquisitions or dispositions of businesses or assets, gains and losses resulting from divestitures, currency fluctuations, changes in tax laws, or changes in accounting treatment, which are distortive of financial results for the Performance Cycle. The Committee may also increase or decrease the amount of the Award otherwise payable to Grantee if, in the Committee's view, the financial performance of the Operations during the Performance Cycle justifies such adjustment, regardless of the extent to which the Performance Measure has been achieved. The Company will notify the Grantee (or the executors or administrators of the Grantee's estate, if applicable) of the Committee's determination (the "Determination Notice"). The Determination Notice shall specify the performance level of the Operations with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. The amount Grantee is entitled to receive will be paid one-half in cash and one-half in Shares, with the Shares being valued at their Fair Market Value as of the last day of the Performance Cycle. 3.2 Revision of Performance Levels. At any time prior to the end of a Performance Cycle, the Committee may revise the performance levels for the Performance Measure and the Award amounts if unforeseen events (including, without limitation, a Change in Capitalization, an equity restructuring, an acquisition, or a divestiture) occur which have a substantial effect on the performance of the Operations and which in the judgment of the Committee make the application of the performance levels unfair unless a revision is made. 4. Termination of Employment. 4.1 In General. Except as provided in Sections 4.2, 4.3, and 4.4 below, -2- in the event that the Grantee's employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by the Grantee. 4.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of the Grantee is terminated by reason of death or Disability during a Performance Cycle, the Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. In the event of Grantee's Retirement (on or after age 65), the full Award shall continue to be eligible for payout at the end of the Performance Cycle, just as if Grantee had remained employed for the remainder of the Performance Cycle (including if the Grantee dies after Retirement but before the end of the Performance Cycle). At the end of the Performance Cycle, the Committee shall make its determination in the same manner as provided in Section 3. Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle. 4.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then the Grantee's Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to the Grantee. The Committee shall determine the amount of the Award under this Section 4.3, subject to the terms of this section, and no downward adjustment of the Award shall be permitted. The Award will be paid in full in cash, unless the Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to the Grantee under this Section 4.3, the Fair Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction, or other event which resulted in a Change in Control. 4.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the -3- commencement of the Performance Cycle and prior to the end of the Performance Cycle, the Grantee shall be entitled to a prorated payout of the Award based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall be made only to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved during the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle. 5. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted to confer upon the Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Grantee's employment at any time. 6. Nonassignment. The Grantee shall not have the right to assign, alienate, pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits shall be null and void and not recognized by the Plan or the Company. 7. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 8. Severability; Governing Law. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 9. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee's heirs, executors, and administrators. -4- 10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on the Grantee and the Company for all purposes. 11. Withholding of Taxes. The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, the Grantee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. 12. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Award pursuant hereto is subject to the approval of the Plan by the stockholders of NSI in accordance with the terms of the Plan. NATIONAL SERVICE INDUSTRIES, INC. By:________________________________________________ JAMES S. BALLOUN Chairman, President and Chief Executive Officer NATIONAL SERVICE INDUSTRIES, INC. (GA), Subsidiary By:________________________________________________ JAMES S. BALLOUN Chairman, President and Chief Executive Officer ___________________________________________________ Name of Grantee: ((Grantee)) -5- Aspiration Achievement Incentive Award Appendix A - Division Presidents
Name Richard W. LeBer J. Randolph Zook - ----------------------- ------------------------- ---------------------- Position President, NLS President, AECO Salary $250,000 $250,000 Division National Linen Service AECO Products Total LTI Multiple 100% 160% AAI % of LTI 70% 70% FY 99-01 Threshold (1) 8 Commitment 16 11 Aspiration 28 13 Individual AAI Opportunity Threshold $ 43,750 $ 70,000 Commitment $175,000 $ 280,000 Aspiration $874,998 $1,400,000
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR EXECUTIVE OFFICERS THIS AGREEMENT, made as of the 22nd day of September, 1998 (the "Grant Date"), between NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation ("NSI"), and ((Orgstr)), a Subsidiary of NSI (together, the "Company"), and ((Grantee)) (the "Grantee"). WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant to the Grantee an Aspiration Achievement Incentive Award as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Aspiration Award. 1.1 The Company hereby grants to the Grantee an Aspiration Achievement Incentive Award (the "Award"), which has a value determined as provided in Section 2 below based upon the performance of NSI during the Performance Cycle from September 1, 1998 to August 31, 2001. As provided in the Plan, Grantee's right to payment of this Award is dependent upon Grantee's continued employment in Grantee's current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee's employment terminates prior to the end of the Performance Cycle. 1.2 The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Performance Measure and Performance Levels. The Committee has established the performance measure (the "Performance Measure"), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 3. Determination of Aspiration Award. 3.1 Determination Notice. Subject to Section 3.2, as soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of NSI with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust NSI's financial results for the Performance Cycle to exclude the effect of unusual charges or income items which are distortive of financial results for the Performance Cycle; provided, that, in determining financial results, items whose exclusion from consideration will increase the performance level of NSI shall only have their effects excluded if they constitute "extraordinary items" under generally accepted accounting principles and all such items shall be excluded. The Committee shall also adjust the performance calculations to exclude the unanticipated effect on financial results of changes in the Code, or other tax laws, and the regulations thereunder. The Committee shall also exclude from consideration the effect on financial performance of each of the following events or items where the result of excluding the particular event or item is to increase the performance level of NSI: (i) an acquisition or a divestiture involving more than $10 million in net worth or $25 million in business revenues; (ii) an equity restructuring involving more than $1 million; (iii) asset impairment charges involving more than $1 million and restructuring costs involving more than $1 million associated with facility closings or reduction in employment levels; (iv) changes in accounting treatment or rules involving more than $1 million. The Committee may decrease the amount of the Award otherwise payable to Grantee if, in the Committee's view, such adjustment is necessary or desirable, regardless of the extent to which the Performance Measure has been achieved. The Committee may establish such guidelines and procedures for reducing the amount of an Award as it deems appropriate. The Company will notify the Grantee (or the executors or administrators of the Grantee's estate, if applicable) of the Committee's determination (the "Determination Notice"). The Determination Notice shall specify the performance level of NSI with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. Unless the Committee determines otherwise at the time the Award is paid and except as otherwise provided in the event of a Change in Control, the amount Grantee is entitled to receive will be paid one-half in cash and one-half in Shares. The Shares will be valued at their Fair Market -2- Value as of the last day of the Performance Cycle. Except in the case of a Change in Control, the Committee may, in its discretion, attach restrictions, terms, and conditions to the Shares issued as part of the Award. 3.2 Significant Corporate Events. If, during a Performance Cycle, NSI consummates an acquisition or disposition that (i) involves assets whose value equals or exceeds 20% of the total value of NSI's assets, (ii) represents a part of the business whose revenues equal or exceed 20% of the total of NSI's revenues, or (iii) causes a material restructuring of NSI, the following rules shall apply: (a) If the transaction is consummated during the first year of the Performance Cycle, the Performance Cycle and the Grantee's outstanding Award will be terminated with no payout and a new Performance Cycle containing a new Award will be started. (b) If the transaction is consummated after the first year of the Performance Cycle, the Performance Cycle will end and the outstanding Award will be determined and paid at NSI's actual performance level to such date, taking into account the adjustments provided for in Section 3.1 above and using prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that had elapsed as of the date of consummation of the acquisition or disposition. Payment of the Award will be made as soon as practical after it is determined. A new Performance Cycle will be started to cover the period remaining in the initial Performance Cycle or, if that result is not practical, the Committee will make an appropriate adjustment to reflect the premature termination of the initial Performance Cycle. If, during a Performance Cycle, NSI consummates an acquisition or disposition that is not covered by the special provisions of this Section 3.2, the financial effects of such acquisition or disposition shall be handled as provided in Section 3.1. Any actions under this Section 3.2 shall be taken in accordance with the requirements of Code Section 162(m) and the regulations thereunder. 4. Termination of Employment. 4.1 In General. Except as provided in Sections 4.2, 4.3, and 4.4 below, in the event that the Grantee's employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by the Grantee. 4.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of the Grantee is terminated by reason of death or Disability during a Performance Cycle, the Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that the Grantee was actively employed -3- during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle (taking into account the adjustment provisions and other rules in Section 3 above); and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. In the event of Grantee's Retirement (on or after age 65), the full Award shall continue to be eligible for payout at the end of the Performance Cycle, just as if Grantee had remained employed for the remainder of the Performance Cycle (including if the Grantee dies after Retirement but before the end of the Performance Cycle). At the end of the Performance Cycle, the Committee shall make its determination in the same manner as provided in Section 3. Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle. 4.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then the Grantee's Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to the Grantee. The Committee shall determine the amount of the Award under this Section 4.3, subject to the terms of this section, and no downward adjustment of the Award which would result in reduction of the Award by more than 50% shall be permitted. The Award will be paid in full in cash, unless the Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to the Grantee under this Section 4.3, the Fair Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction, or other event which resulted in a Change in Control. 4.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the commencement of the Performance Cycle and prior to the end of the Performance Cycle, the Grantee shall be entitled to a prorated payout of the Award based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall be made only to the extent at the end of the Performance Cycle the Award would have been earned based -4- upon the performance level achieved during the Performance Cycle (taking into account the adjustment provisions and other rules in Section 3 above); and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle. 5. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted to confer upon the Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Grantee's employment at any time. 6. Nonassignment. The Grantee shall not have the right to assign, alienate, pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits shall be null and void and not recognized by the Plan or the Company. 7. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 8. Severability; Governing Law. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 9. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee's heirs, executors, and administrators. -5- 10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on the Grantee and the Company for all purposes. 11. Withholding of Taxes. The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, the Grantee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. 12. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Award pursuant hereto is subject to the approval of the Plan by the stockholders of NSI in accordance with the terms of the Plan. NATIONAL SERVICE INDUSTRIES, INC. By:________________________________________________ JAMES S. BALLOUN Chairman, President and Chief Executive Officer NATIONAL SERVICE INDUSTRIES, INC. (GA), Subsidiary By:________________________________________________ JAMES S. BALLOUN Chairman, President and Chief Executive Officer ___________________________________________________ Name of Grantee: ((Grantee)) -6- Aspiration Achievement Incentive Award Appendix A - Executive Officers
