<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 5, 2000
The annual meeting of stockholders of NATIONAL SERVICE INDUSTRIES, INC.
(the "Corporation") will be held on Wednesday, January 5, 2000, at 10:00 a.m. in
the Richard H. Rich Auditorium at the Robert W. Woodruff Arts Center, 1280
Peachtree Street, N.E., Atlanta, Georgia, for the following purposes:
(1) to elect directors;
(2) to approve the amended and restated National Service Industries,
Inc. Long-Term Achievement Incentive Plan;
(3) to ratify the appointment of Arthur Andersen LLP as independent
auditors for the Corporation for the fiscal year ending August 31, 2000;
and
(4) to transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on November 8, 1999
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 22, 1999
By order of the Board of Directors,
/s/ Helen D. Haines
HELEN D. HAINES
Vice President and Secretary
YOUR VOTE IS IMPORTANT
IF YOU ARE A STOCKHOLDER OF RECORD, YOU CAN NOW VOTE YOUR SHARES BY THE
INTERNET OR BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS ON YOUR PROXY CARD.
IF YOU WISH TO VOTE BY MAIL, 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 5, 2000. A copy of the annual report of the Corporation
for the fiscal year ended August 31, 1999 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 22, 1999.
GENERAL INFORMATION
PROXY
Stockholders are requested to provide their voting instructions on the
enclosed proxy by mail using the accompanying envelope, by the Internet, or by
telephone. Stockholders who hold their shares through a bank or broker can vote
by the Internet or by telephone if these options are offered by the bank or
broker. 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
delivered, and not revoked, will be voted in accordance with stockholders'
directions. Where no direction is specified, proxies will be voted for the
election of the nominees listed below as directors, for approval of the amended
and restated Long-Term Achievement Incentive Plan, and for ratification of the
appointment of Arthur Andersen LLP as independent auditors for the Corporation.
Stockholders may deliver their proxy using one of the following methods:
By the Internet. Stockholders of record may give their voting instructions
by the Internet as described on the proxy card. Internet voting is also
available to stockholders who hold shares in the DirectService Plan, in the
Employee Stock Purchase Plan, or in a 401(k) plan sponsored by the Corporation.
The Internet voting procedure is designed to verify the voting authority of
stockholders. You will be able to vote your shares by the Internet and confirm
that your vote has been properly recorded. Please see your proxy card for
specific instructions.
By Telephone. Stockholders of record may give their voting instructions
using the toll-free number listed on the proxy card. Telephone voting is also
available to stockholders who hold shares in the DirectService Plan, in the
Employee Stock Purchase Plan, or in a 401(k) plan sponsored by the Corporation.
The telephone voting procedure is designed to verify the voting authority of
stockholders. The procedure allows you to vote your shares and to confirm that
your instructions have been properly recorded. Please see your proxy card for
specific instructions.
By Mail. Stockholders may sign, date, and mail their proxies in the
postage-paid envelope provided. If you sign, date, and mail your proxy card
without providing voting instructions on specific items, your proxy will be
voted as stated above.
STOCK OUTSTANDING AND VOTING RIGHTS
As of November 8, 1999, the record date for the annual meeting, there were
40,690,942 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.
<PAGE> 4
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.
INFORMATION CONCERNING NOMINEES
All of the nominees listed below, other than Leslie M. Baker, Jr., Ray M.
Robinson, and Neil Williams, are now directors of the Corporation and have
served continuously since their election. All of the current directors were
elected by the stockholders except Kathy Brittain White, who was elected by the
Board of Directors effective October 13, 1999 to fill the vacancy created by the
resignation of Charles W. McCall in June 1999. In addition, Robert M. Holder,
Jr., John G. Medlin, Jr., and James C. Kennedy, who were elected at the last
annual meeting, are retiring from the Board on January 5, 2000, and are not
nominees.
The following is a brief summary of each nominee's business experience,
other directorships held, and membership on the standing committees of the Board
of Directors of the Corporation.
<TABLE>
<S> <C>
- --------------------------- JAMES S. BALLOUN Director since 1996
- ---------------------------
- --------------------------- Mr. Balloun, 61 years old, was elected Chairman of the Board
- --------------------------- and Chief Executive Officer of the Corporation effective
- --------------------------- February 1, 1996, and was also elected President effective
- --------------------------- October 19, 1996. He was previously affiliated with the
- --------------------------- management consulting firm McKinsey & Company, Inc., which
- --------------------------- he served as a Director from June 1976 until January 1996.
- --------------------------- Mr. Balloun is a director of Georgia Pacific Corporation,
Radiant Systems, Inc., and Wachovia Corporation. Mr. Balloun
is Chairman of the Executive Committee of the Board.
- --------------------------- LESLIE M. BAKER, JR.
- ---------------------------
- --------------------------- Mr. Baker, 57 years old, has served since April 1998 as
- --------------------------- Chairman of the Board of Wachovia Corporation and Wachovia
- --------------------------- Bank. He has served as President and Chief Executive Officer
- --------------------------- of Wachovia Corporation since 1994; President and Chief
- --------------------------- Executive Officer of Wachovia Bank since June 1997 and from
- --------------------------- 1990 to 1993; and President and Chief Operating Officer of
- --------------------------- Wachovia Corporation from February 1993 to December 1993.
Mr. Baker is a director of Carolina Power and Light Company.
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
- ------------------------- JOHN L. CLENDENIN Director since 1996
- -------------------------
- ------------------------- Mr. Clendenin, 65 years old, is Chairman Emeritus of
- ------------------------- BellSouth 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, Nabisco
- ------------------------- Group Holdings, 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
- -------------------------
- ------------------------- Mr. Gallagher, 51 years old, has served since 1990 as
- ------------------------- President and Chief Operating Officer of Genuine Parts
- ------------------------- Company. He also serves as Chairman and Chief Executive
- ------------------------- Officer of S. P. Richards Company, a wholly-owned subsidiary
- ------------------------- 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 Chairman of the Audit Committee and a member of
the Executive Resource and Compensation and the Executive
Committees of the Board.
- ------------------------- DAVID LEVY Director since 1984
- -------------------------
- ------------------------- Mr. Levy, 62 years old, is Executive Vice President,
- ------------------------- Administration and Counsel of the Corporation. He served the
- ------------------------- Corporation as Senior Vice President, Secretary and Counsel
- ------------------------- from 1982 through September 1992. He has served as an
- ------------------------- officer of the Corporation since 1973. Mr. Levy is a member
- ------------------------- of the Executive Committee of the Board.
- -------------------------
- ------------------------- BERNARD MARCUS Director since 1990
- -------------------------
- ------------------------- Mr. Marcus, 70 years old, is one of the co-founders of The
- ------------------------- Home Depot, Inc. He has served as its Chairman of the Board
- ------------------------- since 1978 and also served as Chief Executive Officer from
- ------------------------- 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
and the Executive Committees of the Board.
- ------------------------- SAM NUNN Director since 1997
- -------------------------
- ------------------------- Mr. Nunn, 61 years old, is a senior partner in the Atlanta
- ------------------------- 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, Internet Security Systems
- ------------------------- Group, Inc., Scientific-Atlanta, Inc., Texaco, Inc. and
- ------------------------- Total System Services, Inc. He is Chairman of the Corporate
Governance and Nominating Committee and a member of the
Executive Committee of the Board.
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C>
- --------------------------- RAY M. ROBINSON
- ---------------------------
- --------------------------- Mr. Robinson, 51 years old, is President of the Southern
- --------------------------- Region of AT&T Corporation. He served as Vice
- --------------------------- President -- Corporate Relations from 1994 to 1996. Mr.
- --------------------------- Robinson joined AT&T in 1968 and has held numerous senior
- --------------------------- management positions in marketing, corporate relations,
- --------------------------- sales operations and regulatory affairs. Mr. Robinson is a
- --------------------------- director of Citizens Trust Bank.
- --------------------------- HERMAN J. RUSSELL Director since 1996
- ---------------------------
- --------------------------- Mr. Russell, 68 years old, has served since 1959 as Chairman
- --------------------------- of the Board and 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 is a director of Citizens Trust Bank and 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
- ---------------------------
- ---------------------------
- --------------------------- Dr. Siegel, 68 years old, has served as President of
- --------------------------- Kennesaw State University since 1981. She previously served
- --------------------------- as Dean of the School of Education and Psychology and
- --------------------------- Professor of Psychology at Western Carolina University from
- --------------------------- 1976 to 1981 and served as Dean of Academic Affairs for
- --------------------------- Continuing Education at the University of Florida from 1972
to 1976. She is a director of 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.
- --------------------------- KATHY BRITTAIN WHITE Director since 1999
- ---------------------------
- --------------------------- Ms. White, 50 years old, is Executive Vice President and
- --------------------------- Chief Information Officer of Cardinal Health, Inc., a
- --------------------------- company that provides healthcare products and services. She
- --------------------------- was Senior Vice President and Chief Information Officer of
- --------------------------- Allegiance Healthcare, Inc. from 1996 to April 1999,
- --------------------------- Corporate Vice President and Chief Information Officer of
- --------------------------- Baxter International, Inc. from 1995 to 1996, and Vice
President, Information Systems of AlliedSignal Corporation
from 1993 to 1995. Ms. White is a director of MECON, Inc.
She is a member of the Audit and the Corporate Governance
and Nominating Committees of the Board.
- --------------------------- BARRIE A. WIGMORE Director since 1997
- ---------------------------
- --------------------------- Mr. Wigmore, 57 years old, is a retired partner of Goldman
- --------------------------- Sachs Group, Inc., 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>
4
<PAGE> 7
<TABLE>
<S> <C>
- --------------------------- NEIL WILLIAMS
- ---------------------------
- --------------------------- Mr. Williams, 63 years old, became General Counsel and a
- --------------------------- Global Partner of AMVESCAP PLC in October 1999. AMVESCAP
- --------------------------- offers investment management and mutual fund services
- --------------------------- primarily under the names INVESCO and AIM. From 1965 to
- --------------------------- October 1999, he was a partner with the law firm Alston &
- --------------------------- Bird LLP and served as managing partner from 1984 to 1996.
