NATIONAL SERVICE INDUSTRIES, INC.

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

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 þ No o

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. o

Based on the closing price of $6.06 as quoted on the New York Stock Exchange on September 30, 2002, the aggregate market value of the voting stock held by nonaffiliates of the registrant, was $63,756,656.

The number of shares outstanding of the registrant’s common stock, $1.00 par value, was 10,982,016 shares as of September 30, 2002.

National Service Industries, Inc. (the “Company” or “NSI”) operates in two business segments — textile rental and envelope manufacturing. NSI is headquartered in Atlanta, Georgia, and provides products and services throughout the United States. Of the Company’s fiscal 2002 revenues of $532.4 million, the textile rental segment contributed approximately 60 percent and the envelope segment contributed approximately 40 percent.

On November 7, 2001, the Board of Directors of NSI approved the spin-off, subject to certain conditions, of its lighting equipment and chemicals businesses into a separate publicly-traded company with its own management and board of directors. The spin-off conditions were met November 29, 2001 and the spin-off was effected on November 30, 2001 through a tax-free distribution (“Distribution”) of 100% of the outstanding shares of common stock of Acuity Brands, Inc. (“Acuity”), a wholly-owned subsidiary of NSI owning and operating the lighting equipment and chemicals businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the Distribution, received one share of Acuity common stock for each share of NSI common stock held on 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., Suite 200, Atlanta, Georgia 30309-3002 and the telephone number is (404) 853-1000.

National Linen Service (“NLS”) is a leading United States multi-service textile rental company, with fiscal 2002 revenues of $319.6 million. NLS serves over 45,000 customers in the dining, lodging, and healthcare industries. Its customers include restaurants, hotels, country clubs, retail stores, hospitals, clinics, and doctors’ offices. Operating in 21 states plus the District of Columbia, NLS delivers clean products including napkins, table and bed linens, bath towels, pillowcases, 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.

Atlantic Envelope Company (“AECO”) is a leading United States manufacturer of custom envelopes, 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 seven 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 2002 totaled $212.8 million.

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, 2002 are included in Note 11, Business Segment Information, in the Notes to the Consolidated Financial Statements included in this filing.

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, 2002. Fluctuations in paper prices may impact the

Additionally, the primary raw material for the envelope segment’s courier product is provided by a single supplier. The Company’s management believes that in the unlikely event there was a significant shortage of this raw material, an alternative product could be developed. However, the length of time necessary to develop an alternative product could negatively impact the envelope segment’s results of operations.

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.

No single customer accounted for more than 10 percent of consolidated revenues during the fiscal years ended August 31, 2002, 2001 and 2000. However, two customers of the envelope segment represented 27 percent of both fiscal 2002 and fiscal 2001 envelope revenues, and 18 percent of fiscal 2000 envelope revenues. The loss of either customer would adversely affect the segment.

Sales order backlog at August 31, 2002 and 2001 was $13.6 million and $27.8 million, respectively, in the envelope segment.

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. In each of the Company’s businesses, the principal method of competition includes price, quality and customer responsiveness.

The textile rental segment has numerous locations primarily throughout the southeast United States. Market share in each location varies; however, the Company is typically one of the larger competitors in the market. While there are several other large companies in the markets in which the Company competes, most competitors are smaller companies that specialize in one segment of the industry or operate in a limited geographic area, which in many instances increases the intensity of competition.

In the envelope segment, the Company competes with several other large envelope manufacturers in the various geographic markets it serves. Additionally, in each geographic market the Company also competes with a number of smaller manufacturers.

The Company conducts research and development related to present and future products for its businesses. Research and development expenses amounted to $0.4 million, $0.7 million and $0.5 million during 2002, 2001 and 2000, respectively.

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, 2003. See Note 6, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements included in this filing.

The Company is the owner of numerous copyrights, trademarks, service marks, licenses and trade secrets relating to its products and services. These intellectual property rights, particularly the service marks for National Linen Service and Atlantic Envelope, are important factors in the Company’s business. To protect these proprietary rights, the Company relies on copyright, trade secret and trademark laws. Generally, trademarks are valid as long as they are in use and their registrations are properly maintained. Registrations of trademarks can generally be renewed indefinitely as long as the trademarks are in use. Management is not aware of any unauthorized use of the Company’s intellectual property or of any claim that the Company does not have the right to use any intellectual property material to its business.

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 describe each of the operating facilities owned or leased by the Company. The following listing summarizes the significant facility categories by business:

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.

See Note 6, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements included in this filing, which is incorporated herein by reference.

No matters were submitted to a vote of security holders during the three months ended August 31, 2002.

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

The Company’s common stock is listed on the New York Stock Exchange under the symbol “NSI.” At August 31, 2002, there were 3,849 stockholders of record. The following table sets forth the New York Stock

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, which was effective November 30, 2001. Based on the trading prices of NSI shares and Acuity shares at the time of the spin-off, the allocation of tax basis in pre-spin NSI shares between NSI shares and Acuity shares received in the distribution was established as 14.78% for NSI shares and 85.22% for Acuity shares. On January 3, 2002, the Company’s stockholders approved a one-for-four reverse stock split of NSI common stock, which began trading on a reverse split basis on January 7, 2002. All references to per share amounts have been restated to reflect the one-for-four common stock reverse split on a retroactive basis.

The Company maintains the National Service Industries, Inc. Long-Term Incentive Program, the National Service Industries, Inc. Long-Term Achievement Incentive Plan, the National Service Industries, Inc. 2001 Nonemployee Directors’ Stock Option Plan, and Employee Stock Purchase Plan, (collectively, the “Plans”), pursuant to which it may grant equity awards to eligible persons. For additional information, see Note 5, Common Stock and Related Matters, in the Notes to the Consolidated Financial Statements included in this filing. The following table gives information about equity awards under the Company’s Plans.


	*	Included in this number are outstanding options issued under the National Service Industries 1992 Nonemployee Directors’ Stock Option Plan, which was terminated on September 19, 1999. Additionally, at August 31, 2002 there were 621,134 unvested restricted shares issued which are not included in this number.


**	Of these shares, 224,910 remain available for purchase under the Employee Stock Purchase Plan.


(1)	On November 7, 2001, the Board of Directors approved the spin-off, subject to certain conditions, of the Company’s lighting and chemical businesses. The spin-off conditions were met November 29, 2001 and


	the spin-off was effected on November 30, 2001. 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)	On January 3, 2002, the Company’s shareholders approved a one-for-four reverse stock split of NSI common stock, which began trading on a reverse split basis on January 7, 2002. All references to per share amounts have been restated to reflect the one-for-four common stock reverse split on a retroactive basis.

(3)

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) 142, “Goodwill and Other Intangible Assets.” The textile rental and envelope reporting units each tested goodwill for impairment during the first quarter of fiscal 2002 as required by SFAS 142 upon adoption, utilizing a combination of valuation techniques including the expected present value of future cash flows, a market multiple approach and a comparable transaction approach. As a result of this valuation process, as well as the application of the remaining provisions of SFAS 142, the Company recorded a pre-tax transitional impairment loss of $28.4 million.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and related notes.

National Service Industries is a diversified service and manufacturing company operating in two segments: textile rental and envelopes.

In July 2001, the FASB issued SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires companies to cease amortizing goodwill that existed at June 30, 2001 and establishes a new method for testing goodwill for impairment on an annual basis (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS 142 also requires that an identifiable intangible asset that is determined to have an indefinite useful economic life not be amortized, but separately tested for impairment using a fair value based approach.

The textile rental and envelope reporting units each tested goodwill for impairment during the first quarter of fiscal 2002 as required by SFAS 142 upon adoption, utilizing a combination of valuation techniques including the expected present value of future cash flows, a market multiple approach and a comparable transaction approach. As a result of this valuation process, as well as the application of the remaining provisions of SFAS 142, the Company recorded a pre-tax transitional impairment loss of $28.4 million, representing the write-off of all of the Company’s existing goodwill. This write-off was reported as a cumulative effect of a change in accounting principle, on a net of tax basis, in the Company’s Consolidated Statement of Income for the year ended August 31, 2002 (see Note 1, Summary of Accounting Policies, in the Notes to the Consolidated Financial Statements included in this filing).

On November 7, 2001, the Board of Directors of NSI approved the spin-off, subject to certain conditions, of its lighting equipment and chemicals businesses into a separate publicly-traded company with its own management and board of directors. The spin-off conditions were met November 29, 2001 and the spin-off was effected on November 30, 2001 through a tax-free distribution of 100% of the outstanding shares of common stock of Acuity Brands, Inc., a wholly-owned subsidiary of NSI owning and operating the lighting equipment and chemicals businesses. Each NSI stockholder of record as of November 16, 2001, the record date for the Distribution, received 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.

In conjunction with the spin-off, the Company and Acuity entered 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, a

transition services agreement and a lease agreement. Under the tax disaffiliation agreement, Acuity will indemnify NSI for certain taxes and liabilities that may arise related to the Distribution. The agreement also sets out each party’s rights and obligations with respect to deficiencies and refunds, if any, of federal, state, local, or foreign taxes for periods before and after the Distribution. The transition services agreement provides that NSI and Acuity will provide each other services in such areas as information management and technology, employee benefits administration, payroll, financial accounting and reporting, claims administration and reporting, legal, and other areas where NSI and Acuity may need transitional assistance and support. In addition to other services described in the agreement, the transition services agreement provides that Acuity will, for a fee, provide collateral associated with various property and casualty insurance programs of NSI as follows:

At August 31, 2002, standby letters of credit of $10.4 million were in use. Management believes the amounts paid or received associated with these services are representative of the fair value of the services provided.

In addition, Acuity and NSI entered into a put option agreement, whereby NSI had the option to require Acuity to purchase the property where NSI’s corporate headquarters are located for a purchase price equal to 85 percent of the agreed-upon fair market value of the property. On May 23, 2002 the Company completed the cash sale of the property where NSI’s corporate headquarters is located. Subsequent to the sale, NSI executed a release of the put option agreement, thereby extinguishing any rights that NSI had under the agreement.

As a result of the spin-off, 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.

On January 3, 2002, the Company’s shareholders approved a one-for-four reverse stock split of NSI common stock, which began trading on a reverse split basis on January 7, 2002. As a result of the stock split, every four shares of NSI common stock were replaced with one share of NSI common stock. The reverse split did not change the number of authorized shares of NSI common stock or the par value per share of NSI common stock. All references to common stock, common shares outstanding, average numbers of common stock shares outstanding and per share amounts in these Consolidated Financial Statements, Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations prior to the effective date of the reverse stock split have been restated to reflect the one-for-four common stock reverse split on a retroactive basis.

NSI’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The Company reviews its estimates on a regular basis including those related to litigation, insurance receivable and environmental matters. The Company’s estimates are based on historical experience and other assumptions management believes are reasonable under current circumstances. Actual results may differ from these estimates under different assumptions or circumstances.

In December 2001, the Securities and Exchange Commission (“SEC”) requested that all registrants include their “critical accounting policies” in Management’s Discussion and Analysis. The SEC indicated

that a “critical accounting policy” is one which is both important to the portrayal of the company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. NSI believes the following represent its critical accounting policies:

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 product liability claims. The Company accrues for legal claims when payments associated with the claims become probable and can be reasonably estimated for financial statement purposes. While management believes that its accruals are appropriate based on information currently available, the actual costs of resolving legal claims may be substantially different from the amounts accrued.

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 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 was paid directly by the Company’s insurers. Since February 1, 2001, the Company has retained 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. The Company is more vigorously 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.

At August 31, 2001, the accrual for asbestos-related liabilities, before consideration of insurance recoveries, was based on the following: the Company’s estimate of indemnity payments and defense costs associated with pending and future asbestos-related claims; settlements agreed to but not paid; 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. During 2002, as part of its ongoing estimating process, consultation with outside experts, the nature of pending claims, the jurisdictions in which claims have been filed, and in light of its gained experience in administration of its defense strategy and recent settlement activity, the Company reviewed its asbestos claims liabilities and adjusted the balances in these accounts from its prior three year outlook to its estimate of the total probable liabilities from pending and expected future asbestos claims over an approximate fifty year period, which takes into consideration the life expectancy of individuals potentially exposed. The Company believes that a reasonable estimate of its expected future claims for approximately fifty years could require an increase in its liabilities ranging from approximately $94 million to $139 million. Management does not believe that any amount in the range is more accurate than any other. Therefore, as of August 31, 2002, the Company increased its liabilities for asbestos-related costs by $94 million, the low end of the range and recorded an additional insurance recovery of $77 million.

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 differ materially from the Company’s estimates due to changes in facts and circumstances after the date of each estimate. For additional information, see Note 6, Commitments and Contingences, in the Notes to the Consolidated Financial Statements included in this filing.

The Company believes that it has insurance coverage available to recover most of its asbestos-related costs. With the exception of the Company’s payments on account of settlement obligations of defaulting CCR members, 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, as discussed in Note 6, Commitments and Contingences, in the Notes to the Consolidated Financial Statements included in this filing. 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. In the event the Company’s insurers dispute amounts billed to them or pay on an untimely basis, the Company takes all practicable steps to secure payment, including alternative dispute resolution procedures and litigation to resolve the issues. The Company has initiated alternative dispute resolution proceedings with two insurers to resolve outstanding insurance policy interpretation issues, and, with respect to one of the insurers, to secure payment of past due amounts and to ensure that the insurer’s future obligations will be met in a timely fashion. Approximately $8.5 million of insurance recovery is under alternative dispute resolution proceedings at August 31, 2002. The Company believes its recorded receivables, which includes both billed amounts and estimates of future recoveries, from insurance carriers are collectible. The Company reached this conclusion after considering various factors including 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. Although the Company believes these assumptions are reasonable, other assumptions could have been used that would result in substantially lower recoveries. 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.

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 accrues for known environmental claims when payments associated with the claims become probable and the costs can be reasonably estimated. The actual cost of environmental issues may

Net working capital increased to $83.0 million at August 31, 2002 as compared to $87.7 million at August 31, 2001, and the current ratio decreased to 1.8 from 1.9. The Company held cash and cash equivalents of $21.0 million and had total debt of $2.1 million at August 31, 2002.

Continuing operations provided cash of $19.8 million in fiscal 2002, compared with cash used of $29.1 million in fiscal 2001 and cash provided of $40.9 million in fiscal 2000. The increase in fiscal 2002 related to a decrease in the loss from continuing operations, lower tax payments, improved working capital reflected through reduced days sales outstanding in accounts receivable and days of inventory held, and lower prepayments associated with the spin-off of the lighting and chemical businesses. These improvements were somewhat offset by a decrease in accounts payable and other liabilities. The reduction in fiscal 2001 related to a decrease in net income, and 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 fiscal 2000 as the Company incurred costs related to the spin-off of the lighting and chemical businesses. The increase in income tax payments related to the resolution of various tax matters, all of which were fully accrued in prior periods.

Investing activities provided cash of $4.2 million in fiscal 2002 compared to cash used of $24.7 million and $60.7 million in fiscal 2001 and fiscal 2000, respectively. The change in fiscal 2002 is primarily due to the sale of the Company’s headquarters building. Additionally, there were decreases in capital expenditures and acquisition spending during fiscal 2002. Cash used for investing activities in fiscal 2001 decreased as compared to fiscal 2000 primarily due to a decrease in capital expenditures and acquisition spending and an increase in cash provided by the sale of businesses.

During May 2002, the Company completed the cash sale of the property where NSI’s corporate headquarters is located for $22.5 million. The sale transaction resulted in a gain of $8.0 million and a deferred gain of $3.4 million. In conjunction with the sale, the Company entered into an agreement to lease up to five floors, or approximately 79,000 square feet, of the 155,000 square foot building for up to 42 months. The deferred gain will be amortized as a reduction to lease expense over the term of the lease. Lease expense before amortization of the deferred gain is approximately $145 thousand per month. The proceeds from the sale were used to reduce the Company’s debt and the remainder is held for use in general corporate purposes.

Acquisition spending during fiscal 2002 of $3.7 million was the textile rental segment’s purchase of several small linen operations. Acquisition spending during fiscal 2001 was $5.6 million and related primarily to the textile rental segment’s purchase of several plants in Florida. Fiscal 2000 acquisition spending of $10.1 million also related to several small acquisitions in the textile rental segment.

Capital expenditures were $17.2 million in 2002 compared with $23.1 million in 2001 and $45.5 million in 2000. Current year capital expenditures in the envelope segment were primarily related to manufacturing equipment and information systems. The information systems expenditures related primarily to implementation of an enterprise-wide software package, which was completed during 2002. Capital expenditures in the textile rental segment were primarily for replacement of old equipment and delivery trucks. Fiscal 2001 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, and in the textile rental segment related to replacing old equipment and delivery truck purchases and refurbishments.

In 2003, capital expenditures are expected to approximate $20 million as the Company continues to invest capital in technology and equipment. Contractual commitments for capital spending for fiscal year 2003 approximate $2.1 million.

Financing activities used cash of $10.0 million, $51.4 million, and $49.5 million during 2002, 2001 and 2000, respectively. Cash used by financing activities during fiscal 2002 primarily related to payments of cash dividends and debt, slightly offset by cash provided by Employee Stock Purchase Plan contributions. The decrease in cash used during fiscal 2002 compared to 2001 and 2000 is the result of lower cash dividends paid. 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 contributions and stock option exercises.

In October 2001, NSI negotiated a $40.0 million, three-year committed credit facility with a single major US bank that became 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 pays an annual fee on the commitment based on the Company’s leverage ratio. No amounts were outstanding under this facility at August 31, 2002, and at the time of the spin-off approximately $2.2 million was outstanding. At August 31, 2002 the Company was in compliance with the facility covenants and $38.7 million was available under the facility.

Outstanding borrowings at August 31, 2002 included approximately $2.1 million in notes payable at 8.5 percent.

In 2003, cash dividends paid are anticipated to be $0.04 per share per quarter, which is consistent with the quarterly dividend declared subsequent to the spin-off of Acuity.

Management believes its current cash balances, anticipated cash flows from operations, including cash proceeds from insurance receivable, 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, Commitments and Contingencies, in the Notes to the Consolidated Financial Statements included in this filing, for at least the next twelve months.

The future payments required under the Company’s significant contractual obligations as of August 31, 2002 are as follows:

As of August 31, 2002, the Company has settlement agreements for certain asbestos related liabilities of $85 million. In the above table, the timing of some of these settlement payments has been estimated because payment is contingent on several factors, including the Company’s receipt of legal documentation from claimants and plaintiff attorneys. The Company anticipates that substantially all of the asbestos liabilities included in the above table will be reimbursed by insurance. For additional information, see

Additionally, the Company has outstanding letters of credit for approximately $1.3 million at August 31, 2002. These letters of credit expire at various dates in fiscal 2003 and the Company anticipates that they will be renewed upon expiration. The Company also anticipates obtaining additional letters of credit in fiscal 2003 of $6.4 million relating to the Company’s casualty insurance program. At August 31, 2002, Acuity provided collateral associated with the Company’s property and casualty insurance programs in the form of standby letters of credit in the amount of $10.4 million. For further discussion, see Note 2, Discontinued Operations, in the Notes to the Consolidated Financial Statements included in this filing.

Upon completion of the spin-off on November 30, 2001, approximately $371.6 million of long-term debt was assumed by Acuity, leaving approximately $2.8 million outstanding for the Company. Additionally, at November 30, 2001, Acuity assumed $156.5 million of outstanding borrowing on the credit facility and $102.8 million in short-term secured borrowings.

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 assumed 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 expired in June 2002. The credit facility permitted certain subsidiaries of the Company to borrow under such facility, and the Company guaranteed these borrowings. Interest rates under the credit facility were based on the LIBOR rate or other rates, at the Company’s option. The Company paid 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. This facility was discontinued at the time of the spin-off.

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.

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 became effective and replaced 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. At the date of the spin-off, Acuity assumed full responsibility for this credit facility.

At August 31, 2001, the Company had uncommitted lines of credit totaling $111.2 million for general operating purposes, of which $16.8 million was 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. These notes were assumed by Acuity in connection with the spin-off.

National Service Industries posted revenues of $532.4 million for the fiscal year ended August 31, 2002 representing a 5.5 percent decrease from the prior year, with revenues from both segments contributing to the decrease. Revenues in fiscal 2001 were $563.3 million, representing a $16.6 million increase from fiscal 2000, primarily in the textile rental segment. The fiscal 2002 loss from continuing operations was $6.9 million, compared to a loss from continuing operations in fiscal 2001 of $15.3 million. The fiscal 2001 loss from continuing operations represents a decrease in net income of $32.4 million compared to fiscal 2000. The decrease in operating loss from continuing operations in fiscal 2002 primarily results from gains on the sale of corporate headquarters building and on sale of businesses. The significant decrease in operating profit during fiscal 2001 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 revenues, representing all of the Company’s service revenues, decreased 4.5 percent during 2002 to $319.6 million. Overall, customer retention levels remain steady. However, volumes per customer continue to be negatively impacted by the soft economic conditions, particularly in those segments dependent on corporate travel and entertainment such as lodging and fine dining. The following table presents information that management believes will provide the reader more consistent, comparable trend information:

Fiscal 2002 operating profit was $3.0 million compared to last year’s operating profit of $12.5 million. Included in operating profits were gains on sales of previously divested businesses of $1.0 million and $2.4 million in 2002 and 2001, respectively. Additionally, the results in each year included charges of $5.8 million and $1.7 million related to current and previous years restructuring expense, asset impairments, and other charges. Excluding these items, adjusted profits in 2002 were affected primarily by lower revenues and increased production costs offset somewhat by costs incurred in 2001 for sales tax assessments which were not repeated in 2002.

During the first quarter of fiscal 2002, the Company closed two facilities in the textile rental segment and recorded a related charge of $5.8 million. The charge included severance costs of $11 thousand for four employees, all of whom were terminated prior to the end of the first quarter, and $1.4 million in exit expenses to close and consolidate facilities. Exit expenses primarily included costs of lease terminations and costs to dispose of facilities. Additionally, as a further result of the closure of the two textile rental facilities, the Company recognized long-lived asset impairments totaling $4.4 million. Textile rental 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 an analysis of expected future cash flows. During the remainder of fiscal 2002, the severance and exit accruals were adjusted as necessary based upon further review and analysis by management. The net change was a reduction of $159 thousand to the severance accrual, and an increase of $43 thousand to the exit cost accrual.

Also in fiscal 2002, the Company recognized a $1.3 million charge for the impairment of certain intangible customer lists. These charges were offset by a reduction of restructuring and other charges of $1.2 million due primarily to lower than originally estimated costs to prepare a facility for closure.

Revenues during fiscal 2001 increased 4.1 percent 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 fiscal 2000’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 fiscal 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 pre-tax 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. Additionally, the segment sold two linen facilities resulting in a pre-tax loss of $0.3 million.

The losses resulting from the restructuring activities and impairments in fiscal 2002 and 2001 are included in “Restructuring expense, asset impairments, and other charges (income)” in the “Consolidated Statements of Income.”

Envelope segment revenues decreased 6.9% during fiscal 2002 from $228.5 million to $212.8 million. Lower direct mail and courier volumes and increased competitive pricing pressures in both the direct mail and transactional segments account for the revenue decline. The following table presents information that management believes will provide the reader more consistent, comparable trend information:

Fiscal 2002 operating profit, as compared to fiscal 2001, increased by $16.1 million, to a profit of $3.0 million. Fiscal 2002 results include gains of $0.1 million related to the sale of the Company’s Lyon Folder unit. Fiscal 2001 operating results included $8.3 million in pre-tax charges consisting of a $4.9 million charge associated with closing four facilities and $3.4 million for the write-off of non-performing assets. Additionally, expense of $2.6 million for inventory obsolescence was recorded in fiscal 2001. After considering these items, operating results improved due to cost reductions from plant consolidations, lower bad debt and inventory obsolescence costs and improved efficiencies.

Envelope segment revenues during 2001 remained essentially flat compared with 2000 revenues as higher sales volumes to major customers 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 $18.2 million to a loss of $13.1 million. Contributing to the fiscal 2001 loss were $10.9 million in pre-tax charges discussed above. 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, as mentioned above, the segment recorded a charge of $4.9 million related to its restructuring 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. 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

The $3.4 million write-off discussed above 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.”

Corporate expenses in fiscal 2002 were $16.6 million compared to fiscal 2001’s allocated costs of $21.9 million. The Company recorded charges of approximately $16.9 million and $16.1 million for asbestos-related liabilities in the fourth quarters of fiscal 2002 and 2001, respectively. Additionally, during fiscal 2002 the Company recorded an $8.0 million gain for the sale of its headquarters building. Excluding these items, fiscal 2002 corporate expense is $7.7 million and fiscal 2001 allocated corporate expense is $5.8 million.

Allocated corporate expenses increased $18.1 million from 2000 to 2001. This increase was primarily due to the $16.1 million charge discussed above, as well as higher allocated corporate expenses due to increased employee medical and casualty insurance costs and higher costs related to strategic and operational initiatives.

Interest expense decreased in fiscal 2002 to $0.4 million from $1.8 million in 2001 due to lower interest bearing obligations and interest rates as well as higher cash balances. Interest expense remained relatively flat during fiscal years 2001 and 2000.

The Company’s operations are subject to comprehensive laws and regulations relating to the generation, storage, handling, transportation, and disposal of hazardous substances and solid and hazardous wastes and to the remediation of contaminated sites. Permits and environmental controls are required for certain of the Company’s operations to 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 accruals, which are included in current liabilities, totaled $5.8 million and $7.3 million at August 31, 2002 and 2001, respectively. The actual cost of environmental issues may be lower or higher than that accrued 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.

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 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 $0.4 million 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 the Company’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 fiscal 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 million. The gain is included in “Gain on sale of business” in the accompanying consolidated statements of income.

In May 1999, the State of New York filed a lawsuit against the Company alleging that the Company is responsible as a successor to Serv-All Uniform Rental Corp. (“Serv-All”) 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 and therefore has no liability with respect to the Blydenburgh Landfill.

In February 2001, 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, issuing a declaratory judgment that the Company is a successor to Serv-All. Subsequently, the Company and the State of New York each filed a cross-motion for summary judgment on the Company’s liability under the Comprehensive Environmental Response, Compensation, and Liability Act.

On December 12, 2001, the Court granted summary judgment for the State. At a January 9, 2002 status conference, the Court verbally denied the Company’s motion for summary judgment and explicitly noted that the issues presented by this case were appropriate for judicial review. The Court reiterated its denial of the Company’s motion in a written order on January 10, 2002. Final judgment in the amount of $12.5 million was entered against the Company on February 1, 2002. Execution of the judgment was stayed pending appeal to the Second Circuit Court of Appeals.

The Company filed a notice of appeal to the Second Circuit Court of Appeals on March 1, 2002. As a result of a technical error made by the District Court in the language of the final judgment, the judgment was remanded to the Eastern District of New York to be corrected. This correction was made, and the final judgment was re-entered on September 17, 2002, in the amount of $12.5 million. A second notice of appeal was filed on October 10, 2002.

In its appeal, the Company asserted that the trial court erred in declaring that the Company is a successor to Serv-All, in finding that the State’s claims were not barred by the statute of limitations, and in holding that the Company is jointly and severally liable for response costs. Even if the Company were unsuccessful in its appeal to the Second Circuit Court of Appeals, the Company would have a right to seek recovery of response costs from the many other parties whose wastes were disposed of at the Blydenburgh Landfill. In fact, the Company has initiated the process of seeking recovery in a related case filed by the State of New York against Hickey’s Carting Co. (“Hickey’s”) in the Eastern District of New York (the “Hickey’s Case”).

In the Hickey’s Case, the State of New York sued Hickey’s, the company Serv-All retained to transport its waste, 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. On September 3, 2002, Hickey’s then sued the Company, along with several other parties, for contribution to any judgment ultimately awarded against Hickey’s.

The Company has all of the same defenses in the Hickey’s Case as in the case brought against the Company by the State of New York. The Company believes that it is not a successor to Serv-All and therefore has no liability with respect to the Blydenburgh Landfill (either to the State of New York or to Hickey’s) and has responded to the lawsuit accordingly. The Company has also counterclaimed against Hickey’s and cross-claimed against the other named parties, seeking contribution toward the judgment entered in the case brought against the Company by the State of New York.

If the Company prevails in the Second Circuit with its argument that it is not a successor to Serv-All, the Company will then file a motion to dismiss it from the Hickey’s Case. Even if the Company does not prevail, any liability to the State of New York will be reduced by the contributions the Company will receive from the many other parties, including Hickey’s, whose wastes were disposed of at the Blydenburgh Landfill, and the Company will have no additional liability to Hickey’s or any other party in the Hickey’s Case.

The Company also believes it is entitled to indemnification for all costs associated with the Blydenburgh Landfill by the parent (“Initial Parent”) of Initial Services Investments, Inc., which the Company acquired in 1992 and which had previously purchased and sold certain assets of Serv-All. On May 22, 2002, the Company filed a lawsuit against Initial Parent, seeking to enforce an indemnification provided by Initial Parent to the Company. The lawsuit seeks full indemnification by Initial Parent for all costs and expenses of litigating the Blydenburgh Landfill action, as well as a declaration that Initial Parent is obligated to indemnify the Company for any judgment which ultimately is assessed against the Company. On July 15, 2002, Initial Parent filed a motion to dismiss the lawsuit, followed by a motion for summary judgment on July 25, 2002. The Company has filed briefs in opposition to these motions.

At this point, 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, and thus, no accrual has been recorded related to any of the above-described matters relating to the Blydenburgh Landfill.

In June 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. The principal difference between SFAS 146 and EITF Issue 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost as defined in EITF Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. A fundamental conclusion reached by the Board in this Statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, SFAS 146 eliminates the definition and requirements for recognition

of exit costs in EITF Issue 94-3. This Statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. Adoption of this statement is not expected to have a significant effect on the Company’s consolidated results of operations and financial position.

Management continues to pursue its strategic plan to profitably grow the Company. In 2003, the Company will strengthen relationships with customers and add sales personnel to promote profitable growth. In addition, improving margins and maintaining a strong balance sheet will be a continuing focus in 2003. Fiscal 2003 sales from the existing businesses are expected to remain in line with fiscal 2002 results due to a forecasted continuing weak economy.

This report contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about management’s and the Company’s beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “plans,” “estimates” or similar expressions. These statements include, among others, statements regarding our expected business outlook, pricing levels, raw materials costs, anticipated financial and operating results, strategies, contingencies, financing and working capital requirements, sources of liquidity, capital expenditures, amounts and timing of expenditures with respect to asbestos litigation and environmental matters, amounts and timing of insurance recoveries covering those expenses, the resolution of allocation and coverage issues with the Company’s insurers, the solvency of the Company’s insurers, competitive conditions and general economic conditions.

Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on management’s beliefs and assumptions, which in turn are based on currently available information. These assumptions could prove inaccurate. Forward-looking statements also involve risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond the Company’s ability to control or predict. Such factors include, but are not limited to:


	•	changes in general business and economic conditions;

	•	fluctuations in raw material prices;

	•	unexpected developments or outcomes in the Company’s legal or environmental proceedings;

	•	the risk of additional insolvencies among the Company’s insurance carriers;

	•	the risk of an increase or acceleration in the number of asbestos-related claims filed against the Company;

	•	the risk of adverse judgments and damage awards against the Company in pending or future litigation;

	•	the risk that the number of future asbestos claims or the settlement costs of such claims will exceed the Company’s forecasts;

	•	changes in competitive conditions in the Company’s markets;

	•	foreign currency fluctuations relative to the U.S. dollar; and

	•	increases in labor and other significant operating expenses.

Investors should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and the

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.

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 did not have any variable-rate debt outstanding at August 31, 2002.

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.” At August 31, 2002, there were no outstanding contracts for natural gas.

The Company’s envelope segment uses paper as its primary raw material. Generally, though, the Company passes fluctuations in the price of paper through to its customers. The Company does not believe that a 10 percent change in market rates of paper would have a material impact on its “Consolidated Balance Sheets” or “Consolidated Statements of Income”.

In our opinion, the accompanying consolidated balance sheet as of August 31, 2002 and the related consolidated statement of income, stockholders’ equity and comprehensive income and cash flows present fairly, in all material respects, the financial position of National Service Industries, Inc. and its subsidiaries at August 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The consolidated financial statements of National Service Industries, Inc. as of August 31, 2001, and for each of the two years in the period ended August 31, 2001, prior to the revisions described in Notes 1 and 5, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated November 29, 2001.

As discussed in Note 1 to the consolidated financial statements, on September 1, 2001, National Service Industries, Inc. adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”.

As discussed above, the financial statements of National Service Industries, Inc. as of August 31, 2001, and for each of the two years in the period ended August 31, 2001, prior to the revisions described in Notes 1 and 5, were audited by other independent accountants who have ceased operations. As described in Note 1 and Note 5, these financial statements have been revised to give effect to the reverse stock split and to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, which was adopted by the Company as of September 1, 2001. We audited the transitional disclosures described in Note 1 and the adjustment described in Note 5. In our opinion, the transitional disclosures for 2001 and 2000 in Note 1 are appropriate and the adjustment described in Note 5 is appropriate and has been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 or 2000 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 or 2000 financial statements taken as a whole.

NOTE:

This is a copy of a report previously issued by Arthur Andersen LLP, the Company’s former independent accountants. The Arthur Andersen report refers to certain financial information for the fiscal year ended August 31, 1999 and certain balance sheet information at August 31, 2000, which are no longer included in the accompanying financial statements. This report has not been reissued by Arthur Andersen LLP in connection with the filing of this Annual Report on Form 10-K.

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.

(1) 7,338 shares, (2) 44,008 shares, (3) 38,489 shares, (4) 486 shares, (5) 45,781 shares, (6) 11,980 shares, (7) 41,057 shares, (8) 11,747 shares, (9) 627,880 shares, (10) 15,605 shares, (11) 38,765 shares.

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

National Service Industries (“NSI” or the “Company”) has operations 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.

The Company records product sales when title and risk of loss passes to customers, which is generally as products are shipped, and records service revenue as services are rendered, which is generally as linens are delivered to customers.

The consolidated financial statements include the accounts of the Company and all subsidiaries after elimination of significant intercompany transactions and accounts.

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 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, 2002 and 2001, and all cash balances at August 31, 2001 have been attributed to discontinued operations.

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, 2002, the Company does not consider itself to have any significant concentrations of credit risk.

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, 2002 and 2001:

Linens in service are recorded at cost and are generally amortized over their estimated useful lives, which range from 15 to 50 months and average approximately 20 months.

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) 142, “Goodwill and Other Intangible Assets.” SFAS 142 requires companies to cease amortizing goodwill that existed at June 30, 2001 and establishes a new method for testing goodwill for impairment on an annual basis (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). Any goodwill resulting from acquisitions completed after June 30, 2001 will not be amortized. SFAS 142 also requires that an identifiable intangible asset that 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 adopted SFAS 142 as of September 1, 2001. Summarized information for the Company’s acquired intangible assets is as follows:

The Company amortizes customer contracts over estimated useful lives of seven years. Other acquired intangible assets, consisting primarily of restrictive covenant agreements, are amortized over the lives of the agreements, which average approximately four years. The Company recorded amortization expense of $1,853, $1,615 and $1,292 related to intangible assets for the years ended August 31, 2002, 2001 and 2000, respectively. Estimated amortization expense for the five years subsequent to August 31, 2002 is as follows: 2003 — $1,918; 2004 — $1,693; 2005 — $1,450; 2006 — $1,116; 2007 — $971.

The changes in the carrying amount of goodwill during the period are summarized as follows:

The textile rental and envelope reporting units each tested goodwill for impairment during the first quarter of fiscal 2002 as required by SFAS 142 upon adoption, utilizing a combination of valuation techniques including the expected present value of future cash flows, a market multiple approach and a comparable transaction approach. As a result of this valuation process, as well as the application of the remaining provisions of SFAS 142, the Company recorded a pre-tax transitional impairment loss of $28,432, representing the write-off of all of the Company’s existing goodwill. This write-off was reported as a cumulative effect of a change in accounting principle, on a net of tax basis, in the Company’s Consolidated Statement of Income for the year ended August 31, 2002.

Prior to the adoption of SFAS 142 in September 2001, the Company amortized goodwill over estimated useful lives ranging from 10 years to 30 years. Had the Company accounted for goodwill consistent with the provisions of SFAS 142 in prior periods, the Company’s income from continuing operations and net income would have been affected as follows:

Additionally, during the fourth quarter of fiscal 2002, the textile rental segment tested certain acquired customer lists for impairment, based on decreasing revenue trends. As a result of discounted future cash

flow analysis, impairment losses of $1,268 were recognized and are included in “Restructuring expense, asset impairments, and other charges (income)” in the “Consolidated Statements of Income”.

In December 1999, NSI and Royal Airline Associates LLC of New York (“Royal”) formed Royal Airline Linen of Atlanta, LLC (“RALA”) to provide airline textile laundry and dry cleaning services to airline customers. The Company shares participating rights with Royal and has held a 50% ownership interest in RALA since the inception of this investment. This investment is accounted for using the equity method as the Company does not hold a controlling interest. The RALA investment provided equity earnings of $1,075, $949 and $696 in fiscal 2002, 2001 and 2000, respectively. Distributions were $689 and $1,127 in fiscal 2002 and 2001, respectively. There were no distributions in fiscal 2000. This investment is included in “Other Assets” on the balance sheet and had a balance of $904, $518 and $696 at fiscal year-end 2002, 2001 and 2000, respectively. The investment amount represents undistributed earnings.

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 costs are expensed as incurred. Research and development expenses amounted to $369, $749 and $536 during 2002, 2001 and 2000, respectively.

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 at August 31, 2002 and 2001 was $757 and $793, respectively.

SFAS 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, is comprised primarily of gains or losses resulting from the sale of fixed assets.

The Company records amounts billed to a customer in a sale transaction related to shipping and handling as revenue. Shipping and handling revenues charged to customers included in sales are $5,715, $4,383 and $3,242 for the fiscal years ended August 31, 2002, 2001 and 2000. The Company includes

freight expense in selling and administrative expenses. Freight expense amounted to $9,590, $8,574 and $8,232 in fiscal 2002, 2001 and 2000, respectively.

Certain prior period amounts in the financial statements and notes have been reclassified to conform with the 2002 presentation.

As a result of the November 2001 spin-off, the Company’s August 31, 2002 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):

A summary of the operating results of the discontinued operations is as follows:

For purposes of these financial statements, certain NSI corporate assets, liabilities and expenses were allocated to the discontinued operations based on an estimate of the proportion of corporate amounts attributable to the business of Acuity, utilizing such factors as revenues, number of employees, and other relevant factors. In the opinion of management, the allocations have been made on a reasonable basis. Management believes that all amounts allocated to Acuity are a reasonable representation of the costs that would have been incurred if Acuity had performed these functions as a stand-alone company. The information for discontinued operations reflect the allocation of the Company’s consolidated debt and related interest expense as further described in Note 4.

In connection with the spin-off, common equity interests in Acuity of $403,238, representing the net assets of discontinued operations, were distributed in fiscal 2002. Included in this amount were operating results for discontinued operations for fiscal 2002 and adjustments to asset and liability allocations.

In conjunction with the spin-off, the Company and Acuity entered into various agreements that addressed the allocation of assets and liabilities between them and that defined their relationship after the separation, including a distribution agreement, a tax disaffiliation agreement, an employee benefits agreement, a transition services agreement, and a lease agreement. Management believes the amounts paid or received associated with these services are representative of the fair value of the services provided.

In addition to other services described in the agreement, the transition services agreement provides that Acuity will, for a fee, provide collateral associated with various property and casualty insurance programs of NSI as follows:

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:

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for defined benefit pension plans with accumulated benefit obligations in excess of plan assets were $30,783, $26,655, and $24,678 respectively, as of August 31, 2002, and $915, $816 and $0 respectively, as of August 31, 2001.

Components of net periodic benefit cost for the fiscal years ended August 31 included the following:

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, 2002, assets of the 401(k) plans included shares of the Company’s common stock with a market value of approximately $1,048. The Company recorded expense related to these plans of $770 in 2002, $822 in 2001 and $438 in 2000.

In October 2001, NSI negotiated a $40.0 million, three-year committed credit facility with a single major US bank that became 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 pays an annual fee on the commitment based on the Company’s leverage ratio. At August 31, 2002, the Company was in compliance with the facility covenants, no amounts were outstanding and $38.7 million was available under the facility.

Outstanding borrowings at August 31, 2002 included approximately $2.1 million in notes payable at 8.5 percent.

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.

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 assumed 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 expired in June 2002. The credit facility permitted certain subsidiaries of NSI to borrow under such facility, and NSI guaranteed these borrowings. Interest rates under the credit facility were based on the LIBOR rate or other rates, at NSI’s option. NSI paid 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. This facility was discontinued at the time of the spin-off.

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.

In October 2001, NSI, on behalf of Acuity, negotiated a $240,000, 364-day committed credit facility with six domestic and international banks that became effective and replaced 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. At the date of the spin-off, Acuity assumed full responsibility for this credit facility.

At August 31, 2001, NSI had complimentary uncommitted lines of credit totaling $111,169 for general operating purposes, of which $16,779 was 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. These notes were assumed by Acuity in connection with the spin-off. 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.

In January 1999, the stockholders approved an amendment to the Company’s Restated Certificate of Incorporation to increase the Company’s authorized shares of common stock from 80,000,000 to

120,000,000. The additional shares will be available for potential acquisitions, stock dividends and splits, and other purposes determined by the Board of Directors to be in the best interests of the Corporation.

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.

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, 2002 and 2001.

On January 3, 2002, the Company’s shareholders approved a one-for-four reverse stock split of NSI common stock, which began trading on a reverse split basis on January 7, 2002. As a result of the stock split, every four shares of NSI common stock were replaced with one share of NSI common stock. The reverse split did not change the number of authorized shares of NSI common stock or the par value per share of NSI common stock. All references to common stock, common shares outstanding, average numbers of common stock shares outstanding and per share amounts in these Consolidated Financial Statements and Notes to Consolidated Financial Statements prior to the effective date of the reverse stock split have been restated to reflect the one-for-four common stock reverse split on a retroactive basis.

The following table represents a reconciliation of basic and diluted earnings per share at August 31:

Stock options to purchase approximately 1,194,000, 736,000 and 706,000 shares of common stock 2002, 2001 and 2000, respectively, and unvested restricted shares of 621,134 and 11,980 for 2002 and 2001, respectively, were not included in the computation of diluted earnings per share because their effect would have been antidilutive.

In 1990, stockholders approved the National Service Industries, Inc. Long-Term Incentive Program (“LTIP”) for the benefit of officers and other key employees. In 1997, stockholders approved the National Service Industries, Inc. Long-Term Achievement Incentive Plan (“LTAIP”) for the benefit of officers and other key employees. At August 31, 2001, there were 437,500 and 1,437,500 treasury shares reserved for issuance under the LTIP and LTAIP, respectively. As a result of conversion adjustments made in connection with the spin-off of Acuity, at August 31, 2002, treasury shares reserved for the plans were approximately 2,575,000.

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 of continuing operations for 2001 and 2000 were approximately ($328) and $500,

respectively. During fiscal 2002, 2001 and 2000, 11,747, 45,781 and 44,008 shares were issued under the award for the performance cycles ended August 31, 2001, 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. During 2002, as part of a new employment agreement with one participant, 30,578 options received in lieu of aspiration award payments were cancelled in exchange for a cash payment of $989. This amount was charged to compensation expense.

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.

In January 1993, stockholders approved the National Service Industries, Inc. 1992 Nonemployee Directors’ Stock Option Plan (the “1992 Plan”). In January 2002, stockholders approved the National Service Industries, Inc. 2001 Nonemployee Directors’ Stock Option Plan, which replaced the 1992 Plan. The stock options granted under the plan become exercisable one year from the date of the grant. There were 75,000 treasury shares reserved for issuance under the plan. During fiscal 2002, 2001 and 2000, 5,146, 3,750, and 4,125 options were granted, respectively, under these plans.

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 860,586 in 2002, 584,036 in 2001, and 879,288 in 2000.

As a result of the spin-off of Acuity, the number of options outstanding and their exercise prices were adjusted in 2002 pursuant to a formula, which was based on the trading prices of NSI shares and Acuity shares at the time of the spin-off. The adjustment increased the number of options outstanding in 2002 by 267,764. Stock option transactions for the stock option plans and stock option agreements during the years ended August 31, 2002, 2001 and 2000 were as follows:

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 375,000 treasury shares reserved for purchase under the plan, of which 224,910 shares remain available for purchase at August 31, 2002.

During fiscal 1997, the Company adopted the disclosure-only provisions of SFAS 123, “Accounting for Stock-Based Compensation.” Accordingly, no compensation cost has been recognized for the stock option and employee stock purchase plans. Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant date for awards and at the purchase date of stock in fiscal years 2002, 2001 and 2000, consistent with the provisions of SFAS 123, the Company’s net income and earnings per share would have been reduced to the following pro forma amounts:

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 granted during the years ended August 31, 2002, 2001 and 2000 were $3.55, $5.25 and $9.18, respectively.

In January 2002, the Company awarded 627,880 shares of restricted stock to officers, other key employees and members of the Board of Directors under the National Service Industries, Inc. Long-Term Achievement Incentive Plan. The shares vest ratably in four equal annual installments beginning one year from the date of the 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. 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 the grant is amortized ratably over the vesting period. Unearned compensation on the January 2002 grant of restricted stock of $4,910 was initially recorded based on the market 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.

In October 2000, the Company awarded 434,371 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 $13.09 to $19.92 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 12,815 restricted shares were granted. Unearned compensation of $1,195 on restricted stock was recorded in fiscal 2001 based on the market 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.

Compensation expense of $896 and $315 was recognized for the restricted stock in 2002 and 2001, respectively.

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:

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, 2002, are as follows: 2003 — $2,199; 2004 — $2,005; 2005 — $1,897; 2006 — $1,828; 2007 — $1,605; after 2007 — $4,546.

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 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 beyond its current estimates. 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 accrues for legal claims when payments associated with the claims become probable and can be reasonably estimated for financial statement purposes. While management believes that its accruals 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 accrued.

Company and has engaged another outside consultant to provide claims processing and administration services for asbestos-related claims. The Company is more vigorously 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, certain former members of the CCR have failed to make payments to the CCR, by reason of bankruptcy or otherwise, 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 and former members of the CCR have contributed additional funds to the CCR to permit it to make certain payments contemplated by the settlement agreements, though the Company does not believe it is liable for such additional funds. As of August 31, 2002, the Company has contributed approximately $5.8 million 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 and former 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 $5.8 million 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 accruals 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.

Several significant companies that are traditional co-defendants in asbestos claims, both former 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.

Average resolution indemnity cost is based on indemnity costs for claims dismissed and settled of 24,000 and 16,000 for the years ended August 31, 2002 and 2001, respectively. Subsequent to August 31, 2002, a significant number of claims reflected as pending as of August 31, 2002 were settled in principle for an average indemnity cost substantially higher than the average indemnity cost presented in the above table. If these claims were included in the average resolution indemnity cost per claim for the year ended August 31, 2002, the cost would increase from $530 to $2,960 per claim. These settlements have been taken into account in establishing the Company’s accruals for asbestos liabilities and related insurance receivable as of August 31, 2002.

As of August 31, 2002 and 2001, there were approximately 8,800 and 12,000 additional claims, respectively, that were, as part of CCR settlements, settled in principle prior to February 1, 2001 but not finalized.

As of August 31, 2002 and August 31, 2001, an estimated accrual of $208.1 million and $113.4 million, respectively, for asbestos-related liabilities, before consideration of insurance recoveries, has been reflected in the accompanying financial statements, primarily in long-term liabilities. At August 31, 2001, the amount of the accrual was based on the following: the Company’s estimate of indemnity payments and defense costs associated with pending and future asbestos-related claims; settlements agreed to but not paid; 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. During 2002, as part of its ongoing estimating process, consultation with outside experts, the nature of pending claims, the jurisdiction in which claims have been filed, and in light of its gained experience in administration of its defense strategy and recent settlement activity, the Company reviewed its asbestos claims liabilities and adjusted the balances in these accounts from its prior three year outlook to an estimate of the total probable liabilities from pending and expected future asbestos claims over an approximate fifty year period, which takes into consideration the life expectancy of individuals potentially exposed. The Company believes that a reasonable estimate of its expected future claims for approximately fifty years could require an increase in its liabilities ranging from approximately $94 million to $139 million. Additionally, the Company believes it has insurance coverage available to recover most of its asbestos-related costs; however, out-of-pocket costs associated with the range of liabilities could be from $17 million to $31 million, representing the costs that would be paid by the Company due primarily to the insolvency of certain foreign insurance carriers. Management does not believe that any amount in the range is more accurate than any other. Therefore, as of August 31, 2002, the Company increased its liabilities for asbestos related costs by approximately $94 million, the low end of the range and recorded an additional insurance recovery amount of $77 million. 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 differ materially from 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. With the exception of the Company’s payments on account of settlement obligations of defaulting CCR members as discussed above, 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. 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. In the event the Company’s insurers dispute amounts billed to them or pay on an untimely basis, the Company takes all practicable steps to secure payment, including alternative dispute resolution procedures and litigation to resolve the issues. The Company has initiated alternative dispute resolution proceedings with two insurers to resolve outstanding insurance policy interpretation issues, and, with respect to one of the insurers, to secure payment of past due amounts and to ensure that the insurer’s future obligations will be met in a timely fashion. The Company believes its recorded receivables, which includes both billed amounts and estimates of future recoveries, from insurance carriers are collectible. The Company reached this conclusion after considering various factors including 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 $182.9 million and $95.2 million has been reflected in the accompanying financial statements as of August 31, 2002 and 2001, respectively, with respect to previously paid claims, pending and future claims and the other items included in the accrual of asbestos-related liabilities. Approximately $42.0 million and $28.6 million of the aggregate insurance recovery and $41.3 million 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, 2002 and 2001, respectively. Approximately $8.5 million of insurance recovery is under alternative dispute resolution proceedings at August 31, 2002.

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, 2002, the resolution of asbestos-related uncertainties and the incurrence of asbestos-related costs net of related insurance recoveries should not have a material adverse effect on the Company’s long-term 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 additional 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.

The Company has been sued in four putative class actions and a case brought “on behalf of the general public” in California relating to the collection by National Linen Service of energy surcharges, environmental charges and, in two of the cases, sales taxes. The first case was filed in the Circuit Court of Barbour County, Alabama in May 2001 and was removed to the United States District Court for the Middle District of Alabama. The federal court denied the plaintiff’s motion to remand the case to state court. The second case was filed in the Court of Common Pleas, Fifteenth Judicial Circuit, County of Horry, South Carolina in October 2001. That case was removed to the United States District Court for South Carolina, Florence Division. The South Carolina federal court also denied plaintiff’s motion to remand. The third case was filed in Superior Court, Napa County, California in May 2002. This case alleges that National Linen Service and numerous other linen and uniform suppliers have violated Sections 17200 and 17500 of the California Business and Professions Code. The fourth case was filed in the United States District Court in the Southern District of Illinois in June 2002. This case alleges that National Linen Service and numerous other linen and uniform suppliers and the Textile Rental Service Association violated federal antitrust laws and state statutes in setting and charging the fees described above. As of October 21, 2002, no substantive discovery had occurred in any case. Based on information currently available, it is the opinion of management that the claims in these cases are without merit and that the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company’s financial condition or results of operations.

The Company’s environmental accruals, which are included in current liabilities, totaled $5,777 and $7,291 at August 31, 2002 and 2001, respectively. The actual cost of environmental issues may be lower or higher than that accrued due to the difficulty in estimating such costs and potential changes in the status of government regulations.

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 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 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.

During the second quarter of fiscal 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 $2,000. The gain is included in “Gain on sale of business” in the accompanying consolidated statements of income.

On December 12, 2001, the Court granted summary judgment for the State. At a January 9, 2002 status conference, the Court verbally denied the Company’s motion for summary judgment and explicitly noted that the issues presented by this case were appropriate for judicial review. The Court reiterated its denial of the Company’s motion in a written order on January 10, 2002. Final judgment in the amount of $12,477 was entered against the Company on February 1, 2002. Execution of the judgment was stayed pending appeal to the Second Circuit Court of Appeals.

The Company filed a notice of appeal to the Second Circuit Court of Appeals on March 1, 2002. As a result of a technical error made by the District Court in the language of the final judgment, the judgment was remanded to the Eastern District of New York to be corrected. This correction was made, and the final judgment was re-entered on September 17, 2002, in the amount of $12,499. A second notice of appeal was filed on October 10, 2002.

During the first quarter of fiscal 2002, the Company closed two facilities in the textile rental segment and recorded a related charge of $5,820. The charge included severance costs of $11 for four employees, all of whom were terminated prior to the end of the first quarter, and $1,396 in exit expenses to close and consolidate facilities. Exit expenses primarily include costs of lease terminations and costs to dispose of facilities. Additionally, as a further result of the closure of the two textile rental facilities, the Company recognized long-lived asset impairments totaling $4,413. Textile rental 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 an analysis of expected future cash flows. During the remainder of fiscal 2002, the severance and exit accruals were adjusted as necessary based upon further review and analysis by management. The net change was a reduction of $159 to the severance accrual and an increase of $43 to the exit cost accrual.