Name James S. Balloun Brock A. Hattox - ----------------------- ------------------------- ------------------------------- Position Chairman & CEO EVP, Chief Financial Officer Salary $800,000 $380,000 Division NSI Total NSI Total Total LTI Multiple 160% 160% AAI % of LTI 30% 30% FY 99-01 Threshold 38.5 38.5 Commitment 60.5 60.5 Aspiration 114.0 114.0 Individual AAI Opportunity Threshold $ 100,000 $ 45,600 Commitment $ 400,000 $182,400 Aspiration $2,000,000 $912,000
EX-10.III(A)(62)(B) 34 g72719ex10-iiia62b.txt AMENDMENT OF THE ASPIRATION ACHIEVEMENT INCENTIVE Exhibit 10 (iii)A(62)(b) AMENDMENT OF ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR THE PERFORMANCE CYCLE ENDING AUGUST 31, 2001 WHEREAS, the undersigned Grantee was granted an Aspiration Achievement Incentive Award ("Aspiration Award") under the NSI Long-Term Achievement Incentive Plan (the "Plan") for the Performance Cycle ending August 31, 2001, as evidenced by an Aspiration Achievement Incentive Award Agreement dated September 22, 1998 (the "Agreement"); and WHEREAS, NSI, the Company, and the Grantee desire to amend the Agreement as set forth hereafter; NOW THEREFORE, the parties do hereby agree as follows: 1. Appendix A to the Agreement is amended by deleting the original Appendix A and substituting the Appendix A attached hereto for all purposes of the Agreement. 2. The effectiveness of this Amendment is subject to approval of an amended and restated Plan by the stockholders of NSI at the Annual Meeting in January 2000. 3. Capitalized terms used but not defined herein shall have the meaning set forth in the Plan. IN WITNESS WHEREOF, this Amendment has been duly executed by the parties to the Agreement. NATIONAL SERVICE INDUSTRIES, INC. By:________________________________________________ James S. Balloun Chairman, President and Chief Executive Officer NATIONAL SERVICE INDUSTRIES, INC. (GA) By:________________________________________________ James S. Balloun Chairman, President and Chief Executive Officer ___________________________________________________ Name of Grantee: ((GRANTEE)) Aspiration Achievement Incentive Award Amended Appendix A -- Key Employees Name Richard W. LeBer Kenneth W. Honeycutt John K. Morgan Position SVP, Bus. Development VP, HiTek Group VP, Sales & Marketing Salary $198,485 $225,000 $205,000 Division National Linen Service Lithonia Lithonia Total LTI 80% 80% 80% Multiple AAI % of LTI 70% 70% 70% FY 99-01 Threshold 4.3 6 6 Commitment 7.3 26 26 Aspiration 16.4 114 114 Special NA 128 128 Individual AAI Opportunity Threshold $27,788 $31,500 $28,700 Commitment $111,152 $126,000 $114,800 Aspiration $555,759 $753,333 $716,000 Special NA $1,000,000 $1,000,000
Aspiration Achievement Incentive Award Amended Appendix A - Division Presidents
Name Richard W. LeBer Position President Salary $250,000 Division National Linen Service Total LTI Multiple 100% AAI % of LTI 70% FY 99-01 Threshold 4.3 Commitment 7.3 Aspiration 16.4 Individual AAI Opportunity Threshold $43,750 Commitment $175,000 Aspiration $874,998
Aspiration Achievement Incentive Award Amended Appendix A -- Executive Officers Name James S. Balloun Brock A. Hattox Position Chairman & CEO EVP, Chief Financial Officer Salary $800,000 $380,000 Division NSI Total NSI Total Total LTI Multiple 160% 160% AAI % of LTI 30% 30% FY 99-01 Threshold 11.0 11.0 Commitment 59.0 59.0 Aspiration 177.0 177.0 Individual AAI Opportunity Threshold $100,000 $45,600 Commitment $400,000 $182,400 Aspiration $2,000,000 $912,000
EX-10.III(A)(63) 35 g72719ex10-iiia63.txt ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENTS EXHIBIT 10(iii)A(63) ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR KEY EMPLOYEES OF OPERATING UNITS THIS AGREEMENT, made as of the 7th day of October, 1999 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation ("NSI"), and NATIONAL SERVICE INDUSTRIES, INC. (GA), a Subsidiary of NSI (together, the "Company"), and ((GRANTEE)) ("Grantee"). WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and WHEREAS, Grantee, as a key employee of the above-referenced Subsidiary, performs services with respect to the ((Division)) operations of the Company (the "Operations"); and WHEREAS, the Committee responsible for administration of the Plan has determined to grant to Grantee an Aspiration Achievement Incentive Award as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Aspiration Award. 1.1 The Company hereby grants to Grantee an Aspiration Achievement Incentive Award (the "Award"), which has a value determined as provided in Section 2 below based upon the performance of the Operations during the Performance Cycle from September 1, 1999 to August 31, 2002. As provided in the Plan, Grantee's right to payment of this Award is dependent upon Grantee's continued employment in Grantee's current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee's employment terminates prior to the end of the Performance Cycle. 1.2 Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Performance Measure and Performance Levels. The Committee has established the performance measure (the "Performance Measure"), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 3. Determination of Aspiration Award. 3.1 Determination Notice. As soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of the Operations with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust the Operations' financial results for the Performance Cycle to exclude the effect of unusual charges or income items or other events, including acquisitions or dispositions of businesses or assets, gains, and losses resulting from divestitures, currency fluctuations, changes in tax laws, or changes in accounting treatment, which are distortive of financial results for the Performance Cycle. The Committee may also increase or decrease the amount of the Award otherwise payable to Grantee if, in the Committee's view, the financial performance of the Operations during the Performance Cycle justifies such adjustment, regardless of the extent to which the Performance Measure has been achieved. The Company will notify Grantee (or the executors or administrators of Grantee's estate, if applicable) of the Committee's determination (the "Determination Notice"). The Determination Notice shall specify the performance level of the Operations with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. The amount Grantee is entitled to receive will be paid one-half in cash and one-half in Shares, with the Shares being valued at their Fair Market Value as of the last day of the Performance Cycle. 3.2 Revision of Performance Levels. At any time prior to the end of a Performance Cycle, the Committee may revise the performance levels for the Performance Measure and the Award amounts if unforeseen events (including, without limitation, a Change in Capitalization, an equity restructuring, an acquisition, or a divestiture) occur which have a substantial effect on the performance of the Operations and which in the judgment of the Committee make the application of the performance levels unfair unless a revision is made. -2- 4. Payment of Aspiration Award. 4.1 Unless the Committee determines otherwise at the time the Award is paid, and except as otherwise provided in the event of a Change in Control, the amount Grantee is entitled to receive will be paid as follows: (a) for a payment level up to and including twice the Commitment Level Award, the Award will be paid one-half in cash and one-half in Shares, payable as soon as administratively practicable following the determination of the performance level pursuant to Section 3.1 above, and (b) to the extent the payment level is more than twice the Commitment Level Award, that portion of the Award will be paid one-half in Restricted Stock and one-half in cash, to be paid out upon vesting of the Restricted Stock as described in Section 4.4 below. The Shares and Restricted Stock issued upon payment of an Award shall be valued at the average of the Fair Market Value of the Shares for the last ten (10) trading days of the Performance Cycle. Except in the case of a Change in Control, the Committee may, in its discretion, attach restrictions, terms, and conditions to the Shares issued as part of the Award. 4.2 Prior to vesting, the Restricted Stock shall not be transferable by Grantee by means of sale, assignment, exchange, pledge, or otherwise; provided, however, that with NSI's consent Grantee shall have the right to tender for sale or exchange any such shares in the event of any tender offer within the meaning of Section 14(d) of the Securities Exchange Act of 1934. Any attempt to convey any interest in the Restricted Stock in violation of this paragraph shall not be recognized by the Company and shall be null and void. Grantee shall otherwise be entitled with respect to the Restricted Stock to the rights of a stockholder of NSI, including the right to vote the shares and receive dividends and any other distributions declared on NSI's stock. Grantee's rights with respect to the Restricted Stock shall remain forfeitable at all times prior to the dates on which such rights become vested, as set forth in Section 4.4 below. 4.3 The stock certificate(s) evidencing the Restricted Stock shall be registered on NSI's books in the name of Grantee as soon as practicable following the Determination Notice. NSI or the Company may retain physical possession and custody of the certificate(s) until vesting of the Restricted Stock as set forth in Section 4.4 below, and the certificate(s) shall bear a legend referring to the restrictions on transfer set forth in this Agreement. Grantee shall sign a power of attorney enabling the certificate(s) to be transferred to the Company in the event and to the extent the Restricted Stock is forfeited as set forth in Section 4.4 below. Upon vesting of the Restricted Stock as set forth in Section 4.4 below, NSI shall cause a stock certificate for the requisite number of shares to be delivered to Grantee, free of any restrictive legend. 4.4 Fifty percent (50%) of the shares of Restricted Stock shall vest after one (1) year following the end of the Performance Cycle and the other fifty percent (50%) shall vest after two (2) years following the end of the Performance Cycle. In the event of Grantee's termination of employment within two (2) years after the end of the Performance Cycle, by death, Disability, Retirement (termination at or after age 65), or by the Company without Cause, the Restricted Stock, to the extent not already vested, shall vest in full as of the date of termination. Except as the Committee may otherwise -3- determine, in the event of Grantee's termination of employment for any other reason, including voluntary termination or termination for Cause, the Restricted Stock shall be forfeited to the extent not already vested and Grantee's rights as a stockholder with respect to that forfeited Restricted Stock will thereupon cease. Notwithstanding the foregoing, the Restricted Stock will fully vest in the event of a Change in Control during Grantee's employment. The cash portion of the Award corresponding to the Restricted Stock will be paid to Grantee when and as the Restricted Stock vests; that cash portion shall be subject to the same vesting and forfeiture provisions as are set forth above for the Restricted Stock. 5. Termination of Employment. 5.1 In General. Except as provided in Sections 5.2, 5.3, and 5.4 below, in the event that Grantee's employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by Grantee. 5.