- --------------------------- He began his career with Alston & Bird in 1961. Mr. Williams
is a director of National Data Corporation and Printpack,
Inc.
</TABLE>
COMPENSATION OF DIRECTORS
During the fiscal year ended August 31, 1999, 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 under the Plan. Nonemployee directors receive a one-time grant of 1,000
deferred stock units upon their election and an annual grant of 350 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.
Pursuant to the National Service Industries, Inc. 1992 Nonemployee
Directors' Stock Option Plan, stock options are granted annually on the day of
the Annual Meeting. Each nonemployee director received on January 6, 1999 a
grant of a nonqualified option for the purchase of 1,000 shares of common stock
at an exercise price of $37.375 per share, the fair market value on the grant
date. Each option grant is exercisable after one year and remains exercisable
for a period of ten years from the grant date.
Directors may participate in the Corporation's Matching Gift Program. Under
this program, the Corporation will match charitable contributions up to a total
of $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; Mr. Wigmore is a retired partner
in the investment banking firm Goldman Sachs Group, LP, which the Corporation
engages for certain financial services; and Mr. Williams, through September
1999, was a partner in the law firm Alston & Bird LLP, which the Corporation
engages for certain legal services. The Corporation also has transactions in the
ordinary course of business with unaffiliated corporations and institutions,
which certain non-employee directors of the Corporation serve as officers or
directors, or their subsidiaries, including AMVESCAP PLC, AT&T Corporation,
BellSouth Corporation, Cardinal Health, Inc., Cox Enterprises, Inc., Genuine
Parts Company, The Home Depot, Inc., Kennesaw State University, The RMH Group,
and H. J. Russell & Company. 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.
5
<PAGE> 8
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 except as
restricted by the Delaware General Corporation Law. The Committee is
comprised of James S. Balloun, Chairman, John L. Clendenin, Thomas C.
Gallagher, David Levy, Bernard Marcus, and Sam Nunn. It held two meetings
during the fiscal year and took two actions by written consent.
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; recommending to the Board the independent auditing
firm to be retained by the Corporation; and reviewing other matters as
deemed appropriate. The Committee is comprised of Thomas C. Gallagher,
Chairman, Robert M. Holder, Jr., Bernard Marcus, Herman J. Russell, Kathy
Brittain White, and Barrie A. Wigmore. It held three 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, Betty L. Siegel, and Barrie A. Wigmore. It held four meetings
during the fiscal year and took one action by written consent.
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 stockholders
at the annual meeting and candidates to fill any vacancies on the Board.
The Committee is comprised of Sam Nunn, Chairman, James C. Kennedy, John G.
Medlin, Jr., Herman J. Russell, Betty L. Siegel, and Kathy Brittain White.
It held three meetings during the fiscal year.
During the fiscal year ended August 31, 1999, the Board of Directors met
five times. All of the directors attended at least 75% of the total meetings
held by the Board and their respective committees during the fiscal year except
Mr. Kennedy.
The Corporate Governance and Nominating Committee will consider nominee
recommendations from stockholders made in writing and addressed to the attention
of Chairman of the Corporate Governance and Nominating Committee, c/o Helen D.
Haines, Vice President and Secretary, National Service Industries, Inc., 1420
Peachtree Street, N.E., Mailstop 809, Atlanta, Georgia, 30309. 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 2001 -- Stockholder Proposals."
BENEFICIAL OWNERSHIP OF THE CORPORATION'S SECURITIES
The table that follows sets forth information concerning beneficial
ownership of the Corporation's common stock and ownership of deferred stock
units (share equivalents), as of September 1, 1999 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 11, by all directors
and executive officers of the Corporation as a group, and by the 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 the later
of August 31, 2001, or five years after becoming subject to the guidelines. The
Executive Resource and Nominating Committee has indicated that progress toward
meeting the guidelines will be taken into account when grants and awards are
made under the amended and restated Long-Term Achievement Incentive Plan.
6
<PAGE> 9
<TABLE>
<CAPTION>
SHARES OF COMMON DEFERRED
STOCK BENEFICIALLY STOCK UNITS
NAME OWNED(1)(2)(3) OWNED(4)
- ---- ------------------ -----------
<S> <C> <C>
James S. Balloun............................................ 372,305 --
Leslie M. Baker, Jr......................................... 1,000(5) 0
John L. Clendenin........................................... 5,300 3,871
Thomas C. Gallagher......................................... 1,000 2,613
George H. Gilmore, Jr....................................... 1,000(5) --
Brock A. Hattox............................................. 71,681 --
Robert M. Holder, Jr........................................ 12,330 16,461
James C. Kennedy............................................ 6,000 4,598
David Levy.................................................. 164,434(6) --
Bernard Marcus.............................................. 8,000 4,933
John G. Medlin, Jr.......................................... 7,000 3,909
Sam Nunn.................................................... 3,031 4,246
Ray M. Robinson............................................. 1,000(5) 0
Herman J. Russell........................................... 3,061 4,933
Stewart A. Searle III....................................... 35,425(7) --
Betty L. Siegel............................................. 6,596 11,568
Kathy Brittain White........................................ 500(5) 1,000(8)
Barrie A. Wigmore........................................... 11,000 3,690
Neil Williams............................................... 1,000(5) 0
Current directors and executive officers as a group......... 710,163 61,822
Brinson Partners, Inc.
209 South LaSalle Street
Chicago, Illinois 60604-1295.............................. 2,185,737(9)
</TABLE>
- ---------------
(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
1.8%. 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, 341,250 shares; Mr.
Hattox, 60,000 shares; Mr. Levy (including options held by a family
partnership of which he is the general partner), 126,703 shares; Mr. Searle,
28,125 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, 592,078 shares.
(3) Includes shares payable within 60 days in connection with long-term
incentive awards earned for the performance cycle ended August 31, 1999.
Shares are included for the following individuals: Mr. Balloun, 15,934
shares; Mr. Hattox, 8,754 shares; Mr. Levy, 11,662 shares; Mr. Searle, 5,272
shares; and all executive officers as a group, 41,622 shares.
(4) 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.
(5) Share ownership is shown as of the following dates: Mr. Robinson and Ms.
White, November 5, 1999; Mr. Williams, November 8, 1999; Mr. Gilmore,
November 9, 1999; and Mr. Baker, November 10, 1999.
(6) Includes 49 shares held by Mr. Levy's spouse.
(7) Includes 400 shares held by Mr. Searle's spouse.
(8) Stock unit ownership is shown for Ms. White as of October 13, 1999.
(9) Shares, representing 5.4% of outstanding shares at August 31, 1999, with
respect to which Brinson Partners, Inc., an investment management firm, had
sole power to vote or direct the vote and sole power to invest or direct
investment as of June 30, 1999, as reported to the Corporation.
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, 1999, and written
7
<PAGE> 10
representations from certain reporting persons that no Form 5 reports were
required for those persons, the Corporation believes that all required Section
16(a) filings were made on a timely basis.
EXECUTIVE COMPENSATION
REPORT OF THE EXECUTIVE RESOURCE AND 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 1999 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 and
payable 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 1999 or 2000
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.
Executive Officers' 1999 Compensation
The salary for fiscal 1999 of each executive officer (other than the Chief
Executive Officer, discussed below) was based on competitive compensation data
at the 75th percentile level and also considered the executive's performance,
experience, abilities, and expected future contribution.
Bonuses for fiscal 1999 under the Incentive Plan were intended to provide
competitive total cash compensation at the 75th percentile level, subject to
achievement of the Corporation's target performance objectives. 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 1999, the threshold level required the same level of
earnings per share as was achieved in fiscal 1998. Based on the Corporation's
8
<PAGE> 11
earnings per share, adjusted downward for certain one-time amounts, the actual
bonus fund for each individual represented 180.0% of the target bonus fund.
The compensation of executive officers for fiscal 1999 was further linked
with the Corporation's performance and to the increase in shareholder value
through long-term awards of 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 with increases in stock price over time.
Long-term awards granted to executive officers in fiscal 1999 were based on
competitive long-term grants at approximately the 75th percentile level for
target level performance and are designed to provide higher compensation for
significantly higher performance.
For the performance cycle ended August 31, 1999, executive officers earned
an aggregate aspiration award of 482.2% of target level, reflecting the high
level of economic profit achieved over the three-year cycle. Pursuant to an
amendment to the Long-Term Achievement Incentive Plan, and subject to approval
by stockholders of the amended and restated Plan, a portion of each officer's
earned award will be exchanged for stock options that are immediately
exercisable and have an exercise price per share equal to the fair market value
of a share on the date of the grant of the options. The remainder of the awards
were paid half in shares of stock and half in cash.
Chief Executive Officer's 1999 Compensation
For the 1999 fiscal year Mr. Balloun received base salary, an incentive
bonus, and stock options and an aspiration award under the Long-Term Plan. His
total compensation was based on competitive and merit factors. The Committee was
advised by an independent compensation consultant that Mr. Balloun's 1999 base
salary was competitive with the market third quartile, that his 1999 bonus
opportunity at target approximated the market median, and that his 1999
long-term incentive award value at target approximated the market median.
The bonus paid to Mr. Balloun for fiscal 1999 was based on the
Corporation's earnings level, as specified by the Committee at the beginning of
the fiscal year and substantially as described above for executive officers. For
the performance cycle ended August 31, 1999, Mr. Balloun earned an aspiration
award of 482.2% of target level. Pursuant to an amendment to the Long-Term
Achievement Incentive Plan, and subject to approval by stockholders of the
amended and restated Plan, a portion of his earned award will be exchanged for
stock options that are immediately exercisable and have an exercise price per
share equal to the fair market value of a share on the date of the grant of the
options.
