<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
National Service Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
<PAGE> 2
[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 7, 1998
The annual meeting of stockholders of NATIONAL SERVICE INDUSTRIES, INC.
(the "Corporation") will be held on Wednesday, January 7, 1998, at 10:00 a.m. in
the Richard H. Rich Auditorium at the Robert W. Woodruff Arts Center, 1280
Peachtree Street, N.E., Atlanta, Georgia, for the following purposes:
(1) to elect directors;
(2) to approve the National Service Industries, Inc. Employee Stock
Purchase Plan;
(3) to ratify the appointment of Arthur Andersen LLP as independent
auditors for the Corporation for the fiscal year ending August 31, 1998;
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 10, 1997
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 20, 1997
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 7, 1998. A copy of the annual report of the Corporation
for the fiscal year ended August 31, 1997 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 20, 1997.
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 Employee Stock Purchase 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 10, 1997, the record date for the annual meeting, there were
43,284,863 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 twelve (12) 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.
<PAGE> 4
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 Sam Nunn, who was elected by the Board of
Directors effective January 8, 1997, Barrie A. Wigmore, who was elected by the
Board of Directors effective June 18, 1997, and Thomas C. Gallagher, who was
elected by the Board of Directors effective September 23, 1997.
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>
JAMES S. BALLOUN Director
since 1996
Mr. Balloun, 59 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
[PICTURE] 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 a director of Radiant Systems, Inc. and
Wachovia Corporation. Mr. Balloun is Chairman of the
Executive Committee of the Board.
JOHN L. CLENDENIN Director
since 1996
Mr. Clendenin, 63 years old, has served as Chairman of the
Board of BellSouth Corporation since 1984 and also served as
President and Chief Executive Officer from 1983 until
December 1996. He is a director of Coca-Cola Enterprises
Inc., Equifax Inc., The Home Depot, Inc., The Kroger
[PICTURE] Company, RJR Nabisco Holdings Corp., Springs Industries,
Inc., and Wachovia Corporation. Mr. Clendenin previously
served as a director of the Corporation from 1984 until
1995. Mr. Clendenin is Chairman of the Executive Resource
and Compensation Committee and a member of the Executive and
the Corporate Governance and Nominating Committees of the
Board.
THOMAS C. GALLAGHER Director
since 1997
Mr. Gallagher, 49 years old, has served since 1990 as
President and Chief Operating Officer of Genuine Parts
Company. He also serves as Chairman and Chief Executive
Officer of S. P. Richards Company, a wholly-owned subsidiary
[PICTURE] of Genuine Parts Company. He has been employed by Genuine
Parts Company since 1970 and has served as an executive
officer of the company since 1988. He is a director of
Genuine Parts Company and Oxford Industries, Inc. Mr.
Gallagher is a member of the Audit and the Executive
Resource and Compensation Committees of the Board.
ROBERT M. HOLDER, JR. Director
since 1974
Mr. Holder, 67 years old, has served since April 1997 as
Chairman of the Board of The RMH Group. He was Chairman of
the Board of Holder Corporation, a real estate development
[PICTURE] and construction firm he founded, from 1960 through March
1997. 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 and the Corporate Governance
and Nominating Committees of the Board.
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C> <C>
JAMES C. KENNEDY Director
since 1993
Mr. Kennedy, 49 years old, has served since January 1988 as
Chairman and Chief Executive Officer of Cox Enterprises,
[PICTURE] 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 Resource and Compensation and the Corporate
Governance and Nominating Committees of the Board.
DAVID LEVY Director
since 1984
Mr. Levy, 60 years old, is Executive Vice President,
Administration and Counsel of the Corporation. He served the
[PICTURE] Corporation as Senior Vice President, Secretary and Counsel
from 1982 through September 1992. He has served as an
officer of the Corporation since 1973. Mr. Levy is a member
of the Executive Committee of the Board.
BERNARD MARCUS Director
since 1990
Mr. Marcus, 68 years old, is one of the co-founders of The
Home Depot, Inc. He has served as its Chairman of the Board
since 1978 and also served as Chief Executive Officer from
[PICTURE] 1978 until May 1997. 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 Compensation
Committees of the Board.
JOHN G. MEDLIN, JR. Director
since 1988
Mr. Medlin, 63 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,
[PICTURE] Burlington Industries, Inc., Media General, Inc., Nabisco
Holdings Corp., RJR Nabisco Holdings Corp., and USAirways
Group, Inc. Mr. Medlin is Chairman of the Corporate
Governance and Nominating Committee and a member of the
Executive and the Executive Resource and Compensation
Committees of the Board.
SAM NUNN Director
since 1997
Mr. Nunn, 59 years old, has been a partner in the Atlanta
law firm King & Spalding since January 1997. Previously, he
[PICTURE] served in the U.S. Senate for four terms starting in 1972.
Mr. Nunn is a director of The Coca-Cola Company, General
Electric Company, Scientific-Atlanta, Inc., Texaco, Inc. and
Total System Services, Inc. He is a member of the Audit and
the Corporate Governance and Nominating Committees of the
Board.
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C> <C>
HERMAN J. RUSSELL Director
since 1996
Mr. Russell, 66 years old, has served since 1959 as Chairman
of the Board of H.J. Russell & Company, which is engaged in
construction, client services, and property management
[PICTURE] businesses. He also served as Chief Executive Officer from
1959 until November 1996. Mr. Russell also serves as a
director of Wachovia Corporation. He is a member of the
Audit and the Corporate Governance and Nominating Committees
of the Board.
BETTY L. SIEGEL Director
since 1988
Dr. Siegel, 66 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
[PICTURE] 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 AGL Resources Inc. and Equifax
Inc. Dr. Siegel is a member of the Audit and the Executive
Resource and Compensation Committees of the Board.
BARRIE A. WIGMORE Director
since 1997
Mr. Wigmore, 56 years old, is a limited partner of Goldman
Sachs Group, LP, an investment banking firm. He joined
[PICTURE] Goldman Sachs in 1970, became a general partner in 1978, and
retired in 1988 as a limited partner. He is a director of
Potash Corporation of Saskatchewan. Mr. Wigmore is a member
of the Audit and the Executive Resource and Compensation
Committees of the Board.
</TABLE>
COMPENSATION OF DIRECTORS
During the fiscal year ended August 31, 1997, each director who was not an
employee of the Corporation received an annual director fee of $40,000 and an
additional annual fee of $5,000 for serving as chairman of a committee, payable
quarterly in each case. Under the Nonemployee Director Deferred Stock Unit Plan,
each director was paid 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 value and return on deferred stock units is equivalent
to the value and return on NSI stock. The director's account is generally
payable on or after retirement; there is no other retirement plan for directors.
The Plan was amended, effective December 1, 1997, to provide for one-half of the
annual fee to be payable in deferred stock units and to provide for a one-time
grant of 1,000 deferred stock units to existing non-employee directors and to
new non-employee directors upon their election and an annual grant of 350
deferred stock units to each non-employee director. The Corporation's
compensation consultant advised the Corporation that the additional grants bring
the total director pay package approximately to the competitive median.
