<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 6, 1999
The annual meeting of stockholders of NATIONAL SERVICE INDUSTRIES, INC.
(the "Corporation") will be held on Wednesday, January 6, 1999, 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 amend the Restated Certificate of Incorporation to increase the
authorized common stock of the Corporation to 120,000,000 shares;
(3) to approve the amended and restated National Service Industries,
Inc. Management Compensation and Incentive Plan;
(4) to ratify the appointment of Arthur Andersen LLP as independent
auditors for the Corporation for the fiscal year ending August 31, 1999;
and
(5) 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 9, 1998
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 23, 1998
By order of the Board of Directors,
/s/ Helen D. Haines
HELEN D. HAINES
Vice President and Secretary
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 6, 1999. A copy of the annual report of the Corporation
for the fiscal year ended August 31, 1998 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 23, 1998.
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
properly returned or alternatively delivered, 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 the proposed amendment to the Restated Certificate of
Incorporation to increase the Corporation's authorized common stock, for
approval of the amended and restated Management Compensation and Incentive Plan,
and for ratification of the appointment of Arthur Andersen LLP as independent
auditors for the Corporation.
STOCK OUTSTANDING AND VOTING RIGHTS
As of November 9, 1998, the record date for the annual meeting, there were
41,409,705 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 thirteen (13) 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 Charles W. McCall, who was elected by the
Board of Directors effective July 23, 1998.
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
[PHOTO OF Mr. Balloun, 60 years old, was elected Chairman of the Board
JAMES S. BALLOUN] and Chief Executive Officer of the Corporation effective
February 1, 1996, and was also elected President effective
October 19, 1996. He was previously affiliated with the
management consulting firm McKinsey & Company, Inc., which
he served as a Director from June 1976 until January 1996.
Mr. Balloun is a director of Georgia Pacific Corporation,
Radiant Systems, Inc., and Wachovia Corporation. Mr. Balloun
is Chairman of the Executive Committee of the Board.
JOHN L. CLENDENIN Director
since 1996
[PHOTO OF Mr. Clendenin, 64 years old, is retired from BellSouth
JOHN L. CLENDENIN] Corporation, which he served as Chairman from December 1996
to December 1997 and as Chairman, 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 Company, RJR Nabisco Holdings
Corp., Powerwave Technologies, 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
Committee of the Board.
THOMAS C. GALLAGHER Director
since 1997
[PHOTO OF Mr. Gallagher, 50 years old, has served since 1990 as
THOMAS C. GALLAGHER] 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
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
[PHOTO OF Mr. Holder, 68 years old, has served since April 1997 as
ROBERT M. HOLDER, JR.] Chairman of the Board of The RMH Group, a consulting and
investment firm. He was Chairman of the Board of Holder
Corporation, a real estate development and construction firm
he founded, from 1960 through March 1997. He also served as
its Chief Executive Officer from 1960 until April 1994. Mr.
Holder is Chairman of the Audit Committee and a member of
the Executive Committee of the Board.
</TABLE>
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<TABLE>
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JAMES C. KENNEDY Director
since 1993
[PHOTO OF Mr. Kennedy, 50 years old, has served since January 1988 as
JAMES C. KENNEDY] Chairman and Chief Executive Officer of Cox Enterprises,
Inc., a company engaged in publishing, broadcasting, and
automobile auction businesses. He has been employed by Cox
Enterprises since 1972 and has served as an officer of the
company since 1986. He is a director of Cox Communications,
Inc. and Cox Radio, Inc. Mr. Kennedy is a member of the
Executive Resource and Compensation and the Corporate
Governance and Nominating Committees of the Board.
DAVID LEVY Director
since 1984
[PHOTO OF Mr. Levy, 61 years old, is Executive Vice President,
DAVID LEVY] Administration and Counsel of the Corporation. He served the
Corporation as Senior Vice President, Secretary and Counsel
from 1982 through September 1992. He has served as an
officer of the Corporation since 1973. Mr. Levy is a member
of the Executive Committee of the Board.
BERNARD MARCUS Director
since 1990
[PHOTO OF Mr. Marcus, 69 years old, is one of the co-founders of The
BERNARD MARCUS] Home Depot, Inc. He has served as its Chairman of the Board
since 1978 and also served as Chief Executive Officer from
1978 until May 1997. Mr. Marcus was Chairman of the Board
and President of Handy Dan Home Improvement Centers, Inc.
from 1972 to 1978. Mr. Marcus is a director of DBT Online,
Inc. and Westfield America, Inc. He is a member of the
Audit, the Executive, and the Executive Resource and
Compensation Committees of the Board.
CHARLES W. McCALL Director
since 1998
[PHOTO OF Mr. McCall, 54 years old, has served since 1991 as President
CHARLES W. McCALL] and Chief Executive Officer of HBO & Company and was elected
Chairman of the Board in 1998. HBOC is a provider of
software and other services to healthcare organizations. Mr.
McCall previously served as President and Chief Executive
Officer of CompuServe Inc. from 1984 to 1991. He is a
director of EIS International, Inc. and WestPoint Stevens
Inc. He is a member of the Audit and Executive Resource and
Compensation Committees of the Board.
JOHN G. MEDLIN, JR. Director
since 1988
[PHOTO OF Mr. Medlin, 64 years old, is Chairman Emeritus of Wachovia
JOHN G. MEDLIN, JR.] Corporation. He served as its non-executive Chairman from
1994 to 1998 and as its Chief Executive Officer from 1977
through 1993. He joined Wachovia Bank and Trust Company in
1959 and served as an officer of the Bank and affiliated
companies for 36 years. He is a director of BellSouth
Corporation, Burlington Industries, Inc., Media General,
Inc., USAirways Group, Inc., and Wachovia Corporation. Mr.
Medlin is Chairman of the Corporate Governance and
Nominating Committee and a member of the Executive Committee
of the Board.
</TABLE>
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<TABLE>
<S> <C>
SAM NUNN Director
since 1997
[PHOTO OF Mr. Nunn, 60 years old, is a senior partner in the Atlanta
SAM NUNN] law firm King & Spalding, which he joined in January 1997.
Previously, he 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 Corporate Governance and Nominating Committees of the
Board.
HERMAN J. RUSSELL Director
since 1996
[PHOTO OF Mr. Russell, 67 years old, has served since 1959 as Chairman
HERMAN J. RUSSELL] of the Board and since October 1998 as Chief Executive
Officer of H.J. Russell & Company, which is engaged in
construction, client services, and property management
businesses. He also served as its Chief Executive Officer
from 1959 until November 1996. Mr. Russell also serves as a
director of Georgia Power Company. He is a member of the
Audit and the Corporate Governance and Nominating Committees
of the Board.
BETTY L. SIEGEL Director
since 1988
[PHOTO OF Dr. Siegel, 67 years old, has served as President of
BETTY L. SIEGEL] Kennesaw State University since 1981. She previously served
as Dean of the School of Education and Psychology and
Professor of Psychology at Western Carolina University from
1976 to 1981 and served as Dean of Academic Affairs for
Continuing Education at the University of Florida from 1972
to 1976. She is a director of AGL Resources Inc. and Equifax
Inc. Dr. Siegel is a member of the Executive Resource and
Compensation and the Corporate Governance and Nominating
Committees of the Board.
BARRIE A. WIGMORE Director
since 1997
[PHOTO OF Mr. Wigmore, 57 years old, is a limited partner of Goldman
BARRIE A. WIGMORE] Sachs Group, LP, an investment banking firm. He joined
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, 1998, 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-half of the annual fee, and may elect to receive
additional portions of the annual fee and the chairman fee, in deferred stock
units. 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 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.
