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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
National Service Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
Kenyon W. Murphy, Vice President, Secretary and Associate Counsel
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[NSI LOGO]
NATIONAL SERVICE INDUSTRIES, INC.
NSI CENTER
1420 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 8, 1997
The annual meeting of stockholders of NATIONAL SERVICE INDUSTRIES, INC.
(the "Corporation") will be held on Wednesday, January 8, 1997, at 10:00 a.m. in
the Walter C. Hill Auditorium at the High Museum of Art, 1280 Peachtree Street,
N.E., Atlanta, Georgia, for the following purposes:
(1) to elect directors;
(2) to approve the National Service Industries, Inc. Long-Term
Achievement Incentive Plan;
(3) to ratify the appointment of Arthur Andersen LLP as independent
auditors for the Corporation for the fiscal year ending August 31, 1997;
and
(4) to transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on November 11, 1996
as the record date for the determination of the stockholders who will be
entitled to notice of and to vote at this meeting or any adjournments thereof.
A list of the stockholders entitled to vote at the meeting may be examined
at the Corporation's executive offices, 1420 Peachtree Street, N.E., Atlanta,
Georgia, during the ten-day period preceding the meeting.
November 26, 1996
By order of the Board of Directors,
KENYON W. MURPHY
Vice President, Secretary, and
Associate Counsel
IMPORTANT -- YOUR PROXY IS ENCLOSED
PLEASE DATE, SIGN AND MAIL THE ENCLOSED PROXY PROMPTLY. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES IN THE ACCOMPANYING ENVELOPE.
<PAGE> 3
NATIONAL SERVICE INDUSTRIES, INC.
NSI CENTER
1420 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
PROXY STATEMENT
The following information is furnished in connection with the solicitation
of proxies by the Board of Directors of the Corporation for the annual meeting
to be held on January 8, 1997. A copy of the annual report of the Corporation
for the fiscal year ended August 31, 1996 and a proxy for use at the meeting are
enclosed with this proxy statement. This proxy statement and the enclosed proxy
are initially being mailed to stockholders on or about November 26, 1996.
GENERAL INFORMATION
PROXY
Stockholders are requested to execute and return the enclosed proxy in the
accompanying envelope. At any time before the proxy is voted, it may be revoked
by written notice to the Secretary of the Corporation. Proxies which are
returned properly executed, and not revoked, will be voted in accordance with
stockholders' directions specified thereon. Where no direction is specified,
proxies will be voted for the election of the nominees listed below as
directors, for approval of the Long-Term Achievement Incentive Plan, and for
ratification of the appointment of Arthur Andersen LLP as independent auditors
for the Corporation.
STOCK OUTSTANDING AND VOTING RIGHTS
As of November 11, 1996, the record date for the annual meeting, there were
45,786,594 shares of common stock outstanding and entitled to vote. The holders
of common stock, the only class of voting stock of the Corporation outstanding,
are entitled to one vote per share for the election of directors and on the
other matters presented.
VOTING PROCEDURE
Votes cast by proxy or in person at the annual meeting will be tabulated by
the election inspector appointed for the meeting and will determine whether or
not a quorum is present. The election inspector will treat abstentions as shares
that are present and entitled to vote but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders. If a broker indicates
on the proxy that it does not have discretionary authority as to certain shares
to vote on a particular matter, those shares will be considered as present but
not entitled to vote with respect to that matter.
SOLICITATION
The cost of soliciting proxies is paid by the Corporation. Officers and
regular employees of the Corporation, at no additional compensation, may assist
in the solicitation of proxies. Solicitation will be by mail and perhaps by
telephone and personal contact.
ITEM NO. 1 -- ELECTION OF DIRECTORS
At the annual meeting nine (9) directors of the Corporation will be elected
to hold office until the next annual meeting of stockholders and until their
successors are elected and qualified. To be elected, a nominee must receive a
plurality of the votes cast at the meeting. The persons named as proxies in the
accompanying proxy, or their substitutes, will vote for the election of the
nominees listed hereafter, except to the extent authority to vote for any or all
of the nominees is withheld. No nominee for election as a director is proposed
to be elected pursuant to any arrangement or understanding between the nominee
and any other person or persons. It is believed that all such nominees are
available for election. If any of the nominees are unable or unwilling to serve,
the persons named as proxies in the accompanying proxy, or their substitutes,
shall have full discretion and authority to vote or refrain from voting for any
substitute nominees in accordance with their judgment.
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INFORMATION CONCERNING NOMINEES
All of the nominees listed below are now directors of the Corporation and
have served continuously since their election. All of the current directors were
elected by the stockholders except James S. Balloun, who was elected by the
Board of Directors effective February 1, 1996, and John L. Clendenin, who was
elected by the Board of Directors effective November 1, 1996.
Don W. Hubble resigned as a director effective October 18, 1996. In
addition, the following five directors elected at the last annual meeting are
retiring from the Board on January 8, 1996, and are not nominees: F. Ross
Johnson, Donald R. Keough, Bryan D. Langton, D. Raymond Riddle, and Erwin Zaban.
The following is a brief summary of each nominee's business experience,
other directorships held, and membership on the standing committees of the Board
of Directors of the Corporation.
<TABLE>
<S> <C>
[PHOTO] JAMES S. BALLOUN Director since 1996
Mr. Balloun, 58 years old, was elected Chairman of the Board and
Chief Executive Officer of the Corporation effective February 1,
1996, and was also elected President effective October 19, 1996. He
was previously affiliated with the management consulting firm
McKinsey & Company, Inc., which he served as a Director from June
1976 until January 1996. Mr. Balloun is Chairman of the Executive
Committee and a member of the Strategic Planning and Finance
Committee of the Board.
JOHN L. CLENDENIN Director since 1996
[PHOTO] Mr. Clendenin, 62 years old, has served as President and Chief
Executive Officer of BellSouth Corporation since 1983 and also as
Chairman of the Board since 1984. He is a director of Coca-Cola
Enterprises Inc., Equifax Inc., The Home Depot, Inc., The Kroger
Company, Providian Corp., RJR Nabisco Holdings Corp., Springs
Industries, Inc., and Wachovia Corporation. Mr. Clendenin
previously served as a director of the Corporation from 1984 until
1995.
ROBERT M. HOLDER, JR. Director since 1974
[PHOTO] Mr. Holder, 66 years old, has served since 1960 as Chairman of the
Board of Holder Corporation, a real estate development and
construction firm he founded. He also served as its Chief Executive
Officer from 1960 until April 1994. He is a director of Wachovia
Corporation. Mr. Holder is Chairman of the Audit Committee and a
member of the Executive Committee of the Board.
JAMES C. KENNEDY Director since 1993
[PHOTO] Mr. Kennedy, 48 years old, has served since January 1988 as Chairman
and Chief Executive Officer of Cox Enterprises, Inc., a company
engaged in publishing, broadcasting, and automobile auction
businesses. He has been employed by Cox Enterprises since 1972 and
has served as an officer of the company since 1986. He is a director
of Cox Communications, Inc. and Cox Radio, Inc. Mr. Kennedy is a
member of the Executive, the Executive Resource and Nominating, and
the Strategic Planning and Finance Committees of the Board.
</TABLE>
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<TABLE>
<S> <C>
DAVID LEVY Director since 1984
[PHOTO] Mr. Levy, 59 years old, is Executive Vice President, Administration
and Counsel of the Corporation. He served the Corporation as Senior
Vice President, Secretary and Counsel from 1982 through September
1992. He has served as an officer of the Corporation since 1973.
BERNARD MARCUS Director since 1990
[PHOTO] Mr. Marcus, 67 years old, is one of the co-founders of The Home
Depot, Inc. and has served as its Chairman of the Board and Chief
Executive Officer since 1978. Mr. Marcus was Chairman of the Board
and President of Handy Dan Home Improvement Centers, Inc. from 1972
to 1978. He is a member of the Audit, the Executive, and the
Executive Resource and Nominating Committees of the Board.
JOHN G. MEDLIN, JR. Director since 1988
[PHOTO] Mr. Medlin, 62 years old, has served as Chairman of the Board of
Wachovia Corporation since 1985 and also served as its Chief
Executive Officer from 1977 through 1993. He joined Wachovia Bank
and Trust Company in 1959 and has served as an officer of the Bank
and affiliated companies since 1962. He is a director of BellSouth
Corporation, Burlington Industries, Inc., Media General, Inc.,
Nabisco Holdings Corp., RJR Nabisco Holdings Corp., and USAir Group,
Inc. Mr. Medlin is Chairman of the Executive Resource and Nominating
Committee and a member of the Executive Committee of the Board.
HERMAN J. RUSSELL Director since 1996
[PHOTO] Mr. Russell, 65 years old, has served since 1959 as Chairman and
Chief Executive Officer of H.J. Russell & Company, which is engaged
in construction, client services, and property management
businesses. He also serves as a director of Wachovia Corporation.
Mr. Russell is a member of the Audit and the Strategic Planning and
Finance Committees of the Board.
BETTY L. SIEGEL Director since 1988
[PHOTO] Dr. Siegel, 65 years old, has served as President of Kennesaw State
University since 1981. She previously served as Dean of the School
of Education and Psychology and Professor of Psychology at Western
Carolina University from 1976 to 1981 and served as Dean of Academic
Affairs for Continuing Education at the University of Florida from
1972 to 1976. She is a director of Atlanta Gas Light Co. and Equifax
Inc. Dr. Siegel is a member of the Audit and the Strategic Planning
and Finance Committees of the Board.
</TABLE>
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COMPENSATION OF DIRECTORS
During the fiscal year ended August 31, 1996, each director who was not an
employee of the Corporation received an annual director fee and an additional
annual fee for serving as chairman of a committee, payable quarterly in each
case. Effective June 1, 1996, the annual director fee was increased from $30,000
to $40,000 and the annual chairman fee was increased from $3,000 to $5,000.
Also effective June 1, 1996, in order to further align the interests of
directors with the interests of shareholders, the Corporation instituted the
Nonemployee Director Deferred Stock Unit Plan. Each director is required to
receive one-fourth of the annual fee, and may elect to receive additional
portions of the annual fee and the chairman fee, in deferred stock units under
the Plan. The return on deferred stock units tracks the return on NSI stock and
the director's account is generally available on or after retirement. There is
no other retirement plan for directors.
Under the Directors' Deferred Compensation Plan of the Corporation,
directors may defer payment of all or any part of their cash fees for a period
generally ending on or after retirement.
Pursuant to the National Service Industries, Inc. 1992 Nonemployee
Directors' Stock Option Plan, each non-employee director received on September
20, 1995 a grant of a non-qualified option for the purchase of 1,000 shares of
common stock at an exercise price of $30.75 per share, the fair market value on
the grant date. Each option grant is exercisable after one year and remains
exercisable for a period of ten years from the grant date.
Directors may participate in the Corporation's Matching Gift Program. Under
this program, the Corporation will match charitable contributions up to a total
of $2,500 per individual per year.
Mr. Zaban is paid $350,000 per year under a consulting agreement which was
originally scheduled to expire in October 1996 but which has been extended
through December 1996.
For information on compensation of directors who also served as executive
officers during the fiscal year, see "Executive Compensation" below.
CERTAIN TRANSACTIONS
The Corporation had transactions in the ordinary course of business with
unaffiliated corporations and institutions of which certain non-employee
directors and nominees for director of the Corporation are officers or
directors, including BellSouth Corporation, Cox Enterprises, Inc., Holder
Corporation, Holiday Inns, Inc., The Home Depot, Inc., Kennesaw State
University, H. J. Russell & Company, and Wachovia Corporation. The Corporation
considers the amounts involved in such transactions to be immaterial in
relationship to its business and believes that such amounts are not material in
relationship to the business of such corporations or institutions or to such
directors. Management believes that the terms of these transactions are no less
favorable than those available from non-affiliated sources.