Most of Mr. Balloun's compensation opportunity is provided through
performance-based bonus, aspiration awards, and stock options and is therefore
linked directly to performance on behalf of stockholders and to appreciation in
the market price of the Corporation's stock.
EXECUTIVE RESOURCE AND
COMPENSATION COMMITTEE
John L. Clendenin, Chairman
Thomas C. Gallagher
James C. Kennedy
Betty L. Siegel
Barrie A. Wigmore
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, 1999 were, for
the entire year, John L. Clendenin, Thomas C. Gallagher, James C. Kennedy, Betty
L. Siegel, and Barrie A. Wigmore, and for the portion of the year up to June 9,
1999, Charles W. McCall. None of these individuals are or have ever been
officers or employees of the Corporation. During the 1999 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
9
<PAGE> 12
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, 1999, 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 $100 at the
closing price on August 31, 1994 and assumes all dividends were reinvested.
<TABLE>
<CAPTION>
NSI S&P 500 S&P SPECIALIZED SERVICES
--- ------- ------------------------
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 112.42 121.42 114.02
1996 152.37 144.15 133.86
1997 182.85 202.72 164.06
1998 157.78 219.14 150.64
1999 140.53 306.36 180.68
</TABLE>
10
<PAGE> 13
SUMMARY COMPENSATION TABLE
The following table presents the cash compensation paid by the Corporation
and its affiliates for the past three fiscal years, as well as compensation
accrued for those years, to the individual who served as the Corporation's Chief
Executive Officer during the 1999 fiscal year and to the four other executive
officers as of August 31, 1999 (the five officers referred to herein as the
"named executive officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------- ------------------------- ---------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
FISCAL SALARY BONUS SATION AWARD(S) OPTIONS/SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#)(2) ($)(3) ($)(4)
- --------------------------- ------ ------- ------- -------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James S. Balloun.................. 1999 800,000 985,000 4,800 0 100,000 1,045,657 0
Chairman of the Board, 1998 750,000 513,750 4,800 0 65,000 0 2,500
President and Chief 1997 750,000 750,000 4,800 0 45,000 0 2,500
Executive Officer
George H. Gilmore, Jr.(5)......... 1999 112,500 101,250 12,069 0 50,000 0 0
Executive Vice President 1998 -- -- -- -- -- -- --
and Group President 1997 -- -- -- -- -- -- --
Brock A. Hattox................... 1999 385,000 311,850 4,800 0 40,000 574,483 9,177
Executive Vice President 1998 370,000 114,071 4,800 0 40,000 0 5,447
and Chief Financial Officer 1997 347,144 192,836 112,994 0 40,000 0 1,000
David Levy........................ 1999 370,000 299,700 4,800 0 32,500 765,358 9,497
Executive Vice President, 1998 357,500 110,217 4,800 0 31,000 0 10,127
Administration and Counsel 1997 342,500 186,046 4,800 0 20,000 0 1,000
Stewart A. Searle III............. 1999 245,000 198,450 4,800 0 21,500 345,985 5,456
Senior Vice President, 1998 232,500 71,680 4,800 0 20,000 0 6,029
Planning and Development 1997 212,500 115,430 4,800 0 12,000 0 0
</TABLE>
- ---------------
(1) Each amount shown includes an automobile allowance of $400 per month. The
amount shown for Mr. Gilmore also includes $10,869 for reimbursement of
relocation expenses and related costs.
(2) No stock appreciation rights were granted during this period.
(3) Half of each amount was paid in shares of the Corporation's stock (at a
value of $32.8125) and half was paid in cash. Each amount shown excludes
that portion of the award exchanged for long-term options, as follows:
$1,298,287 for Mr. Balloun; $519,358 for Mr. Hattox; $279,650 for Mr. Levy;
and $279,067 for Mr. Searle. The options will be immediately exercisable and
will have an exercise price per share equal to the fair market value of a
share on the date of the grant of the options.
(4) The amounts shown for 1999 include a matching contribution on 401(k)
deferrals in the amount of $6,677 for Mr. Hattox, $4,497 for Mr. Levy, and
$5,456 for Mr. Searle, and a matching contribution on other deferred
compensation in the amount of $5,000 for Mr. Levy and $2,500 for Mr. Hattox.
(5) Mr. Gilmore was elected Executive Vice President and Group President
effective June 1, 1999.
11
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock options which
were granted to the named executive officers during the fiscal year ended August
31, 1999, as disclosed in the Summary Compensation Table above. The Corporation
did not award any stock appreciation rights or reprice any stock options during
the year.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED
OPTIONS/ TO EXERCISE GRANT
SARS EMPLOYEES OR BASE DATE
GRANTED IN FISCAL PRICE EXPIRATION PRESENT
NAME (#)(1) YEAR ($/SH) DATE VALUE ($)(2)
- ---- ---------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
James S. Balloun............................ 100,000 15.3% 35.0625 9/21/08 1,362,300
George H. Gilmore, Jr....................... 50,000 7.6% 36.8750 5/31/09 681,150
Brock A. Hattox............................. 40,000 6.1% 35.0625 9/21/08 544,920
David Levy.................................. 32,500 5.0% 35.0625 9/21/08 442,748
Stewart A. Searle III....................... 21,500 3.3% 35.0625 9/21/08 292,895
</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. Under the amended and restated Long-Term Achievement Incentive
Plan being submitted for approval by stockholders, the Committee's authority
to reprice options or grant options in substitution for surrendered options
has been eliminated.
(2) The amounts shown were calculated using a Black-Scholes option pricing
model. The estimated values assume a risk-free rate of return of 5.2%, a
dividend yield of 2.63%, an option term of ten years, and stock price
volatility having a standard deviation of .3620. The option values were not
discounted to reflect the vesting period of the options or to reflect any
exercise or lapse of the options prior to the end of the
ten-year option period. The actual value, if any, that an executive may
realize will depend upon the excess of the stock price over the exercise
price on the date the option is exercised, so that there is no assurance the
value realized by an executive will be at or near the value estimated by the
Black-Scholes model.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning the exercise of stock
options by the named executive officers during the 1999 fiscal year and the
aggregate value of unexercised stock options held by the named executive
officers as of August 31, 1999. No stock appreciation rights are held by any
named executive officer.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN- THE-MONEY
OPTIONS/SARS OPTIONS/SARS
SHARES AT FY-END(#) AT FY-END ($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James S. Balloun............ -- -- 288,750 171,250 0 0
George H. Gilmore, Jr....... -- -- 0 50,000 0 0
Brock A. Hattox............. -- -- 30,000 90,000 0 0
David Levy.................. -- -- 100,828 70,750 510,408 6,250
Stewart A. Searle III....... -- -- 14,750 43,750 0 0
</TABLE>
- ---------------
(1) The amounts shown represent the aggregate excess of market value of shares
under option as of August 31, 1999 (using the $32.00 closing price on August
31, 1999) over the exercise price of the options.
12
<PAGE> 15
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The following table contains information concerning the grant of aspiration
awards to the named executive officers during the 1999 fiscal year.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF PERFORMANCE OR UNDER NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OTHER PERIOD ----------------------------------
OR OTHER UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#) OR PAYOUT(1) ($) ($) ($)
- ---- ------------- ---------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
James S. Balloun................... 400,000 3 years 100,000 400,000 2,000,000
George H. Gilmore, Jr. (2)......... 252,000 3 years 63,000 252,000 1,260,000
Brock A. Hattox.................... 182,400 3 years 45,600 182,400 912,000
David Levy......................... 175,200 3 years 43,800 175,200 876,000
Stewart A. Searle III.............. 115,200 3 years 28,800 115,200 576,000
</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, 2001. Half of each payout will be in shares of stock and half
will be in cash unless the Executive Resource and Compensation Committee
determines otherwise.
(2) The numbers shown reflect the combined pro rata awards granted to Mr.
Gilmore for certain performance cycles in progress as of June 1, 1999 (the
date of his employment), based on the cumulative economic profit of the
business units for which he is responsible. The respective threshold,
target, and maximum payout amounts are as follows: for the performance cycle
ending August 31, 2000, $22,500, $90,000, and $450,000; and for the
performance cycle ending August 31, 2001, $40,500, $162,000, and $810,000.
EMPLOYMENT CONTRACTS, SEVERANCE ARRANGEMENTS, AND OTHER AGREEMENTS
Pursuant to the Corporation's February 1, 1996 employment agreement with
Mr. Balloun and a related amendment to the Supplemental Retirement Plan for
Executives ("SERP"), Mr. Balloun will be credited with two years of service
under the SERP for each year of actual credited service and will be vested in
his SERP benefit after completing five years of employment.
The employment agreement with Mr. Balloun provides for a lump sum severance
payment of $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 May 5, 1999 employment agreement with Mr.
Gilmore and a related amendment to the SERP, he will be credited with service
under the SERP for each year of actual service (from June 1, 1999 instead of
January 1, 2000) and vested in his SERP benefit after five years. The agreement
provides that in the event his employment is terminated by the Corporation on or
before June 1, 2000, (a) he will receive a severance payment, in semi-monthly
installments, equal to his then-current salary, from the date of termination
through June 1, 2002. In the event his employment is terminated by the
Corporation after June 1, 2000 but on or before June 1, 2009, he will receive a
severance payment, in 24 semi-monthly installments, equal to his then-current
salary. 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.
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 Corporation has Severance Protection Agreements (the "Agreements") with
Messrs. Balloun, Gilmore, Hattox, Levy, and Searle. The Board intends for the
Agreements(which are similar) to provide the executives 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.