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
18, 1996 a grant of a non-qualified option for the purchase of 1,000 shares of
common stock at an exercise price of $36.125 per share, the fair market value on
the grant date. Messrs. Clendenin and Nunn, who were not then serving on the
Board and did not receive that September 18 grant, were granted on March 17,
1997 a non-qualified option for the purchase of 1,000 shares of common stock at
an exercise price of $38.75 per share, the fair market value on that 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 $5,000 per individual per year.
4
<PAGE> 7
For information on compensation of directors who also served as executive
officers during the fiscal year, see "Executive Compensation" below.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Mr. Nunn is a partner in the law firm King & Spalding, which the
Corporation engages for certain legal services, and Mr. Wigmore is a limited
partner in the investment banking firm Goldman Sachs Group, LP, which the
Corporation engages for certain financial services. The Corporation also has
transactions in the ordinary course of business with unaffiliated corporations
and institutions of which certain non-employee directors of the Corporation are
officers or directors, including BellSouth Corporation, Cox Enterprises, Inc.,
Genuine Parts Company, The RMH Group, The Home Depot, Inc., Kennesaw State
University, H. J. Russell & Company, and Wachovia Corporation. The Corporation
considers the amounts involved in such services and transactions to be
immaterial in relationship to its business and believes that such amounts are
not material in relationship to the business of these organizations or
individuals. Management believes that the terms on which business is conducted
with these organizations are no less favorable than those available from other
organizations.
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,
John L. Clendenin, Robert M. Holder, Jr., David Levy, Bernard Marcus, and
John G. Medlin, Jr. It held three meetings 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, Thomas C. Gallagher, Bernard Marcus,
Sam Nunn, Herman J. Russell, Betty L. Siegel and Barrie A. Wigmore. It held
two meetings during the fiscal year.
The Executive Resource and Compensation 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. The Committee is
comprised of John L. Clendenin, Chairman, Thomas C. Gallagher, James C.
Kennedy, Bernard Marcus, John G. Medlin, Jr., Betty L. Siegel, and Barrie
A. Wigmore. It held two meetings during the fiscal year.
The Corporate Governance and Nominating Committee is responsible for
reviewing matters pertaining to the composition, organization and practices
of the Board of Directors, including a periodic evaluation of the Board in
meeting its corporate governance responsibilities, 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, John L.
Clendenin, Robert M. Holder, Jr., James C. Kennedy, Sam Nunn, and Herman J.
Russell. It held two meetings during the fiscal year.
During the fiscal year ended August 31, 1997, the Board of Directors met
five 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 Corporate Governance and Nominating Committee will consider nominee
recommendations from stockholders made in writing and addressed to the attention
of Chairman of the Corporate Governance 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.
Stockholders making nominee recommendations to the Committee should provide the
same information required for nominations by stockholders at an annual meeting,
as explained below under "Annual Meeting in January 1999 -- Stockholder
Proposals."
5
<PAGE> 8
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, 1997 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 10, 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 stock.
Beginning in September 1996, the executive officers of the Corporation
became 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
NAME OWNED(1)(2)(3)
- ---- ---------------
<S> <C>
James S. Balloun............................................ 196,250
John L. Clendenin........................................... 3,300
Thomas C. Gallagher......................................... 1,000(4)
Brock A. Hattox............................................. 12,323
Robert M. Holder, Jr........................................ 11,330
Don W. Hubble............................................... 53,450(4)
James C. Kennedy............................................ 5,000
David Levy.................................................. 105,418(5)
Bernard Marcus.............................................. 7,000
John G. Medlin, Jr.......................................... 6,000
Sam Nunn.................................................... 500(4)
Herman J. Russell........................................... 2,000
Stewart A. Searle III....................................... 5,250
Betty L. Siegel............................................. 5,589
Barrie A. Wigmore........................................... 10,000
Current directors and executive officers as a group......... 370,956(2)(5)
</TABLE>
- ---------------
(1) The percentage of shares owned by each individual and by directors and
executive officers as a group does not exceed one percent of the
Corporation's common stock. Each beneficial owner has sole voting and
investment power with respect to all shares shown, except as otherwise
indicated and except that shares shown for Messrs. Gallagher and Wigmore are
jointly held with their respective spouses.
(2) Includes shares that may be acquired within 60 days after the ownership date
reflected, upon exercise of employee and director stock options. Options are
included for the following individuals: Mr. Balloun, 181,250 shares; Mr.
Hattox, 10,000 shares; Mr. Hubble, 43,571 shares; Mr. Levy (including
options held by a family partnership of which he is the general partner),
78,078 shares; Mr. Searle, 4,250 shares; Mr. Clendenin, 2,000 shares; Mr.
Kennedy, 4,000 shares; Mr. Russell, 1,000 shares; Messrs. Holder, Marcus,
and Medlin and Dr. Siegel, 5,000 shares each; and all current directors and
executive officers as a group, 300,578 shares.
(3) In addition to the share ownership indicated, as of September 1, 1997, the
accounts of the following non-employee directors of the Corporation were
credited with deferred stock units (each unit equivalent to one share of
stock): Mr. Clendenin, 255 units; Mr. Holder, 387 units; Mr. Kennedy, 1,036
units; Mr. Medlin, 387 units; Mr. Marcus, 1,351 units; Mr. Nunn, 634 units;
Mr. Russell, 1,351 units; Dr. Siegel, 658 units; and Mr. Wigmore, 179 units.
(4) Share ownership is shown for Mr. Hubble as of October 31, 1996, a date
shortly following his termination of employment. Share ownership is shown
for Mr. Gallagher as of September 23, 1997, and for Mr. Nunn as of October
31, 1997.
(5) Includes 49 shares held by Mr. Levy's spouse.
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, 1997, 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.
6
<PAGE> 9
EXECUTIVE COMPENSATION
REPORT OF THE EXECUTIVE RESOURCE AND COMPENSATION COMMITTEE
The Executive Resource and Compensation 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, President, 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 had authority to grant awards under the Long-Term Incentive
Program (the "Long-Term Program") and now has that authority under the Long-Term
Achievement Incentive Plan (the "Long-Term Plan"). 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 1997 fiscal year, the principal compensation components
were base salary, bonus awards under the Incentive Plan, stock options granted
under the Long-Term Program, and aspiration awards (described below) granted
under the Long-Term Plan. Bonus awards, stock options, and aspiration awards are
generally granted on an annual basis. Salary adjustments are made annually 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 1997 or 1998
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.
In conjunction with the Long-Term 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.
Executive Officers' 1997 Compensation
The salary for fiscal 1997 of each executive officer (other than the Chief
Executive Officer, discussed below) was based on competitive compensation data,
at the 50th or 75th percentile level, taking into account the executive's
performance, experience, abilities, and expected future contribution.
Bonuses for fiscal 1997 under the Incentive Plan were intended to provide
competitive total cash compensation at the 50th to 75th percentile 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
7
<PAGE> 10
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 1997, the threshold level required the same level of
earnings per share as was achieved in fiscal 1996. Based on the Corporation's
earnings per share, the actual bonus fund for each individual represented 120.7%
of the target bonus fund.