Effective December 31, 1997, the Corporation terminated its Directors'
Deferred Compensation Plan, under which directors could defer payment of all or
any part of their cash fees for a period generally ending on
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<PAGE> 7
or after retirement. Existing balances were transferred to the Nonemployee
Director Deferred Stock Unit Plan.
Pursuant to the National Service Industries, Inc. 1992 Nonemployee
Directors' Stock Option Plan, each nonemployee director received on September
17, 1997 a grant of a nonqualified option for the purchase of 1,000 shares of
common stock at an exercise price of $44.25 per share, the fair market value on
the grant date. Each option grant is exercisable after one year and remains
exercisable for a period of ten years from the grant date. Effective in January
1999, stock options will be granted annually on the day of the Annual Meeting.
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.
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, HBO & Company, The Home Depot, Inc., Kennesaw State
University, The RMH Group, 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 no 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,
Charles W. McCall, Herman J. Russell, 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, Charles W. McCall, 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, James C.
Kennedy, Sam Nunn, Herman J. Russell, and Betty L. Siegel. It held two
meetings during the fiscal year.
During the fiscal year ended August 31, 1998, 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. Marcus.
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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 Helen D.
Haines, Vice President and Secretary, 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 2000 -- Stockholder Proposals."
BENEFICIAL OWNERSHIP OF THE CORPORATION'S SECURITIES
The table below sets forth information concerning beneficial ownership of
the Corporation's common stock and ownership of deferred stock units (share
equivalents), as of September 1, 1998 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 ten, 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 Compensation 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 DEFERRED
COMMON STOCK STOCK
BENEFICIALLY UNITS
NAME OWNED(1)(2) OWNED(3)
---- ------------- --------
<S> <C> <C>
James S. Balloun............................................ 303,864 0
John L. Clendenin........................................... 5,300 2,175
Thomas C. Gallagher......................................... 1,000 1,648
Brock A. Hattox............................................. 32,429 0
Robert M. Holder, Jr........................................ 12,330 14,420
James C. Kennedy............................................ 6,000 3,037
David Levy.................................................. 127,764(4) 0
Bernard Marcus.............................................. 8,000 3,360
Charles W. McCall........................................... 0 1,000
John G. Medlin, Jr.......................................... 7,000 2,312
Sam Nunn.................................................... 3,000(5) 2,626
Herman J. Russell........................................... 3,024 3,360
Stewart A. Searle III....................................... 14,632 0
Betty L. Siegel............................................. 6,591 9,761
Barrie A. Wigmore........................................... 11,000 2,161
Current directors and executive officers as a group......... 541,934(2)(5) 45,860
</TABLE>
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(1) The percentage of shares beneficially owned by each individual does not
exceed one percent of the Corporation's common stock and the percentage of
shares beneficially owned by directors and executive officers as a group is
1.3%. 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, 288,750 shares; Mr.
Hattox, 30,000 shares; Mr. Levy (including options held by a family
partnership of which he is the general partner), 100,828 shares; Mr. Searle,
13,500 shares; Messrs. Clendenin, Nunn and Russell, 2,000 shares each; Mr.
Kennedy, 5,000 shares; Messrs. Holder, Marcus, and Medlin and Dr. Siegel,
6,000 shares each; Mr. Wigmore, 1,000 shares; and all current directors and
executive officers as a group, 469,078 shares.
(3) The deferred stock units (each unit equivalent to one share of stock) are
credited to the accounts of nonemployee directors of the Corporation under
the Nonemployee Directors' Deferred Stock Unit Plan.
(4) Includes 49 shares held by Mr. Levy's spouse.
(5) Share ownership is shown for Mr. Nunn as of October 1, 1998.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and officers to file reports of ownership and changes in
ownership of the Corporation's stock with the Securities and Exchange
Commission, the New York Stock Exchange, and the Corporation. Based on a review
of the forms received by the Corporation during or with respect to the fiscal
year ended August 31, 1998, 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,
except that the Form 3 for Mr. McCall was filed approximately seven days late
and the Form 4 reporting Mr. Clendenin's exercise of nonemployee director stock
options (an exempt transaction under Section 16(b) of the Exchange Act) was
filed late.
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 nonemployee 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 1998 fiscal year, the principal compensation components
were base salary, bonus awards under the Incentive Plan, stock options granted
under the Long-Term Plan, 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 1998 or 1999
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
(or, if later, five years from the date on which
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the participant became subject to the guidelines). Progress toward meeting the
guidelines will be taken into account when grants and awards are made under the
Plan.
Executive Officers' 1998 Compensation
The salary for fiscal 1998 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 1998 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 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 1998, the threshold
level required the same level of earnings per share as was achieved in fiscal
1997. Based on the Corporation's earnings per share, the actual bonus fund for
each individual represented 68.5% of the target bonus fund.
The compensation of executive officers for fiscal 1998 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 Plan. 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 over time.
Long-term awards to executive officers in fiscal 1998 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 1998 Compensation
Pursuant to Mr. Balloun's February 1, 1996 employment agreement with the
Corporation (see "Employment Contracts, Severance Arrangements, and Other
Agreements" in this proxy statement), in the 1998 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.
The bonus paid to Mr. Balloun for fiscal 1998 was based on the
Corporation's earnings level, as specified by the Committee at the beginning of
the fiscal year and as described above for executive officers. 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.
The Committee was recently advised by an independent compensation consultant
that Mr. Balloun's 1998 base salary was competitive with the market third
quartile, that his 1998 bonus opportunity approximated the market median, and
that his 1998 long-term incentive value approximated the market median.
EXECUTIVE RESOURCE AND
COMPENSATION COMMITTEE
John L. Clendenin, Chairman
Thomas C. Gallagher
James C. Kennedy
Betty L. Siegel
Barrie A. Wigmore
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, 1998 were, for
the entire year, John L. Clendenin, Thomas C. Gallagher, James C. Kennedy, Betty
L. Siegel, and Barrie A. Wigmore, for the portion of the year up to January 7,
1998, Bernard Marcus and John G. Medlin, Jr., and for the portion of the year
after July 23, 1998, Charles W. McCall. None of these individuals are or have
ever been officers or employees of the Corporation. During the 1998 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, 1998, 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 $100 at the
closing price on August 31, 1993 and assumes all dividends were reinvested.
<TABLE>
<CAPTION>
S&P
Measurement Period Specialized
(Fiscal Year Covered) NSI S&P 500 Services
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 109.89 105.44 99.80
1995 123.54 128.03 113.79
1996 167.44 151.99 133.59
1997 200.93 213.75 163.73
1998 173.38 231.06 150.34
</TABLE>
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
The following table presents the cash compensation paid by the Corporation
and its affiliates for the past three fiscal years, as well as compensation
accrued for those years, to the individual who served as the Corporation's Chief
Executive Officer during the 1998 fiscal year and the three other executive
officers as of August 31, 1998 (the four officers referred to herein as the
"named executive officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------- ------------------------- -------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
FISCAL SALARY BONUS SATION AWARD(S) OPTIONS/SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#)(2) ($) ($)(3)
- ----------------------------------- ------ ------- ------- -------- ---------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James S. Balloun(4)................ 1998 750,000 513,750 4,800 0 65,000 0 2,500
Chairman of the Board, 1997 750,000 750,000 4,800 0 45,000 0 2,500
President and Chief 1996 750,000 750,000 3,200 0 250,000 0 0
Executive Officer
Brock A. Hattox(5)................. 1998 370,000 114,071 4,800 0 40,000 0 5,447
Executive Vice President 1997 347,144 192,836 112,994 0 40,000 0 1,000
and Chief Financial Officer 1996 -- -- -- -- -- -- --
David Levy......................... 1998 357,500 110,217 4,800 0 31,000 0 10,127
Executive Vice President, 1997 342,500 186,046 4,800 0 20,000 0 1,000
Administrative and 1996 326,250 100,289 5,300 0 20,000 0 6,000
Counsel
Stewart A. Searle III(6)........... 1998 232,500 71,680 4,800 0 20,000 0 6,029
Senior Vice President, 1997 212,500 115,430 4,800 0 12,000 0 0
Planning and Development 1996 50,000 15,000 1,000 0 5,000 0 0
</TABLE>
- ---------------
(1) Each amount shown includes an automobile allowance of $400 per month.