13
<PAGE> 16
The Agreement for Mr. Balloun is effective until his 65th birthday. The
Agreements for Messrs. Gilmore, 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, 1999 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 $4,810,003, $1,155,969, $1,582,316, $1,766,435, and $997,178 for
Messrs. Balloun, Gilmore, Hattox, Levy, and Searle, respectively. The amount of
the gross-up payment, if any, to be paid may be substantial and will depend upon
numerous factors, including the price per share of common stock of the
Corporation and the extent, if any, that payments or benefits made to the
officers constitute "excess parachute payments" within the meaning of Section
280G of the Code.
A "Change in Control" includes (1) the acquisition (other than from the
Corporation) by any "person" (as that term is used for purposes of Sections
13(d) or 14(d) of the Exchange Act) other than a trustee of an employee benefit
plan maintained by the Corporation or certain related entities of beneficial
ownership of 20% or more of the combined voting power of the Corporation's then
outstanding voting securities, (2) a change in more than one-third of the
members of the Board who were either members as of September 21, 1989 or were
nominated or elected by a vote of two-thirds of those members or members so
approved, or (3) approval by stockholders of the Corporation of (i) a merger or
consolidation involving the Corporation if the stockholders of the Corporation
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than seventy percent
(70%) of the combined voting power of the then outstanding voting securities of
the Corporation resulting from such merger or consolidation in substantially the
same proportion as their ownership of the combined voting power of the voting
securities of the Corporation outstanding immediately before such merger or
consolidation or (ii) a complete liquidation or dissolution of the Corporation
or an agreement for the sale or other disposition of all or substantially all of
the assets of the Corporation.
Letter agreements issued to Messrs. Balloun, Gilmore, 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.
14
<PAGE> 17
PENSION AND SUPPLEMENTAL RETIREMENT BENEFITS
The combined benefit under the Corporation's qualified defined benefit
retirement plan ("Pension Plan") and nonqualified 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 $9,283 for Mr. Balloun, $28,559 for Mr.
Gilmore, $33,214 for Mr. Hattox, $11,747 for Mr. Levy, and $49,648 for Mr.
Searle):
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 300,000................................... $ 95,100 $126,800 $126,800 $126,800 $126,800
400,000................................... 128,800 171,800 171,800 171,800 171,800
500,000................................... 162,600 216,800 216,800 216,800 216,800
600,000................................... 196,300 261,800 261,800 261,800 261,800
700,000................................... 230,100 306,800 306,800 306,800 306,800
800,000................................... 263,800 351,800 351,800 351,800 351,800
900,000................................... 297,600 396,800 396,800 396,800 396,800
1,000,000.................................. 331,300 441,800 441,800 441,800 441,800
1,200,000.................................. 396,800 531,800 531,800 531,800 531,800
1,400,000.................................. 466,300 621,800 621,800 621,800 621,800
1,600,000.................................. 533,800 711,800 711,800 711,800 711,800
1,800,000.................................. 601,300 801,800 801,800 801,800 801,800
2,000,000.................................. 668,800 891,800 891,800 891,800 891,800
2,200,000.................................. 736,300 981,800 981,800 981,800 981,800
</TABLE>
The remuneration specified in the table above consists of salary and annual
incentive bonus. Benefits shown above are based on payment of a single life
annuity with 10 years certain. Equivalent payment options are offered.
The salary and bonus currently covered by the Pension Plan and the SERP for
each of the named executive officers substantially correspond to the amounts
disclosed in the Summary Compensation Table. The years of credited service for
each of the following named executive officers as of August 31, 1999 were: Mr.
Balloun, 3 years (6 years under the SERP); Mr. Gilmore, 0 years; Mr. Hattox, 2
years; Mr. Levy, 24 years; and Mr. Searle, 3 years.
ITEM NO. 2 -- APPROVAL OF THE AMENDED AND RESTATED
LONG-TERM ACHIEVEMENT INCENTIVE PLAN
In October 1999 , subject to approval of the Corporation's stockholders,
the Board of Directors adopted the amended and restated National Service
Industries, Inc. Long-Term Achievement Incentive Plan (the "Amended Plan") for
the benefit of officers and other key employees of the Corporation and its
subsidiaries (the "Participants"). Stockholder approval of the Amended Plan,
including the performance measures which may be utilized thereunder, is sought
(a) in order to qualify the Amended Plan under Section 162(m) of the Internal
Revenue Code of 1986 as amended ("Code") and to thereby allow the Corporation to
deduct for federal income tax purposes all compensation paid under the Amended
Plan to Named Executive Officers (generally, the executive officers who would be
listed for a fiscal year under the summary compensation table appearing on page
11 hereof) and (b) to satisfy the requirements of Section 422(b) of the Code so
that certain options issued under the Amended Plan may be "incentive stock
options."
Approval of the Amended Plan requires the affirmative vote of a majority of
the shares of the Corporation's outstanding common stock present, in person or
by proxy, and entitled to vote at the Annual Meeting. In the event the Amended
Plan is not approved by the Corporation's stockholders, the Long-Term
Achievement Incentive Plan will continue without amendments incorporated in the
Amended Plan, and the Board of Directors will take such action with respect to
incentive awards as it considers to be in the best interests of the Corporation,
consistent with the compensation policies set forth in the Report of the
Executive Resource and Compensation Committee on page 8 of this proxy statement.
15
<PAGE> 18
The principal provisions of the Amended Plan are summarized below. This
summary is qualified in its entirety by reference to the full text of the
Amended Plan, which is attached hereto as Exhibit A.
PURPOSES OF THE AMENDED PLAN
The general purposes of the Amended Plan are to provide additional
incentives to the Participants, whose substantial contributions are essential to
the continued growth and profitability of the Corporation's business, to
strengthen the commitment of the Participants to the Corporation and its
subsidiaries, to further motivate the Participants to perform their assigned
responsibilities diligently and skillfully, and to attract and retain competent
and dedicated individuals whose efforts will result in the long-term growth and
profitability of the Corporation and, over time, appreciation in the market
value of its stock.
NATURE OF THE AMENDMENTS
The Amended Plan preserves the framework provided by the Long-Term
Achievement Incentive Plan approved by stockholders in January 1997. The
amendments incorporated in the Amended Plan modify the Plan in the following
ways: (a) shares authorized for issuance under the Plan are increased by
4,000,000 to 5,750,000; (b) grant size limitations are revised to the levels set
forth below in the descriptions of awards issuable under the Plan, are applied
with respect to each fiscal year of the Corporation (rather than with respect to
any twelve-month period), and are applied to all participants (not just Named
Executive Officers); (c) authority of the Committee administering the Plan to
reprice options or grant options in substitution for surrendered options is
eliminated; (d) an additional procedure (attestation) for exercising options is
authorized; (e) the number of shares to be issued in payment of an Aspiration
Achievement Incentive Award, and the payment of a Performance Unit in the form
of cash, is to be calculated in each case using the Fair Market Value determined
over the last ten trading days of the Performance Cycle (unless the Committee
provides otherwise in the Agreement setting forth the Award), rather than the
last day of the Performance Cycle; (f) the Committee is granted more flexibility
in setting the length of Performance Cycles for Aspiration Achievement Incentive
Awards, determining the effect of a Change in Control on payments of Aspiration
Achievement Incentive Awards and Performance Awards, and deferring payment of
Aspiration Achievement Incentive Awards; (g) the Committee is now required to
make adjustments for items or events that are "unusual" under generally accepted
accounting principles, as well as items or events that are "extraordinary"; (h)
restrictions that were originally in the Plan because of requirements of Section
16(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and
regulations promulgated thereunder, or because of Section 162(m) of the Code,
but that are no longer necessary (because of amendments to or new
interpretations of those Sections or regulations) have been eliminated, but the
Amended Plan is still required to be interpreted and administered consistent
with Rule 16b-3 promulgated under the Exchange Act and is still drafted in a
manner such that grants and awards under the Amended Plan can be performance
based under Section 162(m) of the Internal Revenue Code.
DESCRIPTION OF THE PLAN
The Amended Plan will be administered by a committee of at least three
directors (the "Committee"). The Committee currently designated is the Executive
Resource and Compensation Committee of the Board. The Amended Plan is a flexible
plan that will provide the Committee broad discretion to fashion the terms of
the following types of awards (described below): Stock Options (both Incentive
Stock Options and Nonqualified Stock Options), Aspiration Achievement Incentive
Awards, Restricted Stock, Performance Units, and Performance Shares
(individually and collectively, "Awards"). Not more than 30% of the maximum
number of Shares that may be issued or transferred pursuant to Awards under the
amended Plan may be in the form of Awards of Restricted Stock, Aspiration
Achievement Incentive Awards, Performance Shares, and Performance Units.
The Committee will (a) select those Participants to whom Awards will be
granted and (b) determine the type, size and terms and conditions of Awards,
including the exercise price per Share for each Stock Option and the
restrictions or performance criteria relating to Aspiration Achievement
Incentive Awards, Restricted Stock, Performance Units and Performance Shares.
The Committee will administer, construe, and interpret the Amended Plan. Members
of the Committee will be ineligible to participate in the Amended Plan.
5,750,000 shares of the Corporation's common stock ("Shares") may be issued
or transferred pursuant to the Amended Plan. In the event of any "Change in
Capitalization" (as defined in the Plan), the Committee may adjust the maximum
number and class of Shares with respect to which Awards may be granted, the
16
<PAGE> 19
number and class of Shares which are subject to outstanding Awards (subject to
limitations imposed under Section 422 of the Code in the case of Incentive Stock
Options), and the purchase price therefor, if applicable.
1,750,000 of the total 5,750,000 shares were approved by stockholders in
1997 under the Long-Term Plan and as of the record date are comprised as
follows: 1,140,331 option shares granted and outstanding; 181,658 shares issued
in payment of aspiration awards or upon exercise of options; and 428,011 shares
available for grant, subject to issuance in connection with outstanding
aspiration awards. The incremental 4,000,000 shares would be available for
future grants.