During fiscal 2002, the Company recorded an additional $16,931 charge representing an increase in the Company’s estimated net exposure after insurance recoveries to expected future asbestos claims. See Note 6: Commitments and Contingencies where this matter is discussed in further detail. Also in 2002, the Company recognized a $1,268 charge for the impairment of certain intangible customer lists at the textile rental segment. These charges were offset somewhat by a reduction of restructuring and other charges of $1,210 due primarily to lower than originally estimated costs to prepare a facility closed in a prior year for sale.

During fiscal 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 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 fiscal 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 restructuring activities discussed above, in fiscal 2001 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.

Also in fiscal 2001, the Company recorded a $16,116 charge related to the estimate of potential liabilities in excess of insurance recoveries in asbestos related matters. See Note 6: Commitments and Contingencies for further discussion.

The items discussed in this section are all included in “Restructuring expense, asset impairments, and other charges (income)” in the “Consolidated Statements of Income.” The major components of the fiscal 2002, 2001 and 2000 restructuring charges and related activity are as follows:

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 fiscal 2002 totaled $3,696 and related to the textile rental segment’s purchase of several linen operations. These acquisitions resulted in identifiable intangibles of $2,472, which are being amortized over periods ranging from 3 to 7 years and primarily include customer lists and restrictive covenants.

In fiscal 2002 the envelope segment sold its Lyon Folder unit, resulting in proceeds of approximately $1,062 and a pre-tax gain of approximately $75. Also during fiscal 2002, the Company performed a review of various liabilities recorded in conjunction with previously divested businesses. Based on this review, the Company decreased its estimate for certain liabilities at the textile rental segment and recorded a gain of approximately $977. These gains are included in “Gain on sale of businesses” in the accompanying “Consolidated Statements of Income.”

Acquisition spending in fiscal 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, which was written off upon the adoption of SFAS 142. 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 fiscal 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 restructuring 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.”

During fiscal 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 fiscal 2000 of $10,130 related to several small acquisitions in the textile rental segment. These acquisitions resulted in goodwill of $2,554, which was written off upon the adoption of SFAS 142. 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.

The combined preliminary purchase price allocations related to the Company’s acquisitions during the last three years was as follows:

The Company accounts for income taxes using the liability approach as prescribed by SFAS 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.

The provision (benefit) for income taxes from continuing operations consists of the following components:

A reconciliation from the Federal statutory rate to the total provision for income taxes from continuing operations is as follows:

Components of the net deferred income tax liability at August 31, 2002 and 2001 include:

In accordance with the Temporary Final Rule relating to “Requirements for Arthur Andersen LLP Auditing Clients” dated March 18, 2002, the unaudited financial statements contained in the Form 10-Q for the quarterly period ended May 31, 2002 had not been reviewed at the time of filing by an independent accountant in accordance with Rule 10-01(d). As disclosed in a Form 8-K filed May 21, 2002, NSI elected not to retain the services of Arthur Andersen LLP. Subsequent to the filing of the Form 10-Q, a review of the Company’s financial statements as of and for the three and nine months ended May 31, 2002 was completed by its independent accountants. There were no changes to the Form 10-Q financial statements as a result of the review.


	•	1st quarter of fiscal 2002: restructuring expense, asset impairments and other charges of $5,820.


•	2nd quarter of fiscal 2002: gains on sales of businesses of $379; restructuring expense, asset impairments and other charges of $(381).

•	3rd quarter of fiscal 2002: gain on sale of corporate headquarters building of $7,966.

•	4th quarter of fiscal 2002: gains on sales of businesses of $673; restructuring expense, asset impairments and other charges of $17,254.

•	2nd quarter of fiscal 2001: gains on sales of businesses of $2,359.

•	4th quarter of fiscal 2001: restructuring expense, asset impairments and other charges of $26,073.

Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the total computed for the year.

The following table summarizes the Company’s business segment information from continuing operations:


	•	Gains resulting from the sale of businesses of $977, $2,359 and $170 in 2002, 2001 and 2000, respectively.


•	Restructuring expense, asset impairments and other charges of $5,762 and $1,667 in 2002 and 2001, respectively.


	•	Gains resulting from the sale of businesses of $75 and $186 in 2002 and 2000, respectively.


•	Restructuring expense, asset impairments and other charges of $8,290 in 2001.

(3)

Corporate expense for 2002 included a gain on sale of the Company’s headquarters building of $7,966, offset by a $16,931 charge related to the Company’s estimated net exposure after insurance recoveries to expected future asbestos claims. Corporate expense for 2001 included a charge of $16,116 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 for further discussion of the Company’s asbestos liability.

On May 23, 2002 the Company completed the cash sale of the property where NSI’s corporate headquarters is located for $22.5 million. The sale transaction resulted in a gain of $7,966 and a deferred gain of $3,376. In conjunction with the sale, the Company entered into an agreement to lease up to five floors, or approximately 79,000 square feet, of the 155,000 square foot building for up to 42 months. The deferred gain will be amortized as a reduction to lease expense over the term of the lease. Lease expense before amortization of the deferred gain is approximately $145 per month.

A non-employee director of the Company owns a controlling interest in an insurance brokerage and employee benefits consulting company. In fiscal 2002, NSI paid this company approximately $2.3 million in services and consulting fees in the ordinary course of business. Additionally, during 2002 NSI had transactions of approximately $2.4 million with another company where another non-employee director serves as an officer. The Company believes the terms of these transactions were comparable to those that would be available from unaffiliated parties.

The Company also has transactions in the ordinary course of business with unaffiliated corporations and institutions, which certain other non-employee directors of the Company serve as officers or directors. The Corporation does not consider the amounts involved in such services and transactions to be material in relation to its business and believes that such amounts are not material in relation to the business of these organizations or individuals.

Effective May 16, 2002, the Company appointed PricewaterhouseCoopers LLP as its independent auditors for the fiscal year ended August 31, 2002 to replace the firm of Arthur Andersen LLP. Further information is contained in the Company’s Form 8-K filed with the Commission on May 21, 2002 and is incorporated herein by reference.

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 December 19, 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 December 19, 2002, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.

Executive officers of the Company are elected at the annual organizational meeting of the Board of Directors.

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 December 19, 2002, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.

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 December 19, 2002, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.

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 December 19, 2002, filed with the Commission pursuant to Regulation 14A, and is incorporated herein by reference.

Within 90 days of the filings of this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of August 31, 2002. No significant changes in the Company’s internal controls or in other factors have occurred that could significantly affect controls subsequent to August 31, 2002.

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s periodic filings with the Commission is (i) recorded, processed, summarized and reported

within the time periods specified by the Commission’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal controls are part of the Company’s disclosure controls and procedures and, in accordance with Exchange Act rules, are designed to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorization, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with accounting principles generally accepted in the United States and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

Consolidated Statements of Income for the years ended August 31, 2002, 2001 and 2000

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended August 31, 2002, 2001 and 2000

Consolidated Statements of Cash Flows for the years ended August 31, 2002, 2001 and 2000


	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.


	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.

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.


	BY:	/s/ BROCK A. HATTOX



	BROCK A. HATTOX
	Chairman, Chief Executive Officer and President

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.

I, Brock A. Hattox, President and Chief Executive Officer of National Service Industries, Inc., certify that:


	1.	I have reviewed this annual report on Form 10-K of National Service Industries, Inc. (the “registrant”);


	2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;


	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and


	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and


	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6.	The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

I, Chester J. Popkowski, Senior Vice President, Chief Financial Officer and Secretary of National Service Industries, Inc., certify that:


	1.	I have reviewed this annual report on Form 10-K of National Service Industries, Inc. (the “registrant”);


	2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;


	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and


	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and


	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6.	The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


	/s/ CHESTER J. POPKOWSKI

	Chester J. Popkowski
	Senior Vice President, Chief Financial Officer
	and Treasurer

Our audit of the consolidated financial statements referred to in our report dated November 8, 2002 also included an audit of the financial statement schedule as of August 31, 2002 and for the year then ended listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The consolidated financial statements and financial statement schedule of National Service Industries, Inc. as of August 31, 2001, and for each of the two years in the period ended August 31, 2001, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements and financial statement schedules in their report dated November 29, 2001.

NOTE:

This is a copy of a report previously issued by Arthur Andersen LLP, the Company’s former independent accountants. The Arthur Andersen report refers to financial information which was included in Item 14 for the Form 10-K filing for the fiscal years ended August 31, 2000 and 2001. Comparable information in the current filing is included in Item 15. This report has not been reissued by Arthur Andersen LLP in connection with the filing of this Annual Report on Form 10-K.

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.


(1)	Recoveries credited to allowance, allowance recorded in acquisitions, and allowance removed in sale of businesses.

80 EX-10.IIIA4A4A 3 g76849exv10wiiia4a4a.txt EX-10.IIIA4A4A RESTATED RETIREMENT PLAN EXHIBIT 10(iii)A4(a) SUPPLEMENTAL RETIREMENT PLAN FOR EXECUTIVES OF NATIONAL SERVICE INDUSTRIES, INC. (As Amended and Restated Effective As of January 1, 1994) SUPPLEMENTAL RETIREMENT PLAN FOR EXECUTIVES OF NATIONAL SERVICE INDUSTRIES, INC. (As Amended and Restated Effective As Of January 1, 1994) THIS AMENDMENT AND RESTATEMENT made this ___ day of ______________, 1993 by NATIONAL SERVICE INDUSTRIES, INC. (the "Company"); W I T N E S S E T H: ------------------- WHEREAS, the Company established the Supplemental Retirement Plan for Executives of National Service Industries, Inc. (the "Plan"), effective as of July 1, 1983, which Plan has heretofore been amended in a number of respects; and WHEREAS, the Company now desires to further amend the Plan, effective January 1, 1994, in accordance with the amendment and restatement attached hereto; and WHEREAS, this amended and restated Plan shall only apply to Executives who retire, die or otherwise terminate employment on or after January 1, 1994, with the rights and benefits of Executives who terminated prior to that date being governed by the prior provisions of the Plan; NOW, THEREFORE, the Plan is hereby amended and restated in the form attached hereto, effective January 1, 1994, to apply to Executives who retire, die or otherwise terminate employment on or after that date. NATIONAL SERVICE INDUSTRIES, INC. By: --------------------------------- TABLE OF CONTENTS ARTICLE I - DEFINITIONS AND CONSTRUCTION.................................... 1 1.1 Definitions.............................................................. 1 (a) Accrued Pension................................................. 1 (1) Normal Retirement Accrued Pension...................... 1 (2) Early Retirement Accrued Pension....................... 1 (3) Vested Termination or Disability Accrued Pension....... 1 (4) Late Retirement Accrued Pension........................ 2 (b) Act............................................................. 2 (c) Actuarial (or Actuarially) Equivalent........................... 2 (d) Actuary......................................................... 2 (e) Administrator................................................... 2 (f) Anniversary Date................................................ 2 (g) Authorized Leave of Absence..................................... 2 (h) Annual Bonus.................................................... 3 (i) Average Monthly Compensation.................................... 3 (1) For Benefit Accruals Prior To January 1, 1994..................................... 3 (2) For Benefit Accruals On Or After January 1, 1994.................................. 3 (j) Board........................................................... 3 (k) Bonus........................................................... 3 (l) Break in Service................................................ 3 (m) Break Year...................................................... 3 (n) Committee....................................................... 3 (o) Company......................................................... 3 (p) Compensation.................................................... 3 (q) Credited Service................................................ 4 (r) Disability...................................................... 4 (s) Disability Retirement Date...................................... 4 (t) Early Retirement Date........................................... 4 (u) Effective Date.................................................. 4 (v) Eligible Service................................................ 4 (w) Executive....................................................... 5 (x) Fiduciaries..................................................... 5 (y) Late Retirement Date............................................ 5 (z) Normal Retirement Date.......................................... 5 (aa) Participant..................................................... 5 (bb) Pension......................................................... 5 (cc) Pension Commencement Date....................................... 5 (dd) Pension Plan C.................................................. 5 (ee) Plan............................................................ 5 (ff) Plan Year....................................................... 5 (gg) Primary Social Security Benefit................................. 6 (hh) Prior Plan(s)................................................... 6 (ii) Retirement...................................................... 6 (jj) Service Date.................................................... 6 (kk) Service Hours................................................... 7 (ll) Termination Date................................................ 7 (mm) Vested Terminee................................................. 7

(nn) 401(k) Plan..................................................... 7 1.2 Construction............................................................. 7 ARTICLE II - PARTICIPATION, CREDITED SERVICE, ELIGIBLE SERVICE AND BREAK IN SERVICE.................................... 1 2.1 Eligibility for Participation............................................ 1 2.2 Eligible Service......................................................... 1 2.3 Credited Service......................................................... 2 (a) Credited Service Prior to February 15, 1976............................................... 2 (b) Credited Service From and After February 15, 1976......................................... 2 2.4 Break in Service......................................................... 2 2.5 Method of Becoming a Participant......................................... 3 2.6 Participants Bound....................................................... 3 2.7 Military Service......................................................... 3 2.8 Executive Not Actively At Work on Date of Eligibility.................... 3 2.9 An Executive Ceases Active Participation................................. 3 2.10 Transfers................................................................ 4 (a) When Employee Becomes Executive................................. 4 (b) Accrued Pension Under Transfer To A Non-Eligible Status......... 4 ARTICLE III - RETIREMENT AND TERMINATION DATES AND PENSIONS............................................................. 1 3.1 Normal Retirement and Pension............................................ 1 3.2 Late Retirement and Pension.............................................. 1 3.3 Early Retirement and Pension............................................. 1 3.4 Disability Retirement and Pension........................................ 1 3.5 Vested Terminee and Pension.............................................. 2 3.6 Termination Prior to Completion of 10 Years of Credited Service.......... 2 3.7 Normal Form of Payment of Pension........................................ 2 3.8 Optional Forms of Benefit Payment........................................ 2 (a) Period-Certain and Life Option.................................. 3 (b) Contingent Annuitant Option..................................... 3 (c) Single Option................................................... 3 (d) Social Security Level Income Option............................. 4 ARTICLE IV - PRE-RETIREMENT DEATH BENEFITS (a) Death Prior to Eligibility for Early or Normal Retirement...................................... 1 (b) Death After Attaining Eligibility for Early or Normal Retirement.................................. 1 ARTICLE V - PLAN FINANCING 5.1 Payment of Costs and Expenses............................................ 1

ARTICLE VI - FIDUCIARY RESPONSIBILITIES 6.1 Allocation of Responsibility Among Fiduciaries............................................... 1 6.2 Fiduciary Duties................................................ 1 6.3 Company Filing Responsibility................................... 1 ARTICLE VII - COMMITTEE AND ADMINISTRATION 7.1 Appointment and Term of Committee............................... 1 7.2 Selection of Secretary and Duties of Secretary.................. 1 7.3 Majority Vote Required, Exceptions.............................. 1 7.4 Payment of Expenses............................................. 1 7.5 Limitation of Liability......................................... 1 7.6 Right to Consult................................................ 2 7.7 General Duties.................................................. 2 7.8 Application and Forms For Pension............................... 3 7.9 Facility of Payment............................................. 3 7.10 Rules and Decisions............................................. 3 7.11 Company to Furnish Information.................................. 3 7.12 Administrator to Furnish Other Information...................... 3 7.13 Beneficiary Designations........................................ 3 ARTICLE VIII - SUCCESSOR COMPANY 8.1 Successor Company............................................... 1 ARTICLE IX - PLAN TERMINATION 9.1 Right to Terminate.............................................. 1 ARTICLE X - TRUST ARTICLE XI - AMENDMENTS AND ACTION BY COMPANY 11.1 Amendments...................................................... 1 11.2 Notices of Amendment, Modification or Revision.................. 1 ARTICLE XII - MISCELLANEOUS 12.1 Nonguarantee of Employment...................................... 1 12.2 Rights Under Plan............................................... 1 12.3 Nonalienation of Benefits....................................... 1 12.4 Entering Military Service....................................... 1 12.5 Headings for Convenience Only................................... 1 12.6 Multiple Copies................................................. 1 12.7 Governing Law................................................... 1 ARTICLE XIII - CHANGE IN CONTROL 13.1 Cause........................................................... 1 13.2 Change in Control............................................... 1 13.3 Termination of Employment....................................... 2 13.4 Amendment or Termination........................................ 2 APPENDIX A...................................................................... A-1

I DEFINITIONS AND CONSTRUCTION I.1 Definitions: Where the following words and phrases appear in this Plan, they shall have the meanings set forth below, unless the context clearly indicates to the contrary: (a) Accrued Pension: A Participant as of any given date shall have an Accrued Pension, which in each case shall be reduced by (i) the Accrued Pension, or the Actuarial Equivalent of the Accrued Pension, where appropriate, which the Participant is entitled to receive from Pension Plan C (and in the event of death covered by Article IV(b), the Actuarial Equivalent of any Group Term Life Insurance), increased for purposes of this offset for any Participant who would not have been eligible for Early Retirement under Pension Plan C as in effect prior to February 15, 1989, but who elects Early Retirement hereunder, by recalculating his February 14, 1989 accrued benefit as if he were eligible for an Early Retirement benefit, and (ii) the Actuarial Equivalent value of the Participant's hypothetical Account in the 401(k) Plan, assuming the Participant had contributed to the 401(k) Plan during the period he was eligible to participate in such plan an amount annually equal to 4% of his "Annual Compensation" (as that term is defined in the 401(k) Plan and subject to the limitation of Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code")) over $15,000 and received related Matching Contributions, and that his Account had earned 8% per annum to such date. The determination of the reduction under this paragraph shall be made by the Committee and its decisions on such matters shall be final and binding on all parties. The appropriate Accrued Pension shall be classified as follows: (1) Normal Retirement Accrued Pension: An amount equal to the Participant's Average Monthly Compensation multiplied by 45%, minus 50% of his Primary Social Security Benefit. The amount determined in the preceding sentence is then multiplied by a fraction having a numerator equal to his Credited Service at his Normal Retirement Date and a denominator equal to the greater of (a) twenty (20) or (b) his Eligible Service on such date; (2) Early Retirement Accrued Pension: A Participant's Accrued Pension as of any given date that is after the date he has attained both at least age 55 and completed at least 10 years of I-1 service from his Service Date to his Early Retirement Date, and before his Normal Retirement Date, shall be an amount equal to 45% of his Average Monthly Compensation, minus 50% of his Primary Social Security Benefit. The amount determined in the preceding sentence is then multiplied by a fraction having a numerator equal to his Credited Service at his Early Retirement Date and a denominator equal to the greater of (a) twenty (20) or (b) his Eligible Service on such date; (3) Vested Termination or Disability Accrued Pension: A Participant's Accrued Pension as of any given date when his Accrued Pension is not determined under subparagraphs (1) or (2) above, or (4) below, shall be an amount equal to 45% of the Participant's Average Monthly Compensation minus 50% of his Primary Social Security Benefit. The amount determined in the preceding sentence is then multiplied by a fraction having a numerator equal to the Participant's Credited Service on his Termination Date, and a denominator equal to the greater of (i) twenty (20), or (ii) the sum of (A) the Participant's Eligible Service on his Termination Date plus (B) the number of years of Eligible Service the Participant would have earned if he had continued his employment with the Company from his Termination Date until his Normal Retirement Date, with any fractional year expressed as a decimal equivalent, to two decimal places. Notwithstanding the foregoing, when a Participant who received a distribution or distributions following his Termination Date or Retirement is re-employed and again becomes an active Participant, such Participant's Accrued Pension, as computed pursuant to the appropriate subparagraph of this Section, shall be reduced by the monthly Accrued Pension amount that is the Actuarial Equivalent of the distribution(s) made to the Participant. (4) Late Retirement Accrued Pension: A Participant's Accrued Pension as of any given date that is after the date he has attained his Normal Retirement Date shall be an amount equal to an increased Pension which is the Actuarial Equivalent of an amount otherwise payable at his Normal Retirement Date, equal to 45% of the Participant's Average Monthly Compensation minus 50% of his Primary Social Security Benefit. The amount determined in the preceding sentence is then multiplied by a fraction having a numerator equal to his Credited Service at his Normal Retirement Date and a denominator equal to the greater of (a) twenty (20) or (b) his Eligible Service on such date. (b) Act: Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time. I-2 (c) Actuarial (or Actuarially) Equivalent: Equality in value of the aggregate amounts expected to be received under different forms of payment, using the same basis as defined for such term in Pension Plan C. (d) Actuary: The individual actuary, or firm of actuaries, selected by the Administrator to provide actuarial services in connection with the administration of the Plan. (e) Administrator: National Service Industries, Inc. (f) Anniversary Date: January 1; prior to January 1, 1994, the Anniversary Date was February 15. (g) Authorized Leave of Absence: Any absence authorized by the Company under the Company's standard personnel practices, provided that all persons under similar circumstances shall be treated alike in the granting of such Authorized Leaves of Absence, and provided further that the Participant returns within the period specified in the Authorized Leave of Absence. (h) Annual Bonus: The amount awarded an Executive under the Company's annual bonus program, subject to the provisions and limitations contained in Section 1.1(p) of the Plan. (i) Average Monthly Compensation: For Executives, the following definitions shall apply: (1) For Benefit Accruals Prior To January 1, 1994: The applicable monthly amount shall be the average of his basic monthly salary determined as of the three (3) consecutive November 15ths of the last ten (10) November 15ths (excluding amount earned after age sixty-five (65)) immediately preceding the Participant's date of Retirement, termination of employment or death, during which it was highest and 1/12 of the average of the three (3) highest, consecutive Annual Bonuses awarded to the Participant during the ten (10) years I-3 immediately preceding the Participant's date of Retirement or death, or Termination Date. (2) For Benefit Accruals On Or After January 1, 1994: The applicable monthly amount shall be the average of his Compensation for the three highest, consecutive calendar years during the ten years (excluding Compensation after age 65) immediately preceding the Participant's date of Retirement, death or other termination of employment. (j) Board: The Board of Directors of National Service Industries, Inc. or its Executive Committee. (k) Bonus: An annual bonus awarded to a Participant for the Company's Fiscal Year ending in the Plan year. (l) Break in Service: An event which results in the cancellation of a Participant's previous Credited Service and Eligible Service as provided in Section 2.4. (m) Break Year: A Plan Year in which an Executive failed to accrue at least 500 Service Hours. (n) Committee: The persons appointed under the provisions of Article VII. (o) Company: Company shall mean National Service Industries, Inc. (or its successor or successors). Affiliated or related employers are permitted to adopt the Plan and shall be known as "Adopting Employers." To the extent required by certain provisions (e.g., determining Average Monthly Compensation, Credited Service and Service Date), references to the Company shall include the Adopting Employer of the Participant. Adopting Employers are listed on Schedule 1. (p) Compensation: Subject to adjustment as provided in the next sentence, (1) for benefit accruals prior to January 1, 1994, an Executive's "Compensation" shall be determined under Section 1.1(i)(1), and (2) for benefit accruals on or after January 1, 1994, "Compensation" shall be the Executive's salary and wages for the calendar year, and any Annual Bonuses awarded during the year (such amount shall generally equal the amount shown in Box 10 of Form W-2 for the year or a similar Box on any future Form I-4 W-2 or replacement form). In either case, Compensation and Annual Bonuses shall include any amounts which shall be voluntarily deferred by the Executive under any salary or bonus deferral or reduction program (whether qualified or non-qualified) which may be instituted by the Company, but shall not include any earnings or Company match on these deferred amounts, or payments from such programs or any similar salary deferral or bonus deferral programs. (q) Credited Service: The period of a Participant's employment with the Company considered in determining his eligibility for benefits from the Plan and the amount of his Accrued Pension, in accordance with Section 2.3, or credited pursuant to Section 2.10, plus, for the sole purpose of determining his eligibility for a Vested Pension, any period of employment completed prior to eligibility for Participation in Pension Plan C and Prior Plans. (r) Disability: Disability which is likely to be total and permanent shall be established in the following manner: If the Company or the Participant believes that the Participant is incapable by reason of his disability to perform his customary work for the Company, and if the Committee, the Company and the Participant unanimously agree that the Participant is so disabled, such unanimous findings shall be conclusive proof of the Participant's Disability. If the Committee, the Company, and the Participant are not unanimous, then the Committee, acting as a unit, by one vote, the Company by one vote, and the Participant by one vote, and by a majority of said three votes, shall select a physician whose duty it shall be to find and so certify to the Committee if the Participant is physically incapable of further employment by the Company to perform his customary work. Such certification shall be final and conclusive on all parties. The reasonable expenses of such determination shall be considered as an administrative expense of the Company. (s) Disability Retirement Date: The Date of Retirement due to Disability as specified in Section 3.4. (t) Early Retirement Date: The date of Early Retirement as specified in Section 3.3. (u) Effective Date: This amended and restated Plan is effective January 1, 1994. The date on which the Plan initially became effective was July 1, 1983. I-5 (v) Eligible Service: The period of a Participant's employment with the Company considered in determining the amount of his Accrued Pension, in accordance with Section 2.2. (w) Executive: Any person who, on or after the Effective Date, is classified as an executive officer of the Company covered by a bonus arrangement and who is receiving remuneration for personal services rendered to the Company (or would be receiving such remuneration except for an Authorized Leave of Absence), and any other officer of the Company (or an Adopting Employer) designated by the Chief Executive Officer of the Company as eligible to participate in the Plan and who is listed on an Appendix attached hereto. (x) Fiduciaries: The Company, the Plan Administrator and the Committee, but only with respect to the specific responsibilities of each for Plan administration, all as described in Article VI. (y) Late Retirement Date: The date of Retirement subsequent to Normal Retirement Date as specified in Section 3.2. (z) Normal Retirement Date: The date of Retirement as specified in Section 3.1. (aa) Participant: An Executive participating in the Plan in accordance with the provisions of Section 2.1. (bb) Pension: A series of monthly amounts which are payable to a person who is entitled to receive benefits under the Plan. (cc) Pension Commencement Date: The date as of which the initial payment of a Participant's Pension is due to commence, as provided in Article III, provided that such date shall, in no event, be later than the first of the month following or coincident with the last to occur of the following: (a) ten years after the commencement date of the Participant's participation in the Prior Plan and Pension Plan C or (b) the Participant's Normal or Late Retirement Date or (c) the Termination Date of the Participant. (dd) Pension Plan C: National Service Industries Pension Plan C, the pension plan provided for employees of the Corporate I-6 Office of National Service Industries, Inc., as it may be amended from time to time. (ee) Plan: The Supplemental Retirement Plan for Executives of National Service Industries, Inc., the Plan set forth herein, as amended from time to time. (ff) Plan Year: A twelve (12) month period beginning on January 1 and ending on December 31. The Plan had a short Plan Year from February 15, 1993 through December 31, 1993; prior to January 1, 1994, the Plan Year was February 15 through the next following February 14. (gg) Primary Social Security Benefit: The monthly amount available to the Participant at age sixty-five (65) under the provisions of Title II of the Social Security Act (or its equivalent in the event of amendment, modification or replacement) in effect at the earliest to occur of (i) Retirement, but not later than Normal Retirement Date, or (ii) termination of employment, without regard to any increases in the wage base or benefit levels that take effect after the date of Disability Retirement, Early Retirement, or termination of employment; provided that (1) For the purposes of Section 1.1, if the exact Primary Social Security Benefit is not known upon termination of employment, it shall be estimated in accordance with uniform rules adopted by the Committee; (2) For the purposes of Section 1.1(a)(2) and 1.1(a)(3), if an Executive terminates employment prior to age sixty-five (65), his Primary Social Security Benefit shall be calculated by assuming that he had no Compensation or other earnings after his date of termination of employment; and (3) The fact than an Executive does not actually receive such amount because of failure to apply or continuance of work, or for any other reason, shall be disregarded. (hh) Prior Plan(s): The Pension Plan and Trust Agreement between the Company and The Trust Company of Georgia dated November 11, 1942, the Revised Plan and Trust Agreement of November 15, 1961, the National Linen Pension Plan for Salaried Employees and Route Salesmen Not Covered Under Any Other Retirement Plan dated November 15, 1964, GA 1008, National Linen Pension Plan for Branch Managers, etc., GA 1014, or any one of them as the context may require. I-7 (ii) Retirement: Termination of employment for reason other than death after a Participant has fulfilled all requirements for a Normal Retirement Pension, or a Late Retirement Pension, or an Early Retirement Pension, or a Disability Retirement Pension. Retirement shall be considered as commencing on the day immediately following a Participant's last day of employment (or Authorized Leave of Absence, if later). (jj) Service Date: The date as of which an Executive's most recent period of continuous employment with the Company commenced. Such date shall coincide with the Executive's first date of hire with the Company unless he suffered a subsequent Break in Service, in which event the Executive's Service Date shall be the earliest date of re-employment with the Company as of which he commenced accruing Eligible Service without any cancellation thereof because of a subsequent Break in Service. (kk) Service Hours: Subject to the Break in Service provisions of Section 2.4, all hours for which an Executive is compensated by the Company prior to the Executive's Normal Retirement Date shall be credited as Service Hours. (ll) Termination Date: The date of termination of an Executive's employment with the Company for reasons other than death or Retirement. (mm) Vested Terminee: A Participant whose Termination Date occurs after the completion of at least ten (10) years of Credited Service (but exclusive of that period he was eligible to participate and did not participate) but prior to achieving eligibility for Retirement. (nn) 401(k) Plan: The National Service Industries 401(k) Plan for Corporate Office Employees, which became effective January 1, 1994, and as it may be amended from time to time. I.2 Construction: The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates to the contrary. The words "hereof," "herein," "hereunder" and other similar compounds of the word "here" shall mean and refer to the entire Plan, not to any particular provision or Section. I-8 II PARTICIPATION, CREDITED SERVICE, ELIGIBLE SERVICE AND BREAK IN SERVICE II.1 Eligibility for Participation: (a) In General - An Executive who is a Participant in this Plan and Pension Plan C on January 1, 1994 shall continue to participate in this Plan, subject to the conditions and limitations provided for herein. Any other Executive shall be eligible to participate on the Anniversary Date following the fulfillment of the following: (i) The Executive has attained at least the age of twenty-four (24) years and six (6) months, provided his employment did not commence on or after his sixtieth (60th) birthday; (ii) The Executive is a participant in Pension Plan C, but is not covered under any other tax-qualified non-governmental retirement plan (other than the 401(k) Plan) to which the Company contributes, whether the plan is a Company plan or otherwise; (iii) The Executive has completed six (6) months of employment. After a Break in Service, a former Participant who is rehired may again become a Participant upon again fulfilling the above requirements. (b) Special Eligibility - Any Executive (or group of Executives) designated on an Appendix attached hereto shall be eligible to participate in the Plan on the date specified in the Appendix and in accordance with the conditions and limitations provided in such Appendix. II.2 Eligible Servicee: Subject to the Break in Service provisions of Section 2.4, the period of employment of an Executive from the date he first became eligible to participate under the provisions of the Prior Plans or Pension Plan C to the date of Retirement, or death, or Termination Date, or the Participant's 65th birthday, whichever is the first to occur, excluding from such period any periods during which the Executive could not make a Participant Contribution to a Pension Plan of II-1 the Company due to having no earnings from the Company as the result of a period of Authorized Leave of Absence (to the extent such Participant contributions would have been required to participate). Eligible Service shall be expressed in terms of years and a fraction, with a fractional year expressed as a decimal equivalent, to two decimal places. II.3 Credited Servicee: Subject to the Break in Service provisions of Section 2.4, and the provisions of Section 2.10, the period of employment during which an Executive is a Participant in a Prior Plan and Pension Plan C, determined as of any given date as the sum of (a), if any, and (b) as follows: (a) Credited Service Prior to February 15, 1976: The period of employment during which the Executive is a Participant in a Prior Plan through February 14, 1976. Such Credited Service shall be expressed in terms of years and a fraction, with a fractional year expressed as a decimal equivalent, to two decimal places. Any cancellation of service under the provisions of the Prior Plans prior to February 15, 1976 is not restored by the provisions hereof. (b) Credited Service From and After February 15, 1976: A Participant shall accrue one (1) year of Credited Service for each Plan Year from and after February 15, 1976 during which he is an active Participant in Pension Plan C and in which he has 1,000 or more Service Hours, except that no Credited Service shall be credited after the Participant's Normal Retirement Date. No Credited Service shall be granted for any Plan Year in which less than 1,000 Service Hours are completed except for the Plan Year of the Participant's Retirement or Termination Date or death and except for the short Plan Year February 15, 1993 through December 31, 1993, which shall require only 875 Service Hours to receive a year of Credited Service. The final Plan Year shall be credited as the decimal equivalent, expressed to two decimal places, of a fraction having a numerator equal to the Participant's Service Hours accrued during such final year, if less than 1,000 in such year, and a denominator with respect to such year equal to 1,000 Service Hours. No Credited Service shall accrue for any period of employment for which an Executive did not make required Participant Contributions under Pension Plan C, but only to the extent such Participant Contributions were required to be made for such period. II-2 II.4 Break in Service: After the Effective Date, a Plan Year during which a Participant completes less than 500 Service Hours as the result of the occurrence of a Termination Date or Retirement shall constitute a Break in Service. Upon incurring a Break in Service, an Executive's rights and benefits under the Plan shall be determined in accordance with his Credited Service and Eligible Service, and other applicable Plan provisions at the time of the Break in Service. No Pension payments shall be made during a period of employment with the Company; and if a re-employed Participant had received any Pension payments under the Plan, the Pension payable starting on the first day of the calendar month coinciding with or next following the date of his subsequent Retirement shall be reduced by the Actuarial Equivalent of any Pension payments he received prior to his Normal Retirement Date. An Authorized Leave of Absence due to service in the Armed Forces of the United States shall not constitute a Break in Service, provided that the absence is caused by war or other emergency, or provided that the Executive is required to serve under the laws of conscription in time of peace, and further provided that the Executive returns to employment with the Company within the period provided by law. An Authorized Leave of Absence for other reasons shall not constitute a Break in Service if the Executive returns to active employment with the Company upon expiration of the period of such Authorized Leave of Absence. II.5 Method of Becoming a Participant: Each Executive who has heretofore been a Participant in Pension Plan C shall continue to be a Participant in this Plan without making written application. All other Executives shall become Participants in this Plan at the time they become Participants in Pension Plan C. II.6 Participants Bound: Each Executive becoming a Participant hereunder shall be conclusively presumed for all purposes to have consented to this Plan and any amendments, modifications or revisions hereto, and to all the terms and conditions thereof, and shall be bound thereby with the same force and effect as if he had entered into a contract to such effect and any amendments, modifications or revisions hereto. II.7 Military Service: A leave of absence due to service in the Armed Forces to the United States shall not constitute a Break in Service, and shall not be considered as Credited Service or II-3 Eligible Service under the Plan, provided that the absence is caused by war or other emergency, or provided that the Executive is required to serve under the laws of conscription in time of peace, and further provided that the Executive returns to employment with the Company within the period provided by law. II.8 Executive Not Actively At Work on Date of Eligibility: An Executive who is not actively at work on his date of eligibility for any reason other than a Break in Service, shall become eligible to participate on his return to active employment, provided he becomes a Participant as otherwise provided herein. II.9 An Executive Ceases Active Participation: Except as provided in Section 2.10, if an Executive ceases to be an active Participant in Pension Plan C, he shall be treated as if his employment terminated at such time and any benefit to which he would be entitled would be computed as if there had been a termination of employment; however, any distribution of such benefit shall not commence until such time as he would otherwise become entitled (had he continued as a Participant) to benefit because of a Retirement date, actual termination of employment or death; provided, if such Executive withdraws within ninety (90) days after first becoming a Participant in Pension Plan C, then such Executive shall cease to be a Participant in Pension Plan C and in this Plan as of the first day of the immediately succeeding pay period and unless the Executive shall otherwise again become a Participant under this Plan, he shall have no further rights or benefits as a Participant in this Plan. II.10 Transfers: The following rules shall apply when an Executive transfers to or from an Executive position in the Company: (a) When Employee Becomes Executive: An Employee of the Company who becomes an Executive of the Company, may become a Participant under this Plan on the Anniversary Date as of which he has met the eligibility requirements for participation; however, the Executive's Service Date for the purpose of this Plan shall be the date of his employment with the Company, not the date he becomes an Executive. II-4 (b) Accrued Pension Under Transfer To A Non-Eligible Status: If a Participant is transferred to a non-eligible status of employment within the Company, his Accrued Pension under this Plan will be determined as though his transfer were a termination of employment, however if the transfer occurs prior to the completion of ten (10) years of Credited Service, such Participant shall continue to accrue Service for vesting purposes only until his employment with the Company shall terminate. The date of such termination of employment will be deemed to be the date of his transfer. II-5 III RETIREMENT AND TERMINATION DATES AND PENSIONS III.1 Normal Retirement and Pension: A Participant may retire on his 65th birthday, which is his Normal Retirement Date, and he shall be fully vested, and his Pension shall commence as of the first day of the calendar month coinciding with or next following his 65th birthday. The Participant's Pension shall be his Accrued Pension and shall be payable in the normal form described in Section 3.7., unless the Participant elects an optional form of benefit in accordance with Section 3.8. III.2 Late Retirement and Pension: When permitted by Company policy, a Participant may continue his employment beyond his Normal Retirement Date and in such event his Late Retirement Accrued Pension shall commence as of the first day of the calendar month coinciding with or next following the date of his actual Retirement, which shall be his Late Retirement Date. The Participant's Late Retirement Accrued Pension shall be payable in the normal form described in Section 3.7, unless the Participant elects an optional form of benefit in accordance with Section 3.8. III.3 Early Retirement and Pension: A Participant may retire after his 55th birthday and the date of completion of at least 10 years of service from his Service Date to his Early Retirement Date and be entitled to an Early Retirement Accrued Pension. If he retires, the Participant's Pension shall be equal to his Accrued Pension, payable in the normal form described in Section 3.7 and payment shall commence as of the first day of the calendar month coinciding with or next following the Participant's 65th birthday. A Participant may elect to commence his Early Retirement Pension as of the first day of the calendar month coinciding with or next following his Retirement, or as of the first day of any subsequent calendar month which precedes his Normal Retirement Date. In such event, the Participant's Pension, payable in the normal form, shall be reduced five-twelfths of one percent (5/12ths of 1%) for each full month or portion thereof by which the commencement of the Early Retirement Pension precedes the Participant's Normal Retirement Date. In lieu of the normal form of benefit payment, a Participant may elect to receive his Accrued Pension in one of III-1 the optional forms of benefit payment set forth in Section 3.8, which shall be the Actuarial Equivalent of the normal form. III.4 Disability Retirement and Pension: A Participant shall be eligible for a Disability Retirement Pension if he retires by reason of Disability and his Disability Retirement Date shall be the day next following the day on which the Participant is deemed to have a Disability as defined in Section 1.1(r). A Disability Retirement Pension shall commence as of the first day of the calendar month coinciding with or next following his Retirement, shall be payable in the normal form described in Section 3.7 (unless the Participant elects an optional form of benefit in accordance with Section 3.8) and shall be equal to the Participant's Accrued Pension. III.5 Vested Terminee and Pension: A Vested Terminee as defined in Section 1.1(mm) shall be entitled to the benefits pursuant to (a) or (b), as applicable: (a) A Pension equal to his Accrued Pension, payable in the normal form described in Section 3.7, or at the election of the Participant, in an optional form described in Section 3.8. Payment of such Pension shall commence on the first day of the calendar month coinciding with or next following the Vested Terminee's 65th birthday. (b) A Participant with at least twenty (20) years of Credited Service may request the Committee to commence the payment of his Accrued Pension as of the first day of any calendar month that is after his 55th birthday but prior to his 65th birthday. Such Pension shall be payable in the normal form described in Section 3.7 and shall commence as of the beginning of the month so requested but the amount thereof shall be reduced by 5/12ths of 1% for each full month by which the actual Pension commencement date precedes the Participant's Normal Retirement Date. In lieu of the normal form, the Participant may elect one of the optional forms of payment described in Section 3.8. Any such optional form of benefit shall be the Actuarial Equivalent of the reduced normal form described above. III.6 Termination Prior to Completion of 10 Years of Credited Service: Subject to Article XIII, a Participant whose Termination Date occurs prior to the completion of 10 years of III-2 Credited Service shall be entitled to no benefits under this Plan. III.7 Normal Form of Payment of Pension: The normal form of pension payment shall be a single-life annuity with 120 payments certain. If a Participant receiving Pension payments dies before 120 monthly Pension payments have been made, Pension payments shall be continued to the Participant's beneficiary until the sum of monthly payments to both the Participant and his beneficiary is 120. The normal form of benefit provided herein shall be applicable to any Accrued Benefit paid with respect to the Annual Bonus based benefit, effective as of July 1, 1990. III.8 Optional Forms of Benefit Payment: A Participant entitled to a Pension in the normal form may elect to receive a Pension payable under one of the options described below. An option shall be exercised in writing on a form approved by the Committee before the Participant's Pension payments commence and the aggregate of the pension payments expected to be made shall be the Actuarial Equivalent of the normal form of Pension to which the Participant is entitled. The optional forms are: (a) Period-Certain and Life Option: A Participant may elect to receive an adjusted Pension payable until death; and if the Participant's death occurs within a period of 60 or 180 months (as elected by the Participant) after his Pension commencement date, payment of the Pension will be continued in the same amount to the person or persons designated by the Participant for the balance of the 60 or 180 month period. (b) Contingent Annuitant Option: A Participant may elect to receive an adjusted Pension payable during the joint lives of the Participant and a person designated by the Participant as his contingent annuitant; so that, following the death of the Participant, payment of the Pension in the same amount or in an amount equal to 75% or 50% of the Participant's Pension (as elected by the Participant) shall continue to the contingent annuitant, if surviving, with the last payment to be made as of the first day of the month in which the death of the contingent annuitant occurs. Notwithstanding any provision herein to the contrary, if the contingent annuitant (or beneficiary) is other than the III-3 Participant's spouse and if the value of the Participant's benefit under the above options will be less than 51% of the value of his life income with 120 months certain Pension, the optional benefit shall be adjusted so that the value of the Participant's benefit under the option will be equal to 51% of the value of the Participant's life income with 120 months certain Pension. A Participant electing a Contingent Annuitant Option must designate a joint pensioner at the time of such election but may change such designation at any time prior to the date on which his Pension is to commence. If a joint pensioner dies before the date on which the Participant's Pension is to commence, the election shall be of no effect, and the Participant shall be treated as though he had not elected such option; but if the joint pensioner dies on or after the date on which the Participant's Pension is to commence, the election shall continue in force, and the amount of the Participant's Pension shall not be increased thereby. (c) Single Option: A Participant may elect to receive an adjusted Pension payable for his lifetime only, with no survivorship Pension payable following his death. (d) Social Security Level Income Option: A Participant whose Pension payments commence prior to the earliest date on which Social Security payments may be commenced may elect to receive a higher monthly Pension from the Plan before his Social Security payments are to commence and a lower payment for life thereafter so that his total monthly retirement income, before and after the commencement of his Social Security payments, is approximately the same. For the purpose of this option, such Social Security payment will be determined, as nearly as may be estimated under the provisions of the Federal Social Security Act as in force on the Participant's Retirement, assuming that the Participant (1) is no longer in employment and (2) makes proper application for such benefit on the earliest possible date. This option is available only to a Participant who retires early and elects to have his Pension commence prior to his Normal Retirement Date under the provisions of Section 3.3. The "Option Effective Date" hereunder shall be (a) the Participant's 65th birthday in the case of Normal Retirement, but only if the Participant's spouse is the beneficial or contingent annuitant, or (b) the date the Participant's Pension commences, in any other case. Evidence of a Participant's good health shall be required by the Committee before election of an optional form of benefit will be permitted, unless the option is elected at III-4 least one year prior to the Option Effective Date. Under no circumstances may an option be elected, changed or revoked after the Option Effective Date. An election made pursuant to this Section 3.8 shall become inoperative if the Participant's employment terminated before he is eligible for either a Normal or Early Retirement Pension, or if the Participant or his beneficiary or contingent annuitant dies before the Option Effective Date. If an option under this Section becomes effective, it will be in place of any benefit otherwise payable under this Plan, and the form made available by the Committee for election of the option shall so specify. III-5 IV DEATH BENEFITS The Death Benefits payable following the death of a Participant shall be determined as follows: (a) Death Prior to Eligibility for Early or Normal Retirement: No death benefit is provided under this Plan for Participants who die prior to completing the eligibility requirements for Early or Normal Retirement. (b) Death After Attaining Eligibility for Early or Normal Retirement: If a Participant dies while employed by the Company or an Adopting Employer after completing the eligibility requirements for Early Retirement or Normal Retirement, the Participant's designated beneficiary shall be paid the amount which would have been payable to the Participant under this Plan had the Participant retired immediately prior to the moment of his death, with such payments commencing on the first day of the month following the date of death of the Participant. The Participant's beneficiary shall receive the 120 monthly payments under the normal form of pension payment (as described in Section 3.7) and the payments shall cease after such 120 monthly payments have been made. In computing the amount payable under this Plan, the Actuarial Equivalent of any Group Term Life Insurance benefits (Policy No. 8800-1(52) or its replacement) payable as a result of the Participant's death while covered under Pension Plan C shall be deemed to have been paid as a death benefit from Pension Plan C. If the Participant terminates employment after satisfying the requirements for Early Retirement but delays commencement of his Pension, he shall be covered by the death benefit provisions of this subsection (b) until his Pension payments commence. IV-1 V PLAN FINANCING V.1 Payment of Costs and Expenses: All costs of providing the benefits under the Plan and the expenses thereof, including the cost of the Committee and the Administrator and any Actuary, shall be paid from the general assets of the Company (or with respect to Participants employed by an Adopting Employer, from the general assets of such Adopting Employer). V-1 VI FIDUCIARY RESPONSIBILITIES VI.1 Allocation of Responsibility Among Fiduciaries: The Fiduciaries shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under this Plan. In general, the Company shall have the responsibility for providing the benefits payable under this Plan; to perform the responsibilities of the Plan Administrator; shall have the sole authority to appoint and remove the members of the Committee; and to amend or terminate, in whole or in part, this Plan. The Committee shall have the responsibility for the duties set forth in Article VII. Each Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan authorizing or providing for such direction, information or action. Furthermore, each Fiduciary may rely upon any such direction, information or action of another Fiduciary as being proper under this Plan, and is not required under this Plan to inquire into the propriety of any such direction, information or action. It is intended under this Plan that each Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under this Plan and shall not be responsible for any act or failure to act of another Fiduciary. No Fiduciary guarantees the payment of benefits under this Plan in any manner. VI.2 Fiduciary Duties: All Fiduciaries hereunder shall discharge their duties with respect to the Plan solely in the interest of the Participants and Beneficiaries and (a) for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan; (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and (c) in accordance with the documents and instruments governing the Plan insofar as such documents and instruments are consistent with the provisions of Title I of the Act. VI-1 VI.3 Company Filing Responsibility: To the extent not otherwise specifically provided in the Plan, the Company shall be responsible for filing with the Internal Revenue Service and Department of Labor all returns, reports and other documentation required under the Act. VI-2 VII COMMITTEE AND ADMINISTRATION VII.1 Appointment and Term of Committee: The Committee shall consist of the Executive Compensation Committee of the Board of Directors of the Company or of such other Board members as the Board may choose. The Committee presently in existence shall continue to hold office until their successors have been appointed. Any member may resign by notice in writing filed with the Company. The Board may remove any member, with or without cause, at any time by notice in writing to the member and the other members of the Committee. Until vacancies have been filled by the Board, the remaining members of the Committee shall have full authority to act. VII.2 Selection of Secretary and Duties of Secretary: The Committee may choose from its members a Secretary. The Secretary shall keep minutes of the Committee proceedings and all records and documents pertaining to the Committee's administration of the Plan. The Committee may employ and suitably compensate such attorneys, advisory, clerical and other employees as it may deem necessary in the performance of its duties. VII.3 Majority Vote Required, Exceptions: The action of the Committee shall be determined by the vote or other affirmative expression of a majority of its members, except that the Committee may assign any or all administrative duties to one or more members or to any person designated by the Committee. Except as otherwise expressly provided in this Section, a meeting need not be called or held to make any decision, but such decision may be made by a written document signed by a majority of the then members. Either the Chairman or the Secretary may execute any certificate or other written direction on behalf of the Committee. VII.4 Payment of Expenses: It is intended that all expenses of the Committee shall be paid by the Company. VII-1 VII.5 Limitation of Liability: No member of the Committee shall be liable for any act or omission of any other member of the Committee, nor for any act or omission on his own part, excepting his own willful misconduct or unless such liability is imposed by law. The Company shall indemnify and save harmless each member of the Committee against any and all expenses and liabilities arising out of his membership on the Committee, excepting only expenses and liabilities arising out of his own willful misconduct or unless such indemnification is not permitted by law. VII.6 Right to Consult: Eligible Participants and Beneficiaries may consult with the Committee on any matters relating to the Plan. VII.7 General Duties: The Committee, on behalf of the Participants and their Beneficiaries, shall enforce the Plan, and shall have all powers necessary to accomplish that purpose, including, but not by way of limitation, the following: (a) to construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder and to notify the Participant and the Company, where appropriate; (b) to adopt By-Laws and rules as it deems necessary, desirable or appropriate; (c) to prescribe procedures to be followed by Participants or beneficiaries filing applications for benefits; (d) to prepare and distribute, in such manner as the Committee determines to be appropriate, information explaining the Plan; (e) to receive from the Company and from Participants such information as shall be necessary for the Committee to perform its duties hereunder; (f) to furnish the Company, upon request, such annual reports as are reasonable and appropriate with respect to the Committee's duties hereunder; (g) to receive, review and keep on file (as it deems convenient or proper) reports of the receipts and disbursements of the Plan; VII-2 (h) to appoint or employ individuals to assist in the administration of its duties under the Plan and any other agents as it deems advisable, including legal or actuarial counsel. The Committee shall have no power to add to, subtract from, or modify any of the terms of the Plan, or to change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for any benefits under the Plan. The Committee shall have the exclusive discretionary authority to construe and to interpret the Plan, to decide all questions of eligibility for benefits and to determine the amount of such benefits, and its decisions on such matters are final and conclusive. VII.8 Application and Forms For Pension: The Committee may require a Participant to complete and file with the Committee an application for Pension and all other forms approved by the Committee, and to furnish all pertinent information requested by the Committee. The Committee may rely upon all such information so furnished it, including the Participant's current mailing address. VII.9 Facility of Payment: Whenever, in the Committee's opinion a person entitled to receive any payment of a benefit or installment thereof hereunder is under a legal disability or is incapacitated in any way so as to be unable to manage his financial affairs, the Committee may direct the Company to make payments to such person or to his legal representative or to a relative or friend of such person for his benefit, or the Committee may direct the Company to apply the payment for the benefit of such person in such manner as the Committee considers advisable. Any payment of a benefit or installment thereof in accordance with the provisions of this Section shall be a complete discharge of the Committee of any liability for the selection of Such payee or the making of such payment under the provisions of the Plan. VII.10 Rules and Decisions: All rules and decisions of the Committee shall be uniformly and consistently applied to all Executives under similar circumstances. When making any determination, the Committee shall be entitled to rely upon information furnished by the Company, legal counsel for the Company, or the Actuary. VII.11 Company to Furnish Information: To enable the Committee to perform its VII-3 functions, the Administrator shall supply full and timely information to the Committee of all matters relating to the pay of all Participants, their retirement, death or other cause for termination of employment, and such other pertinent facts as the Committee may require. VII.12 Administrator to Furnish Other Information: To the extent not otherwise provided in the Plan, the Administrator shall be responsible for providing all notices and information required under the Act to all Participants. VII.13 Beneficiary Designations: Each Participant who may be eligible for the payment of preretirement death benefits on his behalf pursuant to Article IV(b) or who will receive his Accrued Pension under the normal form of payment described in Section 3.7, shall have the right at any time to designate, and rescind or change any designation of, a primary and contingent beneficiary or beneficiaries to receive benefits in the event of his death. If there is no designated beneficiary alive when a death benefit becomes payable under the Plan, the benefit shall be paid to the estate of the Participant. If a primary beneficiary dies before receiving all death benefits to which he is entitled, the balance of such payments shall be paid to the contingent beneficiary, if any. If there is no contingent beneficiary, or if the contingent beneficiary dies before receiving all death benefit payments to which he is entitled, the commuted value of the balance of such payments shall be paid to the estate of the last to die of such beneficiaries. Neither the Company (in its capacity as such) nor the Administrator shall be named as beneficiary. A designation or change of beneficiary shall be made in writing on such form or forms as the Committee may require. After such notice is so filed, the designation or change will relate back and take effect as of the date the Participant signed such written notice, whether or not the Participant is living on the date such notice is received by the Committee, but without prejudice to the Committee or the Company on account of any payment made before receipt of such notice. If at the death of a Participant, there is more than one beneficiary designated and in such designation, the Participant has failed to specify their respective interests, the beneficiaries shall share equally. Anything in this Plan to the contrary notwithstanding, if an amount becomes payable hereunder to the executors or the administrators of any person and evidence satisfactory to the Committee is given to it that no petition for the appointment of such executors or administrators has been or will be filed, the VII-4 Committee may, at its option, pay the amount otherwise payable, or the commuted value thereof, to the wife or husband of such person, if living; if not living, in equal shares to the then living children of such person; if not, to either the father or mother of such person, or to both equally if both are living; if neither parent is living, in equal shares to the then living brothers and sisters of such person. VII-5 VIII SUCCESSOR COMPANY VIII.1 Successor Company: In the event of the dissolution, merger, consolidation or reorganization of the Company, provision may be made by which the Plan will be continued by the successor; and, in that event, such successor shall be substituted for the Company under the Plan. The substitution of the successor shall constitute an assumption of Plan liabilities by the successor and the successor shall have all of the powers, duties and responsibilities of the Company under the Plan. VIII-1 IX PLAN TERMINATION IX.1 Right to Terminate: The Company may terminate the Plan at any time by resolution of the Board. In the event of the termination or partial termination of the Plan, the rights of all affected Participants to benefits accrued to the date of such termination or partial termination shall be fully vested and nonforfeitable. Notwithstanding anything contained herein to the contrary, for a period of two (2) years following a Change in Control, this Plan shall not be terminated. IX-1 X TRUST The benefits provided by this Plan shall be unfunded. All amounts payable under this Plan to a Participant shall be paid from the general assets of the employer which principally employs the Participant (the "Obligated Employer"), and nothing contained in this Plan shall require the Obligated Employer to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. This Plan shall create only a contractual obligation on the part of the Obligated Employer and Participants shall have the status of general unsecured creditors of the Obligated Employer under the Plan with respect to amounts of Compensation they defer hereunder or any other obligation of the Obligated Employer to pay benefits pursuant hereto. Any funds of the Obligated Employer available to pay benefits pursuant to the Plan shall be subject to the claims of general creditors of the Obligated Employer, and may be used for any purpose by the Obligated Employer. Notwithstanding the preceding paragraph, the Obligated Employer may at any time transfer assets to a trust for purposes of paying all or any part of its obligations under this Plan. However, to the extent provided in the trust only, such transferred amounts shall remain subject to the claims of general creditors of the Obligated Employer. To the extent that assets are held in a trust when a Participant's benefits under the Plan become payable, the Plan Administrator shall direct the trustee to pay such benefits to the Participant from the assets of the trust. X-1 XI AMENDMENTS AND ACTION BY COMPANY XI.1 Amendments: The Company reserves the right to make from time to time any amendment or amendments to this Plan. Notwithstanding anything contained in this Plan to the contrary, no amendment shall have the effect of reducing the Accrued Pension of any Participant and for a period of two (2) years following a Change in Control, this Plan shall not be amended in any way to directly or indirectly reduce the benefit levels provided under this Plan or the benefit of any Participant or his designated beneficiary. XI.2 Notices of Amendment, Modification or Revision: Any amendment to the provisions of this Plan shall be evidenced by the substitution of the page (or adding new pages for additional provisions with a new date) of this Plan setting forth the amendment and a proper recording of the same on the Register of Amendments with notice of the same to the Committee. XI-1 XII MISCELLANEOUS XII.1 Nonguarantee of Employment: Nothing contained in this Plan shall be construed as a contract of employment between the Company and any Participant, or as a right of any Participant to be continued in the employment of the Company, or as a limitation of the right of the Company to discharge any of its Employees, with or without cause. XII.2 Rights Under Plan: No Participant shall have any right to or interest in, the Plan upon termination of his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable under the Plan to such Participant. XII.3 Nonalienation of Benefits: Benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the Executive, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder, shall be void. The Plan shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. XII.4 Entering Military Service: If a Participant enters the service of the Armed Forces to the United States, then during the period of such service he shall be entitled only to the vested benefits he might otherwise be entitled to upon death or disability. XII.5 Headings for Convenience Only: The headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in construction of the provisions hereof. XII.6 Multiple Copies: This Plan may be executed in any number of counterparts, each of which shall be deemed an original, and the VII-1 counterparts shall constitute one and the same instrument, which shall be sufficiently evidenced by any one thereof. XII.7 Governing Law: This Plan shall be construed and enforced in accordance with the provisions of the Act. In the event the Act is not applicable or does not preempt state law, the laws of the State of Georgia shall govern. XII.8 Guarantee of Performance: In consideration of each Participant's performance of valuable services that inure to the financial benefit of the Company, the Company does hereby agree to perform all of the obligations and responsibilities and pay any benefits due and owing to a Participant under the Plan if the Obligated Employer (as defined in Article X) designated to perform such obligations and responsibilities or pay such benefits fails or is unable to do so. XII-2 XIII CHANGE IN CONTROL XIII.1 Cause: For purposes of this Plan, a termination for 'Cause' is a termination evidenced by a resolution adopted in good faith by two-thirds of the Board that the Participant (i) intentionally and continually failed to substantially perform his duties with the Company (other than a failure resulting from the Participant's incapacity due to physical or mental illness) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to the Participant specifying the manner in which the Participant has failed to substantially perform, or (ii) intentionally engaged in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise; provided, however, that no termination of the Participant's employment shall be for Cause as set forth in clause (ii) above until (x) there shall have been delivered to the Participant a copy of a written notice setting forth that the Participant was guilty of the conduct set forth in clause (ii) and specifying the particulars thereof in detail, and (y) the Participant shall have been provided an opportunity to be heard by the Board (with the assistance of the Participant's counsel if the Participant so desires). No act, or failure to act, on the Participant's part, shall be considered "intentional" unless he has acted or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Plan to the contrary, in the case of any Participant who is a party to a Severance Protection Agreement, no failure to perform by the Participant after a Notice of Termination (as defined in the Participant's Severance Protection Agreement) is given by the Participant shall constitute Cause for purposes of this Plan. XIII.2 Change in Control: For purposes of this Plan, a Change in Control shall mean any of the following events: (a) The acquisition (other than from the Company by any "Person" (as the term person is used for purposes of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities; or XIII-1 (b) The individuals who, as of September 21, 1989, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; or (c) Approval by stockholders of the Company of (1) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than seventy percent (70%) of the combined voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation or (2) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to Section (a), solely because twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. XIII.3 Termination of Employment: If a Participant's employment is terminated by the Company (other than for Cause) or by the Participant for any reason within two (2) years following a Change in Control, the Company shall, within five (5) days, pay to the Participant a lump sum cash payment equal to the lump sum Actuarial Equivalent of his Accrued Pension as of the date of his termination of employment whether or not the Participant is otherwise vested in his Accrued Pension; provided, however, that for this purpose, the term Actuarial Equivalent shall have the same meaning as such term is used in Pension Plan C. XIII.4 Amendment or Termination: Any amendment or termination of this Plan which a Participant reasonably demonstrates (i) was at the request of a third party XIII-2 who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, and which was not consented to in writing by the Participant shall be null and void, and shall have no effect whatsoever, with respect to the Participant. XIII-3 SCHEDULE 1 ADOPTING EMPLOYERS National Service Industries, Inc. (CA) f/k/a NSI Enterprises, Inc. L&C Spinco, Inc. The Zep Group, Inc. L&C Lighting Group, Inc. A-1 APPENDIX A A.1. Eligible Individual(s): John A. Bostater and Howard Kaplan. A.2. Effective Date of Participation: For John A. Bostater, July 1, 1983 and for Howard Kaplan, February 15, 1993 A.3. Special Provisions: The following special provisions shall apply to the Eligible Individuals' participation in the Plan: (a) The Eligible Individuals' Average Monthly Compensation, Compensation, Credited Service, Eligible Service, Service Date and Service Hours shall be determined as if they were Executives and had become eligible to participate in the Plan in the same manner as if they were Executives. (b) The Committee shall have the discretionary authority to determine the benefits payable to the Eligible Individuals under the Plan and its determinations on such matters shall be final and binding on all parties. A-1 EX-10.IIIA4B 4 g76849exv10wiiia4b.txt EX-10.IIIA4B FIRST AMENDMENT TO SUPPLEMENT RETIRE EXHIBIT 10(iii)A4(b) FIRST AMENDMENT TO SUPPLEMENTAL RETIREMENT PLAN FOR EXECUTIVES OF NATIONAL SERVICE INDUSTRIES, INC. (As Amended and Restated Effective as of January 1, 1994) THIS AMENDMENT made this 16th day of March, 1994, by NATIONAL SERVICE INDUSTRIES, INC. (the "Company"); WHEREAS, the Company maintains the Supplemental Retirement Plan for Executives of National Service Industries, Inc. (the "Plan") for the benefit of certain eligible executives of the Company; and WHEREAS, the Plan was amended and restated effective as of January 1, 1994; and WHEREAS, the Company now desires to clarify certain provisions of the Plan in the manner hereinafter provided; NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 1.1(a)(i) is hereby amended by adding the following after the parenthetical in the seventh line of the present section: ", increased for purposes of this offset for any Participant who would not have been eligible for Early Retirement under Pension Plan C as in effect prior to February 15, 1989, buy who elects Early Retirement hereunder, by recalculating his February 14, 1989 accrued benefit as if he were eligible for an Early Retirement benefit." 2. Section 1.1(gg)(2) is hereby amended by deleting the language after the word "assuming" in the fourth line of the present section and substituting the following therefor: "that he had no Compensation or other earnings after his date of termination of employment; and" 3. The amendment in Paragraph 1 shall be effective as of January 1, 1994 and the amendment in Paragraph 2 shall be effective as of July 1, 1983. Except as hereby amended, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed by its duly authorized officers the day and year first above written. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. By: - ------------------------------- ---------------------------------------- David Levy Executive Vice President, Administration and Counsel (CORPORATE SEAL) EX-10.IIIA4C 5 g76849exv10wiiia4c.txt EX-10.IIIA4C AMENDMENT NO. TO RESTATED RETIREMENT EXHIBIT 10(iii)A4(c) AMENDMENT NO. 2 TO THE SUPPLEMENTAL RETIREMENT PLAN FOR EXECUTIVES OF NATIONAL SERVICE INDUSTRIES, INC. THIS AMENDMENT made as of this _____ day of _______________, 1996, by National Service Industries, Inc. ("NSI"); W I T N E S S E T H: WHEREAS, NSI has previously established the Supplemental Retirement Plan for Executives of National Service Industries, Inc. (the "Plan") for the exclusive benefit of its eligible employees and their beneficiaries; and WHEREAS, effective as of August 31, 1996, NSI will reorganize its operations into several newly-formed corporations and limited partnerships; and WHEREAS, NSI desires to amend the Plan in connection with the reorganization; and WHEREAS, pursuant to the power of amendment contained in Section 11.1 of the Plan, the Plan is hereby amended as follows: 1. Section 1.1(o) of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "1.1(o) Company: Company shall mean National Service Industries, Inc. (or its successor or successors). Affiliated or related employers are permitted to adopt the Plan and shall be known as "Adopting Employers." To the extent required by certain provisions (e.g., determining Average Monthly Compensation, Credited Service and Service Date), references to the Company shall include the Adopting Employer of the Participant. Adopting Employers are listed on Schedule 1." 2. Section 1.1(w) of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "(w) Executive: Any person who, on or after the Effective Date, is classified as an executive officer of the Company covered by a bonus arrangement and who is receiving remuneration for personal services rendered to the Company (or would be receiving such remuneration except for an Authorized Leave of Absence), and any other officer of the Company (or an Adopting Employer) designated by the Chief Executive Officer of the Company as eligible to participate in the Plan and who is listed on an Appendix attached hereto." 3. Section 5.1 of the Plan is hereby amended by deleting such section in its entirety and substituting the following: "5.1 Payment of Costs and Expenses: All costs of providing the benefits under the Plan and the expenses thereof, including the cost of the Committee and the Administrator and any Actuary, shall be paid from the general assets of the Company (or with respect to Participants employed by an Adopting Employer, from the general assets of such Adopting Employer)." 4. Article X of the Plan is hereby amended by deleting such article in its entirety and substituting the following: "Article X Trust "The benefits provided by this Plan shall be unfunded. All amounts payable under this Plan to a Participant shall be paid from the general assets of the employer which principally employs the Participant (the "Obligated Employer"), and nothing contained in this Plan shall require the Obligated Employer to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. This Plan shall create only a contractual obligation on the part of the Obligated Employer and Participants shall have the status of general unsecured creditors of the Obligated Employer under the Plan with respect to amounts of Compensation they defer hereunder or any other obligation of the Obligated Employer to pay benefits pursuant hereto. Any funds of the Obligated Employer available to pay benefits pursuant to the Plan shall be subject to the claims of general creditors of the Obligated Employer, and may be used for any purpose by the Obligated Employer. Notwithstanding the preceding paragraph, the Obligated Employer may at any time transfer assets to a trust for purposes of paying all or any part of its obligations under this Plan. However, to the extent provided in the trust only, such transferred amounts shall remain subject to the claims of general creditors of the Obligated Employer. To the extent that assets are held in a trust when a Participant's benefits under the Plan become payable, the Plan Administrator shall direct the trustee to pay such benefits to the Participant from the assets of the trust." 5. Article XII of the Plan is hereby amended by adding the following new section 12.8: "12.8 Guarantee of Performance: In consideration of each Participant's performance of valuable services that inure to the financial benefit of the Company, the Company does hereby agree to perform all of the obligations and responsibilities and pay any benefits due and owing to a Participant under the Plan if the Obligated Employer (as defined in Article X) designated to perform such obligations and responsibilities or pay such benefits fails or is unable to do so." 6. The Plan is hereby amended by incorporating the following as Schedule 1: "Schedule 1 Adopting Employers North Bros, Inc. National Service Industries, Inc. of Georgia NSI Enterprises, Inc. Zep Manufacturing Company NSI Services, L.P." 7. This Amendment shall be effective August 31, 1996. 8. Except as provided herein, the provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, NSI has caused this Amendment No. 2 to be executed by its duly authorized corporate officer and is hereby accepted the same as of the date and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. By: By: ---------------------------------- ------------------------------- EX-10.IIIA5 6 g76849exv10wiiia5.txt EX-10.IIIA5 SENIOR MANAGEMENT BENEFIT PLAN EXHIBIT 10(iii)A5 NATIONAL SERVICE INDUSTRIES, INC. SENIOR MANAGEMENT BENEFIT PLAN (RESTATED) (Dated As of August 15, 1985 and Amended Effective As of September 21, 1989, September 16, 1994, and August 31, 1996) NATIONAL SERVICE INDUSTRIES, INC. SENIOR MANAGEMENT BENEFIT PLAN ARTICLE I. -- DEFINITIONS.........................................................................................1 1.1 ANNIVERSARY DATE........................................................................................1 1.2 BENEFICIARY.............................................................................................1 1.3 BENEFIT DETERMINATION DATE..............................................................................1 1.4 COMPENSATION............................................................................................1 1.5 COMPENSATION DEFERRAL ELECTION..........................................................................2 1.6 DEFERRAL BENEFIT........................................................................................2 1.7 DEFERRED BENEFIT ACCOUNT................................................................................2 1.8 DETERMINATION DATE......................................................................................2 1.9 EMPLOYER................................................................................................2 1.10 NORMAL RETIREMENT DATE...............................................................................3 1.11 PARTICIPANT..........................................................................................3 1.12 PLAN.................................................................................................3 1.13 PLAN COMMITTEE.......................................................................................3 1.14 PLAN YEAR............................................................................................3 1.15 TOTAL DISABILITY.....................................................................................3 ARTICLE II. -- ELIGIBILITY AND PARTICIPATION......................................................................3 2.1 CONDITIONS OF ELIGIBILITY...............................................................................3 2.2 APPLICATION FOR PARTICIPATION...........................................................................3 2.3 ADDITIONAL COMPENSATION.................................................................................4 ARTICLE III. -- COMPENSATION DEFERRAL.............................................................................4 3.1 DEFERRAL OF COMPENSATION................................................................................4 3.2 ACCOUNTS................................................................................................6