(2) No stock appreciation rights were granted during this period.
(3) The amounts shown for 1998 include a matching contribution on 401(k)
deferrals in the amount of $2,947 for Mr. Hattox, $5,127 for Mr. Levy, and
$3,529 for Mr. Searle, and a matching contribution on other deferred
compensation in the amount of $5,000 for Mr. Levy and $2,500 each for
Messrs. Balloun, Hattox, and Searle.
(4) Mr. Balloun was elected President effective October 19, 1996.
(5) Mr. Hattox was elected Executive Vice President and Chief Financial Officer
on September 18, 1996.
(6) Mr. Searle was elected Senior Vice President, Planning and Development on
June 19, 1996.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning the exercise of stock
options by the named executive officers during the 1998 fiscal year and the
aggregate value of unexercised stock options held by the named executive
officers as of August 31, 1998. No stock appreciation rights are held by any
named executive officer.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS/SARS AT
SHARES OPTIONS/SARS AT FY-END (#) FY-END ($)(1)
ACQUIRED ON VALUE ------------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
James S. Balloun..... -- -- 261,250 98,750 1,187,500 0
Brock A. Hattox...... -- -- 10,000 70,000 0 0
David Levy........... -- -- 78,078 61,000 859,067 120,000
Stewart A. Searle
III................ -- -- 5,500 31,500 0 0
</TABLE>
- ---------------
(1) The amounts shown represent the aggregate excess of market value of shares
under option as of August 31, 1998 (using the $37.25 closing price on August
31, 1998) over the exercise price of the options.
10
<PAGE> 13
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock options which
were granted to the named executive officers during the fiscal year ended August
31, 1998, as disclosed in the Summary Compensation Table above. The Corporation
did not award any stock appreciation rights or reprice any stock options during
the year.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS
OPTIONS/ GRANTED TO EXERCISE GRANT
SARS EMPLOYEES OR BASE DATE
GRANTED IN FISCAL PRICE EXPIRATION PRESENT
NAME (#)(1) YEAR ($/SH) DATE VALUE($)(2)
---- ------------ ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
James S. Balloun......................... 65,000 13.0% 44.3125 9/22/07 791,700
Brock A. Hattox.......................... 40,000 8.0% 44.3125 9/22/07 487,200
David Levy............................... 31,000 6.2% 44.3125 9/22/07 377,580
Stewart A. Searle III.................... 20,000 4.0% 44.3125 9/22/07 243,600
</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 and the Long-Term Achievement
Incentive Plan, 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 6.10%, a
dividend yield of 2.809%, an option term of ten years, and stock price
volatility having a standard deviation of .1810. 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.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The following table contains information concerning the grant of aspiration
awards to the named executive officers during the 1998 fiscal year.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
NUMBER OF PERFORMANCE OR PRICE-BASED PLANS
SHARES, UNITS OTHER PERIOD -------------------------------
OR OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#) OR PAYOUT(1) ($) ($) ($)
- ---- ------------- ---------------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
James S. Balloun....................... 360,000 3 years 90,000 360,000 1,800,000
Brock A. Hattox........................ 172,800 3 years 43,200 172,800 864,000
David Levy............................. 168,000 3 years 42,000 168,000 840,000
Stewart A. Searle III.................. 108,000 3 years 27,000 108,000 540,000
</TABLE>
- ---------------
(1) Aspiration awards will be payable based on the performance of the
Corporation, as measured by cumulative economic profit (adjusted after-tax
profit less a capital charge) over a three-year performance cycle ending
August 31, 2000. Half of each payout will be in shares of stock and half
will be in cash.
EMPLOYMENT CONTRACTS, SEVERANCE ARRANGEMENTS, AND OTHER AGREEMENTS
The Corporation's February 1, 1996 employment agreement with Mr. Balloun
set forth his compensation arrangements for the period expiring August 31, 1998.
For each fiscal year covered, the agreement provided 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.
11
<PAGE> 14
The employment agreement with Mr. Balloun provides for a lump sum severance
payment of $1.5 million in the event his employment is terminated after August
31, 1998. This provision does 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.
Pursuant to the Corporation's August 26, 1996 employment agreement with Mr.
Hattox and a related amendment to the SERP, 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.
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 the officers 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. Hattox, Levy, and Searle are effective for a term of two
years, which is automatically extended for one year at the end of each year
unless terminated by either party. However, the term of the Agreements will not
expire during a "Threatened Change in Control Period" (as defined in the
Agreements) or prior to the expiration of 24 months following a "Change in
Control" (as described below). If the employment of the officer is terminated
within 24 months following a Change in Control or in certain other instances in
connection with a Change in Control (1) by the Corporation other than for
"Cause" or "Disability" or (2) by the officer for "Good Reason" (as each term is
defined in the Agreements) or during the 60-day period commencing on the first
anniversary of the occurrence of a Change in Control, the officer will be
entitled to receive (a) a pro rata bonus for the year of termination, (b) a lump
sum cash payment equal to two times the sum of his base salary and bonus (in
each case at least equal to his base salary and bonus prior to a Change in
Control), subject to certain adjustments, (c) continuation of life insurance,
disability, medical, dental, and hospitalization benefits for a period of up to
24 months, and (d) a lump sum cash payment reflecting certain retirement
benefits he would have been entitled to receive had he remained employed by the
Corporation for an additional two years and a reduced requirement for early
retirement benefits. Additionally, all restrictions on any outstanding incentive
awards will lapse and become fully vested, all outstanding stock options will
become fully vested and immediately exercisable, and the Corporation will be
required to purchase for cash, on demand, at the then per-share fair market
value, any shares of unrestricted stock and shares purchased upon exercise of
options.
The Agreements provide that the Corporation shall make an additional
"gross-up payment" to each officer to offset fully the effect of any excise tax
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), on any payment made to him arising out of or in connection with his
employment. In addition, the Corporation will pay all legal fees and related
expenses incurred by the officer arising out of his employment or termination of
employment if, in general, the circumstances for which he has retained legal
counsel occurred on or after a Change in Control.
Assuming a Change in Control had occurred on October 1, 1998 and their
employment had terminated on that date, the approximate cash payments that would
have been made under the Agreements (not including the gross-up payments) would
have been $4,521,184, $1,324,096, $2,005,292, $810,643 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. In addition,
in the event of such a Change in Control and termination of employment, Messrs.
Balloun, Hattox, Levy, and Searle would
12
<PAGE> 15
be entitled to $2,675,743, $728,177, $2,079,259, and $449,231, respectively, in
accelerated benefits under other benefit plans and compensation agreements.
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.