The Amended Plan will terminate on September 18, 2006, the tenth
anniversary of the effective date of the Long-Term Achievement Incentive Plan.
The Board may terminate or amend the Amended Plan at any time (other than with
respect to the protections afforded to optionees and grantees upon a Change in
Control), unless such amendment or termination will adversely affect outstanding
Stock Options or Awards. However, to the extent legally required, no amendment
will be effective unless approved by stockholders.
AWARDS ISSUABLE UNDER THE PLAN
Stock Options. Both Incentive Stock Options and Nonqualified Stock Options
may be granted pursuant to the Amended Plan. The maximum number of Shares
subject to Stock Options which can be granted under the Amended Plan to any
Participant during a fiscal year of the Corporation is 500,000 Shares. All Stock
Options granted under the Amended Plan will have an exercise price per Share
equal to at least the fair market value of a Share on the date the Stock Option
is granted. The maximum term for all Stock Options granted under the Amended
Plan is ten years. Unless the Committee provides otherwise in the agreement
evidencing the Stock Options granted, Stock Options are nontransferable other
than by will or the laws of descent and distribution and during an optionee's
lifetime may be exercised only by the optionee or his guardian or legal
representative. Stock Options are exercisable at such time and in such
installments as the Committee may provide at the time the Stock Option is
granted. The Committee may accelerate the exercisability of any Stock Option at
any time, subject to any limitations required by Section 162(m) of the Code. The
purchase price for Shares acquired pursuant to the exercise of an Option must be
paid, as determined by the Committee, in cash, by check, or by transferring
Shares to the Corporation or attesting to ownership of shares upon such terms
and conditions as may be determined by the Committee. The terms and conditions
of the Stock Options relating to their treatment upon termination of the
optionee's employment will be determined by the Committee at the time the Stock
Options are granted.
Upon a Change in Control, all outstanding Stock Options under the Amended
Plan on the date of a Change in Control will become immediately and fully
exercisable and the optionee may, during the 60-day period following the Change
in Control, surrender for cancellation any Stock Option (or portion thereof) for
a cash payment in respect of each Share covered by the Stock Option, or portion
thereof surrendered, equal to the excess of (1)(a) in the case of an Incentive
Stock Option, the per-Share Fair Market Value (as defined in the Plan) on the
date of surrender or (b) in the case of a Nonqualified Stock Option, the higher
of (x) the highest per-Share price at which Shares traded during the 90-day
period preceding the date of the Change in Control or (y) the price per Share
paid in any transaction (or series of transactions) constituting or resulting in
a Change in Control or (z) the per-Share Fair Market Value on the date preceding
the date of surrender, over (2) the purchase price of each Share.
Aspiration Achievement Incentive Awards. Aspiration Achievement Incentive
Awards ("Aspiration Awards") granted by the Committee will be payable based on
the level of achievement of the performance measure or measures specified by the
Committee, selected from the performance measures listed on Appendix A of the
amended Plan, over the performance period specified by the Committee (the
"Performance Cycle"). The performance measure may relate to the performance of
the Corporation or its subsidiaries or divisions, or any combination of the
foregoing, and the Performance Cycle will equal or exceed two years. Performance
measures and the length of the Performance Cycle will be determined by the
Committee at or near the beginning of the Performance Cycle when the Aspiration
Award is granted. Performance levels may be absolute or relative and may be
expressed in terms of a progression within a specified range. The agreement
setting forth the grant of an Aspiration Award may provide for such adjustments
to performance as the Committee deems appropriate and are not inconsistent with
Section 162(m) of the Code. Aspiration Awards may also include performance
levels that relate to individual achievements or goals. Except with respect to
Named Executive Officers, the Committee may establish performance measures in
addition to those specified in the Plan; moreover, the Committee may establish
additional performance measures with respect to Named Executive Officers without
stockholder approval if
17
<PAGE> 20
laws change to give the Committee that discretion. No Participant may receive an
Aspiration Award in excess of $4 million with respect to a single Performance
Cycle.
After the applicable Performance Cycle has ended, the Committee may adjust
the achieved performance levels to exclude the effects of unusual charges or
income items or other events, such as acquisitions or divestitures, which are
distortive of financial results for the Performance Cycle; provided that with
respect to Named Executive Officers, the Committee must, and can only, exclude
items with the effect of increasing the Aspiration Award payable if such items
constitute "extraordinary" or "unusual" events or items under generally accepted
accounting principles. The Committee will also adjust performance calculations
to exclude the unanticipated effect on financial results of changes in tax laws
or regulations. The Committee is allowed to decrease the Aspiration Award
otherwise payable if the performance during the Performance Cycle justifies such
adjustment, regardless of the extent to which the applicable performance measure
was achieved. The agreement evidencing the granting of an Aspiration Award may
provide the Committee with the right to revise performance levels and Aspiration
Awards payable if unforeseen events occur which have a substantial effect on
financial results and which in the Committee's judgment make the application of
the performance levels unfair; provided that for Named Executive Officers such
changes must be made in a manner not inconsistent with Section 162(m) of the
Code. Payment of an earned Aspiration Award will be made in cash, in Shares, or
in some combination of cash and Shares, as determined by the Committee. The
agreement evidencing the grant will also set forth the terms and conditions of
the Aspiration Award applicable in the event of termination of the Participant's
employment and in the event of a Change in Control.
Restricted Stock. The aggregate maximum number of Shares that may be
awarded under a Restricted Stock Award and an Award of Performance Shares and
Units to a Participant during any fiscal year of the Corporation is 100,000. The
terms of a Restricted Stock Award, including the restrictions placed on such
Shares and the time or times at which such restrictions will lapse, shall be
determined by the Committee at the time the Award is made. The Committee may
determine at the time an Award of Restricted Stock is granted that dividends
paid on Shares may be paid to the grantee or deferred. Deferred dividends
(together with any interest accrued thereon) will be paid upon the lapsing of
restrictions on Shares of Restricted Stock or forfeited upon the forfeiture of
Shares of Restricted Stock. The agreements evidencing Awards of Restricted Stock
shall set forth the terms and conditions of such Awards upon a grantee's
termination of employment. Unless the Committee provides otherwise in the
agreements, all restrictions on outstanding Shares of Restricted Stock will
lapse upon a Change in Control.
Performance Units and Performance Shares. Each Performance Unit will
represent one Share and payments in respect of vested Performance Units will be
made in cash, Shares, or Shares of Restricted Stock or any combination of the
foregoing, as determined by the Committee. Performance Shares are awarded in the
form of Shares of Restricted Stock. The vesting of Performance Units and
Performance Shares is based upon the level of achievement of the performance
measure or performance measures specified by the Committee, selected from the
performance measures listed on Appendix A of the amended Plan, over the
performance period specified by the Committee (the "Performance Cycle"). The
performance measure may relate to the performance of the Corporation or its
subsidiaries or divisions, or any combination of the foregoing. Performance
measures and the length of the Performance Cycle for Performance Units and
Performance Shares (which shall not be less than two years) will be determined
by the Committee at the time the Award is made. The Committee may make
adjustments to achieved performance levels and changes to performance measures
to the same extent described under Aspiration Achievement Incentive Awards
above. The agreements evidencing Awards of Performance Units and Performance
Shares will set forth the terms and conditions of such Awards, including those
applicable in the event of the grantee's termination of employment. The
aggregate maximum number of Performance Units, Performance Shares, and
Restricted Stock a Participant may be awarded for any fiscal year is 100,000.
At the time an Award is made, the Committee will determine the total number
of Performance Shares subject to an Award and the time or times at which the
Performance Shares will be issued to the grantee. In addition, the Committee
will determine (a) the time or times at which the awarded but not issued
Performance Shares shall be issued to the grantee and (b) the time or times at
which awarded and issued Performance Shares shall become vested in or forfeited
by the grantee, in either case based upon the attainment of specified
performance objectives within the Performance Cycle. At the time the Award of
Performance Shares is made, the Committee may determine that dividends be paid
or deferred on the Performance Shares issued. Deferred dividends (together with
any interest accrued thereon) will be paid upon the lapsing of restrictions on
Performance Shares and forfeited upon the forfeiture of Performance Shares. Upon
a Change in Control, unless the Committee provides otherwise in the agreement
evidencing the Award,
18
<PAGE> 21
(x) a percentage of Performance Units, as determined by the Committee at the
time an Award of Performance Units is made, will become vested and the grantee
will be entitled to receive a cash payment equal to the per Share adjusted Fair
Market Value multiplied by the number of Performance Units which become vested,
and (y) with respect to Performance Shares, all restrictions shall lapse on a
percentage of the Performance Shares, as determined by the Committee at the time
the Award of Performance Shares is made.
FEDERAL INCOME TAX CONSEQUENCES OF CERTAIN AWARDS
An optionee will not recognize taxable income upon grant or exercise of an
Incentive Stock Option. However, upon the exercise of an Incentive Stock Option,
the excess of the fair market value of the Shares received over the exercise
price of the Shares subject to such Stock Option will be treated as an
adjustment to alternative minimum taxable income. Any dividends paid on Shares
will be taxable as ordinary income in the taxable year in which the dividend is
received. The Corporation and its subsidiaries will not be entitled to any
business expense deduction with respect to the grant or exercise of an Incentive
Stock Option, except as discussed below.
In order for the exercise of an Incentive Stock Option to qualify for
favorable tax treatment, the optionee generally must be an employee of the
Corporation, parent, or a subsidiary (within the meaning of Section 422 of the
Code) from the date the Incentive Stock Option is granted through a date within
three months before the date of exercise. In the case of an optionee who is
disabled, the three-month period for exercise following termination of
employment may be extended to one year. In the case of an optionee's death, the
time for exercising Incentive Stock Options after termination of employment and
the holding period for stock received pursuant to the exercise of the Incentive
Stock Options are waived.