-i- ARTICLE IV. -- DEFERRED BENEFIT ACCOUNT...........................................................................6 4.1 DETERMINATION OF ACCOUNT................................................................................6 4.2 STATEMENT OF ACCOUNTS...................................................................................7 4.3 CALCULATION OF INTEREST.................................................................................7 ARTICLE V. -- RETIREMENT BENEFITS.................................................................................8 5.1 NORMAL RETIREMENT BENEFIT...............................................................................8 5.2 EARLY RETIREMENT BENEFIT................................................................................8 5.3 LATER RETIREMENT BENEFIT................................................................................8 5.4 DETERMINATION OF RETIREMENT BENEFITS....................................................................8 5.5 PAYMENT OF RETIREMENT BENEFITS..........................................................................9 ARTICLE VI. -- DEATH BENEFITS....................................................................................11 6.1 PARTICIPANT'S DEATH PRIOR TO RETIREMENT................................................................11 6.2 PARTICIPANT'S DEATH FOLLOWING RETIREMENT...............................................................13 6.3 DETERMINATION OF DEATH BENEFIT.........................................................................13 6.4 DEATH OF BENEFICIARY...................................................................................14 ARTICLE VII. -- TERMINATION BENEFITS.............................................................................14 7.1 TERMINATION OF EMPLOYMENT..............................................................................14 7.2 TERMINATION FOR CAUSE..................................................................................16 7.3 PAYMENT OF TERMINATION BENEFITS........................................................................17 7.4 DEATH OF PARTICIPANT AFTER TERMINATION.................................................................17 7.5 TERMINATION AFTER EARLY RETIREMENT DATE................................................................18 7.6 HARDSHIP...............................................................................................18 ARTICLE VIII. -- DISABILITY......................................................................................18 8.1 DISABILITY.............................................................................................18 8.2 PAYMENT OF DISABILITY BENEFITS.........................................................................19 8.3 DEATH OF PARTICIPANT AFTER TOTAL DISABILITY............................................................20

-ii- ARTICLE IX. -- PLAN ADMINISTRATION...............................................................................20 9.1 PLAN COMMITTEE.........................................................................................20 9.2 CLAIM..................................................................................................21 9.3 DENIAL OF CLAIM........................................................................................21 9.4 REVIEW OF CLAIM........................................................................................21 9.5 FINAL DECISION.........................................................................................21 ARTICLE X. -- PARTICIPANT'S RIGHTS...............................................................................22 10.1 INELIGIBILITY TO PARTICIPATE IN DEFERRED COMPENSATION PLAN..........................................22 10.2 BENEFITS UNFUNDED...................................................................................22 10.3 SPENDTHRIFT PROVISION...............................................................................23 10.4 PLAN NOT AN EMPLOYMENT AGREEMENT....................................................................23 10.5 PROTECTIVE PROVISIONS...............................................................................24 10.6 OFFSET..............................................................................................24 10.7 GUARANTEE OF PERFORMANCE............................................................................24 ARTICLE XI. -- MISCELLANEOUS.....................................................................................25 11.1 TERMINATION OF PLAN.................................................................................25 11.2 CHANGE OF TAX STATUS................................................................................25 11.3 AMENDMENTS AND MODIFICATIONS........................................................................26 11.4 INUREMENT...........................................................................................27 11.5 GOVERNING LAW.......................................................................................27 ARTICLE XII. - CHANGE IN CONTROL.................................................................................27 12.1 CAUSE...............................................................................................27 12.2 CHANGE IN CONTROL...................................................................................28 12.3 TERMINATION OF EMPLOYMENT...........................................................................29 12.4 AMENDMENT OF TERMINATION............................................................................29