The amount actually paid from each bonus fund under the Incentive Plan for
fiscal 1997 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; no reductions were made. 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 1997 was further linked
with the Corporation's performance and to the increase in shareholder value
through long-term awards -- stock options and aspiration awards granted under
the Long-Term Program and the Long-Term Plan, respectively. 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. Aspiration awards are long-term awards designed to more clearly and
quantifiably relate reward opportunities with achievement of specific
performance goals over a three year cycle; the performance measure is economic
profit (adjusted after-tax profit minus a charge for capital). The level of
aspiration awards payable at the conclusion of the cycle is expected to
correlate closely with increases in stock price. Long-term awards to executive
officers in fiscal 1997 were based on competitive long-term grants at
approximately the 75th percentile level for target level performance and are
designed to provide significantly higher compensation for significantly higher
performance.
Chief Executive Officer's 1997 Compensation
Pursuant to Mr. Balloun's employment agreement with the Corporation (see
"Employment Contracts, Severance Arrangements, and Other Agreements" in this
proxy statement), in the 1997 fiscal year he received base salary, an incentive
bonus opportunity, and stock options and an aspiration award under the Long-Term
Plan. His total compensation was based on competitive and merit factors and in
consideration of the particular leadership needs of the Corporation when he
joined the Corporation. At the time Mr. Balloun was employed, the Committee was
advised by an independent compensation 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.
The bonus paid to Mr. Balloun for fiscal 1997 was based on the
Corporation's exceeding an earnings level specified by the Committee at the
beginning of the fiscal year. Most of his compensation opportunity is provided
through bonus, aspiration awards, and stock options and is therefore linked
directly to performance on behalf of shareholders and to appreciation in the
market price of the Corporation's stock.
EXECUTIVE RESOURCE AND
COMPENSATION COMMITTEE
John L. Clendenin, Chairman
James C. Kennedy
Bernard Marcus
John G. Medlin, Jr.
Betty L. Siegel
8
<PAGE> 11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The directors serving on the Executive Resource and Compensation Committee
of the Board of Directors during the fiscal year ended August 31, 1997 were, for
the entire year, John G. Medlin, Jr., James C. Kennedy and Bernard Marcus, and
for the portion of the year after January 8, 1997, John L. Clendenin and Betty
L. Siegel. None of these individuals are or have ever been officers or employees
of the Corporation. During the 1997 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, 1997, 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 $100 at the
closing price on August 31, 1992 and assumes all dividends were reinvested.
<TABLE>
<CAPTION>
Measurement Period S&P Specialized
(Fiscal Year Covered) NSI S&P 500 Services
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 100.65 115.18 96.38
1994 121.59 121.45 96.19
1995 136.70 147.46 109.67
1996 185.28 175.06 128.76
1997 222.33 246.19 157.80
</TABLE>
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
The following table presents the cash compensation paid by the Corporation
and its affiliates for the past three fiscal years, as well as compensation
accrued for those years, to the individual who served as the Corporation's Chief
Executive Officer during the 1997 fiscal year, the three other executive
officers as of August 31, 1997, and Don W. Hubble, who served as an executive
officer for approximately two months during the 1997 fiscal year (the five
officers referred to herein as the "named executive officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ------------------------- -------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
FISCAL SALARY BONUS SATION AWARD(S) OPTIONS/SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#)(2) ($) ($)(3)
- -------------------------------- ------ -------- -------- --------- ---------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James S. Balloun(4)............. 1997 750,000 750,000 4,800 0 45,000 0 2,500
Chairman of the Board, 1996 750,000 750,000 3,200 0 250,000 0 0
President and Chief Executive
Officer 1995 -- -- -- -- -- -- --
Don W. Hubble(5)................ 1997 66,667 0 800 0 0 0 552,750
President and Chief Operating 1996 379,167 116,556 5,300 0 25,000 0 6,000
Officer 1995 325,000 200,233 5,300 0 25,000 0 5,500
Brock A. Hattox(6).............. 1997 347,144 192,836 112,994 0 40,000 0 1,000
Executive Vice President 1996 -- -- -- -- -- -- --
and Chief Financial 1995 -- -- -- -- -- -- --
Officer
David Levy...................... 1997 342,500 186,046 4,800 0 20,000 0 1,000
Executive Vice President, 1996 326,250 100,289 5,300 0 20,000 0 6,000
Administrative and Counsel 1995 314,167 193,558 5,300 0 20,000 0 5,500
Stewart A. Searle III........... 1997 212,500 115,430 4,800 0 12,000 0 0
Senior Vice President, 1996 50,000 15,000 1,000 0 5,000 0 0
Planning and Development 1995 -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Each amount shown includes an automobile allowance of $400 per month. The
amount shown for Mr. Hattox also includes $108,314 for reimbursement of
relocation expenses and related costs.
(2) No stock appreciation rights were granted during this period.
(3) The amounts shown for 1997 include a matching contribution on 401(k)
deferrals in the amount of $1,000 each for Messrs. Hattox and Levy, and a
matching contribution on other deferred compensation in the amount of $2,500
for Mr. Balloun and $5,000 for Mr. Hubble. Of the amount shown for Mr.
Hubble in 1997, $500,000 represents payments under his severance agreement.
(4) Mr. Balloun was elected President effective October 19, 1996.
(5) Mr. Hubble resigned effective October 18, 1996.
(6) Mr. Hattox was elected Executive Vice President and Chief Financial Officer
on September 18, 1996.
10
<PAGE> 13
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock options which
were granted to the named executive officers during the fiscal year ended August
31, 1997, as disclosed in the Summary Compensation Table above. The Corporation
did not award any stock appreciation rights or reprice any stock options during
the year.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE GRANT
SARS EMPLOYEES OR BASE DATE
GRANTED IN FISCAL PRICE EXPIRATION PRESENT
NAME (#)(1) YEAR ($/SH) DATE VALUE ($)(2)
---- ---------- ----------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
James S. Balloun......................... 45,000 14.5% 38.00 9/16/06 435,870
Don W. Hubble............................ 0 0.0% -- -- --
Brock A. Hattox.......................... 40,000 12.8% 38.00 9/8-16/06 387,400
David Levy............................... 20,000 6.4% 38.00 9/16/06 193,720
Stewart A. Searle III.................... 12,000 3.9% 38.00 9/16/06 116,232
</TABLE>
- ---------------
(1) Options have a ten-year term, subject to earlier termination upon certain
events related to termination of employment, and vest in four equal annual
installments beginning on the first anniversary of the grant date. The
Executive Resource and Compensation 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. The estimated values assume a risk-free rate of return of 6.73%, a
dividend yield of 3.35%, an option term of ten years, and stock price
volatility having a standard deviation of .1680. 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 1997 fiscal year and the
aggregate value of unexercised stock options held by the named executive
officers as of August 31, 1997. 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
SHARES OPTIONS/SARS AT FY-END (#) AT FY-END ($)(2)
ACQUIRED VALUE ---------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James S. Balloun................ -- -- 170,000 125,000 1,854,700 1,363,750
Don W. Hubble................... 71,941 957,751 8,815 0 173,391 0
Brock A. Hattox................. -- -- 0 40,000 0 250,000
David Levy...................... -- -- 59,328 48,750 944,502 776,100
Stewart A. Searle............... -- -- 1,250 15,750 7,175 90,405
</TABLE>
- ---------------
(1) The amount shown represents the aggregate excess of market value at the time
of exercise (using the closing price on the New York Stock Exchange on the
date of exercise) over the exercise price of the options.