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.......................... $ 95,200 $126,900 $126,900 $126,900 $126,900
400,000.......................... 129,000 171,900 171,900 171,900 171,900
500,000.......................... 162,700 216,900 216,900 216,900 216,900
600,000.......................... 196,500 261,900 261,900 261,900 261,900
700,000.......................... 230,200 306,900 306,900 306,900 306,900
800,000.......................... 264,000 351,900 351,900 351,900 351,900
900,000.......................... 297,700 396,900 396,900 396,900 396,900
1,000,000.......................... 331,500 441,900 441,900 441,900 441,900
1,200,000.......................... 399,000 531,900 531,900 531,900 531,900
1,400,000.......................... 466,500 621,900 621,900 621,900 621,900
1,600,000.......................... 534,000 711,900 711,900 711,900 711,900
1,800,000.......................... 601,500 801,900 801,900 801,900 801,900
</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.
13
<PAGE> 16
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, 1998 were: Mr.
Balloun, 3 years (6 years under the SERP); Mr. Hattox, 2 years; Mr. Levy, 23
years; and Mr. Searle, 2 years.
ITEM NO. 2 -- AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors at its meeting on September 22, 1998 unanimously
approved and recommended the approval by stockholders of an amendment to the
Corporation's Restated Certificate of Incorporation (the "Certificate")
increasing the authorized common stock of the Corporation from 80,000,000 shares
to 120,000,000 shares. The proposed amendment will not affect the preferred
stock presently authorized.
In considering the proposed amendment, the Board concluded that it would be
advisable for the additional shares to be available for issuance at the
discretion of the Board in connection with acquisitions and stock dividends and
splits and for any other purpose determined by the Board to be in the best
interests of the Corporation, without the delay attendant upon obtaining
stockholder approval prior to each issuance. Where approval by stockholders is
required for issuance, whether by Delaware law, the rules of the New York Stock
Exchange, or other applicable requirement, the matter will be presented to
stockholders.
Authorized but unissued common stock could be used by the Board for
defensive purposes, including the issuance of such stock to third parties, the
use of such stock in recapitalization transactions, and the use of such stock in
connection with the Shareholder Rights Plan described below. The availability of
such stock could thus render more difficult or discourage, to some degree and in
some circumstances, a merger, tender offer, proxy contest, or assumption of
control of a large block of the Corporation's common stock without approval of
the Board of Directors, or the Board's own removal, even though stockholders may
favor such action. See also "Existing Provisions and Agreements Having an
Anti-Takeover Effect" below. Management is not presently aware of any effort to
accumulate the Corporation's stock or to obtain control of the Corporation by
means of a merger, tender offer, solicitation in opposition to management, or
otherwise.
The Corporation at present does not have plans to issue additional shares
of its common stock except in connection with the Long-Term Incentive Program
and the Long-Term Achievement Incentive Plan.
At the present time 41,409,705 shares of the Corporation's common stock are
issued and outstanding, and 22,081,022 shares of previously unissued stock and
16,509,273 shares held in the Corporation's treasury (less an aggregate of
4,436,113 shares which are reserved for issuance under the Long-Term Incentive
Program, the Long-Term Achievement Incentive Plan, the Employee Stock Purchase
Plan, and the Nonemployee Director Stock Option Plan) are available for future
issuance.
The stockholders of the Corporation do not have any preemptive rights in
connection with the issuance or sale of additional shares of stock by the
Corporation, nor do they have cumulative voting rights.
The Board of Directors' resolution setting forth the proposed amendment is
as follows:
"Article Fourth of the Restated Certificate of Incorporation shall be
amended by striking out paragraphs 4(a) and 4(b) therefrom and by
substituting in lieu therefor the following new paragraphs 4(a) and 4(b):
'4(a) The total number of shares of stock which the Corporation
shall have authority to issue is 121,000,000.
'4(b) Of such stock 120,000,000 shares shall be Common Stock of the
par value of $1.00 each, amounting in the aggregate to $120,000,000.' "
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM NO. 2, THE
PROPOSED AMENDMENT TO INCREASE AUTHORIZED COMMON STOCK OF THE CORPORATION.
Adoption of the proposed amendment requires the affirmative vote of a majority
of the shares represented at the meeting which are entitled to vote thereon.
14
<PAGE> 17
EXISTING PROVISIONS AND AGREEMENTS HAVING AN ANTI-TAKEOVER EFFECT
In addition to the proposed amendment to the Certificate which would
increase the authorized common stock of the Corporation, existing provisions of
the Certificate, the Corporation's By-laws, Delaware law, and certain agreements
to which the Corporation is a party could deter, to varying degrees and in
various circumstances, an effort to take control of the Corporation without
approval of the Board of Directors. Those provisions and agreements are
summarized below. The summary is qualified in its entirety by reference to the
particular provisions and agreements. While neither management nor the Board of
Directors has any current plans to adopt further anti-takeover provisions or
agreements, they may from time to time consider measures which have an
anti-takeover effect and may adopt or recommend their adoption if they believe
the measures to be in the best interests of the Corporation.
Shareholder Rights Plan. Under the Corporation's Shareholder Rights Plan,
which was amended and restated on December 17, 1997, one Preferred Stock
Purchase Right is presently attached to and trades with each outstanding share
of the Corporation's common stock. The Rights become exercisable and
transferable apart from the common stock (a) when a person or group (an
"Acquiring Person"), without the Corporation's consent, acquires beneficial
ownership of, or the right to obtain beneficial ownership of, fifteen percent
(15%) or more of the Corporation's common stock ("15% Ownership"), (b) ten days
after a person announces or commences a tender offer or exchange offer that
could result in 15% Ownership (unless such date is extended by the Board), or
(c) twenty business days before the date on which a business combination is
expected to be consummated involving a person who would obtain 15% Ownership as
a result and who has directly or indirectly nominated a director at the time the
business combination is considered. Once exercisable, each Right entitles the
holder to purchase one one-thousandth (1/1000) share of Series A Participating
Preferred Stock at an exercise price of One Hundred Sixty Dollars ($160),
subject to adjustment to prevent dilution. The Rights have no voting power and,
until exercised, no dilutive effect on net income per common share. The Rights
expire on May 19, 2008, and are redeemable under certain circumstances. If a
person acquires 15% Ownership, except in an offer approved by the Corporation
under the Plan, then each Right not owned by the Acquiring Person or related
parties will entitle its holder to purchase, at the Right's exercise price,
shares of common stock or common stock equivalents having a market value
immediately prior to the triggering of the Right of twice that exercise price.
In addition, after an Acquiring Person obtains 15% Ownership, if the Corporation
is involved in certain mergers, business combinations, or asset sales, each
Right not owned by the Acquiring Person or related persons will entitle its
holder to purchase, at the Right's exercise price, shares of common stock of the
other party to the transaction having a market value immediately prior to the
triggering of the Right of twice that exercise price.
Supermajority Provision. Article Twelfth of the Certificate was approved
by the stockholders in 1978. It requires the affirmative vote or consent of the
holders of two-thirds (2/3) of the voting stock of the Corporation to authorize
certain business combinations and other extraordinary transactions involving any
person who beneficially owns, directly or indirectly, five percent (5%) or more
of the Corporation's voting stock (an "Interested Person"). The two-thirds (2/3)
vote is not required by Article Twelfth if the Board of Directors approved the
transaction prior to the time the Interested Person became a beneficial owner of
five percent (5%) or more of the voting stock, or approved it later if a
majority of the directors voting to approve such transaction were members of the
Board prior to the time the Interested Person became a beneficial owner of five
percent (5%) or more of the voting stock. Article Twelfth may be amended or
repealed only upon the affirmative vote or consent of the holders of two-thirds
(2/3) of the voting stock of the Corporation.