-iii- NATIONAL SERVICE INDUSTRIES, INC. SENIOR MANAGEMENT BENEFIT PLAN THIS SENIOR MANAGEMENT BENEFIT PLAN, is made at Atlanta, Georgia, at of this _____ day of _______________, 19___, for the benefit of certain employees of NATIONAL SERVICE INDUSTRIES, INC., a Delaware Corporation (hereinafter sometimes referred as "Employer"). ARTICLE I. -- DEFINITIONS The following words and phrases as set forth in this Senior Management Benefit Plan shall have the meaning and application set forth below: 1.1 Anniversary Date. The calendar day that corresponds, each year, to a Participant's Benefit Determination Date. 1.2 Beneficiary. A person or entity designated in accordance with Article VI of this Plan to receive benefits upon the death of a Participant. 1.3 Benefit Determination Date. The last day of the month immediately preceding a Participant's Retirement (Early, Normal or Later), Death, Termination of Employment, Determination of Total Disability or the Retirement Benefit Commencement Date specified by the Participant in Section IV(B)(iii) of Schedule A, whichever is applicable. 1.4 Compensation. The total of the current base salary and bonus actually paid or accrued by Employer during a Plan Year to or for the benefit of a Participant for services rendered, excluding any car allowance paid or payable to such Participant, before reduction for compensation deferred pursuant to this Plan, or any other plan maintained by Employer. 1.5 Compensation Deferral Election. The election by a Participant to defer Compensation pursuant to the provisions of Paragraph 3.1, hereof. An Election Form, Schedule A, attached hereto, shall be filed with the Plan Committee, for such Compensation Deferral Election. 1.6 Deferral Benefit. The benefit payable to a Participant on his retirement, death, disability, termination of employment, or termination of participation, with respect to such Participant's Compensation Deferral Election. 1.7 Deferred Benefit Account. The accounts maintained on the books of account of Employer for each Participant with respect to such Participant's Compensation Deferral Election pursuant to Article IV. Separate Deferred Benefit Accounts shall be maintained for each Participant. A Participant's Deferred Benefit Account shall be utilized solely as a device for the measurement and determination of the amounts to be paid to the Participant pursuant to this Plan. A Participant's Deferred Benefit Account shall not constitute or be treated as a trust fund of any kind. 1.8 Determination Date. The last day of each Plan Year. 1.9 Employer. For purposes of this Plan, Employer means National Service Industries, Inc. (or its successor or successors). Affiliated or related employers are permitted to adopt the Plan and shall be known as "Adopting Employers." To the extent required by certain provisions (e.g., Compensation and service), references to the Employer shall include the Adopting Employer of the Participant. Adopting Employers are listed on Appendix 1. -2- 1.10 Normal Retirement Date. The date on which a Participant reaches sixty-five (65) years of age. 1.11 Participant. An employee of Employer or Adopting Employer who is eligible to participate in the Plan according to standards adopted by Board of Directors of Employer and who elects to participate in this Plan. 1.12 Plan. The term "Plan" shall mean this Senior Management Benefit Plan as adopted by Employer and as may be hereafter amended. 1.13 Plan Committee. The Plan Committee, the members of which shall be appointed by the Board of Directors of Employer, shall administer the Plan on behalf of Employer. 1.14 Plan Year. The Plan Year for this Plan begins on the first day of September and ends on and includes the last day of the following August. 1.15 Total Disability. A physical or mental condition which is expected to be totally and permanently disabling, as more fully described in Article VIII, hereof. ARTICLE II. -- ELIGIBILITY AND PARTICIPATION 2.1 Conditions of Eligibility. Eligibility to become a Participant in this Plan will be determined by Plan Committee according to standards adopted by the Board of Directors of Employer. Such determination shall be conclusive and binding upon all persons. 2.2 Application for Participation. Plan Committee shall notify each Employee of his eligibility to participate in this Plan. Eligible employees may, on or before August 31, 1985, elect to participate and begin participation in this Plan by completing all enrollment procedures and satisfying all enrollment requirements established by Plan -3- Committee. Such election to participate shall be effective upon receipt and acceptance by Plan Committee of such Employee's election to participate. 2.3 Additional Compensation. In addition to any compensation paid to, or benefits provided to Participant, Participant shall receive the Deferral Benefits and other benefits provided for herein. Except as otherwise provided herein, nothing in this Plan shall be construed as limiting, varying or reducing any provision or benefit to Employee, Employee's estate or Beneficiaries pursuant to any employment agreement, any retirement plan, including any qualified pension or profit-sharing plan, any health, disability or life insurance policies or any other agreement between Employer and Employee. ARTICLE III. -- COMPENSATION DEFERRAL 3.1 Deferral of Compensation. The following provisions shall be applicable to Participant elections to defer Compensation pursuant to this Plan. (a) Election. Employer shall defer from the Compensation otherwise payable to Participant, by Employer, as a result of such Participant's employment with Employer, the amounts specified in Schedule A, Election to Participate and Defer Compensation and Benefit Payment Election, attached hereto and made a part hereof, for the number of years specified in Schedule A. The Compensation Deferral Election shall apply solely to Compensation earned by Participant with respect to periods subsequent to the date of such election. Such compensation deferral shall not commence until Participant has completed all enrollment procedures and satisfied all enrollment requirements established by Plan Committee. -4- (b) Amount of Deferral. A Participant who elects to defer Compensation pursuant to Paragraph 3.1(a) of this Plan may elect to defer from such Participant's Compensation, earned after the date of such election, commencing with the Plan Year beginning September 1, 1985, up to 25% of such Participant's annual salary, determined as of August 31, 1985, and 25% of Participant's Bonus earned for Employer's fiscal year then ended, but not less than $2,500.00, per Plan Year, in equal annual deferrals, for four (4) consecutive Plan Years and/or eight (8) consecutive Plan Years. If a Participant elects both a four (4) year and an eight (8) year Deferred Benefit Election, each such election shall be treated separately for all calculations, elections, and benefit payment schedules and separate Deferred Benefit Accounts will be maintained for each such election. (c) Deferral Limitation. If an Employee becomes a Participant after attaining the age of fifty-seven (57) years, such Participant's Compensation Deferral Election shall be for a period of four (4) consecutive Plan Years. Furthermore, such Participant's Deferred Compensation Election period must end on or before the date such Participant retires from full-time employment with Employer, but not later than age sixty-five (65). (d) Rollover Contribution. Any Participant herein, who is also a Participant in any deferred compensation plan sponsored by Employer, may elect, on or before August 31, 1985, to transfer, as of October 1, 1985, all or any portion of such Participant's Primary Account in said deferred compensation plan into this Plan ("Rollover Contribution"). For purposes hereof, the value of such Participant's -5- Primary Account in said deferred compensation plan shall be determined as of the close of business on October 1, 1985, pursuant to said deferred compensation plan. Such Rollover Contribution shall be treated as being deferred from Participant's Compensation for purposes of this Plan. In no event shall a Participant be permitted to make more than one Rollover Contribution. 3.2 Accounts. The amount of Compensation deferred pursuant to this Article III, with respect to a Compensation Deferral Election, as well as Rollover Contribution, shall be credited by Employer to the Participant's Deferred Benefit Account, established with respect to such Election, as provided in Paragraph 4.1, as of the date deferred from Participant's Compensation; provided, however, that a Participant's Rollover Contribution shall be credited to the Participant's Deferred Benefit Account as of October 1, 1985. The amount credited to a Participant's Deferred Benefit Account shall equal the amount deferred or rolled over reduced by the amount, if any, Employer is required to withhold from such deferred compensation pursuant to any Federal, state or local law. ARTICLE IV. -- DEFERRED BENEFIT ACCOUNT 4.1 Determination of Account. Employer shall establish a Deferred Benefit Account with respect to the Compensation Deferral Election executed by a Participant. The Deferred Benefit Account of a Participant as of each Determination Date shall consist of the balance of such Deferred Benefit Account, as of the immediately preceding Determination Date (with respect to the first Plan Year, the first day of such Plan Year), plus (i) any compensation deferred by such Participant to such referred Benefit Account since the previous determination Date; plus (ii) any Rollover Contributions credited to such Deferred -6- Benefit Account; plus (iii) the amount of interest earned on such Deferred Benefit Account (as determined in Paragraph 4.3) since the preceding Determination Date. 4.2 Statement of Accounts. Plan Committee shall submit to each Participant, within 120 days after the close of each Plan Year, a statement in such form as Plan Committee deems desirable, setting forth the balance to the credit of such Participant in each Deferred Benefit Account maintained for such Participant as of the last day of the preceding Plan Year. 4.3 Calculation of Interest. Interest Earnings Adjustments to the Deferred Benefit Accounts of Participants shall be credited annually on the Determination Date, using as the rate of interest earned ("Interest Earnings Rate") an interest rate equal to three (3) percentage points greater than Moody's Seasoned Corporate Bond Yield Index, as published monthly by Moody's Investor's Service, Inc., or successor thereto, or, if such monthly index is no longer published, a substantially similar average as established by the Plan Committee. For amounts in the Participant's Deferred Benefit Account at any Determination Date, the Interest Earnings Adjustment shall be calculated, retrospectively, using a simple interest calculation based on a twelve month average of the Interest Earnings Rates between such Determination Date and the following Determination Date. For amounts deferred between Determination Dates, the Interest Earnings Adjustment shall be calculated monthly on a simple interest basis from the date such amounts are credited to the Participant's Deferred Benefit Account using the Interest Earnings Rate for each month until the next Determination Date. -7- ARTICLE V. -- RETIREMENT BENEFITS 5.1 Normal Retirement Benefit. Upon a Participant reaching Normal Retirement Date, and satisfying the compensation deferral provisions of Paragraph 3.1, hereof, such Participant may retire from full-time employment with Employer, in which event Employer will pay to Participant the amount determined pursuant to Paragraph 5.4(a), hereof, payable pursuant to the provisions of Paragraph 5.5, hereof. 5.2 Early Retirement Benefit. A Participant may retire at a date sooner than Normal Retirement Date (as defined in Paragraph 5.1, hereof), but in no event sooner than the date Participant attains the age of fifty-five (55) years; provided, however that such Participant has satisfied the compensation deferral provisions of Paragraph 3.1, hereof. Such Participant shall be entitled to receive an Early Retirement Benefit as described in Paragraph 5.4(b), hereof, payable pursuant to the provisions of Paragraph 5.5, hereof. 5.3 Later Retirement Benefit. An Employee who elects to participate in this Plan and retires after reaching Normal Retirement Date, shall be entitled to receive a Retirement Benefit, as described in Paragraph 5.4(a), hereof, payable pursuant to the provisions of Paragraph 5.5, hereof. 5.4 Determination of Retirement Benefits. (a) In the event a Participant retires from full-time employment with Employer, pursuant to the provisions of Paragraphs 5.1 or 5.3, hereof, a benefit shall be payable to such Participant ("Retirement Benefit") equal to the greater of: (i) the total amount of such Participant's Deferred Benefit Account, determined pursuant to Paragraph 4.1, as of his Benefit Determination Date, including interest at the Interest -8- Earnings Rate, through such Benefit Determination Date; or (ii) the amount determined pursuant to Schedule B attached hereto and made a part hereof; provided, however, that in the event the Participant retires pursuant to Paragraph 5.3, hereof, the amounts determined pursuant to Schedule B shall be actuarially adjusted such that the Later Retirement Benefit, is actuarially equivalent to the Normal Retirement Benefit described in Schedule B. (b) If a Participant retires from full-time employment with Employer, pursuant to the provisions of Paragraph 5.2, hereof, an Early Retirement Benefit shall be payable to such Participant equal to the total amount of such Participant's Deferred Benefit Account, determined pursuant to Paragraph 4.1, as of his Benefit Determination Date. For purposes hereof, the Interest Earnings Adjustment, determined pursuant to Paragraph 4.3, hereof, with respect to such Participant's Deferred Benefit Account, shall be determined using the Termination Interest Earnings Rate, through such Benefit Determination Date, determined pursuant to Paragraphs 7.1(b) and 7.1(c) hereof, in lieu of the Interest Earnings Rate described in Paragraph 4.3, hereof, as if such Termination Interest Earnings Rate had been in effect, with respect to such Participant's Deferred Benefit Account, from the commencement of Participant's participation in this Plan. 5.5 Payment of Retirement Benefits. Benefits payable to a Participant upon such Participant's retirement from full-time employment with the Employer, pursuant to the provisions of Paragraphs 5.1, 5.2 or 5.3, hereof, shall be payable on the Retirement Benefit Commencement Date specified by Participant in such Participant's Benefit Payment Election. -9- A Participant may, however, no later than twenty-four (24) months prior to such Participant's retirement, and with the approval of the Plan Committee, change the date on which payment of such Participant's Retirement Benefits shall commence and the method of payment of such Retirement Benefits, by executing a new Benefit Payment Election, Schedule A, provided, that (i) if a Participant satisfies the requirements of Paragraph 5.2 for Early Retirement but incurs an interest earnings rate reduction under Paragraph 5.4(b), he may make an election change up to six (6) months prior to retirement, so long as such election is made in the tax year prior to retirement, (ii) the 24-month election period shall not apply to election changes relating to death benefits, and (iii) the Plan Committee may, in its sole discretion, permit a shorter election period to allow a Participant to accelerate the time and/or manner of payment in the event of a Participant's unforeseen and severe financial hardship (as described in Paragraph 7.6 and as determined by the Plan Committee). In the event a Participant fails to execute a Benefit Payment Election, such Participant's Retirement Benefits shall be payable pursuant to the method determined by the Plan Committee, in its sole discretion, commencing on the first day of the second calendar month following the date of such Participant's retirement. Such Participant's Retirement Benefit shall be payable pursuant to one of the following methods, as requested by such Participant, in such Participant's Benefit Payment Election: (a) A monthly, quarterly, or annual installment payable over a fifteen (15) year period, commencing on the Retirement Benefit Commencement Date specified by Participant in such Participant's Benefit Payment Election. The amount payable for the first year hereunder shall be an amount that will fully amortize the balance in Participant's -10- Deferred Benefit Account, as of the Participant's Benefit Determination Date, over the fifteen (15) year period, based on assumed interest earnings using the Interest Earnings Rate or Termination Interest Earnings Rate, if applicable, as of said Benefit Determination Date. Thereafter, annually, on the Anniversary Date, the amount payable for the following year shall be adjusted to an amount that will fully amortize the remaining balance in Participant's Deferred Benefit Account, on said date, over the remaining years in the aforesaid fifteen (15) year installment period, based on the Interest Earnings Rate or Termination Interest Earnings Rate, if applicable, as of said date. The balance in a Participant's Deferred Benefit Account, at any time after his Retirement, will be the unamortized balance thereof taking into account payments to date, or (b) A lump sum distribution of such Participant's Retirement Benefit, determined pursuant to Paragraph 5.4, payable on the Retirement Benefit Commencement Date specified by the Participant in such Participant's Benefit Payment Election. ARTICLE VI. -- DEATH BENEFITS 6.1 Participant's Death Prior to Retirement. In the event that a Participant dies prior to retirement from full-time employment with Employer, Employer shall pay to the Beneficiary or Beneficiaries designated in writing by such Participant, in Schedule A (or to Participant's Estate if Participant fails to so designate a Beneficiary or Beneficiaries), in lieu of the amounts provided for in Paragraph 5.4, hereof, the amounts determined pursuant to Paragraph 6.3, hereof. Such amounts shall be payable to said Beneficiary or Beneficiaries (or Participant's legal representative, as the case may be) pursuant to either of the following methods as requested by such Beneficiary or Beneficiaries (or legal representative) as follows: -11- (a) A monthly, quarterly, or annual installment payable over a fifteen (15) year period, commencing on the first day of the second calendar month following the date of death of the Participant. The amount payable for the first year hereunder shall be an amount that will fully amortize the balance in the Participant's Deferred Benefit Account, as of the Participant's Benefit Determination Date, over the fifteen (15) year period, based on assumed interest earnings using an interest rate equal to the Moody's Seasoned Corporate Bond Yield Index, as published monthly by Moody's Investor's Service, Inc., or successor thereto, or if such monthly index is no longer published, a substantially similar average as established by the Plan Committee (such interest rate being hereinafter referred to as the "Moody's Interest Rate"), as of such Benefit Determination Date. Thereafter, annually, on the Anniversary Date, the amount payable for the following year shall be adjusted to an amount that will fully amortize the remaining balance in the Participant's Deferred Benefit Account, on said date, over the remaining years in the aforesaid fifteen (15) year installment period, based on the Moody's Interest Rate as of said Anniversary Date. The balance in a Participant's Deferred Benefit Account, at any time after his death, will be the unamortized balance thereof taking into account payments to date, or (b) A lump sum distribution of such Participant's Death Benefit as determined pursuant to Paragraph 6.3, payable to such Beneficiary or Beneficiaries (or legal representatives) no later than the first day of the second calendar month following such Participant's death. -12- 6.2 Participant's Death Following Retirement. If Participant dies following retirement from full-time employment with Employer, but prior to the payment of all amounts payable to Participant pursuant to Article V, hereof, Employer shall pay to the Beneficiary: or Beneficiaries designated in writing by Participant in Schedule A, (or to Participant's Estate if Participant fails to so designate a Beneficiary or Beneficiaries) the amounts which would otherwise be payable to Participant, pursuant to Article V, hereof, except for Participant's death. The amounts payable to such Beneficiary or Beneficiaries as the result of Participant's death shall be payable pursuant to the method of payment of such Death Benefits specified by Participant in such Participant's Benefit Payment Election. Participant shall select such payment methods as follows: (a) Continuation of Participant's Retirement Benefit, payable over its remaining term thereof, as if such Participant had not died (with interest determined in accordance with Section 5.5(a)); or (b) A lump sum distribution of such amount, determined pursuant to Paragraph 5.4, hereof, payable to such Beneficiary or Beneficiaries (or legal representative) no later than the first day of the second calendar month following such Participant's death. 6.3 Determination of Death Benefit. (a) The amount of the Death Benefit with respect to a Participant shall be equal to the total amount of such Participant's Deferred Benefit Account, including -13- interest at the Interest Earnings Rate through such Benefit Determination Date, determined pursuant to Paragraph 4.1, hereof, if death occurs before retirement, and pursuant to Paragraph 5.4, hereof, if death occurs after retirement. (b) Notwithstanding the foregoing, if Participant dies prior to retirement from full-time employment with Employer and termination of employment with Employer, the amount of the death benefit with respect to such Participant shall be the greater of: (i) the amount of the Death Benefit determined pursuant to Paragraph 6.3(a), hereof; or (ii) the amount determined pursuant to Schedule C, attached hereto and made a part hereof. 6.4 Death of Beneficiary. In the event of the death of a Beneficiary who is receiving a Death Benefit in installments pursuant to Paragraph 6.1(a) or 6.2(a), such remaining benefit to which such Beneficiary was entitled at the time of such Beneficiary's death shall continue to be payable to the beneficiary or beneficiaries, designated in writing by such Beneficiary, on a form to be submitted by such Beneficiary to Plan Committee (or to Beneficiary's Estate if Beneficiary fails to so designate a beneficiary or beneficiaries). ARTICLE VII. -- TERMINATION BENEFITS 7.1 Termination of Employment. (a) If prior to a Change in Control, a Participant's employment with Employer is terminated for any reason (excluding Normal or Later Retirement, Death or Disability), prior to Normal Retirement Date, Participant's participation in this Plan shall immediately cease and Employer shall pay to Participant a Termination Benefit, determined pursuant to Paragraphs 7.1(b) and 7.1(c), hereof, payable pursuant to the -14- provisions of Paragraph 7.3, hereof. For purposes hereof, prior to a Change in Control, Plan Committee shall determine what constitutes a termination of Participant's employment with Employer and the effective date thereof. (b) The amount of the Participant's Termination Benefit shall be equal to the total amount of such Participant's Deferred Benefit Account, determined pursuant to Paragraph 4.1, as of the date of Participant's termination, except that the Interest Earnings Adjustment, determined pursuant to Paragraph 4.3, hereof, with respect to such Deferred Benefit Accounts shall be determined using an Interest Earnings Rate, as determined herein ("Termination Interest Earnings Rate"), in lieu of the Interest Earnings Rate described in Paragraph 4.3, hereof, as if the Termination Interest Earnings Rate had been in effect, with respect to such Participant's Deferred Benefit Account, from the commencement of Participant's participation in this Plan through such Benefit Determination Date. (c) The Termination Interest Earnings Rate to be applied pursuant to Paragraph 7.1(b), hereof, shall be a composite rate of interest based on the following table: -15-
Percentage of Percentage of Deferral Benefit Account Full Years Of Active Deferred Benefit Account Earning Moody's Plus 3% Plan Participation Earning Prime Rate less 3% (Paragraph 4.3) - -------------------- -------------------------- ------------------------ 0 through 5 100% 0% 6 80% 20% 7 60% 40% 8 40% 60% 9 20% 80% 10 and over 0% 100%
For purposes hereof, the Prime Rate shall equal the average Prime Rate as in effect on the first business day of each calendar month, at The First National Bank of Atlanta, in Atlanta, Georgia, or any successor thereto. 7.2 Termination For Cause. Notwithstanding any other provisions herein to the contrary and except as provided in Article XII hereof, if Participant's employment with Employer is terminated, prior to actual retirement, for any reason related to such Participant's conviction of a felony, relating to the performance of Participant's Employer, such Participant's participation in this Plan shall be terminated and Participant shall be entitled to none of the Retirement, Death, Termination or Disability Benefits or any other benefits provided for in the Plan; provided, however, that Participant or Participant's Beneficiary or Beneficiaries (or legal representative, as the case may be) shall be paid the total balance of all amounts of such Participant's deferred compensation and Rollover Contributions pursuant to Paragraph 3.1, hereof, without interest. Such amounts shall be payable pursuant to the provisions of Paragraph 7.3, hereof. -16- 7.3 Payment of Termination Benefits. Benefits payable to a Participant as a result of such Participant's termination of employment with Employer, pursuant to the provisions of Paragraph 7.1 or 7.2, hereof, except for Early Retirement Benefits pursuant to Paragraph 5.2 which shall be payable pursuant to the provisions of Paragraph 5.5, shall be payable, pursuant to one of the following methods of payment, as determined by Plan Committee in its sole discretion: (a) An annual payment of one-fifth (l/5th) of such Termination Benefit amount for a period of five (5) years commencing on the first day of the second calendar month following Participant's termination of employment with Employer. Each payment after the first shall include interest earned on the unpaid balance determined using the Termination Interest Earnings Rate in effect on the Benefit Determination Date and the Anniversary Date thereafter, as specified in Paragraph 7.1(c), and applied prospectively. or (b) A lump sum distribution of such Participant's Termination Benefit, as determined pursuant to Paragraph 7.1 or 7.2, hereof, payable within ninety (90) days of such Participant's termination of employment with Termination 7.4 Death of Participant After Termination. If a Participant shall die prior to the final payment of his Termination Benefit under this Article VII, such amount, determined pursuant to this Article VII, shall be paid to the Beneficiary or Beneficiaries designated in writing by Participant in Schedule A (or to Participant's Estate if Participant fails to so designate a Beneficiary or Beneficiaries) either as a continuation of such Termination Benefit or a lump sum distribution as described in Paragraph 6.3, hereof. -17- 7.5 Termination After Early Retirement Date. Except as otherwise provided in Paragraph 7.2, hereof, if Participant's employment with Employer is terminated for any reason (excluding Normal or Later Retirement, Disability or Death) after a Participant's Early Retirement Date, Participant shall be deemed to have retired from employment pursuant to the provisions of Paragraph 5.2, hereof. 7.6 Hardship. A Participant (whether or not actively employed) who is suffering an unforeseen and severe financial hardship as a result of (i) an illness or accident of the Participant or his immediate family, (ii) loss of Participant's property due to casualty, or (iii) for such other reasons as the Plan Committee may establish, may file a written request with the Plan Committee for distribution of all or a portion of the amount credited to his Deferred Benefit Account. The Plan Committee shall have the sole discretion to determine whether to grant a Participant's hardship request and the amount to distribute to the Participant. The Plan Committee shall have authority in connection with such hardship request to accelerate the date and method of payment of the Participant's Deferred Benefit Account. ARTICLE VIII. -- DISABILITY 8.1 Disability. If a Participant, prior to retirement or termination of employment with Employer, becomes totally disabled, such Participant's participation in this Plan shall cease and Employer shall pay to such Participant a Disability Benefit, in lieu of any other Benefit provided for herein, equal to the total amount of such Participant's Deferred Benefit Account, determined pursuant to Paragraph 4.1, as of the Benefit Determination Date when such Participant is determined to be totally disabled, including -18- interest at the Interest Earnings Rate through such Benefit Determination Date. Total disability shall mean a physical or mental condition which is expected to be totally and permanently disabling. If Employer, Plan Committee and a Participant agree that such Participant is unable by reason of his physical or mental condition, to perform his customary work for Employer, or any comparable work for Employer for which he is suited by reason of education or experience, and that such incapacity will be permanent, such unanimous agreement shall be conclusive determination of such Participant's Total Disability. If Plan Committee, Employer and such Participant do not unanimously agree, then each shall vote, and, by a majority vote, select a physician to determine and certify to Plan Committee whether such Participant's condition renders him permanently incapable of further performance of his customary work for Employer, or any comparable work for Employer for which he is suited by reason of education or experience. Such physician's certification shall be final and binding on all parties. The reasonable expenses of such determination and certification shall be paid by Employer. 8.2 Payment of Disability Benefits. Disability Benefits payable to a Participant as a result of such Participant's total disability, pursuant to Paragraph 8.1, hereof, shall be payable pursuant to any of the following methods of payment, as determined by Plan Committee, upon consultation with Participant: (a) In either five (5) or fifteen (15) annual installments, payable monthly, quarterly or annually, including interest, determined using the Interest Earnings Rate, described in Paragraph 4.3, hereof, computed as provided for in Paragraph 5.5(a), -19- commencing on the first day of the second calendar month following the date the Participant is determined to be totally disabled; or (b) A lump sum distribution of such Participant's Disability Benefit, as determined pursuant to Paragraph 8.1, hereof, payable to such Participant no later than the first day of the second calendar month after the date such Participant is determined to be totally disabled. 8.3 Death of Participant After Total Disability. If a Participant shall die prior to the final payment of the Disability Benefit under this Article VIII, such unpaid amounts, determined pursuant to this Article VIII, shall be paid to such Participant's Beneficiary or Beneficiaries (or legal representative) either as a continuation of such Disability Benefit or as a lump sum distribution of the actuarially adjusted remaining benefit as described in Paragraph 8.2(b), hereof. Such death benefit shall be in lieu of any other death benefit payable hereunder. ARTICLE IX. -- PLAN ADMINISTRATION 9.1 Plan Committee. This Plan and all matters related hereto, shall be administered by the Plan Committee which shall be the "named fiduciary". The Plan Committee shall have the exclusive discretionary authority to construe and to interpret the Plan, to decide all questions of eligibility for benefits and to determine the amount of such benefits, and its decisions on such matters shall be final and conclusive on all parties. Plan Committee may engage the services of independent actuaries and administrative personnel, who shall certify, from time to time, to Plan Committee, the amounts required, from time to time, to provide for Employer's obligation to provide Deferral Benefits under the Plan. -20- 9.2 Claim. Any person claiming a benefit, requesting an interpretation or ruling under this Plan, or requesting information under the Plan shall present the request, in writing, to Plan Committee which shall respond in writing as soon as practicable. 9.3 Denial of Claim. If the claim or request is denied, the written notice of denial shall state: (a) The reason for denial, with specific reference to the Plan provisions on which the denial is based. (b) A description of any additional material or information required and an explanation of why it is necessary. (c) An explanation of the Plan's claim review procedure. 9.4 Review of Claim. Any person whose claim or request is denied or who has not received a response within 90 days may (within 60 days after such denial, or 90 day period, whichever is earlier) request review by notice given in writing to Plan Committee. A request to review Plan Committee's denial of a claim or request, must state the specific reasons, including any Plan provisions, upon which such request for review is based. The claim or request shall be reviewed by Plan Committee who may, but shall not be required to, grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing. 9.5 Final Decision. The decision on review shall normally be made within 60 days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be 120 days. The decision shall be in -21- writing and shall state the reason and the relevant plan provisions. All decisions on review shall be final and bind all parties concerned. ARTICLE X. -- PARTICIPANT'S RIGHTS 10.1 Ineligibility to Participate in Deferred Compensation Plan. Prior to a Change in Control, in the event Plan Committee determines that Employee is ineligible or becomes ineligible to participate or to continue to participate in this Plan, Employer may terminate Participant's participation in this Plan, upon ten (10) days notice to Participant and Participant shall be entitled to Termination Benefits pursuant to Paragraph 7.1, hereof. 10.2 Benefits Unfunded. The benefits provided by this Plan shall be unfunded. All amounts payable under this Plan to a Participant shall be paid from the general assets of the employer which principally employs the Participant (the "Obligated Employer"), and nothing contained in this Plan shall require the Obligated Employer to set aside or hold in trust any amounts or assets for the purpose of paying benefits to Participants. This Plan shall create only a contractual obligation on the part of the Obligated Employer and Participants shall have the status of general unsecured creditors of the Obligated Employer under the Plan with respect to amounts of Compensation they defer hereunder or any other obligation of the Obligated Employer to pay benefits pursuant hereto. Any funds of the Obligated Employer available to pay benefits pursuant to the Plan shall be subject to the claims of general creditors of the Obligated Employer, and may be used for any purpose by the Obligated Employer. Any insurance policy or other asset acquired or held by the Obligated Employer shall not be deemed to be held under any trust for the benefit of -22- Participant or to be security for the performance of the Obligated Employer's obligations pursuant hereto. Notwithstanding the preceding paragraph, the Obligated Employer may at any time transfer assets to a trust for purposes of paying all or any part of its obligations under this Plan. However, to the extent provided in the trust only, such transferred amounts shall remain subject to the claims of general creditors of the Obligated Employer. To the extent that assets are held in a trust when a Participant's benefits under the Plan become payable, the Plan Administrator shall direct the trustee to pay such benefits to the Participant from the assets of the trust. 10.3 Spendthrift Provision. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, except for a Qualified Domestic Relations Order, pursuant to Section 414(p) of the Internal Revenue Code, as amended, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 10.4 Plan Not An Employment Agreement. This Plan shall not be deemed to constitute an employment agreement between the parties hereto nor shall any provision, -23- hereof, restrict the right of Employer to discharge Participant as an employee of Employer or restrict Participant's right to terminate his employment. 10.5 Protective Provisions. Participant will cooperate with Employer by furnishing any and all information requested by Employer in order to facilitate the payment of benefits hereunder, taking such physical examinations as Employer may deem necessary and taking such other action as may be requested by Employer. If Participant refuses so to cooperate, is uninsurable or is insurable at other than standard rates, Participant shall be ineligible to participate in this Plan. If Participant commits suicide during the two-year period beginning on the date of his participation in the Plan, or if Participant makes any material misstatement of information or nondisclosure of medical history, then Participant shall not be considered as having been a Participant in the Plan and Participant or his Beneficiary shall thereupon be paid by Employer the total amount of such Participant's Compensation actually deferred hereunder, without interest. 10.6 Offset. If at the time benefit payments are to be made hereunder prior to a Change in Control, Participant or his Beneficiary or both are indebted to Employer, then the payments remaining to be made to Participant or his Beneficiary, or both may, at the discretion of Employer, be reduced by the amount of such indebtedness. 10.7 Guarantee of Performance. In consideration of each Participant's performance of valuable services that inure to the financial benefit of the Company, the Company does hereby agree to perform all of the obligations and responsibilities and pay any benefits due and owing to the Participant under the Plan if the Obligated Employer (as -24- defined in Section 10.2) designated to perform such obligations and responsibilities or pay such benefits fails or is unable to do so." ARTICLE XI. -- MISCELLANEOUS 11.1 Termination of Plan. Employer, upon written notice to Participants, prior to a Change in Control, shall have the right, at any time, to terminate this Plan. Such termination shall become effective when authorized by the Board of Directors of Employer and written notice is given to Participants. Upon termination of this Plan, Participant shall receive a Termination Benefit as provided for in Article VII, hereof, as if Participant's employment had terminated on the date of termination of this Plan. Except as otherwise provided in Paragraph 11.2, hereof, if such a Plan Termination occurs, pursuant to this Paragraph 11.1, each Participant's Termination Interest Earnings Rate, pursuant to Paragraph 7.1, hereof, shall equal the Interest Earnings Rate described in Paragraph 4.3, hereof. Notwithstanding anything contained in this Plan to the contrary, for a period of two (2) years following a Change in Control, this Plan shall not be terminated or amended in any way to reduce the benefits provided under this Plan, the Interest Earnings Rate or the Termination Interest Earnings Rate, or otherwise adversely affect any Participant's participation in this Plan. 11.2 Change of Tax Status. In the event that, as a result of statutory amendments to the Internal Revenue Code of 1954, as amended, there is a significant change (as determined by Plan Committee) in the Federal Income Tax consequences to Employer, with respect to establishment and maintenance of this Plan, and as a result of such change in -25- tax status and the impact thereof on Employer, Employer terminates this Plan, Participants shall be entitled to receive Termination Benefits as provided for in Article VII, hereof, as if the Participants' employment had terminated on the date of termination of this Plan. Notwithstanding the foregoing, if such a Plan Termination occurs, pursuant to this Paragraph 11.2, more than two years after the effective date of this Plan, as set by Plan Committee, each Participant's Termination Interest Earnings Rate, pursuant to Paragraph 7.1, hereof, shall equal the Interest Earnings Rate described in Paragraph 4.3, hereof. 11.3 Amendments and Modifications. Prior to a Change in Control, Employer may amend or alter this Plan, including amendments or alterations with respect to Participants' Benefits, at any time, and from time to time. Amendments shall be effective when authorized by the Board of Directors and upon written notice to Participants. In the event that any such amendment or alteration to this Plan is made by Employer which affects Participants' Benefits, any affected Participant may, within ninety (90) days after the effective date of such amendment or alteration, elect to terminate participation in the Plan. In the event that a Participant terminates participation in the Plan, pursuant to this Paragraph 11.4, but continues to be an employee of Employer, such-Participant shall be entitled to a Termination Benefit determined pursuant to Paragraph 7.1(b), hereof, except that for purposes hereof, the Termination Interest Earnings Rate shall equal the Interest Earnings Rate described in Paragraph 4.3, hereof. Such Benefit shall be payable to Participant pursuant to the provisions of Paragraph 7.3(a) or (b), as determined by Plan Committee in its sole discretion. -26- 11.4 Inurement. This Plan shall be binding upon and shall inure to the benefit of Employer and each Participant hereto and their respective heirs, executors, administrators, successors and assigns. 11.5 Governing Law. This Plan is made pursuant to, and shall be governed by, the laws of the State of Georgia, in all respects, including matters of construction, validity and performance. ARTICLE XII. - CHANGE IN CONTROL 12.1 Cause. For purposes of this Plan, a termination for "Cause" is a termination evidenced by a resolution adopted in good faith by two-thirds of the Board that the Participant (i) intentionally and continually failed to substantially perform his duties with the Employer (other than a failure resulting from the Participant's incapacity due to physical or mental illness) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to the Participant specifying the manner in which the Participant has failed to substantially perform, or (ii) intentionally engaged in conduct which is demonstrably and materially injurious to the Employer, monetarily or otherwise; provided, however that no termination of the Participant's employment shall be for Cause as set forth in clause (ii) above until (x) there shall have been delivered to the Participant a copy of a written notice setting forth that the Participant was guilty of the conduct set forth in clause (ii) and specifying the particulars thereof in detail, and (y) the Participant shall have been provided an opportunity to be heard by the Board (with the assistance of the Participant's counsel if the Participant so desires). No act, nor failure to act, on the Participant's part, shall be considered "intentional" unless he -27- has acted or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Employer. Notwithstanding anything contained in this Plan to the contrary, in the case of any Participant who is a party to a Severance Protection Agreement, no failure to perform by the Participant after a Notice of Termination (as defined in the Participant's Severance Protection Agreement) is given by the Participant shall constitute Cause for purposes of this Plan. 12.2 Change in Control. For purposes of this Plan, a Change in Control shall mean any of the following events: (a) The acquisition (other than from the Employer) by any "Person" (as the term person is used for purposes of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Employer's then outstanding voting securities; or (b) The individuals who, as of September 21, 1989, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Employer's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; or (c) Approval by stockholders of the Employer of (1) a merger or consolidation involving the Employer if the stockholders of the Employer, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, -28- directly or indirectly, more than seventy percent (70%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Employer outstanding immediately before such merger or consolidation or (2) a complete liquidation or dissolution of the Employer or an agreement for the sale or other disposition of all or substantially all of the assets of the Employer. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to Section (a), solely because twenty percent (20%) or more of the combined voting power of the Employer's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Employer or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Employer in the same proportion as their ownership of stock in the Employer immediately prior to such acquisition. 12.3 Termination of Employment . Notwithstanding anything contained in this Plan to the contrary, if a Participant's employment is terminated by Employer (other than for Cause) or by the Participant for any reason within two (2) years following a Change in Control, Employer shall, within five (5) days, pay to the Participant a lump sum cash payment of his or her Deferred Benefit Account as of the date of termination of employment plus interest on such Account at the Interest Earnings Rate to the date of payment. 12.4 Amendment or Termination . Any amendment or termination of this Plan which a Participant reasonably demonstrates (i) was at the request of a third party who -29- has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, and which was not consented to in writing by the Participant shall be null and void, and shall have no effect whatsoever, with respect to the Participant. -30- Appendix 1 Adopting Employers North Bros., Inc. National Service Industries, Inc. of Georgia NSI Enterprises, Inc. Zep Manufacturing Company NSI Services, L.P. SCHEDULE A NATIONAL SERVICE INDUSTRIES, INC. SENIOR MANAGEMENT BENEFIT PLAN ELECTION TO PARTICIPATE AND DEFER COMPENSATION AND BENEFIT PAYMENT ELECTION To the Plan Committee: I hereby elect to participate in NATIONAL SERVICE INDUSTRIES, INC. SENIOR MANAGEMENT BENEFIT PLAN, (the "Plan") pursuant to the terms and conditions of such Plan contained in the Plan document adopted by NATIONAL SERVICE INDUSTRIES, INC., ("Employer"), all of which terms and conditions are incorporated herein by reference. I. COMPENSATION DEFERRAL ELECTION I hereby elect to defer $___________ per Plan Year of my Salary and/or $_____________ per Plan Year of my Bonus, but no less than a total of $2,500.00 per Plan Year, earned after the date of this election. I understand that if my Bonus is less than such Bonus Deferral, the difference shall be a Salary Deferral for the next Plan Year. II. DEFERRAL TERM Salary Deferral. The total amount of such Salary Deferral shall be - ------- deferred ratably, over each pay period, for four (4) eight (8) consecutive years, commencing on September 1, 1985. (Check One. If you desire both a four (4) year and an eight (8) year deferral, complete a separate Schedule A for each election). Bonus Deferral. The total amount of such Bonus Deferral shall be - ------- deferred annually for _________ four (4) eight (8) consecutive years, commencing with the Bonus payable with respect to the Plan Year beginning September 1, 1985. (Check One. If you desire both a four (4) year and an eight (8) year deferral, complete a separate Schedule A for each election). III. ROLLOVER CONTRIBUTION I hereby elect to make a Rollover Contribution of $______________ or - ------- all ____________ (indicate dollar amount or all) from my Primary Account in any of Employer's Deferred Compensation Plans. IV. BENEFIT PAYMENT ELECTION (A) RETIREMENT BENEFITS I hereby elect to receive my Retirement Benefits as follows: (i) Installment payments payable annually quarterly monthly, for fifteen (15) consecutive years. (Check One). - ------- (ii) Lump Sum Distribution. - ------- (B) RETIREMENT BENEFIT COMMENCEMENT DATE I hereby elect to have my Retirement Benefits commence on the first day of the second calendar month following my: (i) Normal Retirement Date - ------- (ii) Actual Retirement - ------- (iii) _____ (Enter Date between age 65 and age 70 years but on or after actual retirement) - ------- (C) DEATH BENEFITS I hereby elect to have my post-retirement Death Benefit paid to my Beneficiary or Beneficiaries (or legal representative, as the case may be), as follows: Continuation of my Retirement Benefit -------------- Lump Sum Distribution -------------- V. BENEFICIARY DESIGNATION I designate the following person(s) as Primary and Contingent Beneficiaries of the Death Benefit under the Plan: Primary Beneficiary: Contingent Beneficiary(s): (if Primary Beneficiary has not survived) - --------------------------------- ---------------------------------------- - --------------------------------- ---------------------------------------- - --------------------------------- ---------------------------------------- -2- I retain the right, at any time, to change such Beneficiary by giving written notice of such change to the Plan Administrative Committee. Dated: ------------------------------- ------------------------------------ S.S.N. ------------------------------ -3- EX-10.IIIA10A 7 g76849exv10wiiia10a.txt EX-10.IIIA10A LONG TERM INCENTIVE PLAN EXHIBIT 10(III) A10(a) NATIONAL SERVICE INDUSTRIES, INC. LONG-TERM INCENTIVE PROGRAM 1. Purpose. The purposes of the National Service Industries, Inc. Long-Term Incentive Program (the "Program") are to provide additional incentives to those officers and key employees of National Service Industries, Inc. (the "Company") and its Subsidiaries (as hereinafter defined) whose substantial contributions are essential to the continued growth and success of the Company's business to strengthen their commitment to the Company and its Subsidiaries, to motivate those officers and employees to perform their assigned responsibilities faithfully and diligently and to attract and retain competent and dedicated individuals whose efforts will result in the long-term growth and profitability of the Company. To accomplish these purposes, the Program provides that the Company may grant Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Units and Performance Shares (as each term is hereinafter defined). 2. Definitions. For purposes of the Program: (a) "Adjusted Fair Market Value" means, in the event of a Change in Control, the greater of (1) the highest price per Share paid to holders of the Shares in any transaction (or series of transactions) constituting or resulting in a Change in Control or (ii) the highest Fair Market Value of a Share during the ninety (90) day period ending on the date of a Change in Control. (b) "Agreement" means the written agreement between the Company and an Optionee or Grantee evidencing the grant of an Option or Award and setting forth the terms and conditions thereof. (c) "Award" means a grant of Restricted Stock, Stock Appreciation Rights, Performance Awards or any or all of them. (d) "Board" means the Board of Directors of the Company. (e) "Change in Capitalization" means any increase or reduction in the number of Shares, or any change (including, but not limited to, a change in value) or exchange of Shares for a different number or kind of shares or other securities of the Company, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, public offering, private placement, change in corporate structure or otherwise, which in the judgment of the Committee is material or significant. (f) "Change in Control" means any of the following events: (1) The acquisition (other than from the Company) by any "Person" (as the term is used for purposes of Sections 13(d) or 14(d) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities; or (2) The individuals who, as of September 21, 1989, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board, provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; or (3) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than seventy percent (70%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to Section 2(f)(1), solely because twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Committee" means a committee consisting of at least three (3) Disinterested Persons appointed by the Board to administer the Program and to perform the functions set forth herein. (i) "Company" means National Service Industries, Inc. (j) "Disability" means a physical or mental infirmity which impairs the Optionee's or Grantee's ability to substantially perform his duties for a period of one hundred eighty (180) consecutive days. (k) "Disinterested Person" means a disinterested administrator with respect to the Company or any Subsidiary as described in Rule 16b-3(d)(3) under the Exchange Act. (1) "Division" means any of the operating units or divisions of the Company designated as a Division by the Committee. (m) "Eligible Employee" means any officer or other designated employees of the Company or a Subsidiary designated by the Committee as eligible to receive Options or Awards subject to the conditions set forth herein. (n) "Exchange Act" means the Securities Exchange Act of 1984, as amended. (o) "Fair Market Value" means the fair market value of the Shares as determined in good faith by the Committee; provided, however, that (A) if the Shares are admitted to trading on a national securities exchange, Fair Market Value on any date shall be the last sale price reported for the Shares on such exchange on such date or, if no sale was reported on such date, on the last date preceding such date on which a sale was reported, (B) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and have been designated as a National Market System ("NMS") security, Fair Market Value on any date shall be the last sale price reported for the Shares on such system on such date or on the last day preceding such date on which a sale was reported, or (C) if the Shares are admitted to quotation on NASDAQ and have not been designated a NMS security, Fair Market Value on any date shall be the average of the highest bid and lowest asked prices of the Shares on such system on such date. (p) "Good Objective" means a challenging and above average level of performance of the Company, a Subsidiary or a Division during a Performance Cycle for which a Performance Award is granted, as determined by the Committee at the time such Performance Award is granted. (q) "Grantee" means a person to whom an Award has been granted under the Program. (r) "Incentive Stock Option" means an Option within the meaning of Section 422A of the Code. (s) "Maximum Realistic Objective" means an excellent level of performance of the Company, a Subsidiary or a Division during a Performance Cycle for which a Performance Award is granted, as determined by the Committee at the time such Performance Award is granted. (t) "Minimum Acceptable Objective" means a minimum level of performance of the Company, a Subsidiary or a Division during a Performance Cycle for which a Performance Award is granted, as determined by the Committee at the time such Performance Award is granted. (u) "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. (v) "Option" means an Incentive Stock Option, a Nonqualified Stock Option, or either or both of them. -2- (w) "Optionee" means a person to whom an Option has been granted under the Program. (x) "Performance Awards" means Performance Units, Performance Shares or either or both of them. (y) "Performance Cycle" means the time period specified by the Committee at the time a Performance Award is granted during which the performance of the Company, a Subsidiary or a Division will be measured, which period shall be at least two fiscal years. (z) "Performance Shares" means Restricted Stock granted under Section 9 of the Program. (aa) "Performance Unit" means Performance Units granted under Section 9 of the Program. (bb) "Restricted Stock" means Shares issued or transferred to an Eligible Employee which are subject to restrictions. Restricted Stock may be subject to restrictions which lapse over time without regard to the performance of the Company, a Subsidiary or a Division, pursuant to Section 8 hereof or may be awarded as Performance Shares pursuant to Section 9 hereof. (cc) "Retirement" means the voluntary termination of employment by the Grantee or Optionee at any time after the Grantee attains age 65. (dd) "Shares" means the common stock, par value $1.00 per share, of the Company (including any new, additional or different stock or securities resulting from a Change in Capitalization). (ee) "Stock Appreciation Right" means a right to receive all or some portion of the increase in the value of the Shares as provided in Section 7 hereof. (ff) "Subsidiary" means any corporation in an unbroken chain of corporations, beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (gg) "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 425(a) of the Code, which issues or assumes a stock option in a transaction to which Section 425(a) of the Code applies. (hh) "Ten-Percent Stockholder" means an Eligible Employee, who, at the time an Incentive Stock Option is to be granted to him, owns (within the meaning of Section 422A(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or of a parent or a subsidiary within the meaning of Section 422A(b)(6) of the Code. 3. Administration. (a) The Program shall be administered by the Committee which shall hold meetings at such times as may be necessary for the proper administration of the Program. The Committee shall keep minutes of its meetings. A quorum shall consist of not less than three members of the Committee and a majority of a quorum may authorize any action. Each member of the Committee shall be a Disinterested Person. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Program, Agreements, Options or Awards, and all members of the Committee shall be fully indemnified by the Company with respect to any such action, determination or interpretation. (b) Subject to the express terms and conditions set forth herein, the Committee or the Board shall have the power from time to time (1) to determine those Eligible Employees to whom Options shall be granted under the Program and the number of Incentive Stock Options and/or Nonqualified Stock Options to be granted to each Eligible Employee and to prescribe the terms and conditions (which need not be identical) of each Option, including the purchase price per Share subject to each Option, and make any amendment or modification to any Agreement consistent with the terms of the Program; -3- (2) to select those Eligible Employees to whom Awards shall be granted under the Program and to determine the number of Performance Units, Performance Shares, Shares of Restricted Stock, and/or Stock Appreciation Rights to be granted pursuant to each Award, the terms and conditions of each Award, including the restrictions or performance criteria relating to such Units, Shares or Rights, the maximum value of each Performance Unit and Performance Share and whether Stock Appreciation Rights will be granted alone, or in conjunction with or related to an Option, and make any amendment or modification to any Agreement consistent with the terms of the Program; (c) Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time: (1) to construe and interpret the Program and the Options and Awards granted thereunder and to establish, amend and revoke rules and regulations for the administration of the Program, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Program or in any Agreement, in the manner and to the extent it shall deem necessary or advisable to make the Program fully effective, and all decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, a Subsidiary, and the Optionees and Grantees, as the case may be; (2) to determine the duration and purposes for leaves of absence which may be granted to an Optionee or Grantee on an individual basis without constituting a termination of employment or service for purposes of the Program; (3) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Program; (4) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Program; and provided however, that the Committee may delegate to senior members of the management of the Company the right to exercise those powers described in Sections (b)(1) and (2) with respect to Eligible Employees who are not employed in the Company's corporate headquarters (and staff vice presidents and assistant officers). 4. Stock Subject to Program. (a) The maximum number of Shares that may be issued or transferred pursuant to Options and Awards under the Program is 1,750,000 Shares (or the number and kind of shares of stock or other securities to which such Shares are adjusted upon a Change in Capitalization pursuant to Section 11) and the Company shall reserve for the purposes of the Program, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Board. (b) Not more than fifteen percent (15%) of the Shares referred to in Section 4(a) may be issued or transferred in connection with Awards of Restricted Stock made pursuant to Section 8 (other than Awards of Performance Shares pursuant to Section 9). (c) Whenever any outstanding Option or Award or portion thereof expires, is cancelled or is otherwise terminated for any reason (other than by exercise of the Option or any Stock Appreciation Right), the Shares allocable to the cancelled or otherwise terminated portion of such Option or Award may again be the subject of Options and Awards hereunder. (d) Whenever any Shares subject to an Award or Option are forfeited for any reason pursuant to the terms of the Program, such Shares may again be the subject of Options and Awards hereunder. 5. Eligibility. Subject to the provisions of the Program, the Committee shall have full and final authority to select those Eligible Employees who will receive Options and/or Awards provided, however, that no Eligible Employee shall receive any Incentive Stock Options unless he is an employee of the Company, a parent or a subsidiary (within the meaning of Section 422A of the Code) at the time the Incentive Stock Option is granted. -4- 6. Options. The Committee may grant Options in accordance with the Program and the terms and conditions of the Option shall be set forth in an Agreement. Each Option and Agreement shall be subject to the following conditions: (a) Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Option shall be set forth in the Agreement, provided that the purchase price per Share under each Option shall not be less than 100% of the Fair Market Value of a Share at the time the Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). (b) Duration. Options granted hereunder shall be for such term as the Committee shall determine, provided that no Option shall be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). The Committee may, subsequent to the granting of any Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. (c) Non-transferability. No Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Optionee only by the Optionee or his guardian or legal representative. The terms of such Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. (d) Vesting. Subject to Section 6(i) hereof, each Option shall be exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee and set forth in the Agreement. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time. (e) Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise, as determined by the Committee in its discretion, in cash, by check, or by transferring Shares to the Company upon such terms and conditions as determined by the Committee. The written notice pursuant to this Section 6(e) may also provide instructions from the Optionee to the Company that upon receipt of the purchase price in cash from the Optionee's broker or dealer, designated as such on the written notice, in payment for any Shares purchased pursuant to the exercise of an Option, the Company shall issue such Shares directly to the designated broker or dealer. Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Agreement evidencing the Option and the Agreement evidencing any related Stock Appreciation Right to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. No fractional Shares shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest number of whole Shares. (f) Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (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. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares. (g) Termination of Employment. The Agreement shall set forth the terms and conditions of the Option upon the termination of the Optionee's employment with the Company, Subsidiary or a Division (including a Grantee's ceasing to be employed by a Subsidiary or Division as a result of the sale of such Subsidiary or Division or an interest in such Subsidiary or Division) as the Committee may, in its discretion, determine at the time the Option is granted or thereafter; provided, however, that no Option shall be exercisable beyond its maximum term as described in Section 6(b) hereof. -5- (h) Modification or Substitution. Subject to the terms of the Program, the Committee may, in its discretion, modify outstanding Options or accept the surrender of outstanding Options (to the extent not exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, no modification of an Option shall adversely alter or impair any rights or obligations under the Agreement without the Optionee's consent. (i) Effect of Change in Control. Notwithstanding anything contained in the Program or an Agreement to the contrary, in the event of a Change in Control, (i) all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable and (ii) an Optionee will be permitted to surrender for cancellation within sixty (60) days after such Change in Control, any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an amount equal to the excess, if any, of (x) (A) except as described in clause (B) below, the greater of (1) the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered or (2) the Adjusted Fair Market Value of the Shares subject to the Option or portion thereof surrendered or (B) in the case of an Incentive Stock Option, the Fair Market Value, at the time of surrender, of the Shares subject to the Option or portion thereof surrendered, over (y) the aggregate purchase price for such Shares under the Option; provided, however, that in the case of an Option granted within six (6) months prior to the Change in Control to any Optionee who may be subject to liability under Section 16(b) of the Exchange Act, such Optionee shall be entitled to surrender for cancellation his or her Option during the sixty (60) day period commencing upon the expiration of six (6) months from the date of grant of any such Option. 7. Stock Appreciation Rights. The Committee may, in its discretion, either alone or in connection with the grant of an Option, grant Stock Appreciation Rights in accordance with the Program and the terms and conditions of which shall be set forth in an Agreement. If granted in connection with an Option, a Stock Appreciation Right shall cover the same Shares covered by the Option (or such lesser number of Shares as the Committee may determine) and shall, except as provided in this Section 7, be subject to the same terms and conditions as the related Option. (a) Time of Grant. A Stock Appreciation Right may be granted (i) at any time if unrelated to an Option, or (ii) if related to an Option, either at the time of grant, or at any time thereafter during the term of the Option. (b) Stock Appreciation Right Related to an Option. (1) Payment. A Stock Appreciation Right granted in connection with an Option shall entitle the holder thereof, upon exercise of the Stock Appreciation Right or any portion thereof, to receive payment of an amount computed pursuant to Section 7(b)(3). (2) Exercise. Subject to Section 7(f), a Stock Appreciation Right granted in connection with an Option shall be exercisable at such time or times and only to the extent that the related Option is exercisable, and will not be transferable except to the extent the related Option may be transferable. A Stock Appreciation Right granted in connection with an Incentive Stock Option shall be exercisable only if the Fair Market Value of a Share on the date of exercise exceeds the purchase price specified in the related Incentive Stock Option Agreement. (3) Amount Payable. Except as otherwise provided in Section 7(i), upon the exercise of a Stock Appreciation Right related to an Option, the Grantee shall be entitled to receive an amount determined by multiplying (A) the excess of the Fair Market Value of a Share on the date of exercise of such Stock Appreciation Right over the per Share purchase price under the related Option, by (B) the number of Shares as to which such Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the Agreement evidencing the Stock Appreciation Right at the time it is granted. (4) Treatment of Related Options and Stock Appreciation Rights Upon Exercise. Upon the exercise of a Stock Appreciation Right granted in connection with an Option, the Option shall be cancelled to the extent of the number of Shares as to which the Stock Appreciation Right is exercised, and upon the exercise of an Option granted in connection with a Stock Appreciation -6- Right or the surrender of such Option pursuant to Section 6(i), the Stock Appreciation Right shall be cancelled to the extent of the number of Shares as to which the Option is exercised or surrendered. (c) Stock Appreciation Right Unrelated to an Option. The Committee may grant to Eligible Employees Stock Appreciation Rights unrelated to Options. Stock Appreciation Rights unrelated to Options shall contain such terms and conditions as to exercisability (subject to Section 7(f)), vesting and duration as the Committee shall determine, but in no event shall they have a term of greater than ten (10) years. The amount payable upon exercise of a Stock Appreciation Right shall be determined in accordance with Section 7(b)(3) or 7(i), as the case may be, except that "Fair Market Value of a Share on the date of the grant of the Stock Appreciation Right" shall be substituted in clause (A) of Section 7(b)(3) for "purchase price under the related Option." (d) Method of Exercise. Stock Appreciation Rights shall be exercised by a Grantee only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares with respect to which the Stock Appreciation Right is being exercised. If requested by the Committee, the Grantee shall deliver the Agreement evidencing the Stock Appreciation Right being exercised and the Agreement evidencing any related Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Grantee. (e) Form of Payment. Payment of the amount determined under Sections 7(b)(3) or 7(c) may be made in the discretion of the Committee, solely in whole Shares in a number determined at their Fair Market Value on the date preceding the date of exercise of the Stock Appreciation Right, or solely in cash, or in a combination of cash and Shares. If the Committee decides to make full payment in Shares and the amount payable results in a fractional Share, payment for the fractional Share will be made in cash. Notwithstanding the foregoing, no payment in the form of cash may be made upon the exercise of a Stock Appreciation Right pursuant to Sections 7(b)(3) or 7(c) to an officer of the Company or a Subsidiary who is subject to liability under Section 16(b) of the Exchange Act, unless the exercise of such Stock Appreciation Right is made during the period beginning on the third business day and ending on the twelfth business day following the date of release for publication of the Company's quarterly or annual statements of earnings. (f) Restrictions. No Stock Appreciation Right may be exercised before the date six (6) months after the date it is granted, except in the event that the death or Disability of the Grantee occurs before the expiration of the six-month period. (g) Termination of Employment. The Agreement shall set forth the terms and conditions of the Award upon the termination of the Grantee's employment with the Company, Subsidiary or a Division (including a Grantee's ceasing to be employed by a Subsidiary or Division as a result of the sale of such Subsidiary or Division or an interest in such Subsidiary or Division) as the Committee may, in its discretion, determine at the time the Stock Appreciation Right is granted or thereafter. (h) Modification or Substitution. Subject to the terms of the Program, the Committee may modify outstanding Awards of Stock Appreciation Rights or accept the surrender of outstanding Awards of Stock Appreciation Rights (to the extent not exercised) and grant new Awards in substitution for them. Notwithstanding the foregoing, no modification of an Award shall adversely alter or impair any rights or obligations under the Agreement without the Grantee's consent. (i) Effect of Change in Control. Notwithstanding anything contained in this Program to the contrary, in the event of a Change in Control, subject to Section 7(f), all Stock Appreciation Rights shall become immediately and fully exercisable. Notwithstanding Sections 7(b)(3), 7(c) and 7(e), upon the exercise of a Stock Appreciation Right or any portion thereof during the sixty (60) day period following a Change in Control, the amount payable shall be in cash and shall be determined by reference to (A) except as provided in clause (B) below, the greater of (x) the Fair Market Value of the Shares on the date preceding the date of such exercise and (y) the Adjusted Fair Market Value of the Shares on the date of such exercise or (B) in the case of a Stock Appreciation Right related to an Incentive Stock Option, the Fair Market Value of the Shares on the date of such exercise; provided, however, that in the case of a Stock Appreciation Right granted within six (6) months prior to the Change in Control to any Grantee who may be subject to liability under Section 16(b) of the Exchange Act, such Grantee shall be entitled to exercise -7- his Stock Appreciation Right during the sixty (60) day period commencing upon the expiration of six (6) months from the date of grant of any such Stock Appreciation Right. 8. Restricted Stock. The Committee may grant Awards of Restricted Stock, and may issue Shares of Restricted Stock in payment in respect of vested Performance Units (as hereinafter provided in Section 9(b)), which shall be evidenced by an Agreement between the Company and the Grantee. Each Agreement shall contain such restrictions, terms and conditions as the Committee may, in its discretion, determine and (without limiting the generality of the foregoing) such Agreements may require that an appropriate legend be placed on Share certificates. Awards of Restricted Stock shall be subject to the following terms and provisions: (a) Rights of Grantee. Shares of Restricted Stock granted pursuant to an Award hereunder shall be issued in the name of the Grantee as soon as reasonably practicable after the Award is granted provided that the Grantee has executed an Agreement evidencing the Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require as a condition to the issuance of such Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted Stock Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require within the time period prescribed by the Committee at the time the Award is granted, the Award shall be null and void. At the discretion of the Committee, Shares issued in connection with a Restricted Stock Award shall be deposited together with the stock powers with an escrow agent designated by the Committee. Unless the Committee determines otherwise and as set forth in the Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall have all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares. (b) Non-transferability. Until any restrictions upon the Shares of Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth in Section 8(c), such Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated, nor shall they be delivered to the Grantee. (c) Lapse of Restrictions. (1) Generally. Restrictions upon Shares of Restricted Stock awarded hereunder shall lapse at such time or times and on such terms and conditions as the Committee may determine. (2) Effect of Change in Control. Notwithstanding anything contained in the Program to the contrary, in the event of a Change in Control, all restrictions upon any Shares of Restricted Stock (other than Performance Shares) shall lapse immediately and all such Shares shall become fully vested in the Grantee. (d) Termination of Employment. The Agreement shall set forth the terms and conditions of the Award of Shares of Restricted Stock upon the termination of the Grantee's employment with the Company, a Subsidiary or a Division (including a Grantee's ceasing to be employed by a Subsidiary or Division as a result of the sale of such Subsidiary or Division or an interest in such Subsidiary or Division) as the Committee may, in its discretion, determine at the time the Award is granted or thereafter. (e) Modification or Substitution. Subject to the terms of the Program, the Committee may modify outstanding Awards of Restricted Stock or accept the surrender of outstanding Awards of Restricted Stock (to the extent not exercised) and grant new Awards in substitution for them. Notwithstanding the foregoing, no modification of an Award shall adversely alter or impair any rights or obligations under the Agreement without the Grantee's consent. (f) Treatment of Dividends. At the time the Award of Shares of Restricted Stock is granted, the Committee may, in its discretion, determine that the payment to the Grantee of dividends, or a specified portion thereof, declared or paid on such Shares by the Company shall be (i) deferred until the lapsing of the restrictions imposed upon such Shares and (ii) held by the Company for the account of the Grantee until such time. In the event of such deferral, there shall be credited at the end of each year (or portion thereof) interest on the amount of the account at the beginning of the year at a rate per annum as the Committee, in its discretion, may determine. Payment of deferred dividends, together with interest accrued thereon, shall -8- be made upon the lapsing of restrictions imposed on such Shares, and any dividends deferred (together with any interest accrued thereon) in respect of any Shares of Restricted Stock shall be forfeited upon the forfeiture of such Shares pursuant to Section 8(d) or otherwise. (g) Delivery of Shares. Upon the lapse of the restrictions on Shares of Restricted Stock, the Committee shall cause a stock certificate to be delivered to the Grantee with respect to such Shares, free of all restrictions hereunder. 9. Performance Awards. (a) Performance Objectives. Performance objectives for Performance Awards may be expressed in terms of (i) earnings per Share, (ii) pre-tax profits, (iii) net earnings or net worth, (iv) return on equity or assets, (v) any combination of the foregoing, or (vi) any other standard or standards deemed appropriate by the Committee at the time the Award is granted. Performance objectives may be in respect of the performance of the Company and its Subsidiaries (which may be on a consolidated basis), a Subsidiary or a Division. Performance objectives may be absolute or relative and may be expressed in terms of a progression within a specified range, with the Grantee becoming vested in (i) a minimum percentage of such Performance Awards in the event the Minimum Acceptable Objective is met or, if surpassed, a greater percentage (ii) an intermediate percentage of such Performance Awards in the event the Good Objective is met or, if surpassed, a greater percentage and (iii) one hundred percent (100%) of such Performance Awards in the event the Maximum Realistic Objective is met or surpassed. Prior to the end of a Performance Cycle, the Committee, in its discretion, may adjust the performance objectives to reflect a Change in the Capitalization, a change in the tax rate or book tax rate of the Company or any Subsidiary, or any other event which may materially affect the performance of the Company, a Subsidiary or a Division, including, but not limited to, market conditions or a significant acquisition or disposition of assets or other property by the Company, a Subsidiary or a Division. (b) Performance Units. The Committee may grant Performance Units, the terms and conditions of which shall be set forth in an Agreement between the Company and the Grantee. Each Performance Unit shall, contingent upon the attainment of specified performance objectives within the Performance Cycle, represent one (1) Share. Each Agreement shall specify the number of the Performance Units to which it relates, the performance objectives which must be satisfied in order for the Performance Units to vest, the Performance Cycle within which such objectives must be satisfied, and the form of payment in respect of vested Performance Units. (1) Vesting and Forfeiture. A Grantee shall become vested with respect to the Performance Units to the extent that the performance objectives set forth in the Agreement are satisfied for the Performance Cycle. Subject to Section 9(d) hereof, if the Minimum Acceptable Objective specified in the Agreement is not satisfied for the applicable Performance Cycle, the Grantee's rights with respect to the Performance Shares shall be forfeited. (2) Payment of Awards. Payment of Performance Units to Grantees in respect of vested Performance Units shall be made within sixty (60) days after the last day of the Performance Cycle to which such Award relates. Subject to Section 9(d), such payments may be made entirely in Shares, entirely in cash, or in such combination of Shares and cash as the Committee in its discretion, shall determine at any time prior to such payment; provided, however, that if the Committee in its discretion determines to make such payment entirely or partially in Shares of Restricted Stock, the Committee must determine the extent to which such payment will be in Shares of Restricted Stock at the time the Award is granted. Except as provided in Section 9(d), if payment is made in the form of cash, the amount payable in respect of any Share shall be equal to the Fair Market Value of such Share on the last day of the Performance Cycle. (3) Termination of Employment. The Agreement shall set forth the terms and conditions of the Award of Performance Units upon the termination of the Grantee's employment with the Company, a Subsidiary, or a Division (including a Grantee's ceasing to be employed by a Subsidiary or Division as a result of the sale of such Subsidiary or Division or an interest in such Subsidiary or Division) as the Committee may, in its discretion, determine at the time the Award is granted or thereafter. -9- (c) Performance Shares. The Committee, in its discretion, may grant Awards of Performance Shares and shall be evidenced by an Agreement between the Company and the Grantee. Each Agreement shall contain such restrictions, if any, and the terms and conditions as the Committee may, in its discretion, require, and (without limiting the generality of the foregoing) such Agreements may require that an appropriate legend be placed on Share certificates. Awards of Performance Shares shall be subject to the following terms and provisions: (1) Rights of Grantee. The Committee shall provide at the time an Award of Performance Shares is made, the time or times at which the Performance Shares granted pursuant to such Award hereunder shall be issued in the name of the Grantee; provided, however, that no Performance Shares shall be issued until the Grantee has executed an Agreement evidencing the Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require as a condition to the issuance of such Performance Shares. If a Grantee shall fail to execute the Agreement evidencing an Award of Performance Shares, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require within the time period prescribed by the Committee at the time the Award is granted, the Award shall be null and void. At the discretion of the Committee, Shares issued in connection with an Award of Performance Shares shall be deposited together with the stock powers with an escrow agent designated by the Committee. Except as restricted by the terms of the Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall have, in the discretion of the Committee, all of the rights of a stockholder with respect to such Shares, including the right to vote the shares and to receive all dividends or other distributions paid or made with respect to the shares. (2) Non-transferability. Until any restrictions upon the Performance Shares awarded to a Grantee shall have lapsed in the manner set forth in Sections 9(c)(3) or 9(d), such Performance Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated, nor shall they be delivered to the Grantee. The Committee may also impose such other restrictions and conditions on the Performance Shares, if any, as it deems appropriate. (3) Lapse of Restrictions. Subject to Section 9(d), restrictions upon Performance Shares awarded hereunder shall lapse and such Performance Shares shall become vested at such time or times and on such terms, conditions and satisfaction of performance objectives as the Committee may, in its discretion, determine at the time an Award is granted. (4) Termination of Employment. The Agreement shall set forth the terms and conditions of the Award of Performance Shares upon the termination of the Grantee's employment with the Company, a Subsidiary or a Division (including a Grantee's ceasing to be employed by a Subsidiary or Division as a result of the sale of such Subsidiary or Division or an interest in such Subsidiary or Division) as the Committee may, in its discretion, determine at the time the Award is granted or thereafter. (5) Treatment of Dividends. At the time the Award of Performance Shares is granted, the Committee may, in its discretion, determine that the payment to the Grantee of dividends, or a specified portion thereof, declared or paid on Performance Shares issued by the Company to the Grantee shall be (i) deferred until the lapsing of the restrictions imposed upon such Performance Shares and (ii) held by the Company for the account of the Grantee until such time. In the event of such deferral, there shall be credited at the end of each year (or portion thereof) interest on the amount of the account at the beginning of the year at a rate per annum as the Committee, in its discretion, may determine. Payment of deferred dividends, together with interest accrued thereon as aforesaid, shall be made upon the lapsing of restrictions imposed on such Performance Shares, except that any dividends deferred (together with any interest accrued thereon) in respect of any Performance Shares shall be forfeited upon the forfeiture of such Performance Shares pursuant to Section 9(c)(4) or otherwise. (6) Delivery of Shares. Upon the lapse of the restrictions on Performance Shares awarded hereunder, the Committee shall cause a stock certificate to be delivered to the Grantee -10- with respect to such Shares, free of all restrictions hereunder. (d) Effect of Change in Control. Notwithstanding anything contained in the Program to the contrary, in the event of a Change in Control: (1) With respect to the Performance Units, the Grantee shall (i) become vested in a percentage of Performance Units as determined by the Committee at the time of the Award of such Performance Units and as set forth in the Agreement and (ii) be entitled to receive in respect of all Performance Units which become vested as a result of a Change in Control, a cash payment within ten (10) days after such Change in Control equal to the product of the Adjusted Fair Market Value of a Share multiplied by the number of Performance Units which become vested in accordance with this Section 9(d); and (2) With respect to the Performance Shares, all restrictions shall lapse immediately on all or a portion of the Performance Shares as determined by the Committee at the time of the Award of such Performance Shares and as set forth in the Agreement. (e) Non-transferability. No Performance Awards shall be transferable by the Grantee otherwise than by will or the laws of descent and distribution. (f) Modification or Substitution. Subject to the terms of the Program, the Committee may modify outstanding Performance Awards or accept the surrender of outstanding Performance Awards and grant new Performance Awards in substitution for them. Notwithstanding the foregoing, no modification of a Performance Award shall adversely alter or impair any rights or obligations under the Agreement without the Grantee's consent. 