OTHER INFORMATION CONCERNING THE BOARD AND ITS COMMITTEES
The Board of Directors has delegated certain functions to the following
standing committees:
The Executive Committee is authorized to perform all of the powers of
the full Board, except the power to amend the By-laws and to fill vacancies
among its membership and except as restricted by the Delaware General
Corporation Law. The Committee is comprised of James S. Balloun, Chairman,
Robert M. Holder, Jr., James C. Kennedy, Donald R. Keough, Bernard Marcus,
John G. Medlin, Jr., and Erwin Zaban. It held one meeting during the fiscal
year.
The Audit Committee's responsibilities include: reviewing the scope
and results of audits performed by the independent and internal auditors;
reviewing recommendations by the independent and internal auditors relating
to internal controls; and recommending to the Board the independent
auditing firm to be retained by the Corporation. The Committee is comprised
of Robert M. Holder, Jr., Chairman, F. Ross Johnson, Bryan D. Langton,
Bernard Marcus, Herman J. Russell, and Betty L. Siegel. It held two
meetings during the fiscal year.
The Executive Resource and Nominating Committee is responsible for
certain matters relating to the compensation of the officers of the
Corporation, as set forth in the Committee's report below, and for
recommending to the full Board a slate of directors for consideration by
the shareholders at the annual meeting and candidates to fill any vacancies
on the Board. The Committee is comprised of John G. Medlin, Jr., Chairman,
James C. Kennedy, Donald R. Keough, Bryan D. Langton, and Bernard Marcus.
It held three meetings during the fiscal year and took three actions by
written consent.
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The Strategic Planning and Finance Committee is responsible for
reviewing, and advising Management with respect to, the Corporation's
long-term business goals and strategies, financial planning, financial
structure, financial condition, and requirements for funds. The Committee
is comprised of Donald R. Keough, Chairman, James S. Balloun, F. Ross
Johnson, James C. Kennedy, D. Raymond Riddle, Herman J. Russell, Betty L.
Siegel, and Erwin Zaban. It held two meetings during the fiscal year.
During the fiscal year ended August 31, 1996, the Board of Directors met
six times. All of the directors attended at least 75% of the total meetings held
by the Board and their respective committees during the fiscal year except Mr.
Kennedy.
The Executive Resource and Nominating Committee will consider nominee
recommendations from stockholders made in writing and addressed to the attention
of Chairman of the Executive Resource and Nominating Committee, c/o Kenyon W.
Murphy, Vice President, Secretary and Associate Counsel, National Service
Industries, Inc., P.O. Box 7158, Midtown Station, Atlanta, Georgia 30357-0158.
BENEFICIAL OWNERSHIP OF THE CORPORATION'S SECURITIES
The table below sets forth information concerning beneficial ownership of
the Corporation's common stock, as of September 1, 1996 unless otherwise
indicated, by each of the directors and nominees for director, by each of the
executive officers named in the Summary Compensation Table on page 9, and by all
directors and executive officers of the Corporation as a group. The Corporation
knows of no beneficial owner of more than five percent of the Corporation's
common stock.
Beginning in September 1996, the executive officers of the Corporation are
subject to voluntary stock ownership guidelines, expressed as a specified
multiple of salary. Compliance with the guidelines will be expected by August
31, 2001, and the Executive Resource and Nominating Committee has indicated that
progress toward meeting the guidelines will be taken into account when grants
and awards are made under the Long-Term Achievement Incentive Plan.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK BENEFICIALLY OWNED(1)(2)
---------------------------------------------------------------------
SOLE VOTING AND
INVESTMENT AGGREGATE AGGREGATE
NAME POWER OTHER TOTAL PERCENTAGE
- --------------------------------------- --------------- ------ --------- ---------
<S> <C> <C> <C> <C>
James S. Balloun....................... 100,000 100,000 .22%
John L. Clendenin...................... 4,300 4,300 *
J. Robert Hipps........................ 49,614(3) 49,614 .11
Robert M. Holder, Jr................... 10,330 10,330 .02
Don W. Hubble.......................... 53,450(3) 53,450 .12
F. Ross Johnson........................ 19,000 19,000 .04
James C. Kennedy....................... 4,000 4,000 *
Donald R. Keough....................... 4,690 4,690 .01
Bryan D. Langton....................... 4,000 4,000 *
David Levy............................. 86,575 49(5) 86,624 .19
Bernard Marcus......................... 6,000 6,000 .01
John G. Medlin, Jr..................... 5,000 5,000 .01
D. Raymond Riddle...................... 74,167 74,167 .16%
Herman J. Russell...................... 1,000 1,000 *
Stewart A. Searle III.................. 1,000(3) 1,000 *
Betty L. Siegel........................ 4,585 4,585 *
Erwin Zaban............................ 1,136,563(4) 18,014(5) 1,154,577 2.48
Current directors and executive
officers as a group.................. 1,461,210(4) 18,063 1,479,273(4) 3.18
</TABLE>
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* Indicates an aggregate percentage of less than 0.01%.
(1) Includes shares that may be acquired within 60 days after the ownership date
reflected, upon exercise of employee and director stock options. Options
included for the individuals shown are as follows: Mr. Balloun, 85,000
shares; Mr. Riddle, 64,167 shares; Mr. Hipps, 49,114 shares; Mr. Hubble,
43,571 shares; Mr. Levy (including options held by a family partnership of
which he is the general partner), 59,328 shares; Mr. Zaban, 2,000 shares;
Mr. Clendenin, 3,000 shares; Mr. Kennedy, 3,000 shares; Mr. Langton, 3,000
shares; Mr. Russell, 0 shares; other directors shown, 4,000 shares each; and
all current directors and executive officers as a group, 243,495 shares.
(2) In addition to the share ownership indicated, as of September 1, 1996, the
accounts of non-employee directors of the Corporation were credited with
deferred stock units (each unit equivalent to one share of stock) as
follows: Mr. Kennedy, 178 units; Mr. Langton, 324 units; Mr. Marcus, 324
units; Mr. Russell, 324 units; and all others, 129 units each.
(3) Share ownership is shown for Mr. Hipps as of July 31, 1996, and for Mr.
Hubble as of October 31, 1996, in each case a date shortly following the
individual's termination of employment. Share ownership is shown for Mr.
Searle as of November 15, 1996.
(4) Includes 108,797 shares held by The Zaban Foundation, Inc. Mr. Zaban
disclaims beneficial ownership in said shares.
(5) Shares held by the spouse of the individual shown.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and officers to file reports of ownership and changes in
ownership of the Corporation's stock with the Securities and Exchange
Commission, the New York Stock Exchange, and the Corporation. Based on a review
of the forms received by the Corporation during or with respect to the fiscal
year ended August 31, 1996, and written representations from certain reporting
persons that no Form 5 reports were required for those persons, the Corporation
believes that all required Section 16(a) filings were made on a timely basis.
EXECUTIVE COMPENSATION
REPORT OF THE EXECUTIVE RESOURCE AND NOMINATING COMMITTEE
The Executive Resource and Nominating Committee of the Board of Directors
is composed entirely of non-employee directors. The Committee is responsible for
approving the salary payable to the Chairman of the Board and Chief Executive
Officer, subject to ratification by the full Board, for setting the salary
payable to each of the other executive officers of the Corporation, and for
administering the Management Compensation and Incentive Plan (the "Incentive
Plan"), subject to ratification of certain matters thereunder by the full Board.
The Committee has authority to grant awards under the Long-Term Incentive
Program (the "Long-Term Program") and the Long-Term Achievement Incentive Plan
(the "Long-Term Achievement Plan"), subject to approval of the Long-Term
Achievement Plan by stockholders, and the Committee reviews and makes
recommendations to the Board with respect to any proposed awards to executive
officers under any other compensation plan, benefit plan or perquisite.
Following below is a discussion of the compensation policies applicable to
the Corporation's executive officers, the executive officers' compensation
program for the last fiscal year, and the Chief Executive Officer's compensation
for the last fiscal year.
Compensation Policies for Executive Officers
The Corporation's compensation program is designed to attract, retain,
motivate, and reward qualified executives, with a linkage between the level of
an individual's compensation and the performance of the individual and the
Corporation. For the 1996 fiscal year, the principal compensation components
were base salary, bonus awards under the Incentive Plan, and stock options
granted under the Long-Term Program. Bonus awards and stock options are
generally granted on an annual basis. Salary adjustments are made periodically
as merited or on promotion to a position of increased responsibilities.
The Committee reviews the compensation of each executive officer utilizing
competitive compensation information prepared by an independent compensation
consultant and a performance review and recommendation by the Chief Executive
Officer for each other executive officer. The competitive compensation
information utilized by the Committee is for positions of comparable
responsibilities with comparably sized diversified companies, which are
representative of the companies with whom the Corporation competes for executive
talent. These companies are not necessarily the same as those included in the
peer index in the performance graph in this proxy statement.
To the extent readily determinable and as one of the factors in its
consideration of compensation matters, the Committee considers the anticipated
tax treatment to the Corporation and to the executives of various payments and
benefits. Based on compensation arrangements currently in place, the Committee
does not reasonably anticipate that any executive officer's fiscal 1996 or 1997
compensation will be subject to the $1 million deductibility limitation of
Section 162(m) of the Internal Revenue Code. The Committee intends to retain the
deductibility of compensation pursuant to Section 162(m), but reserves the right
to provide non-deductible compensation if it determines that such action is in
the best interests of the Corporation and its stockholders.
Under the Long-Term Achievement Plan, which is being presented for
stockholder approval, the Committee expects to grant stock options and
Aspiration Achievement Incentive Awards ("Aspiration Awards") each year. In
September 1996, the Committee granted Aspiration Awards for the 1997 fiscal year
to executive officers and other participants, subject to approval of the
Long-Term Achievement Plan by stockholders. The Aspiration Awards are long-term
awards designed to more clearly and quantifiably relate reward opportunities
with achievement of specific performance goals over a multi-year cycle. The
level of Aspiration Awards payable at the conclusion of the cycle is expected to
correlate closely with increases in
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stock price. This "pay-for-performance" award has been extended to selected key
employees of the Corporation's operating units as well. The Aspiration Awards
are further described under Item 2 in this proxy statement.
In conjunction with the Long-Term Achievement Plan, the Committee adopted
voluntary stock ownership guidelines for executive officers and other
participants in order to further align their interests with those of other
shareholders. It is expected that each participant will meet the ownership
guidelines, established in each case as a specified multiple of salary, no later
than August 31, 2001. Progress toward meeting the guidelines will be taken into
account when grants and awards are made under the Plan.
The Committee has been advised by an independent compensation consultant
that, overall, the Corporation's current annual compensation program for
executive officers is approximately at the median competitive level. The
Aspiration Awards and stock options are designed to provide long-term incentive
compensation at the 75th percentile level for target level performance and to
provide significantly higher compensation for significantly higher performance.
Executive Officers' 1996 Compensation
The salary for fiscal 1996 of each executive officer (other than the Chief
Executive Officer, discussed below) was based on competitive compensation data,
at approximately the median level, and also takes into account the executive's
performance, experience, abilities, and expected future contribution, as well as
the Corporation's performance in the prior year.