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of Grantee is terminated by reason of death, Disability, or Retirement (on or after age 65) during a Performance Cycle, Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed two hundred percent (200%) of the Commitment performance level. Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle. 5.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then Grantee's Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to Grantee. The Committee shall determine the amount of the Award under this Section 5.3, subject to the terms of this section, and no downward adjustment of the Award shall be permitted. The Award will be paid in full in cash, unless Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to Grantee under this Section 5.3, the Fair -4- Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction, or other event which resulted in a Change in Control. 5.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the commencement of the Performance Cycle and prior to the end of the Performance Cycle, Grantee shall be entitled to a prorated payout of the Award based upon the length of time that Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall be made only to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved during the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed two hundred percent (200%) of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle. 6. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted to confer upon Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate Grantee's employment at any time. 7. Nonassignment. Grantee shall not have the right to assign, alienate, pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits shall be null and void and not recognized by the Plan or the Company. 8. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 9. Severability; Governing Law. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect -5- to the conflicts of laws principles thereof. 10. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon Grantee and all rights granted to the Company under this Agreement shall be binding upon Grantee's heirs, executors, and administrators. 11. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on Grantee and the Company for all purposes. 12. Withholding of Taxes. The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, Grantee may make a written election, which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. NATIONAL SERVICE INDUSTRIES, INC. By: ------------------------------------------------ JAMES S. BALLOUN Chairman, President, and Chief Executive Officer NATIONAL SERVICE INDUSTRIES, INC. (GA), Subsidiary By: ------------------------------------------------ JAMES S. BALLOUN Chairman, President, and Chief Executive Officer --------------------------------------------------- Name of Grantee: ((GRANTEE)) -6- Aspiration Achievement Incentive Award Appendix A -- Key Employees - ---------------------------------------------------------------------------------------------- Name Kenneth W. Honeycutt John K. Morgan - ---------------------------------------------------------------------------------------------- Position EVP, Operations EVP, Sales & Marketing; GM-Holophane - ---------------------------------------------------------------------------------------------- Salary $275,000 $275,000 - ---------------------------------------------------------------------------------------------- Division Lithonia Lithonia - ---------------------------------------------------------------------------------------------- Total LTI Multiple 100% 100% - ---------------------------------------------------------------------------------------------- AAI % of LTI 72.7% 72.7% - ---------------------------------------------------------------------------------------------- FY 00-02 - ---------------------------------------------------------------------------------------------- Threshold * * - ---------------------------------------------------------------------------------------------- Commitment * * - ---------------------------------------------------------------------------------------------- Aspiration * * - ---------------------------------------------------------------------------------------------- Individual AAI Opportunity - ---------------------------------------------------------------------------------------------- Threshold $50,000 $50,000 - ---------------------------------------------------------------------------------------------- Commitment $200,000 $200,000 - ---------------------------------------------------------------------------------------------- Aspiration $1,000,000 $1,000,000 - ----------------------------------------------------------------------------------------------
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR OPERATING UNIT PRESIDENTS THIS AGREEMENT, made as of the 7th day of October, 1999 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation ("NSI"), and NATIONAL SERVICE INDUSTRIES, INC. (GA), a Subsidiary of NSI (together, the "Company"), and ((GRANTEE)) ("Grantee"). WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and WHEREAS, Grantee, as an executive of the above-referenced Subsidiary, performs services with respect to the ((Division)) operations of the Company (the "Operations"); and WHEREAS, the Committee responsible for administration of the Plan has determined to grant to Grantee an Aspiration Achievement Incentive Award as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Aspiration Award. 1.1 The Company hereby grants to Grantee an Aspiration Achievement Incentive Award (the "Award"), which has a value determined as provided in Section 2 below based upon the performance of the Operations during the Performance Cycle from September 1, 1999 to August 31, 2002. As provided in the Plan, Grantee's right to payment of this Award is dependent upon Grantee's continued employment in Grantee's current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee's employment terminates prior to the end of the Performance Cycle. 1.2 Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Performance Measure and Performance Levels. The Committee has established the performance measure (the "Performance Measure"), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 3. Determination of Aspiration Award. 3.1 Determination Notice. As soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of the Operations with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust the Operations' financial results for the Performance Cycle to exclude the effect of unusual charges or income items or other events, including acquisitions or dispositions of businesses or assets, gains, and losses resulting from divestitures, currency fluctuations, changes in tax laws, or changes in accounting treatment, which are distortive of financial results for the Performance Cycle. The Committee may also increase or decrease the amount of the Award otherwise payable to Grantee if, in the Committee's view, the financial performance of the Operations during the Performance Cycle justifies such adjustment, regardless of the extent to which the Performance Measure has been achieved. The Company will notify Grantee (or the executors or administrators of Grantee's estate, if applicable) of the Committee's determination (the "Determination Notice"). The Determination Notice shall specify the performance level of the Operations with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. 3.2 Revision of Performance Levels. At any time prior to the end of a Performance Cycle, the Committee may revise the performance levels for the Performance Measure and the Award amounts if unforeseen events (including, without limitation, a Change in Capitalization, an equity restructuring, an acquisition, or a divestiture) occur which have a substantial effect on the performance of the Operations and which in the judgment of the Committee make the application of the performance levels unfair unless a revision is made. 4. Payment of Aspiration Award. 4.1 Unless the Committee determines otherwise at the time the Award is paid, and except as otherwise provided in the event of a Change in Control, the amount Grantee is entitled to receive will be paid as follows: (a) for a payment level up to and including twice the Commitment Level Award, the Award will be paid one-half in cash -2- and one-half in Shares, payable as soon as administratively practicable following the determination of the performance level pursuant to Section 3.1 above, and (b) to the extent the payment level is more than twice the Commitment Level Award, that portion of the Award will be paid one-half in Restricted Stock and one-half in cash, to be paid out upon vesting of the Restricted Stock as described in Section 4.4 below. The Shares and Restricted Stock issued upon payment of an Award shall be valued at the average of the Fair Market Value of the Shares for the last ten (10) trading days of the Performance Cycle. Except in the case of a Change in Control, the Committee may, in its discretion, attach restrictions, terms, and conditions to the Shares issued as part of the Award. 4.2 Prior to vesting, the Restricted Stock shall not be transferable by Grantee by means of sale, assignment, exchange, pledge, or otherwise; provided, however, that with NSI's consent Grantee shall have the right to tender for sale or exchange any such shares in the event of any tender offer within the meaning of Section 14(d) of the Securities Exchange Act of 1934. Any attempt to convey any interest in the Restricted Stock in violation of this paragraph shall not be recognized by the Company and shall be null and void. Grantee shall otherwise be entitled with respect to the Restricted Stock to the rights of a stockholder of NSI, including the right to vote the shares and receive dividends and any other distributions declared on NSI's stock. Grantee's rights with respect to the Restricted Stock shall remain forfeitable at all times prior to the dates on which such rights become vested, as set forth in Section 4.4 below. 4.3 The stock certificate(s) evidencing the Restricted Stock shall be registered on NSI's books in the name of Grantee as soon as practicable following the Determination Notice. NSI or the Company may retain physical possession and custody of the certificate(s) until vesting of the Restricted Stock as set forth in Section 4.4 below, and the certificate(s) shall bear a legend referring to the restrictions on transfer set forth in this Agreement. Grantee shall sign a power of attorney enabling the certificate(s) to be transferred to the Company in the event and to the extent the Restricted Stock is forfeited as set forth in Section 4.4 below. Upon vesting of the Restricted Stock as set forth in Section 4.4 below, NSI shall cause a stock certificate for the requisite number of shares to be delivered to Grantee, free of any restrictive legend. 4.4 Fifty percent (50%) of the shares of Restricted Stock shall vest after one (1) year following the end of the Performance Cycle and the other fifty percent (50%) shall vest two (2) years following the end of the Performance Cycle. In the event of Grantee's termination of employment within two (2) years after the end of the Performance Cycle, by death, Disability, Retirement (termination at or after age 65), or by the Company without Cause, the Restricted Stock, to the extent not already vested, shall vest in full as of the date of termination. Except as the Committee may otherwise determine, in the event of Grantee's termination of employment for any other reason, including voluntary termination or termination for Cause, the Restricted Stock shall be forfeited to the extent not already vested and Grantee's rights as a stockholder with respect to that forfeited Restricted Stock will thereupon cease. Notwithstanding the foregoing, the Restricted Stock will fully vest in the event of a Change in Control during Grantee's employment. The cash portion of the Award corresponding to the Restricted -3- Stock will be paid to Grantee when and as the Restricted Stock vests; that cash portion shall be subject to the same vesting and forfeiture provisions as are set forth above for the Restricted Stock. 5. Termination of Employment. 5.1 In General. Except as provided in Sections 5.2, 5.3, and 5.4 below, in the event that Grantee's employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by Grantee. 5.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of Grantee is terminated by reason of death or Disability during a Performance Cycle, Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed two hundred percent (200%) of the Commitment performance level. In the event of Grantee's Retirement (on or after age 65), the full Award shall continue to be eligible for payout at the end of the Performance Cycle, just as if Grantee had remained employed for the remainder of the Performance Cycle (including if Grantee dies after Retirement but before the end of the Performance Cycle). At the end of the Performance Cycle, the Committee shall make its determination in the same manner as provided in Section 3. Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle. 5.