10. Loans. (a) The Company or any Subsidiary may make loans to a Grantee or Optionee in connection with the exercise of an Option, subject to the following terms and conditions and such other terms and conditions not inconsistent with the Program including the rate of interest, if any, as the Committee shall impose from time to time. (b) No loan made under the Program shall exceed the sum of (i) the aggregate purchase price payable pursuant to the Option with respect to which the loan is made, plus (ii) the amount of the reasonably estimated income taxes payable by the Optionee or Grantee with respect to the Option or Award. In no event may any such loan exceed the Fair Market Value, at the date of exercise, of any such Shares. (c) No loan shall have an initial term exceeding ten (10) years; provided, however, that loans under the Program shall be renewable at the discretion of the Committee. (d) Loans under the Program may be satisfied by an Optionee or Grantee, as determined by the Committee, in cash or, with the consent of the Committee, in whole or in part by the transfer to the Company of Shares whose Fair Market Value on the date of such payment is equal to the cash amount for which such Shares are transferred. (e) A loan shall be secured by a pledge of Shares with a Fair Market Value of not less than the principal amount of the loan. After partial repayment of a loan, pledged Shares no longer required as security may be released into escrow or pursuant to the terms of the Option, Award or escrow agreement to the Optionee or Grantee. 11. Adjustment Upon Changes in Capitalization. (a) In the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to the maximum number and class of Shares or other stock or securities with respect to which Options or Awards may be granted under the Program, the number and class of Shares or other stock or securities which are subject to outstanding Options or Awards granted under the Program, and the purchase price therefor, if applicable. (b) Any such adjustment in the Shares or other stock or securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as -11- not to constitute a modification as defined by Section 425(h)(3) of the Code and only to the extent otherwise permitted by Sections 422A and 425 of the Code. (c) If, by reason of a Change in Capitalization, a Grantee of an Award shall be entitled to, or an Optionee shall be entitled to exercise an Option with respect to, new, additional or different shares of stock, securities, Performance Units or Performance Shares (other than rights or warrants to purchase securities), such new additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Performance Units or Performance Shares pursuant to the Award or Shares subject to the Option, as the case may be, prior to such Change in Capitalization. 12. Effect of Certain Transactions. Subject to Sections 6(i), 7(i), 8(c)(2) and 9(d), in the event of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Program and the Options and Awards issued hereunder shall continue in effect in accordance with their respective terms and each Optionee and Grantee shall be entitled to receive in respect of each Share subject to any outstanding Options or Awards, as the case may be, upon exercise of any Option or Award or payment or transfer in respect of any Award, the same number and kind of stock, securities, cash, property, or other consideration that each holder of a Share was entitled to receive in the Transaction in respect of a Share. 13. Release of Financial Information. A copy of the Company's annual report to stockholders shall be delivered to each Optionee and Grantee at the time such report is distributed to the Company's stockholders. Upon reasonable request the Company shall furnish as soon as reasonably practicable, to each Optionee and Grantee a copy of its most recent annual report and each quarterly report and current report filed under the Exchange Act since the end of the Company's prior fiscal year. 14. Termination and Amendment of the Program. (a) The Program shall terminate on the day preceding the tenth anniversary of its effective date and no Option or Award may be granted thereafter. The Board may sooner terminate or amend the Program (other than to reduce the rights of Optionees and Grantees, as the case may be, under Sections 6(i), 7(i), 8(c)(2) and 9(d)), at any time and from time to time; provided, however, that to the extent necessary under Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve (12) months before or after the date of adoption of such amendment. (b) Except as provided in Sections 11 and 12 hereof, rights and obligations under any Option or Award granted before any amendment of the Program shall not be adversely altered or impaired by such amendment, except with the consent of the Optionee or Grantee, as the case may be. 15. Non-Exclusivity of the Program. The adoption of the Program by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Program, and such arrangements may be either applicable generally or only in specific cases. 16. Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Program shall be construed to: (a) give any person any right to be granted an Option or Award other than at the sole discretion of the Committee; (b) give any person any rights whatsoever with respect to Shares except as specifically provided in the Program; (c) limit in any way the right of the Company to terminate the employment of any person at any time; or (d) be evidence of any agreement or understanding, expressed or implied, that the Company -12- will employ any person in any particular position at any particular rate of compensation or for any particular period of time. 17. Regulations and Other Approvals Governing Law. (a) This Program and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof, except to the extent that such law is preempted by federal law. (b) The obligation of the Company to sell or deliver Shares with respect to Options and Awards granted under the Program shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (c) The Program is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Program or any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Program. (d) The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Employees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. (e) Each Option and Award is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Program is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Committee. (f) Notwithstanding anything contained in the Program to the contrary, in the event that the disposition of Shares acquired pursuant to the Program is not covered by a then current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to the Program, as a condition precedent to receipt of such Shares (including upon exercise of an Option), to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately legended to reflect their status as restricted securities as aforesaid. 18. Miscellaneous. (a) Multiple Agreements. The terms of each Option or Award may differ from other Options or Awards granted under the Program at the same time, or at some other time. The Committee may also grant more than one Option or Award to a given Eligible Employee during the term of the Program, either in addition to, or in substitution for, one or more Options or Awards previously granted to that Eligible Employee. The grant of multiple Options and/or Awards may be evidenced by a single Agreement or multiple Agreements, as determined by the Committee. (b) Withholding of Taxes. (1) The Company shall have the right to deduct from any distribution of cash to any Optionee or Grantee, 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 Option or Award. If an Optionee or Grantee is entitled to receive Shares upon exercise of an -13- Option or pursuant to an Award, the Optionee or Grantee shall pay the Withholding Taxes to the Company prior to the issuance, or release from escrow, of such Shares. In satisfaction of the Withholding Taxes to the Company, the Optionee or Grantee 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 or pursuant to an Award having an aggregate Fair Market Value equal to the Withholding Taxes, provided that (i) in respect of an Optionee or Grantee who may be subject to liability under Section 16(b) of the Exchange Act (unless his or her employment was terminated due to Disability or death), (A) the Optionee or Grantee makes the Tax Election at least six (6) months after the date the Option or Award was granted and (B) the Tax Election is made either at least six (6) months prior to the date that the amount of the Withholding Taxes are determined (the "Tax Date") or during the ten (10) day period beginning on the third business day and ending on the twelfth business day following the release for publication of the Company's quarterly or annual statements of earnings, (ii) the Tax Election is made prior to the Tax Date, and (iii) the Tax Election is irrevocable; provided, however, in the event that the Tax Date occurs subsequent to the exercise of the Option or issuance of Shares, the Optionee or Grantee shall tender back to the Company on the Tax Date that number of Shares having a Fair Market Value on the date preceding the Tax Date at least equal to the Withholding Taxes. (2) If an Optionee makes a disposition, within the meaning of Section 425(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 date of the grant 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. (c) Designation of Beneficiary. Each Optionee and Grantee may designate a person or persons to receive in the event of his or her death, any Option or Award or any amount payable pursuant thereto, to which be or she would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If an Optionee fails effectively to designate a beneficiary, then his or her estate will be deemed to be the beneficiary. 19. Effective Date. The effective date of the Program shall be the date of its adoption by the Board, subject only to the approval by the affirmative votes of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware within twelve (12) months of such adoption. -14- EX-10.IIIA35 8 g76849exv10wiiia35.txt EX-10.IIIA35 NONQUALIFIED STOCK OPTION AGREEMENT EXHIBIT 10(iii) A35 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 $38.0000 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.IIIA38 9 g76849exv10wiiia38.txt EX-10.IIIA38 NONQUALIFIED SDTOCK OPTION AGREEMENT EXHIBIT 10(iii) A38 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.IIIA48A 10 g76849exv10wiiia48a.txt EX-10.IIIA48A BENEFITS PROTECTION TRUST AGREEMENT EXHIBIT 10(iii)A48(a) TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1: Definitions............................................................................................3 ARTICLE 2: Creation of Trust......................................................................................6 ARTICLE 3: Trustee Expense Account................................................................................7 ARTICLE 4: Benefit Account........................................................................................9 ARTICLE 5: Payments from the Trust...............................................................................10 ARTICLE 6: Management of Trust Assets............................................................................11 ARTICLE 7: Administrative Powers.................................................................................14 ARTICLE 8: Insurance and Annuity Contracts.......................................................................15 ARTICLE 9: Trustee's Powers After a Change in Control............................................................18 ARTICLE 10: Taxes, Expenses and Compensation of Trustee...........................................................22 ARTICLE 11: General Duties of Trustee.............................................................................23 ARTICLE 12: Indemnification.......................................................................................24 ARTICLE 13: No Duty to Advance Funds..............................................................................25 ARTICLE 14: Accounts..............................................................................................25 ARTICLE 15: Administration of the Plans; Communications...........................................................27 ARTICLE 16: Resignation or Removal of Trustee.....................................................................29 ARTICLE 17: Amendment of Agreement; Termination of Trust..........................................................31 ARTICLE 18: Prohibition of Diversion..............................................................................33 ARTICLE 19: Prohibition of Assignment of Interest.................................................................35 ARTICLE 20: Miscellaneous.........................................................................................35
i NATIONAL SERVICE INDUSTRIES, INC. BENEFITS PROTECTION TRUST NATIONAL SERVICE INDUSTRIES, INC. BENEFITS PROTECTION TRUST AGREEMENT THIS AGREEMENT, made as of the __ day of _____________ 1990, by and between National Service Industries, Inc., a corporation organized and existing under the laws of the State of Delaware, and Wachovia Bank and Trust Company, a national banking association organized and existing under the laws of the United States of America (hereinafter referred to as the "Trustee"). W I T N E S S E T H WHEREAS, the Company has adopted and, in some instances, its Affiliates may, prior to a "Change in Control" (as hereinafter defined) adopt, the "Plans" (as hereinafter defined) and, prior to a Change in Control, the Company and its Affiliates may adopt or enter into other plans or agreements, amend, modify or terminate any Plan in accordance with its terms or to comply with any changes in the law and increase the number of Participants in any such Plan; WHEREAS, the Company desires to establish a Benefits Protection Trust (hereinafter referred to as this "Trust") in order to ensure that "Participants" (as hereinafter defined) and their beneficiaries will receive the benefits which the Company and its Affiliates are obligated to provide for them or which they reasonably anticipate receiving pursuant to the Plans; WHEREAS, the Trustee is not a party to the Plans; WHEREAS, the aforesaid obligations of the Company are not funded or otherwise secured and the Company has agreed to take steps to assure that the future payment of amounts under such Plans will not be improperly withheld in the event that a "Threatened Change in Control" (as hereinafter defined) or Change in Control of the Company should occur; WHEREAS, for purposes of assuring that such payments will not be improperly withheld, the Company desires to: (a) deposit with the Trustee, subject to the claims of the company's existing or future general creditors, amounts of cash or marketable securities for the payment of (i) benefits to Participants and their beneficiaries which may become payable under the Plans and (ii) fees and-expenses of the Trustee in pursuing claims of the Participants and their beneficiaries against the Company or any of its Affiliates for such payments and/or in requiring the Company to deposit sufficient cash or marketable securities in this Trust to pay benefits under the Plans; and (b) retain the right to deposit with the Trustee, subject to the same conditions, further amounts of cash or marketable securities for the payment of amounts under such Plans as they may become due and payable; WHEREAS, the Company established the National Service Industries, Inc. Executive Benefits Trust (the "Executive Trust") for the benefit of Participants and their beneficiaries upon a Change in Control; and WHEREAS, upon a Change in Control, the assets and Plans held in the Benefit Account of this Trust will be transferred to the Executive Trust to be held for the benefit of Participants and their beneficiaries in accordance with the terms thereof. NOW, THEREFORE, in consideration of the respective agreements of the Company and the Trustee contained herein, it is agreed as follows: 2 ARTICLE 1: Definitions. 1.1 "Affiliate" shall mean any corporation, partnership or other entity, the majority interest in which is held by the Company directly or through one or more intermediaries. 1.2 The "Board" shall mean the Board of Directors of the Company. 1.3 "Change in Control" shall mean any of the following events: (a) The acquisition (other than from the Company) by any "Person" (as the term person is used for purposes of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the 1934 Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities; or (b) The individuals who, as of September 21, 1989, are members of the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board; provided; however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; or (c) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than seventy percent (70%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting 3 securities of the Company outstanding immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to Section 1.3(a) of this Article 1, solely because twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition (hereinafter referred to individually as a "Related Person" and collectively as "Related Persons"). 1.4 "Company" shall mean National Service Industries, Inc., its successors and assigns. 1.5 "Participants" shall mean active and former employees of the Company and/or of its Affiliates who are participants in or who have a claim to receive benefits under any of the Plans. 1.6 "Plaintiffs" shall mean the Participants and their beneficiaries. 1.7 "Plans" shall mean the Executives' Deferred Compensation Plan, Supplemental Retirement Plan for Executives, Senior Management Benefit Plan, 1984 Special Deferred Supplemental Bonus Plans for Messrs. Kirschner, Maziar and McClung, and 1987 Special Deferred Supplemental Bonus Plans for Messrs. Kirschner, Gurbacki, Maziar and McClung, Severance Protection Agreements with senior corporate officers and division securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting 4 presidents, and any other plans or agreements that are adopted by the Company or its Affiliates prior to a Change in Control, in all cases as listed on Schedule 1 as may be amended from time to time prior to a Change in Control. 1.8 "Related Person" shall have the meaning set forth in the last paragraph of Section 1.3. 1.9 "Threatened Change in Control" shall mean the occurrence of any of the following events: (a) when the Company is aware of or is contemplating, a proposal (a "Proposal") for any Person other than a Related Person (1) to acquire five percent (5%) or more of the voting power of the Company's outstanding securities, or (2) to merge or consolidate with another entity, transfer or sell assets of the Company, or liquidate or dissolve the Company, in each case described in this clause (2) in a transaction that would constitute a Change in Control; or (b) any Person other than a Related Person, (1) acquires five percent (5%) or more of the voting power of the Company's outstanding securities, other than as a holder whose investment in the Company is eligible to be reported on Schedule 13G pursuant to Rule 13d-l(b)(1) promulgated under the 1934 Act, or (2) initiates a tender or exchange offer to acquire such number of securities as would result in such person holding twenty percent (20%) or more of the voting power of the Company's outstanding securities, or 5 (3) solicits proxies for votes to elect members of the Board at a shareholders' meeting of the Company. 1.10 "Threatened Change in Control Period" shall mean the period commencing on the date that a Threatened Change in Control has occurred and ending upon: (a) the date the Proposal referred to in Section 1.9(a) of this Article 1 is abandoned; (b) the acquisition of five percent (5%) of the voting power of the Company's outstanding securities by the Person referred to in Section 1.9(a)(1) if such acquisition does not constitute a Threatened Change in Control under Section 1.9(b)(1); (c) the date when any person described in Section 1.9(b) of this Article 1, (1) shall own less than five percent (5%) of the voting power of the Company's outstanding securities, (2) shall have abandoned the tender or exchange offer, or (3) shall not have elected a member of the Board as the case may be; or (d) the date a Change in Control occurs. ARTICLE 2: Creation of Trust. 2.1 The Company hereby establishes with the Trustee and the Trustee hereby accepts a trust consisting of two accounts, established by the Trustee, for purposes of accounting for funds delivered to the Trustee by the Company. One such account shall be known as the "Trustee Expense Account," and shall be used exclusively to pay the fees, expenses and indemnities due or incurred by the Trustee in accordance with the terms of this Agreement. The other such account shall be known as the "Benefit Account," and shall be used to make payments under the Plans. The Benefit Account shall be divided into separate sub-accounts for each Plan 6 which is funded by the Company in accordance with Section 4.1 of Article 4. A separate Trustee Expense Account and Benefit Account shall be established for each Affiliate. The Trustee, for investment purposes only, may commingle all Trust assets and treat them as a single fund, but the records of the Trustee at all times shall show the percentages of the Trust Fund allocable to each of the several accounts and sub-accounts. 2.2 The Company and the Trustee agree that this Trust created herein shall be revocable by the Company at any time prior to or subsequent to a Threatened Change in Control Period and prior to a Change in Control, but shall not be revocable by the Company or by any successor thereto during a Threatened Change in Control Period or after the occurrence of a Change in Control. The Trust established hereunder is intended to be a grantor trust within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended (the "Code"), and all interest and other income earned on the investment of this Trust shall for such purposes be the property of, and taxable to, the Company. All taxes on or with respect to this Trust shall be payable by the Company from its separate funds and shall not be a charge against this Trust. 2.3 Prior to a Change in Control, the Company and its affiliates may add Plans to, and Participants in the Plans under which benefits are payable from, this Trust by amending Schedule 1 and notifying the Trustee in writing. If the Company or its affiliates amend any of the Plans, it shall send to the Trustee a copy of any such amendments and no consent of the-Trustee to such amendments is required. ARTICLE 3: Trustee Expense Account. 3.1 Concurrently with the execution of this Trust, the Company will deliver to the Trustee, to be held in trust hereunder and credited to the Trustee Expense Account, the sum 7 of one million dollars ($1,000,000) in cash or marketable securities, to be administered and disposed of by the Trustee as provided herein. 3.2 At any time, the Trustee may require the Company to deliver additional amounts in cash or marketable securities to this Trust, to be credited to the Trustee Expense Account. The Trustee shall make written demand for any such additional amount, and the Company will comply with such demand within fifteen (15) days of its receipt thereof. In the event the Company fails to provide the Trustee with such additional amount within fifteen (15) days of the receipt by the Company of such written demand prior to or subsequent to a Threatened Change in Control Period and prior to a Change in Control, the Trustee shall have the right to resign in accordance with Section 16.1 of Article 16. 3.3 At any time, the Company shall have the unlimited right to deliver cash or marketable securities reasonably acceptable to the Trustee to be credited to the Trustee Expense Account. Any amount (together with the income attributable thereto) which is over and above the amounts described in Section 3.1 may be withdrawn by the Company at any time prior or subsequent to a Threatened Change in Control Period and prior to a Change in Control. Notwithstanding anything contained in this Agreement to the contrary, the Company shall not make any withdrawal from this Trust during a Threatened Change in Control Period or after the occurrence of a Change in Control. 3.4 Upon the occurrence of a Threatened Change in Control and a Change in Control, the Company shall contribute to the Trustee Expense Account sufficient cash to provide for the Litigation (as defined in Section 9.3 of Article 9) expenses of all Plaintiffs as determined by the Trustee. 8 ARTICLE 4: Benefit Account. 4.1 Concurrently with the execution of this Trust, the Company will deliver to the Trustee, to be held in trust hereunder and credited to the Benefit Account, the sum of eighteen million dollars ($18,000,000) in cash or marketable securities, to be administered and disposed of by the Trustee as provided herein. 4.2 At any time, the Company shall have the unlimited right to deliver cash or marketable securities reasonably acceptable to the Trustee to be credited to the Benefit Account. Any such delivery shall be accepted by the Trustee accompanied by a designation of the Plan or Plans under the provisions of which such funds are to be disbursed and if more than one Plan is being funded, the amount being allocated in respect of each Plan. Such delivery shall be credited to a separate sub-account within the Benefit Account for each Plan in respect of which funds are being provided. Any amount (together with the income attributable thereto) may be withdrawn by the Company at any time prior or subsequent to a Threatened Change in Control Period and prior to a Change in Control. Immediately upon the occurrence of a Threatened Change in Control and a Change in Control, the Company shall contribute sufficient cash to the Benefit Account to pay all benefits payable (whether payable currently or on a deferred basis) under all the Plans as determined by the Trustee in its discretion. 4.3 During a Threatened Change in Control Period or after the occurrence of a Change in Control, if the Trustee determines that the funds in the Benefit Account are insufficient to fully pay all payments and benefits under the Plans, the Trustee shall make a written demand on the Company to provide funds in an amount determined by the Trustee in its 9 discretion. The Company shall transfer such funds within fifteen (15) days from the time the written demand is mailed. ARTICLE 5: Payments from the Trust. 5.1 The Company shall, from time to time, furnish the Trustee with such written information regarding the Participants and beneficiaries under the Plans and the amount and/or method of determination of benefits under the Plans (hereinafter referred to as "Participant Data") as the Company deems relevant or as the Trustee shall request in writing. The Company shall, after a Change in Control, furnish the Trustee with such Participant Data and other information as the Trustee may from time to time request within thirty (30) days of such request. The Company shall, from time to time, but not less frequently than annually, update Participant Data with respect to all Plans. After a Change in Control and subject to Section 17.3, the Trustee shall, without direction from the Company, to the extent funds are available in the Benefit Account for such purpose, make payments to Participants and beneficiaries in such manner and in such amounts as the Trustee shall determine they are entitled to be paid under the Plans based on the most recent Participant Data furnished to the Trustee by the Company and any supplemental information furnished to the Trustee by a Participant or beneficiary upon which the Trustee may reasonably rely in making such determination. The Trustee shall have the power to interpret the provisions of the Plans and this Agreement in making its determination. 5.2 After a Change in Control, in the event the Internal Revenue Service issues a notice of deficiency to any Participant and/or beneficiary of a Plan stating that such Participant and/or beneficiary is subject to any tax by reason of any undistributed interest in this Trust, the Trustee, upon presentation of (i) a copy of such determination and (ii) written direction 10 from the Participant and/or beneficiary, shall distribute to such Participant and/or beneficiary a lump sum cash payment equal to the amount included in such Participant's or beneficiary's gross income by reason of any interest in this Trust. The Trustee shall not be liable in any way for any payment made pursuant to any such written direction. Any benefit to which such Participant and/or beneficiary subsequently becomes entitled shall be offset in such manner as the Trustee shall determine in its discretion by the amount previously distributed pursuant to the preceding provisions of this Section 5.2 determined on a present value basis pursuant to the applicable federal rate (as defined in Section 1274(d) of the Code) as in effect from time to time. 5.3 Payments to Participants and beneficiaries pursuant to Sections 5.1 and 5.2 of this Article 5 shall be made by the Trustee to the extent that funds in the Benefit Account for such purpose are sufficient to allow such payments. In any month in which the Trustee determines that one or more sub-accounts in the Benefit Account does not have sufficient funds to provide for the payment of all amounts otherwise payable to Participants and beneficiaries in such month under a Plan or Plans, the amount otherwise payable to each such Participant or beneficiary under such Plan or Plans during such month shall be multiplied by a fraction, the numerator of which is the amount of funds then available for the payment of benefits under such Plan or Plans and the denominator of which is the total of the benefits payable prior to such reduction during such month to all Participants and beneficiaries under such Plan or Plans. ARTICLE 6: Management of Trust Assets. 6.1 Prior to a Change in Control, this Trust's assets shall be held, invested and reinvested by the Trustee as designated by the written direction of the Company from time to time. The Trustee shall not be under any duty, or have any right, to question any such directions of the Company or to review any securities or other property held pursuant to such direction, or 11 to make any suggestions to the Company in connection therewith; and the Trustee shall as promptly as practicable comply with any directions given by the Company hereunder. The Trustee shall not be liable for following the directions from the Company prior to a Change in Control if there is a loss due to investments directed by the Company. In exercising the powers of the Company under this Section 6.1 of Article 6, the Company shall act by its Corporate Treasurer or his written designees, each of whom is fully authorized to exercise such powers. The Trustee may, and shall, follow the written directions signed by said Corporate Treasurer or such designees. 6.2 In the absence of written direction of the Company, the Trustee shall invest the assets as if a Change in Control had occurred as provided in Section 6.3 of this Article 6 and Article 9. 6.3 After the occurrence of a Change in Control, the Trustee shall have exclusive authority and discretion to manage and control this Trust's assets and may employ investment managers, including affiliates of the Trustee, to manage the investment of this Trust's assets. Pursuant to such authority and discretion, the Trustee may exercise, from time to time and at any time, the power: (a) to invest and reinvest this Trust, without distinction between principal and income, in shares of stock (whether common or preferred) or other evidences of ownership, bonds, debentures, notes or other evidences of indebtedness, unsecured or secured by mortgages on real or personal property wherever situated (including any part interest in a bond and mortgage or note and mortgage whether insured or uninsured) and other property, or part interest in property, real or personal, foreign or domestic, and in order to reduce the rate of 12 interest rate fluctuations, contracts, as either buyer or seller, for the future delivery of United States Treasury securities and comparable federal-government-backed securities; (b) to sell, convey, redeem, exchange, grant options for the purchase or exchange of, or otherwise dispose of, any real or personal property, at public or private sale, for cash or upon credit, with or without security, without obligation on the part of any person dealing with the Trustee to see to the application of the proceeds of or to inquire into the validity, expediency or propriety of any such disposition; (c) to exercise, personally or by general or limited proxy, the right to vote any shares of stock, bonds or other securities held in this Trust, to delegate discretionary voting power to trustees of a voting trust for any period of time, and to exercise, personally or by power of attorney, any other right appurtenant to any securities or other property of this Trust; (d) to join in or oppose any reorganization, recapitalization, consolidation, merger or liquidation, or any plan therefor, or any lease, mortgage or sale of the property of any organization the securities of which are held in this Trust; to pay from this Trust any assessments, charges or compensation specified in any plan of reorganization, recapitalization, consolidation, merger or liquidation; to deposit any property with any committee or depositary; and to retain any property allotted to this Trust in any reorganization, recapitalization, consolidation, merger or liquidation; (e) to exercise or sell any conversion or subscription or other rights appurtenant to any stock, security or other property held in this Trust; (f) to borrow from any lender (including the Trustee in its individual capacity) money, in any amount and upon any reasonable terms and conditions, for purposes of 13 this Agreement, and to pledge or mortgage any property held in this Trust to secure the repayment of any such loan; (g) to compromise, settle or arbitrate any claim, debt, or obligation of or against this Trust; to enforce or abstain from enforcing any right, claim, debt or obligation (subject to the provisions of Section 9.3 of Article 9), and to abandon any property determined by it to be worthless; (h) to make loans of securities held in this Trust to registered brokers and dealers upon such terms and conditions as are permitted by applicable law and regulations, and in each instance to permit the securities so lent to be registered in the name of the borrower or a nominee of the borrower, provided that in each instance the loan is adequately secured and neither the borrower nor any affiliate of the borrower has discretionary authority or control with respect to the assets of this Trust involved in the transaction or renders investment advice with respect to those assets; and (i) to invest and reinvest any property in this Trust in any other form or type of investment not specifically mentioned in this Section. ARTICLE 7: Administrative Powers. The Trustee shall have and in its sole and absolute discretion may exercise from time to time and at any time the following administrative powers and authority with respect to this Trust: 7.1 To hold property of this Trust in its own name or in the name of a nominee or nominees, without disclosure of this Trust, or in bearer form so that it will pass by delivery, but no such holding shall relieve the Trustee of its responsibility for the safe custody and disposition of this Trust in accordance with the provisions of this Agreement; the Trustee's books and records shall at all times show that such property is part of this Trust; and the Trustee 14 shall be absolutely liable for any loss occasioned by the acts of its nominee or nominees with respect to securities registered in the name of the nominee or nominees. 7.2 To organize and incorporate under the laws of any state it may deem advisable one or more corporations (and to acquire an interest in any such corporation that it may have organized and incorporated) for the purpose of acquiring and holding title to any property, interests or rights that the Trustee is authorized to acquire under Article 6 hereof. 7.3 To employ in the management of this Trust suitable agents, without liability for any loss occasioned by any such agents selected by the Trustee with the care, skill., prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 7.4 To make, execute and deliver, as Trustee, any deeds, conveyances, leases, mortgages, contracts, waivers or other instruments in writing that the Trustee may deem necessary or desirable in the exercise of its powers under this Agreement. 7.5 To do all other acts that the Trustee may deem necessary or proper to carry out any of the powers set forth in this Agreement or otherwise in the best interests of this Trust. ARTICLE 8: Insurance and Annuity Contracts. 8.1 The Trustee, upon written direction of the Company prior to a Change in Control, shall pay from the Benefit Account such sums to such insurance company or companies as the Company may direct for the purpose of procuring participating or nonparticipating insurance and/or annuity contracts for the Plans (hereinafter referred to as "Contracts"). The Company shall prepare, or cause to be prepared in such form as it shall prescribe, the application 15 for any Contract to be applied for. The Trustee shall receive and hold in this Trust, subject to the provisions hereinafter set forth in this Article 8, all Contracts so obtained. 8.2 The Trustee shall be the complete and absolute owner of Contracts held in this Trust and, upon written direction of the Company prior to a Change in Control, shall have power, without the consent of any other person, to exercise any and all of the rights, options or privileges that belong to the absolute owner of any Contract held in this Trust or that are granted by the terms of any such Contract or by the terms of this Agreement. Prior to a Change in Control, the Trustee shall have no discretion with respect to the exercise of any of the foregoing powers or the taking of any other action permitted by any Contract held in this Trust, but shall exercise such powers or take such action only upon the written direction of the Company and the Trustee shall have no duty to exercise any of such powers or to take any such action unless and until it shall have received such direction. After a Change in Control, the Trustee shall exercise, without directions from the Company, any and all of the rights, options or privileges that belong to the absolute owner of any Contract held in this Trust or that are granted by the terms of any such Contract or by the terms of this Agreement. The Trustee, upon the written direction of the Company prior to a change in Control, shall deliver any Contract held in this Trust to such person or persons as may be specified in the direction, 8.3 The Trustee shall hold in this Trust the proceeds of any sale, assignment or surrender of any Contract held in this Trust and any and all dividends and other payments (including death benefits) of any kind received in respect of any Contract held in this Trust. 8.4 Upon the written direction of the Company prior to a Change in Control, the Trustee shall pay from the Benefit Account, premiums, assessments, dues, charges and interest, if any, upon any Contract held in this Trust. The Trustee shall have no duty to make any 16 such payment unless and until it shall have received such direction. After a Change in Control, the Trustee shall pay from the Benefit Account premiums, assessments, dues, charges and interest, if any, upon any Contract held in this Trust, without direction from the Company. 8.5 No insurance company that may issue any Contract or Contracts held in this Trust shall be deemed to be a party to this Agreement for any purpose, or to be responsible in any way for the validity of this Agreement or to have any liability under this Agreement other than as stated in each Contract that it may issue. Any insurance company may deal with the Trustee as sole owner of any Contract issued by it and held in this Trust without inquiry as to the authority of the Trustee to act, and may accept and rely upon any written notice, instruction, direction, certificate or other communication from the Trustee believed by it to be genuine and to be signed by an officer of the Trustee and shall incur no liability or responsibility for so doing. Any sums paid out by any insurance company under any of the terms of a Contract issued by it and held in this Trust either to the Trustee, or, in accordance with the direction of the Trustee, to any other person or persons designated as payees in such Contract shall be a full and complete discharge of the liability to pay such sums, and the insurance company shall have no obligation to look to the disposition of any sums so paid. No insurance company shall be required to review the terms of this Agreement, to question any action of the Trustee or to ensure that any action of the Trustee is authorized by the terms of this Agreement. 8.6 Notwithstanding anything contained herein to the contrary, neither the Company nor the Trustee shall be liable for the refusal of any insurance company to issue or change any Contract or Contracts or to take any other action requested by the Trustee; nor for the form, genuineness, validity, sufficiency or effect of any Contract or Contracts held in this Trust; nor for the act of any person or persons that may render any such Contract or Contracts null and 17 void; nor for the failure of any insurance company to pay the proceeds and avails of any such Contract or Contracts as and when the same shall become due and payable; nor for any delay in payment resulting from any provision contained in any such Contract or Contracts; nor for the fact that for any reason whatsoever (other than their own negligence or willful misconduct) any Contract or Contracts shall lapse or otherwise become uncollectable. ARTICLE 9: Trustee's Powers After a Change in Control. 9.1 After a Change in Control, the Trustee shall exercise for the sole benefit of Participants and their beneficiaries any of the powers set forth in Section 6.3 of Article 6 and Sections 8.2 through 8.6 of Article 8 without direction from the Company, including the power to negotiate for and purchase Contracts whose rates of return and maturity dates may reasonably be expected to permit the Trust to discharge any or all of the obligations of the Company and its Affiliates under the Plans. 9.2 (a) As soon as practicable following a Change in Control, the Trustee shall notify in writing each Participant and beneficiary of the amount of his or her benefit (accrued or contingent) under the Plans. Thereafter, the Trustee shall provide each Participant and his or her beneficiary by March 1 of each year, with an account statement (the "Account Statement") as of December 31 of the prior calendar year. The Account Statement shall contain a statement of the amount of benefit payments to which the Participant is or may be entitled, a summary of the assets of the Trust, and a statement notifying the Participant or beneficiary that he or she has the right to receive or examine a copy of this Agreement and examine the Trustee's account filed with the Company pursuant to Section 14.1 of Article 14 hereof. In addition, the Trustee shall notify each Participant or beneficiary of any failure by the Company to provide the Participant 18 Data referred to in Section 5.1 of Article 5 hereof or to make contributions pursuant to Articles 3 and 4. (b) Within thirty (30) days after a Change in Control, the Company (or upon its failure, the Trustee) shall notify in writing all Participants and their beneficiaries who may be entitled to receive benefits under the Plans, of the Trustee's availability to aid them in pursuing any claims they may have against the Company under the terms of those Plans under which they are covered. The Company (or upon its failure, the Trustee) shall provide such notice by (1) personal delivery or (2) certified mail return receipt requested to all Participants and/or the beneficiaries described above to their last known address. (c) As soon as practicable following the commencement of "Litigation" (as hereinafter defined) on behalf of any Plaintiff, the Trustee shall notify in writing each other Participant and beneficiary of the commencement of the Litigation, the nature of the claim, the judicial forum and any other information that the Trustee determines is relevant. 9.3 (a) If, after a Change in Control, a Plaintiff notifies the Trustee that the Company (or insurance company, contract administrator or any other party acting on the Company's behalf, if applicable) has refused to pay a claim under any of the Plans, then, unless the Trustee shall determine that the claim has no basis in law and fact, the Trustee: (1) will promptly attempt to negotiate with the Company (or insurance company, contract administrator or any other party acting on the Company's behalf, if applicable) to obtain payment, settlement, or other disposition of the claim, subject to the consent of the Plaintiff; 19 (2) will, if negotiations fail within ninety (90) days to result in a payment, settlement or other disposition agreeable to the Plaintiff, upon the receipt of written authorization from the Plaintiff in substantially the form attached hereto as Exhibit A, institute and maintain legal proceedings (hereinafter referred to as the "Litigation") against the Company or other appropriate person or entity to recover on the claim on behalf of the Plaintiff; and (3) may, subject to the consent of the Plaintiff, settle or discontinue the Litigation. (b) The Trustee shall direct the course of the Litigation and shall keep the Plaintiff informed of the progress of the Litigation as the Trustee deems appropriate, but no less frequently than quarterly. If, during the Litigation: (1) the Plaintiff directs in writing that the Litigation on behalf of the Plaintiff be settled or discontinued, the Trustee shall take all appropriate action to follow such direction, provided that the written direction specifies the terms and conditions of the settlement or discontinuance, and further provided that the Plaintiff, if requested by the Trustee, shall execute and deliver to the Trustee a document in a form acceptable to the Trustee releasing and holding harmless the Trustee from any liability resulting from the Trustee's following such direction; (2) the Plaintiff refuses to consent to the settlement or other disposition of the Litigation on terms recommended in writing by the Trustee or does not agree with the Trustee's conduct of the Litigation, the Trustee may proceed, in its sole and absolute discretion, to take such action as it deems appropriate in the Litigation, including entering into settlement or discontinuance of the Litigation; provided, however 20 that the Trustee shall first afford the Plaintiff at least fourteen (14) days' advance notice of any decision to settle or otherwise discontinue the Litigation; provided, further, however, that the Trustee shall not be authorized to proceed in the Litigation on behalf of the Plaintiff after (i) the Plaintiff shall have revoked in writing the authorization of the Trustee to proceed on his behalf (in substantially the form attached hereto as Exhibit B) and shall have delivered such writing to the Trustee and (ii) the Plaintiff shall have appointed his own counsel, whose fees and expenses are to be paid by the Plaintiff and who shall appear in the Litigation on behalf of the Plaintiff in lieu of counsel retained by the Trustee. Thereafter, the Trustee shall have no obligation to proceed further on behalf of such Plaintiff or to pay from the Trustee Expense Account any costs or expenses incurred in the Litigation after the date of the delivery of such writing. (c) The Trustee is empowered to retain, at the expense of this Trust and chargeable to the Trustee Expense Account, counsel and other appropriate experts, including actuaries and accountants, to aid it in making any determination under this Article 9 and to pursue or settle any Litigation. The Trustee shall have the discretion to determine the form and nature that any Litigation against the Company, or other appropriate person or entity, shall take, and the procedural rules and laws applicable to such Litigation shall supersede any inconsistent provision in this Agreement. 9.4 After a Change in Control, the Trustee shall bill the Company directly, on a monthly basis, for all fees and expenses described in Section 10.2. The Trustee may commence legal action against the Company to recover any amount not paid within thirty (30) days of the billing date, and shall be obligated to commence such an action if the Company's failure to pay causes a reduction in the assets of the Trustee Expense Account contributed 21 pursuant to Article 3 such that the Trustee Expense Account is insufficient to pay for all expenses that may be incurred in connection with the Litigation. 9.5 After a Change in Control, the Trustee shall be obligated to commence legal action to compel the Company to provide funds to pay benefits under all Plans if the Trustee has issued a demand pursuant to Section 4.3 of Article 4 and the Company has failed to transfer the demanded funds in a timely fashion under Section 4.3 of Article 4. ARTICLE 10: Taxes, Expenses and Compensation of Trustee. 10.1 The Company shall pay any federal, state, local or other taxes imposed or levied with respect to the assets and/or income of this Trust or any part thereof under existing or future laws, and the Company, in its discretion, may contest the validity or amount of any tax, assessment, claim or demand respecting this Trust or any part thereof. The Trustee shall deduct and pay to the appropriate taxing authorities any payroll taxes required to be withheld with respect to any payments made pursuant to this Trust. 10.2 The Trustee shall be reimbursed by the Company on a monthly basis, or on such other basis as the Trustee deems reasonable, for the fees and expenses set forth in Schedule 2 attached hereto and its reasonable expenses, including but not limited to the retention of legal counsel (including but not limited to legal counsel and other professionals retained pursuant to Article 11 and to legal counsel retained to represent the Trustee in any action brought by the Company or any Participant against the Trustee), accountants and actuaries and such other professionals as the Trustee determines are necessary or appropriate to enable it to perform its services as Trustee. 22 ARTICLE 11: General Duties of Trustee. 11.1 The Trustee shall discharge its duties under this Agreement solely in the interest of the Participants and their beneficiaries and (a) for the exclusive purpose of providing benefits to such Participants and their beneficiaries and defraying reasonable expenses of administering this Trust; and (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 11.2 (a) The Company shall notify the Trustee of any facts of which its officers have knowledge which have caused the commencement or termination of a Threatened Change in Control Period or the occurrence of a Change in Control. (b) The Trustee is responsible for ascertaining whether a Change in Control has occurred. 11.3 The Trustee may consult with counsel, who may be counsel for the Company prior to a Change in control or for the Trustee in its individual capacity, and shall not be deemed imprudent by reason of its taking or refraining from taking any action in accordance with the opinion of counsel. 11.4 The Company may designate in writing, prior to a Change in Control, counsel to be retained by the Trustee after a Change in Control to enforce the rights of Participants and beneficiaries to benefits under the Plans. If the designated counsel declines to provide representation, or the Trustee is not satisfied with the quality of representation provided, the Trustee may dismiss the designated law firm and engage another qualified law firm for this purpose; provided, however, that the law firm so engaged may not be the same law firm which represents the Trustee with respect to its responsibilities as Trustee in its individual capacity 23 under this Agreement. The Company may not dismiss or engage such counsel or cause the Trustee to engage or dismiss such counsel after a Change in Control. ARTICLE 12: Indemnification. 12.1 The Company agrees, to the extent permitted by law, to indemnify and hold the Trustee harmless from and against any liability that the Trustee may incur in the administration of this Trust (including attorneys' fees and expenses), unless arising from the Trustee's own gross negligence, willful misconduct, or willful breach of the provisions of its obligations under this Agreement. The Trustee shall not be required to give any bond or any other security for the faithful performance of its duties under this Agreement, except as required by law. 12.2 Any amount payable to the Trustee under this Article 12 and not previously paid by the Company shall be paid by the Company promptly upon written demand therefor by the Trustee or, if the Company fails to make payment within fifteen (15) days after such written demand, from the Trustee Expense Account, and, if the Trustee Expense Account is insufficient, then from the Benefit Account. In the event that payment is made hereunder to the Trustee from the Trustee Expense Account, the Trustee shall promptly notify the Company in writing of the amount of such payment. The Company agrees that, upon receipt of such notice, it will deliver to the Trustee to be held in this Trust an amount in cash (or in marketable securities or in some combination thereof) equal to any payments made from this Trust to the Trustee pursuant to this Article 12. The failure of the Company to transfer any such amount shall not in any way impair the Trustee's right to indemnification, reimbursement and payment pursuant to this Article 12. The provisions of this Article 12 shall survive the termination of this Agreement. 24 ARTICLE 13: No Duty to Advance Funds. Nothing contained in this Agreement shall require the Trustee to risk or expend its own funds in the performance of the duties of the Trustee hereunder. In the acceptance and performance of its duties hereunder, the Trustee acts solely as trustee and not in its individual capacity, and all persons, other than the Company, having any claim against the Trustee related to this Agreement or the actions or agreements of the Trustee contemplated hereby shall look solely to this Trust for the payment or satisfaction thereof unless the Trustee has failed to act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. Without limiting the foregoing, the Trustee shall not be liable in its individual capacity for the payment of the fees and expenses of counsel and other professionals retained by the Trustee in accordance with Articles 9, 10 and 11 hereof. ARTICLE 14: Accounts. 14.1 (a) The Trustee shall keep accurate and detailed accounts of all its receipts, investments and disbursements under this Agreement on a fiscal year basis ending on each August 31 and for purposes of the Account Statement pursuant to Section 9.2 of Article IX. Such person or persons as the Company shall designate shall be allowed to inspect the books of account relating to this Trust upon request at any reasonable time during the business hours of the Trustee. (b) Within sixty (60) days after the close of each fiscal year, the Trustee shall transmit to the Company, and certify the accuracy of, a written statement of the assets and liabilities of this Trust, showing the current value of each asset at that date, and a written account of all the Trustee's transactions relating to this Trust during the period from the last previous accounting to the close of that year. For the purposes of this subsection, the date of 25 the Trustee's resignation or removal as provided in Article 16 hereof or the date of termination of this Trust as provided in Article 17 hereof shall be deemed to be the close of a year. (c) Unless the Company shall have filed with the Trustee written exceptions or objections to any such statement and account within one-hundred and twenty (120) days after receipt thereof, the Company shall be deemed to have approved such statement and account, and in such case or upon the written approval by the Company of any such statement and account, the Trustee shall, to the extent permitted by law, be forever released and discharged with respect to all matters and things contained in such statement and account as though it had been settled by decree of a court of competent jurisdiction in an action or proceeding to which the Company and all persons having any beneficial interest in this Trust were parties. 14.2 The Trustee shall determine the fair market value of this Trust on a quarterly basis. If there is a dimunition in value of the Trustee Expense Account below (1) one million dollars ($1,000,000), the Company shall provide the Trustee with sufficient funds to make up for any such dimunition in value within fifteen (15) days after written demand by the Trustee for such payment. At any time other than during a Threatened Change in Control Period or after the occurrence of a Change in Control, if the Company fails to comply with the Trustee's written demand within fifteen (15) days to provide the Trustee with sufficient funds to make up for any diminution in value below one million dollars ($1,000,000) in the Trustee Expense Account, the Trustee may resign as Trustee upon six (6) months written notice in accordance with Section 16.1 of Article 16 hereof. The Trustee will have no duty to find or secure the appointment of a successor upon its resignation pursuant to this Section, nor shall its resignation or the termination of any further duties be contingent upon the appointment and qualification of a 26 successor. Notwithstanding the foregoing, no resicination pursuant to the foregoing provisions of this Section 14.2 may take effect during a Threatened Change in Control Period or after the occurrence of a Change in Control. 14.3 Nothing contained in this Agreement or in the Plans shall deprive the Trustee of the right to have a judicial settlement of its accounts. In any proceeding for a judicial settlement of the Trustee's accounts or for instructions in connection with this Trust, the only other necessary party thereto in addition to the Trustee shall be the Company. If the Trustee so elects, it may bring in as a party or parties defendant any other person or persons. No person interested in this Trust, other than the Company or at least twenty-five percent (25%) of the Participants and beneficiaries, shall have a right to compel an accounting, judicial or otherwise, by the Trustee, and each such person shall be bound by all accountings by the Trustee to the Company, as herein provided, as if the account had been settled by decree of a court of competent jurisdiction in an action or proceeding to which such person was a party. ARTICLE 15: Administration of the Plans; Communications. 15.1 The Company shall administer the Plans as provided therein and subject to Section 6.3 of Article 6, Article 5 and of Article 9 hereof, or subject to any other delegation by the Company and assumption by the Trustee of the duties of administering the Plans, the Trustee shall not be responsible in any respect for administering the Plans nor shall the Trustee be responsible for the adequacy of this Trust to meet and discharge all payments and liabilities under the Plans. The Trustee shall be fully protected in relying upon any written notice, instruction, direction or other communication consistent with the terms of this Agreement signed by an officer of the Company designated pursuant to this Agreement. The Company, from time to time, shall furnish the Trustee with the names and specimen signatures of the designated 27 officers of the Company and shall promptly notify the Trustee of the termination of office of any designated officer of the Company and the appointment of a successor thereto. Until notified to the contrary, the Trustee shall be fully protected in relying upon the most recent list of the designated officers of the Company furnished to it by the Company. 15.2 Any action required by any provision of this Agreement to be taken by the Board shall be evidenced by a resolution of such Board certified to the Trustee by the Secretary or an Assistant Secretary of the Company under its corporate seal, and the Trustee shall be fully protected in relying upon any resolution so certified to it. Unless other evidence with respect thereto has been specifically prescribed in this Agreement, any other action of the Company, under any provision of this Agreement, including any approval of or exceptions to the Trustee's accounts, shall be evidenced by a certificate signed by an officer of the Company, and the Trustee shall be fully protected in relying upon such certificate. The Trustee may accept a certificate signed by an officer of the Company as proof of any fact or matter that it deems necessary or desirable to have established in the administration of this Trust (unless other evidence of such fact or matter is expressly prescribed herein), and the Trustee shall be fully protected in relying upon the statements in the certificate. 15.3 The Trustee shall be entitled conclusively to rely upon any written notice, instruction, direction, certificate or other communication consistent with the terms of this Agreement believed by it to be genuine and to be signed by the proper person or persons. 15.4 Until written notice is given to the contrary, communications to the Trustee shall be sent to it at its office at 301 N. Main Street, P.O. Box 3099, Winston-Salem, North Carolina, Attention: Mr. John N. Smith, Telecopy 919/770-4059, copy to Mr. Joe Long (or such other individuals as delegated in writing by Messrs. Smith or Long), Trust Counsel; 28 communications to the Company shall be sent to it at its office at 1420 Peachtree Street, N.E. Atlanta, Georgia; Attention: Sidney Kirschner, telecopy 404/853-1015, copy to David Levy. ARTICLE 16: Resignation or Removal of Trustee. 16.1 The Trustee may resign at any time, other than during a Threatened Change in Control Period or upon the occurrence of a Change in Control, upon six (6) months written notice to the Company or such shorter period as is acceptable to the Company (hereinafter referred to as the "Resignation Period") and immediately after the Resignation Period shall have no further duties hereunder. The Trustee will have no duty to find or secure the appointment of a successor upon its resignation pursuant to this Section nor shall its resignation or its termination of any further duties be contingent upon the appointment and qualification of a successor. Promptly after receipt of such notice, the Company shall appoint a successor trustee, such trustee to become Trustee upon its acceptance of this Trust. 16.2 During a Threatened Change in Control Period or after the occurrence of a Change in Control, the Trustee may resign only under one of the following circumstances: (a) A final decision of a court of competent jurisdiction removing the Trustee by reason of such court's determination of the existence of a conflict of interest which prevents the Trustee from properly performing its duties hereunder. The Trustee agrees to use its best efforts to avoid any such conflict. For the purpose of this Agreement, the decision of a court shall not be deemed to be final unless the decision is not appealable, or no appeal has been taken from the decision and the time for an appeal has expired. Notwithstanding the foregoing provisions of this Subsection (a), such resignation shall not be effective unless the Trustee has obtained the agreement of a bank to act as successor trustee which bank (1) is among the 100 largest banks in the United States, as measured by assets, and (2) served or then currently serves 29 as the trustee for similar trust and understands its obligations under such similar trusts. In any event, the Trustee shall continue to be custodian of this Trust until the new trustee is in place, and the Trustee shall be entitled to expenses and fees through the later of the effective date of its resignation as Trustee or the end of its custodianship of this Trust's assets. (b) The Trustee has exhausted all of its legal remedies and has been unsuccessful in such litigation to require the Company to remit to the Trustee such amounts as are billed pursuant to Section 9.4 of Article 9 hereof and the assets of the Trust have been exhausted. In such event, the Trustee shall have the right to resign immediately as Trustee, and immediately upon such resignation shall have no further duties hereunder. The Trustee will have no duty to find or secure the appointment of a successor upon its resignation pursuant to this Subsection, nor shall its resignation or the termination of any further duties be contingent upon the appointment and qualification of a successor. In any event, the Trustee shall continue to be custodian of this Trust until the new trustee is in place, and the Trustee shall be entitled to expenses and fees through the later of the effective date of its resignation as Trustee or the end of its custodianship of this Trust's assets. 16.3 Other than during a Threatened Change in Control Period or after the occurrence of a Change in Control, the Company may remove the Trustee upon thirty (30) days written notice to the Trustee, or upon shorter notice if acceptable to the Trustee. Such removal shall become effective, however only upon the occurrence of all of the following events: (a) The appointment by the Company of a successor trustee; (b) The acceptance of the trust by the successor trustee; and (c) The delivery of this Trust's assets to the successor trustee. 30 16.4 Each successor trustee shall have the powers and duties conferred upon the Trustee in this Agreement, and the term "Trustee" as used in this Agreement shall be deemed to include any successor trustee. Upon designation or appointment of a successor trustee, the Trustee shall transfer and deliver this Trust to the successor trustee, reserving such reasonable sums as the Trustee shall deem necessary to defray its expenses in settling its accounts, to pay any of its compensation due and unpaid and to discharge any obligation of this Trust for which the Trustee may be liable. If the sums so reserved are not sufficient for these purposes, the Trustee shall be entitled to recover the amount of any deficiency from either the Company or the successor trustee, or both. When this Trust shall have been transferred and delivered to the successor trustee and the accounts of the Trustee have been settled as provided in Article 14 hereof, the Trustee shall be released and discharged from all further accountability or liability for this Trust and shall not be responsible in any way for the further disposition of this Trust or any part thereof. 16.5 Notwithstanding anything to the contrary, in the event it resigns or is removed, the Trustee shall have a right to have its accounts settled as provided in Article 14 hereof. ARTICLE 17: Amendment of Agreement; Termination of Trust. 17.1 Subject to Section 17.2 of this Article 17, the Company expressly reserves the right at any time, other than during a Threatened Change in Control Period or after the occurrence of a Change in Control, to amend in writing or terminate this Agreement and this Trust created thereby to any extent that it may deem advisable. No amendment shall be made without the Trustee's consent thereto in writing (whose consent shall not be unreasonably withheld) if, and to the extent that, the effect of such amendment is to materially increase the 31 Trustee's responsibilities hereunder. Such proposed amendment shall be delivered to the Trustee as a written instrument of amendment, duly executed and acknowledged by the Company. The Company also shall deliver to the Trustee a copy of any modifications or amendments to the Plans. The Trustee's consent shall not be required for the termination of this Trust pursuant to this Section 17.1, its removal as Trustee, the amendment of any of the Plans, or the increase in the number of Participants. 17.2 Notwithstanding anything contained herein to the contrary, other than as provided in Section 17.3 and Section 17.5, the provisions of this Agreement and this Trust created thereby shall not be amended or terminated by the Company or the Trustee during a Threatened Change in Control Period or after the occurrence of a Change in Control. 17.3 Notwithstanding anything contained in this Agreement to the contrary, upon a change in Control the Benefit Account and the assets of this Trust and income attributable thereto with respect to all Participants and their beneficiaries and the Plans (the "Transferred Plans") shall be transferred (the "Transfer") and delivered to the trustee of the Executive Trust (which is not a grantor trust within the meaning of Section 671 of the Code and which is irrevocable) and upon the Transfer the Trustee shall have no responsibility under this Agreement for payments to be made to Participants and their beneficiaries with respect to the Transferred Plans. 17.4 In the event the Company terminates this Trust other than during a Threatened Change in Control Period or after the occurrence of a Change in Control, the Trustee shall reserve such sums it deems necessary to pay its fees and expenses, and shall distribute all remaining assets of this Trust in accordance with the written directions of the Company, and the 32 Trustee shall provide the Company with a final written accounting to the Company in accordance with Article 14 hereof. 17.5 After the occurrence of a Change in Control, this Trust shall be terminated only upon the first to occur of (a) the transfer of the Benefit Account to the Executive Benefit Trust, the resolution of all Litigation to the satisfaction of the Plaintiff and his or her beneficiaries and Trustee and the payments of all amounts due to the Trustee and all costs and expenses chargeable to this Trust, or (b) the twenty-first anniversary of the death of the last survivor of the Participants or their beneficiaries who are in being on the date of this Agreement. Upon termination of this Trust, the Trustee shall have a right to have its account settled as provided in Article 14 hereof. Promptly upon termination of this Trust, and after payment of all fees, expenses and indemnities due to or incurred by the Trustee hereunder, any remaining portion of this Trust shall be paid to the Company. ARTICLE 18: Prohibition of Diversion. 18.1 Except as provided in Sections 3.3, 4.2, 17.4 and 18.2 of this Article 18, at no time prior to the satisfaction of all liabilities with respect to Participants and their beneficiaries under this Trust shall any part of the corpus and/or income of this Trust be used for, or diverted to, purposes other than for the exclusive benefit of such Participants and their beneficiaries, and the assets of this Trust shall never inure to the benefit of the Company and shall be held for the exclusive purposes of providing benefits to Participants in the Plans and their beneficiaries and defraying reasonable expenses of administering the Plans or performing any of the Trustee's duties under this Agreement. 18.2 Notwithstanding any provision of this Agreement to the contrary, the assets of this Trust shall at all times be subject to, and available for satisfaction of, claims of the 33 general creditors of the Company and its Affiliates. The Board and the chief executive officer of the Company or any Affiliate shall notify the Trustee in writing in the event of (i) the insolvency of the Company or any Affiliate or (ii) the beginning of proceedings under the Bankruptcy Code of 1978, as amended from time to time (the "Bankruptcy Code"), by any person in respect of the Company or any Affiliate. Upon receipt of such notice or any other written allegation, or if the Trustee has actual knowledge of the insolvency of, or of the commencement of a case under the Bankruptcy Code in respect of, the Company or any Affiliate, the Trustee shall suspend all payments of benefits from the Trust with respect to Participants and beneficiaries of the Company Benefit Account or Affiliate Benefit Account, as the case may be, and shall hold that portion of the Trust attributable to either the Company or its Affiliates for the general creditors of the Company or its Affiliates, as the case may be. In the case where the Trustee receives such notice or written allegation, or has actual knowledge, of the insolvency of the Company or any Affiliate, the Trustee shall in its discretion make an independent determination or promptly seek a judicial determination regarding the insolvency of the Company or any Affiliate. In the case where the Trustee receives such notice or written allegation, or has actual knowledge, that a case under the Bankruptcy Code has been initiated, the Trustee shall dispose of the Trust in accordance with the decision of a court of competent jurisdiction. The Trustee shall resume payments under the terms of the Agreement only after determining that the Company or any Affiliate is not insolvent (or is no longer insolvent, if the Trustee initially determined the Company or any Affiliate to be insolvent) or upon receiving a judicial decision from a court of competent jurisdiction to that effect. The Board and the chief executive officer shall have the duty to inform the Trustee of the discontinuance of the insolvency of the Company or any Affiliate. For purposes of this Agreement, the Company or any Affiliate shall be considered 34 insolvent if its respective assets are insufficient to meet current financial obligations as they come due. ARTICLE 19: Prohibition of Assignment of Interest. No interest, right or claim in or to any part of this Trust or any payment therefrom shall be assignable, transferable or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution or levy of any kind, and the Trustee shall not recognize any attempt to assign, transfer, sell, mortgage, pledge, hypothecate, commute or anticipate the same, except to the extent required by law. ARTICLE 20: Miscellaneous. 20.1 This Agreement shall be interpreted, construed and enforced, and this Trust hereby created shall be administered, in accordance with the laws of the United States and of the State of Georgia without regard to the conflicts of laws principles thereof. Nothing in this Agreement shall be construed to subject this Trust created hereunder to the Employee Retirement Income Security Act of 1974, as amended. 20.2 The Company shall, at any time and from time to time, upon the reasonable request of the Trustee, execute and deliver such further instruments and do such further acts as may be necessary or proper to effectuate the purpose of this Agreement. 20.3 The titles to Articles of this Agreement are placed herein for convenience of reference only, and this Agreement is not to be construed by reference thereto. 20.4 This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the Trustee, respectively and the Plans. 35 20.5 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute but one instrument, which may be sufficiently evidenced by any counterpart. 20.6 If any provision of this Agreement is determined to be invalid or unenforceable the remaining provisions shall not for that reason alone also be determined to be invalid or unenforceable. 20.7 Each Participant and his beneficiaries is an intended beneficiary under this Trust, and shall be entitled to enforce all terms and provisions hereof with the same force and effect as if such person had been a party hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names by their duly authorized officers under their corporate seals as of the day and year first above written. NATIONAL SERVICE INDUSTRIES, INC. By ------------------------------------ Sidney Kirschner, President ATTEST: - ----------------------------------- Secretary WACHOVIA BANK AND TRUST COMPANY By ------------------------------------ ATTEST: - ----------------------------------- Secretary 36 STATE OF ____________________ ) : SS.: COUNTY OF __________________ ) On this _________ day of _____________, 19__, before me personally came ______________________, to me known, who, being by me duly sworn, did depose and say that he resides ____________ at _____________, and that he is _____________________ of Wachovia Bank and Trust Company, N.A., one of the entities described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. -------------------------------------- STATE OF GEORGIA ) : SS.: COUNTY OF FULTON ) On this 15th day of June 1990, before me personally came Sidney Kirschner, to me, known, who, being by me duly sworn, did depose and say that he resides at 6175 Riverwood Drive, Atlanta, Georgia and that he is President of National Service Industries, Inc., one of the entities described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instruments is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. -------------------------------------- 37 Schedule 1 THE PLANS The following Company plans and agreements (collectively referred to as the "Plans") are subject to this Trust: 1. Executives' Deferred Compensation Plan 2. Supplemental Retirement Plan-for Executives 3. Senior Management Benefit Plan 4. 1984 Special Deferred Supplemental Bonus Plans for: (i) Maziar (ii) McClung 5. 1987 Special Deferred Supplemental Bonus Plans for: (i) Gurbacki (ii) Maziar (iii) McClung 6. Severance Protection Agreements with: (i) Riddle (ii) Bostater (iii) Cosby (iv) Dressel (v) Gurbacki (vi) Harris (vii) Hipps (viii) Hubble (ix) Joel (x) Kaplan (xi) Levy (xii) Maziar (xiii) McClung (xiv) Zook Schedule 2 Fee Schedule Page 1 of 1 EXHIBIT A Authorization Pursuant to Article 9.3 of National Service Industries, Inc. Benefits Protection Trust TO: WACHOVIA BANK AND TRUST COMPANY This is to authorize the Wachovia Bank and Trust Company as Trustee of National Service Industries, Inc. Benefits Protection Trust (the "Trust") to institute and maintain legal proceedings against the Company (as defined in this Trust) or other appropriate person or entity to assert the following claim(s) on my behalf: (nature of claim]. The Trustee shall have the powers and be subject to the procedures set forth in Article 9 of this Trust (a copy of which I have already received and reviewed). Any proceedings by the Trustee under this authorization may be initiated in my name as a plaintiff (or as a member of a class) or in the name of the Trustee, or both, as the Trustee determines is necessary or appropriate at the time proceedings are commenced. -------------------------------------- Participant or Beneficiary EXHIBIT B Revocation of Authorization Under Article 9.3 of National Service Industries, Inc. Benefits Protection Trust TO: WACHOVIA BANK AND TRUST COMPANY This is to notify you that I revoke any prior authorization I have given to you as Trustee of National Service Industries, Inc. Benefits Protection Trust (the "Trust") to maintain legal proceedings against the Company as defined in this Trust), or otherwise to assert the following claims(s) on my behalf: (nature of claim(s)]. I understand that this Revocation of Authorization is conditioned upon, and shall not be effective until, the appointment by me of my own counsel and the appearance of that counsel in any legal proceeding on my behalf in lieu of counsel retained by the Trustee. I understand further that, upon the occurrence of these conditions, the Trustee shall have no obligation to proceed further on my behalf, or to pay any costs or expenses incurred after the delivery of this Revocation of Authorization. -------------------------------------- Participant or Beneficiary EX-10.IIIA48B 11 g76849exv10wiiia48b.txt EX-10.IIIA48B AMENDMENT TO BENEFITS PROTECTION Exhibit 10(iii)A48(b) AMENDMENT AND ADOPTION OF NATIONAL SERVICE INDUSTRIES, INC. BENEFITS PROTECTION TRUST This Agreement made and entered into as of this ____ day of __________, 1996, by and among National Service Industries, Inc. (the "Corporation), Wachovia Bank and Trust Company (the "Trustee") and the following affiliates of the Corporation - North Bros., Inc., National Service Industries, Inc. of Georgia, NSI Enterprises, Inc., ZEP Manufacturing Company, and NSI Services, L.P.: W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Corporation previously established a trust arrangement known as the National Service Industries, Inc. Benefits Protection Trust (the "Trust") in order to ensure that participants and their beneficiaries receive the benefits which the Corporation is obligated to provide pursuant to various executive compensation arrangements (collectively, the "Plans"); and WHEREAS, effective as of August 31, 1996, the Corporation will reorganize its operations into several newly-formed subsidiary corporations and limited partnerships including North Bros., Inc., National Service Industries, Inc. of Georgia, NSI Enterprises, Inc., ZEP Manufacturing Company, and NSI Services, L.P. (collectively, referred to as the "Affiliates"); and WHEREAS, each Affiliate has assumed the obligation, with respect to certain eligible employees employed by such Affiliate, to provide benefits under one or more of the Plans; and WHEREAS, each Affiliate now desires to adopt and become a party to the Trust on the terms contained herein; and WHEREAS, the Corporation desires to amend the Trust in certain respects to clarify each Affiliate's financial obligation to provide benefits to the Affiliate's eligible employees under any Plan adopted by such Affiliate; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. The Corporation authorizes each of the Affiliates to adopt and become a party to the Trust in accordance with the terms and provisions thereof. 2. Effective as of August 31, 1996, each of the Affiliates hereby adopts and becomes a party to the Trust and agrees to be bound by all the terms and provisions thereof. 3. Section 4.2 of the Trust is hereby amended by adding "and any Affiliate" after "Company" wherever it appears therein and by adding the following to the end of the section: "provided, however, any Affiliate shall be required to make contributions hereunder only to the extent of such Affiliate's obligation under any Plan it has adopted." 4. Section 4.3 of the Trust is hereby amended by adding "or Affiliate, as applicable" after "Company" wherever it appears therein and by adding the following to the end of the section: "In the event that any Affiliate fails to transfer funds following written demand as provided herein, the Company shall assume the Affiliate's obligation to transfer such funds." 5. Section 9.5 of the Trust is hereby amended by adding the following to the end of the section: "To the extent any Affiliate has failed to transfer funds required under Section 4.3, the Trustee may join such Affiliate in any legal action against the Company to compel payment." 6. This Agreement shall be effective as of August 31, 1996. Except as provided herein, the provisions of the Trust shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment and Adoption Agreement as of the day and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. By: - ---------------------------- --------------------------------- ATTEST: NORTH BROS., INC. By: - ---------------------------- --------------------------------- ATTEST: NATIONAL SERVICE INDUSTRIES, INC. OF GEORGIA By: - ---------------------------- --------------------------------- ATTEST: NSI ENTERPRISES, INC. By: - ---------------------------- --------------------------------- ATTEST: ZEP MANUFACTURING COMPANY By: - ---------------------------- --------------------------------- ATTEST: NSI SERVICES, L.P. By: - ---------------------------- --------------------------------- ATTEST: WACHOVIA BANK AND TRUST COMPANY, AS TRUSTEE By: - ---------------------------- --------------------------------- EX-10.IIIA48C 12 g76849exv10wiiia48c.txt EX-10.IIIA48C AMENDMENT NO. 2 BENEFITS PROTECTION Exhibit 10(iii)A48(c) AMENDMENT NO. 2 TO NATIONAL SERVICE INDUSTRIES, INC. BENEFITS PROTECTION TRUST This Amendment made and entered into as of this 23rd day of September, 1997, by and between National Service Industries, Inc., a Delaware Corporation (the "Company"), and Wachovia Bank, N.A. (formerly Wachovia Bank and Trust Company), as Trustee (the "Trustee"); W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company previously established a trust arrangement known as the National Service Industries, Inc. Benefits Protection Trust (the "Trust") in order to ensure that, in the event of Change in Control of the Company, participants and their beneficiaries receive the benefits which the Company and its Affiliates are obligated to provide pursuant to various executive compensation arrangements (collectively, the "Plans"); and WHEREAS, the Company now desires to amend the Trust in a number of respects; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. Section 2.2 is hereby amended by adding the following new sentence after the first sentence of the present section: "The Trust shall become irrevocable upon the occurrence of a Change in Control, subject to the provisions of Section 17.5." 2. Section 4.2 is hereby amended by deleting the second paragraph of such section in its entirety and substituting the following in lieu thereof: "Immediately upon the occurrence of a Threatened Change in Control and a Change in Control, the Company shall contribute sufficient cash to the Benefit Account to pay all benefits earned or accrued as of the date of the Threatened Change in Control and the Change in Control (whether payable currently or on a deferred basis) under all the Plans as determined by the Trustee in its discretion." 3. Section 4.3 is hereby amended by deleting the present section in its entirety and substituting the following in lieu thereof: "During a Threatened Change in Control Period or after the occurrence of a Change in Control, if the Trustee determines that the funds in the Benefit Account are insufficient to fully pay all benefits earned or accrued as of any date under the Plans, the Trustee shall make a written demand on the Company to provide funds in an amount determined by the Trustee in its discretion. The Company shall transfer such funds within fifteen (15) days from the time the written demand is mailed." 4. Article 6 is hereby amended by deleting Sections 6.1 and 6.2 in their entirety and substituting the following in lieu thereof: "6.1 Prior to a Change in Control, this Trust's assets shall be held, invested and reinvested by the Trustee in accordance with written investment guidelines provided by the Company from time to time. Except as mandated by law, the Trustee shall not be liable for following the investment guidelines from the Company prior to a Change in Control if there is a loss due to investments made in accordance with the investment guidelines provided by the Company. The Trustee may invest in and hold securities (including stock or rights to acquire stock) or obligations of the Company, if directed to do so in writing by the Company. In exercising the powers of the Company under this Section 6.1 of Article 6, the Company shall act by its Corporate Treasurer or his written designees, each of whom is fully authorized to exercise such powers. The Trustee may, and shall, follow the written guidelines signed by said Corporate Treasurer or such designees. 6.2 In the absence of written investment guidelines provided by the Company, the Trustee shall invest the assets as if a Change in Control had occurred as provided in Section 6.3 of this Article 6 and Article 9." 5. Section 10.1 is hereby amended by adding the following to the beginning of the second sentence of the present section: "To the extent not deducted and paid by the Company," 6. Section 11.2 is hereby amended by deleting the present section in its entirety and substituting the following in lieu thereof: "11.2 (a) Except as restricted by securities or other laws, the Company shall notify the Trustee as soon as practical of any facts of which its officers have knowledge which have caused the commencement or termination of a Threatened Change in Control Period or the occurrence of a Change in Control. (b) The Trustee is responsible for ascertaining whether a Threatened Change in Control Period has commenced and whether a Change in Control has occurred." 7. Section 18.2 is hereby amended by deleting the third sentence of the present section in its entirety and substituting the following in lieu thereof: "Upon receipt of such notice or any other written allegation, or if the Trustee has actual knowledge of the insolvency of, or of the commencement of a case under the Bankruptcy Code in respect of, the Company or any Affiliate, the Trustee shall suspend all payments of benefits from the Trust with respect to Participants and beneficiaries and shall hold the assets of the Trust for the benefit of the general creditors of the Company or its Affiliates." and by adding the following at the end of the present section: "Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due Participants or their beneficiaries under the terms of the Plan(s) for the period of such discontinuance, less the aggregate amount of any payments made to 2 Participants or their beneficiaries by the Company (or an Affiliate) in lieu of payments provided for hereunder during any such period of discontinuance." 8. Schedule 1 is hereby amended by substituting a revised Schedule 1, dated September 23, 1997, which is attached hereto and made a part hereof. 9. The within and foregoing amendments to the Trust shall be effective as of September 23, 1997. Except as hereby modified, the Trust shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 as of the day and year first written above. NATIONAL SERVICE INDUSTRIES, INC. By: ---------------------------------------- WACHOVIA BANK, N.A., AS TRUSTEE By: /s/ ---------------------------------------- The undersigned Affiliates of the Corporation hereby consent to, and agree to be bound by, this Amendment No. 2 to the Trust. This ___ day of __________________, 1997. NATIONAL SERVICE INDUSTRIES, INC. (Georgia) By: /s/ James S. Balloun ---------------------------------------- NSI ENTERPRISES, INC. By: /s/ James S. Balloun ---------------------------------------- ZEP MANUFACTURING, COMPANY By: /s/ James S. Balloun ---------------------------------------- NSI SERVICES, L.P. By: /s/ James S. Balloun ---------------------------------------- 3 EX-10.IIIA49A 13 g76849exv10wiiia49a.txt EX-10.IIIA49A EXECUTIVE BENEFITS TRUST AGREEMENT Exhibit 10(iii)A49(a) TABLE OF CONTENTS