Bonuses for fiscal 1996 under the Incentive Plan were intended to provide
competitive total cash compensation at approximately the median level, subject
to achievement of the Corporation's and the individual's target performance
objectives as described below. A bonus fund, stated as a percentage of gross
salary, was determined for each executive officer based on the per-share
earnings objective for the Corporation established by the Committee and ratified
by the Board of Directors at the beginning of the fiscal year. The bonus fund
increased or decreased in relationship to earnings per share, with no bonus fund
for earnings below a threshold level. For fiscal 1996, the threshold level
required a specified increase in earnings per share from fiscal 1995. Based on
the Corporation's earnings per share, the actual bonus fund for each individual
represented 68% of the target bonus fund.
The amount actually paid from each bonus fund under the Incentive Plan for
fiscal 1996 was based on the level of achievement of two performance criteria in
addition to the Corporation's earnings. The bonus amount was subject to
reduction by up to 30% based on the Corporation's achievement of return on
equity objectives and by up to 10% based on the individual's personal
performance. The corporate performance objectives were established by the
Committee and ratified by the Board of Directors. The personal performance
objectives of the executive officers were established by the Committee based on
the recommendations of the Chief Executive Officer.
The compensation of executive officers for fiscal 1996 was further linked
with the Corporation's performance and to the increase in shareholder value
through stock options granted under the Long-Term Program. Options provide
compensation opportunities directly related to, and contingent upon, the
long-term performance of the Corporation and to the increase in market value of
its shares. Option awards to executive officers in fiscal 1996 were based on
competitive long-term grants at approximately the median level.
Chief Executive Officer's 1996 Compensation
During the first third of the fiscal year, Raymond Riddle served as Chief
Executive Officer of the Corporation. His salary remained at the level paid to
him during the last eleven months of fiscal 1995, which was established pursuant
to the compensation review procedure described above. Mr. Riddle did not
participate in the Incentive Plan or the Long-Term Program during fiscal 1996.
James Balloun was elected Chief Executive Officer effective February 1,
1996. His total compensation was based on competitive and merit factors and in
consideration of the particular leadership needs of the Corporation. Most of his
compensation opportunity is linked directly to performance on behalf of
shareholders and to appreciation in the market price of the Corporation's stock.
Pursuant to his employment agreement with the Corporation (see "Employment
Contracts, Severance Arrangements, and Other Agreements" in this proxy
statement), Mr. Balloun received an initial stock option grant, his base salary,
and an incentive bonus opportunity, and he is eligible for the benefit programs
in which the other executive officers participate. The bonus paid to Mr. Balloun
for fiscal 1996 was based on the Corporation's exceeding an earnings level
specified by the Committee when Mr. Balloun joined the Corporation.
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At the time Mr. Balloun was employed, the Committee was advised by an
independent compensation consultant that the level of Mr. Balloun's initial
stock option grant was approximately at the average of a survey by the
consultant of recent grants made to chief executive officers hired from outside
the company. The Committee was further advised by the consultant that the
combined value of the annual salary, annual bonus opportunity, and projected
annual stock option grant was somewhat above the competitive median, but within
the range of chief executive pay levels for companies having the size and
characteristics of the Corporation. The consultant concluded that, overall, the
compensation arrangements for Mr. Balloun were reasonable and appropriate.
EXECUTIVE RESOURCE AND
NOMINATING COMMITTEE
John G. Medlin, Jr., Chairman
James C. Kennedy
Donald R. Keough
Bryan D. Langton
Bernard Marcus
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The directors serving on the Executive Resource and Nominating Committee of
the Board of Directors during the fiscal year ended August 31, 1996 were, for
the entire year, John G. Medlin, Jr. (Chairman), and Bryan D. Langton, for the
portion of the year until January 3, 1996, Jesse Hill, Jr., Robert M. Holder,
Jr., and F. Ross Johnson, and for the portion of the year after January 3, 1996,
James C. Kennedy, Donald R. Keough, and Bernard Marcus. None of these
individuals are or have ever been officers or employees of the Corporation.
During the 1996 fiscal year, no executive officer of the Corporation served as a
director of any corporation which any of these individuals served as an
executive officer, and there were no other compensation committee interlocks
with the companies with which these individuals or the Corporation's other
directors are affiliated.
PERFORMANCE GRAPH
The following graph compares, for the five years ended August 31, 1996, the
yearly percentage change in cumulative total shareholders' return on the
Corporation's common stock with (a) the S&P 500 Stock Index and (b) the S&P
Specialized Services Index (the industry group within the S&P 500 in which the
Corporation is included). The graph assumes an initial investment of $100 at the
closing price on August 31, 1991 and assumes all dividends were reinvested.
<TABLE>
<CAPTION>
Measurement Period S&P Special-
(Fiscal Year Covered) NSI S&P 500 ized Services
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 102.10 107.91 92.53
1993 112.97 124.29 89.18
1994 124.15 131.05 89.00
1995 139.57 159.12 101.48
1996 189.17 188.91 119.14
</TABLE>
8
<PAGE> 11
SUMMARY COMPENSATION TABLE
The following table presents the cash compensation paid by the Corporation
for the past three fiscal years, as well as compensation accrued for those
years, to the individuals who served as the Corporation's Chief Executive
Officer during the 1996 fiscal year, the three other executive officers as of
August 31, 1996, and J. Robert Hipps, who served as an executive officer for
nine months during the 1996 fiscal year (the six officers referred to herein as
the "named executive officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION
------------------------------- AWARDS
OTHER ------------------------- PAYOUTS
ANNUAL RESTRICTED SECURITIES ------- ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
FISCAL SALARY BONUS SATION AWARD(S) OPTIONS/SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#)(2) ($) ($)(3)
- -------------------------------- ------ -------- -------- --------- ---------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James S. Balloun(4)............. 1996 750,000 750,000 3,200 0 250,000 0 0
Chairman of the Board and 1995 -- -- -- -- -- -- --
Chief Executive Officer 1994 -- -- -- -- -- -- --
D. Raymond Riddle(5)............ 1996 239,583 0 2,100 0 0 0 210,615
Chairman of the Board and 1995 568,750 428,269 5,300 0 65,000 0 36,610
Chief Executive Officer 1994 500,000 280,000 5,200 0 55,000 0 20,728
Don W. Hubble................... 1996 379,167 116,556 5,300 0 25,000 0 6,000
President and Chief Operating 1995 325,000 200,233 5,300 0 25,000 0 5,500
Officer 1994 258,300 119,619 5,200 0 15,000 0 5,500
David Levy...................... 1996 326,250 100,289 5,300 0 20,000 0 6,000
Executive Vice President, 1995 314,167 193,558 5,300 0 20,000 0 5,500
Administration and Counsel 1994 306,667 142,017 5,200 0 15,000 0 5,500
Stewart A. Searle III(6)........ 1996 50,000 15,000 1,000 0 5,000 0 0
Senior Vice President, 1995 -- -- -- -- -- -- --
Planning and Development 1994 -- -- -- -- -- -- --
J. Robert Hipps(7).............. 1996 191,250 58,790 4,100 0 20,000 0 69,750
Senior Vice President, Finance 1995 249,167 153,512 5,300 0 20,000 0 5,500
1994 242,333 112,224 5,200 0 15,000 0 5,500
</TABLE>
- ---------------
(1) Each amount shown includes an automobile allowance of $400 per month.
(2) No stock appreciation rights were granted during this period.
(3) The amounts shown for 1996 include a matching contribution on 401(k)
deferrals in the amount of $500 for Mr. Riddle and $1,000 each for Messrs.
Hubble, Levy, and Hipps, and a matching contribution on other deferred
compensation in the amount of $5,000 for Messrs. Hubble, Levy and Hipps and
$2,500 for Mr. Riddle. Of the amount shown for Mr. Riddle in 1996, $32,615
represents premiums paid on insurance policies in which Mr. Riddle has an
interest and $175,000 represents consulting fees paid to him after he
resigned as an officer of the Corporation. Of the amount shown for Mr.
Hipps in 1996, $63,750 represents payments under his severance agreement.
(4) Mr. Balloun was employed effective January 3, 1996, and was elected Chairman
of the Board and Chief Executive Officer effective February 1, 1996.
(5) Mr. Riddle served as Chairman of the Board and Chief Executive Officer until
his retirement on February 1, 1996.
(6) Mr. Searle was elected Senior Vice President, Planning and Development on
June 19, 1996.
(7) Mr. Hipps resigned effective May 31, 1996. Brock A. Hattox was elected
Executive Vice President and Chief Financial Officer in September 1996.
9
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock options which
were granted to the named executive officers during the fiscal year ended August
31, 1996, as disclosed in the Summary Compensation Table above. The Corporation
did not award any stock appreciation rights or reprice any stock options during
the year.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE GRANT
SARS EMPLOYEES OR BASE DATE
GRANTED IN FISCAL PRICE EXPIRATION PRESENT
NAME (#)(1) YEAR ($/SH) DATE VALUE ($)(2)
- ------------------------------------------- ---------- ----------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
James S. Balloun........................... 250,000 49.7% 32.50 1/03/06 1,458,000
D. Raymond Riddle.......................... 0 0.0% -- -- --
Don W. Hubble.............................. 25,000 5.0% 30.75 9/20/05 145,850
David Levy................................. 20,000 4.0% 30.75 9/20/05 116,680
Stewart A. Searle III...................... 5,000 1.0% 39.75 6/17/06 51,940
J. Robert Hipps............................ 20,000 4.0% 30.75 9/20/05 116,680
</TABLE>
- ---------------
(1) Options have a ten-year term, subject to earlier termination upon certain
events related to termination of employment. Options granted to Messrs.
Hubble, Levy, Searle and Hipps vest in four equal annual installments
beginning on the first anniversary of the grant date. Options granted to
Mr. Balloun vest in three annual installments of 85,000, 85,000 and 80,000
shares, beginning on August 31, 1996. The Executive Resource and Nominating
Committee has discretion, subject to limitations in the Long-Term Incentive
Program, to modify the terms of outstanding options and to reprice the
options.
(2) The amounts shown were calculated using a Black-Scholes option pricing model
with assumptions varying by grant date. The estimated value for options
held by Mr. Balloun assume a risk-free rate of return of 5.65%, a dividend
yield of 3.98%, an option term of ten years, and stock price volatility
(measured over the 250 trading days immediately preceding the date of
grant) having a standard deviation of .1570. The estimated values for
options held by Messrs. Hubble, Levy, and Hipps assume a risk-free rate of
return of 6.1%, a dividend yield of 4.009%, an option term of ten years,
and stock price volatility having a standard deviation of .1530. The
estimated value for options held by Mr. Searle assume a risk-free rate of
return of 6.91%, a dividend yield of 3.38%, an option term of ten years,
and stock price volatility having a standard deviation of .1710. The option
values were not discounted to reflect the vesting period of the options or
to reflect any exercise or lapse of the options prior to the end of the ten
year option period. The actual value, if any, that an executive may realize
will depend upon the excess of the stock price over the exercise price on
the date the option is exercised, so that there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning the exercise of stock
options by the named executive officers during the 1996 fiscal year and the
aggregate value of unexercised stock options held by the named executive
officers as of August 31, 1996. No stock appreciation rights are held by any
named executive officer.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS/SARS AT
SHARES OPTIONS/SARS AT FY-END (#) FY-END ($)(1)
ACQUIRED VALUE ----------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James S. Balloun................... -- -- 85,000 165,000 488,750 948,750
D. Raymond Riddle.................. -- -- 64,167 0 770,212 0
Don W. Hubble...................... 9,712 168,918 26,506 54,250 326,616 538,437
David Levy......................... -- -- 41,828 46,250 576,688 468,437
Stewart A. Searle III.............. -- -- 0 5,000 -- --
J. Robert Hipps.................... -- -- 49,114 0 646,639 0
</TABLE>
- ---------------
(1) The amounts shown for in-the-money options represent the aggregate excess of
market value of shares under option as of August 31, 1996 over the exercise
price of the options.