If all of the requirements for Incentive Stock Option treatment are met and
the optionee has held the Shares for at least two years after the date of grant
and for at least one year after the date of exercise, upon disposition of the
Shares by the optionee, the difference, if any, between the sales price of the
Shares and the exercise price of the Stock Option will be treated as long-term
capital gain or loss. If the optionee does not hold the Shares in accordance
with the holding period rules set forth above, the optionee will recognize
ordinary income at the time of the disposition of the Shares, generally in an
amount equal to the excess of the fair market value of the Shares at the time
the Stock Option was exercised over the exercise price of the Stock Option. The
ordinary income recognized by an optionee upon the disposition of the Shares has
been determined by the IRS not to constitute wages for purposes of applicable
withholding tax requirements. The balance of the gain realized, if any, will be
long-term or short-term capital gain, depending upon whether or not the Shares
were sold more than one year after the Stock Option was exercised. If the
optionee sells the Shares prior to the satisfaction of the holding period rules
but at a price below the fair market value of the Shares at the time the Stock
Option was exercised, the amount of ordinary income will be limited to the
amount realized on the sale over the exercise price of the Stock Option. The
Corporation and its subsidiaries will be allowed a business expense deduction to
the extent the optionee recognizes ordinary income.
An optionee to whom a Nonqualified Stock Option is granted will recognize
no income at the time of the grant of the Stock Option. Upon exercise of a
Nonqualified Stock Option, an optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the Shares on the date of
exercise over the exercise price of the Stock Option. If it complies with
applicable withholding requirements, the Corporation and its subsidiaries will
be entitled to a business expense deduction in the same amount and at the same
time as the optionee recognizes ordinary income. Upon a subsequent sale or
exchange of Shares acquired pursuant to the exercise of a Nonqualified Stock
Option, the optionee will have taxable gain or loss, measured by the difference
between the amount realized on the disposition and the tax basis of the shares
(generally, the amount paid for the Shares plus the amount treated as ordinary
income at the time the Stock Option was exercised).
The Amended Plan provides that in satisfaction of the federal, state and
local income taxes and other amounts as may be required by law to be withheld
(the "Withholding Taxes") with respect to a Stock Option or Award, the optionee
or grantee may make a written election, which may be accepted or rejected in the
discretion of the Committee, to have withheld a portion of the Shares issuable
to him or her having an aggregate Fair Market Value equal to the Withholding
Taxes.
19
<PAGE> 22
NEW PLAN BENEFITS
The Committee may designate the employees eligible to participate in the
Plan each time it makes grants and awards under the Amended Plan. In the 1999
fiscal year, there were approximately 110 eligible employees under the Long-Term
Achievement Incentive Plan, including all five executive officers.
Set forth in the table below are the numbers of options which have been
proposed to the Executive Resource and Compensation Committee for grant in
January 2000 for the persons and groups identified in the table.
<TABLE>
<CAPTION>
NAME POSITION NUMBER OF OPTIONS*
---- ------------------------------------- ------------------
<S> <C> <C>
James S. Balloun..................... Chairman, President and Chief **
Executive Officer
George H. Gilmore, Jr................ Executive Vice President and Group 50,000
President
Brock A. Hattox...................... Executive Vice President and Chief 40,000
Financial Officer
David Levy........................... Executive Vice President, 35,000
Administration and Counsel
Stewart A. Searle III................ Senior Vice President, Planning and 25,000
Development
Executive Group (5 persons)**........ 150,000**
Non-Executive Employee Group 405,000(est.)
(estimated 160 persons)............
</TABLE>
- ---------------
* Each option shown for an individual represents the right to acquire the
number of shares of the Corporation's common stock shown, at an exercise
price equal to the fair market value on the date of grant. As of November 8,
1999, the fair market value of a share was $32.00.
** Mr. Balloun's compensation is currently subject to review. The type and size
of grants and awards he will receive in January 2000 are not currently
determinable.
Actual grants by the Committee may vary from the numbers shown above, and
the proposal to the Committee is subject to change based on material changes in
the stock price or other relevant factors. In addition, the first time the
Committee is expected to grant Aspiration Awards under the Amended Plan is
October 2000; the benefits to be received under such grants are not currently
determinable.
THE BOARD OF DIRECTORS BELIEVES IT IS IN THE BEST INTEREST OF THE
CORPORATION FOR THE STOCKHOLDERS TO APPROVE THE AMENDED AND RESTATED NATIONAL
SERVICE INDUSTRIES, INC. LONG-TERM ACHIEVEMENT INCENTIVE PLAN, INCLUDING THE
MATERIAL TERMS OF THE PERFORMANCE CRITERIA UNDER WHICH AWARDS MAY BE GRANTED.
THE BOARD THUS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITEM NO. 2.
ITEM NO. 3 -- APPOINTMENT OF INDEPENDENT AUDITORS
At the annual meeting, a proposal will be presented to ratify the
appointment of Arthur Andersen LLP as independent auditors to examine the books
of account and other corporate records of the Corporation for the fiscal year
ending August 31, 2000. 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, 1999, was $867,544,
substantially all of which was for services provided in connection with annual
audits, retirement plan audits, acquisition audits, and tax assistance.
ITEM NO. 4 -- OTHER MATTERS
The Board of Directors knows of no other business to be transacted, but if
any other matters do come before the meeting, the persons named as proxies in
the accompanying proxy, or their substitutes, will vote or act with respect to
them in accordance with their best judgment.
20
<PAGE> 23
ANNUAL MEETING IN JANUARY 2001 -- 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 2001, the proposal must comply with the
Securities and Exchange Commission's proxy rules, be stated in writing, and be
submitted on or before July 24, 2000, to the Corporation at its principal
executive offices at 1420 Peachtree Street, N.E., Atlanta, Georgia 30309,
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, as amended effective immediately following the
conclusion of the annual meeting on January 5, 2000, 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 45 days nor more than 75 days
prior to the first anniversary of the date on which the Corporation first mailed
proxy materials for the preceding year's 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 during the preceding year the Corporation did not hold an annual
meeting or if the date of the annual meeting is advanced more than 30 days prior
to or delayed by more than 30 days after the anniversary of the preceding year's
annual meeting, notice by the stockholder to be timely must be delivered or
received not later than 90 days prior to the scheduled annual meeting, and
provided, further, however, that if less than 100 days' notice or prior public
disclosure of the date of the scheduled annual meeting is given or made, notice
by the stockholder to be timely must be delivered or received not later than the
close of business on the 10th day following the earlier of (i) the day on which
such notice of the date of the scheduled 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 2001, 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 7, 2000. The written notice shall set forth
(A) the name and address of the stockholder and each person whom the stockholder
proposes to nominate as a director; (B) a representation that the stockholder is
a holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (C) a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (D) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission as then in effect; and (E) the consent of
each nominee to serve as a director of the Corporation if so elected. The
presiding officer of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
The preceding two paragraphs are intended to summarize the applicable
By-laws of the Corporation. These summaries are qualified in their entirety by
reference to those By-laws.
THE ANNUAL REPORT OF THE CORPORATION WHICH ACCOMPANIES THIS PROXY STATEMENT
CONTAINS MUCH OF THE INFORMATION THAT IS IN THE CORPORATION'S ANNUAL REPORT ON
FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. A COPY OF THE FORM
10-K REPORT WILL BE FURNISHED TO STOCKHOLDERS UPON REQUEST WITHOUT CHARGE.
REQUESTS FOR FORM 10-K REPORTS SHOULD BE SENT TO, HELEN D. HAINES, VICE
PRESIDENT AND SECRETARY, NATIONAL SERVICE INDUSTRIES, INC., 1420 PEACHTREE
STREET, N.E., MAILSTOP 809, ATLANTA, GEORGIA 30309.
By order of the Board of Directors,
/s/ Helen D. Haines
HELEN D. HAINES
Vice President and Secretary
21
<PAGE> 24
EXHIBIT A
NATIONAL SERVICE INDUSTRIES, INC.
LONG-TERM ACHIEVEMENT INCENTIVE PLAN
(As Amended and Restated Effective as of January 5, 2000)
1. PURPOSE. The purposes of the amended and restated National Service
Industries, Inc. Long-Term Achievement Incentive Plan (the "Plan") are to
provide additional incentives to those officers and key executives of National
Service Industries, Inc. (the "Company") and its Subsidiaries (as hereinafter
defined) whose substantial contributions are essential to the continued growth
and profitability of the Company's businesses, to strengthen their commitment to
the Company and its Subsidiaries, to further motivate those officers and other
executives to perform their assigned responsibilities diligently and skillfully,
and to attract and retain competent and dedicated individuals whose efforts will
result in the long term growth and profitability of the Company and, over time,
appreciation in the market value of its stock. To accomplish these purposes, the
Plan provides that the Company may grant Incentive Stock Options, Nonqualified
Stock Options, Aspiration Achievement Incentive Awards, Restricted Stock,
Performance Units and Performance Shares (as each term is hereinafter defined).
2. DEFINITIONS. For purposes of the Plan:
(a) "ADJUSTED FAIR MARKET VALUE" means in the event of a Change in
Control, the greater of (i) the highest price per share paid to holders of
the Shares in any transaction (or series of transactions) constituting or
resulting in a Change in Control or (ii) the highest Fair Market Value of a
Share during the ninety (90) day period ending on the date of a Change in
Control.
(b) "AGREEMENT" means the written agreement between the Company and an
Optionee or Grantee evidencing the grant of an Option or Award and setting
forth the terms and conditions thereof.
(c) "ASPIRATION ACHIEVEMENT INCENTIVE AWARD" or "ASPIRATION AWARD"
means an Award granted to an Eligible Employee, as described in Section 7
of the Plan.