PAGE ARTICLE 1: Definitions..................................................... 3 ARTICLE 2: Creation of Trust............................................... 6 ARTICLE 3: Trustee Expense Account......................................... 8 ARTICLE 4: Benefit Account................................................. 9 ARTICLE 5: Payments from the Trust......................................... 10 ARTICLE 6: Management of Trust Assets...................................... 13 ARTICLE 7: Administrative Powers........................................... 16 ARTICLE 8: Insurance and Annuity Contracts................................. 17 ARTICLE 9: Trustee's Powers After a Change in Control:..................... 20 ARTICLE 10: Taxes. Expenses and Compensation of Trustee..................... 21 ARTICLE 11: General Duties of Trustee....................................... 21 ARTICLE 12: Indemnification................................................. 22 ARTICLE 13: No Duty to Advance Funds........................................ 23 ARTICLE 14: Accounts........................................................ 23 ARTICLE 15: Administration of the Transferred Plans: Communications......... 25 ARTICLE 16: Resignation or Removal of Trustee............................... 27 ARTICLE 17: Amendment of Agreement; Termination of Trust.................... 29 ARTICLE 18: Prohibition of Diversion........................................ 30 ARTICLE 19: Prohibition of Assignment of Interest........................... 30 ARTICLE 20: Miscellaneous................................................... 31
i NATIONAL SERVICE INDUSTRIES, INC. EXECUTIVE BENEFITS TRUST NATIONAL SERVICE INDUSTRIES, INC. EXECUTIVE BENEFITS TRUST AGREEMENT THIS AGREEMENT, made as of the 5th day of July, 1990, by and between National Service Industries, Inc., a corporation organized and existing under the laws of the State of Delaware, and Wachovia Bank and Trust Company, a national banking association organized and existing under the laws of the United States of America (hereinafter referred to as the "Trustee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company (as hereinafter defined) established the National Service Industries, Inc. Benefits Protection Trust (hereinafter referred to as the "Benefits Trust") in order to ensure that "Participants" (as hereinafter defined) and their beneficiaries will receive the benefits which the Company and its "Affiliates" (as hereinafter defined) are obligated to provide for them or which they reasonably anticipate receiving pursuant to the "Plans" (as hereinafter defined): WHEREAS, the Company has adopted and, in some instances, its Affiliates may, prior to a "Change in Control" (as hereinafter defined) adopt, the Plans and, prior to a Change in Control, the Company and its Affiliates may adopt or enter into other plans or agreements, amend, modify or terminate any Plan in accordance with its terms or to comply with any changes in the law and increase the number of Participants in any such Plan: WHEREAS, the Company desires to establish an Executive Benefits Trust (hereinafter referred to as this "Trust") for the benefit of Participants and their beneficiaries upon a Change in Control; WHEREAS, this Trust is not intended to be nor should it be construed as a grantor trust: WHEREAS, upon a Change in Control, the Plans (the "Transferred Plans") and assets attributable to the Plans held in the Benefit Account of the Benefits Trust will be irrevocably transferred to this Trust (the "Transfer") to be held for the benefit of Participants and their beneficiaries: WHEREAS, the Trustee is not a party to the Transferred Plans; WHEREAS, prior to the Transfer the aforesaid obligations of the Company are not funded: WHEREAS, the Company has agreed to take steps to assure that the future payment of amounts under the Transferred Plans will not be improperly withheld or otherwise not paid following a Change in Control; and WHEREAS, for purposes of assuring that such payments will not be improperly withheld or otherwise not paid, the Company desires: (a) by means of the Transfer to deposit with the Trustee amounts of cash or marketable securities for the payment of benefits to Participants and their beneficiaries which are or may become payable under the Transferred Plans and (b) to retain the right. to deposit with the Trustee further amounts of cash or marketable securities for the payment of amounts under such Transferred Plan's as they may become due and payable. NOW, THEREFORE, in consideration of the respective agreements of the Company and the Trustee contained herein, it is agreed as follows: 2 ARTICLE 1: DEFINITIONS. 1.1 "Affiliate" shall mean any corporation, partnership or other entity,. the majority interest in which is held by the Company directly or through one or more intermediaries. 1.2 The "Board" shall mean the Board of Directors of the Company. 1.3 1.3 "Change in Control" shall mean any of the following events: (a) The acquisition (other than from the. Company) by any "Person" (as the term person is used for purposes of Sections 13(d) or 14 (d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities; or (b) The individuals who, as of September 21, 1989, are members of the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board: provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; or (c) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than seventy percent (70%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation or (ii) a complete 3 liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a change in Control shall not be deemed to occur pursuant to Section 1.3(a) of this Article 1, solely because twenty percent (20%) or more, of the combined voting power of the Company's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition (hereinafter referred to individually as a "Related Person" and collectively as "Related Persons"). 1.4 "Company" shall mean National Service Industries, Inc., its successors and assigns. 1.5 "Participants" shall mean active and former employees of the Company and/or of its Affiliates who are participants in, or who have a claim to receive benefits under, any of the Plans. 1.6 "Plans" shall mean the Executives' Deferred Compensation Plan, Supplemental Retirement Plan for Executives, Senior Management Benefit Plan, 1984 Special Deferred Supplemental Bonus Plans for Messrs. Kirschner, Maziar and McClung, and 1987 Special Deferred Supplemental Bonus Plans for Messrs. Kirschner, Gurbacki, Maziar and McClung, Severance Protection Agreements with senior corporate officers and division presidents, and any other plans or agreements that are adopted by the Company or its Affiliates prior to a Change in 4 Control, in all cases as listed on Schedule 1 as may be amended from time to time prior to a Change in Control. 1.7 "Related Person" shall have the meaning set forth in the last paragraph of Section 1:3. 1.8 "Threatened Change in Control" shall mean the occurrence of any of the following events: (a) when the Company is aware of or is contemplating, a proposal (a "Proposal") for any Person other than a Related Person (1) to acquire five percent (5%) or more of the voting power of the Company's outstanding securities, or (2) to merge or consolidate with another entity, transfer or sell assets of the Company, or liquidate or dissolve the Company, in each case described in this clause (2) in a transaction that would constitute a Change in Control; or (b) any Person other than a Related Person, (1) acquires five percent (5%) or more of the voting power of the Company's outstanding securities, other than as a holder whose investment in the Company is eligible to be reported on Schedule 13G pursuant to Rule 13d-1(b)(1) promulgated under the 1934 Act, or (2) initiates a tender or exchange offer to acquire such number of securities as would result in such person holding twenty percent (20%) or more of the voting power of the Company's outstanding securities, or (3) solicits proxies for votes to elect members of the Board at a. shareholders' meeting of the Company. 5 1.9 "Threatened Change in Control Period" shall mean the period commencing on the date that a Threatened Change in Control has occurred and ending upon: (a) the date the Proposal referred to in Section 1.8(a) of this Article 1 is abandoned: (b) the acquisition of five percent (5%) of the voting power of the Company's outstanding securities by the Person referred to in Section 1.8(a)(1) if such acquisition does not constitute a Threatened Change in Control under Section 1.8(b)(1); (c) the date when any person described in Section 1.8(b) of this Articled, (1) shall own less than five percent (5%) of the voting power of the Company's outstanding securities, (2) shall have abandoned the tender or exchange offer, or (3) shall not have elected a member `of the Board as the case may be; or (d) the date a Change in Control occurs. ARTICLE 2: CREATION OF TRUST. 2.1 The Company hereby establishes with the Trustee and the Trustee hereby accepts a trust consisting of two accounts, established by the Trustee, for purposes of accounting for funds delivered to the Trustee by the Company. One such account shall be known as the "Trustee Expense Account," and shall be used exclusively to pay the fees, expenses and indemnities due or incurred by the Trustee in accordance with the terms of this Agreement. The other such account shall be known as the "Benefit Account," which is to be funded by the Company in accordance with Article 4, and shall be used to make payments under the Transferred Plans. A separate Trustee Expense Account and Benefit Account shall be established for each Affiliate. The Benefit Account shall be divided into (i) separate sub-accounts for each Participant and beneficiary (the "Sub-Accounts") and (ii) a suspense account (the "Suspense Account"). The Sub-Accounts established hereunder are intended to comply with the separate 6 accounts requirement of Section 404(a)(5) of the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations promulgated thereunder. Funds in the Benefit Account will be allocated to the Suspense Account when they are not, or cannot be, credited to any Sub-Account, as the Trustee, in its discretion, determines. The Trustee, in its discretion, may at any time allocate or reallocate any funds held in the Benefit Account among any or all of the Sub-Accounts and the Suspense Account to the extent consistent with Section 404 (a) (5) of the Code. The Trustee, for investment purposes only, may commingle all Trust assets and treat them as a single fund, but the records of the Trustee at all times. shall show the percentages or assets of this Trust allocable to the Trustee Expense Account and the Benefit Account, including the percentages or assets allocable to the Sub-Accounts and Suspense Account. 2.2 The Company and the Trustee agree that this Trust created herein shall be revocable by the Company at any time prior to or subsequent to a Threatened Change in Control Period and prior to a Change in Control. This Trust shall not be revocable by the Company during a Threatened Change in Control Period or after the occurrence of a Change in Control. None of the assets and/or income of this Trust shall be subject to any claims by creditors of the Company or any of its Affiliates. This Trust is not intended to be nor should it be construed as a grantor trust within the meaning of Section 671 of the Code. 2.3 Prior to a Change in Control, the Company and its Affiliates may add Transferred Plans to, and Participants in the Transferred Plans under which benefits are payable from, this Trust by amending Schedule 1 to the Benefits Trust and notifying the Trustee in writing. If the Company or its Affiliates amends any of the Transferred Plans, it shall send to the Trustee a copy of any such amendments and no consent of the Trustee to such amendments is required. 7 2.4 Notwithstanding anything contained in this Agreement to the contrary, upon a Change in Control cash and/or marketable securities from the Benefits-Trust with respect to all Participants and their beneficiaries under the Transferred Plans shall promptly and irrevocably be transferred from the Benefits Trust and delivered to this Trust. Upon the Transfer, the Trustee will have possession and control of the assets so transferred (together with any other assets) of this Trust and all of the income therefrom to hold, administer and dispose of the same on the terms and conditions set forth herein on behalf of Participants and their beneficiaries. ARTICLE 3: TRUSTEE EXPENSE ACCOUNT. 3.1 Upon a Change in Control, the Company will deliver to the Trustee, to be held in trust hereunder and credited to the Trustee Expense Account, the sum of one hundred thousand dollars ($100,000) in cash or marketable securities, to be administered and disposed of by the Trustee as provided herein. 3.2 At any time after a change in Control, the Trustee may require the company to deliver additional amounts in cash or marketable securities to this Trust, to be credited to the Trustee Expense Account. The Trustee shall make written demand for any such additional amount, and the Company will comply with such demand within fifteen (15) days of its receipt thereof. 3.3 At any time, the Company shall have the unlimited right to deliver cash and/or marketable securities reasonably acceptable to the Trustee to be credited to the Trustee Expense Account. Any amount (together with the income attributable thereto) which is over and above the amount described in Section 3.1 may be withdrawn by the Company at any time prior to or subsequent to a Threatened Change in Control Period and prior to a Change in Control. Notwithstanding anything contained in this Agreement to the contrary, the Company shall not 8 have the right to make any withdrawal from this Trust during a Threatened Change in Control Period or after the occurrence of a Change in Control. ARTICLE 4: BENEFIT ACCOUNT. 4.1 Immediately upon the occurrence of a Change in Control, the Company shall contribute sufficient cash or marketable securities to the Benefit Account in an amount equal to the difference between the assets transferred to this Trust pursuant to the Transfer and the amount necessary to pay all benefits payable (whether payable currently or on a deferred basis) under all the Transferred Plans as the Trustee, in its discretion, determines. Upon a Change in Control, the Trustee will have possession and control of the assets transferred (together with any other assets) of this Trust and all of the income therefrom to hold, administer and dispose of the same on the terms and conditions set forth herein on behalf of the Participants and their beneficiaries. 4.2 At any time, the Company shall have the unlimited right to deliver cash and/or marketable securities reasonably acceptable to the Trustee to be credited to the Benefit Account to be allocated to any or all of the Sub-Accounts and/or the Suspense Account as the Trustee, in its, discretion, determines. Any such delivery shall be accepted by the Trustee and shall be accompanied by a designation of (i) the Transferred Plan or Transferred Plans under the provisions of which such funds are to be disbursed and if more than one Transferred Plan is being funded, the amount being allocated in respect of each Transferred Plan and (ii) to which Participant or Participants or beneficiary or beneficiaries the funds are being allocated and if more than one Participant or beneficiary is designated, the amount being allocated to each Participant or beneficiary. Such delivery shall be credited to a separate Sub-Account for each Participant or beneficiary in respect of which funds are being provided and any amount not credited to a Sub-Account shall be credited td the Suspense Account. If no such designation is 9 made by the Company, the Trustee has discretion to determine how the funds are to be allocated. Any amount (together with the income attributable thereto) contributed by the Company to the Benefit Account may be withdrawn by the Company at any time prior or subsequent to a Threatened Change in Control Period and prior to a Change in Control. 4.3 After the occurrence of a Change in Control, if the Trustee determines that the funds in the Benefit Account (including any Sub-Account) are insufficient to fully pay all benefits under the Transferred Plans and any taxes imposed or levied with respect to the assets and/or income of this Trust, as provided under Section 10.1 of Article 10, the Trustee with respect to the Benefit Account shall, and with respect to any Sub-Account may, make a written demand on the Company to provide funds in an amount determined at least quarterly by the Trustee in its discretion. The Company shall transfer such funds within fifteen (15) days from the time the written demand is mailed. ARTICLE 5: PAYMENTS FROM THE TRUST. 5.1 The Company shall, from time to time, furnish the Trustee with such written information regarding the Participants and beneficiaries under the Transferred Plans and the amount and/or method of determination of benefits under the Transferred Plans (hereinafter referred to as "Participant Data") as the Company deems relevant or as the Trustee shall request in writing. The Company shall, after a Change in Control, furnish the Trustee with such Participant Data and other information as the Trustee may from time to time request within thirty (30) days of such request. The Company shall, from time to time, but not less frequently than annually, update Participant Data with respect to all Transferred Plans. After a Change in Control and notwithstanding anything contained in this Agreement to the contrary, the Trustee shall, without direction from the Company make payments to 10 Participants and beneficiaries in such manner and in such amounts as the Trustee shall determine they are entitled to be paid under the Transferred Plans based on the most recent Participant Data furnished to the Trustee by the Company and any supplemental information furnished to the Trustee by a Participant or beneficiary upon which the Trustee may reasonably rely in making such determination. The Trustee shall have the power to interpret the provisions of the Transferred Plans and this Agreement in making its determination: Payments to a Participant or beneficiary shall be made from the Participants Sub-Account. To the extent that the Trustee determines that the funds available in a Participant's Sub-Account is not sufficient to provide for the payment of all amounts otherwise payable to him or her as provided under this Section 5.1, the Trustee shall use the funds credited to the Suspense Account, to the extent available, for the payments due. To the extent that the Trustee determines that there still remains an insufficiency in funds available for the Participant's or beneficiary's payment, the Trustee shall make a written demand on the Company to provide the necessary funds, as provided under Article 4. In the event that the Company refuses to transfer such funds within fifteen (15) days from the time the written demand is mailed, the amount otherwise payable to each such Participant or beneficiary during every month of the insufficiency of funds shall be multiplied by a fraction, the numerator of which is the amount of funds then available in the Benefit Account for the payment of benefits under the Transferred Plans and the denominator of which is the total of the benefits payable prior to such reduction during such month to all Participants and beneficiaries under the Transferred Plans. 5.2 Within a reasonable time following presentment to the Trustee by a Participant or beneficiary of reasonable written evidence satisfactory to the Trustee that such Participant or 11 beneficiary will or has taxable income as a result of his or her interest in this Trust with respect to any Transferred Plan, then the Trustee shall make a payment (the "Tax Payment") to such Participant or beneficiary or to the appropriate taxing authority if applicable from the Benefit Account equal to the product of (i) the amount of such taxable income and (ii) the maximum individual tax rates for the taxable year in respect of which such taxable income will be, or has been, recognized for federal, state and local income taxes, as the case may be, taking into account the deductibility from federal income taxes of any applicable state and local taxes. The payment or payments that a Participant or beneficiary receives from the Benefit Account in respect of any Transferred Plan (other than Tax Payments) shall be reduced, in the manner determined by the Trustee, so that the present value of such payment or payments in respect of the Transferred Plan equal the present value of the total payment or payments the Participant or beneficiary would have been entitled to receive in respect of the Transferred Plan had this Trust not been established, reduced by the amount of the Tax Payments previously made in respect of the Transferred Plan. For this purpose, present value shall be determined as of the date (the "Determination Date") of the payments or the payment of the first in a series of installment payments, in respect of the Transferred Plan, using an interest rate assumption equal to the Pension Benefit Guaranty Corporation's immediate annuity rate in effect for single employer plans termination on the Determination Date and any other assumptions the Trustee deems reasonable and appropriate. 5.3 If the Trustee, in its discretion, determines that a Participant or beneficiary no longer has any interest or entitlement (contingent or otherwise) under this Trust because he or she has been fully paid all amounts due under all Transferred Plans or otherwise, any amount that remains credited to the Participant's Sub-Account shall be reallocated to any or all of the 12 Sub-Accounts or Suspense Account as the Trustee, in its discretion, determines but consistent with complying with the "separate account" requirements referred to in Section 2.1. ARTICLE 6: MANAGEMENT OF TRUST ASSETS. 6.1 Prior to a Change in Control, this Trust's assets shall be held, invested and reinvested by the Trustee as designated by the written direction of the Company from time to time. The Trustee shall not be under any duty, or have any right, to question any such directions of the Company or to review any securities or other property held pursuant to such direction, or to make any suggestions to the Company in connection therewith and the Trustee shall as promptly as practicable comply with any directions given by the Company hereunder. The Trustee shall not be liable for following the directions from the Company prior to a Change in Control if there is a loss due to investments directed by the Company. In exercising the powers of the Company under this Section 6.1 of Article 6, the Company shall act by its Corporate Treasurer or his written designees, each of whom is fully authorized to exercise such powers. The Trustee may, and shall, follow the written directions signed by said Corporate Treasurer or such designees. 6.2 In the absence of written direction of the Company, the Trustee shall invest the assets as if a change in Control had occurred as provided in Section 6.3 of this Article 6 and Article 9. 6.3 After the occurrence of a Change in Control, the Trustee shall have exclusive authority and discretion to manage and control this Trust's assets and may employ investment managers, including affiliates of the Trustee to manage the investment of this Trust's assets. Pursuant to such authority and discretion, the Trustee may exercise, from time to time and at any time, the power: 13 (a) to invest and reinvest this Trust, without distinction between principal and income, in shares of stock (whether common or preferred) or other evidences of ownership, bonds, debentures, notes or other evidences of indebtedness, unsecured or secured by mortgages on real or personal property wherever situated (including any part interest in a bond and mortgage or note and mortgage whether insured or uninsured) and other property, or part interest in property, real or personal, interests in common or collective funds maintained by the Trustee or an affiliate of the Trustee, foreign or domestic, and in order to reduce the rate of interest rate fluctuations, contracts, as either buyer or seller, for the future delivery of United States Treasury securities and comparable federal-government-backed securities; (b) to sell, convey, redeem, exchange, grant options for the purchase or exchange of, or otherwise dispose of, any real or personal property, at public or private sale, for cash or upon credit, with or without security, without obligation on the part of any person dealing with the Trustee to see to the application of the proceeds of or to inquire into the validity, expediency or propriety of any such disposition; (c) to exercise, personally or by general or limited proxy, the right to vote any shares of stock; bonds or other securities held in this Trust, to delegate discretionary voting power to trustees of a voting trust for any period of time, and to exercise, personally or by power of attorney, any other right appurtenant to any securities or other property of this Trust; (d) to join in or oppose any reorganization, recapitalization, consolidation, merger or liquidation, or any plan therefor, or any lease, mortgage or sale of the property of any organization the securities of which are held in this Trust; to pay from this Trust any assessments, charges or compensation specified in any plan of reorganization, recapitalization, consolidation, merger or liquidation: to deposit any property with any committee or depositary; 14 and to retain any property allotted to this Trust in any reorganization, recapitalization, consolidation, merger, or liquidation; (e) to exercise or sell any conversion or subscription or other rights appurtenant to any stock, security or other property held in this Trust; (f) to borrow from any lender (including the Trustee in its individual capacity) money, in any amount and upon any reasonable terms and conditions, for purposes of this Agreement, and to pledge or mortgage any property held in this Trust to secure the repayment of any such loan; (g) to compromise, settle or arbitrate any claim, debt, or obligation of or against this Trust; to enforce or abstain from enforcing any right, claim, debt or obligation and to abandon any property determined by it to be worthless; (h) to make loans of securities held in this Trust to registered brokers and dealers upon such terms and conditions as are permitted by applicable law and regulations, and in each instance to permit the securities so lent to be registered in the name of the borrower or a nominee of the borrower, provided that in each instance the loan is adequately secured and neither the borrower nor any affiliate of the borrower has discretionary authority or control with respect to the assets of this Trust involved in the transaction or renders investment advice with respect to those assets; and (i) to invest and reinvest any property in this Trust in any other form or type of investment not specifically mentioned in this Section. 15 ARTICLE 7: ADMINISTRATIVE POWERS. The Trustee shall have and in its sole and absolute discretion may exercise from time to time and at any time the following administrative powers and authority with respect to this Trust: 7.1 To hold property of this Trust in its own name or in the name of a nominee or nominees, without disclosure of this Trust, or in bearer form so that it will pass by delivery, but no such holding shall relieve the Trustee of its responsibility for the safe custody and disposition of this Trust in accordance with the provisions of this Agreement; the Trustees books and records shall at all times show that such property is part of this Trust; and the Trustee shall be absolutely liable for any loss occasioned by the acts of its nominee or nominees with respect to securities registered in the name of the nominee or nominees. 7.2 To organize and incorporate under the laws of any state it may deem advisable one or more corporations (and to acquire an interest in any such corporation that it may have organized and incorporated) for the purpose of acquiring and holding title to any property, interests or rights that the Trustee is authorized to acquire under Article 6 hereof. 7.3 To employ in the management of this Trust suitable agents, without liability for any loss occasioned by any such agents selected by the Trustee with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 7.4 To make, execute and deliver, as Trustee, any deeds, conveyances, leases, mortgages, contracts, waivers or other instruments in writing that the Trustee may deem necessary or desirable in the exercise of its powers under this Agreement. 16 7.5 To administer this Trust, including the establishment and maintenance of the Sub-Accounts and Suspense Account, to ensure that payments made to this Trust by the Company are deductible by the Company under Section 404(a)(5) of the Code: provided, that such administration shall not adversely effect the interests of the Participants and beneficiaries. 7.6 To reallocate at any time excess funds from any and all of the sub-Accounts among the Sub-Accounts or Suspense Account, as provided under Article 5, and from the Suspense Account to any and all of the Sub-Accounts, as provided under Article 2. 7.7 To pay any federal, state, local or other taxes imposed or levied with respect to the assets and/or income of this Trust out of the Benefit Account and to file all federal, state and local tax or information returns relating to this Trust. 7.8 To do all other acts that the Trustee may deem necessary or proper to carry out any of the powers set forth in this Agreement or otherwise in the best interests of this Trust. ARTICLE 8: INSURANCE AND ANNUITY CONTRACTS. 8.1 The Trustee, upon written direction of the Company prior to a Change in Control, shall pay from the Benefit Account such sums to such insurance company or companies as the Company may direct for the purpose of procuring participating or nonparticipating insurance and/or annuity contracts for the Transferred Plans (hereinafter referred to as "Contracts(degree)). The Company shall prepare, or cause to be prepared in such form as it shall prescribe, the application for any Contract to be applied for. The Trustee shall receive and hold in this Trust, subject to the provisions hereinafter set forth in this Article 8, all Contracts so obtained. 8.2 The Trustee shall be the complete and absolute owner of Contracts held in this Trust and, upon written direction of the Company prior to a Change in Control, shall have power, without the consent of any other person, to exercise any and all of the rights, options or privileges that belong to the absolute owner of any Contract held in this Trust or that are granted 17 by the terms of any such Contract or by the terms of this Agreement. Prior to a Change in Control, the Trustee shall have no discretion with respect to the exercise of any of the foregoing powers or the taking of any other action permitted by any Contract held in this Trust, but shall exercise such powers or take such action only upon the written direction of the Company and the Trustee shall have no duty to exercise any of such powers or to take any such action unless and until it shall have received such direction. After a Change in Control, the Trustee shall exercise, without directions from the Company, any and all of the rights, options or privileges that belong to the absolute owner of any Contract held in this Trust or that are granted by the terms of any such Contract or by the terms of this Agreement. The Trustee, upon the written direction of the company prior to a Change in Control, shall deliver any Contract held in this Trust to such person or persons as may be specified in the direction. 8.3 The Trustee shall hold in this Trust the proceeds of any sale, assignment or surrender of any Contract held in this Trust and any and all dividends and other payments (including death benefits) of any kind received in respect of any Contract held in this Trust. 8.4 Upon the written direction of the Company prior to a Change in Control, the Trustee shall pay from the Benefit Account, premiums, assessments, dues, charges and interest, if any, upon any Contract held in this Trust. The Trustee shall have no duty to make any such payment unless and until it shall have received such direction. After a Change in Control, the Trustee shall pay from the Benefit Account premiums, assessments, dues, charges and interest, if any, upon any Contract held in this Trust, without direction from the Company. 8.5 No insurance company that may issue any Contract or Contracts held in this Trust shall be deemed to be a party to this Agreement for any purpose, or to be responsible in any way for the validity of this Agreement or to have any liability under this Agreement other than as 18 stated in each Contract that it may issue. Any insurance company may deal with the Trustee as sole owner of any Contract issued by it and held in this Trust without inquiry as to the authority of the Trustee to act, and may accept and rely upon any written notice, instruction, direction, certificate or other communication from the Trustee believed by it to be genuine and to be signed by an officer of the Trustee and shall incur no liability or responsibility for so doing. Any sums paid out by any insurance company under any of the terms of a Contract issued by it and held in this Trust either to the Trustee, or, in accordance with the direction of the Trustee, to any other person or persons designated as payees in such Contract shall be a full and complete discharge of the liability to pay such sums, and the insurance company shall have no obligation to look to the disposition of any sums so paid. No insurance company shall be required to review the terms of this Agreement, to question any action of the Trustee or to ensure that any action of the Trustee is authorized by the terms of this Agreement. 8.6 Notwithstanding anything contained herein to the contrary, neither the Company nor the Trustee shall be liable for the refusal of any insurance company to issue or change any Contract or Contracts or to take any other action requested by the Trustee; nor for the form, genuineness, validity, sufficiency or effect of any Contract or Contracts held in this Trust nor for the act of any person or persons that may render any such Contract or Contracts null and void nor for the failure of any insurance company to pay the proceeds and avails of any such Contract or Contracts as and when the same shall become due and payable; nor for any delay in payment resulting from any provision contained in any such Contract or Contracts; nor for the fact that for any reason whatsoever (other than their own negligence or willful misconduct) any Contract or Contracts shall lapse or otherwise become uncollectable. 19 ARTICLE 9: TRUSTEE'S POWERS AFTER A CHANGE IN CONTROL: 9.1 After a Change in Control, the Trustee shall. exercise for the sole benefit of Participants and their beneficiaries any of the powers set forth in Section 6.3 of Article 6 and Sections 8.2 through 8.6.of Article 8 without direction from the Company, including the power to negotiate for and purchase Contracts whose rates of return and maturity dates may reasonably be expected to permit the Trust to discharge any or all of the obligations of the Company and its Affiliates under the Transferred Plans. 9.2 As soon as practicable following a Change in Control, the Trustee shall notify in writing each Participant and beneficiary of the amount of his or her benefit (accrued or contingent) under the Transferred Plans. Thereafter, the Trustee shall provide each Participant or his or her beneficiary by March 1 of each year, with an account statement (the "Account Statement") as of December 31 of the prior calendar year. The Account Statement shall contain a statement of the amount of benefit payments to which the Participant is or may be entitled, a summary of the assets of the Trust, the amount credited to the Participant's Sub-Account, and a statement notifying the Participant or beneficiary that he or she has the right to receive or examine a copy of this Agreement and examine the Trustees account filed with the Company pursuant to Section 14.1 of Article 14 hereof. In addition, the Trustee shall notify each Participant or beneficiary of any failure by the Company to provide the Participant Data referred to in Section 5.1 of Article 5 hereof or to make contributions pursuant to Articles 3 and 4. 9.3 After a Change in Control, the Trustee shall bill the Company directly, on a monthly basis, for all fees and expenses described in Section 10.2 of Article 10. The Trustee may commence legal action against the Company to recover any amount not paid within thirty (30) days of the billing date, and shall be obligated to commence such an action if the Company's 20 failure to pay causes a reduction in the assets of the Trustee Expense Account contributed pursuant to Article 3. 9.4 After a Change in Control, the Trustee shall be obligated to commence legal action to compel the Company to provide funds to pay benefits under all Transferred Plans and any taxes imposed on this Trust if the Trustee has issued a demand pursuant to Section 4.3 of Article 4 and the Company has failed to transfer the demanded funds in a timely fashion under Section 4.3 of Article 4. ARTICLE 10: TAXES. EXPENSES AND COMPENSATION OF TRUSTEE. 10.1 The Company shall pay any federal, state, local or other taxes imposed or levied with respect to the assets and/or income of this Trust or any part thereof unless paid by the Trustee out of the Benefit Account. 10.2 The Trustee shall be reimbursed by the company on a monthly basis, or on such other basis as the Trustee deems reasonable, for the fees and expenses set forth in Schedule 2 to the Benefits Trust and its reasonable expenses, including but not limited to the retention of legal counsel, accountants and actuaries and such other professionals as the Trustee determines are necessary or appropriate to enable it to perform its services as Trustee. ARTICLE 11: GENERAL DUTIES OF TRUSTEE. 11.1 The Trustee shall discharge its duties under this Agreement solely in the interest of the Participants and their beneficiaries and (a) for the exclusive purpose of providing benefits to such Participants and their beneficiaries and defraying reasonable expenses of administering this Trust: and (b) with the care, skill, prudence and diligence under the circumstances then prevailing that "a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 21 11.2 (a) The Company shall notify the Trustee of any facts of which its officers have knowledge which have caused the occurrence of a Change in Control. (b) The Trustee is responsible for ascertaining whether a Change in Control has occurred. 11.3 The Trustee may consult with counsel, who may be counsel for the Company prior to a Change in Control or for the Trustee in its individual capacity, and shall not be deemed imprudent by reason of its taking or refraining from taking any, action in accordance with the opinion of counsel. ARTICLE 12: INDEMNIFICATION. 12.1 The Company agrees, to the extent permitted by law, to indemnify and hold the Trustee harmless from and against any liability that the Trustee may incur in the administration of this Trust (including attorneys' fees and expenses), unless arising from the Trustee's own gross negligence, willful misconduct, or willful breach of the provisions of its obligations under this Agreement. The Trustee shall not be required to give any bond or any other security for the faithful performance of its duties under this Agreement, except as required by law. 12.2 Any amount payable to the Trustee under this Article 12 and not previously paid by the Company shall be paid by the Company promptly upon written demand therefor by the Trustee or, if the Company fails to make payment within fifteen (15) days after receipt of such written demand, from the Trustee Expense Account, and, if the Trustee Expense Account is insufficient, then from the Benefit Account. In the event that payment is made hereunder to the Trustee from the Trustee Expense Account or Suspense Account, the Trustee shall promptly notify the Company in writing of the amount of such payment. The Company agrees that, upon receipt of such notice, it will 22 deliver to the Trustee to be held in this Trust an amount in cash (or in marketable securities or in some combination thereof) equal to any payments made from this Trust to the Trustee pursuant to this Article 12. The failure of the Company to transfer any such amount shall not in any way impair the Trustee's right to indemnification, reimbursement and payment pursuant to this Article 12. The provisions of this Article 12 shall survive the termination of this Agreement. ARTICLE 13: NO DUTY TO ADVANCE FUNDS. Nothing contained in this Agreement shall require the Trustee to risk or expend its own funds in the performance of the duties of the Trustee hereunder. In the acceptance and performance of its duties hereunder, the Trustee acts solely as trustee and not in its individual capacity, and all persons, other than the Company, having any claim against the Trustee related to this Agreement or the actions or agreements of the Trustee contemplated hereby shall look solely to this Trust for the payment or satisfaction thereof unless the Trustee has failed to act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. ARTICLE 14: ACCOUNTS. 14.1 (a) The Trustee shall keep accurate and detailed accounts of all its receipts, investments and disbursements under this Agreement on a fiscal year basis ending on each August 31 and for purposes of the Account Statement pursuant to Section 9.2 of Article IX. Such person or persons as the Company shall designate shall be allowed to inspect the books of account relating to this Trust upon request at any reasonable time during the business hours of the Trustee. 23 (b) Within sixty (60) days after the close of each fiscal year, the Trustee shall transmit to the Company, and certify the accuracy of, a written statement of the assets and liabilities of this Trust, showing the current value of each asset at that date, and a written account of all the Trustee's transactions relating to this Trust during the period from the last previous accounting to the close of that year. For the purposes of this subsection, the date of the Trustee's resignation or removal as provided in Article 16 hereof or the date of termination of this Trust as provided in Article 17 hereof shall be deemed to be the close of a year. (c) Unless the Company shall have filed with the Trustee written exceptions or objections to any such statement and account within one-hundred and twenty (120) days after receipt thereof, the Company shall be deemed to have approved such statement and account, and in such case or upon the written approval by the Company of any such statement and account, the Trustee shall, to the extent permitted by law, be forever released and discharged with respect to all matters and things contained in such statement and account as though it had been settled by decree of a court of competent jurisdiction in an action or proceeding to which the company and all persons having any beneficial interest in this Trust were parties. 14.2 The Trustee shall determine the fair market value of this Trust on a quarterly basis. If there is a diminution in value of the Trustee Expense Account below (1) one hundred thousand dollars ($100,000) after the occurrence of a Change in Control, the Company shall provide the Trustee with sufficient funds to make up for any such diminution in value within fifteen (15) days after written demand by the Trustee for such payment." No resignation pursuant to the foregoing provisions of this Section 14.2 may take effect after the occurrence of a Change in Control. 24 14.3 Nothing contained in this Agreement or in the Transferred Plans shall deprive the Trustee of the right to have a judicial settlement of its accounts. In any proceeding for a judicial settlement of the Trustee's accounts or for instructions in connection with this Trust, the only other necessary party thereto in addition to the Trustee shall be the Company. If the Trustee so elects, it may bring in as a party or parties defendant any other person or persons. No person interested in this Trust, other than the Company or at least twenty-five percent (25%) of the Participants and beneficiaries, shall have a right to compel an accounting, judicial or otherwise, by the Trustee, and each such person shall be bound by all accountings by the Trustee to the Company, as herein provided, as if the account had been settled by decree of a court of competent jurisdiction in an action or proceeding to which such person was a party. ARTICLE 15: ADMINISTRATION OF THE TRANSFERRED PLANS: COMMUNICATIONS. 15.1 Prior to a Change in Control the Company shall administer the Transferred Plans as provided therein and subject to Article 5, Article 6, and Article 9, or subject to any other delegation, by the Company and assumption by the Trustee of the duties of administering the Transferred Plans, the Trustee shall not be responsible in any respect for administering the Transferred Plans nor shall the Trustee be responsible for the adequacy of this Trust to meet and discharge all payments and liabilities under the Transferred Plans. The Trustee shall be fully protected in relying upon any written notice, instruction, direction or other communication consistent with the terms of this Agreement signed by an officer of the Company designated pursuant to this Agreement. The Company, from time to time, shall furnish the Trustee with the names and specimen signatures of the designated officers of the Company and shall promptly notify the Trustee of the termination of office of any designated officer of the Company and the appointment of a successor thereto. Until notified to the contrary, the Trustee shall be fully 25 protected in relying upon the most recent list of the designated officers of the Company furnished to it by the Company. 15.2 Any action required by any provision of this Agreement to be taken by the Board shall be evidenced by a resolution of such Board certified to the Trustee by the Secretary or an Assistant Secretary of the Company under its corporate seal, and the Trustee shall be fully protected in relying upon any resolution so certified to it. Unless other evidence with respect thereto has been specifically prescribed in this Agreement, any other action of the Company under any provision of this Agreement, including any approval of or exceptions to the Trustee's accounts, shall be evidenced by a certificate signed by an officer of the Company, and the Trustee shall be fully protected in relying upon such certificate. The Trustee may accept a certificate signed by an officer of the Company as proof of any fact or matter that it deems necessary or desirable to have established in the administration of this Trust (unless other evidence of such fact or matter is expressly prescribed herein), and the Trustee shall be fully protected in relying-upon the statements in the certificate. 15.3 The Trustee shall be entitled conclusively to rely upon any written notice, instruction, direction, certificate or other communication consistent with the terms of this Agreement believed by it to be genuine and to be signed by the proper person or persons. 15.4 Until written notice is given to the contrary, communications to the Trustee shall be sent to it at its office at 301 N. Main Street, P.O. Box 3099, Winston-Salem, North Carolina, Attention: Mr. John N. Smith, Telecopy 919/770-4059, copy to Mr. Joe Long (or such other individuals as delegated in writing by Messrs. Smith or Long), communications to the Company shall be sent to it at its office at 1420 Peachtree Street, N.E., Atlanta, Georgia; Attention: Sidney Kirschner, Telecopy 404/853-1015, copy to David Levy. 26 ARTICLE 16: RESIGNATION OR REMOVAL OF TRUSTEE. 16.1 The Trustee may resign at any time, other than during a Threatened Change in Control Period or following the occurrence of a Change in Control, upon six (6) months' written notice to the Company or such shorter period as is acceptable to the Company (hereinafter referred to as the "Resignation Period") and immediately after the Resignation Period shall have no further duties hereunder. The Trustee will have no duty to find or secure the appointment of a successor upon its resignation pursuant to this Section nor shall its resignation or its termination of any further duties be contingent upon the appointment and qualification of a successor. Promptly after receipt of such notice, the Company shall appoint a successor trustee, such trustee to become Trustee upon its acceptance of this Trust. 16.2 During a Threatened Change in Control Period or after the occurrence of a Change in Control, the Trustee may resign only if a final decision of a court of competent jurisdiction removes the Trustee by reason of such court's determination of the existence of a conflict of interest which prevents the Trustee from properly performing its duties hereunder. The Trustee agrees to use its best efforts to avoid any such conflict. For the purpose of this Agreement, the decision of a court shall not be deemed to be final unless the decision is not appealable, or no appeal has been taken from the decision and the time for an appeal has expired. Notwithstanding the foregoing provisions of this Section 16.2, such resignation shall not be effective unless the Trustee has obtained the agreement of a bank to act as successor trustee which bank (1) is among the 100 largest banks in the United States, as measured by assets, and (2) served or then currently serves as the trustee for similar trusts and understands its obligations under such similar trusts. In any event, the Trustee shall continue to be custodian of this Trust until the new trustee is in place, and the Trustee shall be entitled to expenses and fees through the 27 later of the effective date of its resignation as Trustee or the end of its custodianship of this Trust's assets. 16.3 Other than during a Threatened Change in Control Period or after the occurrence of a Change in Control, the Company may remove the Trustee upon thirty (30) days' written notice to the Trustee, or upon shorter notice if acceptable to the Trustee. Such removal shall become effective, however, only upon the occurrence of all of the following events: (a) The appointment by the Company of a successor trustee: (b) The acceptance of the Trust by the successor trustee; and (c) The delivery of this Trust's assets to the successor trustee. 16.4 Each successor trustee shall have the powers and duties conferred upon the Trustee in this Agreement, and the term "Trustee" as used in this Agreement shall be deemed to include any successor trustee. Upon designation or appointment of a successor trustee, the Trustee shall transfer and deliver this Trust to the successor trustee, reserving such reasonable sums as the Trustee shall deem necessary to defray its expenses in settling its accounts, to pay any of its compensation due and unpaid and to discharge any obligation of this Trust for which the Trustee may be liable. If the sums so reserved are not sufficient for these purposes, the Trustee' shall be entitled to recover the amount of any deficiency from either the Company or the successor trustee, or both. When this-Trust shall have been transferred and delivered to the successor trustee and the accounts of the Trustee have been settled as provided in Article 14 hereof, the Trustee shall be released and discharged from all further accountability or liability for this Trust and shall not be responsible in any way for the further disposition of this Trust or any part thereof. 28 16.5 Notwithstanding anything to the contrary, in the event it resigns or is removed, the Trustee shall have a right to have its accounts settled as provided in Article 14 hereof. ARTICLE 17: AMENDMENT OF AGREEMENT; TERMINATION OF TRUST. 17.1 Subject to Section 17.2 of this Article 17, the Company expressly reserves the right at any time, other than during a Threatened Change in Control Period or after the occurrence of a Change in Control, to amend in writing or terminate this Agreement and this Trust created thereby to any extent that it may deem advisable. No amendment shall be made without the Trustee's consent thereto in writing (whose consent shall not be unreasonably withheld) if, and to the extent that, the effect of such-amendment is to materially increase the Trustee's responsibilities hereunder. Such proposed amendment shall be delivered to the Trustee as a written instrument of amendment, duly executed and acknowledged by the Company. The Company also shall deliver to the Trustee a copy of any modifications or amendments to the Transferred Plans. The Trustee's consent shall not be required for the termination of this Trust pursuant to this Section 17.1, its removal as Trustee, the amendment of any of the Plans, or the increase in the number of Participants. 17.2 Notwithstanding anything contained herein to the contrary, other than as provided in Section 17.4, the provisions of this Agreement and this Trust created thereby shall not be amended or terminated by the Company or the Trustee during a Threatened Change in Control Period or after the occurrence of a Change in Control. 17.3 In the event the Company terminates this Trust other than during a Threatened Change in Control Period or after the occurrence of a Change in Control, the Trustee shall reserve such sums it deems necessary to pay its fees and expenses, and shall distribute all remaining assets of this Trust in accordance with the written directions of the Company, and the 29 Trustee shall provide the Company with a final written accounting to the Company in accordance with Article 14 hereof. 17.4 After the occurrence of a Change in Control, this Trust shall only be terminated on the first to occur of either (a) the date on which the last Participant or beneficiary has received his or her benefits under the Transferred Plans or (b) the twenty-first anniversary of the death of the last survivor of the Participants or their beneficiaries who are in being on the date of this Agreement. Upon termination of this Trust, the Trustee shall have a right to have its account settled as provided in Article 14 hereof. Only upon termination of this Trust, and after payment of all fees, expenses and indemnities due to or incurred by the Trustee hereunder, any remaining portion of this Trust shall be promptly paid to the Company: ARTICLE 18: PROHIBITION OF DIVERSION. Except as provided in Sections 3.3, 4.2 and 17.4, at no time prior to the satisfaction of all liabilities with respect to Participants and their beneficiaries under this Trust shall any part of the corpus and/or income of this Trust be used for, or diverted to, purposes other than for the exclusive benefit of such Participants and their beneficiaries, and the assets of this Trust shall never inure to the benefit of the Company and shall be held for the exclusive purposes of providing benefits to Participants in the Transferred Plans and their beneficiaries and defraying reasonable expenses of administering the Transferred Plans or performing any of the Trustee's duties under this Agreement. ARTICLE 19: PROHIBITION OF ASSIGNMENT OF INTEREST. No interest, right or claim in or to any part of this Trust or any payment therefrom shall be assignable, transferable or subject to sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment, attachment, execution or levy of any kind, and the 30 Trustee shall not recognize any attempt to assign, transfer, sell, mortgage, pledge, hypothecate, commute or anticipate the same, except to the extent required by law. ARTICLE 20: MISCELLANEOUS. 20.1 This Agreement shall be interpreted, construed and enforced, and this Trust hereby created shall be administered, in accordance with the laws of the United States and of the State of Georgia without regard to the conflicts of laws principles thereof. 20.2 The Company shall, at any time and from time to time, upon the reasonable request of the Trustee, execute and deliver such further instruments and do such further acts as may be necessary or proper to effectuate the purpose of this Agreement. 20.3 The titles to Articles of this Agreement are placed herein for convenience of reference only, and this Agreement is not to be construed by reference thereto. 20.4 This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and the Trustee, respectively and the Transferred Plans. 20.5 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall constitute but one instrument, which may be sufficiently evidenced by any counterpart. 20.6 If any provision of this Agreement is determined to be invalid or unenforceable the remaining provisions shall not for that reason alone also be determined to be invalid or unenforceable. 20.7 Each Participant and his beneficiaries is an intended beneficiary under this Trust, and shall be entitled to enforce all terms and provisions hereof with the same force and effect as if such person had been a party hereto. 31 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their respective names by their duly authorized officers under their corporate seals as of the day and year first above written. NATIONAL SERVICE INDUSTRIES, INC. ATTEST: By: -------------------------- ----------------------------- Secretary Sidney Kirschner, President WACHOVIA BANK AND TRUST COMPANY, N.A. ATTEST: By: -------------------------- ----------------------------- Secretary 32 STATE OF : ss.: COUNTY OF : On this day of ____________, 1990, before me personally came ________________, to me known, who, being by me duly sworn, did depose and say that he resides at _____________________________, and that he is _______________ of Wachovia Bank and Trust Company, N.A., one of the entities describes in and which executed the foregoing instrument that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. ------------------------------------ Notary Public, State of Georgia DeKalb County My Commission Expires ------------ STATE OF : ss.: COUNTY OF FULTON : On this day of ____________, 1990, before me personally came Sidney Kirschner, to me known, who, being by me duly sworn, did depose and say that he resides at 6175 Riverwood Drive, Atlanta, Georgia, and that he is President of Wachovia Bank and Trust Company, N.A., one of the entities describes in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. ------------------------------------ Notary Public, State of Georgia DeKalb County My Commission Expires ------------ Schedule 1 THE PLANS The following Company plans and agreements (collectively referred to as the "Plans") are subject to this Trust: 1. Executives' Deferred Compensation Plan 2. Supplemental Retirement Plan for Executives 3. Senior Management Benefit Plan 4. 1984 Special Deferred Supplemental Bonus Plan for: (i) Kirschner (ii) Maziar (iii) McClung 5. 1987 Special Deferred Supplemental Bonus Plans for: (i) Kirschner (ii) Gurbacki (iii) Maziar (iv) McClung 6. Severance Protection Agreements with: (i) Kirschner (ii) Bostater (iii) Cosby (i) DiRosa (ii) Dressel (iii) Evans (i) Gurbacki (ii) Hipps (iii) Hubble (iv) Joel (ii) Levy (iii) Maziar (iv) McClung (iv) Zook 1 of 1 EX-10.IIIA49B 14 g76849exv10wiiia49b.txt EX-10.IIIA49B AMENDMENT TO EXECUTIVE BENEFITS Exhibit 10(iii)A49(b) AMENDMENT AND ADOPTION OF NATIONAL SERVICE INDUSTRIES, INC. EXECUTIVE BENEFITS TRUST This Agreement made and entered into as of this ____ day of ___________, 1996, by and among National Service Industries, Inc. (the "Corporation), Wachovia Bank and Trust Company (the "Trustee") and the following affiliates of the Corporation - North Bros., Inc., National Service Industries, Inc. of Georgia, NSI Enterprises, Inc., ZEP Manufacturing Company, and NSI Services, L.P.: W I T N E S S E T H: WHEREAS, the Corporation previously established a trust arrangement known as the National Service Industries, Inc. Executive Benefits Trust (the "Trust") in order to ensure that participants and their beneficiaries receive the benefits which the Corporation and its affiliates are obligated to provide pursuant to various executive compensation arrangements (collectively, the "Plans") and to provide for additional funding of the Trust upon a Change in Control of the Corporation; and WHEREAS, effective as of August 31, 1996, the Corporation will reorganize its operations into several newly-formed subsidiary corporations and limited partnerships including North Bros., Inc., National Service Industries, Inc. of Georgia, NSI Enterprises , Inc., ZEP Manufacturing Company, and NSI Services, L.P. (collectively, referred to as the "Affiliates"); and WHEREAS, each Affiliate has assumed the obligation, with respect to certain eligible employees employed by such Affiliate, to provide benefits under one or more of the Plans; and WHEREAS, each of the Affiliates now desires to adopt and become a party to the Trust upon the terms set forth herein; and WHEREAS, the Corporation desires to amend the Trust in certain respects to clarify each Affiliate's financial obligation to provide benefits to the Affiliate's eligible employees under any Plan adopted by such Affiliate; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. The Corporation authorizes each of the Affiliates to adopt and become a party to the Trust in accordance with the terms and provisions thereof. 2. Effective as of August 31, 1996, each of the Affiliates hereby adopts and becomes a party to the Trust and agrees to be bound by all the terms and provisions thereof. 3. Section 4.1 of the Trust is hereby amended by deleting the first sentence thereof in its entirety and substituting the following: "Immediately upon the occurrence of a Change in Control, the Company and each Affiliate shall contribute sufficient cash or marketable securities to their respective Benefit Accounts in an amount equal to the difference between the assets transferred to this Trust pursuant to the Transfer and the amount necessary to pay all benefits payable (whether payable currently or on a deferred basis) under all Transferred Plans as the Trustee, in its discretion, determines; provided, however, any Affiliate shall be required to make contributions hereunder only to the extent of such Affiliate's obligation under each Plan it has adopted." 4. Section 4.2 of the Trust is hereby amended by adding "and any Affiliate" after "Company" wherever it appears therein. 5. Section 4.3 of the Trust is hereby amended by adding "or Affiliate, as applicable" after "Company" wherever it appears therein and by adding the following to the end of the section: "In the event that any Affiliate fails to transfer funds following written demand as provided herein, the Company shall assume the Affiliate's obligation to transfer such funds." 6. Section 9.4 of the Trust is hereby amended by adding the following to the end of the section: "To the extent any Affiliate has failed to transfer funds required under Section 4.3, the Trustee may join such Affiliate in any legal action against the Company to compel payment." 7. This Agreement shall be effective as of August 31, 1996. Except as provided herein, the remaining provisions of the Trust shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment and Adoption Agreement as of the day and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. By: - ---------------------------- -------------------------------- ATTEST: NORTH BROS., INC. By: - ---------------------------- -------------------------------- ATTEST: NATIONAL SERVICE INDUSTRIES, INC. OF GEORGIA By: - ---------------------------- -------------------------------- ATTEST: NSI ENTERPRISES, INC. By: - ---------------------------- -------------------------------- ATTEST: ZEP MANUFACTURING COMPANY By: - ---------------------------- -------------------------------- ATTEST: NSI SERVICES, L.P. By: - ---------------------------- -------------------------------- ATTEST: WACHOVIA BANK AND TRUST COMPANY, AS TRUSTEE By: - ---------------------------- -------------------------------- EX-10.IIIA50A 15 g76849exv10wiiia50a.txt EX-10.IIIA50A NONEMPLOYEE STOCK OPTION PLAN Exhibit 10(iii)A50(a) NATIONAL SERVICE INDUSTRIES, INC. 1992 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN 1. PURPOSE. (a) The purpose of this Plan is to provide a means by which nonemployee directors of National Service Industries, Inc. (the "Company") may be given an opportunity to purchase stock of the Company. (b) The Company, by means of the Plan, seeks to secure and retain the services of persons best qualified to serve as directors of the Company and to provide incentives for such persons to exert maximum efforts for the success of the Company. (c) This Plan is intended to be an ongoing formula award plan (as described in Rule 16b-3(c)(2)(ii) under the Exchange Act) such that the awards granted hereunder shall not affect the recipients' disinterested status for purposes of administering any stock-related plans of the Company established pursuant to Rule 16b-3 under the Exchange Act. (d) The Company intends that the options issued under the Plan shall be options which do not qualify as incentive stock options for purposes of Section 422 of the Code. 2. DEFINITIONS. For purposes of the Plan: 2.1 "Adjusted Fair Market Value" means, in the event of a Change in Control, the greater of (i) the highest price per Share paid to holders of the Shares in any transaction (or series of transactions) constituting or resulting in a Change in Control or (ii) the highest Fair Market Value of a Share during the ninety (90) day period ending on the date of a Change in Control. 2.2 "Agreement" means the written agreement between the Company and an Optionee evidencing the grant of an Option and setting forth the terms and conditions thereof. 2.3 "Board" means the Board of Directors of the Company. 2.4 "Cause" means the commission of an act of fraud or intentional misrepresentation or an act of embezzlement, misappropriation, or conversion of assets or opportunities of the Company or any subsidiary of the Company. 2.5 "Change in Capitalization" means any increase or reduction in the number of Shares, or any change (including, but not limited to, a change in value) in the Shares or exchange of Shares for a different number or kind of Shares or other securities of the Company, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of Shares, repurchase of Shares, change in corporate structure, or otherwise. 2.6 A "Change in Control" means any of the following events: (a) The acquisition (other than from the Company) by any "Person" (as the term is used for purposes of Sections l3(d) or l4(d) of the Exchange Act) of beneficial ownership (within the meaning of Rule l3d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities; or (b) The individuals who, as of September 21, 1989 were members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; or (c) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than seventy percent (70%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to Section 2.6(a), solely because twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. -2- 2.7 "Code" means the Internal Revenue Code of 1986, as amended. 2.8 "Company" means National Service Industries, Inc. 2.9 "Director" means a Director of the Company. 2.10 "Disability" means a physical or mental infirmity which impairs the Optionee's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. 2.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.12 "Fair Market Value" on any date means (A) if the Shares are admitted to trading on a national securities exchange, the last sale price reported for the Shares on such exchange on such date or, if no sale was reported on such date, on the last date preceding such date on which a sale was reported, (B) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and have been designated as a National Market System ("NMS") security, the last sale price reported for the Shares on such system on such date or on the last day preceding such date on which a sale was reported, (C) if the Shares are admitted to quotation on NASDAQ and have not been designated a NMS security, the average of the highest bid and lowest asked prices of the Shares on such system on such date, or (D) if there have been no published bid or asked quotations with respect to Shares on such date, the value established by the Board in good faith and in accordance with Section 422 of the Code. 2.13 "Nonemployee Director" means a Director who is not an officer or employee of the Company or any subsidiary. 2.14 "Option" means an option granted under this Plan to purchase Shares. 2.15 "Optionee" means a person to whom an Option has been granted under the Plan. 2.16 "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company. 2.17 "Plan" means the National Service Industries, Inc. 1992 Nonemployee Directors' Stock Option Plan. 2.18 "Shares" means the common stock, par value $1.00 per share, of the Company. -3- 3. ADMINISTRATION. 3.1 The Plan shall be administered by the Board. The Board shall have no authority, discretion or power to select the individuals who are or will be eligible to receive Options under this Plan (other than as a consequence of exercising its power to nominate individuals for election to the Board and/or appoint individuals to fill vacancies on the Board). The Board shall not have any discretion to determine the amount, price or timing of any Options granted or to be granted hereunder, except in the sense of administering the Plan pursuant to its express terms. 3.2 The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (a) To construe and interpret the Plan and any Option, to construe and interpret any condition or restrictions imposed on Shares acquired pursuant to the exercise of an Option, to define the terms used herein and to establish, amend, and revoke rule and regulations for administration of the Plan. The Board in the exercise of this power, may correct any defect, omission, or inconsistency in the Plan or in any Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (b) To amend, modify, suspend, or terminate the Plan in accordance with Section 9. (c) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company in connection with the Plan. 4. STOCK SUBJECT TO THE PLAN. 4.1 The maximum number of Shares that may be made the subject of Options granted under the Plan is l00,000 Shares (or the number and kind of Shares of stock or other securities to which such Shares are adjusted upon a Change in Capitalization pursuant to Section 7) and the Company shall reserve for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Board. 4.2 Whenever any outstanding Option or portion thereof expires, is forfeited, is cancelled or is otherwise terminated for any reason (other than upon the exercise of the Option or upon the surrender of the Option pursuant to Section 6), the Shares allocable to the cancelled or otherwise terminated Option or portion thereof may again be the subject of Options granted hereunder. -4- 5. OPTION GRANTS FOR NONEMPLOYEE DIRECTORS. 5.1 Grant. An Option shall be granted to each Nonemployee Director on (i) the first business day after the date of the first annual meeting of the stockholders of the Company following adoption of the Plan by the Board, and (ii) the third (3rd) Wednesday occurring in September of each year that the Plan remains in effect pursuant to its terms. The number of Shares and the purchase price therefor of each Option shall be as provided in this Section 5 and such Options shall be evidenced by an Agreement containing such other terms and conditions not inconsistent with the provisions of this Plan as determined by the Board. 5.2 Number of Shares. Each Option granted shall be in respect of a number of Shares equal to 1,000, subject to adjustment as provided in Section 7. 5.3 Purchase Price. The purchase price for Shares under each Option shall be equal to 100% of the Fair Market Value of a Share on the date the Option is granted. 5.4 Duration. Options shall be for a term of ten (10) years, unless terminated earlier as follows: (a) if an Optionee's service as a Director terminates for Cause, the Options granted to the Optionee hereunder shall immediately terminate in full and no rights thereunder may be exercised; (b) if an Optionee's service as a Director terminates for any reason other than Cause, the Optionee (or any guardian, legal representative, heir or successor of the Optionee) may for a period of three (3) years after such termination exercise his or her Options to the extent, and only to the extent, that such Options or portions thereof were vested and exercisable as of the date the Optionee's service as a Director terminated, after which time the Options shall automatically terminate in full. This Section 5.4 shall not be construed to extend the term of any Option or to permit anyone to exercise any Option after expiration of its term, nor shall it be construed to increase the number of Shares as to which any Option is exercisable from the amount exercisable on the date of termination of the Optionee's service as a Director. 5.5 Vesting. Subject to Section 6, each Option shall be exercisable in whole or in part at any time after one (1) year from the date of grant of the Option. 5.6 Non-transferability. No Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. The terms of such Option -5- shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. 5.7 Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise in cash, by check or by transferring Shares to the Company upon such terms and conditions as determined by the Board. The written notice pursuant to this Section 5.7 may also provide instructions from the Optionee to the Company that upon receipt of the purchase price in cash from the Optionee's broker or dealer, designated as such on the written notice, in payment for any Shares purchased pursuant to the exercise of an Option, the Company shall issue such Shares directly to the designated broker or dealer. Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Board, the Optionee shall deliver the Agreement evidencing the Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest number of whole Shares. 5.8 Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (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. Thereupon, the Optionee shall have full voting, dividend, and other ownership rights with respect to such Shares. 6. EFFECT OF CHANGE IN CONTROL. Notwithstanding anything contained in the Plan or an Agreement to the contrary, in the event of a Change in Control, (i) all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable and (ii) an Optionee will be permitted to surrender for cancellation within sixty (60) days after such Change in Control, any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an amount equal to the excess, if any, of (x) the greater of (1) the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered or (2) the Adjusted Fair Market Value of the Shares subject to the Option or portion thereof surrendered, over (y) the aggregate purchase price for such Shares under the Option or -6- portion thereof surrendered; provided, however, that in the case of an Option granted within six (6) months prior to the Change in Control, the Optionee shall be entitled to surrender for cancellation his or her Option during the sixty (60) day period commencing upon the expiration of six (6) months from the date of grant of any such Option. 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. 7.1 Subject to Section 8, in the event of a Change in Capitalization, the Board shall conclusively determine the appropriate adjustments, if any, to the (i) maximum number and class of Shares or other stock or securities with respect to which Options may be granted under the Plan, (ii) the number and class of Shares or other stock or securities which are to be subject to Options to be granted under Section 5; and (iii) the number and class of Shares or other stock or securities which are subject to outstanding Options granted under the Plan, and the purchase price therefor, if applicable; provided, however, that any stock adjustment in the Shares or other stock or securities subject to an outstanding Option (including any adjustments in the purchase price) shall be made only to the extent necessary to maintain the proportionate interest of the Optionee and preserve, without exceeding, the value of such Option. 7.2 If, by reason of a Change in Capitalization, an Optionee shall be entitled to exercise an Option with respect to new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions which were applicable to the Shares subject to the Option, as the case may be, prior to such Change in Capitalization. 8. EFFECT OF CERTAIN TRANSACTIONS. Subject to Section 6, in the event of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Plan and the Options issued hereunder shall continue in effect in accordance with their respective terms and each Optionee shall be entitled to receive in respect of each Share subject to any outstanding Option, upon exercise of such Option, the same number and kind of stock, securities, cash, property, or other consideration that each holder of a Share was entitled to receive in the Transaction in respect of a Share. In the event that, after a Transaction, there occurs any change of a type described in Section 2.5 with respect to the shares of the surviving or resulting corporation, then adjustments similar to, and subject to the same conditions as, those in Section 7 shall be made by the Board. 9. TERMINATION AND AMENDMENT OF THE PLAN. The Plan shall terminate on the date that the National Service Industries, Inc. Long-Term Incentive Plan terminates pursuant to its terms (September 19, 1999) and no Option may be granted thereafter. The Board may sooner terminate the Plan and the -7- Board may from time to time amend, modify, or suspend the Plan; provided, however, that: (a) except as provided in Sections 7 and 8, no such amendment, modification, suspension, or termination shall impair or adversely alter any Options or rights theretofore granted under the Plan, except with the consent of the Optionee, nor shall any amendment, modification, suspension, or termination deprive any Optionee of any Shares which he or she may have acquired through or as a result of the Plan; (b) to the extent necessary under Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve (12) months before or after the date of adoption of such amendment. (c) The provisions of the Plan governing (i) the number of Options to be awarded to Nonemployee Director; (ii) the number of Shares to be covered by each Option; (iii) the exercise price per Share under each Option; (iv) when and under what circumstances each Option will be granted; and (v) the period within which each Option may be exercised shall not be amended more often than once every six (6) months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations promulgated thereunder. 10. NON-EXCLUSIVITY OF THE PLAN. (a) The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved compensation arrangement or as creating any limitations on the power of the Board to adopt such other compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. -8- (b) Nothing contained in this Plan prohibits a Nonemployee Director from being appointed as an officer or employee of the Company at any time; nor does anything contained in this Plan specifically require a Nonemployee Director to surrender or forfeit an Option solely because he or she accepts an appointment as an officer or employee of the Company at any time after election or appointment to the Board. However, during such time as a Nonemployee Director serves as an officer or employee, he or she shall not be eligible to receive any additional awards under this Plan. 11. LIMITATION OF LIABILITY. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: (i) give any person any right to be granted an Option other than as specifically provided by the Plan; (ii) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (iii) limit in any way the right of the Company to terminate the service of any person as a Director pursuant to the Company's bylaws and articles of incorporation; or (iv) be evidence of any agreement or understanding, expressed or implied, that the Company will nominate or appoint any person as a Director. 12. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW. 12.1 This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof, except to the extent that such law is preempted by federal law. 12.2 The obligation of the Company to sell or deliver Shares with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Board. 12.3 The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Board shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. -9- 12.4 Each Option is subject to the requirement that, if at any time the Board determines, in its discretion, that the listing, registration, or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent, or approval has been effected or obtained free of any conditions as acceptable to the Board. 12.5 Notwithstanding anything contained in the Plan to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, and Rule 144 or other regulations thereunder. The Board may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares upon exercise of an Option, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately inscribed with a legend reflecting their status as restricted securities as aforesaid. 13. DESIGNATION OF BENEFICIARY. Each Optionee may designate a person or persons to receive in the event of his or her death, any Option or any amount payable pursuant thereto, to which he or she would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If an Optionee fails effectively to designate a beneficiary, then his or her estate will be deemed to be the beneficiary. 14. EFFECTIVE DATE. The effective date of the Plan shall be the date of its adoption by the Board, subject only to the approval by the affirmative votes of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware within twelve (12) months of such adoption. -10- EX-10.IIIA56A 16 g76849exv10wiiia56a.txt EX-10.IIIA56A NONEMPLOYEE DIRECTOR STOCK UNIT PLAN Exhibit 10(iii)A56(a) NATIONAL SERVICE INDUSTRIES, INC. NONEMPLOYEE DIRECTOR DEFERRED STOCK UNIT PLAN 1. Purpose 1.1 The National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan is intended to increase the alignment of the interests of eligible members of the Board with the interests of stockholders of the Corporation by increasing their incentive to contribute to the success of the Corporation's business through the grant of Deferred Stock Units, on the terms and conditions set forth herein. 