10
<PAGE> 13
EMPLOYMENT CONTRACTS, SEVERANCE ARRANGEMENTS, AND OTHER AGREEMENTS
Effective February 1, 1996, the Corporation entered into an employment
agreement with Mr. Balloun which sets forth his compensation arrangements for
the period expiring August 31, 1998. For each fiscal year covered, the agreement
provides for a base salary of at least $750,000 and a potential incentive bonus
of $750,000, subject to achievement of performance objectives. The agreement
also provided for the initial grant of stock options for 250,000 shares and
provides for ongoing annual grants at competitive levels. Pursuant to the
agreement, an amendment to the Supplemental Retirement Plan for Executives
("SERP") grants Mr. Balloun two years of credited service under the SERP for
each year of actual credited service and provides that he will be vested in his
SERP benefit after completing five years of employment.
The employment agreement with Mr. Balloun provides for a lump sum severance
payment of $4.5 million, less the aggregate base salary and annual incentive
bonus paid during his employment, in the event his employment is terminated on
or before August 31, 1998, and for a lump sum severance payment of $1.5 million
in the event his employment is terminated after that date. These provisions do
not apply in the event of voluntary termination, termination upon death or
disability, or termination for cause (as each such term is defined in the
agreement). In the event of termination in connection with a Change in Control
which would entitle Mr. Balloun to benefits under his Severance Protection
Agreement (described below), he would receive the greater of the benefits under
the Severance Protection Agreement or the severance benefits set forth in his
employment agreement.
On May 14, 1996, the Corporation entered into a letter agreement with Mr.
Hipps regarding his termination of employment with the Corporation. The
Agreement provides for severance pay at the rate of $21,250 per month for the
twelve-month period from June 1, 1996, through May 31, 1997, and also provided
for payment of a pro rata bonus for the 1996 fiscal year. Pursuant to the
agreement, stock options that would otherwise have vested in September 1996 were
accelerated so that they vested on May 31, 1996, and the time for exercising
vested stock options was extended to May 31, 1997. Also pursuant to the
Agreement, the Corporation paid Mr. Hipps a lump sum equivalent to his pension
annuity under the SERP, which was calculated as if he had four additional years
of credit and had been eligible for early retirement, and a lump sum payment of
$41,827 to compensate him for certain benefits he forfeited under the Senior
Management Benefit Plan and the Corporation's 401(k) Plan.
On July 22, 1996, the Corporation entered into a letter agreement with Mr.
Hubble regarding his termination of employment with the Corporation. The
agreement provides for severance pay, in the amount of $50,000 per month, for
the greater of (a) nine months or (b) twelve months less one-half of the period
remaining between the date he commences other employment or any similar
arrangement for which he receives compensation and October 31, 1997. Pursuant to
his agreement, all stock options previously granted to Mr. Hubble were vested
and the time for exercising options was extended to October 31, 1998. Also
pursuant to the agreement, Mr. Hubble was granted four additional years of
credited service under the SERP.
The Corporation entered into a consulting agreement with Mr. Riddle for a
three year period commencing February 1, 1996. Under that agreement, the
Corporation will pay him $25,000 per month and will, until his 65th birthday,
continue to pay certain premiums on insurance policies referenced in footnote 3
of the Summary Compensation Table on page 9.
The Corporation has Severance Protection Agreements (the "Agreements") with
Messrs. Balloun, Levy, and Searle. The Board intends for the Agreements(which
are similar) to provide them some measure of security against the possibility of
employment loss that may result following a change in control in order that they
may devote their energies to meeting the business objectives and needs of the
Corporation and its stockholders.
The Agreement for Mr. Balloun is effective until his 65th birthday. The
Agreements for Messrs. Levy and Searle are effective for a term of two years,
which is automatically extended for one year at the end of each year unless
terminated by either party. However, the term of the Agreements will not expire
during a "Threatened Change in Control Period" (as defined in the Agreements) or
prior to the expiration of 24 months following a "Change in Control" (as
described below). If the employment of the officer is terminated within 24
months following a Change in Control or in certain other instances in connection
with a Change in Control (1) by the Corporation other than for "Cause" or
"Disability" or (2) by the officer for "Good Reason" (as each term is defined in
the Agreements) or during the 60-day period commencing on the first anniversary
of the occurrence of a Change in Control, the officer will be entitled to
receive (a) a pro rata
11
<PAGE> 14
bonus for the year of termination, (b) a lump sum cash payment equal to two
times the sum of his base salary and bonus (in each case at least equal to his
base salary and bonus prior to a Change in Control), subject to certain
adjustments, (c) continuation of life insurance, disability, medical, dental,
and hospitalization benefits for a period of up to 24 months, and (d) a lump sum
cash payment reflecting certain retirement benefits he would have been entitled
to receive had he remained employed by the Corporation for an additional two
years and a reduced requirement for early retirement benefits. Additionally, all
restrictions on any outstanding incentive awards will lapse and become fully
vested, all outstanding stock options will become fully vested and immediately
exercisable, and the Corporation will be required to purchase for cash, on
demand, at the then per-share fair market value, any shares of unrestricted
stock and shares purchased upon exercise of options.
The Agreements provide that the Corporation shall make an additional
"gross-up payment" to each officer to offset fully the effect of any excise tax
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), on any payment made to him arising out of or in connection with his
employment. In addition, the Corporation will pay all legal fees and related
expenses incurred by the officer arising out of his employment or termination of
employment if, in general, the circumstances for which he has retained legal
counsel occurred on or after a Change in Control.
Assuming a Change in Control had occurred on October 1, 1996 and their
employment had terminated on that date, the approximate cash payments that would
have been made under the Agreements (not including the gross-up payments) would
have been $4,817,033, $1,931,778, and $470,133 for Messrs. Balloun, Levy, and
Searle, respectively. The amount of the gross-up payment, if any, to be paid may
be substantial and will depend upon numerous factors, including the price per
share of common stock of the Corporation and the extent, if any, that payments
or benefits made to the officers constitute "excess parachute payments" within
the meaning of Section 280G of the Code.
A "Change in Control" includes (1) the acquisition (other than from the
Corporation) by any "person" (as that term is used for purposes of Sections
13(d) or 14(d) of the Exchange Act) other than a trustee of an employee benefit
plan maintained by the Corporation or certain related entities of beneficial
ownership of 20% or more of the combined voting power of the Corporation's then
outstanding voting securities, (2) a change in more than one-third of the
members of the Board who were either members as of September 21, 1989 or were
nominated or elected by a vote of two-thirds of those members or members so
approved, or (3) approval by stockholders of the Corporation of (i) 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 (ii) 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.
Letter agreements issued to Messrs. Balloun, Levy, and Searle in
conjunction with the Agreements provide that in the event of a Change in
Control, each such officer shall receive an annual cash bonus for that fiscal
year at least equal to the annual cash bonus paid to him in the prior fiscal
year if he remains in the employ of the Corporation for the full fiscal year.
The letter agreement with Mr. Balloun will expire on his 65th birthday. Each
other letter agreement has an initial term of 48 months and is subject to an
automatic one-year extension after each year unless terminated by the
Corporation, but in no event will the term expire following a Change in Control
until the Corporation's obligations as set forth therein have been satisfied.
PENSION AND SUPPLEMENTAL RETIREMENT BENEFITS
The combined benefit under the Corporation's qualified defined benefit
retirement plan ("Pension Plan") and non-qualified supplemental retirement plan
for executives ("SERP"), as amended, is 45% of average base salary and bonus
(using the highest three consecutive years of remuneration out of the ten years
preceding the individual's retirement), less 50% of the individual's primary
social security benefit, and less the actuarial equivalent of the participant's
account in the 401(k) plan for corporate employees, assuming an annual
contribution of 4% of the individual's annual compensation over $15,000 (subject
to applicable limitations on eligible compensation), any applicable matching
contribution, and earnings on those amounts at 8% per annum.
12
<PAGE> 15
The following table shows the estimated aggregate annual benefits payable
to a covered participant at normal retirement age under the Pension Plan and
SERP, without the reduction under the SERP for the actuarial equivalent of
401(k) plan benefits (approximately $5,897 for Mr. Balloun, $7,789 for Mr. Levy
and $40,273 for Mr. Searle):
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- -------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 300,000................................... $ 95,600 $127,500 $127,500 $127,500 $127,500
400,000.................................. 129,400 172,500 172,500 172,500 172,500
500,000.................................. 163,100 217,500 217,500 217,500 217,500
600,000.................................. 196,900 262,500 262,500 262,500 262,500
700,000.................................. 230,600 307,500 307,500 307,500 307,500
800,000.................................. 264,400 352,500 352,500 352,500 352,500
900,000.................................. 298,100 397,500 397,500 397,500 397,500
1,000,000.................................. 331,900 442,500 442,500 442,500 442,500
1,200,000.................................. 399,400 532,500 532,500 532,500 532,500
1,400,000.................................. 466,900 622,500 622,500 622,500 622,500
1,600,000.................................. 534,400 712,500 712,500 712,500 712,500
1,800,000.................................. 601,900 802,500 802,500 802,500 802,500
</TABLE>
The remuneration specified in the table above consists of salary and annual
incentive bonus. Benefits shown above are based on payment of a single life
annuity with 10 years certain. Equivalent payment options are offered.
The salary and bonus currently covered by the Pension Plan and the SERP for
each of the named executive officers substantially correspond to the amounts
disclosed in the Summary Compensation Table. The years of credited service for
each of the following named executive officers as of August 31, 1996 were: Mr.
Balloun, 1 year (2 years under the SERP); Mr. Levy, 21 years; and Mr. Searle, 0
years.
At the time of their respective terminations of employment, the following
individuals were entitled to accrued annual retirement benefits under the
Pension Plan and SERP payable at age 65 (or the actuarial equivalent under
alternate payment options) as indicated: Mr. Riddle, $0; Mr. Hubble, $194,436;
and Mr. Hipps, $73,644.
ITEM NO. 2 -- APPROVAL OF THE LONG-TERM ACHIEVEMENT INCENTIVE PLAN
In September 1996, subject to approval of the Corporation's stockholders,
the Board of Directors adopted the National Service Industries, Inc. Long-Term
Achievement Incentive Plan (the "Long-Term Achievement Plan" or "Plan") for the
benefit of officers and other key employees of the Corporation and its
subsidiaries (the "Participants"). Stockholder approval of the Long-Term
Achievement Plan, including the performance measures which may be utilized
thereunder, is sought in order to qualify the Plan under Section 162(m) of the
Internal Revenue Code and to thereby allow the Corporation to deduct for federal
income tax purposes all compensation paid under the Plan to Named Executive
Officers (generally, the executive officers who would be listed for a fiscal
year under the summary compensation table appearing on page 9 hereof).
Approval of the Long-Term Achievement Plan requires the affirmative vote of
a majority of the shares of the Corporation's outstanding common stock present,
in person or by proxy, and entitled to vote at the Annual Meeting. In the event
the Plan is not approved by the Corporation's stockholders, the Board of
Directors will take such action with respect to incentive awards as it considers
to be in the best interests of the Corporation, consistent with the compensation
policies set forth in the Report of the Executive Resource and Nominating
Committee on page 6 of this proxy statement.