(2) The amounts shown represent the aggregate excess of market value of shares
under option as of August 31, 1997 over the exercise price of the options.
11
<PAGE> 14
EMPLOYMENT CONTRACTS, SEVERANCE ARRANGEMENTS, AND OTHER AGREEMENTS
The Corporation's February 1, 1996 employment agreement with Mr. Balloun
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 option grants at competitive levels and for participation in other
benefit plans generally available to other executive officers. 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.
The Corporation's August 26, 1996 employment agreement with Mr. Hattox sets
forth his compensation arrangements for the 1997 fiscal year, as reflected in
this proxy statement. Pursuant to the agreement, he will be credited with
service under the SERP for each year of actual service (from September 18, 1996
instead of January 1, 1998), vested in his SERP benefit after five years, and
eligible for early retirement at age 60. The agreement provides that in the
event his employment is terminated by the Corporation on or before August 31,
1999, (a) he will receive a severance payment, in 24 semi-monthly installments,
equal to his then-current salary and his bonus for the preceding year and a pro
rata bonus for the year of termination and (b) his outstanding stock options
will be vested and will be exercisable for two years following termination.
These provisions do not apply in the event of voluntary termination, termination
upon death or disability or for cause (as defined in the agreement), or
termination in connection with a Change in Control, discussed below.
Under the Corporation's July 22, 1996 letter agreement with Mr. Hubble
regarding his termination of employment with the Corporation, he received
severance pay, in the amount of $50,000 per month, for twelve months, all stock
options previously granted to him were vested and remain exercisable through
October 31, 1998, and he was granted four additional years of credited service
under the SERP.
The Corporation has Severance Protection Agreements (the "Agreements") with
Messrs. Balloun, Hattox, 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, Hattox, 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 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
12
<PAGE> 15
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, 1997 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 $7,554,220, $1,452,345, $3,035,087, and $830,442 for Messrs. Balloun,
Hattox, 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, Hattox, 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.
13
<PAGE> 16
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, $28,363 for Mr.
Hattox, $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, 1997 were: Mr.
Balloun, 2 years (4 years under the SERP); Mr. Hattox, 1 year; Mr. Levy, 22
years; and Mr. Searle, 1 year.
At the time of his termination of employment, Mr. Hubble was entitled to
accrued annual retirement benefits under the Pension Plan and SERP payable at
age 65 (or the actuarial equivalent under alternate payment options) in the
amount of $194,436.
ITEM NO. 2 -- APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN
On September 23, 1997, subject to approval of the Corporation's
stockholders, the Board of Directors adopted the National Service Industries,
Inc. Employee Stock Purchase Plan (the "Plan"). Approval of the 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. The principal provisions of the Employee Stock Purchase 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.
PURPOSE OF THE PLAN
The purpose of the Employee Stock Purchase Plan is to provide eligible
employees of the Corporation and its participating subsidiaries, who wish to
become stockholders, an opportunity to purchase common stock of the Corporation
at a fifteen percent discount. The Board of Directors believes that increased
employee participation in ownership will be to the mutual benefit of both the
employees and the Corporation.
ADMINISTRATION
The Employee Stock Purchase Plan will be administered by an individual or
committee (which may be a committee of the Board) (the "Administrator"),
appointed by the Board of Directors. Subject to the Plan's terms and conditions,
the Administrator will have full and discretionary authority and power to
administer the Plan and to make, adopt, construe, and enforce rules and
regulations. The Administrator's interpretations and decisions in respect of the
Plan, the rules and regulations pursuant to which it is operated, and the rights
of participants under the Plan will be final and conclusive. Statements will be
issued to participants after each Plan Period (as hereinafter defined).
14
<PAGE> 17
SHARES SUBJECT TO THE PLAN
1,500,000 shares of the Corporation's common stock ("Shares") are reserved
for purchase under the Plan. That number will be appropriately adjusted to
reflect any increase or decrease in the number of issued Shares resulting from a
recapitalization, reclassification, stock split-up, stock dividend, combination
of shares, or other transaction having a similar effect.
ELIGIBILITY FOR PARTICIPATION IN THE PLAN
Each employee of the Corporation or its participating subsidiaries who has
completed six months of Continuous Service (as defined in the Plan) will be
eligible to participate in the Employee Stock Purchase Plan, except (a) any
employee whose customary employment is for twenty hours or less per week, (b)
any employee whose customary employment is for not more than five months in any
calendar year, (c) any employee who owns five percent or more of the total
combined voting power or value of all classes of stock of the Corporation or any
subsidiary, and (d) any employee subject to the laws of a country which would
prohibit the employee's participation in the Plan. Employees who are covered by
a collective bargaining agreement cannot participate if the representative for
such collectively bargained employee elects for such group of employees not to
participate in the Plan.
An eligible employee may elect to participate in the Plan by filing an
enrollment agreement with the Administrator at such time in advance and in such
manner as prescribed by the Administrator. The enrollment agreement will be a
written form prescribed by the Administrator or such equivalent as may be
permitted through telephone or other electronic arrangements established by the
Administrator. The effective date of such employee's participation will be the
first business day of the calendar quarter (beginning each January 1, April 1,
July 1 and October 1) (the "Plan Period") next following the date on which the
Administrator receives from the eligible employee a properly filed enrollment
agreement. On the first business day of each Plan Period, each participant will
be granted the right to purchase Shares. If the Plan is approved, the first
effective date of participation will be April 1, 1998. Participation in the Plan
will continue automatically from one Plan Period to another unless the employee
files a notice of withdrawal with the Administrator at such time in advance as
the Administrator may specify, or the employee ceases to be eligible under the
Plan.
SHARE PURCHASES UNDER THE PLAN
Upon enrollment in the Plan, each participant must authorize payroll
deductions for the purpose of funding his or her Share purchase account. A
participant may elect to make contributions in an amount not less than $10.00
nor more than 10% of the gross amount of such employee's compensation (as
defined in the Plan), subject to the limitation on the maximum number of Shares
that may be purchased, as set forth below. The contribution rate elected by a
participant will continue in effect until modified by the participant. However,
any reduction or increase in a participant's payroll deduction rate will not
take effect until the next Plan Period.
As of the last business day of the Plan Period, Shares will be purchased
for each participant with monies from the participant's Share purchase account.
The purchase price (the "Purchase Price") per Share will be the sum of (a)
eighty-five percent of the Fair Market Value (as defined in the Plan) of such
Share on the first business day of the Plan Period or on the last business day
of the Plan Period, whichever is lower, and (b) any fees or transfer, excise, or
similar tax imposed on the transaction pursuant to which such Share is
purchased.
The Shares will be purchased for each participant on each purchase date, in
whole and fractional shares, up to the full balance of his or her Share purchase
account, at the Purchase Price described above, subject to the other limitations
set forth in the Plan. In no event may a participant, during any calendar year,
purchase Shares having an aggregate Fair Market Value, determined on the first
day of each Plan Period during such calendar year, of more than $25,000.