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then Grantee's Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to Grantee. The Committee shall determine the amount of the Award under this Section 5.3, subject to the terms of this section, and no downward adjustment of the Award shall be permitted. The Award will be paid in full in cash, unless Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to Grantee under this Section 5.3, the Fair -4- Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction, or other event which resulted in a Change in Control. 5.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the commencement of the Performance Cycle and prior to the end of the Performance Cycle, Grantee shall be entitled to a prorated payout of the Award based upon the length of time that Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall be made only to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved during the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed two hundred percent (200%) of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle. 6. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted to confer upon Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate Grantee's employment at any time. 7. Nonassignment. Grantee shall not have the right to assign, alienate, pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits shall be null and void and not recognized by the Plan or the Company. 8. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 9. Severability; Governing Law. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect -5- to the conflicts of laws principles thereof. 10. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon Grantee and all rights granted to the Company under this Agreement shall be binding upon Grantee's heirs, executors, and administrators. 11. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on Grantee and the Company for all purposes. 12. Withholding of Taxes. The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, Grantee may make a written election, which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. NATIONAL SERVICE INDUSTRIES, INC. By: ------------------------------------------------ JAMES S. BALLOUN Chairman, President, and Chief Executive Officer NATIONAL SERVICE INDUSTRIES, INC. (GA), Subsidiary By: ------------------------------------------------ JAMES S. BALLOUN Chairman, President, and Chief Executive Officer --------------------------------------------------- Name of Grantee: ((GRANTEE)) -6- Aspiration Achievement Incentive Award Appendix A -- Division Presidents - ---------------------------------------------------------------------------------------------------------------------- Name Richard W. LeBer J. Randolph Zook - ---------------------------------------------------------------------------------------------------------------------- Position President, NLS President, AECO - ---------------------------------------------------------------------------------------------------------------------- Salary $250,000 $260,000 - ---------------------------------------------------------------------------------------------------------------------- Division National Linen Service AECO Products - ---------------------------------------------------------------------------------------------------------------------- Total LTI Multiple 100% 160% - ---------------------------------------------------------------------------------------------------------------------- AAI % of LTI 70% 70% - ---------------------------------------------------------------------------------------------------------------------- FY 00-02 - ---------------------------------------------------------------------------------------------------------------------- Threshold * * - ---------------------------------------------------------------------------------------------------------------------- Commitment * * - ---------------------------------------------------------------------------------------------------------------------- Aspiration * * - ---------------------------------------------------------------------------------------------------------------------- Individual AAI Opportunity - ---------------------------------------------------------------------------------------------------------------------- Threshold $43,750 $72,800 - ---------------------------------------------------------------------------------------------------------------------- Commitment $175,000 $291,200 - ---------------------------------------------------------------------------------------------------------------------- Aspiration $875,000 $1,456,000 - ----------------------------------------------------------------------------------------------------------------------
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR CORPORATE OFFICERS THIS AGREEMENT, made as of the 7th day of October, 1999 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation ("NSI"), and NATIONAL SERVICE INDUSTRIES, INC. (GA), a Subsidiary of NSI (together, the "Company"), and Kenyon W. Murphy ("Grantee"). WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant to Grantee an Aspiration Achievement Incentive Award as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Aspiration Award. 1.1 The Company hereby grants to Grantee an Aspiration Achievement Incentive Award (the "Award"), which has a value determined as provided in Section 2 below based upon the performance of NSI during the Performance Cycle from September 1, 1999 to August 31, 2002. As provided in the Plan, Grantee's right to payment of this Award is dependent upon Grantee's continued employment in Grantee's current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee's employment terminates prior to the end of the Performance Cycle. 1.2 Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Performance Measure and Performance Levels. The Committee has established the performance measure (the "Performance Measure"), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 3. Determination of Aspiration Award. 3.1 Determination Notice. As soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of NSI with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust NSI's financial results for the Performance Cycle to exclude the effect of unusual charges or income items or other events, including acquisitions or dispositions of businesses or assets, gains, and losses resulting from divestitures, currency fluctuations, changes in tax laws, or changes in accounting treatment, which are distortive of financial results for the Performance Cycle. The Committee may also increase or decrease the amount of the Award otherwise payable to Grantee if, in the Committee's view, the financial performance of NSI during the Performance Cycle justifies such adjustment, regardless of the extent to which the Performance Measure has been achieved. The Company will notify Grantee (or the executors or administrators of Grantee's estate, if applicable) of the Committee's determination (the "Determination Notice"). The Determination Notice shall specify the performance level of NSI with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. 3.2 Revision of Performance Levels. At any time prior to the end of a Performance Cycle, the Committee may revise the performance levels for the Performance Measure and the Award amounts if unforeseen events (including, without limitation, a Change in Capitalization, an equity restructuring, an acquisition, or a divestiture) occur which have a substantial effect on the performance of NSI and which in the judgment of the Committee make the application of the performance levels unfair unless a revision is made. 4. Payment of Aspiration Award. 4.1 Unless the Committee determines otherwise at the time the Award is paid, and except as otherwise provided in the event of a Change in Control, the amount Grantee is entitled to receive will be paid as follows: (a) for a payment level up to and including twice the Commitment Level Award, the Award will be paid one-half in cash and one-half in Shares, payable as soon as administratively practicable following the determination of the performance level pursuant to Section 3.1 above, and (b) to the -2- extent the payment level is more than twice the Commitment Level Award, that portion of the Award will be paid one-half in Restricted Stock and one-half in cash, to be paid out upon vesting of the Restricted Stock as described in Section 4.4 below. The Shares and Restricted Stock issued upon payment of an Award shall be valued at the average of the Fair Market Value of the Shares for the last ten (10) trading days of the Performance Cycle. Except in the case of a Change in Control, the Committee may, in its discretion, attach restrictions, terms, and conditions to the Shares issued as part of the Award. 4.2 Prior to vesting, the Restricted Stock shall not be transferable by Grantee by means of sale, assignment, exchange, pledge, or otherwise; provided, however, that with NSI's consent Grantee shall have the right to tender for sale or exchange any such shares in the event of any tender offer within the meaning of Section 14(d) of the Securities Exchange Act of 1934. Any attempt to convey any interest in the Restricted Stock in violation of this paragraph shall not be recognized by the Company and shall be null and void. Grantee shall otherwise be entitled with respect to the Restricted Stock to the rights of a stockholder of NSI, including the right to vote the shares and receive dividends and any other distributions declared on NSI's stock. Grantee's rights with respect to the Restricted Stock shall remain forfeitable at all times prior to the dates on which such rights become vested, as set forth in Section 4.4 below. 4.3 The stock certificate(s) evidencing the Restricted Stock shall be registered on NSI's books in the name of Grantee as soon as practicable following the Determination Notice. NSI or the Company may retain physical possession and custody of the certificate(s) until vesting of the Restricted Stock as set forth in Section 4.4 below, and the certificate(s) shall bear a legend referring to the restrictions on transfer set forth in this Agreement. Grantee shall sign a power of attorney enabling the certificate(s) to be transferred to the Company in the event and to the extent the Restricted Stock is forfeited as set forth in Section 4.4 below. Upon vesting of the Restricted Stock as set forth in Section 4.4 below, NSI shall cause a stock certificate for the requisite number of shares to be delivered to Grantee, free of any restrictive legend. 4.4 Fifty percent (50%) of the shares of Restricted Stock shall vest after one (1) year following the end of the Performance Cycle and the other fifty percent (50%) shall vest after two (2) years following the end of the Performance Cycle. In the event of Grantee's termination of employment within two (2) years after the end of the Performance Cycle, by death, Disability, Retirement (termination at or after age 65), or by the Company without Cause, the Restricted Stock, to the extent not already vested, shall vest in full as of the date of termination. Except as the Committee may otherwise determine, in the event of Grantee's termination of employment for any other reason, including voluntary termination or termination for Cause, the Restricted Stock shall be forfeited to the extent not already vested and Grantee's rights as a stockholder with respect to that forfeited Restricted Stock will thereupon cease. Notwithstanding the foregoing, the Restricted Stock will fully vest in the event of a Change in Control during Grantee's employment. The cash portion of the Award corresponding to the Restricted Stock will be paid to Grantee when and as the Restricted Stock vests; that cash portion -3- shall be subject to the same vesting and forfeiture provisions as are set forth above for the Restricted Stock. 5. Termination of Employment. 5.1 In General. Except as provided in Sections 5.2, 5.3, and 5.4 below, in the event that Grantee's employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by Grantee. 5.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of Grantee is terminated by reason of death, Disability, or Retirement (on or after age 65) during a Performance Cycle, Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed two hundred percent (200%) of the Commitment performance level. Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle. 5.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then Grantee's Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to Grantee. The Committee shall determine the amount of the Award under this Section 5.3, subject to the terms of this section, and no downward adjustment of the Award shall be permitted. The Award will be paid in full in cash, unless Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to Grantee under this Section 5.3, the Fair Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction or other event which resulted in a Change in Control. 5.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the -4- commencement of the Performance Cycle and prior to the end of the Performance Cycle, Grantee shall be entitled to a prorated payout of the Award based upon the length of time that Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall be made only to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved during the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed two hundred percent (200%) of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle. 6. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted to confer upon Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate Grantee's employment at any time. 7. Nonassignment. Grantee shall not have the right to assign, alienate, pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits shall be null and void and not recognized by the Plan or the Company. 8. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 9. Severability; Governing Law. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 10. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon Grantee and all rights granted -5- to the Company under this Agreement shall be binding upon Grantee's heirs, executors, and administrators. 11. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on Grantee and the Company for all purposes. 12. Withholding of Taxes. The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, Grantee may make a written election, which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. NATIONAL SERVICE INDUSTRIES, INC. By: ------------------------------------------------ JAMES S. BALLOUN Chairman, President and Chief Executive Officer NATIONAL SERVICE INDUSTRIES, INC. (GA), Subsidiary By: ------------------------------------------------ JAMES S. BALLOUN Chairman, President and Chief Executive Officer --------------------------------------------------- Name of Grantee: Kenyon W. Murphy -6- Aspiration Achievement Incentive Award Appendix A -- Corporate Employees - --------------------------------------------------------- Name Kenyon W. Murphy - --------------------------------------------------------- Position VP & Assoc. Counsel - --------------------------------------------------------- Salary $155,000 - --------------------------------------------------------- Division Total NSI - --------------------------------------------------------- Total LTI Multiple 50% - --------------------------------------------------------- AAI % of LTI 30% - --------------------------------------------------------- FY 00-02 - --------------------------------------------------------- Threshold * - --------------------------------------------------------- Commitment * - --------------------------------------------------------- Aspiration * - --------------------------------------------------------- Individual AAI Opportunity - --------------------------------------------------------- Threshold $5,813 - --------------------------------------------------------- Commitment $23,250 - --------------------------------------------------------- Aspiration $116,250 - ---------------------------------------------------------
EX-10.III(A)(64) 36 g72719ex10-iiia64.txt ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT Exhibit 10(iii)A(64) ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR OPERATING UNIT PRESIDENTS THIS AGREEMENT, made as of the 1st day of May, 2000 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation ("NSI"), and NATIONAL SERVICE INDUSTRIES, INC. (GA), a Subsidiary of NSI (together, the "Company"), and JAMES H. HEAGLE (the "Grantee"). WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and WHEREAS, the Grantee, as an executive of the above-referenced Subsidiary, performs services with respect to the nsi chemicals operations of the Company (the "Operations"); and WHEREAS, the Committee responsible for administration of the Plan has determined to grant to the Grantee an Aspiration Achievement Incentive Award as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Aspiration Award. 1.1 The Company hereby grants to the Grantee an Aspiration Achievement Incentive Award (the "Award"), which has a value determined as provided in Section 2 below based upon the performance of the Operations during the Performance Cycle from September 1, 1998 to August 31, 2001. As provided in the Plan, Grantee's right to payment of this Award is dependent upon Grantee's continued employment in Grantee's current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee's employment terminates prior to the end of the Performance Cycle. 1.2 The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Performance Measure and Performance Levels. The Committee has established the performance measure (the "Performance Measure"), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 3. Determination of Aspiration Award. 3.1 Determination Notice. As soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of the Operations with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust the Operations' financial results for the Performance Cycle to exclude the effect of unusual charges or income items or other events, including acquisitions or dispositions of businesses or assets, gains and losses resulting from divestitures, currency fluctuations, changes in tax laws, or changes in accounting treatment, which are distortive of financial results for the Performance Cycle. The Committee may also increase or decrease the amount of the Award otherwise payable to Grantee if, in the Committee's view, the financial performance of the Operations during the Performance Cycle justifies such adjustment, regardless of the extent to which the Performance Measure has been achieved. The Company will notify the Grantee (or the executors or administrators of the Grantee's estate, if applicable) of the Committee's determination (the "Determination Notice"). The Determination Notice shall specify the performance level of the Operations with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. The amount Grantee is entitled to receive will be paid one-half in cash and one-half in Shares, with the Shares being valued at their Fair Market Value as of the last day of the Performance Cycle. 3.2 Revision of Performance Levels. At any time prior to the end of a Performance Cycle, the Committee may revise the performance levels for the Performance Measure and the Award amounts if unforeseen events (including, without limitation, a Change in Capitalization, an equity restructuring, an acquisition, or a divestiture) occur which have a substantial effect on the performance of the Operations and which in the judgment of the Committee make the application of the performance levels unfair unless a revision is made. 4. Termination of Employment. 4.1 In General. Except as provided in Sections 4.2, 4.3, and 4.4 below, in the event that the Grantee's employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by the Grantee. -2- 4.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of the Grantee is terminated by reason of death or Disability during a Performance Cycle, the Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. In the event of Grantee's Retirement (on or after age 65), the full Award shall continue to be eligible for payout at the end of the Performance Cycle, just as if Grantee had remained employed for the remainder of the Performance Cycle (including if the Grantee dies after Retirement but before the end of the Performance Cycle). At the end of the Performance Cycle, the Committee shall make its determination in the same manner as provided in Section 3. Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle. 4.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then the Grantee's Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to the Grantee. The Committee shall determine the amount of the Award under this Section 4.3, subject to the terms of this section, and no downward adjustment of the Award shall be permitted. The Award will be paid in full in cash, unless the Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to the Grantee under this Section 4.3, the Fair Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction, or other event which resulted in a Change in Control. 4.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the commencement of the Performance Cycle and prior to the end of the Performance Cycle, the Grantee shall be entitled to a prorated payout of the Award based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall be made only to the -3- extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved during the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle. 5. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted to confer upon the Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Grantee's employment at any time. 6. Nonassignment. The Grantee shall not have the right to assign, alienate, pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits shall be null and void and not recognized by the Plan or the Company. 7. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 8. Severability; Governing Law. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 9. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee's heirs, executors, and administrators. 10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall -4- be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on the Grantee and the Company for all purposes. 11. Withholding of Taxes. The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, the Grantee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. 12. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Award pursuant hereto is subject to the approval of the Plan by the stockholders of NSI in accordance with the terms of the Plan. NATIONAL SERVICE INDUSTRIES, INC. By: /s/ James S. Balloun ------------------------------------------------ JAMES S. BALLOUN Chairman, President and Chief Executive Officer NATIONAL SERVICE INDUSTRIES, INC. (GA), Subsidiary By: /s/ James S. Balloun ------------------------------------------------ JAMES S. BALLOUN Chairman, President and Chief Executive Officer /s/ James H. Heagle --------------------------------------------------- Name of Grantee: JAMES H. HEAGLE -5- Aspiration Achievement Incentive Award Appendix A -- Heagle Name James H. Heagle Position President, NSI Chemicals Salary $300,000 Division Chemical Group Total LTI Multiple 160% AAI % of LTI 70% FY 99-01 Threshold 29.0 Commitment 36.0 Aspiration 50.0 Individual AAI Opportunity Threshold $ 37,333 Commitment $149,333 Aspiration $746,665
EX-10.III(A)(65) 37 g72719ex10-iiia65.txt ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT Exhibit 10(iii)A(65) ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR EXECUTIVE OFFICERS THIS AGREEMENT, made as of the 15th day of May, 2000 (the "Grant Date"), between NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation ("NSI"), and National Service Industries, Inc. (GA), a Subsidiary of NSI (together, the "Company"), and Joseph G. Parham, Jr. (the "Grantee"). WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant to the Grantee an Aspiration Achievement Incentive Award as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Aspiration Award. 1.1 The Company hereby grants to the Grantee an Aspiration Achievement Incentive Award (the "Award"), which has a value determined as provided in Section 2 below based upon the performance of NSI during the Performance Cycle from September 1, 1998 to August 31, 2001. As provided in the Plan, Grantee's right to payment of this Award is dependent upon Grantee's continued employment in Grantee's current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee's employment terminates prior to the end of the Performance Cycle. 1.2 The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Performance Measure and Performance Levels. The Committee has established the performance measure (the "Performance Measure"), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 3. Determination of Aspiration Award. 3.1 Determination Notice. Subject to Section 3.2, as soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of NSI with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust NSI's financial results for the Performance Cycle to exclude the effect of unusual charges or income items which are distortive of financial results for the Performance Cycle; provided, that, in determining financial results, items whose exclusion from consideration will increase the performance level of NSI shall only have their effects excluded if they constitute "extraordinary items" under generally accepted accounting principles and all such items shall be excluded. The Committee shall also adjust the performance calculations to exclude the unanticipated effect on financial results of changes in the Code, or other tax laws, and the regulations thereunder. The Committee shall also exclude from consideration the effect on financial performance of each of the following events or items where the result of excluding the particular event or item is to increase the performance level of NSI: (i) an acquisition or a divestiture involving more than $10 million in net worth or $25 million in business revenues; (ii) an equity restructuring involving more than $1 million; (iii) asset impairment charges involving more than $1 million and restructuring costs involving more than $1 million associated with facility closings or reduction in employment levels; (iv) changes in accounting treatment or rules involving more than $1 million. The Committee may decrease the amount of the Award otherwise payable to Grantee if, in the Committee's view, such adjustment is necessary or desirable, regardless of the extent to which the Performance Measure has been achieved. The Committee may establish such guidelines and procedures for reducing the amount of an Award as it deems appropriate. The Company will notify the Grantee (or the executors or administrators of the Grantee's estate, if applicable) of the Committee's determination (the "Determination Notice"). The Determination Notice shall specify the performance level of NSI with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. Unless the Committee determines otherwise at the time the Award is paid and except as otherwise provided in the event of a Change in Control, the amount Grantee is entitled to receive will be paid one-half in cash and one-half in Shares. The Shares will be valued at their Fair Market Value as of the last day of the Performance Cycle. Except in the case of a Change in Control, the Committee may, in its discretion, attach restrictions, terms, and conditions to the Shares issued as part of the Award. 