The principal provisions of the Long-Term Achievement Plan are summarized
below. This summary is qualified in its entirety by reference to the full text
of the Plan, which is attached hereto as Exhibit A.
REASONS FOR THE PLAN
If approved, the Long-Term Achievement Plan would replace the National
Service Industries, Inc. Long-Term Incentive Program (the "Long-Term Program"),
which was approved by stockholders in January 1990. Less than 3,500 shares
remain available for issuance under the Long-Term Program, and no further option
grants or other awards will be made under it. The Long-Term Achievement Plan is
based on the Long-Term Program, but it includes additional provisions designed
to assure compliance with Section 162(m)
13
<PAGE> 16
of the Internal Revenue Code and to allow for the grant of Aspiration
Achievement Incentive Awards (described below).
The purposes of the Long-Term Achievement Plan are to provide additional
incentives to the Participants, whose substantial contributions are essential to
the continued growth and profitability of the Corporation's business, to
strengthen the commitment of the Participants to the Corporation and its
subsidiaries, to further motivate the Participants to perform their assigned
responsibilities diligently and skillfully, and to attract and retain competent
and dedicated individuals whose efforts will result in the long-term growth and
profitability of the Corporation and, over time, appreciation in the market
value of its stock.
DESCRIPTION OF THE PLAN
The Long-Term Achievement Plan will be administered by a committee of at
least three persons who are non-employee directors within the meaning of Rule
16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934
(the "Exchange Act") (the "Committee"). The Long-Term Achievement Plan is a
flexible plan that will provide the Committee broad discretion to fashion the
terms of the following types of awards (described below): Stock Options (both
Incentive Stock Options and Nonqualified Stock Options), Aspiration Achievement
Incentive Awards, Restricted Stock, Performance Units, and Performance Shares
(individually and collectively, "Awards").
The Committee will (1) select those Participants to whom Awards will be
granted and (2) determine the type, size and terms and conditions of Awards,
including the exercise price per Share for each Stock Option and the
restrictions or performance criteria relating to Aspiration Achievement
Incentive Awards, Restricted Stock, Performance Units and Performance Shares.
The Committee will administer, construe, and interpret the Long-Term Achievement
Plan. Members of the Committee will be ineligible to participate in the Plan.
1,750,000 shares of the Corporation's common stock ("Shares") may be issued
or transferred pursuant to the Long-Term Achievement Plan. In the event of any
"Change in Capitalization" (as defined in the Plan), the Committee may adjust
the maximum number and class of Shares with respect to which Awards may be
granted, the number and class of Shares which are subject to outstanding Awards
(subject to limitations imposed under Section 422 of the Code in the case of
Incentive Stock Options), and the purchase price therefor, if applicable.
The Long-Term Achievement Plan will terminate on the tenth anniversary of
its effective date. The Board may terminate or amend the Plan at any time (other
than with respect to the protections afforded to optionees and grantees on a
Change in Control), unless such amendment or termination will adversely affect
outstanding Stock Options or Awards. However, to the extent necessary under
Section 16(b) of the Exchange Act and the rules and regulations promulgated
thereunder, or as may otherwise be legally required, no amendment will be
effective unless approved by stockholders.
AWARDS ISSUABLE UNDER THE PLAN
Stock Options. Both Incentive Stock Options and Nonqualified Stock Options
may be granted pursuant to the Long-Term Achievement Plan. The maximum number of
Shares subject to Stock Options which can be granted under the Plan during a
twelve month period to any Participant is 100,000 Shares. All Stock Options
granted under the Plan will have an exercise price per Share equal to at least
the fair market value of a Share on the date the Stock Option is granted. The
maximum term for all Stock Options granted under the Plan is ten years. Unless
the Committee provides otherwise in the agreement evidencing the Stock Options
granted, Stock Options are nontransferable other than by will or the laws of
descent and distribution and during an optionee's lifetime may be exercised only
by the optionee or his guardian or legal representative. Stock Options are
exercisable at such time and in such installments as the Committee may provide
at the time the Stock Option is granted. The Committee may accelerate the
exercisability of any Stock Option at any time, subject to any limitations
required by Section 162(m) of the Internal Revenue Code. The purchase price for
Shares acquired pursuant to the exercise of an Option must be paid, as
determined by the Committee, in cash, by check, or by transferring Shares to the
Corporation upon such terms and conditions as may be determined by the
Committee. The terms and conditions of the Stock Options relating to their
treatment upon termination of the optionee's employment will be determined by
the Committee at the time the Stock Options are granted.
Upon a Change in Control, all outstanding Stock Options under the Long-Term
Achievement Plan on the date of a Change in Control will become immediately and
fully exercisable and the optionee may, during
14
<PAGE> 17
the 60-day period following the Change in Control, surrender for cancellation
any Stock Option (or portion thereof) for a cash payment in respect of each
Share covered by the Stock Option, or portion thereof surrendered, equal to the
excess of (1)(a) in the case of an Incentive Stock Option, the per-Share Fair
Market Value (as defined in the Plan) on the date of surrender or (b) in the
case of a Nonqualified Stock Option, the higher of (x) the highest per-Share
price at which Shares traded during the 90-day period preceding the date of the
Change in Control or (y) the price per Share paid in any transaction (or series
of transactions) constituting or resulting in a Change in Control or (z) the
per-Share Fair Market Value on the date preceding the date of surrender, over
(2) the purchase price of each Share. In the case of a Stock Option granted
within six months prior to a 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 the Stock Option during the
60-day period commencing upon the expiration of six months from the date of
grant of any such Stock Option.
The Long-Term Achievement Plan also permits the Corporation to grant loans
to participants in connection with the exercise of a Stock Option under the
Plan. No loan made under the Plan may exceed the sum of (1) the aggregate
purchase price payable pursuant to the Stock Option with respect to which the
loan is made plus (2) the amount of the reasonably estimated income taxes
payable by the optionee in respect of the exercise of the Stock Option.
Aspiration Achievement Incentive Awards. Aspiration Achievement Incentive
Awards ("Aspiration Awards") granted by the Committee will be payable based on
the level of achievement of the performance measure or measures specified by the
Committee, selected from the performance measures listed on Appendix A of the
Long-Term Achievement Plan, over the performance period specified by the
Committee (the "Performance Cycle"). The performance measure may relate to the
performance of the Corporation or its subsidiaries or divisions, or any
combination of the foregoing, and the Performance Cycle will equal or exceed
three years. Performance measures and the length of the Performance Cycle will
be determined by the Committee at or near the beginning of the Performance Cycle
when the Aspiration Award is granted. Performance levels may be absolute or
relative and may be expressed in terms of a progression within a specified
range. Except with respect to Named Executive Officers, the Committee may
establish performance measures in addition to those specified in the Plan;
moreover, the Committee may establish additional performance measures with
respect to Named Executive Officers without stockholder approval if laws change
to give the Committee that discretion. No Participant may receive an Aspiration
Award in excess of $4 million with respect to a single three-year Performance
Cycle.
After the applicable Performance Cycle has ended, the Committee may adjust
the achieved performance levels to exclude the effects of unusual charges or
income items or other events, such as acquisitions or divestitures, which are
distortive of financial results for the Performance Cycle; provided that with
respect to Named Executive Officers, the Committee must, and can only, exclude
items with the effect of increasing the Aspiration Award payable if such items
constitute "extraordinary items" under generally accepted accounting principles.
The Committee will also adjust performance calculations to exclude the
unanticipated effect on financial results of changes in tax laws or regulations.
The Committee is allowed to decrease the Aspiration Award otherwise payable if
the performance during the Performance Cycle justifies such adjustment,
regardless of the extent to which the applicable performance measure was
achieved. The agreement evidencing the granting of an Aspiration Award may
provide the Committee with the right to revise performance levels and Aspiration
Awards payable if unforeseen events occur which have a substantial effect on
financial results and which in the Committee's judgment make the application of
the performance levels unfair; provided that for Named Executive Officers such
changes must be made in a manner consistent with Section 162(m) of the Internal
Revenue Code. Payment of an earned Aspiration Award will be made in cash, in
Shares, or in some combination of cash and Shares, as determined by the
Committee when the Aspiration Award is granted. The agreement evidencing the
grant will also set forth the terms and conditions of the Aspiration Award
applicable in the event of termination of the Participant's employment and in
the event of a Change in Control.
Restricted Stock. Not more than 15% of the maximum number of Shares that
may be issued or transferred pursuant to Awards under the Long-Term Achievement
Plan may be in the form of Awards of Restricted Stock (other than Awards of
Performance Shares in the form of Restricted Stock). The maximum number of
Shares that may be awarded under a Restricted Stock Award to a Named Executive
Officer during any 12-month period is 20,000 Shares. The terms of a Restricted
Stock Award, including the restrictions placed on such Shares and the time or
times at which such restrictions will lapse, shall be determined by the
Committee at the time the Award is made. The Committee may determine at the time
an Award of
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Restricted Stock is granted that dividends paid on Shares may be paid to the
grantee or deferred. Deferred dividends (together with any interest accrued
thereon) will be paid upon the lapsing of restrictions on Shares of Restricted
Stock or forfeited upon the forfeiture of Shares of Restricted Stock. The
agreements evidencing Awards of Restricted Stock shall set forth the terms and
conditions of such Awards upon a grantee's termination of employment. Upon a
Change in Control, all restrictions on outstanding Shares of Restricted Stock
will lapse.
Performance Units and Performance Shares. Each Performance Unit will
represent one Share and payments in respect of vested Performance Units will be
made in cash, Shares, or Shares of Restricted Stock or any combination of the
foregoing, as determined by the Committee. Performance Shares are awarded in the
form of Shares of Restricted Stock. The vesting of Performance Units and
Performance Shares is based upon the level of achievement of the performance
measure or performance measures specified by the Committee, selected from the
performance measures listed on Appendix A of the Long-Term Achievement Plan,
over the performance period specified by the Committee (the "Performance
Cycle"). The performance measure may relate to the performance of the
Corporation or its subsidiaries or divisions, or any combination of the
foregoing. Performance measures and the length of the Performance Cycle for
Performance Units and Performance Shares (which shall not be less than two
years) will be determined by the Committee at the time the Award is made. The
Committee may make adjustments to achieved performance levels and changes to
performance measures to the same extent described under Aspiration Achievement
Incentive Awards above. The agreements evidencing Awards of Performance Units
and Performance Shares will set forth the terms and conditions of such Awards,
including those applicable in the event of the grantee's termination of
employment. The maximum number of Performance Units and Performance Shares a
Named Executive Officer may earn for any Performance Cycle is an aggregate of
60,000 Units and Shares.
At the time an Award is made, the Committee will determine the total number
of Performance Shares subject to an Award and the time or times at which the
Performance Shares will be issued to the grantee. In addition, the Committee
will determine (a) the time or times at which the awarded but not issued
Performance Shares shall be issued to the grantee and (b) the time or times at
which awarded and issued Performance Shares shall become vested in or forfeited
by the grantee, in either case based upon the attainment of specified
performance objectives within the Performance Cycle. At the time the Award of
Performance Shares is made, the committee may determine that dividends be paid
or deferred on the Performance Shares issued. Deferred dividends (together with
any interest accrued thereon) will be paid upon the lapsing of restrictions on
Performance Shares and forfeited upon the forfeiture of Performance Shares. Upon
a Change in Control, (x) a percentage of Performance Units, as determined by the
Committee at the time an Award of Performance Units is made, will become vested
and the grantee will be entitled to receive a cash payment equal to the per
Share adjusted Fair Market Value multiplied by the number of Performance Units
which become vested, and (y) with respect to Performance Shares, all
restrictions shall lapse on a percentage of the Performance Shares, as
determined by the Committee at the time the Award of Performance Shares is made.