SHARE OWNERSHIP; ISSUANCE OF CERTIFICATES
All Shares purchased under the Plan will be delivered by the Corporation in
a manner as determined by the Administrator in accordance with the Plan. Such
method may include, but is not limited to, (a) issuing and delivering
certificates for the number of Shares purchased for all participants to a member
firm of both the New York Stock Exchange and the National Association of
Securities Dealers, which Shares will be maintained by it in separate accounts
for each participant, or (b) issuing and delivering certificates for the
15
<PAGE> 18
number of Shares purchased for all participants to a bank or trust company,
which Shares will be maintained in separate accounts for each participant. In
addition, the Administrator may periodically issue and deliver to the
participant a certificate for the number of whole Shares purchased for such
participant.
The Shares purchased by a participant will be deemed to have been acquired
at the close of business on the last business day of the applicable Plan Period.
Prior to that time, none of the rights or privileges of a stockholder of the
Corporation will inure to the participant with respect to such Shares. After
that time, each participant will have full shareholder rights with respect to
all Shares held under the Plan, including, but not limited to, voting, dividend
and liquidation rights. Unless provided otherwise, cash dividends paid on Shares
issued under the Plan will be automatically reinvested. A participant will be
permitted to obtain certificates for Shares credited to his or her account at
any time by a written request for such certificates. Participants' rights under
the Plan are nontransferable except pursuant to the laws of descent and
distribution. The Corporation will promptly distribute stock certificates after
the death, disability, retirement, or other termination of employment of a
participant.
COSTS AND EXPENSES
The Corporation will pay all expenses incurred in the administration of the
Employee Stock Purchase Plan, other than any fees or transfer, excise, or
similar taxes imposed on the transaction pursuant to which any Shares are
purchased.
EFFECT OF CERTAIN TRANSACTIONS
Subject to any required action by the stockholders, if the Corporation is
the surviving or resulting corporation in any merger or consolidation, or if the
Corporation is merged for the purpose of changing the jurisdiction of its
incorporation, any offering of Shares under the Plan will apply to Shares of the
Corporation or the survivor. However, in the event of a dissolution or
liquidation of the Corporation, or a merger or consolidation in which the
Corporation is not the resulting or surviving corporation, the Plan and any
offering of Shares under the Plan will terminate upon the effective date of such
dissolution, liquidation, merger, or consolidation, and the balance then
standing to the credit of each participant in his or her Share purchase account
will be returned.
AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may amend the Employee Stock Purchase Plan at any
time unless the amendment will (i) materially impair the rights of any
participant without his or her consent, or (ii) disqualify the Plan under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
However, to the extent legally required, no amendment will be effective unless
approved by Stockholders. The Board may terminate the Employee Stock Purchase
Plan at any time. Upon termination of the Plan, the balance, if any, then
standing to the credit of each participant in his or her Share purchase account
will be refunded to such participant.
FEDERAL INCOME TAX CONSEQUENCES
The Employee Stock Purchase Plan is intended to qualify as an "employee
stock purchase plan" under Section 423 of the Code. Under current law, the
Corporation believes that the federal income tax consequences described below
would generally result under the Plan.
A participant will be taxed on amounts withheld for the purchase of Shares
as if such amounts were actually received. Other than this, no income will be
taxable to a participant until disposition of the Shares acquired, and the
method of taxation will depend upon the holding period of the purchased Shares.
If the participant disposes of Shares less than two years after the first
day of a Plan Period with respect to which he or she purchased the Shares or
less than one year after the purchase date (a "disqualifying disposition"), then
at that time the participant will realize ordinary income in an amount equal to
the Fair Market Value of the Shares on the date of purchase minus the Purchase
Price of the Shares. Any further gain or loss will be a capital gain or loss,
either short-term or long-term depending on the holding period. The Corporation
may, in the future, be required to withhold income taxes relating to such
ordinary income.
If the shares are disposed of at least two years after the beginning of a
Plan Period and at least one year after the purchase date, then at the time the
participant disposes of the Shares, he or she will realize ordinary income in an
amount equal to the lesser of (a) the Fair Market Value of the Shares at the
time of such disposition minus the Purchase Price or (b) the Fair Market Value
of the Shares as of the beginning of the
16
<PAGE> 19
Plan Period minus the Purchase Price, calculated as if the shares were
purchased on the first day of the Plan Period. Any further gain or loss will be
taxed as a capital gain or loss, as the case may be. Any gain will be taxed at
a maximum rate of 28% if the Shares are held more than one year, but not more
than eighteen months, and at a maximum rate of 20% if they are held more than
eighteen months.
There are no federal income tax consequences to the Corporation by reason
of the grant or exercise of rights under the Employee Stock Purchase Plan. If
the participant disposes of shares in a disqualifying disposition, the
Corporation is entitled to a deduction to the extent amounts are taxed as
ordinary income to a participant (subject to the requirement of reasonableness,
the provisions of Section 162(m) of the Code, and the satisfaction of its tax
reporting obligation).
The foregoing provides only a general description of the application of
federal income tax laws to the Plan. The summary does not address the effects of
other federal taxes or taxes imposed under state, local, or foreign tax laws.
THE BOARD OF DIRECTORS BELIEVES IT IS IN THE BEST INTEREST OF THE
CORPORATION FOR THE STOCKHOLDERS TO APPROVE THE NATIONAL SERVICE INDUSTRIES,
INC. EMPLOYEE STOCK PURCHASE PLAN. 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, 1997, was $1,134,761,
substantially all of which was for services provided in connection with annual
audits, retirement plan audits, divestiture 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 1999 -- 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 1999, the proposal must comply with the
Securities and Exchange Commission's proxy rules, be stated in writing, and be
submitted on or before July 23, 1998, 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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<PAGE> 20
If a stockholder wishes to nominate a candidate for election as director at
the annual meeting of stockholders to be held in January 1999, 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 9, 1998. 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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<PAGE> 21
EXHIBIT A
NATIONAL SERVICE INDUSTRIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.1 STATEMENT OF PURPOSE. The purpose of the National Service Industries,
Inc. Employee Stock Purchase Plan is to provide eligible employees of the
Company and its Subsidiaries, who wish to become stockholders, an opportunity to
purchase Common Stock of the Company. The Board of Directors of the Company
believes that employee participation in ownership will be to the mutual benefit
of both the employees and the Company.
1.2 INTERNAL REVENUE CODE CONSIDERATIONS. The Plan is intended to
constitute an "employee stock purchase plan" within the meaning of section 423
of the Internal Revenue Code of 1986, as amended.
ARTICLE II
CERTAIN DEFINITIONS
2.1 "ADMINISTRATOR" means the individual or committee (which may be a
committee of the Board) appointed by the Board to administer the Plan, as
provided in Section 6.5 hereof.
2.2 "BOARD" means the Board of Directors of the Company.
2.3 "CODE" means the Internal Revenue Code of 1986, as amended.
2.4 "COMPANY" means National Service Industries, Inc., a Delaware
corporation.