(d) "AWARD" means a grant of an Aspiration Award, Restricted Stock,
Performance Awards, or any or all of them.
(e) "BOARD" means the Board of Directors of the Company.
(f) "CHANGE IN CAPITALIZATION" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) or exchange of Shares for a different number or kind of shares or
other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off,
split-up, issuance of warrants or rights or debentures, stock dividend,
stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of shares, public offering,
private placement, change in corporate structure or otherwise, which in the
judgment of the Committee is material or significant.
(g) "CHANGE IN CONTROL" means any of the following events:
(i) The acquisition (other than from the Company) by any "Person"
(as the term is used for purposes of Sections 13(d) or 14(d) of the
Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty percent (20%) or more of
the combined voting power of the Company's then outstanding voting
securities; or
(ii) The individuals who, as of October 15, 1999, are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at
least two-thirds of the Board; provided, however, that if the election,
or nomination for election by the Company's stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; or
(iii) Approval by stockholders of the Company of (i) a merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation do not, as a result of
such merger or consolidation, own, directly or indirectly, more than
seventy percent (70%) of the combined voting power of the then
outstanding voting securities of the corporation resulting from such
merger or consolidation in substantially the same proportion as their
<PAGE> 25
ownership of the combined voting power of the voting securities of the
Company outstanding immediately before such merger or consolidation, or
(ii) a complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially all
of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur pursuant to Section 2(g)(i), solely because twenty percent (20%)
or more of the combined voting power of the Company's then outstanding
securities is acquired by (i) a trustee or other fiduciary holding
securities, under one or more employee benefit plans maintained by the
Company or any of its subsidiaries or (ii) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by
the stockholders of the Company in the same proportion as their ownership
of stock in the Company immediately prior to such acquisition.
(h) "CODE" means the Internal Revenue Code of 1986, as amended.
(i) "COMMITTEE" means a committee consisting of two or more members of
the Board who are appointed by the Board to administer the Plan and to
perform the functions set forth herein.
(j) "COMPANY" means National Service Industries, Inc., a Delaware
corporation, or any successor corporation.
(k) "DISABILITY" means a physical or mental infirmity which impairs
the Optionee's or Grantee's ability to substantially perform his duties for
a period of one hundred eighty (180) consecutive days.
(l) "DIVISION" means any of the operating units or divisions of the
Company, or its Subsidiaries, designated as a Division by the Committee.
(m) "ELIGIBLE EMPLOYEE" means any officer or other designated employee
of the Company or a Subsidiary designated by the Committee as eligible to
receive Options or Awards, subject to the conditions set forth herein.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means the fair market value of the Shares as
determined in good faith by the Committee; provided, however, that (A) if
the Shares are admitted to trading on a national securities exchange, Fair
Market Value on any date shall be the last sale price reported for the
Shares on such exchange on such date or, if no sale was reported on such
date, on the last date preceding such date on which a sale was reported,
(B) if the Shares are admitted to quotation on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or other
comparable quotation system and have been designated as a National Market
System ("NMS") security, Fair Market Value on any date shall be the last
sale price reported for the Shares on such system on such date or on the
last day preceding such date on which a sale was reported, or (C) if the
Shares are admitted to Quotation on NASDAQ and have not been designated a
NMS Security, Fair Market Value on any date shall be the average of the
highest bid and lowest asked prices of the Shares on such system on such
date.
(p) "GRANTEE" means a person to whom an Award has been granted under
the Plan.
(q) "INCENTIVE STOCK OPTION" means an Option within the meaning of
Section 422 of the Code.
(r) "NAMED EXECUTIVE OFFICER" means an Eligible Employee who as of the
date of grant, vesting and/or payout of an Award or Option is deemed by the
Committee to be a "covered employee" as defined in Code Section 162(m) and
the regulations thereunder.
(s) "NONQUALIFIED STOCK OPTION" means an Option which is not an
Incentive Stock Option.
(t) "OPTION" means an Incentive Stock Option, a Nonqualified Stock
Option, or either or both of them.
(u) "OPTIONEE" means a person to whom an Option has been granted under
the Plan.
(v) "PARTICIPANT" means an Eligible Employee who has an outstanding
Award or Option under the Plan.
A-2
<PAGE> 26
(w) "PERFORMANCE AWARDS" means Performance Units, Performance Shares
or either or both of them.
(x) "PERFORMANCE CYCLE" means the time period specified by the
Committee at the time an Aspiration Award or a Performance Award is granted
during which the performance of the Company, a Subsidiary or a Division
will be measured, which period shall be at least two fiscal years.
(y) "PERFORMANCE SHARES" means Restricted Stock granted under Section
9 of the Plan.
(z) "PERFORMANCE UNIT" means Performance Units granted under Section 9
of the Plan.
(aa) "RESTRICTED STOCK" means Shares issued or transferred to an
Eligible Employee which are subject to restrictions. Restricted Stock may
be subject to restrictions which lapse over time without regard to the
performance of the Company, a Subsidiary or a Division, pursuant to Section
8 hereof, or may be awarded as Performance Shares pursuant to Section 9
hereof.
(bb) "RETIREMENT" means the voluntary termination of employment by the
Grantee or Optionee at any time on or after the Grantee or Optionee attains
age 65.
(cc) "SHARES" means the common stock, par value $1.00 per share, of
the Company (including any new, additional or different stock or securities
resulting from a Change in Capitalization).
(dd) "SUBSIDIARY" means any corporation in an unbroken chain of
corporations, beginning with the Company, if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain. The term "Subsidiary" shall also
include a partnership in which the Company or a Subsidiary owns 50% or more
of the profits interest or capital interest in the partnership.
(ee) "SUCCESSOR CORPORATION" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes an Option in a transaction to which Section 424(a) of the
Code applies.
(ff) "TEN-PERCENT STOCKHOLDER" means an Eligible Employee who, at the
time an Incentive Stock Option is to be granted to him, owns (within the
meaning of Section 422(b)(6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company.
(gg) "TERMINATION FOR CAUSE" means the Optionee or Grantee has
terminated employment and has been found by the Committee to be guilty of
theft, embezzlement, fraud or misappropriation of the Company's property or
any action which, if the individual were an officer of the Company, would
constitute a breach of fiduciary duty.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Committee which shall hold
such meetings as may be necessary for the proper administration of the
Plan. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the
Plan, or any Agreements, Options or Awards under the Plan, and all members
of the Committee shall be fully indemnified by the Company with respect to
any such action, determination or interpretation.
(b) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(i) to determine those Eligible Employees to whom Options shall be
granted under the Plan and the number of Incentive Stock Options and/or
Nonqualified Stock Options to be granted to each Eligible Employee and
to prescribe the terms and conditions (which need not be identical) of
each Option, including the purchase price per Share subject to each
Option, and to make any amendment or modification to any Agreement
consistent with the terms of the Plan;
(ii) to select those Eligible Employees to whom Awards shall be
granted under the Plan and to determine the amount of Aspiration Award
and Shares payable, the number of Performance Units, Performance Shares,
and/or shares of Restricted Stock, to be granted pursuant to each Award,
the terms and conditions of each Award, including the restrictions or
performance criteria relating to such Award, the maximum value of each
Award, and to make any amendment or modification to any Agreement
consistent with the terms of the Plan;
A-3
<PAGE> 27
provided, however, that the Board can exercise any of the powers set
forth in this Section 3(b), subject to any limitations imposed by Code
Section 162(m) or Rule 16b-3 under the Exchange Act.
(c) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(i) to construe and interpret the Plan and the Options and Awards
granted thereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not
limited to, correcting any defect or supplying any omission, or
reconciling any inconsistency in the Plan or in any Agreement, in the
manner and to the extent it shall deem necessary or advisable to make
the Plan fully effective, and all decisions and determinations by the
Committee in the exercise of this power shall be final, binding and
conclusive upon the Company, a Subsidiary, and the Optionees and
Grantees, as the case may be;
(ii) to determine the duration and purposes for leaves of absence
which may be granted to an Optionee or Grantee on an individual basis
without constituting a termination of employment or service for purposes
of the Plan;
(iii) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan;
(iv) generally, to exercise such powers and to perform such acts as
are deemed necessary or advisable to promote the best interests of the
Company with respect to the Plan.
4. SHARES SUBJECT TO PROGRAM.
(a) The maximum number of Shares that may be issued or transferred
pursuant to Options and Awards under the Plan is 5,750,000 Shares (or the
number and kind of shares of stock or other securities to which such Shares
are adjusted upon a Change in Capitalization pursuant to Section 11) and
the Company shall reserve for the purposes of the Plan, out of its
authorized but unissued Shares or out of Shares held in the Company's
treasury, or partly out of each, such numbers of shares as shall be
determined by the Board.
(b) Not more than an aggregate of thirty percent (30%) of the Shares
referred to in Section 4(a) may be issued or transferred in connection with
Aspiration Achievement Incentive Awards made pursuant to Section 7, Awards
of Restricted Stock made pursuant to Section 8, and Awards of Performance
Shares and Performance Units pursuant to Section 9.
(c) Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason (other than
by exercise of the Option), the Shares allocable to the canceled or
otherwise terminated portion of such Option or Award may again be the
subject of Options and Awards hereunder.
(d) Whenever any Shares subject to an Award or Option are forfeited
for any reason pursuant to the terms of the Plan, such shares may again be
the subject of Options and Awards hereunder.
(e) With respect to Shares used to exercise an Option or for tax
withholding, the Committee shall, in its discretion and in accordance with
applicable law, determine whether to include such shares in determining the
maximum number of Shares that may be issued under the Plan.
5. ELIGIBILITY. Subject to the provisions of the Plan, the Committee shall
have full and final authority to select those Eligible Employees who will
receive Options and/or Awards; provided, however, that no Eligible Employee
shall receive any Incentive Stock Options unless he is an employee of the
Company or a Subsidiary (other than a Subsidiary that is a partnership) at the
time the Incentive Stock Option is granted.