FEDERAL INCOME TAX CONSEQUENCES OF CERTAIN AWARDS
An optionee will not recognize taxable income upon grant or exercise of an
Incentive Stock Option. However, upon the exercise of an Incentive Stock Option,
the excess of the fair market value of the Shares received over the exercise
price of the Shares subject to such Stock Option will be treated as an
adjustment to alternative minimum taxable income. Any dividends paid on Shares
will be taxable as ordinary income in the taxable year in which the dividend is
received. The Corporation and its subsidiaries will not be entitled to any
business expense deduction with respect to the grant or exercise of an Incentive
Stock Option, except as discussed below.
In order for the exercise of an Incentive Stock Option to qualify for
favorable tax treatment, the optionee generally must be an employee of the
Corporation, parent, or a subsidiary (within the meaning of Section 422 of the
Code) from the date the Incentive Stock Option is granted through a date within
three months before the date of exercise. In the case of an optionee who is
disabled, the three-month period for exercise following termination of
employment may be extended to one year. In the case of an optionee's death, the
time for exercising Incentive Stock Options after termination of employment and
the holding period for stock received pursuant to the exercise of the Incentive
Stock Options are waived.
If all of the requirements for Incentive Stock Option treatment are met and
the optionee has held the Shares for at least two years after the date of grant
and for at least one year after the date of exercise, upon
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disposition of the Shares by the optionee, the difference, if any, between the
sales price of the Shares and the exercise price of the Stock Option will be
treated as long-term capital gain or loss. If the optionee does not hold the
Shares in accordance with the holding period rules set forth above, the optionee
will recognize ordinary income at the time of the disposition of the Shares,
generally in an amount equal to the excess of the fair market value of the
Shares at the time the Stock Option was exercised over the exercise price of the
Stock Option. The ordinary income recognized by an optionee upon the disposition
of the Shares has been determined by the IRS not to constitute wages for
purposes of applicable withholding tax requirements. The balance of the gain
realized, if any, will be long-term or short-term capital gain, depending upon
whether or not the Shares were sold more than one year after the Stock Option
was exercised. If the optionee sells the Shares prior to the satisfaction of the
holding period rules but at a price below the fair market value of the Shares at
the time the Stock Option was exercised, the amount of ordinary income will be
limited to the amount realized on the sale over the exercise price of the Stock
Option. The Corporation and its subsidiaries will be allowed a business expense
deduction to the extent the optionee recognizes ordinary income.
An optionee to whom a Nonqualified Stock Option is granted will recognize
no income at the time of the grant of the Stock Option. Upon exercise of a
Nonqualified Stock Option, an optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the Shares on the date of
exercise over the exercise price of the Stock Option. If it complies with
applicable withholding requirements, the Corporation and its subsidiaries will
be entitled to a business expense deduction in the same amount and at the same
time as the optionee recognizes ordinary income. Upon a subsequent sale or
exchange of Shares acquired pursuant to the exercise of a Nonqualified Stock
Option, the optionee will have taxable gain or loss, measured by the difference
between the amount realized on the disposition and the tax basis of the shares
(generally, the amount paid for the Shares plus the amount treated as ordinary
income at the time the Stock Option was exercised).
The Long-Term Achievement Plan provides (subject to certain restrictions in
the case of optionees or grantees who may be subject to liability under Section
16(b) of the Exchange Act) that in satisfaction of 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 a Stock Option or Award, the optionee or
grantee may make a written 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 having an aggregate Fair Market Value equal to the Withholding
Taxes.
SEPTEMBER 1996 GRANT
In September 1996 the Board appointed its Executive Resource and Nominating
Committee as the Committee to administer the Long-Term Achievement Plan. The
Committee designated four executive officers and 69 other employees as currently
eligible to participate in the Long-Term Achievement Plan. The Committee granted
Stock Options for 67,000 Shares under the Long-Term Achievement Plan to 33 of
the participants (none of whom were executive officers) at a $38 per Share
purchase price. (Stock Options for 216,000 Shares at the same price and with
substantially the same terms were simultaneously granted to the other 40
participants, including the executive officers, as the final grant under the
Long-Term Program.) The Committee also granted Aspiration Awards under the
Long-Term Achievement Plan to 31 participants, including the executive officers.
All Stock Options and Awards granted under the Long-Term Achievement Plan in
September 1996 are subject to stockholder approval of the Long-Term Achievement
Plan.
The terms of the Stock Options that were granted in September 1996 provide
that the Stock Options shall vest in four equal annual installments commencing
on the first anniversary from the date of grant. Based upon the closing price of
the Shares on November 1, 1996, the aggregate market value of the total number
of Shares subject to such Stock Options granted under the Long-Term Achievement
Plan was $2,286,375 (with an aggregate purchase price of $2,546,000 necessary to
exercise such options).
The Aspiration Awards granted under the Long-Term Achievement Plan are
payable based on the cumulative Economic Profit (defined in Appendix A)
generated over a three-year Performance Cycle by the Corporation, in the case of
corporate officers and employees, or by a particular operating unit, in the case
of Participants with responsibilities limited to that operating unit. A "target"
award amount has been established for each Participant at a "commitment" level
of Economic Profit, and "aspiration" and "threshold" amounts have been
established for specified levels above and below the commitment levels,
respectively. No amount is payable for Economic Profit below the threshold
level. The amount payable increases as Economic Profit increases, with the
maximum award payable for Economic Profit at or above the aspiration level equal
to five
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times the award payable for performance at the commitment level. Earned
Aspiration Awards will be payable half in cash and half in Shares.
NEW PLAN BENEFITS
The future benefits to be received by Participants under the Long-Term
Achievement Plan are not currently determinable because they are dependent upon
performance results which are not now known and, except as to Aspiration Awards
granted in September 1996, upon performance criteria which are not now known. At
the target level of Economic Profit over the three-year Performance Cycle,
Aspiration Awards granted in September 1996 would be payable in the following
amounts to the person or group indicated: Mr. Balloun, $480,000; Mr. Levy,
$214,000; Mr. Searle, $128,000; executive officers as a group, $1,046,000; all
participants who are not executive officers, as a group, $3,126,000. For levels
of Economic Profit at or above the "aspiration" level, the Aspiration Awards
payable would be five times those amounts.
THE BOARD OF DIRECTORS BELIEVES IT IS IN THE BEST INTEREST OF THE
CORPORATION FOR THE STOCKHOLDERS TO APPROVE THE NATIONAL SERVICE INDUSTRIES,
INC. LONG-TERM ACHIEVEMENT INCENTIVE PLAN, INCLUDING THE MATERIAL TERMS OF THE
PERFORMANCE CRITERIA UNDER WHICH AWARDS MAY BE GRANTED. THE BOARD THUS
RECOMMENDS THAT SHAREHOLDERS VOTE FOR ITEM NO. 2.
ITEM NO. 3 -- APPOINTMENT OF INDEPENDENT AUDITORS
At the annual meeting, a proposal will be presented to ratify the
appointment of Arthur Andersen LLP as independent auditors to examine the books
of account and other corporate records of the Corporation for the fiscal year
ending August 31, 1997. Arthur Andersen LLP has performed this function for the
Corporation since 1964. Representatives of Arthur Andersen LLP are expected to
be present at the annual meeting, will have the opportunity to make a statement
if they desire, and are expected to be available to respond to questions of
stockholders. The total amount of fees charged by Arthur Andersen LLP for their
services during the fiscal year ended August 31, 1996, was $919,775,
substantially all of which was for services provided in connection with annual
audits, retirement plan audits, and tax assistance.
ITEM NO. 4 -- OTHER MATTERS
The Board of Directors knows of no other business to be transacted, but if
any other matters do come before the meeting, the persons named as proxies in
the accompanying proxy, or their substitutes, will vote or act with respect to
them in accordance with their best judgment.
ANNUAL MEETING IN JANUARY 1998 -- STOCKHOLDER PROPOSALS
If a stockholder wishes to have a proposal considered for inclusion in the
Corporation's proxy solicitation materials in connection with the annual meeting
of stockholders to be held in January 1998, the proposal must comply with the
Securities and Exchange Commission's proxy rules, be stated in writing, and be
submitted on or before July 29, 1997, to the Corporation at its principal
executive offices at P.O. Box 7158, Midtown Station, Atlanta, Georgia
30357-0158, Attention: Kenyon W. Murphy, Vice President, Secretary, and
Associate Counsel. All such proposals should be sent by certified mail, return
receipt requested.
Excluding stockholder proposals filed in accordance with the proxy rules, a
stockholder is required to comply with the Corporation's By-laws with respect to
any proposal to be presented for action at an annual meeting of stockholders.
The Corporation's By-laws require each proposal to be (i) written, (ii)
delivered to, or mailed and received at, the principal executive office of the
Corporation not less than 60 days nor more than 90 days prior to the date of the
annual meeting, and (iii) accompanied by (A) a brief description of the proposal
and the reasons therefor, (B) the name and address of the stockholder making the
proposal and any other stockholders known by such stockholder to support such
proposal, (C) the class and number of shares of the Corporation's capital stock
beneficially owned by all such stockholders, and (D) any financial interest of
such stockholder in the proposal. If notice or public disclosure of the date of
the annual meeting occurs less than 70 days prior to the date of the annual
meeting, stockholders must deliver to the Corporation, or mail and have received
at the Corporation, the proposal and the required attendant information not
later than the close of business on the tenth day following the earlier of (i)
the day on which such notice of the date of the annual meeting was mailed or
(ii) the day on which such public disclosure was made. Nothing in the By-laws
requires the Corporation to include in its proxy statement and proxy for any
annual meeting of stockholders any stockholder proposal which the Corporation is
permitted to exclude pursuant to the rules of the Securities and Exchange
Commission at the time such proposal is received.
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If a stockholder wishes to nominate a candidate for election as director at
the annual meeting of stockholders to be held in January 1998, the stockholder
must comply with the Corporation's By-laws with respect to director nominations.
Written notice of the stockholder's intent to make such nomination must be given
to the Secretary of the Corporation, at the principal executive offices of the
Corporation, not later than October 10, 1997. The written notice shall set forth
(A) the name and address of the stockholder and each person whom the stockholder
proposes to nominate as a director; (B) a representation that the stockholder is
a holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (C) a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (D) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission as then in effect; and (E) the consent of
each nominee to serve as a director of the Corporation if so elected. The
presiding officer of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
The preceding two paragraphs are intended to summarize the applicable
By-laws of the Corporation. These summaries are qualified in their entirety by
reference to those By-laws.
THE ANNUAL REPORT OF THE CORPORATION WHICH ACCOMPANIES THIS PROXY STATEMENT
CONTAINS MUCH OF THE INFORMATION THAT IS IN THE CORPORATION'S ANNUAL REPORT ON
FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. A COPY OF THE FORM
10-K REPORT WILL BE FURNISHED TO STOCKHOLDERS UPON REQUEST WITHOUT CHARGE.
REQUESTS FOR FORM 10-K REPORTS SHOULD BE SENT TO KENYON W. MURPHY, VICE
PRESIDENT, SECRETARY, AND ASSOCIATE COUNSEL, NATIONAL SERVICE INDUSTRIES, INC.,
P.O. BOX 7158, MIDTOWN STATION, ATLANTA, GEORGIA 30357-0158.
By order of the Board of Directors,
KENYON W. MURPHY
Vice President, Secretary, and
Associate Counsel
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EXHIBIT A
NATIONAL SERVICE INDUSTRIES, INC.