Fair Price Provision. Under Article Thirteenth of the Certificate, also
approved by the stockholders in 1978, certain stockholder approval requirements
must be met to authorize certain business combinations between the Corporation
and any Interested Person (defined substantially as in Article Twelfth). A
majority of the outstanding shares of the Corporation's voting stock, other than
those shares owned by the Interested Person, would be required to approve such a
transaction unless: (a) the Board of Directors approved the Business Combination
prior to the time the Interested Person became a beneficial owner of five
percent (5%) or more of the voting stock, or approved it later if a majority of
the directors voting to approve such transaction were members of the Board prior
to the time the Interested Person became a beneficial owner of five percent or
more of the voting stock; or (b) (i) the consideration paid by the Interested
Person in exchange for the shares held by the Corporation's stockholders
approximates the highest price per share paid by the Interested Person in
acquiring any of the Corporation's stock, and (ii) there has been no significant
reduction in the Corporation's dividend rate subsequent to the time the
Interested Person acquired five percent (5%) or more of the Corporation's voting
stock, unless such reduction was approved by the Board of Directors and a
majority of the directors approving such reduction were members of the Board
prior to the time the Interested Person
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acquired a five percent (5%) position. Article Thirteenth may be amended only
upon the affirmative vote or consent of the holders of a majority of the
outstanding shares of voting stock of the Corporation, excluding those shares
owned by the Interested Person.
Takeover Statute. In general, Section 203 of the Delaware General
Corporation Law restricts for three years certain business combinations between
a Delaware corporation and a stockholder that acquires fifteen percent (15%) or
more of the corporation's voting stock. An exception is provided where the
stockholder, in crossing the fifteen percent (15%) threshold, acquires more than
eighty-five percent (85%) of the corporation's total voting shares (excluding
shares held by directors who are also officers and by certain employee benefit
plans) in a single transaction. Business combinations with fifteen percent (15%)
stockholders would be permitted where (a) prior to the time the person became a
fifteen percent (15%) holder, the Board of Directors approved either the
business combination or the transaction that resulted in the person becoming a
fifteen percent (15%) stockholder, or (b) at or after such time, the business
combination was approved by the Board of Directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least
two-thirds (2/3) of the outstanding voting stock that is not owned by the
fifteen percent (15%) stockholder or affiliates and associates.
Stockholder Nominations and New Business. By-law 3.3 requires in general
that a nomination made by a stockholder for the election of a director at any
annual meeting include certain prescribed information and be submitted in
writing to the Secretary of the Corporation not less than ninety days prior to
the anniversary date of the immediately preceding annual meeting. By-law 2.10
requires in general that new business items proposed by stockholders at any
Annual Meeting of Stockholders be submitted in accordance with prescribed
procedures and be received by the Secretary of the Corporation not less than
sixty days nor more than ninety days prior to the date of the annual meeting.
See "Stockholder Proposals" below.
Supermajority Vote for Amendment of By-laws. By-law 7.9 states that the
By-laws may be adopted, amended, or repealed by the stockholders by the
affirmative vote of the holders of two-thirds (2/3) of the voting power of all
of the outstanding shares of capital stock of the Corporation at any regular or
special meeting of stockholders if notice of the proposed amendment is contained
in the notice of the meeting or waived by all of the stockholders entitled to
vote.
No Power to Call Special Meeting or Act by Written Consent. The
stockholders are not empowered to call a special meeting of the stockholders, to
require that such a meeting be called by the Board or the officers of the
Corporation, or to act by written consent without a meeting (except as may
otherwise be provided in the Certificate).
Available Capital Stock. The Corporation has 500,000 shares of unissued
preferred stock (in addition to 500,000 unissued shares of Series A
Participating Preferred Stock reserved for issuance under the Shareholder Rights
Plan). The Board of Directors has authority to fix the voting rights and other
terms of any series of preferred stock prior to its issuance. Additionally, the
Corporation has 22,081,022 shares of unissued common stock and 16,509,273 shares
of common stock held in the treasury, including 4,436,113 shares reserved for
issuance. Such authorized and unissued stock could be used by the Board for
defense purposes, including its issuance to third parties or use in
recapitalization transactions.
Certain Agreements. The Corporation has several agreements and benefit
plans which provide for certain payments in the event of termination of
employment of certain employees or plan participants after a change in control
of the Corporation. See "Employment Contracts, Severance Arrangements, and Other
Agreements" above.
ITEM NO. 3 -- APPROVAL OF THE AMENDED AND RESTATED MANAGEMENT
COMPENSATION AND INCENTIVE PLAN
Subject to approval by the Corporation's stockholders, the Board of
Directors on September 22, 1998 adopted the amended and restated National
Service Industries, Inc. Management Compensation and Incentive Plan (the
"Incentive Plan") effective as of September 1, 1998. The Incentive Plan
continues, with some modifications, the incentive plan approved by shareholders
at the Annual Meeting in January 1995 (the "Prior Incentive Plan"). Stockholder
approval of the Incentive Plan is sought in order to qualify the Incentive Plan
under Section 162(m) of the Internal Revenue Code and to thereby allow the
Corporation to deduct for federal income tax purposes all compensation paid
under the Incentive Plan to named executive officers (generally, the executive
officers who would be listed for a fiscal year in the summary compensation table
appearing on page ten hereof).
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This summary of certain features of the Incentive Plan is qualified in its
entirety by reference to the full text of the Incentive Plan, which is set forth
in Exhibit A.
GENERAL
The purpose of the Incentive Plan is to further the growth and financial
success of the Corporation by offering performance incentives to designated
executives who have significant responsibility for such success. The Incentive
Plan will be administered by the Executive Resource and Compensation Committee
or other committee designated by the Board (the "Committee"), subject to the
Committee's right to delegate to the Chief Executive Officer and others with
responsibility for administration of the Incentive Plan as it relates to
participants other than named executive officers. Persons eligible to
participate in the Incentive Plan are the executive officers and other
executives of the Corporation, its operating units, or its affiliates who are in
management positions designated as eligible for participation by the Committee
or its designee. Currently, 30 individuals have been designated as eligible for
participation for 1999.
The Incentive Plan may be amended, suspended, or terminated by the
Committee at any time, subject to ratification by the Board and to the consent
of each participant whose rights with respect to an approved award would be
adversely affected. Unless terminated, the Incentive Plan will remain in effect
until awards thereunder are paid for the Corporation's fiscal year ending in
2004 (five years beyond the scheduled expiration of the Prior Incentive Plan).
AWARDS UNDER THE INCENTIVE PLAN
Prior to, or as soon as practical after, the commencement of each fiscal
year, the Committee will establish plan rules for that year with respect to the
following matters: (a) employees who are eligible to participate; (b)
performance targets and the measurement criteria for determining the level of
achievement of the performance targets; (c) the percentage of a participant's
base salary which may be paid as an incentive award at specified levels of
achievement of the performance targets; and (d) the times and conditions subject
to which any incentive award may become payable. Performance criteria for named
executive officers will include one or more of the criteria specified in the
Prior Incentive Plan (net income, earnings per share, return on equity, return
on assets or net assets, pre-tax profit, market value of the Corporation's
stock, and total shareholder return) or one or more criteria which have been
added (sales, after-tax profit, return on investment, economic profit, cash
flow, and cash flow return). The Committee may establish other performance
criteria for participants who are not named executive officers. The maximum
incentive award payable to a participant in any year will be that amount which,
when added to the participant's base salary for the year, totals an aggregate of
$2.5 million (compared to $1.5 million under the Prior Incentive Plan). Plan
rules established each year by the Committee will be submitted to the Board of
Directors for ratification.