3.2 Significant Corporate Events. If, during a Performance Cycle, NSI consummates an acquisition or disposition that (i) involves assets whose value equals or exceeds 20% of the total value of NSI's assets, (ii) represents a part of the business whose revenues equal or exceed 20% of the total of NSI's revenues, or (iii) causes a material restructuring of NSI, the following rules shall apply: (a) If the transaction is consummated during the first year of the Performance Cycle, the Performance Cycle and the Grantee's outstanding Award will be terminated with no payout and a new Performance Cycle containing a new Award will be started. (b) If the transaction is consummated after the first year of the Performance Cycle, the Performance Cycle will end and the outstanding Award will be determined and paid at NSI's actual performance level to such date, taking into account the adjustments provided for in Section 3.1 above and using prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that had elapsed as of the date of consummation of the acquisition or disposition. Payment of the Award will be made as soon as practical after it is determined. A new Performance Cycle will be started to cover the period remaining in the initial Performance Cycle or, if that result is not practical, the Committee will make an appropriate adjustment to reflect the premature termination of the initial Performance Cycle. If, during a Performance Cycle, NSI consummates an acquisition or disposition that is not covered by the special provisions of this Section 3.2, the financial effects of such acquisition or disposition shall be handled as provided in Section 3.1. Any actions under this Section 3.2 shall be taken in accordance with the requirements of Code Section 162(m) and the regulations thereunder. 4. Termination of Employment. 4.1 In General. Except as provided in Sections 4.2, 4.3, and 4.4 below, in the event that the Grantee's employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by the Grantee. 4.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of the Grantee is terminated by reason of death or Disability during a Performance Cycle, the Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle (taking into account the adjustment provisions and other rules in Section 3 above); and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. In the event of Grantee's Retirement (on or after age 65), the full Award shall continue to be eligible for payout at the end of the Performance Cycle, just as if Grantee had remained employed for the remainder of the Performance Cycle (including if the Grantee dies after Retirement but before the end of the Performance Cycle). At the end of the Performance Cycle, the Committee shall make its determination in the same manner as provided in Section 3. Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle. 4.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then the Grantee's Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to the Grantee. The Committee shall determine the amount of the Award under this Section 4.3, subject to the terms of this section, and no downward adjustment of the Award which would result in reduction of the Award by more than 50% shall be permitted. The Award will be paid in full in cash, unless the Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to the Grantee under this Section 4.3, the Fair Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction, or other event which resulted in a Change in Control. 4.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the commencement of the Performance Cycle and prior to the end of the Performance Cycle, the Grantee shall be entitled to a prorated payout of the Award based upon the length of time that the Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall be made only to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved during the Performance Cycle (taking into account the adjustment provisions and other rules in Section 3 above); and provided, further, that the performance level used to determine the prorated award cannot exceed 200% of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle. 5. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted to confer upon the Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Grantee's employment at any time. 6. Nonassignment. The Grantee shall not have the right to assign, alienate, pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits shall be null and void and not recognized by the Plan or the Company. 7. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 8. Severability; Governing Law. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 9. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantee's heirs, executors, and administrators. 10. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on the Grantee and the Company for all purposes. 11. Withholding of Taxes. The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, the Grantee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. 12. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Award pursuant hereto is subject to the approval of the Plan by the stockholders of NSI in accordance with the terms of the Plan. NATIONAL SERVICE INDUSTRIES, INC. By: /s/ James S. Balloun ---------------------------------------- JAMES S. BALLOUN Chairman, President and Chief Executive Officer National Service Industries, Inc. (GA), Subsidiary By: /s/ James S. Balloun ---------------------------------------- JAMES S. BALLOUN Chairman, President and Chief Executive Officer /s/ Joseph G. Parham, Jr. ------------------------------------------- Name of Grantee: JOSEPH G. PARHAM, JR. Aspiration Achievement Incentive Award Appendix A - Parham Name Joseph G. Parham, Jr. Position SVP, Human Resources Salary $300,000 Division NSI Total Total LTI Multiple 160% AAI % of LTI 30% FY 99-01 Threshold 11.0 Commitment 59.0 Aspiration 177.0 Individual AAI Opportunity Threshold $16,000 Commitment $64,000 Aspiration $320,000
EX-10.III(A)(66) 38 g72719ex10-iiia66.txt ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT Exhibit 10(iii)A(66) ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT FOR OPERATING UNIT PRESIDENTS THIS AGREEMENT, made as of the 1st day of May, 2000 (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation ("NSI"), and NATIONAL SERVICE INDUSTRIES, INC. (GA), a Subsidiary of NSI (together, the "Company"), and James H. Heagle ("Grantee"). WHEREAS, NSI has adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional incentives to certain officers and key employees of NSI and its Subsidiaries; and WHEREAS, Grantee, as an executive of the above-referenced Subsidiary, performs services with respect to the CHEMICAL GROUP operations of the Company (the "Operations"); and WHEREAS, the Committee responsible for administration of the Plan has determined to grant to Grantee an Aspiration Achievement Incentive Award as provided herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Aspiration Award. 1.1 The Company hereby grants to Grantee an Aspiration Achievement Incentive Award (the "Award"), which has a value determined as provided in Section 2 below based upon the performance of the Operations during the Performance Cycle from September 1, 1999 to August 31, 2002. As provided in the Plan, Grantee's right to payment of this Award is dependent upon Grantee's continued employment in Grantee's current position with the Company, or in a position with responsibilities of substantially similar value to the Company during the Performance Cycle. Under certain circumstances as described below, Grantee may be entitled to receive payment for some portion of the Award if Grantee's employment terminates prior to the end of the Performance Cycle. 1.2 Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. Performance Measure and Performance Levels. The Committee has established the performance measure (the "Performance Measure"), and award and performance levels set forth in Appendix A attached hereto. The chart in Appendix A specifies a Commitment performance level, at which the Commitment Level Award will be paid, an Aspiration performance level, at or above which an Aspiration Level Award will be paid, and a threshold performance level, at which a minimum incentive award will be paid and below which no award will be paid. For each level of performance at or above the threshold performance level through the Aspiration performance level, Grantee will receive an award determined in accordance with the chart and formulae set forth in Appendix A. The terms used in determining the Performance Measure are defined in Appendix B. 3. Determination of Aspiration Award. 3.1 Determination Notice. As soon as practical following the last day of the Performance Cycle, the Committee will determine, in accordance with Section 7(c) of the Plan, the performance level of the Operations with respect to the Performance Measure for the Performance Cycle. The Committee may in determining the performance level with respect to the Performance Measure adjust the Operations' financial results for the Performance Cycle to exclude the effect of unusual charges or income items or other events, including acquisitions or dispositions of businesses or assets, gains, and losses resulting from divestitures, currency fluctuations, changes in tax laws, or changes in accounting treatment, which are distortive of financial results for the Performance Cycle. The Committee may also increase or decrease the amount of the Award otherwise payable to Grantee if, in the Committee's view, the financial performance of the Operations during the Performance Cycle justifies such adjustment, regardless of the extent to which the Performance Measure has been achieved. The Company will notify Grantee (or the executors or administrators of Grantee's estate, if applicable) of the Committee's determination (the "Determination Notice"). The Determination Notice shall specify the performance level of the Operations with respect to the Performance Measure for the Performance Cycle and the amount of Award (if any) Grantee will be entitled to receive. 3.2 Revision of Performance Levels. At any time prior to the end of a Performance Cycle, the Committee may revise the performance levels for the Performance Measure and the Award amounts if unforeseen events (including, without limitation, a Change in Capitalization, an equity restructuring, an acquisition, or a divestiture) occur which have a substantial effect on the performance of the Operations and which in the judgment of the Committee make the application of the performance levels unfair unless a revision is made. 4. Payment of Aspiration Award. 4.1 Unless the Committee determines otherwise at the time the Award is paid, and except as otherwise provided in the event of a Change in Control, the amount Grantee is entitled to receive will be paid as follows: (a) for a payment level up to and including twice the Commitment Level Award, the Award will be paid one-half in cash -2- and one-half in Shares, payable as soon as administratively practicable following the determination of the performance level pursuant to Section 3.1 above, and (b) to the extent the payment level is more than twice the Commitment Level Award, that portion of the Award will be paid one-half in Restricted Stock and one-half in cash, to be paid out upon vesting of the Restricted Stock as described in Section 4.4 below. The Shares and Restricted Stock issued upon payment of an Award shall be valued at the average of the Fair Market Value of the Shares for the last ten (10) trading days of the Performance Cycle. Except in the case of a Change in Control, the Committee may, in its discretion, attach restrictions, terms, and conditions to the Shares issued as part of the Award. 4.2 Prior to vesting, the Restricted Stock shall not be transferable by Grantee by means of sale, assignment, exchange, pledge, or otherwise; provided, however, that with NSI's consent Grantee shall have the right to tender for sale or exchange any such shares in the event of any tender offer within the meaning of Section 14(d) of the Securities Exchange Act of 1934. Any attempt to convey any interest in the Restricted Stock in violation of this paragraph shall not be recognized by the Company and shall be null and void. Grantee shall otherwise be entitled with respect to the Restricted Stock to the rights of a stockholder of NSI, including the right to vote the shares and receive dividends and any other distributions declared on NSI's stock. Grantee's rights with respect to the Restricted Stock shall remain forfeitable at all times prior to the dates on which such rights become vested, as set forth in Section 4.4 below. 