LONG-TERM ACHIEVEMENT INCENTIVE PLAN
1. Purpose. The purposes of the National Service Industries, Inc.
Long-Term Achievement Incentive Plan (the "Plan") are to provide additional
incentives to those officers and key executives of National Service Industries,
Inc. (the "Company") and its Subsidiaries (as hereinafter defined) whose
substantial contributions are essential to the continued growth and
profitability of the Company's businesses, to strengthen their commitment to the
Company and its Subsidiaries, to further motivate those officers and other
executives to perform their assigned responsibilities diligently and skillfully,
and to attract and retain competent and dedicated individuals whose efforts will
result in the long term growth and profitability of the Company and, over time,
appreciation in the market value of its stock. To accomplish these purposes, the
Program provides that the Company may grant Incentive Stock Options,
Nonqualified Stock Options, Aspiration Achievement Incentive Awards, 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 (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.
(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) "Aspiration Achievement Incentive Award" or "Aspiration Award"
means an Award granted to an Eligible Employee, as described in Section 7
of the Plan.
(d) "Award" means a grant of an Aspiration Award, Restricted Stock,
Performance Awards, or any or all of them.
(e) "Board" means the Board of Directors of the Company.
(f) "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.
(g) "Change in Control" means any of the following events:
(i) 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
(ii) The individuals who, as of September 18, 1996, 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
(iii) 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
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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(g)(i), 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.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means a committee consisting of two or more
Non-Employee Directors appointed by the Board to administer the Plan and to
perform the functions set forth herein.
(j) "Company" means National Service Industries, Inc., a Delaware
corporation, or any successor corporation.
(k) "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.
(l) "Division" means any of the operating units or divisions of the
Company, or its Subsidiaries, designated as a Division by the Committee.
(m) "Eligible Employee" means any officer or other designated employee
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 1934, 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) "Grantee" means a person to whom an Award has been granted under
the Plan.
(q) "Incentive Stock Option" means an Option within the meaning of
Section 422 of the Code.
(r) "Named Executive Officer" means an Eligible Employee who as of the
date of grant, vesting and/or payout of an Award or Option is deemed by the
Committee to be one of the group of "covered" employees" as defined in Code
Section 162(m) and the regulations thereunder.
(s) "Non-Employee Director" means a director of the Company who
satisfies the requirements under Rule 16b-3(b)(3) promulgated under the
Exchange Act, as amended.
(t) "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
(u) "Option" means an Incentive Stock Option, a Nonqualified Stock
Option, or either or both of them.
(v) "Optionee" means a person to whom an Option has been granted under
the Plan.
(w) "Participant" means an Eligible Employee who has an outstanding
Award or Option under the Plan.
(x) "Performance Awards" means Performance Units, Performance Shares
or either or both of them.
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(y) "Performance Cycle" means the time period specified by the
Committee at the time an Aspiration Award or 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 Plan.
(aa) "Performance Unit" means Performance Units granted under Section
9 of the Plan.
(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 on or after the Grantee or Optionee 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) "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. The term "Subsidiary" shall also
include a partnership in which the Company or a Subsidiary owns 50% or more
of the profits interest or capital interest in the partnership.
(ff) "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes an Option in a transaction to which Section 424(a) of the
Code applies.
(gg) "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 422(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.
(hh) "Termination of Cause" means the Optionee or Grantee has
terminated employment and has been found by the Committee to be guilty of
theft, embezzlement, fraud or misappropriation of the Company's property or
any action which, if the individual were an officer of the Company, would
constitute a breach of fiduciary duty.
3. Administration.
(a) The Plan shall be administered by the Committee which shall hold
such meetings as may be necessary for the proper administration of the
Plan. Each member of the Committee shall be a Non-Employee Director. No
member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the
Plan, 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 shall have the power from time to time:
(i) to determine those Eligible Employees to whom Options shall be
granted under the Plan 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 to make any amendment or modification to any Agreement
consistent with the terms of the Plan;
(ii) to select those Eligible Employees to whom Awards shall be
granted under the Plan and to determine the amount of Aspiration Award
and Shares payable, the number of Performance Units, Performance Shares,
and/or shares of Restricted Stock, to be granted pursuant to each Award,
the terms and conditions of each Award, including the restrictions or
performance criteria relating to such Award, the maximum value of each
Award, and to make any amendment or modification to any Agreement
consistent with the terms of the Plan;
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provided, however, that the Board can exercise any of the powers set
forth in this Section 3(b), subject to any limitations imposed by Code
Section 162(m) or Rule 16b-3 under the Exchange Act.
(c) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(i) to construe and interpret the Plan and the Options and Awards
granted thereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not
limited to, correcting any defect or supplying any omission, or
reconciling any inconsistency in the Plan or in any Agreement, in the
manner and to the extent it shall deem necessary or advisable to make
the Plan 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;
(ii) 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 Plan;
(iii) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan;
(iv) 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 Plan.
4. Shares Subject to Program.
(a) The maximum number of Shares that may be issued or transferred
pursuant to Options and Awards under the Plan 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 Plan, out of its
authorized but unissued Shares or out of Shares held in the Company's
treasury, or partly out of each, such numbers 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 canceled or is otherwise terminated for any reason (other than
by exercise of the Option), the Shares allocable to the canceled 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 Plan, such shares may again be
the subject of Options and Awards hereunder.
(e) With respect to Shares used to exercise an Option or for tax
withholding, the Committee shall, in its discretion and in accordance with
applicable law, determine whether to include such shares in determining the
maximum number of Shares that may be issued under the Plan.
5. Eligibility. Subject to the provisions of the Plan, 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 or a Subsidiary (other than a Subsidiary that is a partnership) at the
time the Incentive Stock Option is granted.
6. Options. The Committee may grant Options in accordance with the Plan
and the terms and conditions of the Option shall be set forth in an Agreement.
The Committee shall have sole discretion in determining the number of Shares
underlying each Option to grant a Participant; provided, however, that in the
case of any Incentive Stock Option granted under the Plan, the aggregate Fair
Market Value (determined at the time such Option is granted) of the Shares to
which Incentive Stock Options are exercisable for the first time by the
Participant during any calendar year (under the Plan and all other incentive
stock option plans of the Company and any Subsidiary) shall not exceed $100,000.
The maximum number of Shares subject to Options which can be granted under the
Plan during a 12-month period to any Participant, including a Named Executive
Officer, is 100,000 Shares. Each Option and Agreement shall be subject to the
following conditions:
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(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 on the date 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. Unless the Committee otherwise provides in
the Agreement, no Option granted hereunder shall be transferable by the
Optionee, 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(h) hereof, each Option shall be
exercisable in such installments (which need not be equal or the same for
each Optionee) 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, subject to any limitations required by Code Section
162(m).
(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 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, 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 Option is granted or thereafter, provided, however no Option shall
be exercisable beyond its maximum term as described in Section 6(b) hereof.
(h) 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
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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 the amount
equal to the excess, if any, of (x) (A) in the case of a Nonqualified Stock
Option, 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, in the case of 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.
(i) Modification or Substitution. Subject to the terms of the Plan,
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.
7. Aspiration Achievement Incentive Awards.
(a) Grant of Aspiration Awards. Subject to the terms of the Plan, the
Committee may grant Aspiration Awards to Eligible Employees. The Committee
shall have the discretion to determine the amount of each Aspiration Award
and the other terms and conditions relating to the grant of such awards.
(b) Terms of Aspiration Awards. The following rules shall apply to
the Aspiration Awards:
(i) Prior to or at the beginning of the Performance Cycle (or
within such time period as is permitted by Code Section 162(m) and the
regulations thereunder), the Committee shall determine, based upon the
Participant's salary and level of responsibility, the Aspiration Award
applicable to the Participant. The Award will contain performance levels
related to the Performance Measure(s) that will determine the actual
award the Participant will receive at the end of the Performance Cycle.
The Committee will select one or more of the Performance Measures listed
on Appendix A (which objectives may be different for different
Participants or Performance Cycles) for purposes of the Aspiration
Awards under the Plan. Performance Measures may be in respect of the
performance of the Company and its Subsidiaries on a consolidated basis,
or a Subsidiary or a Division, or some combination of the foregoing.
Performance levels with respect to a Performance Measure may be absolute
or relative and may be expressed in terms of a progression within a
specified range. Except with respect to Named Executive Officers, the
Committee may establish additional Performance Measures for purposes of
Aspiration Awards under the Plan. Further, in the event that applicable
tax and/or securities laws (including, but not limited to, Code Section
162(m) and Section 16 of the Exchange Act) change to permit Committee
discretion to alter the governing Performance Measures for Named
Executive Officers without obtaining stockholder approval of such
changes, the Committee shall have sole discretion to make such changes
without obtaining stockholder approval.
(ii) No Participant may receive an Aspiration Award in excess of $4
million with respect to a single three-year Performance Cycle.
(iii) Performance Cycles shall equal or exceed three (3) years in
length.
(c) Earning of Aspiration Awards. After the applicable Performance
Cycle has ended, the Committee shall certify the extent to which the
performance levels for the Performance Measure(s) have been achieved. The
Committee may, in determining whether the performance levels have been met,
adjust the financial results for a Performance Cycle to exclude the effect
of unusual charges or income items, or other events (such as acquisitions
or divestitures), which are distortive of financial results for the
Performance Cycle; provided, that, with respect to Named Executive
Officers, in determining financial results, items whose exclusion from
consideration will increase the Award shall only have their effects
excluded if they constitute "extraordinary items" under generally accepted
accounting principles and all such items shall be excluded. The Committee
shall also adjust the performance calculations to exclude the unanticipated
effect on financial results of changes in the Code, or other tax laws, and
the regulations thereunder. The Committee may decrease the amount of an
Award otherwise payable if, in
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the Committee's view, the financial performance during the Performance
Cycle justifies such adjustment, regardless of the extent to which the
Performance Measure was achieved.
The Agreement may provide the Committee with the right to revise the
performance levels for the Performance Measure and the Award amounts, if
unforeseen events (including, without limitation, a Change in Capitalization, an
equity restructuring, an acquisition or a divestiture) occur which have a
substantial effect on the financial results and which in the judgment of the
Committee make the application of the performance levels unfair unless a
revision is made. For Named Executive Officers, such changes shall be made in a
manner consistent with Code Section 162(m).
(d) Form and Timing of Payment of Aspiration Awards. The Agreement
shall set forth the manner in which payment of earned Aspiration Awards
will be made. Payment will be made in cash or in Shares, or in a
combination of cash and Shares, as determined by the Committee in the
Agreement. Payment will be made as soon as practical after the end of the
Performance Cycle to which the Award relates. For purposes of the portion
of the Award paid in Shares, the Shares shall be valued on their Fair
Market Value as of the last day of Performance Cycle (unless the Agreement
provides otherwise).
(e) Termination of Employment. The Agreement shall set forth the
terms and conditions of the Aspiration Award upon the termination of the
Participant's employment with the Company, Subsidiary or a Division
(including a Participant'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 Aspiration Award is granted or
thereafter.
(f) Nontransferability. Unless the Agreement provides otherwise,
Aspiration Awards may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, other than, if amounts are payable
after the Participant's death, by will or by the laws of descent and
distribution.
(g) Effect of Change in Control. In the event of a Change in Control,
the Participant shall earn and become entitled to payment of such portion
of the Aspiration Award as set forth in the Agreement. The time of payment
of the Aspiration Award and the form of such payment shall also be as set
forth in the Agreement.