After the end of each fiscal year, the Committee will certify the extent to
which the performance criteria have been achieved for that year. In measuring
performance, the Committee may adjust the Corporation's financial results to
exclude the effect of unusual charges, income items, or other events which
distort year-to-year comparisons of results. With respect to named executive
officers the Committee shall exclude such items with the effect of increasing
achievement of performance criteria if such items constitute "extraordinary
items" under generally accepted accounting principles, as provided in the Prior
Incentive Plan, or if such items are significant unusual items. The Committee
will also make adjustments to eliminate the effect of unanticipated changes in
the tax laws and regulations.
Incentive awards shall be approved by the Committee, subject to
ratification by the Board, based on the plan rules then in effect and the
achievement of performance criteria as certified by the Committee. Any award may
be decreased, at the Committee's discretion, based on such factors as the
Committee may determine, including the failure of the Corporation or an
operating unit to meet additional performance goals or the failure of the
participant to meet personal performance goals. The Committee may in its
discretion grant awards to deserving participants, except those who are named
executive officers, notwithstanding levels of achievement of performance
criteria.
Awards will generally be made in lump sum cash payments, unless the
Committee specifies otherwise at the beginning of the year. Payment will be made
as soon as practicable after determination of awards, subject to deferral as
provided by other plans of the Corporation.
A partial incentive award may be authorized by the Committee for a
participant who is terminated without cause or who retires, dies, or becomes
permanently and totally disabled. Otherwise, no award will be
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<PAGE> 20
paid to a participant who is not an active employee of the Corporation, an
operating unit, or an affiliate at the end of the fiscal year to which the award
relates.
CHANGES IN CONTROL
Upon the occurrence of a Change in Control (generally defined as set forth
on page twelve hereof under the heading "Employment Contracts, Severance
Arrangements, and Other Agreements"), unless a participant otherwise elects in
writing, the participant's incentive award for that year will be deemed to have
been fully earned for the year, with performance at the target level and with no
reductions for other factors. In that case, within thirty days after the
effective date of the Change in Control, the participant will be paid in cash a
pro rata portion of the award based on the number of days within the fiscal year
that elapsed as of the effective date of the Change in Control.
FEDERAL TAX CONSEQUENCES
An award under the Incentive Plan will constitute taxable ordinary income
to the participant. Generally, the Corporation will be entitled to a
corresponding deduction.
Section 162(m) of the Internal Revenue Code limits to $1 million the amount
of compensation that may be deducted in any tax year with respect to a named
executive officer, with an exception for certain performance-based compensation.
The Incentive Plan is designed, and is to be administered, to qualify payments
to named executive officers for that performance-based exception.
1999 AWARDS
For fiscal 1999, each of the named executive officers and certain other
executives have been granted an opportunity to receive a cash incentive award
under the Incentive Plan (subject to approval of the Plan by stockholders). The
awards to named executive officers will be based on the Corporation's increase
in net earnings for 1999 compared to 1998; the bonus fund increases or decreases
in relationship to earnings per share, with no bonus fund for earnings below a
threshold level.
The future benefits to be received by participants in the Incentive Plan
are not currently determinable because they are dependent upon performance
criteria and results which are not now known. However, the Corporation's 1998
bonus incentive plan functioned in a manner consistent with the Incentive Plan.
The bonus amounts paid under the prior incentive plan to Messrs. Balloun,
Hattox, Levy, and Searle were the amounts reported in the Summary Compensation
Table on page ten hereof; the total amount of bonuses paid to current executive
officers as a group was $809,718, and the total amount of bonuses paid to all 29
participating employees as a group was $1,879,764.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM NO. 3, APPROVAL OF
THE AMENDED AND RESTATED MANAGEMENT COMPENSATION AND INCENTIVE PLAN. Approval
requires the affirmative vote of a majority of the shares represented at the
meeting which are entitled to vote thereon. In the event the Incentive Plan is
not approved by the Corporation's stockholders, the Board will take such action
with respect to incentive awards as it considers to be in the best interests of
the Corporation, consistent with the compensation policies set forth in the
Report of the Executive Resource and Compensation Committee on page seven.
ITEM NO. 4 -- 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, 1999. 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, 1998, was $1,057,441,
substantially all of which was for services provided in connection with annual
audits, retirement plan audits, and tax assistance.
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ITEM NO. 5 -- 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 2000 -- 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 2000, the proposal must comply with the
Securities and Exchange Commission's proxy rules, be stated in writing, and be
submitted on or before July 26, 1999, to the Corporation at its principal
executive offices at P.O. Box 7158, Midtown Station, Atlanta, Georgia
30357-0158, Attention: Helen D. Haines, Vice President and Secretary. 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.
If a stockholder wishes to nominate a candidate for election as director at
the annual meeting of stockholders to be held in January 2000, 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 8, 1999. 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.
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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 HELEN D. HAINES, VICE PRESIDENT
AND SECRETARY, NATIONAL SERVICE INDUSTRIES, INC., P.O. BOX 7158, MIDTOWN
STATION, ATLANTA, GEORGIA 30357-0158.
By order of the Board of Directors,
/s/ Helen D. Haines
HELEN D. HAINES
Vice President and Secretary
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EXHIBIT A
NATIONAL SERVICE INDUSTRIES, INC.
MANAGEMENT COMPENSATION AND INCENTIVE PLAN
As Amended and Restated, Effective As Of September 1, 1998
1. ESTABLISHMENT AND EFFECTIVE DATE OF PLAN. National Service Industries,
Inc. (the "Corporation") hereby amends and restates the National Service
Industries, Inc. Management Compensation and Incentive Plan (the "Plan") for its
executive officers and certain other executives of the Corporation, its
Operating Units and affiliates who are in management positions designated as
eligible for participation by the Executive Resource and Compensation Committee
(the "Committee") of the Board of Directors of the Corporation or its designee.
The amended and restated Plan shall be effective on September 1, 1998 and shall
remain in effect, subject to the rights of amendment and termination in Section
13, until the Incentive Awards are paid for the Corporation's fiscal year ending
in 2004. Payments under the Plan shall only be made to Named Executive Officers
after the Plan is approved by the stockholders of the Corporation.
2. PURPOSE OF THE PLAN. The purpose of the Plan is to further the growth
and financial success of the Corporation by offering performance incentives to
designated executives who have significant responsibility for such success.
3. DEFINITIONS.
(a) "BASE ANNUAL SALARY" means the actual salary paid to a Participant
during the applicable Plan Year, increased by the amount of any pre-tax
deferrals or other pre-tax payments made by the Participant to the
Corporation's deferred compensation or welfare plans (whether qualified or
non-qualified).
(b) "BOARD OF DIRECTORS" means the Board of Directors of the
Corporation.