4.3 The stock certificate(s) evidencing the Restricted Stock shall be registered on NSI's books in the name of Grantee as soon as practicable following the Determination Notice. NSI or the Company may retain physical possession and custody of the certificate(s) until vesting of the Restricted Stock as set forth in Section 4.4 below, and the certificate(s) shall bear a legend referring to the restrictions on transfer set forth in this Agreement. Grantee shall sign a power of attorney enabling the certificate(s) to be transferred to the Company in the event and to the extent the Restricted Stock is forfeited as set forth in Section 4.4 below. Upon vesting of the Restricted Stock as set forth in Section 4.4 below, NSI shall cause a stock certificate for the requisite number of shares to be delivered to Grantee, free of any restrictive legend. 4.4 Fifty percent (50%) of the shares of Restricted Stock shall vest after one (1) year following the end of the Performance Cycle and the other fifty percent (50%) shall vest two (2) years following the end of the Performance Cycle. In the event of Grantee's termination of employment within two (2) years after the end of the Performance Cycle, by death, Disability, Retirement (termination at or after age 65), or by the Company without Cause, the Restricted Stock, to the extent not already vested, shall vest in full as of the date of termination. Except as the Committee may otherwise determine, in the event of Grantee's termination of employment for any other reason, including voluntary termination or termination for Cause, the Restricted Stock shall be forfeited to the extent not already vested and Grantee's rights as a stockholder with respect to that forfeited Restricted Stock will thereupon cease. Notwithstanding the foregoing, the Restricted Stock will fully vest in the event of a Change in Control during Grantee's employment. The cash portion of the Award corresponding to the Restricted -3- Stock will be paid to Grantee when and as the Restricted Stock vests; that cash portion shall be subject to the same vesting and forfeiture provisions as are set forth above for the Restricted Stock. 5. Termination of Employment. 5.1 In General. Except as provided in Sections 5.2, 5.3, and 5.4 below, in the event that Grantee's employment terminates during a Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited by Grantee. 5.2 Termination of Employment Due to Death, Disability, or Retirement. In the event the employment of Grantee is terminated by reason of death or Disability during a Performance Cycle, Grantee shall be entitled to a prorated payout with respect to the unearned Award. The prorated payout shall be determined by the Committee based upon the length of time that Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall only be made to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved for the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed two hundred percent (200%) of the Commitment performance level. In the event of Grantee's Retirement (on or after age 65), the full Award shall continue to be eligible for payout at the end of the Performance Cycle, just as if Grantee had remained employed for the remainder of the Performance Cycle (including if Grantee dies after Retirement but before the end of the Performance Cycle). At the end of the Performance Cycle, the Committee shall make its determination in the same manner as provided in Section 3. Payment of earned Awards to Grantee in the event of termination due to death, Disability, or Retirement shall be made at the same time payments would be made to Grantee if Grantee did not terminate employment during the Performance Cycle. 5.3 Change In Control. Notwithstanding anything in this Agreement to the contrary, if a Change in Control occurs during the Performance Cycle, then Grantee's Award shall be determined for the Performance Cycle then in progress as though the Performance Cycle had ended as of the date of the Change in Control and the outstanding Award will be paid at the Commitment Level Award or the actual performance level to such date (using, for such purpose, prorated performance levels of the Performance Measure to reflect the portion of the Performance Cycle that has elapsed as of the date of the Change in Control), whichever provides the greater payment. The Award determined in accordance with the preceding sentence shall be fully vested and payable immediately to Grantee. The Committee shall determine the amount of the Award under this Section 5.3, subject to the terms of this section, and no downward adjustment of the Award shall be permitted. The Award will be paid in full in cash, unless Grantee elects to receive one-half of the Award in Shares. For purposes of determining the number of Shares to be paid to Grantee under this Section 5.3, the Fair -4- Market Value of a Share shall be determined by taking the average closing price per share for the last twenty (20) trading days prior to the commencement of the offer, transaction, or other event which resulted in a Change in Control. 5.4 Termination Without Cause. In the event Grantee's employment is terminated by the Company without Cause more than one (1) year after the commencement of the Performance Cycle and prior to the end of the Performance Cycle, Grantee shall be entitled to a prorated payout of the Award based upon the length of time that Grantee was actively employed during the Performance Cycle relative to the full length of the Performance Cycle; provided, that payment shall be made only to the extent at the end of the Performance Cycle the Award would have been earned based upon the performance level achieved during the Performance Cycle; and provided, further, that the performance level used to determine the prorated award cannot exceed two hundred percent (200%) of the Commitment performance level. Payment shall be made to Grantee at the same time as if Grantee had not terminated employment during the Performance Cycle. 6. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted to confer upon Grantee any rights with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate Grantee's employment at any time. 7. Nonassignment. Grantee shall not have the right to assign, alienate, pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits shall be null and void and not recognized by the Plan or the Company. 8. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 9. Severability; Governing Law. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect -5- to the conflicts of laws principles thereof. 10. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. All obligations imposed upon Grantee and all rights granted to the Company under this Agreement shall be binding upon Grantee's heirs, executors, and administrators. 11. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction, or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding, and conclusive on Grantee and the Company for all purposes. 12. Withholding of Taxes. The Company shall have the right to deduct from any amount payable under this Agreement, an amount equal to the federal, state, and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any such amount. In satisfaction of all or part of the Withholding Taxes, Grantee may make a written election, which may be accepted or rejected in the discretion of the Company, to have withheld a portion of the Shares issuable to him or her pursuant to an Award, having an aggregate Fair Market Value equal to the Withholding Taxes. NATIONAL SERVICE INDUSTRIES, INC. By: /s/ James S. Balloun ----------------------------------------- JAMES S. BALLOUN Chairman, President, and Chief Executive Officer NATIONAL SERVICE INDUSTRIES, INC. (GA), Subsidiary By: /s/ James S. Balloun ----------------------------------------- JAMES S. BALLOUN Chairman, President, and Chief Executive Officer /s/ James H. Heagle --------------------------------------------- Name of Grantee: JAMES H. HEAGLE -6- Aspiration Achievement Incentive Award Appendix A -- Heagle Name James H. Heagle Position President, NSI Chemicals Salary $300,000 Division Chemical Group Total LTI Multiple 160% AAI % of LTI 70% FY 00-02 Threshold 31.0 Commitment 36.0 Aspiration 64.0 Individual AAI Opportunity Threshold $65,333 Commitment $261,333 Aspiration $1,306,665
EX-10.III(A)(70) 39 g72719ex10-iiia70.txt SEVERANCE LETTER AGREEMENTS Exhibit 10(iii)A(70) October 5, 2001 To: Richard LeBer The upcoming spin-off of the lighting and chemical businesses of National Service Industries, Inc. ("NSI") to the shareholders of NSI (the "Transaction") will provide new and challenging opportunities for National Linen Service ("NLS") Working with the new management team of NSI, you will help to develop and build the growth strategy and platform for NLS in the exciting times ahead. At the same time, we recognize that the Transaction may result in significant distractions of NLS's key management personnel because of the uncertainties inherent in such a situation. To provide you with some level of assurance during this time of transition and to ensure your continued dedication and efforts without undue concern for your personal financial and employment security, NSI agrees to do the following: 1. If, during the thirty-six (36) month period following the date of the distribution of the shares of L & C Spinco, Inc. to the shareholders of NSI's Delaware parent (the "Protection Period"), your employment with NSI is terminated for any reason other than your voluntary resignation, death, Disability (as defined below) or Cause (as defined below) (each a "Permitted Reason"), then NSI will pay you, as severance pay, an amount equal to your then-current base salary at the time of termination (a) for a period of twenty four (24) months if your termination occurs during the first twelve (12) months of the Protection Period, or (b) for a period of twelve (12) months if your termination occurs thereafter during the Protection Period. For purposes of this Paragraph, the term "Disability" means a physical or mental impairment which prevents you from performing the essential functions of your job, with or without a reasonable accommodation, for a period of at least ninety (90) days; and the term "Cause" means your (i) dishonesty or fraud, (ii) conviction of, or entering a plea of nolo contendere to, a felony, (iii) gross negligence, willful malfeasance or material nonfeasance in the conduct of your duties for NLS, (iv) material violation of NSI's Code of Business Conduct, (v) breach of fiduciary duty, or (vi) refusal or continued failure to substantially perform your reasonably assigned duties. 2. If your employment is terminated during the Protection Period for any reason other than a Permitted Reason and you are participating in any incentive compensation plans at the time of your termination, NSI will pay you the pro rata amount, if any, of the incentive compensation amount you would have been eligible to receive under each applicable plan for the performance period (fiscal year or otherwise) in which your termination occurs, payable if and when such amount becomes due under such plans, based on the number of months that you were employed with NSI during such performance period (fiscal year or otherwise). Richard LeBer October 5, 2001 Page 2 3. If you are entitled to severance pay under Paragraph 1 above, and if you elect COBRA coverage for health and dental coverage following your termination of employment, then provided you continue to pay an amount equal to the then-current active employee monthly premiums for such coverage, NSI will pay the balance of your monthly premiums for COBRA coverage (for you and your eligible dependents) for a period of eighteen (18) months after the termination date or until you qualify under a medical plan offered by your employer, if sooner. 4. The severance pay described in Paragraphs 1 and 2 above will be paid subject to deductions for federal and state taxes and all other legally required or otherwise authorized deductions. The severance pay described in Paragraphs 1 and 2 (less any required deductions) will be paid at the same times and in the same manner as similar amounts are paid to other similarly situated active associates of NLS. To receive severance pay, you will need to sign NSI's standard release form in substantially the same form as attached as Exhibit A hereto. 