2.5 "COMPENSATION" means the total remuneration paid, during the period of
reference, to an Employee by the Company, including regular salary or wages,
overtime payments, commissions and vacation pay, to which has been added (a) any
elective deferral amounts by which the Employee has had his current remuneration
reduced for the purposes of funding a contribution to any plan sponsored by the
Company and satisfying the requirements of section 401(k) of the Code, and (b)
any amounts by which the Employee's compensation has been reduced pursuant to a
compensation reduction agreement between the Employee and the Company for the
purpose of funding benefits through any cafeteria plan sponsored by the Company
meeting the requirements of section 125 of the Code. There shall be excluded
from "Compensation" for the purposes of the Plan, whether or not reportable as
income by the Employee, bonuses, expense reimbursements of all types, payments
in lieu of expenses, the Company contributions to any qualified retirement plan
or other program of deferred compensation (except as provided above), the
Company contributions to Social Security or worker's compensation, the costs
paid by the Company in connection with fringe benefits and relocation, including
gross-ups, and any amounts accrued for the benefit of Employee, but not paid,
during the period of reference.
2.6 "CONTINUOUS SERVICE" means the period of time during which the Employee
has been employed by the Company or a Subsidiary and during which there has been
no interruption of Employee's employment by the Company or a Subsidiary. For
this purpose, periods of Excused Absence shall not be considered to be
interruptions of Continuous Service. Continuous Service shall also include
periods of service with the predecessor businesses of the Company and, at the
election of the Company, may include periods of service with a corporation or
other entity acquired by the Company after the Effective Date.
2.7 "EFFECTIVE DATE" shall mean April 1, 1998, if by or within twelve
months of that date, the Plan is or has been approved at a duly held meeting of
the stockholders of the Company by the affirmative vote of the holders of the
majority of outstanding Common Stock of the Company present, or represented, and
entitled to vote at the meeting.
2.8 "ELIGIBLE EMPLOYEE" means each Employee who has completed six (6)
months of Continuous Service other than:
(a) an Employee whose customary employment is for 20 hours or less per
week,
<PAGE> 22
(b) an Employee whose customary employment is for not more than five
months in any calendar year,
(c) an Employee who is deemed for purposes of Section 423(b)(3) of the
Code to own stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company, and
(d) an Employee subject to the laws of a country which would prohibit
the Employee's participation in the Plan.
2.9 "EMPLOYEE" means each person employed by the Company or a Subsidiary.
2.10 "EXCUSED ABSENCE" means absence pursuant to a leave of absence granted
by the Company or any other entity constituting the Company, absence due to
disability or illness, absence by reason of a layoff, or absence by reason of
active duty in the armed forces of the United States. In no event may an Excused
Absence exceed six (6) months in length (or, if longer and if applicable, the
period of the individual's active duty in the armed forces of the United States
and such period thereafter as such individual's right to reemployment by the
Company is protected by law), and any absence shall cease to be an Excused
Absence upon the earlier of (a) the last day of the calendar month in which the
duration of the absence reaches six (6) months or (b) the last day of the
calendar month in which the leave expires by its terms, the layoff ends by
recall or permanent separation from service, or recovery from illness or
disability occurs.
2.11 "FAIR MARKET VALUE" means, with respect to Stock, the fair market
value of such stock, as determined in good faith by the Administrator; provided,
however, that
(a) if the Stock is admitted to trading on a national securities
exchange, Fair Market Value on any date shall be the last sale price
reported for the Stock 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 Stock is admitted to quotation on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or other
comparable quotation system and has been designated as a National Market
System ("NMS") security, Fair Market Value on any date shall be the last
sale price reported for the Stock on such system on such date or on the
last day preceding such date on which a sale was reported, or
(c) if the Stock is admitted to Quotation on NASDAQ and has 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.
2.12 "OFFERING" means the offering of shares of Stock under the Plan.
2.13 "OFFERING DATE" means the first business day of each Purchase Period
during which the Plan is in effect, commencing with the first business day on or
after the Effective Date.
2.14 "PARTICIPANT" means each Eligible Employee who elects to participate
in the Plan.
2.15 "PURCHASE DATE" means the last business day of each Purchase Period.
2.16 "PLAN" means the National Service Industries, Inc. Employee Stock
Purchase Plan, as the same is set forth herein and as the same may hereafter be
amended.
2.17 "PURCHASE AGREEMENT" means the document prescribed by the
Administrator pursuant to which an Eligible Employee has enrolled to be a
Participant or such electronic equivalent as may be permitted by the
Administrator.
2.18 "PURCHASE PERIOD" means the calendar quarter beginning each January 1,
April 1, July 1, and October 1.
2.19 "PURCHASE PRICE" means such term as it is defined in Section 4.3
hereof.
2.20 "STOCK" means the Common Stock, par value $1.00 per share, of the
Company.
2.21 "STOCK PURCHASE ACCOUNT" means an account consisting of all amounts
withheld from an Employee's Compensation or otherwise paid into the Plan for the
purpose of purchasing shares of Stock for such Employee under the Plan, reduced
by all amounts applied to the purchase of Stock for such Employee under the
Plan.
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2.22 "SUBSIDIARY" shall mean a corporation described in section 424(f) of
the Code that has, with the permission of the Administrator, adopted the Plan.
The participating Subsidiaries on the Effective Date are listed on Schedule A
attached hereto.
ARTICLE III
ADMISSION TO PARTICIPATION
3.1 INITIAL PARTICIPATION. Only Eligible Employees may participate in the
Plan. Eligible Employees who are covered by a collective bargaining agreement
may participate unless the representative for such collectively bargained
employees elects for such group of employees not to participate in the Plan. Any
Eligible Employee may elect to be a Participant and may become a Participant by
executing and filing with the Administrator a Purchase Agreement at such time in
advance and on such forms as prescribed by the Administrator, or through
telephone or other electronic arrangements as may be established by the
Administrator. The effective date of an Eligible Employee's participation shall
be the Offering Date next following the date on which the Administrator receives
from the Eligible Employee a properly filed Purchase Agreement. Participation in
the Plan will continue automatically from one Purchase Period to another unless
notice is given pursuant to Section 3.2.
3.2 VOLUNTARY DISCONTINUANCE OF PARTICIPATION. Any Participant may
voluntarily withdraw from the Plan by filing a Notice of Withdrawal with the
Administrator at such time in advance and on such forms, or using such other
procedures, as the Administrator may specify. Upon such withdrawal, there shall
be paid to the Participant the amount, if any, standing to his credit in his
Stock Purchase Account. The delivery of certificates representing the shares of
Stock held for such Participant under the Plan shall be handled in the manner
provided in Section 4.6.
3.3 INVOLUNTARY DISCONTINUANCE OF PARTICIPATION. If a Participant ceases
to be an Eligible Employee other than by death, the entire amount, if any,
standing to the Participant's credit in his Stock Purchase Account shall be
refunded to him. Notwithstanding the foregoing, should a Participant cease to be
an Eligible Employee (as a result of the restrictions in Section 2.8(c)) by
reason of being granted an option to purchase Stock under a stock option plan
maintained by the Company, such Participant may continue to participate only
through the end of the Purchase Period during which such option was granted. The
delivery of certificates representing the shares of Stock held for such
Participant under the Plan shall be handled in the manner provided in Section
4.6.
3.4 READMISSION TO PARTICIPATION. Any Eligible Employee who has previously
been a Participant, who has discontinued participation, and who wishes to be
reinstated as a Participant may again become a Participant for any subsequent
Purchase Period by executing and filing with the Administrator, at such time in
advance as the Administrator shall determine, a new Purchase Agreement on forms
provided by the Administrator, or through telephone or other electronic
arrangements as may be established by the Administrator. Reinstatement to
Participant status shall be effective as of the Offering Date next following the
date on which the Administrator receives from the Eligible Employee the properly
filed Purchase Agreement.