2. Definitions 2.1 When used in this Plan, unless the context otherwise requires: (a) "Annual Fee" shall mean the annual fee payable, in cash or under this Plan, to an Eligible Director for service on the Board. (b) "Board" shall mean the Board of Directors of the Corporation. (c) "Chairman Fee" shall mean the fee, if any, payable in cash or under this Plan to an Eligible Director for service as the Chairman of a committee of the Board. (d) "Change of Control" shall mean: (i) The acquisition (other than from the Corporation) by any "Person" (as the term person is used for purposes of Sections 13(d) or 14(d) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding voting securities; or (ii) The individuals who, as of the Effective Date, are members of the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Corporation's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; or (iii) Approval by stockholders of the Corporation of (1) a merger or consolidation involving the Corporation if the stockholders of the Corporation, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than seventy percent (70%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Corporation outstanding immediately before such merger or consolidation, or (2) a complete liquidation or dissolution of the Corporation or an agreement for the sale or other disposition of all or substantially all of the assets of the Corporation. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to paragraph (i) solely because twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Corporation or any of its subsidiaries, or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Corporation in the same proportion as their ownership of stock in the Corporation immediately prior to such acquisition. (e) "Committee" shall mean the Executive Resource and Nominating Committee of the Board or such other committee as may be designated by the Board. (f) "Corporation" shall mean National Service Industries, Inc. (g) "Date of Grant" shall mean the date on which Deferred Stock Units are granted pursuant to Section 5.1. (h) "Deferred Stock Units" shall mean the units issued pursuant to Section 5.1 hereof. (i) "Effective Date" shall mean June 1, 1996, the date when this Plan shall go into effect. (j) "Eligible Director" shall mean each member of the Board who is not at the time of reference an employee of the Corporation or any Subsidiary. (k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. -2- (l) "Fair Market Value" shall mean the average of the high and low sales prices of a share of Stock as reported on the New York Stock Exchange Composite Tape on the five (5) trading dates immediately preceding the date for which such value is being determined. (m) "Optional Amount" shall mean the amount elected by an Eligible Director for any year during the term hereof pursuant to Section 5.2 hereof. (n) "Plan" shall mean the National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan, as such Plan may be amended from time to time. (o) "Required Amount" shall mean one-fourth of the Annual Fee. (p) "Stock" shall mean the Common Stock of the Corporation. (q) "Subsidiary" shall mean any corporation more than 50% of whose stock having general voting power is owned by the Corporation or by a Subsidiary of the Corporation. 3. Administration 3.1 The Plan shall be administered by the Committee. 3.2 The Committee may take such rules and establish such procedures for the administration of the Plan as it deems appropriate to carry out the purpose of the Plan, provided that the Committee shall have no discretion with respect to the grantee, amount, price or timing of any Deferred Stock Unit. The interpretation and application of the Plan or of any rule or procedure, any other matter relating to or necessary to the administration of the Plan, shall be determined by the Committee, and any such determination shall be final and binding on all persons. Deferred Stock Units shall be evidenced by agreements in such form as shall be determined from time to time by the Committee, provided that the terms and conditions of each such agreement are not inconsistent with this Plan. 4. Capital Adjustments 4.1 In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation or a similar corporate transaction, the number or class of shares of Stock represented by Deferred Stock Units granted hereunder shall be proportionately adjusted to reflect any such transaction. 5. Deferred Stock Units 5.1 Quarterly Grant. The Corporation shall establish a bookkeeping account for each Eligible Director. On the first of each September, December, March, and June on or after the -3- Effective Date and prior to the termination of this Plan (subject to Section 6.1 below), the bookkeeping account of each Eligible Director shall automatically be credited with the number of Deferred Stock Units (rounded to the nearest hundredth) equal to the sum of (a) one-fourth of the Required Amount plus (b) one-fourth of the Optional Amount, if any, divided by (c) the Fair Market Value. 5.2 Election of Optional Amount. Each Eligible Director shall be entitled to elect, with respect to each year during the term of this Plan (subject to Section 6.1 below), such portion of the Annual Fee in excess of the Required Amount and such portion of the Chairman Fee, if applicable, which the Eligible Director desires to be credited in Deferred Stock Units under Section 5.1 above rather than paid in cash. Such election shall be made and submitted prior to each such year on such form as shall be determined from time to time by the Committee; provided, however, that the election for the portion of the 1996 calendar year that this Plan is in effect shall be made prior to September 1, 1996 and shall be effective for the remainder of the calendar year commencing on that date. 5.3 Terms and Conditions of Deferred Stock Units. (a) The Deferred Stock Units shall become nonforfeitable on the earliest to occur of (i) the first anniversary of the Date of Grant, (ii) the Eligible Director's death, disability or termination of service as a director upon completion of the last term of office to which such director was elected or (iii) the occurrence of a Change of Control. If an Eligible Director otherwise terminates service as a director of the Corporation, any Deferred Stock Units that are forfeitable shall be forfeited as of the date of such termination of service. (b) As of each dividend payment date declared with respect to the Stock, the Corporation shall credit to each bookkeeping account a number of additional Deferred Stock Units equal to (i) the product of (x) the dividend per share of Stock payable on such dividend payment date and (y) the number of Deferred Stock Units credited to such account as of the applicable dividend record date divided by (ii) the Fair Market Value of a share of Stock on such dividend payment date. (c) Upon the termination of service of an Eligible Director the Eligible Director shall receive a lump sum cash payment equal to the product of (i) the Fair Market Value of a share of Stock on the date of such termination of service and (ii) the number of nonforfeitable Deferred Stock Units then credited to such Eligible Director's account. Notwithstanding the foregoing, an Eligible Director may elect to receive the distribution with respect to his or her account in five annual installments commencing as soon as practicable following the Eligible Director's termination of service, in which event the amount of each installment shall be determined based upon the Fair Market Value of a share of Stock as of the date preceding the date such installment payment is made. Any such election may be made or changed at any time without limitation, provided, however, that any election (and any modification or revocation of any election) shall not be given effect unless made at least two years prior to the Eligible Director's termination of service. (d) The holder of Deferred Stock Units shall have none of the rights of a -4- stockholder of the Corporation. The Corporation's obligation hereunder with respect to Deferred Stock Units shall be an unsecured promise to pay the amount described in paragraph (c) above at the times described therein. 6. Term of Plan 6.1 The Plan shall remain in effect until all Deferred Stock Units have been paid under the terms of the Plan, provided that no Deferred Stock Units may be granted on or after the tenth anniversary of the Effective Date. 7. Amendment; Termination 7.1 The Board may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part; provided, however, that the provisions of Article 5 shall not be amended more than every six months, other than to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act, as amended, or the rules thereunder. The termination or any modification or amendment of the Plan shall not, without the consent of a director, affect his or her rights under a grant of Deferred Stock Units. 8. Miscellaneous 8.1 Deferred Stock Units granted hereunder shall not be assignable or transferable by the director except by will or by the laws of descent and distribution. 8.2 Nothing in the Plan shall be construed as conferring any right upon any director to continue as a member of the Board. 8.3 The Plan and all rights hereunder shall be construed in accordance with and governed by the laws of the State of Delaware. 8.4 The Corporation shall have the right to require, prior to any payment hereunder, payment by the recipient of any federal, state, local or other taxes which may be required to be withheld or paid in connection with such payment hereunder. -5- EX-10.IIIA56B 17 g76849exv10wiiia56b.txt EX-10.IIIA56B AMENDMENT NO. 1 NONEMPLOYEE DIRECTOR Exhibit 10(iii)A56(b) AMENDMENT NO. 1 TO NATIONAL SERVICE INDUSTRIES, INC. NONEMPLOYEE DIRECTOR DEFERRED STOCK UNIT PLAN This Amendment is made as of the 23rd day of September, 1997, by National Service Industries, Inc. (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation previously established the National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan (the "Plan") for the benefit of directors of the Corporation who are not employees of the Corporation or any Subsidiary (as defined in the Plan); and WHEREAS, pursuant to the power of amendment contained in Section 7.1 of the Plan, by action of the Board of Directors of the Corporation on the date hereof, the Plan is hereby amended as follows: 1. Paragraph 2.1(e) of the Plan is amended, effective January 8, 1997, by deleting the existing language thereof and substituting in lieu thereof the following: "`Committee' shall mean the Executive Resource and Compensation Committee." 2. Paragraph 2.1 (o) of the Plan is amended, effective December 1, 1997, by deleting the existing language thereof and substituting in lieu thereof the following: "`Required Amount' shall mean one-half of the Annual Fee." 3. Article 5 of the Plan is amended, effective December 1, 1997, by renumbering Section 5.3 as 5.5 and inserting the following as Sections 5.3 and 5.4: 5.3 Annual Grant. On the first day of each December on and after December 1, 1997 and prior to the termination of this Plan (subject to Section 6.1 below), the bookkeeping account of each Eligible Director shall automatically be credited with 350 Deferred Stock Units. 5.4 One-Time Grant. The bookkeeping account of each Eligible Director as of December 1, 1997, shall automatically be credited with 1,000 Deferred Stock Units. The bookkeeping account of each Eligible Director first elected to the Board (whether by action of the Board of Directors or the shareholders of the Corporation) after December 1, 1997, and prior to the termination of this Plan (subject to Section 6.1 hereof) shall automatically be credited with 1,000 Deferred Stock Units as of the effective date of such election. 4. Except as provided herein, the provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of the day and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. By: By: --------------------------------- ----------------------------- EX-10.IIIA56C 18 g76849exv10wiiia56c.txt EX-10.IIIA56C AMENDMENT NO. 2 NONEMPLOYEE DIRECTOR Exhibit 10(iii)A56(c) AMENDMENT NO. 2 TO NATIONAL SERVICE INDUSTRIES, INC. NONEMPLOYEE DIRECTOR DEFERRED STOCK UNIT PLAN This Amendment is made as of the 31st day of December, 1997, by National Service Industries, Inc. (the "Corporation"). W I T N E S S E T H: WHEREAS, the Corporation previously established and amended the National Service Industries, Inc. Nonemployee Director Deferred Stock Unit Plan (the "Plan") for the benefit of directors of the Corporation who are not employees of the Corporation or any Subsidiary (as defined in the Plan); and WHEREAS, pursuant to the power of amendment contained in Section 7.1 of the Plan, by action of the Board of Directors of the Corporation taken December 17, 1997 and effective on the date hereof, the Plan is hereby amended as follows: 1. Article 5 of the Plan is hereby amended, effective December 31, 1997, by renumbering Section 5.5 as 5.6 and inserting the following as Section 5.5: 5.5 Merger with Deferred Compensation Plan. The account of each Eligible Director who participates in the Directors' Deferred Compensation Plan shall be credited as of the close of business on December 31, 1997, with the number of Deferred Stock Units (rounded to the nearest hundredth) equal to such Eligible Director's account balance in the Directors' Deferred Compensation Plan as of that date divided by the Fair Market Value. 2. Except as provided herein, the provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 as of the day and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. By: - --------------------------------- ---------------------------------------- Assistant Secretary James S. Balloun, Chairman of the Board, President and Chief Executive Officer EX-10.IIIA92 19 g76849exv10wiiia92.txt EX-10.IIIA92 STOCK OPTION AGREEMENT EXHIBIT 10(iii)(A)(92) STOCK OPTION AGREEMENT FOR NONEMPLOYEE DIRECTORS THIS AGREEMENT, made as of the _________________ (the "Grant Date"), between National Service Industries, Inc., a Delaware corporation (the "Company"), and Betty L. Siegel (the "Optionee"). WHEREAS, the Company has adopted the National Service Industries, Inc. 2001 Nonemployee Directors' Stock Incentive Plan (the "Plan") in order to provide additional incentive to nonemployee directors to exert maximum efforts for the success of the Company; and WHEREAS, pursuant to the terms of the Plan, the Board of Directors of the Company has determined to grant an 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 _____ whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement and in the Plan. 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422A 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 $_____ per Share. 3. Duration of Option. The Option shall be exercisable to the extent and in the manner provided herein for a term commencing on the Grant Date and continuing until _______ (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, the shares covered by the option. 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, 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 12 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 Service. 6.1 Termination for Cause. If the Optionee's service as a Director terminates for Cause, the Option shall immediately terminate in full and no rights hereunder may be exercised. - 2 - 6.2 Other Termination of Service. If the Optionee's service as a Director is terminated for any reason other than for Cause, the Option shall continue to be exercisable in whole or in part (to the extent exercisable on the date of such termination) at any time within three (3) years after the date of such termination, 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 the legatee or legatees under the Optionee's will, or by the Optionee's personal representatives or distributees and such person or persons shall be substituted for the Optionee each time the Optionee is referred to herein. 7. Effect of Change in Control. Notwithstanding anything contained in this Agreement to the contrary, 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 the 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 the 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, the Optionee shall be entitled to surrender for cancellation the Option or any portion of the Option 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 Continuing Service. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of service as a director of the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Optionee's service as a director at any time. 10. Adjustments. In the event of a Change in Capitalization, the Board shall make appropriate adjustments to the number and class of Shares or other stock or securities - 3 - subject to the Option and the purchase price for such Shares or other stock or securities. The Board's adjustment shall be made in accordance with the provisions of Section 7 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. Optionee 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. 13. 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. 14. 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. 15. 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. 16. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon each successor to the Company. 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. - 4 - 17. 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 Board. Any determination made hereunder shall be final, binding, and conclusive on the Optionee and the Company for all purposes. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ___________________________________ By:_____________________________________ Secretary Brock Hattox Chairman, Chief Executive Officer and President ________________________________________ Betty L. Siegel - 5 - EX-10.IIIA93 20 g76849exv10wiiia93.txt EX-10.IIIA93 AMENDMENT NO. 1 TO RESTRICTED STOCK EXHIBIT 10(iii)(A)(93) AMENDMENT #1 TO RESTRICTED STOCK AWARD AGREEMENT UNDER THE NATIONAL SERVICE INDUSTRIES, INC. LONG-TERM ACHIEVEMENT INCENTIVE PLAN THIS AMENDMENT made and entered into as of the 26th day of June, 2002, by and between National Service Industries, Inc., a Delaware corporation (the "Company") and __________________________________ ("Grantee"). WHEREAS, the Company has previously adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") to provide additional incentives to certain officers and key employees of the Company and its Subsidiaries; and WHEREAS, the Grantee was granted a Restricted Stock Award under the Plan on January 7, 2002, and the terms and conditions of such grant are reflected in a Restricted Stock Award Agreement (the "Agreement") between the Company and Grantee dated January 7, 2002; and WHEREAS, the Company and the Grantee desire to amend the Agreement in the manner hereinafter provided; NOW, THEREFORE, the parties agree as follows: 1. The Agreement is hereby amended to delete the existing Section 2.2 in its entirety and to substitute the following therefor: "2.2(a) In the event, prior to the Final Vesting Date, (i) Grantee dies while actively employed by the Company, or (ii) Grantee's employment is terminated by reason of Disability, the Restricted Stock shall become fully vested and nonforfeitable as of the date of Grantee's death or Disability. The Company shall deliver certificate(s) for the Restricted Stock, free and clear of any restrictions imposed by this Agreement (except for Section 3.4) to Grantee (or, in the event of death, Grantee's surviving spouse or, if none, to Grantee's estate) as soon as practical after Grantee's date of death or termination for Disability. (b) If Grantee retires from the Company on or after attaining (i) age 65, or (ii) age 55 with 10 years of service, the vesting of the Restricted Stock shall continue as if Grantee were an active employee, unless within two (2) years of Grantee's date of termination of employment, Grantee violates the Restrictive Covenant (Non-Competition Agreement) attached as Exhibit "A" hereto, at which time all unvested Shares of Restricted Stock shall immediately be forfeited. If Grantee dies after retiring under this Section 2.4, but prior to the Final Vesting Date for any Shares of Restricted Stock, the Restricted Stock shall become fully vested and nonforfeitable as of the date of Grantee's death. (c) Except as provided in Section 2.3, if Grantee terminates Grantee's employment or if the Company terminates Grantee's employment for any reason other than death or Disability or retirement (as provided in subsection (b) above) prior to the Final Vesting Date, the Restricted Stock shall cease to vest further and Grantee shall only be entitled to the Restricted Stock that is vested as of Grantee's date of termination of employment." 2. The Agreement is hereby amended by adding Exhibit "A" attached hereto as Exhibit "A" to the Agreement. 3. This Amendment shall be effective as of June 26, 2002. Except as hereby modified, the Agreement 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:__________________________________________ Brock Hattox, Chairman of the Board, Chief Executive Officer and President GRANTEE: _____________________________________________ Name:________________________________________ 2 EXHIBIT "A" RESTRICTIVE COVENANTS 1. DEFINITIONS The following terms used in this Exhibit "A" shall have the following meanings: (A) "Trade Secrets" means information, without regard to form, relating to the Company's business which is not commonly known by or available to the public and which derives economic value, actual or potential, from not being generally known to other persons and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality, including, but not limited to, technical or nontechnical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans, or lists of actual or potential customers or suppliers. (B) "Confidential Information" means information of the Company which is non-public, proprietary, and confidential in nature but is not a Trade Secret. (C) "Person" means any individual, firm, partnership, association, corporation, limited liability entity, trust, venture, or other business organization, entity, or enterprise; (D) "Restricted Business" means the business of manufacturing and selling envelopes and items incidental to such products and/or the business of renting and/or processing textile products and providing related services for customers; (E) "Restricted Period" means the two (2) year period following the date of the Grantee's retirement under Section 2.2 of the Restricted Stock Award Agreement, as set forth in this Amendment; and (F) "Territory" means the United States. 2. NON-COMPETITION COVENANT During the Restricted Period, the Grantee will not, directly or indirectly, for the Grantee or on behalf of any other Person (except the Company), within the Territory, engage in, provide, or perform sales, marketing, operational, financial, accounting, or administrative services in or for any business engaged in the Restricted Business. 3 3. NON-DISCLOSURE COVENANT The Grantee will not, directly or indirectly, for the Grantee or on behalf of any other Person, use for the Grantee's own benefit or disclose to any other party, any Trade Secrets or Confidential Information of the Company. The foregoing confidentiality obligations shall continue (A) with respect to all Trade Secrets, at all times so long as such Trade Secrets constitute trade secrets under applicable law, and (B) with respect to all Confidential Information, at all times during the Restricted Period. 4. NON-RECRUITMENT COVENANT During the Restricted Period, the Grantee will not, directly or indirectly, for the Grantee or on behalf of any other Person, solicit, induce, persuade, or encourage, or attempt to solicit, induce, persuade, or encourage, any management-level employee of the Company or the Company's business unit in which the Grantee was employed (if applicable) to terminate such employee's position with the Company, whether or not such employee is a full-time or temporary employee of the Company and whether or not such employment is pursuant to a written agreement, for a determined period, or at will. 5. SEPARABILITY The Grantee acknowledges that each of the foregoing restrictive covenants is a separate and distinct obligation of the Grantee and is deemed to be separable from the remaining restrictive covenants. If any of the provisions of the foregoing restrictive covenants should ever be deemed to exceed the time, geographic, product, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product, or other limitations permitted by applicable law. 4 EX-10.IIIA95 21 g76849exv10wiiia95.txt EX-10.IIIA95 AMENDMENT NO. 5 TO EXECUTIVE EXHIBIT (10)(iii)(A)(95) AMENDMENT NO. 5 TO THE NATIONAL SERVICE INDUSTRIES, INC. EXECUTIVES' DEFERRED COMPENSATION PLAN (AS AMENDED AND RESTATED AS OF OCTOBER 4, 2000) THIS AMENDMENT dated this 26th day of June, 2002, by National Service Industries, Inc., a Delaware corporation ("Company"); W I T N E S S E T H: WHEREAS, the Company has previously established the National Service Industries, Inc. Executives' Deferred Compensation Plan (the "Plan") for the benefit of its eligible employees and their beneficiaries; and WHEREAS, pursuant to Section 8.02, the Company desires to amend and terminate the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: 1. The Plan is hereby amended by deleting the present Section 2.04 and inserting the following therefor: "2.04 Termination of Plan; Cessation of Deferrals. Effective for Fiscal Years beginning after August 31, 2002, the Plan shall be terminated and no Executive shall be permitted to elect to defer additional bonus amounts under the Plan. This termination of the Plan shall not impact deferrals for the Class Year ending August 31, 2002, such that on October 1, 2002, the Executive's Primary Account shall be credited with the dollar amount of the Compensation deferred for the final Class Year ending August 31, 2002. Notwithstanding the above, if an Executive elects to cease participating in the Plan prior to October 1, 2002, no Deferred Compensation shall be credited to the Executive's Primary Account on October 1, 2002." 2. The Plan is hereby amended by deleting the last paragraph of Section 3.01 and substituting the following therefor: "Effective as of October 2, 2002, the Plan shall be terminated and the Company shall not make any further contributions to the Company Contribution Accounts of Eligible Executives." 3. The Plan is hereby amended by adding the following sentence at the end of the present Section 6.03: "Effective June 30, 2002, no additional elections may be made under this Section 6.03." 4. The Plan is hereby amended by adding a new Section 6.05 as follows: "6.05 Plan Termination. Effective October 2, 2002, the Plan shall be terminated, and all Class Year Accounts shall be payable as previously elected by the Participant or as otherwise permitted by the Committee." 5. This Amendment shall be effective as provided above. IN WITNESS WHEREOF, the Company has caused this Amendment No. 5 to be executed by its duly authorized corporate officers as of the date and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ______________________________ By:_____________________________________ Secretary Brock Hattox, Chairman of the Board, Chief Executive Officer and President 2 EX-10.IIIA96 22 g76849exv10wiiia96.txt EX-10.IIIA96 AMENDMENT NO. 6 TO SENIOR MANAGEMENT EXHIBIT 10(iii)(A)(96) AMENDMENT NO. 6 TO THE NATIONAL SERVICE INDUSTRIES, INC. SENIOR MANAGEMENT BENEFIT PLAN THIS AMENDMENT dated this 26th day of June, 2002, by National Service Industries, Inc., a Delaware corporation (the "Company"); W I T N E S S E T H: WHEREAS, the Company previously established the National Service Industries, Inc. Senior Management Benefit Plan (the "Plan") for the benefit of its eligible employees and their beneficiaries; and WHEREAS, the Company desires to amend and terminate the Plan. NOW, THEREFORE, the Plan is hereby amended as follows: 1. Effective June 30, 2002, or as soon thereafter as administratively practical, the Plan shall be terminated. All Deferred Benefit Accounts shall be valued in accordance with the terms of the Plan and shall be payable to Participants commencing as soon as practical following the termination of the Plan in a lump sum or in such other manner as permitted by the Plan Committee and as elected by the Participant during such time period and using such form as provided by the Plan Committee; provided, however, if no such election form is timely submitted by a Participant, the Deferred Benefit Account shall be payable in accordance with Section 5.5 and the Participant's previous Benefit Payment Election. 2. Except as provided herein, the provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Amendment No. 6 to be executed by its duly authorized corporate officers as of the date and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ______________________________ By:_____________________________________ Secretary Brock Hattox, Chairman of the Board, Chief Executive Officer and President EX-10.IIIA97 23 g76849exv10wiiia97.txt EX-10.IIIA97 AMENDMENT NO. 1 TO EMPLOYMENT EXHIBIT 10(iii)(A)(97) AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT THIS AMENDMENT made as of the 4th day of October, 2002, by and between NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation (the "Company"), and BROCK A. HATTOX ("Executive"); W I T N E S S E T H: WHEREAS, the parties entered into an Employment Agreement ("Employment Agreement") dated as of November 27, 2001, providing for Executive's employment by the Company commencing November 30, 2001 ("Effective Date"); and WHEREAS, the parties now desire to amend the Employment Agreement to modify the Term of the Employment Agreement and for certain other purposes as hereinafter provided; NOW, THEREFORE, for and in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree to amend the Employment Agreement, as follows: 1. Section 1(c) of the Employment Agreement is hereby amended by deleting the present section in its entirety and substituting the following in lieu thereof: "(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. The Company and Executive agree to meet during the period between December 1, 2003 and May 31, 2004 to negotiate in good faith concerning an extension of the Initial Term and the terms and conditions of employment that will apply during any such extension. If the parties fail to agree on an extension of the Employment Agreement by May 31, 2004, the Term of this Agreement will end on the last day of the Initial Term, Executive's employment will terminate on that date, and Executive shall be entitled to the compensation and benefits described in Section 4(a) of this Agreement as if he had been terminated by the Company other than for Cause or Disability or by Executive for Good Reason. 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"." 2. This Amendment No. 1 to the Employment Agreement shall be effective as of October 4, 2002. Except as hereby modified, the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the Company and Executive have executed this Amendment No. 1 as of the date first written above. NATIONAL SERVICE INDUSTRIES, INC. By:_____________________________________ Michael Z. Kay Chairman, Compensation Committee EXECUTIVE ________________________________________ Brock A. Hattox - 2 - EX-10.IIIA98 24 g76849exv10wiiia98.txt EX-10.IIIA98 RESTRICTED STOCK AWARD AGREEMENT EXHIBIT 10(iii)(A)(98) RESTRICTED STOCK AWARD AGREEMENT UNDER THE NATIONAL SERVICE INDUSTRIES, INC. 2001 NONEMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN THIS AGREEMENT, made and entered into as of the 7th day of January, 2002, by and between NATIONAL SERVICE INDUSTRIES, INC. (the "Company") and ______________________________________________ ("Grantee"). W I T N E S S E T H T H A T: WHEREAS, the Company maintains the National Service Industries, Inc. Nonemployee Directors' Stock Incentive Plan (the "Plan"), and the Board of Directors has approved the grant of this Restricted Stock Award to Grantee under the Plan; NOW, THEREFORE, IT IS AGREED, by and between the Company and Grantee, as follows: 1. AWARD OF RESTRICTED STOCK 1.1 The Company hereby grants to Grantee an award of _______ Shares of restricted stock ("Restricted Stock"), subject to, and in accordance with, the restrictions, terms, and conditions set forth in this Agreement. The grant date of this award of Restricted Stock is January 7, 2002 ("Grant Date"). 1.2 This Agreement shall be construed in accordance with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan. 2. RESTRICTIONS 2.1 Subject to Sections 2.2 and 2.3 below, if Grantee continues to serve as a director of the Company, Grantee shall become vested in the Restricted Stock as set forth below on each anniversary of the Grant Date (each such date shall be a "Vesting Date"), such that on January 7, 2006 ("Final Vesting Date") all of the Shares of Restricted Stock shall be fully vested:
Date Number of Shares Vested ---- ----------------------- January 7, 2003 25% (______ Shares) January 7, 2004 25% (______ Shares) January 7, 2005 25% (______ Shares) January 7, 2006 25% (______ Shares)
On each Vesting Date, Grantee shall own the Vested Shares of Restricted Stock free and clear of all restrictions imposed by this Agreement (except those imposed by Section 3.4 below). The Company shall deliver a certificate(s) for the Vested Shares of Restricted Stock to Grantee as soon as practical after each Vesting Date. For purposes of this Agreement, service as a Director of a Subsidiary of the Company or employment with the Company or a Subsidiary of the Company shall be considered service as a Director of the Company. 2.2 In the event, prior to the Final Vesting Date, (i) Grantee dies while actively serving as a Director of the Company, or (ii) Grantee's service as a Director is terminated by reason of Disability or by reason of retirement on or after age 65, the Restricted Stock shall become fully vested and nonforfeitable as of the date of Grantee's death, Disability, or retirement. The Company shall deliver a certificate(s) for the Restricted Stock, free and clear of any restrictions imposed by this Agreement (except for Section 3.4) to Grantee (or, in the event of death, Grantee's surviving spouse or, if none, to Grantee's estate) as soon as practical after Grantee's date of death or termination of service for Disability or retirement. Except for death, Disability, or retirement or as provided in Section 2.3, if Grantee resigns as a Director or if the Company terminates Grantee's service as a Director prior to the Final Vesting Date, the Restricted Stock shall cease to vest further and Grantee shall only be entitled to the Restricted Stock that is vested as of Grantee's date of termination of service. 2.3 Notwithstanding the other provisions of this Agreement, in the event of a Change in Control prior to Grantee's Final Vesting Date, the Restricted Stock shall become fully vested and nonforfeitable as of the date of the Change in Control. On the date of the Change in Control, the Company shall deliver to Grantee a certificate(s) for the Restricted Stock, free and clear of any restrictions imposed by this Agreement. 2.4 The Restricted Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered prior to the date Grantee becomes vested in the Restricted Stock. 3. STOCK; DIVIDENDS; VOTING 3.1 The stock certificate(s) evidencing the Restricted Stock shall be registered on the Company's books in the name of Grantee as of the Grant Date. The Company may issue stock certificates or evidence Grantee's interest by using a book - 2 - entry account. Physical possession or custody of such stock certificates shall be retained by the Company until such time as the Shares are vested in accordance with Section 2. The Company reserves the right to place a legend on the stock certificate(s) restricting the transferability of such certificates and referring to the terms and conditions (including forfeiture) of this Agreement and the Plan. 3.2 During the period the Restricted Stock is not vested, Grantee shall be entitled to receive dividends and/or other distributions declared on such Restricted Stock and Grantee shall be entitled to vote such Restricted Stock. 3.3 In the event of a Change in Capitalization, the number and class of Shares or other securities that Grantee shall be entitled to, and shall hold, pursuant to this Agreement shall be appropriately adjusted or changed to reflect the Change in Capitalization, provided that any such additional Shares or additional or different shares or securities shall remain subject to the restrictions in this Agreement. 3.4 Grantee represents and warrants that he is acquiring the Restricted Stock for investment purposes only, and not with a view to distribution thereof. Grantee is aware that the Restricted Stock may not be registered under the federal or any state securities laws and that, in addition to the other restrictions on the Shares, they will not be able to be transferred unless an exemption from registration is available or the Shares are registered. By making this award of Restricted Stock, the Company is not undertaking any obligation to register the Restricted Stock under any federal or state securities laws. 4. NO RIGHT TO CONTINUED SERVICE AS A DIRECTOR Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon Grantee any right with respect to continuance as a Director of the Company or any Subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company or a Subsidiary or their shareholders to terminate Grantee's service as a Director at any time. 5. TAXES AND WITHHOLDING Grantee shall be responsible for all federal, state, and local income taxes payable with respect to this award of Restricted Stock. Grantee shall have the right to make such elections under the Internal Revenue Code of 1986, as amended, as are available in connection with this award of Restricted Stock. The Company and Grantee agree to report the value of the Restricted Stock in a consistent manner for federal income tax purposes. The Company shall have the right to retain and withhold from any payment of Restricted Stock the amount of taxes (if any) required by any government to be withheld or otherwise deducted and paid with respect to such payment. At its discretion, the Company may require Grantee to reimburse the Company for any such taxes required - 3 - to be withheld and may withhold any distribution in whole or in part until the Company is so reimbursed. In lieu thereof, the Company shall have the right to withhold from any other cash amounts due to Grantee an amount equal to such taxes required to be withheld or withhold and cancel (in whole or in part) a number of shares of Restricted Stock having a market value not less than the amount of such taxes. 6. GRANTEE BOUND BY THE PLAN Grantee hereby acknowledges receipt of a copy of the Plan and the prospectus for the Plan, and agrees to be bound by all the terms and provisions thereof. 7. MODIFICATION OF AGREEMENT This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 8. SEVERABILITY Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 9. GOVERNING LAW The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 10. SUCCESSORS IN INTEREST This Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns, whether by merger, consolidation, reorganization, sale of assets, or otherwise. This Agreement shall inure to the benefit of Grantee's legal representatives. All obligations imposed upon Grantee and all rights granted to the Company under this Agreement shall be final, binding, and conclusive upon Grantee's heirs, executors, administrators, and successors. 11. RESOLUTION OF DISPUTES Any dispute or disagreement which may arise under, or as a result of, or in any way relate to the interpretation, construction, or application of this Agreement shall - 4 - be determined by the Board. Any determination made hereunder shall be final, binding, and conclusive on Grantee and the Company for all purposes. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. NATIONAL SERVICE INDUSTRIES, INC. By:_____________________________________ Brock A. Hattox, Chairman, Chief Executive Officer and President ________________________________________ Name:___________________________________ - 5 - EX-10.IIIA99 25 g76849exv10wiiia99.txt EX-10.IIIA99 AMENDMENT NO. 1 TO THE 2001 NONEMPLOY EXHIBIT 10(iii)(A)(99) AMENDMENT NO. 1 TO THE NATIONAL SERVICE INDUSTRIES, INC. 2001 NONEMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN THIS AMENDMENT made as of the ____ day of April, 2002, by National Service Industries, Inc., a Delaware corporation ("Corporation"); W I T N E S S E T H: WHEREAS, the Corporation has previously established the National Service Industries, Inc. 2001 Nonemployee Directors' Stock Incentive Plan (the "Plan") for the benefit of its nonemployee directors and their beneficiaries; and WHEREAS, pursuant to the power of amendment contained in Section 10 of the Plan, the Board of Directors of the Corporation desires to amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 5.2 of the Plan is hereby amended by deleting the existing section in its entirety and substituting the following: "5.2 Purchase Price. The purchase price for Shares under each Option shall be not less than 100% of the Fair Market Value of a Share on the date the Option is granted." 2. This Amendment shall be effective as of the date and year first provided above. Except as provided herein, the provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 1 to be executed by its duly authorized corporate officers as of the date and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. By: __________________________ By:_________________________________ Name:_______________________________ Title:______________________________ EX-10.IIIA100 26 g76849exv10wiiia100.txt EX-10.IIIA100 AMENDMENT NO. 4 TO EXECUTIVE EXHIBIT 10(iii)(A)(100) AMENDMENT NO. 4 TO THE NATIONAL SERVICE INDUSTRIES, INC. EXECUTIVES' DEFERRED COMPENSATION PLAN (AS AMENDED AND RESTATED AS OF OCTOBER 4, 2000) THIS AMENDMENT made as of the _____ day of April, 2002, by National Service Industries, Inc., a Delaware corporation ("Corporation"); W I T N E S S E T H: WHEREAS, the Corporation has previously established the National Service Industries, Inc. Executives' Deferred Compensation Plan (the "Plan") for the benefit of its eligible employees and their beneficiaries; and WHEREAS, the Corporation desires to amend the Plan to cease contributions to the Plan for fiscal years beginning on and after September 1, 2002; NOW, THEREFORE, the Plan is hereby amended as follows: 1. The Plan is hereby amended by inserting the following as a new Section 2.04: "2.04 Suspension of Plan; Cessation of Deferrals. Effective for Fiscal Years beginning after August 31, 2002, the Plan shall be suspended and no Executive shall be permitted to elect to defer additional bonus amounts under the Plan. This suspension of the Plan shall not impact deferrals for the Class Year ending August 31, 2002, such that on October 1, 2002, the Executive's Primary Account shall be credited with the dollar amount of the Compensation deferred for the final Class Year ending August 31, 2002. A Participant's account shall continue to be distributable in the manner and subject to the conditions set forth in Article V, Article VI, and Article IX." 2. The Plan is hereby amended by inserting the following as a new paragraph at the end of Section 3.01: "Effective as of October 2, 2002, the Plan shall be suspended and the Corporation shall not make any further contributions to the Company Contribution Accounts of Eligible Executives." 3. This Amendment shall be effective as provided above. Except as provided herein, the provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Corporation has caused this Amendment No. 4 to be executed by its duly authorized corporate officers as of the date and year first written above. ATTEST: NATIONAL SERVICE INDUSTRIES, INC. By: __________________________ By:_________________________________ Name:_______________________________ Title:______________________________ - 2 - EX-10.IIIA101 27 g76849exv10wiiia101.txt EX-10.IIIA101 SEVERANCE PROTECTION AGREEMENT EXHIBIT 10(iii)(A)(101) SEVERANCE PROTECTION AGREEMENT THIS AGREEMENT is made as of the 26th day of June, 2002, by and between National Service Industries, Inc., a Delaware corporation (the "Company") and ___________________________________________________ (the "Executive"). WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined) exists and that the occurrence of a Change in Control can result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders to retain the services of the Executive in the event of the occurrence of a Change in Control and to ensure the Executive's continued dedication and efforts in such event without undue concern for the Executive's personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of the occurrence of a Change in Control, the Company desires to enter into this Agreement with the Executive to provide the Executive with severance payments and benefits in the event the Executive's employment is terminated under certain circumstances after a Change in Control and to provide the Executive with the Gross-Up Payment (as hereinafter defined) and certain other benefits. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: 1. Term of Agreement. (a) This Agreement shall commence as of April 1, 2002 and shall continue in effect until April 1, 2004; provided, however, that commencing on April 1, 2003 and on each April 1 thereafter, the term of this Agreement shall automatically be extended for one (1) additional year such that the remaining term of the Agreement will be two (2) years, unless either the Company or the Executive shall have given written notice to the other at least ninety (90) days prior to such April 1 that the term of this Agreement shall not be so extended. (b) Notwithstanding the foregoing, (1) the term of this Agreement shall not expire prior to the expiration of twenty-four (24) months after the occurrence of a Change in Control and (2) prior to a Change in Control, the term of this Agreement shall expire on the date the Executive ceases to serve in the capacity the Executive is serving on the effective date of this Agreement, or in another capacity as an executive officer (as defined in Rule 3b-7 under the 1934 Act). (c) Each place in this Agreement where a reference to the "Company" appears that relates to the Executive's employment, termination of employment, or performing services, including the definitions of "Cause" and "Good Reason", shall mean and include any subsidiary of the Company which is the primary employer of the Executive. Further, in each place where this Agreement refers to a benefit plan or program, payment of compensation, compensation arrangement, or other similar plan or program maintained by the Company, such reference shall include any plan, program, or arrangement maintained or established by a subsidiary of the Company. "Subsidiary" also includes any business unit of the subsidiary ("Business Unit"). Notwithstanding the foregoing, the references in the definition of "Change in Control" and similar references to changes in ownership and control of the Company shall mean and refer only to National Service Industries, Inc., a Delaware corporation. 2. Definitions. 2.1 Cause. For purposes of this Agreement, a termination for "Cause" is a termination evidenced by a resolution adopted in good faith by two-thirds of the Board that the Executive (a) intentionally and continually failed to substantially perform the Executive's duties with the Company (other than a failure resulting from the Executive's incapacity due to physical or mental illness) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to the Executive specifying the manner in which the Executive has failed to substantially perform, or (b) intentionally engaged in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise; provided, however, that no termination of the Executive's employment shall be for Cause as set forth in clause (b) above until (x) there shall have been delivered to the Executive a copy of a written notice setting forth that the Executive was guilty of the conduct set forth in clause (b) and specifying the particulars thereof in detail, and (y) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, nor failure to act, on the Executive's part, shall be considered "intentional" unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that the Executive's action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination is given by the Executive shall constitute Cause for purposes of this Agreement. 2.2 Change in Control. For purposes of this Agreement, a "Change in Control" shall mean any of the following events: (a) The acquisition (other than from the Company) by any "Person" (as the term person is used for purposes of Sections 13(d) or 14(d) of the - 2 - Securities Exchange Act of 1934, as amended (the "1934 Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities; or (b) The individuals who, as of April 1, 2002 are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least two-thirds of the Board; provided, however, that if the election, or nomination for election by the Company's stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; or (c) A merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation; or (d) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to Section 2.2(a), solely because twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition (hereinafter referred to as "Related Persons"). 2.3 Confidential Information. For purpose of this Agreement, "Confidential Information" shall mean all technical, business, and other information relating to the business of the Company or its subsidiaries or affiliates, including, without limitation, technical or nontechnical data, formulae, compilations, programs, devices, methods, techniques, processes, financial data, financial plans, product plans, and lists of actual or potential customers or suppliers, which (i) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Such information and compilations of information shall be subject to protection under this Agreement whether or not such information constitutes a trade secret and is separately protectable at law or in equity as a trade secret. - 3 - 2.4 Disability. For purposes of this Agreement, "Disability" shall mean a physical or mental infirmity which impairs the Executive's ability to substantially perform the Executive's duties under this Agreement for a period of one hundred eighty (180) consecutive days. 2.5 Good Reason. (a)For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control of any of the events or conditions described in Subsections (1) through (9) hereof: (1) a change in the Executive's status, title, position, or responsibilities (excluding a change solely in reporting responsibilities) which, in the Executive's reasonable judgment, represents an adverse change from the Executive's status, title, position, or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with the Executive's status, title, position, or responsibilities; or any removal of the Executive from or failure to reappoint or reelect the Executive to any of such offices or positions, except in connection with the termination of the Executive's employment for Disability, Cause, as a result of the Executive's death or by the Executive other than for Good Reason; (2) a reduction in the Executive's base salary or any failure to pay the Executive any compensation or benefits to which the Executive is entitled within five (5) days of the date due; (3) the Company's requiring the Executive to be based at any place outside a 30-mile radius from Atlanta, Georgia, except for reasonably required travel on the Company's business which is not greater than such travel requirements prior to the Change in Control; (4) the failure by the Company (A) to continue in effect (without reduction in benefit level, and/or reward opportunities) any compensation or employee benefit plan in which the Executive was participating immediately prior to the Change in Control, including, but not limited to, the applicable plans listed on Appendix A, unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Executive, or (B) to provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation or employee benefit plan, program, and practice as in effect immediately prior to the Change in Control (or as in effect following the Change in Control, if greater); (5) the insolvency or the filing (by any party, including the Company) of a petition for bankruptcy of the Company; - 4 - (6) any material breach by the Company of any provision of this Agreement; (7) any purported termination of the Executive's employment for Cause by the Company which does not comply with the terms of Section 2.1; or (8) the failure of the Company to obtain an agreement, satisfactory to the Executive, from any successor or assign of the Company to assume and agree to perform this Agreement, as contemplated in Section 9 hereof. (b) The Executive's right to terminate the Executive's employment pursuant to this Section 2.5 shall not be affected by the Executive's incapacity due to physical or mental illness. 2.6 1934 Act. The Securities Exchange Act of 1934, as amended. 3. Termination of Employment. 3.1 If, during the term of this Agreement, the Executive's employment with the Company shall be terminated within twenty-four (24) months following a Change in Control, the Executive shall be entitled to the following compensation and benefits depending upon the circumstances of such termination (in addition to any compensation and benefits provided for under any of the Company's employee benefit plans, policies, and practices): (a) If the Executive's employment with the Company shall be terminated during such 24-month period (1) by the Company for Cause or Disability, (2) by reason of the Executive's death, or (3) by the Executive other than for Good Reason (as each term is defined herein), the Company shall pay the Executive all amounts earned or accrued through the Termination Date but not paid as of the Termination Date, including (i) base salary, (ii) reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of the Company during the period ending on the Termination Date, (iii) vacation pay, and (iv) sick leave (collectively, "Accrued Compensation"). In addition to the foregoing, if the Executive's employment is terminated by the Company for Disability or by reason of the Executive's death, the Company shall pay to the Executive or the Executive's beneficiaries an amount equal to the "Pro Rata Bonus" (as hereinafter defined). The "Pro Rata Bonus" is an amount equal to the Bonus Amount (as hereinafter defined) multiplied by a fraction the numerator of which is the number of days in such fiscal year through the Termination Date and the denominator of which is 365. The term "Bonus Amount" shall mean the greater of the following: (x) most recent annual bonus paid or payable to the Executive, or (y) target annual bonus payable for the fiscal year during which the Termination Date occurs, or if greater, the fiscal year during which a Change in Control occurred, or (z) average of the annual bonuses paid or payable during the three (3) full fiscal years ended prior to the - 5 - Termination Date or, if greater, the three (3) full fiscal years ended prior to the Change in Control (or, in each case, such lesser period for which annual bonuses were paid or payable to the Executive). Executive's entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. (b) If the Executive's employment with the Company shall be terminated (other than by reason of death) during such 24-month period, (1) by the Company other than for Cause or Disability, or (2) by the Executive for Good Reason, the Executive shall be entitled to the following: (i) the Company shall pay the Executive all Accrued Compensation and a Pro-Rata Bonus; (ii) the Company shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, in a single payment an amount (the "Severance Amount") in cash equal to two (2) times the sum of (A) the greater of the Executive's base salary in effect on the Termination Date or at any time during the 90-day period prior to the Change in Control ("Base Salary") and (B) the Bonus Amount. Notwithstanding the foregoing, if the Executive has attained at least age 63 on the Termination Date, the Severance Amount to be paid under this Subsection (ii) shall be the amount described in the preceding sentence multiplied by a fraction (which in no event shall be less than one-half) the numerator of which shall be the number of months (for this purpose any partial month shall be considered as a whole month) remaining until the Executive's 65th birthday (but in no event shall be less than 12) and the denominator of which shall be 24; (iii) for a number of months equal to the lesser of (A) twenty-four (24) or (B) the number of months remaining until the Executive's 65th birthday (the "Continuation Period"), the Company shall at its expense continue on behalf of the Executive and the Executive's dependents and beneficiaries the life insurance, disability, medical, dental, and hospitalization benefits provided (x) to the Executive at the time the Notice of Termination is given, at any time during the 90-day period prior to the Change in Control or at any time thereafter, or (y) to other similarly situated executives who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in this Section 3.1(b)(iii) during the Continuation Period shall be no less favorable to the Executive and the Executive's dependents and beneficiaries, than the most favorable of such coverages and benefits during any of the periods referred to in clauses (x) and (y) above. The Company's obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer's benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the aggregate coverages and benefits of the combined benefit plans is no less favorable to the - 6 - Executive than the coverages and benefits required to be provided hereunder. This Subsection (iii) shall not be interpreted so as to limit any benefits to which the Executive or the Executive's dependents may be entitled under any of the Company's employee benefit plans, programs, or practices following the Executive's termination of employment, including, without limitation, retiree medical and life insurance benefits; (iv) the Company shall pay in a single payment an amount in cash equal to the excess of (A) the Supplemental Retirement Benefit (as defined below) had (w) the Executive remained employed by the Company for an additional two (2) complete years of credited service (or until the Executive's 65th birthday if earlier), (x) the Executive's annual compensation during such period been equal to the Executive's Base Salary and the Bonus Amount, (y) the Company and/or the Business Unit made employer contributions to each defined contribution plan in which the Executive was a participant at the Termination Date (in an amount equal to the amount of such contribution for the plan year immediately preceding the Termination Date) and (z) the Executive been fully (100%) vested in the Executive's benefit under each retirement plan in which the Executive was a participant, over (B) the lump sum actuarial equivalent of the aggregate retirement benefit the Executive is actually entitled to receive under such retirement plans. For purposes of this Subsection (iv), the "Supplemental Retirement Benefit" shall mean the lump sum actuarial equivalent of the aggregate retirement benefit the Executive would have been entitled to receive under the Company's supplemental executive and other retirement plans, including, but not limited to, the National Service Industries Pension Plan B and the National Linen Service Retirement and 401(k) Plan for Eligible Management Associates; provided, however, if the Executive has attained at least age 50 and has been employed by the Company for at least ten (10) years as of the Termination Date the calculation of the Supplemental Retirement Benefit shall be made pursuant to the early retirement provisions under any applicable supplemental retirement plan for executives and pension plan covering the Executive without regard to the Executive's attained age or years of credited service. For purposes of this Subsection (iv), the "actuarial equivalent" shall be determined in accordance with the actuarial assumptions used for the calculation of benefits under any applicable pension plan as applied prior to the Termination Date in accordance with such plan's past practices; and (v) (A) the restrictions on any outstanding incentive awards (including achievement awards, restricted stock and granted Performance Shares) granted to the Executive under the Long-Term Achievement Incentive Plan or under any other incentive plan or arrangement shall lapse and such incentive awards shall become one hundred percent (100%) vested, all stock options and stock appreciation rights granted to the Executive shall become immediately exercisable and shall become 100% vested, and all Performance Units granted to the Executive shall become 100% vested and (B) the Executive shall have the right to require the Company to purchase, for cash, any shares of unrestricted stock or shares purchased upon exercise of any options, at a - 7 - price equal to the fair market value of such shares on the date of purchase by the Company. (c) The amounts provided for in Sections 3.1(a) and 3.1(b)(i), (ii), (iv), and (v) shall be paid within five (5) days after the Executive's Termination Date. (d) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment except as provided in Section 3.1(b)(iii). 3.2 The severance pay and benefits provided for in Sections 3.1(a) and 3.1(b)(i) and (ii) shall be in lieu of any other severance pay to which the Executive may be entitled under any Company severance plan, program, or arrangement for a termination of employment covered by such circumstances. 4. Notice of Termination. Following a Change in Control, any purported termination by the Company or by the Executive shall be communicated by written Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which indicates the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. 5. Termination Date. "Termination Date" shall mean in the case of the Executive's death, the Executive's date of death, and in all other cases, the date specified in the Notice of Termination subject to the following: (a) If the Executive's employment is terminated by the Company for Cause or due to Disability, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to the Executive, provided that in the case of Disability the Executive shall not have returned to the full-time performance of the Executive's duties during such period of at least thirty (30) days; and (b) If the Executive's employment is terminated for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days from the date the Notice of Termination is given to the Company. - 8 - 6. Excise Tax Payments. (a) Notwithstanding anything contained in this Agreement to the contrary and without regard to whether the Executive's employment with the Company has terminated, in the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"), to the Executive or for the Executive's benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, the Executive's employment with the Company or a change in ownership or effective control of the Company or of a substantial portion of its assets (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes and the Excise Tax), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) An initial determination as to whether a Gross-Up Payment is required pursuant to this Section 6 and the amount of such Gross-Up Payment shall be made by an accounting firm selected by the Company and reasonably acceptable to the Executive which is designated one of the five largest accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations and documentation to the Company and the Executive within five (5) days of the Termination Date if applicable, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax) and if the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to a Payment or Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Payment or Payments. Within five (5) days of the delivery of the Determination to the Executive, the Executive shall have the right to dispute the Determination (the "Dispute). The Gross-Up Payment, if any, as determined pursuant to this Section 6(b) shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm's determination or, subject to Executive's approval, all or a portion of the Gross-Up Payment may be paid directly to the appropriate tax authorities. The existence of the Dispute shall not in any way affect the right of the Executive to receive the Gross-Up Payment in accordance with the Determination. If there is no Dispute, the Determination shall be binding, final, and conclusive upon the Company and the Executive subject to the application of Section 6(c). - 9 - (c) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Excess Payment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred (1) upon notice (formal or informal) to the Executive from any governmental taxing authority that the tax liability of the Executive (whether in respect of the then current taxable year of the Executive or in respect of any prior taxable year of the Executive) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment, (2) upon a determination by a court, (3) by reason of a determination by the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or (4) upon the resolution to the satisfaction of the Executive of the Dispute. If an Underpayment occurs, the Executive shall promptly notify the Company and the Company shall pay to the Executive at least five (5) days prior to the date on which the applicable government taxing authority has requested payment, an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties (other than interest and penalties imposed by reason of a failure to file timely a tax return or pay taxes shown due on a return) imposed on the Underpayment. An Excess Payment shall be deemed to have occurred upon a "Final Determination" (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments with respect to which the Executive had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when the Executive has received from the applicable government taxing authority a refund of taxes or other reduction in the Executive's tax liability by reason of the Excess Payment and upon either (i) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxable authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the statute of limitations with respect to the Executive's applicable tax return has expired. If an Excess Payment is determined to have been made, the amount of the Excess Payment shall be treated as a loan by the Company to the Executive and the Executive shall pay to the Company on demand (but not less than ten (10) days after the determination of such Excess Payment) the amount of the Excess Payment plus interest at an annual rate equal to the rate provided for in Section 1274(b)(2)(B) of the Code from the date the Gross-Up Payment (to which the Excess Payment relates) was paid to the Executive until the date of repayment to the Company. (d) Notwithstanding anything contained in this Agreement to the contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, the Company shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment or Payments. - 10 - 7. Unauthorized Disclosure. During the period that the Executive is actively employed by the Company or Business Unit, the Executive shall not make any Unauthorized Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean disclosure by the Executive without the consent of the Board (other than pursuant to a court order) to any person, other than an employee or director of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of the Executive's duties as an executive of the Company or as may be legally required, of any material Confidential Information obtained by the Executive while in the employ of the Company (including any material Confidential Information with respect to any of the Company's customers or methods of distribution) the disclosure of which is demonstrably and materially injurious to the Company; provided, however, that such term shall not include the use or disclosure by the Executive, without consent, of any information known generally to the public (other than as a result of disclosure by the Executive in violation of this Section 7) or any information not otherwise considered confidential and material by a reasonable person engaged in the same business as that conducted by the Company; provided further, however, that any breach of this Section 7 shall in no event subject the Executive to damages (including costs, fees, and expenses incurred by the Company or the Business Unit) in excess of $10,000 in the aggregate. 8. Non-Compete. During the period that the Executive is actively employed by the Company or Business Unit, the Executive shall not directly or indirectly, own, manage, operate, control, consult with, or be connected as an officer, employee, agent, partner, director, or consultant with, or have any financial interest in, or assist anyone in the conduct of, any business which directly competes with the businesses of the Company in the State of Georgia. Notwithstanding the foregoing, the Executive shall not be in violation of the preceding sentence due to ownership (directly or indirectly) by the Executive of not more than five percent (5%) of the issued and outstanding class of securities of a corporation whose securities are publicly traded. 9. Successors; Binding Agreement. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive or by the Executive's beneficiaries or legal - 11 - representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 10. Arbitration of Disputes; Expenses. All claims by Executive for compensation and benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to Executive for a review of a decision denying a claim and shall further allow Executive to appeal to the Board a decision of the Board within 60 days after notification by the Board that Executive's claim has been denied. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Atlanta, Georgia, in accordance with the commercial arbitration rules of the American Arbitration Association then in effect. The arbitration award shall be final and binding upon the parties and judgment upon the award may be entered in any court having jurisdiction. In the event Executive incurs legal fees and other expenses in seeking to obtain or to enforce any rights or benefits provided by this Agreement (or the Plans listed on Appendix A) in connection with a hearing before, or appeal to, the Board, negotiations, arbitration, court proceedings or otherwise, and is successful, in whole or in part, in obtaining or enforcing any such rights or benefits through settlement, arbitration or otherwise, the Company shall promptly pay Executive's reasonable legal fees and expenses incurred in enforcing this Agreement and the fees of the arbitrator(s). Except to the extent provided in the preceding sentence, each party shall pay its own legal fees and other expenses associated with any dispute, provided, however, that the fee for the arbitrator(s) shall be shared equally. 11. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 12. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive, or other plan or program provided by the Company or any of its subsidiaries and for which the Executive may qualify (except as provided in Section 3.2 with respect to severance plans or programs), nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company or any of its - 12 - subsidiaries. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 13. Settlement of Claims. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or others. 14. Miscellaneous. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Georgia without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in Fulton County in the State of Georgia. 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 17. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. - 13 - ATTEST: NATIONAL SERVICE INDUSTRIES, INC. ______________________________ By:_____________________________________ Secretary Brock A. Hattox Chairman of the Board, Chief Executive Officer, and President EXECUTIVE: _________________________________________ Name:____________________________________ - 14 - APPENDIX A (AS OF JUNE 26, 2002) Executives' Deferred Compensation Plan Supplemental Deferred Savings Plan Senior Management Benefit Plan Long-Term Incentive Program Long-Term Achievement Incentive Plan Management Compensation and Incentive Plan Pension Plan B (or similar retirement plan covering the Executive) Retirement and 401(k) Plan (or similar 401(k) deferred compensation plan covering the Executive) ----------------------- - 15 - EX-10.IIIA102 28 g76849exv10wiiia102.txt EX-10.IIIA102 AMENDMENT NO. 1 TO RESTRICTED STOCK Exhibit 10(iii)A102 AMENDMENT #1 TO RESTRICTED STOCK AWARD AGREEMENT UNDER THE NATIONAL SERVICE INDUSTRIES, INC. LONG-TERM ACHIEVEMENT INCENTIVE PLAN THIS AMENDMENT made and entered into as of the 26th day of June, 2002, by and between National Service Industries, Inc., a Delaware corporation (the "Company") and BROCK A. HATTOX ("Grantee"). WHEREAS, the Company has previously adopted the National Service Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") to provide additional incentives to certain officers and key employees of the Company and its Subsidiaries; and WHEREAS, the Grantee was granted a Restricted Stock Award under the Plan on January 7, 2002, and the terms and conditions of such grant are reflected in a Restricted Stock Award Agreement (the "Agreement") between the Company and Grantee dated January 7, 2002; and WHEREAS, the Company and the Grantee desire to amend the Agreement in the manner hereinafter provided; NOW, THEREFORE, the parties agree as follows: 1. The Agreement is hereby amended to delete the existing Section 2.2 in its entirety and to substitute the following therefor: "2.2(a) In the event, prior to the Final Vesting Date, (i) Grantee dies while actively employed by the Company, or (ii) Grantee's employment is terminated by reason of Disability, the Restricted Stock shall become fully vested and nonforfeitable as of the date of Grantee's death or Disability. The Company shall deliver certificate(s) for the Restricted Stock, free and clear of any restrictions imposed by this Agreement (except for Section 3.4) to Grantee (or, in the event of death, Grantee's surviving spouse or, if none, to Grantee's estate) as soon as practical after Grantee's date of death or termination for Disability. (b) If Grantee retires from the Company on or after attaining (i) age 65, or (ii) age 55 with 5 years of service, the vesting of the Restricted Stock shall continue as if Grantee were an active employee, unless within two (2) years of Grantee's date of termination of employment, Grantee violates the Restrictive Covenant (Non-Competition Agreement) attached as Exhibit "A" hereto, at which time all unvested Shares of Restricted Stock shall immediately be forfeited. If Grantee dies after retiring under this Section 2.4, but prior to the Final Vesting Date for any Shares of Restricted Stock, the Restricted Stock shall become fully vested and nonforfeitable as of the date of Grantee's death. (c) Except as provided in Section 2.3, if Grantee terminates Grantee's employment or if the Company terminates Grantee's employment for any reason other than death or Disability or retirement (as provided in subsection (b) above) prior to the Final Vesting Date, the Restricted Stock shall cease to vest further and Grantee shall only be entitled to the Restricted Stock that is vested as of Grantee's date of termination of employment." 2. The Agreement is hereby amended by adding Exhibit "A" attached hereto as Exhibit "A" to the Agreement. 3. This Amendment shall be effective as of June 26, 2002. Except as hereby modified, the Agreement 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: -------------------------------------- Chester J. Popkowski Senior Vice President, Chief Financial Officer, and Treasurer GRANTEE: ----------------------------------------- Brock A. Hattox 2 EXHIBIT "A" RESTRICTIVE COVENANTS 1. DEFINITIONS The following terms used in this Exhibit "A" shall have the following meanings: (A) "Trade Secrets" means information, without regard to form, relating to the Company's business which is not commonly known by or available to the public and which derives economic value, actual or potential, from not being generally known to other persons and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality, including, but not limited to, technical or nontechnical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans, or lists of actual or potential customers or suppliers. (B) "Confidential Information" means information of the Company which is non-public, proprietary, and confidential in nature but is not a Trade Secret. (C) "Person" means any individual, firm, partnership, association, corporation, limited liability entity, trust, venture, or other business organization, entity, or enterprise; (D) "Restricted Business" means the business of manufacturing and selling envelopes and items incidental to such products and/or the business of renting and/or processing textile products and providing related services for customers; (E) "Restricted Period" means the two (2) year period following the date of the Grantee's retirement under Section 2.2 of the Restricted Stock Award Agreement, as set forth in this Amendment; and (F) "Territory" means the United States. 2. NON-COMPETITION COVENANT During the Restricted Period, the Grantee will not, directly or indirectly, for the Grantee or on behalf of any other Person (except the Company), within the Territory, engage in, provide, or perform sales, marketing, operational, financial, accounting, or administrative services in or for any business engaged in the Restricted Business. 3 3. NON-DISCLOSURE COVENANT The Grantee will not, directly or indirectly, for the Grantee or on behalf of any other Person, use for the Grantee's own benefit or disclose to any other party, any Trade Secrets or Confidential Information of the Company. The foregoing confidentiality obligations shall continue (A) with respect to all Trade Secrets, at all times so long as such Trade Secrets constitute trade secrets under applicable law, and (B) with respect to all Confidential Information, at all times during the Restricted Period. 4. NON-RECRUITMENT COVENANT During the Restricted Period, the Grantee will not, directly or indirectly, for the Grantee or on behalf of any other Person, solicit, induce, persuade, or encourage, or attempt to solicit, induce, persuade, or encourage, any management-level employee of the Company or the Company's business unit in which the Grantee was employed (if applicable) to terminate such employee's position with the Company, whether or not such employee is a full-time or temporary employee of the Company and whether or not such employment is pursuant to a written agreement, for a determined period, or at will. 5. SEPARABILITY The Grantee acknowledges that each of the foregoing restrictive covenants is a separate and distinct obligation of the Grantee and is deemed to be separable from the remaining restrictive covenants. If any of the provisions of the foregoing restrictive covenants should ever be deemed to exceed the time, geographic, product, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product, or other limitations permitted by applicable law. 4 EX-21 29 g76849exv21.txt EX-21 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 - ----------------------- ------------------ ------------------- ~~National Service Industries, Inc. .......................... Atlanta, Georgia California (fka NSI Enterprises, Inc.)~~
81 EX-23.1 30 g76849exv23w1.txt EX-23 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 NATIONAL SERVICE INDUSTRIES, INC. CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-59627) and on Form S-8 (Nos. 33-35609, 33-36980, 333-48835, 33-51339, 33-51341, 33-51343, 33-51345, 33-51351, 33-51355, 33-51357, 33-60715, 333-73133, 333-73135, 333-35746, 333-57222, and 333-57256) of National Service Industries, Inc. of our report dated November 8, 2002 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Atlanta, Georgia November 12, 2002 82 EX-23.2 31 g76849exv23w2.txt EX-23.2 NOTICE REGARDING CONSENT EXHIBIT 23.2 NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP Section 11(a) of the Securities Act of 1933, as amended (the "Securities Act"), provides that if any part of a registration statement at the time such part becomes effective contains an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may sue, among others, every accountant who has consented to be named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement in such registration statement, report or valuation which purports to have been prepared or certified by the accountant. This Form 10-K is incorporated by reference into the following previously filed registration statements of National Service Industries, Inc. ("NSI"): Registration Statement on Form S-3 file number 333-59627 and Registration Statements on Form S-8 file numbers 33-35609, 33-36980, 333-48835, 33-51339, 33-51341, 33-51343, 33-51345, 33-51351, 33-51355, 33-51357, 33-60715, 333-73133, 333-73135, 333-35746, 333-57222 and 333-57256 (collectively, the "Registration Statements") and, for purposes of determining liability under the Securities Act, is deemed to be a new registration statement for each Registration Statement into which it is incorporated by reference. On May 15, 2002, NSI dismissed Arthur Andersen LLP ("Arthur Andersen") as its independent public accountant and appointed PricewaterhouseCoopers LLP to replace Arthur Andersen. Both the engagement partner and the manager for NSI's prior fiscal year audit are no longer with Arthur Andersen. As a result, NSI has been unable to obtain Arthur Andersen's written consent to incorporate by reference into the Registration Statements Arthur Andersen's audit report regarding NSI's financial statements as of August 31, 2001 and August 31, 2000 and for the years then ended. Under these circumstances, Rule 437a under the Securities Act and Rule 2-02 of Regulation S-X promulgated by the Securities and Exchange Commission permit NSI to file this Form 10-K without a written consent from Arthur Andersen. As a result, however, Arthur Andersen will have no liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Arthur Andersen or any omissions of a material fact required to be stated therein. Accordingly, you would be unable to assert a claim against Arthur Andersen under Section 11(a) of the Securities Act for any purchases of securities under the Registration Statements made on or after the date of the Form 10-K. However, to the extent provided in Section 11(b)(3)(C) of the Securities Act, other persons who are liable under Section 11(a) of the Securities Act, including NSI's officers and directors, may still rely on Arthur Andersen's original audit reports as being made by an expert for purposes of establishing a due diligence defense under Section 11(b) of the Securities Act. 83 EX-99.1 32 g76849exv99w1.txt EX-99.1 CERTIFICATION OF THE CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of National Service Industries, Inc. (the "Corporation") for the fiscal year ended August 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the President and Chief Executive Officer of the Corporation, certifies that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. /s/ Brock A. Hattox - -------------------------------- Brock A. Hattox President and Chief Executive Officer November 15, 2002 EX-99.2 33 g76849exv99w2.txt EX-99.2 CERTIFICATION OF THE CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with the Annual Report on Form 10-K of National Service Industries, Inc. (the "Corporation") for the fiscal year ended August 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the Senior Vice President, Chief Financial Officer and Treasurer certifies that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. /s/ Chester J. Popkowski - -------------------------------------- Chester J. Popkowski Senior Vice President, Chief Financial Officer and Treasurer November 15, 2002 EX-99.3 34 g76849exv99w3.txt EX- 99.3 CERTIFICATION OF PRIN. EXECUTIVE OFFICER Exhibit 99.3 STATEMENT UNDER OATH OF PRINCIPAL EXECUTIVE OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS I, Brock A. Hattox, state and attest that: (1) To the best of my knowledge, based upon a review of the covered reports of National Service Industries, Inc., and, except as corrected or supplemented in a subsequent covered report: - no covered report contained an untrue statement of a material fact as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed); and - no covered report omitted to state a material fact necessary to make the statements in the covered report, in light of the circumstances under which they were made, not misleading as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed). (2) I have reviewed the contents of this statement with the Company's audit committee. (3) In this statement under oath, each of the following, if filed on or before the date of this statement, is a "covered report": - Annual Report on Form 10-K for the fiscal year ended August 31, 2002 of National Service Industries, Inc.; - All reports on Form 10-Q, all reports on Form 8-K and all definitive proxy materials of National Service Industries, Inc., filed with the Commission subsequent to the filing of the Form 10-K identified above; and - any amendments to any of the foregoing. /s/ Brock A. Hattox - ------------------------------ Subscribed and sworn to Brock A. Hattox before me this 15th day of November 15, 2002 November, 2002. /s/ Rebecca Chay Wix --------------------------- Notary Public My Commission Expires: July 7, 2003 EX-99.4 35 g76849exv99w4.txt EX-99.4 CERTIFICATION OF PRIN. FINANCIAL OFFICER Exhibit 99.4 STATEMENT UNDER OATH OF PRINCIPAL FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS I, Chester J. Popkowski, state and attest that: (1) To the best of my knowledge, based upon a review of the covered reports of National Service Industries, Inc., and, except as corrected or supplemented in a subsequent covered report: - no covered report contained an untrue statement of a material fact as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed); and - no covered report omitted to state a material fact necessary to make the statements in the covered report, in light of the circumstances under which they were made, not misleading as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed). (2) I have reviewed the contents of this statement with the Company's audit committee. (3) In this statement under oath, each of the following, if filed on or before the date of this statement, is a "covered report": - Annual Report on Form 10-K for the fiscal year ended August 31, 2002 of National Service Industries, Inc.; - All reports on Form 10-Q, all reports on Form 8-K and all definitive proxy materials of National Service Industries, Inc., filed with the Commission subsequent to the filing of the Form 10-K identified above; and - any amendments to any of the foregoing. /s/ Chester J. Popkowski - ------------------------------ Subscribed and sworn to Chester J. Popkowski before me this 15th day of November 15, 2002 November, 2002. /s/ Rebecca Chay Wix ------------------------------ Notary Public My Commission Expires: July 7, 2003 -----END PRIVACY-ENHANCED MESSAGE-----