5. Any controversy or claim arising out of or relating to this letter agreement, or the breach thereof, will be settled by binding arbitration in Atlanta, Georgia in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The decision of the arbitrator will be final and binding upon the parties. NSI and you agree that each will seek to enforce any arbitration award in the Superior Court of Fulton County. This agreement is, of course, subject to our consummation of the Transaction. We appreciate your loyalty and diligence during the Transaction and look forward to a future of growth and new opportunities for you and NLS. Very truly yours, /s/ Brock A. Hattox ------------------------------- Brock A. Hattox October 5, 2001 To: Randy Zook The upcoming spin-off of the lighting and chemical businesses of National Service Industries, Inc. ("NSI") to the shareholders of NSI (the "Transaction") will provide new and challenging opportunities for Atlantic Envelope Company ("AECO"). Working with the new management team of NSI, you will help to develop and build the growth strategy and platform for AECO in the exciting times ahead. At the same time, we recognize that the Transaction may result in significant distractions of AECO's key management personnel because of the uncertainties inherent in such a situation. To provide you with some level of assurance during this time of transition and to ensure your continued dedication and efforts without undue concern for your personal financial and employment security, NSI agrees to do the following: 1. If, during the thirty-six (36) month period following the date of the distribution of the shares of L & C Spinco, Inc. to the shareholders of NSI's Delaware parent (the "Protection Period"), your employment with NSI is terminated for any reason other than your voluntary resignation, death, Disability (as defined below) or Cause (as defined below) (each a "Permitted Reason"), then NSI will pay you, as severance pay, an amount equal to your then-current base salary at the time of termination (a) for a period of twenty four (24) months if your termination occurs during the first twelve (12) months of the Protection Period, or (b) for a period of twelve (12) months if your termination occurs thereafter during the Protection Period. For purposes of this Paragraph, the term "Disability" means a physical or mental impairment which prevents you from performing the essential functions of your job, with or without a reasonable accommodation, for a period of at least ninety (90) days; and the term "Cause" means your (i) dishonesty or fraud, (ii) conviction of, or entering a plea of nolo contendere to, a felony, (iii) gross negligence, willful malfeasance or material nonfeasance in the conduct of your duties for AECO, (iv) material violation of NSI's Code of Business Conduct, (v) breach of fiduciary duty, or (vi) refusal or continued failure to substantially perform your reasonably assigned duties. 2. If your employment is terminated during the Protection Period for any reason other than a Permitted Reason and you are participating in any incentive compensation plans at the time of your termination, NSI will pay you the pro rata amount, if any, of the incentive compensation amount you would have been eligible to receive under each applicable plan for the performance period (fiscal year or otherwise) in which your termination occurs, payable if and when such amount becomes due under such plans, based on the number of months that you were employed with NSI during such performance period (fiscal year or otherwise). Randy Zook October 5, 2001 Page 2 3. If you are entitled to severance pay under Paragraph 1 above, and if you elect COBRA coverage for health and dental coverage following your termination of employment, then provided you continue to pay an amount equal to the then-current active employee monthly premiums for such coverage, NSI will pay the balance of your monthly premiums for COBRA coverage (for you and your eligible dependents) for a period of eighteen (18) months after the termination date or until you qualify under a medical plan offered by your employer, if sooner. 4. The severance pay described in Paragraphs 1 and 2 above will be paid subject to deductions for federal and state taxes and all other legally required or otherwise authorized deductions. The severance pay described in Paragraphs 1 and 2 (less any required deductions) will be paid at the same times and in the same manner as similar amounts are paid to other similarly situated active associates of AECO. To receive severance pay, you will need to sign NSI's standard release form in substantially the same form as attached as Exhibit A hereto. 5. Any controversy or claim arising out of or relating to this letter agreement, or the breach thereof, will be settled by binding arbitration in Atlanta, Georgia in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The decision of the arbitrator will be final and binding upon the parties. NSI and you agree that each will seek to enforce any arbitration award in the Superior Court of Fulton County. This agreement is, of course, subject to our consummation of the Transaction. We appreciate your loyalty and diligence during the Transaction and look forward to a future of growth and new opportunities for you and AECO. Very truly yours, /s/ Brock A. Hattox -------------------------------- Brock A. Hattox EX-10.III(A)(71) 40 g72719ex10-iiia71.txt EMPLOYMENT LETTER AGREEMENT Exhibit 10(iii)A(71) [NSI Logo] PERSONAL & CONFIDENTIAL TO: John Morgan FROM: Jim Balloun DATE: October 24, 2001 GOING FORWARD - -------------------------------------------------------------------------------- We've re-organized Lithonia to relieve you of responsibilities there so you can give full attention to driving improvements at Holophane and begin to take leadership for corporate initiatives. I expect that this will lead to more responsibility and advancement in Acuity Brands. You will be located in Atlanta and you will be traveling to Ohio and other locations. It is in our interest that you move from Ohio to Atlanta, and you intend to purchase a home here. The company will provide a relocation benefit consisting of the following: (a) your expenses for moving your household effects to Atlanta; (b) brokerage and closing costs (up to two points) you incur in connection with the sale of your home in Ohio and the purchase of a home in Atlanta; and, (c) when you move, a one-time payment of one month's salary to assist you in the relocation. In addition to the foregoing, we will assist you in obtaining a bridge loan through the company should you purchase a home in Atlanta prior to selling your home in Ohio. Finally, in the unlikely event that you are asked to re-locate within the next three years, we will reimburse you for the difference, if any, between what you paid for your house and the selling price. This is not to exceed $80,000, and will be grossed up for tax impact. I hope this transition goes smoothly. I look forward to working together to make it a roaring success. cc: Joe Parham EX-21 41 g72719ex21.txt LIST OF SUBSIDIARIES EXHIBIT 21 NATIONAL SERVICE INDUSTRIES, INC. LIST OF SUBSIDIARIES
STATE OR OTHER JURISDICTION OF INCORPORATION OR SUBSIDIARY OR AFFILIATE PRINCIPAL LOCATION ORGANIZATION - ----------------------- ------------------ ------------------- C&G Carandini S.A. ................................ Barcelona, Spain Spain Castlight de Mexico, S.A. de C.V. ................. Matamoros, Tamaulipas Mexico Graham International B.V. ......................... Bergen op Zoom, Holland The Netherlands Holophane Alumbrado Iberica SRL.................... Barcelona, Spain Spain Holophane Canada, Inc. ............................ Brampton, Ontario Canada Holophane Europe Ltd. ............................. Milton Keynes, England United Kingdom Holophane Lichttechnik G.m.b.H. ................... Dusseldorf, Germany Germany Holophane Lighting Ltd. ........................... Milton Keynes, England United Kingdom Holophane Market Development Corp. ................ Grand Cayman, Cayman Islands Cayman Islands Holophane S.A. de C.V. ............................ Tultitlan, Mexico City Mexico HSA Acquisition Corporation........................ Columbus, Ohio Ohio ID Limited......................................... Douglas, Isle of Man Isle of Man KEM Europe B.V. ................................... Bergen op Zoom, Holland The Netherlands KEPLIME Ltd. ...................................... London, England United Kingdom L & C Funding, Inc. ............................... Atlanta, Georgia Delaware L & C Lighting Group, Inc. ........................ Atlanta, Georgia Delaware L & C Spinco, Inc. ................................ Atlanta, Georgia Delaware LHP Enterprises, Inc. ............................. Atlanta, Georgia Delaware Lithonia Lighting de Mexico S.A. de C.V. .......... Monterrey, Nuevo Leon Mexico Lithonia Lighting do Brasil Ltda................... Sao Paulo, Brazil Brazil Lithonia Lighting Servicios S.A. de C.V. .......... Monterrey, Nuevo Leon Mexico Luxfab Limited..................................... Milton Keynes, England United Kingdom National Airline Laundry Service, LLC.............. Atlanta, Georgia Delaware National Service Industries Canada L.P. ........... Calgary, Alberta Canada National Service Industries, Inc. ................. Atlanta, Georgia California (fka NSI Enterprises, Inc.) National Service Industries, Inc. Chile Ltda....... Santiago, Chile Chile NSI Export Ltd. ................................... Bridgetown, Barbados Barbados NSI Holdings, Inc. ................................ Montreal, Quebec Canada NSI Insurance (Bermuda) Ltd. ...................... Hamilton, Bermuda Bermuda NSI Leasing, Inc. ................................. Atlanta, Georgia Delaware Productos Lithonia Lighting de Mexico, S.A. de C.V. ............................................ Monterrey, Nuevo Leon Mexico Selig Company of Puerto Rico, Inc. ................ Atlanta, Georgia Puerto Rico The Zep Group, Inc. ............................... Atlanta, Georgia Delaware ZEP Belgium S.A. .................................. Brussels, Belgium Belgium Zep Enterprises, Inc. ............................. Atlanta, Georgia Delaware ZEP Europe B.V. ................................... Bergen op Zoom, Holland The Netherlands ZEP Industries Europa B.V. ........................ Bergen op Zoom, Holland The Netherlands ZEP Industries S.A. ............................... Bern, Switzerland Switzerland ZEP Italia S.R.L. ................................. Aprilia, Italy Italy ZEP KEM Italia S.R.L. ............................. Aprilia, Italy Italy ZEP Manufacturing B.V. ............................ Bergen op Zoom, Holland The Netherlands
66 EX-23 42 g72719ex23.txt CONSENT OF ARTHUR ANDERSEN, LLP. EXHIBIT 23 NATIONAL SERVICE INDUSTRIES, INC. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated November 29, 2001, included or incorporated by reference in National Service Industries, Inc. Form 10-K for the year ended August 31, 2001, into the Company's previously filed Registration Statement File Nos. 33-35609, 33-36980, 333-48835, 33-51339, 33-51341, 33-51343, 33-51345, 33-51351, 33-51355, 33-51357, 333-59627, 33-60715, 333-73133, 333-73135, 333-35746, 333-57222, and 333-57256. Arthur Andersen LLP Atlanta, Georgia November 29, 2001 67 EX-24 43 g72719ex24.txt POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ James S. Balloun James S. Balloun President and Chief Executive Officer, and Director /s/ Brock Hattox Brock Hattox Executive Vice President and Chief Financial Officer /s/ Kenyon W. Murphy Kenyon W. Murphy Senior Vice President and General Counsel /s/ Robert R. Burchfield Robert R. Burchfield Vice President and Controller (Principal Accounting Officer) Dated: November 29, 2001 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ John L. Clendenin ------------------------ John L. Clendenin Dated: November 29, 2001 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Thomas C. Gallagher -------------------------- Thomas C. Gallagher Dated: November 29, 2001 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Neil Williams ----------------------------------- Neil Williams Dated: November 29, 2001 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Roy Richards, Jr. --------------------- Roy Richards, Jr. Dated: November 29, 2001 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ L.M. Baker, Jr. ------------------- L.M. Baker, Jr. Dated: November 29, 2001 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, her true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for her in her name, place, and stead in her capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Betty L. Siegel ------------------------------ Betty L. Siegel Dated: November 29, 2001 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Ray M. Robinson --------------------------- Ray M. Robinson Dated: November 29, 2001 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, her true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for her in her name, place, and stead in her capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Kathy Brittain White ------------------------------ Kathy Brittain White Dated: November 29, 2001 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and appoints Brock Hattox and Kenyon W. Murphy, and each of them individually, his true and lawful attorneys-in-fact (with full power of substitution and resubstitution) to act for him in his name, place, and stead in his capacity as a director or officer of National Service Industries, Inc., to file a registrant's annual report on Form 10-K for the fiscal year ended August 31, 2001, and any and all amendments thereto, with any exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. /s/ Peter C. Browning ---------------------------- Peter C. Browning Dated: November 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----