(c) "CHANGE IN CONTROL" means any of the following events:
(i) The acquisition (other than from the Corporation) by any
"Person" [as the term person is used for purposes of Sections 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act")] of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of twenty percent (20%) or more of the
combined voting power of the Corporation's then outstanding voting
securities; or
(ii) The individuals who, as of September 22, 1998, are members of
the Board of Directors (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the Board of Directors; provided,
however, that if the election, or nomination for election by the
Corporation's stockholders, of any new director was approved by a vote
of at least two-thirds of the Incumbent Board, such new director shall,
for purposes of this Plan, be considered as a member of the Incumbent
Board; or
(iii) Approval by stockholders of the Corporation of (1) a merger
or consolidation involving the Corporation if the stockholders of the
Corporation, immediately before such merger or consolidation do not, as
a result of such merger or consolidation, own, directly or indirectly,
more than seventy percent (70%) of the combined voting power of the then
outstanding voting securities of the corporation resulting from such
merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities of the
Corporation outstanding immediately before such merger or consolidation
or (2) a complete liquidation or dissolution of the Corporation or an
agreement for the sale or other disposition of all or substantially all
of the assets of the Corporation.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur pursuant to subsection (i) above, solely because twenty
percent (20%) or more of the combined voting power of the Corporation's
then outstanding securities is acquired by (i) a trustee or other
fiduciary holding securities under one or more employee benefit plans
maintained by the Corporation or any of its subsidiaries, or (ii) any
corporation which, immediately prior to such acquisition, is owned
directly or indirectly by the stockholders of the Corporation in the
same proportion as their ownership of stock in the Corporation
immediately prior to such acquisition.
<PAGE> 24
(d) "CHIEF EXECUTIVE OFFICER" means the chief executive officer of the
Corporation, unless otherwise specified.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means the Executive Resource and Compensation
Committee of the Board of Directors or any other committee designated by
the Board of Directors which is responsible for administering the Plan.
(g) "CORPORATION" means National Service Industries, Inc., a Delaware
corporation, and its successors.
(h) "INCENTIVE AWARD" or "AWARD" means the bonus awarded to a
Participant under the terms of the Plan.
(i) "MAXIMUM AWARD" means the maximum percentage of Base Annual Salary
which may be paid based upon the Relative Performance during the Plan Year.
(j) "NAMED EXECUTIVE OFFICER" means a Participant who as of the date
of payment of an Incentive Award is one of the group of "covered employees"
under Code Section 162(m) and the regulations thereunder.
(k) "OPERATING UNIT" means a separate business operating unit of the
Corporation with respect to which separate performance goals may be
established hereunder.
(l) "PARTICIPANT" means an employee of the Corporation, an Operating
Unit or an affiliate who is designated by the Committee to participate in
the Plan.
(m) "PERSONAL PERFORMANCE GOALS" means the goals that may be
established for a Participant each year to improve the effectiveness of the
Participant's area of responsibility as well as the Corporation as a whole.
(n) "PLAN RULES" means the guidelines established annually by the
Committee pursuant to Section 4, subject, where applicable, to ratification
by the Board of Directors.
(o) "PLAN YEAR" means the twelve month period which is the same as the
Corporation's fiscal year. The initial Plan Year for the amended and
restated Plan shall be September 1, 1998 through August 31, 1999.
(p) "RELATIVE PERFORMANCE" means the extent to which the Corporation,
and/or designated Operating Unit, as applicable, achieves the performance
measurement criteria set forth in the Plan Rules.
(q) "TARGET AWARD" means the percentage (which may vary among
Participants and from Plan Year to Plan Year) of Base Annual Salary which
will be paid to a Participant as an Incentive Award if the performance
measurement criteria applicable to the Participant for the Plan Year is
achieved, as reflected in the Plan Rules for such Plan Year.
(r) "THRESHOLD AWARD" means the percentage of Base Annual Salary which
may be paid based on the minimum acceptable Relative Performance during the
Plan Year.
4. ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Committee, subject to its right to delegate responsibility for administration of
the Plan as it applies to Participants other than Named Executive Officers
pursuant to Section 7. The Committee will have authority to establish Plan Rules
with respect to the following matters for the Plan Year, subject to the right of
the Board of Directors to ratify such Plan Rules as provided in this Section 4:
(a) the employees who are Participants in the Plan;
(b) the Target Award, Maximum Award and Threshold Award that can be
granted to each Participant and the method for determining such award,
which the Committee may amend from time to time;
(c) the performance targets and the measurement criteria to be used in
determining the Corporation's or an Operating Unit's Relative Performance,
which will include one or more of the following, as determined by the
Committee each year: sales, net income, earnings per share, return on
equity, return on assets (or net assets), after-tax or pre-tax profit,
market value of the Corporation's stock, total
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shareholder return, return on investment, economic profit, capitalized
economic profit, cash flow and cash flow return; and
(d) the time or times and the conditions subject to which any
Incentive Award may become payable.
The Plan Rules will be adopted by the Committee prior to, or as soon as
practical after, the commencement of each Plan Year. Subject to the provisions
of the Plan and the Committee's right to delegate its responsibilities, the
Committee will also have the discretionary authority to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to it, and to make
all other determinations deemed necessary or advisable in administering the
Plan. The determinations of the Committee on the matters referred to in
paragraphs (a) through (d) of this Section 4 with respect to Named Executive
Officers (and such other Participants as the Committee may determine) shall be
submitted at least annually to the Board of Directors for its consideration and
ratification. For Participants who are not Named Executive Officers, the
Committee may in its discretion establish performance measures not listed in
this Section 4 without obtaining shareholder approval.
5. PARTICIPATION. Eligibility for participation in the Plan is limited to
executive officers of the Corporation and certain other executives of the
Corporation and its Operating Units or affiliates who hold key management and
staff positions. From among those eligible and based upon the recommendations of
the Chief Executive Officer and other designees, the Committee will designate by
name or position the Participants each Plan Year. Any employee who is a
Participant in one Plan Year may be excluded from participation in any other
Plan Year. If, during the Plan Year, a Participant other than a Named Executive
Officer changes employment positions to a new position which corresponds to a
different award level, the Committee may, in its discretion, adjust the
Participant's award level for such Plan Year. The Committee may, in its
discretion, designate employees who are hired after the beginning of the Plan
Year as Participants for such Plan Year and as eligible to receive full or
partial Incentive Awards for such year.
6. INCENTIVE AWARDS.
6.1 DETERMINATION OF THE AMOUNT OF INCENTIVE AWARDS. At the end of each
Plan Year, the Committee shall certify the extent to which the performance
targets and measurement criteria established pursuant to Section 4 have been
achieved for such Plan Year based upon financial information provided by the
Corporation. Subject to the right to decrease an award as described in the next
paragraph, the Participant's Incentive Award shall be computed by the Committee
based upon the achievement of the established performance targets, measurement
criteria and the requirements of the Plan. The Committee may, in determining
whether performance targets have been met, adjust the Corporation's financial
results to exclude the effect of unusual charges or income items or other
events, including acquisitions or dispositions of businesses or assets,
recapitalizations, reorganizations, restructurings, reductions in force,
currency fluctuations or changes in accounting, which are distortive of results
for the year (either on a segment or consolidated basis); provided, that for
purposes of determining the Incentive Awards of Named Executive Officers, the
Committee shall exclude unusual items whose exclusion has the effect of
increasing Relative Performance if such items constitute "extraordinary items"
under generally accepted accounting principles or are significant unusual items.
In addition, the Committee will adjust its calculations to exclude the
unanticipated effect on financial results of changes in the Code or other tax
laws, or the regulations relating thereto.
The Committee may, in its discretion, decrease the amount of a
Participant's Incentive Award for a Plan Year based upon such factors as it may
determine, including the failure of the Corporation or an Operating Unit to meet
certain performance goals or of a Participant to meet his Personal Performance
Goals. The factors to be used in reducing an Incentive Award may be established
at the beginning of a Plan Year and may vary among Participants.
In the event that the Corporation's or an Operating Unit's performance is
below the anticipated performance thresholds for the Plan Year and the Incentive
Awards are below expectations or not earned at all, the Committee may in its
discretion grant Incentive Awards (or increase the otherwise earned Incentive
Awards) to deserving Participants, except for Participants who are Named
Executive Officers.