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended August 31, 2002

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to .


Delaware		58-0364900
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1420 Peachtree Street, N.E., Suite 200, Atlanta, Georgia (Address of principal executive offices)		30309—3002 (Zip Code)
(404) 853-1000 (Registrant’s telephone number, including area code)


Title of Each Class		Name of Each Exchange on which Registered

Common Stock ($1.00 Par Value)		New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange


Location in Form 10-K		Incorporated Document

Part III, Items 10, 11, 12, and 13		Proxy Statement for 2002 Annual
		Meeting of Stockholders


			Page
			No.

PART I
	Item 1.	Business		1
	Item 2.	Properties		3
	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		5
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		6
	Item 7a.	Quantitative and Qualitative Disclosures about Market Risk		20
	Item 8.	Financial Statements and Supplementary Data		21
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		57
PART III
	Item 10.	Directors and Executive Officers of the Registrant		57
	Item 11.	Executive Compensation		58
	Item 12.	Security Ownership of Certain Beneficial Owners and Management		58
	Item 13.	Certain Relationships and Related Transactions		58
	Item 14.	Controls and Procedures		58
PART IV
	Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		59
Signatures				75
Certification of the Chief Executive Officer				76
Certification of the Chief Financial Officer				77
Financial Statement Schedules				80
List of Subsidiaries				81
Consent of Independent Accountants				82
Notice Regarding Consent of Arthur Andersen LLP				83


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7a. Quantitative and Qualitative Disclosures about Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
PART IV
	Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
EX-10.IIIA4A4A RESTATED RETIREMENT PLAN
EX-10.IIIA4B FIRST AMENDMENT TO SUPPLEMENT RETIRE
EX-10.IIIA4C AMENDMENT NO. TO RESTATED RETIREMENT
EX-10.IIIA5 SENIOR MANAGEMENT BENEFIT PLAN
EX-10.IIIA10A LONG TERM INCENTIVE PLAN
EX-10.IIIA35 NONQUALIFIED STOCK OPTION AGREEMENT
EX-10.IIIA38 NONQUALIFIED SDTOCK OPTION AGREEMENT
EX-10.IIIA48A BENEFITS PROTECTION TRUST AGREEMENT
EX-10.IIIA48B AMENDMENT TO BENEFITS PROTECTION
EX-10.IIIA48C AMENDMENT NO. 2 BENEFITS PROTECTION
EX-10.IIIA49A EXECUTIVE BENEFITS TRUST AGREEMENT
EX-10.IIIA49B AMENDMENT TO EXECUTIVE BENEFITS
EX-10.IIIA50A NONEMPLOYEE STOCK OPTION PLAN
EX-10.IIIA56A NONEMPLOYEE DIRECTOR STOCK UNIT PLAN
EX-10.IIIA56B AMENDMENT NO. 1 NONEMPLOYEE DIRECTOR
EX-10.IIIA56C AMENDMENT NO. 2 NONEMPLOYEE DIRECTOR
EX-10.IIIA92 STOCK OPTION AGREEMENT
EX-10.IIIA93 AMENDMENT NO. 1 TO RESTRICTED STOCK
EX-10.IIIA95 AMENDMENT NO. 5 TO EXECUTIVE
EX-10.IIIA96 AMENDMENT NO. 6 TO SENIOR MANAGEMENT
EX-10.IIIA97 AMENDMENT NO. 1 TO EMPLOYMENT
EX-10.IIIA98 RESTRICTED STOCK AWARD AGREEMENT
EX-10.IIIA99 AMENDMENT NO. 1 TO THE 2001 NONEMPLOY
EX-10.IIIA100 AMENDMENT NO. 4 TO EXECUTIVE
EX-10.IIIA101 SEVERANCE PROTECTION AGREEMENT
EX-10.IIIA102 AMENDMENT NO. 1 TO RESTRICTED STOCK
EX-21 LIST OF SUBSIDIARIES
EX-23 CONSENT OF INDEPENDENT ACCOUNTANTS
EX-23.2 NOTICE REGARDING CONSENT
EX-99.1 CERTIFICATION OF THE CEO
EX-99.2 CERTIFICATION OF THE CFO
EX- 99.3 CERTIFICATION OF PRIN. EXECUTIVE OFFICER
EX-99.4 CERTIFICATION OF PRIN. FINANCIAL OFFICER



	Number of
	Facilities
Division	Owned		Leased		Nature of Facilities

Textile Rental		31		6	Linen Processing Plants
		1		28	Linen Service Centers
Envelope		6		1	Manufacturing Plants
		—		2	Warehouses
		—		1	Offices
Corporate Office		—		1	Corporate Headquarters



	Price per Share*
					Dividends
	High		Low		per Share*

Fiscal 2002
First Quarter	$	95.2000	$	62.3200	$	.64
Second Quarter		9.8000		6.5200		.04
Third Quarter		11.7500		8.0900		.04
Fourth Quarter		9.6900		6.5600		.04
Fiscal 2001
First Quarter	$	83.2500	$	73.2500	$	1.32
Second Quarter		104.0800		82.2500		1.32
Third Quarter		102.8000		86.1600		1.32
Fourth Quarter		102.9200		80.0000		1.32


		2002			2001			2000		1999		1998


		(Dollar amounts in thousands, except per-share data)
Operating Results(1)
Revenue from continuing operations: Service revenues		$	319,669		$	334,820		$	321,522	$	309,115	$	312,746
Net sales of products			212,761			228,462			225,190		204,510		161,037

	Total revenues	$	532,430		$	563,282		$	546,712	$	513,625	$	473,783

Net (loss) income:
(Loss) income from continuing operations		$	(6,935	)	$	(15,291	)	$	17,073	$	34,918	$	27,169
Discontinued operations, net of tax			(7,535	)		42,304			82,797		89,425		81,551
Cumulative effect of a change in accounting principle, net of tax			(17,602	)		—			—		—		—

	Net (loss) income	$	(32,072	)	$	27,013		$	99,870	$	124,343	$	108,720

Per-Share Data
Basic earnings per share(1)(2)(3):
(Loss) income from continuing operations		$	(0.67	)	$	(1.49	)	$	1.68	$	3.41	$	2.56
Discontinued operations, net of tax			(0.73	)		4.12			8.13		8.75		7.68
Cumulative effect of a change in accounting principle, net of tax			(1.71	)		—			—		—		—

	Net (loss) income	$	(3.11	)	$	2.63		$	9.81	$	12.16	$	10.24

Diluted earnings per share(1)(2)(3):
(Loss) income from continuing operations		$	(0.67	)	$	(1.49	)	$	1.68	$	3.40	$	2.53
Discontinued operations, net of tax			(0.73	)		4.12			8.13		8.70		7.58
Cumulative effect of a change in accounting principle, net of tax			(1.71	)		—			—		—		—

	Net (loss) income	$	(3.11	)	$	2.63		$	9.81	$	12.10	$	10.11

Cash dividends		$	0.76		$	5.28		$	5.24	$	5.08	$	4.92
Stockholders’ equity		$	20.12		$	64.30		$	66.74	$	61.95	$	57.06
Total Assets(1)
Continuing operations		$	519,098		$	498,098		$	398,904	$	364,218	$	319,690
Discontinued operations			—			1,330,575			1,422,880		1,337,038		700,112

	Total	$	519,098		$	1,828,673		$	1,821,784	$	1,701,256	$	1,019,802

Total Debt(1)
Continuing operations		$	2,077		$	5,000		$	5,000	$	5,000	$	5,000
Discontinued operations			—			608,830			636,434		544,577		81,073

	Total	$	2,077		$	613,830		$	641,434	$	549,577	$	86,073



Period

Beginning	Ending	Letters of Credit

September 1, 2002	October 31, 2002	$	10.4 million
November 1, 2002	October 31, 2003	$	8.0 million
November 1, 2003	October 31, 2004	$	5.0 million
November 1, 2004	October 31, 2005	$	2.0 million



	Fiscal Year

													after
	Total		2003		2004		2005		2006		2007		2007


	(Dollar amounts in thousands)
Long-Term Debt	$	2,077	$	1,093	$	984	$	—	$	—	$	—	$	—
Operating Leases		14,080		2,199		2,005		1,897		1,828		1,605		4,546
Asbestos Settlements		85,035		40,131		42,946		1,958		—		—		—
Purchase Obligations		2,100		2,100		—		—		—		—		—

Total	$	103,292	$	45,523	$	45,935	$	3,855	$	1,828	$	1,605	$	4,546



			Year Ended August 31,

			2002			2001			2000


			(In millions, except
			per-share amounts)
Sales and Service Revenues:
	Textile Rental		$	319.6		$	334.8		$	321.5
	Envelope			212.8			228.5			225.2

			$	532.4		$	563.3		$	546.7

Operating (Loss) Profit:
	Textile Rental		$	3.0		$	12.5		$	28.2
	Envelope			3.0			(13.1	)		5.1

				6.0			(0.6	)		33.3
	Corporate			(16.6	)		(21.9	)		(3.8	)
	Interest expense, net			(0.4	)		(1.8	)		(1.6	)

				(11.0	)		(24.3	)		27.9

(Loss) income from continuing operations				(6.9	)		(15.3	)		17.1
(Loss) income from discontinued operations				(7.6	)		42.3			82.8
Cumulative effect of change in accounting principle, net of tax				(17.6	)		—			—

Net (loss) income			$	(32.1	)	$	27.0		$	99.9

Earnings per Share:
	Basic and Diluted:
		(Loss) income from continuing operations	$	(0.67	)	$	(1.49	)	$	1.68
		Discontinued operations		(0.73	)		4.12			8.13
		Cumulative effect of change in accounting principle, net of tax		(1.71	)		—			—

		Net (loss) income	$	(3.11	)	$	2.63		$	9.81



	Textile Rental Segment
	Year Ended August 31,

	2002			2001			2000


	(Dollar amounts in thousands)
Operating profit (loss)	$	2,996		$	12,553		$	28,208
Gain on sale of businesses		(977	)		(2,359	)		(170	)
Pre-tax restructuring expense, asset impairments, and other charges		5,762			1,667			—

Adjusted operating profit (loss)	$	7,781		$	11,861		$	28,038



	Envelope Segment
	Year Ended August 31,

	2002			2001			2000


	(Dollar amounts in thousands)
Operating profit (loss)	$	3,004		$	(13,145	)	$	5,096
Gain on sale of businesses		(75	)		—			(186	)
Pre-tax restructuring expense, asset impairments, and other charges		—			8,290			—

Adjusted operating profit (loss)	$	2,929		$	(4,855	)	$	4,910


	Page

Report of Independent Accountants		22
Copy of Report Previously Issued by the Company’s Former Independent Public Accountants		23
Consolidated Balance Sheets — August 31, 2002 and 2001		24
Consolidated Statements of Income for the years ended August 31, 2002, 2001 and 2000		25
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended August 31, 2002, 2001 and 2000		26
Consolidated Statements of Cash Flows for the years ended August 31, 2002, 2001 and 2000		27
Notes to Consolidated Financial Statements		28


Item 1.	*Business*


	*Textile Rental*


	*Envelope*


	*Textile Rental Segment*



			August 31,

			2002			2001


			(In thousands, except
			share data)
ASSETS
Current Assets:
	Cash and cash equivalents		$	20,969		$	—
	Receivables, less allowance for doubtful accounts of $1,173 in 2002 and $1,798 in 2001			52,198			60,406
	Inventories, at the lower of cost (on a first-in, first-out basis) or market			16,037			19,195
	Linens in service, net of amortization			51,806			56,910
	Deferred income taxes			—			9,138
	Prepayments			5,086			11,300
	Insurance receivable (Note 6)			42,024			28,616
	Other current assets			693			804

		Total Current Assets		188,813			186,369
Property, Plant, and Equipment, at cost:
	Land			5,715			12,775
	Buildings and leasehold improvements			49,867			57,433
	Machinery and equipment			259,730			258,344

		Total Property, Plant, and Equipment		315,312			328,552
	Less — Accumulated depreciation and amortization			167,356			157,507

	Property, Plant, and Equipment — net			147,956			171,045
Other Assets:
	Goodwill (Note 1)			—			28,432
	Other intangibles (Note 1)			8,357			8,629
	Insurance receivable (Note 6)			140,831			66,574
	Prepaid benefit cost			30,644			34,465
	Other			2,497			2,584

		Total Other Assets		182,329			140,684
	Net assets of discontinued operations (Note 2)			—			400,296

		Total Assets	$	519,098		$	898,394

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Current maturities of long-term debt		$	1,093		$	1,011
	Notes payable			—			1,999
	Accounts payable			16,569			28,164
	Accrued salaries, commissions, and bonuses			7,007			7,050
	Current portion of self-insurance accrual			5,785			3,119
	Environmental accrual (Note 6)			5,777			7,291
	Litigation accrual (Note 6)			41,288			30,453
	Deferred income taxes			8,811			—
	Other accrued liabilities			19,506			19,561

		Total Current Liabilities		105,836			98,648
Long-Term Debt, less current maturities				984			1,990

Deferred Income Taxes				7,853			32,431

Self-Insurance Accrual, less current portion				9,258			12,477

Litigation Accrual (Note 6)				166,844			82,917

Other Long-Term Liabilities				7,690			7,303

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, 14,478,500 shares issued in 2002 and 14,479,745 shares in 2001			14,479			14,480
	Paid-in capital			11,570			72,860
	Retained earnings			552,302			995,537
	Unearned compensation on restricted stock (Note 5)			(4,092	)		(880	)
	Accumulated other comprehensive income items			(2,350	)		(43	)

				571,909			1,081,954
	Less — Treasury stock, at cost (3,510,515 shares in 2002 and 4,173,299 shares in 2001)			351,276			419,326

		Total Stockholders’ Equity		220,633			662,628

		Total Liabilities and Stockholders’ Equity	$	519,098		$	898,394


																	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, 1999								$	14,480		$	72,494		$	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(1)								—			98			—			—			—			643			741
	Treasury stock issued in connection with Long-Term Incentive Program(2)								—			1,245			—			—			—			4,422			5,667
	Employee Stock Purchase Plan issuances(3)								—			(741	)		—			—			—			3,867			3,126
	Cash dividends of $5.24 per share paid on common stock								—			—			(53,357	)		—			—			—			(53,357	)

Balance, August 31, 2000									14,480			73,096			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(4)								—			(14	)		—			—			—			48			34
	Treasury stock issued in connection with Long-Term Incentive Program(5)								—			(963	)		—			—			—			4,600			3,637
	Restricted stock issued in connection with Long-Term Incentive Program(6)								—			(9	)		—			(1,195	)		—			1,204			—
	Amortization and forfeitures of restricted stock grants								—			—			—			315			—			—			315
	Issuance of stock options in connection with Long-Term Incentive Program								—			1,855			—			—			—			—			1,855
	Employee Stock Purchase Plan issuances(7)								—			(1,105	)		—			—			—			4,125			3,020
	Cash dividends of $5.28 per share paid on common stock								—			—			(54,450	)		—			—			—			(54,450	)

Balance, August 31, 2001									14,480			72,860			995,537			(880	)		(43	)		(419,326	)		662,628
	Comprehensive income:
		Net loss			$	(32,072	)		—			—			(32,072	)		—			—			—			(32,072	)
		Other comprehensive income, net of tax:
			Minimum pension liability adjustment (net of tax of $1,413)			(2,307	)		—			—			—			—			(2,307	)		—			(2,307	)

				Comprehensive loss	$	(34,379	)

	Cash in lieu of fractional shares								(1	)		(9	)		—			—			—			—			(10	)
	Treasury stock issued in connection with Long-Term Incentive Program(8)								—			(71	)		—			—			—			1,180			1,109
	Restricted stock issued in connection with Long-Term Incentive Program(9)								—			(58,179	)		—			(4,910	)		—			63,089			—
	Amortization and forfeitures of restricted stock grants (10)								—			(9	)		—			1,021			—			(116	)		896
	Dividend of common equity interest in Acuity								—			—			(403,238	)		—			—			—			(403,238	)
	Transfer of restricted stock in connection with spin-off of Acuity								—			—			—			677			—			—			677
	Employee Stock Purchase Plan issuances(11)								—			(3,022	)		—			—			—			3,897			875
	Cash dividends of $0.76 per share paid on common stock								—			—			(7,925	)		—			—			—			(7,925	)

Balance, August 31, 2002								$	14,479		$	11,570		$	552,302		$	(4,092	)	$	(2,350	)	$	(351,276	)	$	220,633


	2002		2001

Raw materials and supplies	$	5,716	$	6,716
Work in progress		2,493		817
Finished goods		7,828		11,662

	$	16,037	$	19,195



		August 31, 2002					August 31, 2001

		Gross Carrying		Accumulated			Gross Carrying		Accumulated
		Amount		Amortization			Amount		Amortization

Amortized intangible assets:
	Customer contracts	$	11,589	$	(3,851	)	$	10,215	$	(2,348	)
	Other		1,635		(1,016	)		1,428		(666	)

	Total	$	13,224	$	(4,867	)	$	11,643	$	(3,014	)


	Textile
	Rental			Envelope			Total

Balance as of August 31, 2001	$	4,162		$	24,270		$	28,432
Transitional impairment losses		(4,162	)		(24,270	)		(28,432	)

Balance as of August 31, 2002	$	—		$	—		$	—


	August 31,

	2001

Current Assets	$	559,116
Property, Plant, and Equipment — net		248,423
Goodwill and Other Intangibles		468,944
Other Long-Term Assets		54,092
Current Liabilities		(442,067	)
Long-Term Debt, less current maturities		(373,707	)
Other Long-Term Liabilities		(131,503	)
Accumulated other comprehensive income items		16,998

Net assets of discontinued operations	$	400,296


	2002			2001

Change in benefit obligation:
Benefit obligation at beginning of year	$	59,732		$	53,542
Service cost		2,023			1,482
Interest cost		4,408			4,270
Actuarial loss		4,094			5,784
Benefits paid		(3,715	)		(4,210	)
Other		(861	)		(1,136	)

Benefit obligation at end of year	$	65,681		$	59,732

Change in plan assets:
Fair value of plan assets at beginning of year	$	78,950		$	82,323
Actual return on plan assets		(664	)		1,185
Employer contributions		46			199
Employee contributions		17			144
Benefits paid		(3,715	)		(4,210	)
Other		(1,100	)		(691	)

Fair value of plan assets at end of year	$	73,534		$	78,950

Funded status:
Funded status	$	7,853		$	19,218
Unrecognized actuarial loss		25,381			14,399
Unrecognized transition asset		(1,017	)		(1,577	)
Unrecognized prior service cost		1,243			1,287

Prepaid pension expense	$	33,460		$	33,327


	2002			2001

Amounts recognized in the consolidated balance sheets consist of:
Prepaid benefit cost	$	30,644		$	34,465
Accrued benefit liability		(2,448	)		(1,485	)
Intangible asset		1,476			279
Accumulated other comprehensive income		3,788			68

Prepaid pension expense	$	33,460		$	33,327



	2002		2001

	Continuing		Continuing		Discontinued
	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
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
4.3% to 8.5% other notes, payable in installments to 2026		2,077		3,001		14,593

		2,077		3,001		374,064
Less — Amounts payable within one year included in current liabilities		1,093		1,011		357

	$	984	$	1,990	$	373,707



		Outstanding					Exercisable

					Weighted				Weighted
		Number of			Average		Number of		Average
		Shares			Exercise Price		Shares		Exercise Price

Outstanding at August 31, 1999			566,396		$	139.12		277,521	$	125.20
	Granted		286,150			110.04
	Exercised		(7,338	)		109.76
	Cancelled		(6,883	)		128.56

Outstanding at August 31, 2000			838,325		$	129.60		438,003	$	129.12

	Granted		468,541			77.52
	Exercised		(486	)		79.00
	Cancelled		(173,283	)		125.04

Outstanding at August 31, 2001			1,133,097		$	84.68		547,136	$	124.60

	Adjustment due to spin-off of Acuity		267,764
	Granted		92,146		$	8.20
	Exercised		—			—
	Cancelled		(255,612	)		14.32

Outstanding at August 31, 2002			1,237,395		$	16.51		721,239	$	19.34


		2002			2001

Open claims, beginning of period			35,000			21,000
	Served		24,300			30,000
	Dismissed		(20,700	)		(200	)
	Settled		(3,300	)		(15,800	)

			35,300			35,000
Settled in principle after February 1, 2001 but not finalized			(10,900	)		(1,000	)

Open claims pending, end of period			24,400			34,000

Average resolution indemnity cost per claim for the year ended August 31, 2002*		$	530		$	1,035


	Accrual,		Cash			Expense			Accrual,
	Beginning of Period		Payments			(Gain)			End of Period

2002
Severance costs	$	2,969	$	(2,294	)	$	(148	)	$	527
Exit costs		1,582		(2,464	)		1,439			557
2001
Severance costs		—		(118	)		3,087			2,969
Exit costs		—		—			1,582			1,582
2000
Severance costs		163		(163	)		—			—
Exit costs		464		(464	)		—			—


		2002			2001

Deferred tax liabilities:
	Depreciation	$	20,422		$	18,960
	Amortization of linens		18,031			23,264
	Pension		11,745			11,412
	Intangibles		1,824			622
	Other		933			5,993

	Total deferred tax liabilities		52,955			60,251

Deferred tax assets:
	Self-insurance		(7,058	)		(9,752	)
	Deferred compensation		(2,042	)		(2,382	)
	Bonuses		(75	)		(1,340	)
	Restructuring and asset impairments		(24,244	)		(21,535	)
	Asset disposition accruals		(109	)		(111	)
	Other assets		(2,763	)		(1,838	)

	Total deferred tax assets		(36,291	)		(36,958	)

Net deferred tax liability		$	16,664		$	23,293


											Cumulative
					Income						Effect of a
	Sales and				(Loss) from			Discontinued			Change in			Net
	Service		Gross		Continuing			Operations,			Accounting			Income
	Revenues		Profit		Operations(1)			Net of Tax			Principle			(Loss)

2002
1st Quarter	$	134,389	$	44,609	$	(3,648	)	$	(7,535	)	$	(17,602	)	$	(28,785	)
2nd Quarter		132,038		43,628		(41	)		—			—			(41	)
3rd Quarter		136,079		46,961		6,791			—			—			6,791
4th Quarter		129,924		41,413		(10,037	)		—			—			(10,037	)
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	)



	Basic Earnings Per Share												Diluted Earnings Per Share

							Cumulative												Cumulative
	Income						Effect of a						Income						Effect of a
	(Loss) from			Discontinued			Change in			Net			(Loss) from			Discontinued			Change in			Net
	Continuing			Operations,			Accounting			Income			Continuing			Operations,			Accounting			Income
	Operations			Net of Tax			Principle			(Loss)			Operations			Net of Tax			Principle			(Loss)

2002
1st Quarter	$	(.35	)	$	(.73	)	$	(1.71	)	$	(2.79	)	$	(.35	)	$	(.73	)	$	(1.71	)	$	(2.79	)
2nd Quarter		—			—			—			—			—			—			—			—
3rd Quarter		.66			—			—			.66			.65			—			—			.65
4th Quarter		(.97	)		—			—			(.97	)		(.97	)		—			—			(.97	)
2001
1st Quarter	$	.23		$	1.39		$	—		$	1.62		$	.23		$	1.39		$	—		$	1.62
2nd Quarter		.20			1.34			—			1.54			.20			1.33			—			1.53
3rd Quarter		.48			.74			—			1.22			.47			.74			—			1.21
4th Quarter		(2.39	)		.65			—			(1.74	)		(2.39	)		.65			—			(1.74	)


			Earnings in							Investment						Capital
	Sales and		Equity							in Equity						Expenditures
	Service		Method		Operating					Method		Depreciation		Amortization		and
	Revenues		Investment		Profit (Loss)			Total Assets		Investees		Expense		Expense		Acquisitions

2002
Textile Rental(1)	$	319,669	$	1,075	$	2,996		$	207,886	$	904	$	14,964	$	1,853	$	15,688
Envelope(2)		212,761		—		3,004			99,391		—		8,118		—		4,998

		532,430		1,075		6,000			307,277		904		23,082		1,853		20,686
Corporate(3)		—		—		(16,624	)		211,821		—		680		—		188
Interest Expense		—		—		(385	)		—		—		—		—		—

	$	532,430	$	1,075	$	(11,009	)	$	519,098	$	904	$	23,762	$	1,853	$	20,874

2001
Textile Rental(1)	$	334,820	$	949	$	12,553		$	231,422	$	518	$	14,655	$	1,828	$	22,559
Envelope(2)		228,462		—		(13,145	)		141,945		—		8,652		979		5,476

		563,282		949		(592	)		373,367		518		23,307		2,807		28,035
Corporate(3)		—		—		(21,909	)		124,731		—		1,519		—		614
Interest Expense		—		—		(1,770	)		—		—		—		—		—

	$	563,282	$	949	$	(24,271	)	$	498,098	$	518	$	24,826	$	2,807	$	28,649

2000
Textile Rental(1)	$	321,522	$	696	$	28,208		$	222,957	$	696	$	14,154	$	1,432	$	30,795
Envelope(2)		225,190		—		5,096			151,003		—		6,892		979		22,890

		546,712		696		33,304			373,960		696		21,046		2,411		53,685
Corporate		—		—		(3,829	)		24,944		—		1,770		—		1,930
Interest Expense		—		—		(1,578	)		—		—		—		—		—

	$	546,712	$	696	$	27,897		$	398,904	$	696	$	22,816	$	2,411	$	55,615


(1)	Textile rental segment operating profits included the following:


(2)	Envelope segment operating profits included the following:


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*


Name and Age of each Executive Officer		Business Experience of Executive Officers During the Five Years
and Positions Held with the Company		Ended August 31, 2002 and Term in Office

Brock A. Hattox, age 54 Chairman, Chief Executive Officer and President		Mr. Hattox was elected Chairman, Chief Executive Officer and President effective December 2001. Previously, he served as Executive Vice President and Chief Financial Officer of the Company from September 1996 through November 2001. Prior to joining NSI, Mr. Hattox served McDermott International, Inc. as Chief Financial Officer from 1991 to 1996.

Richard LeBer, age 44 Executive Vice President and President of National Linen Service		Mr. LeBer serves as Executive Vice President of the Company and President of National Linen Service (NLS). He joined NLS in 1996 as Vice President of Business Development and was named President in January 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 57 Executive Vice President and President of Atlantic Envelope Company		Mr. Zook serves as Executive Vice President of the Company and as President of Atlantic Envelope Company (AECO). He began his career with AECO in 1970 as a sales representative and served as Sales Manager, General Manager, Director of the ATENCO Filing Systems product line, and Vice President before becoming President in 1989.