ARTICLE IV
STOCK PURCHASE
4.1 RESERVATION OF SHARES. Except as provided in the antidilution
provisions of Section 5.2 hereof, the aggregate number of shares of Stock that
may be purchased under the Plan shall not exceed 1,500,000 shares. Shares of
Stock issued pursuant to the Plan may be either unissued shares of Stock, Stock
held in treasury, or shares of Stock acquired in the market or directly from
shareholders.
4.2 LIMITATION ON SHARES AVAILABLE. Subject to the other limitations set
forth in the Plan, the maximum number of shares of Stock that may be purchased
for each Participant on a Purchase Date is the lesser of (a) the number of whole
and fractional shares of Stock that can be purchased by applying the full
balance of his Stock Purchase Account to such purchase of shares at the Purchase
Price (as hereinafter determined), (b) the number of shares of Stock that would
not cause the Participant to exceed the limit of Section 2.8(c), or (c) an
amount equal to 10% of the Participant's expected Purchase Period Compensation
divided by the Fair Market Value of the Stock on the Offering Date. A
Participant's expected Purchase Period Compensation shall be determined by
multiplying his normal hourly or weekly rate of Compensation (as in effect on
the last day prior to such Offering Date) by the number of regularly scheduled
hours or weeks of
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<PAGE> 24
work for such Participant during the Purchase Period. Any portion of a
Participant's Stock Purchase Account that cannot be applied by reason of the
foregoing limitation shall remain in the Participant's Stock Purchase Account
for application to the purchase of Stock on the next Offering Date (unless
withdrawn before such next Offering Date).
4.3 PURCHASE PRICE OF SHARES. The Purchase Price per share of Stock
purchased for Participants pursuant to any Offering shall be the sum of (a)
eighty-five percent (85%) of the Fair Market Value of such share on the Offering
Date on which such Offering commences or on the Purchase Date on which such
Offering expires, whichever is lower, and (b) any transfer, excise, or similar
tax imposed on the transaction pursuant to which such share of Stock is
purchased. If the Purchase Date with respect to the purchase of Stock is a day
on which the stock is selling ex-dividend but is on or before the record date
for such dividend, then for Plan purposes the Purchase Price per share will be
increased by an amount equal to the dividend per share. In no event shall the
Purchase Price be less than the par value of the Stock.
4.4 ESTABLISHMENT OF STOCK PURCHASE ACCOUNT. Each Participant shall
authorize payroll deductions from Compensation for the purposes of funding his
Stock Purchase Account. In the Purchase Agreement, each Participant shall
authorize a deduction from each payment of his Compensation during a Purchase
Period, which deduction shall be not less than $10.00 nor more than ten percent
(10%) of the gross amount of such payment, subject to Section 4.5(b). The
Administrator or its designee may require that any payroll deduction must be
made in whole percentages (i.e., 1%, 2%, 3%, etc.) and not in any fraction of a
percentage. In addition, the Administrator may allow, in its sole discretion and
subject to such terms and procedural requirements as it may establish, for the
delivery of payments by Participants directly to the Administrator or its
designee, provided, however, that the total payroll deductions and direct cash
payments may not exceed, in the aggregate for any calendar year, ten percent
(10%) of the total Compensation paid such Participant for the respective
calendar year. Subject to Section 3.2, a Participant may not reduce or increase
his payroll deduction rate during any Purchase Period. However, a Participant
may change the deduction to any permissible level for any subsequent Purchase
Period by filing notice thereof at such time preceding the Offering Date on
which such subsequent Purchase Period commences as the Administrator shall
determine.
4.5 EXERCISE OF PURCHASE PRIVILEGE. (a) Subject to the provisions of
Section 4.2 above, on each Purchase Date there shall be purchased for the
Participant at the Purchase Price the largest number of whole and fractional
shares of Stock that can be purchased with the entire amount standing to the
Participant's credit in his Stock Purchase Account.
(b) Notwithstanding anything contained herein to the contrary, (i) a
Participant may not during any calendar year purchase shares of Stock having an
aggregate Fair Market Value, determined at the time of each Offering Date during
such calendar year, of more than $25,000, and (ii) all rights to purchase Stock
offered on an Offering Date must be exercised within twenty-seven (27) months of
such Offering Date.
4.6 SHARE OWNERSHIP; ISSUANCE OF CERTIFICATES. (a) The shares purchased
for a Participant on a Purchase Date shall, for all purposes, be deemed to have
been issued and/or sold at the close of business on such Purchase Date. Prior to
that time, none of the rights or privileges of a stockholder of the Company
shall inure to the Participant with respect to such shares. All the shares of
Stock purchased under the Plan shall be delivered by the Company in a manner as
determined by the Administrator in accordance with Section 4.6(b).
(b) The Administrator, in its sole discretion, may determine the method for
delivering shares of Stock by the Company including, but not limited to, (i) by
issuing and delivering a certificate or certificates for the number of shares of
Stock purchased for all Participants on a Purchase Date or during a calendar
year to a member firm of the New York Stock Exchange which is also a member of
the National Association of Securities Dealers, Inc., as selected by the
Administrator from time to time, which shares shall be maintained by such member
firm in separate accounts for each Participant, or (ii) by issuing and
delivering a certificate or certificates for the number of shares of Stock
purchased for all Participants on a Purchase Date or during the calendar year to
a bank or trust company or affiliate thereof, as selected by the Administrator
from time to time, which shares shall be maintained by such bank or trust
company or affiliate in separate accounts for each Participant. In addition, the
Administrator may periodically issue and deliver to the Participant a
certificate for the number of whole shares of Stock purchased for such
Participant on a Purchase Date or during such other time period as the
Administrator may determine. Each Participant shall have full shareholder rights
with respect to all shares of Stock purchased under the Plan, including, but not
limited to, voting, dividend and liquidation rights. Shares which are held in
the name of the Company or its agent as the nominee for the
A-4
<PAGE> 25
Participant will be covered by proxies provided to such Participant by the
Company or its agent. Unless provided otherwise, cash dividends paid on Stock
issued under the Plan will be automatically reinvested. A Participant may
withdraw certificates for his shares of Stock credited to his account at any
time by a written request for such withdrawal delivered to the Administrator or
its designee, or through telephone or other electronic arrangements as may be
established by the Administrator. Upon any such request, the Company will
promptly distribute such certificates to the requesting Participant.
Distributions of stock certificates will be made promptly after the death,
disability, retirement or other termination of employment of a Participant. In
the event of a Participant's death, such stock certificates will be distributed
to the Participant's estate.
ARTICLE V
SPECIAL ADJUSTMENTS
5.1 SHARES UNAVAILABLE. If, on any Exercise Date, the aggregate funds
available for the purchase of Stock would purchase a number of shares in excess
of the number of shares then available for purchase under the Plan, the
following events shall occur:
(a) The number of shares that would otherwise be purchased for each
Participant shall be proportionately reduced on the Purchase Date in order
to eliminate such excess;
(b) The Plan shall automatically terminate immediately after the
Purchase Date as of which the supply of available shares is exhausted; and
(c) Any amounts remaining in the respective Stock Purchase Accounts of
the Participants shall be repaid to such Participants.