The Plan Rules and Incentive Awards under the Plan shall be administered in
a manner to qualify payments under the Plan to the Named Executive Officers for
the performance-based exception under Code Section 162(m) and the regulations
thereunder, except where the Board of Directors determines such compliance is
not necessary. The maximum Incentive Award that may be paid to an individual
Participant for
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a Plan Year shall be the amount which when added to the Participant's Base
Annual Salary for such Plan Year totals an aggregate of $2.5 million.
6.2 ELIGIBILITY FOR PAYMENT OF INCENTIVE AWARD. No Participant will have
any vested right to receive any Incentive Award until such date as the Board of
Directors has ratified the Committee's determination with respect to the payment
of individual Incentive Awards, except where the Committee determines such
ratification is not necessary. No Incentive Award will be paid to any
Participant who is not an active employee of the Corporation, an Operating Unit
or an affiliate at the end of the Plan Year to which the Incentive Award
relates; provided, however, at the discretion of the Committee or its designee
(subject to ratification by the Board of Directors, where required, and the
limitations of Code Section 162(m)), partial Incentive Awards may be paid to
Participants (or their beneficiaries) who are terminated without cause (as
determined by the Committee or its designee) or who retire, die or become
permanently and totally disabled during the Plan Year. No Participant entitled
to receive an Incentive Award shall have any interest in any specific asset of
the Corporation, and such Participant's rights shall be equivalent to that of a
general unsecured creditor of the Corporation.
6.3 PAYMENT OF AWARDS. Payment of the Incentive Awards will be made as
soon as practicable after their determination pursuant to Sections 6.1 and 6.2,
subject to a Participant's right to defer payment pursuant to any applicable
deferred compensation plans of the Corporation. Payment will generally be made
in a lump sum in cash, unless the Committee otherwise determines at the
beginning of the Plan Year.
7. DELEGATION OF AUTHORITY BY THE COMMITTEE. Notwithstanding the
responsibilities of the Committee set forth herein, the Committee may delegate
to the Chief Executive Officer or others all or any portion of its
responsibility for administration of the Plan as it relates to Participants
other than Named Executive Officers. Such delegation may include, without
limitation, the authority to designate employees who can participate in the
Plan, to establish Plan Rules, to interpret the Plan, to determine the extent to
which performance criteria have been achieved, and to adjust any Incentive
Awards that are payable. In the case of each such delegation, the administrative
actions of the delegate shall be subject to the approval of the person within
the Corporation to whom the delegate reports (or, in the case of a delegation to
the Chief Executive Officer, to the approval of the Committee).
8. CHANGE IN CONTROL. Upon the occurrence of a Change in Control, unless
the Participant otherwise elects in writing, the Participant's Incentive Award
for the Plan Year, determined at the Target Award level (without any reductions
under Section 6.1) shall be deemed to have been fully earned for the Plan Year,
provided that the Participant shall only be entitled to a pro rata portion of
the Incentive Award based upon the number of days within the Plan Year that had
elapsed as of the effective date of the Change in Control. The Incentive Award
amount shall be paid in cash within thirty (30) days of the effective date of
the Change in Control. The Incentive Award payable upon a Change in Control to a
Participant for the Plan Year during which a Change in Control occurs shall be
the greater of the amount provided for under this Section 8 or the amount of the
Incentive Award payable to such Participant for the Plan Year under the terms of
any employment agreement or severance agreement with the Corporation, its
Operating Units or affiliates.
9. BENEFICIARY. To the extent provided by the Committee or its designee,
each Participant will designate a person or persons to receive, in the event of
death, any Incentive Award to which the Participant would then be entitled under
Section 6.2. Such designation will be made in the manner determined by the
Committee and may be revoked by the Participant in writing. If the Committee
does not provide for a designation of beneficiary or if a Participant fails
effectively to designate a beneficiary, then the estate of the Participant will
be deemed to be the beneficiary.
10. WITHHOLDING OF TAXES. The Corporation shall deduct from each Incentive
Award the amount of any taxes required to be withheld by any governmental
authority.
11. EMPLOYMENT. Nothing in the Plan or in any Incentive Award shall confer
(or be deemed to confer) upon any Participant the right to continue in the
employ of the Corporation, an Operating Unit or an affiliate, or interfere with
or restrict in any way the rights of the Corporation, an Operating Unit or an
affiliate to discharge any Participant at any time for any reason whatsoever,
with or without cause.
12. SUCCESSORS. All obligations of the Corporation under the Plan with
respect to Incentive Awards granted hereunder shall be binding upon any
successor to the Corporation, whether such successor is the result of an
acquisition of stock or assets of the Corporation, a merger, a consolidation or
otherwise.
A-4
<PAGE> 27
13. TERMINATION AND AMENDMENT OF THE PLAN; GOVERNING LAW. The Committee,
subject to the ratification rights of the Board of Directors, has the right to
suspend or terminate the Plan at any time, or to amend the Plan in any respect,
provided that no such action will, without the consent of a Participant,
adversely affect the Participant's rights under an Incentive Award approved
under Section 6.2. The Plan shall be interpreted and construed under the laws of
the State of Georgia.
AS APPROVED BY THE BOARD OF DIRECTORS OF THE CORPORATION ON THE 22nd DAY OF
SEPTEMBER, 1998.
A-5
<PAGE> 28
(NSI Logo)
(LOGO) PRINTED ON RECYCLED PAPER
<PAGE> 29
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2, 3, AND 4
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR:
<TABLE>
<S> <C> <C> <C> <C>
1. Nominees for FOR WITHHOLD Nominees for Director:
Director: ALL AUTHORITY James S. Balloun Bernard Marcus
NOMINEES John L. Clendenin Charles W. McCall
Thomas C. Gallagher John G. Medlin, Jr.
[ ] [ ] Robert M. Holder, Jr. Sam Nunn
James C. Kennedy Herman J. Russell
David Levy Betty L. Siegel
For, except vote withheld from following nominee(s): Barrie A. Wigmore
____________________________________________________
<S> <C> <C> <C>
2. Amendment of Restated Certificate of FOR AGAINST ABSTAIN
Incorporation to increase authorized
common stock to 120,000,000 shares. [ ] [ ] [ ]
3. Approval of amended and restated
National Service Industries, Inc.
Management Compensation and
Incentive Plan. [ ] [ ] [ ]
4. Ratification of appointment of Arthur
Andersen LLP as independent auditors
for the Corporation. [ ] [ ] [ ]
Mark box at right if an address change or
comment has been noted on the reverse
side of this card. [ ]
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
</TABLE>
Signature(s) Date
------------------------------------------- ------------------
Please date this proxy and sign exactly as your name, or names, appear hereon.
Where there is more than one owner, each must sign. When signing in fiduciary or
representative capacity, please give full title as such.
- DETACH CARD -
National
[NSI LOGO] Service
Industries
ANNUAL MEETING PARKING PASS
Parking for shareholders attending the Annual Meeting will be available in the
Woodruff Arts Center parking deck on Lombardy Way at the rear of the Arts Center
and at the AT&T parking deck on 15th Street.
As you exit the parking decks, present this parking pass to the attendant.
[MAP]
NATIONAL SERVICE INDUSTRIES, INC.
ANNUAL STOCKHOLDERS MEETING JANUARY 6, 1999
PROXY SOLICITED BY THE BOARD OF DIRECTORS
PROXY
The undersigned does hereby appoint JAMES S. BALLOUN, DAVID LEVY and HELEN
D. HAINES, 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 6, 1999 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.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Change of Address Comments
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</TABLE>
- DETACH CARD -