8. Restricted Stock. The Committee may grant Awards of Restricted Stock,
and may issue Shares of Restricted Stock in payment in respect of Aspiration
Awards or 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. The maximum number of Shares that may be awarded
under a Restricted Stock Award to a Named Executive Officer during any 12-month
period is 20,000 Shares. 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 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. Unless the Agreement provides otherwise,
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.
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(c) Lapse of Restrictions.
(i) 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 provide in the Agreement.
(ii) Effect of Change in Control. Notwithstanding anything
contained in the Plan 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 that shall apply upon the termination of the Grantee's
employment with the Company, a Subsidiary or a Division (including a
forfeiture of Shares for which the restrictions have not lapsed upon
Grantee's ceasing to be employed) 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 Plan,
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 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 (except any restrictions under Section 17).
9. Performance Awards.
(a) Performance Objectives. The Committee will select one or more of
the Performance Measures listed on Appendix A attached hereto for purposes
of Performance Awards under the Plan. Performance Measures 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, or any combination
of the foregoing. 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. The Committee may, in determining whether the performance levels
have been met, adjust the financial results for a Performance Cycle to
exclude the effect of unusual charges or income items, or other events
(such as acquisition or divestitures), which are distortive of financial
results for the Performance Cycle; provided, that, with respect to Named
Executive Officers, in determining financial results, items whose exclusion
from consideration will increase the Award shall only have their effects
excluded if they constitute "extraordinary items" under generally accepted
accounting principles and all such items shall be excluded. The Committee
shall also adjust the performance calculations to exclude the unanticipated
effect on financial results of changes in the Code, or other tax laws, and
the regulations thereunder. The Committee may decrease the amount of an
Award otherwise payable if, in the Committee's view, the financial
performance during the Performance Cycle justifies such adjustment,
regardless of the extent to which the Performance Measure was achieved.
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The Agreement may provide the Committee with the right to revise the
performance levels for the Performance Measure and the Award amounts, if
unforeseen events (including, without limitation, a Change in Capitalization, an
equity restructuring, an acquisition or a divestiture) occur which have a
substantial effect on the financial results and which in the judgment of the
Committee make the application of the performance levels unfair unless a
revision is made. For Named Executive Officers, such changes shall be made in a
manner consistent with Code Section 162(m).
Except with respect to Named Executive Officers, the Committee may
establish additional Performance Measures for purposes of Performance Awards
under the Plan. Further, in the event that applicable tax and/or securities laws
(including, but not limited to, Code Section 162(m) and Section 16 of the
Exchange Act) change to permit Committee discretion to alter the governing
Performance Measures for Named Executive Officers without obtaining stockholder
approval of such changes, the Committee shall have sole discretion to make such
changes without obtaining stockholder approval.
The maximum number of Performance Units and Performance Shares a Named
Executive Officer may earn for any Performance Cycle shall not exceed an
aggregate of 60,000 Units and Shares.
(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.
(i) 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.
(ii) 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.
(iii) 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.
(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:
(i) 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
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Performance Shares. If a Grantee shall fail to execute the 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.
(ii) Non-transferability. Unless the Agreement provides otherwise,
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.
(iii) 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.
(iv) 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.
(v) 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. Payments 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)(iv) or otherwise.
(vi) 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 with respect to such Shares,
free of all restrictions hereunder.
(d) Effect of Change in Control. Notwithstanding anything contained
in the Plan to the contrary, in the event of a Change in Control:
(i) With respect to the Performance Units, the Grantee shall (i)
become vested in a percentage of Performance Unit 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
(ii) 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. Unless the Agreement provides otherwise, no
Performance Awards shall be transferable by the Grantee otherwise than by
will or the laws of descent and distribution.
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(f) Modification or Substitution. Subject to the terms of the Plan,
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.
(g) Definitions. For purposes of Performance Awards, the following
definitions shall apply:
(i) "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.
(ii) "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.
(iii) "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.
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 preceding 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 not to constitute a
modification as defined by Section 424(h)(3) of the Code and only to the
extent otherwise permitted by Sections 422 and 424 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, Aspiration Awards, 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 Aspiration Awards,
A-11
<PAGE> 33
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(h), 7(g),
8(c)(ii) 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
Plan 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 Plan.
(a) The Plan 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 Plan (other than to
reduce the rights of Optionees and Grantees, as the case may be, under
Sections 6(h), 7(g), 8(c)(ii) 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 or as may
otherwise be legally required, 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.
(b) Except as provided in Sections 11 and 12 hereof, rights and
obligations under any Option or Award granted before any amendment of the
Plan 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 Plan. The adoption of the Plan 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 Plan, 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 Plan 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 (with or without Cause); or
(d) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person in any particular position
at any particular rate of compensation or for any particular period of
time.
17. Regulation and Other Approvals; Governing Law.
(a) 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.
(b) The obligation of the Company to sell or deliver Shares with
respect to Options and Awards 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
Committee.
A-12
<PAGE> 34
(c) The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee 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.
(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 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 Committee.
(f) 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 Committee may require any individual
receiving Shares pursuant to the Plan, 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.
(g) In the event that changes are made to Code Section 162(m) to
permit greater flexibility with respect to any Award or Option under the
Plan, the Committee may, subject to this Section 17, make any adjustments
it deems appropriate in such Award or Option.
18. Miscellaneous.
(a) Multiple Agreements. The terms of each Option or Award may differ
from other Options or Awards granted under the Plan 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 Plan, 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 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 an
irrevocable 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 in respect of an Optionee or Grantee who may be
subject to Section 16(b) of the Exchange Act, the election complies with
the requirements applicable to Share transactions by such Participants.
(2) If an Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Share or
Shares issued to him pursuant to his exercise of the Option within the
two-year period commencing on the day after the 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
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<PAGE> 35
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. To the extent applicable to the type
of Award, each Grantee (other than an Optionee) may designate a person or
persons to receive in the event of his or her death, any Award or any
amount payable pursuant thereto, to which he or she would then be entitled
under the terms of the Plan. Such designation will be made upon forms
supplied by and delivered to the Company and may be revoked in writing.
(d) Deferral. The Committee may permit a Participant to defer to
another plan or program such Participant's receipt of Shares or cash that
would otherwise be due to such Participant by virtue of the exercise of an
Option, earning of an Aspiration Award, the vesting of Restricted Stock or
the earning of Performance Awards. If any such deferral election is
required or permitted, the Committee shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
19. 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.
A-14
<PAGE> 36
APPENDIX A
TO
NATIONAL SERVICE INDUSTRIES, INC.
LONG-TERM ACHIEVEMENT INCENTIVE PLAN
<TABLE>
<CAPTION>
PERFORMANCE MEASURE GENERAL DEFINITION
<S> <C>
AATP Margin.................................. AATP divided by Sales
Adjusted After-Tax Profit (AATP)............. APTP minus book income taxes (reported tax
rate applied to APTP)
Adjusted Pre-Tax Profit (APTP)............... Income before provision for income taxes plus
interest expense plus implied interest on
capitalized operating leases. The measure may
include or exclude income from discontinued
operations, extraordinary items, changes in
accounting principles, and restructuring
expense.
Capitalized Economic Profit.................. Economic Profit divided by a predetermined
rate reflecting the cost of capital
Capitalized Entity Value..................... Sum of average invested capital in the
business and the Capitalized Economic Profit
Capitalized Equity Value..................... Capitalized Entity Value minus total debt
Cashflow..................................... Net cash provided by operating activities
less net cash used for investing activities
Cashflow Return on Capital................... Cashflow divided by average invested capital
Cashflow Return on Capitalized Entity/Equity
Value...................................... Cashflow divided by Capitalized Entity/Equity
Value
Earnings Per Share........................... Primary or fully diluted earnings per share
Economic Profit.............................. AATP minus a charge for capital
Net Income................................... Net income as reported in NSI's annual
financial statements or the books and records
of its segments. The measure may include or
exclude income from discontinued operations,
extraordinary items, changes in accounting
principles, and restructuring expense.
Net Income Return on Capital................. Net Income divided by average invested
capital
Return on Assets (ROA)....................... Net Income divided by average total assets
Return on Equity (ROE)....................... Net Income divided by average stockholders'
equity
Return on Gross Investment................... Sum of Net Income plus depreciation divided
by sum of average invested capital plus
accumulated depreciation
Return on Invested Capital................... Net Income or AATP divided by average
invested capital
Return on Net Assets (RONA).................. Net Income, APTP, or income before taxes,
divided by average net assets
Sales........................................ Net sales of products and service revenues
Sales Growth................................. Percentage change in Sales from year to year
Total Return to Shareholders................. Percentage change in shareholder value (stock
price plus reinvested dividends)
</TABLE>
- --------------------------------------------------------------------------------
(LOGO)PRINTED ON RECYCLED PAPER
<PAGE> 37
Graphic Material Appendix
The following graphic or image material appears in the paper format
version of this proxy statement:
1. On pages 2 through 4, pictures of the nominees for director.
2. On page 9, the Performance Graph described and interpreted in tabular/
chart form under that heading within this filing.
<PAGE> 38
EXHIBIT B
<TABLE>
<S> <C>
[X] PLEASE MAKE VOTES
AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR:
----------------- With- For All
NATIONAL SERVICE For hold Except
INDUSTRIES, INC. 1. Election of Directors [ ] [ ] [ ]
-----------------
JAMES S. BALLOUN, JOHN L. CLENDENIN, ROBERT M. HOLDER, JR.,
JAMES C. KENNEDY, DAVID LEVY, BERNARD MARCUS,
JOHN G. MEDLIN, JR., HERMAN J. RUSSELL, AND BETTY L. SIEGEL
-------------------------------------------------------------------------------
RECORD DATE SHARES: Instruction: To withhold authority to vote for any nominee, mark the
"For All Except" box and write that nominee's name on the above line.
For Against Abstain
2. Approval of National Service Industries, Inc. [ ] [ ] [ ]
Long-Term Achievement Incentive Plan.
3. Ratification of appointment of Arthur Andersen [ ] [ ] [ ]
LLP as independent auditors for the Corporation.
Please be sure to sign
and date this Proxy. Date__________________ Mark box at right if comments or address change have been [ ]
- --------------------------------------------- noted on the reverse side of this card.
- ---------------------------------------------
Stockholder sign here Co-owner sign here
</TABLE>
DETACH CARD
NATIONAL SERVICE INDUSTRIES, INC.
Dear Stockholder:
Please take note of the important information enclosed with this Proxy
Ballot. There are a number of issues related to the management and operation of
your Company that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders,
January 8, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
National Service Industries, Inc.
<PAGE> 39
NATIONAL SERVICE INDUSTRIES, INC.
ANNUAL STOCKHOLDERS MEETING JANUARY 8, 1997
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned does hereby appoint JAMES S. BALLOUN, DAVID LEVY and KENYON
W. MURPHY and each of them proxies of the undersigned with full power of
substitution in each of them to vote at the annual meeting of stockholders of
the Corporation to be held on January 8, 1997 at 10:00 A.M., and at any and all
adjournments thereof, with respect to all shares which the undersigned would be
entitled to vote, and with all powers which the undersigned would possess if
personally present, as follows on the reverse, and in their discretion upon all
other matters brought before the meeting.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3
SHOWN ON THE REVERSE SIDE.
On the reverse side please date this proxy and sign exactly as your name,
or names, appear hereon. Where there is more than one owner, each must sign.
When signing in fiduciary or representative capacity, please give full title as
such.
<TABLE>
<S> <C>
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------------------------ ------------------------------------------------
- ------------------------------------------------ ------------------------------------------------
- ------------------------------------------------ ------------------------------------------------
</TABLE>