5.2 ANTIDILUTION PROVISIONS. The aggregate number of shares of Stock
reserved for purchase under the Plan, as hereinabove provided, and the
calculation of the Purchase Price per share may be appropriately adjusted to
reflect any increase or decrease in the number of issued shares of Stock
resulting from a recapitalization, reclassification, stock split-up, stock
dividend, combination of shares, or transaction having similar effect. Any such
adjustment shall be made by the Administrator acting with the consent of, and
subject to the approval of, the Board.
5.3 EFFECT OF CERTAIN TRANSACTIONS. Subject to any required action by the
stockholders, if the Company shall be the surviving or resulting corporation in
any merger or consolidation, or if the Company shall be merged for the purpose
of changing the jurisdiction of its incorporation, any Offering hereunder shall
pertain to and apply to the shares of stock of the Company or the survivor.
However, in the event of a dissolution or liquidation of the Company, or of a
merger or consolidation in which the Company is not the surviving or resulting
corporation, the Plan and any Offering hereunder shall terminate upon the
effective date of such dissolution, liquidation, merger, or consolidation, and
the balance then standing to the credit of each Participant in his Stock
Purchase Account shall be returned to him.
ARTICLE VI
MISCELLANEOUS
6.1 NONALIENATION. The right to purchase shares of Stock under the Plan is
personal to the Participant, is exercisable only by the Participant during his
lifetime except as hereinafter set forth, and may not be assigned or otherwise
transferred by the Participant.
6.2 DEATH OF THE PARTICIPANT. Upon the death of the Participant, the
entire amount then standing to the credit of the Participant in his Stock
Purchase Account shall be distributed to the Participant's estate.
6.3 ADMINISTRATIVE COSTS. Other than any transfer, excise, or similar
taxes imposed on the transaction pursuant to which any shares of Stock are
purchased, the Company or a Subsidiary shall pay all administrative expenses
associated with the operation of the Plan.
6.4 COLLECTION OF TAXES. The Company shall be entitled to require any
Participant to remit, through payroll withholding or otherwise, any tax that it
determines it is so obligated to collect with respect to the issuance of Stock
hereunder, or the subsequent sale or disposition of such Stock, and the
Administrator shall institute such mechanisms as shall insure the collection of
such taxes.
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<PAGE> 26
6.5 ADMINISTRATOR. The Board shall appoint an Administrator, which shall
have the authority and power to administer the Plan and to make, adopt,
construe, and enforce rules and regulations not inconsistent with the provisions
of the Plan. The Administrator shall adopt and prescribe the contents of all
forms required in connection with the administration of the Plan, including, but
not limited to, the Purchase Agreement, payroll withholding authorizations,
withdrawal documents, and all other notices required hereunder. The
Administrator shall have the fullest discretion permissible under law in the
discharge of its duties. The Administrator's interpretations and decisions in
respect of the Plan, the rules and regulations pursuant to which it is operated,
and the rights of Participants hereunder shall be final and conclusive.
6.6 AMENDMENT OF THE PLAN. The Board may amend the Plan without the
consent of stockholders or Participants, except that any such action shall be
subject to the approval of the Company's stockholders at or before the next
annual meeting of stockholders for which the record date is set after such Board
action if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Stock may then be listed or quoted, and the Board may otherwise in its
discretion determine to submit other such changes to the Plan to stockholders
for approval; provided, however, that no such action may (i) without the consent
of an affected Participant, materially impair the rights of such Participant
with respect to any shares of Stock theretofore purchased for him under the
Plan, or (ii) disqualify the Plan under section 423 of the Code.
6.7 TERMINATION OF THE PLAN. Subject to Section 5.1, the Plan shall
continue in effect unless terminated pursuant to action by the Board, which
shall have the right to terminate the Plan at any time without prior notice to
any Participant and without liability to any Participant. Upon the termination
of the Plan, the balance, if any, then standing to the credit of each
Participant in his Stock Purchase Account shall be refunded to him and the
certificates representing the shares of Stock shall be handled in the manner
provided in Section 4.6.
6.8 REPURCHASE OF STOCK. The Company shall not be required to purchase or
repurchase from any Participant any of the shares of Stock that the Participant
acquired under the Plan.
6.9 NOTICE. A Purchase Agreement and any notice that a Participant files
pursuant to the Plan shall be on the form prescribed by the Administrator and
shall be effective only when received by the Administrator or its designee.
Delivery of such forms may be made by hand or by certified mail, sent postage
prepaid, to the address specified by the Administrator. Delivery by any other
mechanism shall be deemed effective at the discretion of the Administrator.
6.10 GOVERNMENT REGULATION. The Company's obligation to sell and to
deliver the Stock under the Plan is at all times subject to all approvals of any
governmental authority required in connection with the authorization, issuance,
sale, or delivery of such Stock.
6.11 HEADINGS, CAPTIONS, GENDER. The headings and captions herein are for
convenience of reference only and shall not be considered as part of the text.
The masculine shall include the feminine, and vice versa.
6.12 SEVERABILITY OF PROVISIONS; PREVAILING LAW. The provisions of the
Plan shall be deemed severable. If any such provision is determined to be
unlawful or unenforceable by a court of competent jurisdiction or by reason of a
change in an applicable statute, the Plan shall continue to exist as though such
provision had never been included therein (or, in the case of a change in an
applicable statute, had been deleted as of the date of such change). The Plan
shall be governed by the laws of the State of Delaware, to the extent such laws
are not in conflict with, or superseded by, federal law.
A-6
<PAGE> 27
[NSI LOGO]
(LOGO) PRINTED ON RECYCLED PAPER NSV-PS-97
<PAGE> 28
APPENDIX
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR:
- ---------------------------------
NATIONAL SERVICE INDUSTRIES, INC. For With- For All
- --------------------------------- All Nominees hold Except
1. Election of Directors: [ ] [ ] [ ]
Mark box at right if an address change or [ ] JAMES S. BALLOUN, JOHN L. CLENDENIN, THOMAS C. GALLAGHER,
comment has been noted on the reverse side ROBERT M. HOLDER, JR., JAMES C. KENNEDY, DAVID LEVY,
of this card. BERNARD MARCUS, JOHN G. MEDLIN, JR., SAM NUNN,
HERMAN J. RUSSELL, BETTY L. SIEGEL, AND BARRIE A. WIGMORE
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. [ ] [ ] [ ]
Employee Stock Purchase 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
- -------------------------------------------------------
Stockholder sign here Co-owner sign here
- --------------------------------------------------------
DETACH CARD DETACH CARD
</TABLE>
NSI ANNUAL MEETING PARKING PASS
Parking for shareholders attending the Annual Meeting will be available in the
Woodruff Arts Center parking decks on Lombardy Way at the rear of the
Arts Center.
As you exit the parking decks, present this parking pass to the attendant.
<PAGE> 29
NATIONAL SERVICE INDUSTRIES, INC.
ANNUAL STOCKHOLDERS MEETING JANUARY 7, 1998
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 7, 1998 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.
- --------------------------------------------------------------------------------
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 fill title as such.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