A-4
<PAGE> 28
6. OPTIONS. The Committee may grant Options in accordance with the Plan
and the terms and conditions of the Option shall be set forth in an Agreement.
The Committee shall have sole discretion in determining the number of Shares
underlying each Option to grant a Participant; provided, however, that in the
case of any Incentive Stock Option granted under the Plan, the aggregate Fair
Market Value (determined at the time such Option is granted) of the Shares to
which Incentive Stock Options are exercisable for the first time by the
Participant during any calendar year (under the Plan and all other incentive
stock option plans of the Company and any Subsidiary) shall not exceed $100,000.
The maximum number of Shares subject to Options which can be granted under the
Plan during a fiscal year of the Company to any Participant, including a Named
Executive Officer, is 500,000 Shares. Each Option and Agreement shall be subject
to the following conditions:
(a) PURCHASE PRICE. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Option shall be
set forth in the Agreement, provided, that the purchase price per Share
under each Option shall not be less than 100% of the Fair Market Value of a
Share on the date the Option is granted (110% in the case of an Incentive
Stock Option granted to a Ten-Percent Stockholder).
(b) DURATION. Options granted hereunder shall be for such term as the
Committee shall determine, provided that no Option shall be exercisable
after the expiration of ten (10) years from the date it is granted (five
(5) years in the case of an Incentive Stock Option granted to a Ten-Percent
Stockholder). The Committee may, subsequent to the granting of any Option,
extend the term thereof, but in no event shall the term as so extended
exceed the maximum term provided for in the preceding sentence.
(c) NON-TRANSFERABILITY. Unless the Committee otherwise provides in
the Agreement, no Option granted hereunder shall be transferable by the
Optionee, otherwise than by will or the laws of descent and distribution,
and an Option may be exercised during the lifetime of such Optionee only by
the Optionee or his guardian or legal representative. The terms of such
Option shall be final, binding and conclusive upon the beneficiaries,
executors, administrators, heirs and successors of the Optionee.
(d) VESTING. Subject to Section 6(h) hereof, each Option shall be
exercisable in such installments (which need not be equal or the same for
each Optionee) and at such times as may be designated by the Committee and
set forth in the Agreement. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after
becoming exercisable, but not later than the date the Option expires. The
Committee may accelerate the exercisability of any Option or portion
thereof at any time.
(e) METHOD OF EXERCISE. The exercise of an Option shall be made only
by a written notice delivered in person or by mail to the Secretary of the
Company at the Company's principal executive office, specifying the number
of Shares to be purchased and accompanied by payment therefor and otherwise
in accordance with the Agreement pursuant to which the Option was granted.
The purchase price for any Shares purchased pursuant to the exercise of an
Option shall be paid in full upon such exercise, as determined by the
Committee in its discretion, in cash, by check, or by transferring Shares
to the Company or by attesting to the ownership of Shares upon such terms
and conditions as determined by the Committee. The written notice pursuant
to this Section 6(e) may also provide instructions from the Optionee to the
Company that upon receipt of the purchase price in cash from the Optionee's
broker or dealer, designated as such on the written notice, in payment for
any Shares purchased pursuant to the exercise of an Option, the Company
shall issue such Shares directly to the designated broker or dealer. Any
Shares the Optionee transfers to the Company or attests to owning as
payment of the purchase price under an Option shall be valued at their Fair
Market Value on the day preceding the date of exercise of such Option. If
requested by the Committee, the Optionee shall deliver the Agreement
evidencing the Option to the Secretary of the Company who shall endorse
thereon a notation of such exercise and return such Agreement to the
Optionee. No fractional Shares shall be issued upon exercise of an Option
and the number of Shares that may be purchased upon exercise shall be
rounded to the nearest number of whole Shares.
(f) RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose
to be the owner of any Shares subject to any Option unless and until (i)
the Option shall have been exercised pursuant to the terms thereof, (ii)
the Company shall have issued and delivered the Shares to the Optionee and
(iii) the Optionee's name shall have been entered as a stockholder of
record on the books of the
A-5
<PAGE> 29
Company. Thereupon, the Optionee shall have full voting, dividend and other
ownership rights with respect to such Shares.
(g) TERMINATION OF EMPLOYMENT. The Agreement shall set forth the
terms and conditions of the Option upon the termination of the Optionee's
employment with the Company, a Subsidiary or a Division (including an
Optionee's ceasing to be employed by a Subsidiary or Division as a result
of the sale of such Subsidiary or Division or an interest in such
Subsidiary or Division), as the Committee may, in its discretion, determine
at the time the Option is granted or thereafter, provided, however no
Option shall be exercisable beyond its maximum term as described in Section
6(b) hereof.
(h) EFFECT OF CHANGE IN CONTROL. Notwithstanding anything contained
in the Plan or an Agreement to the contrary, in the event of a Change in
Control, (i) all Options outstanding on the date of such Change in Control
shall become immediately and fully exercisable and (ii) an Optionee will be
permitted to surrender for cancellation within sixty (60) days after such
Change in Control, any Option or portion of an Option to the extent not yet
exercised and the Optionee will be entitled to receive a cash payment in
the amount equal to the excess, if any, of (x) (A) in the case of a
Nonqualified Stock Option, the greater of (1) the Fair Market Value, on the
date preceding the date of surrender, of the Shares subject to the Option
or portion thereof surrendered or (2) the Adjusted Fair Market Value of the
Shares subject to the option or portion thereof surrendered or (B) in the
case of an Incentive Stock Option, the Fair Market Value, at the time of
surrender, of the Shares subject to the Option or portion thereof
surrendered, over (y) the aggregate purchase price for such Shares under
the Option.
(i) MODIFICATION. Subject to the terms of the Plan, the Committee
may, in its discretion, modify outstanding Options. Notwithstanding the
foregoing, (a) no modification of an Option shall adversely alter or impair
any rights or obligations under the Agreement without the Optionee's
consent, and (b) the Committee shall not have authority to modify
outstanding options or accept the surrender of outstanding options and
grant new options in substitution for them or to change the exercise price
of any outstanding Option.
7. ASPIRATION ACHIEVEMENT INCENTIVE AWARDS.
(a) GRANT OF ASPIRATION AWARDS. Subject to the terms of the Plan, the
Committee may grant Aspiration Awards to Eligible Employees. The Committee
shall have the discretion to determine the amount of each Aspiration Award
and the other terms and conditions relating to the grant of such awards.
(b) TERMS OF ASPIRATION AWARDS. The following rules shall apply to
the Aspiration Awards:
(i) Prior to or at the beginning of the Performance Cycle (or
within such time period as is permitted by Code Section 162(m) and the
regulations thereunder), the Committee shall determine, based upon the
Participant's salary and level of responsibility, the Aspiration Award
applicable to the Participant. The Award will contain performance levels
related to the Performance Measure(s) that will determine the actual
award the Participant will receive at the end of the Performance Cycle.
The Committee will select one or more of the Performance Measures listed
on Appendix A (which objectives may be different for different
Participants or Performance Cycles) for purposes of the Aspiration
Awards under the Plan. Performance Measures may be in respect of the
performance of the Company and its Subsidiaries on a consolidated basis,
or a Subsidiary or a Division, or some combination of the foregoing.
Performance levels with respect to a Performance Measure may be absolute
or relative and may be expressed in terms of a progression within a
specified range. The agreement for an Aspiration Award may provide for
such adjustments to the financial performance of the Company (or a
Division or Subsidiary) for the Performance Cycle as the Committee deems
appropriate and are not inconsistent with Code Section 162(m).
Aspiration Awards may also include performance levels that relate to
individual achievements or goals. Except with respect to Named Executive
Officers, the Committee may establish additional Performance Measures
for purposes of Aspiration Awards under the Plan. Further, in the event
that applicable tax and/or securities laws (including, but not limited
to, Code Section 162(m) and Section 16 of the Exchange Act) change to
permit Committee discretion to alter the governing Performance Measures
for Named Executive Officers without obtaining stockholder approval of
such changes, the Committee shall have sole discretion to make such
changes without obtaining stockholder approval.
A-6
<PAGE> 30
(ii) No Participant may receive an Aspiration Award in excess of $4
million with respect to a single Performance Cycle.
(c) EARNING OF ASPIRATION AWARDS. After the applicable Performance
Cycle has ended, the Committee shall certify the extent to which the
performance levels for the Performance Measure(s) have been achieved. In
addition to any adjustments provided for by the Agreement, the Committee
may, in determining whether the performance levels have been met, adjust
the financial results for a Performance Cycle to exclude the effect of
unusual charges or income items, or other events (such as acquisitions or
divestitures and equity and other restructurings), which are distortive of
financial results for the Performance Cycle; provided, that, with respect
to Named Executive Officers, in determining financial results, items whose
exclusion from consideration will increase the Award shall only have their
effects excluded if they constitute "extraordinary" or "unusual" events or
items under generally accepted accounting principles and all such events
and items shall be excluded. The Committee shall also adjust the
performance calculations to exclude the unanticipated effect on financial
results of changes in the Code, or other tax laws, and the regulations
thereunder. The Committee may decrease the amount of an Award otherwise
payable if, in the Committee's view, the financial performance during the
Performance Cycle justifies such adjustment, regardless of the extent to
which the Performance Measure was achieved.
The Agreement may provide the Committee with the right, during a
Performance Cycle or after it has ended, to revise the performance levels
for the Performance Measure and the Award amounts, if unforeseen events
(including, without limitation, a Change in Capitalization, an equity
restructuring, an acquisition or a divestiture) occur which have a
substantial effect on the financial results and which in the judgment of
the Committee make the application of the performance levels unfair unless
a revision is made. For Named Executive Officers, such changes shall be
made in a manner that is not inconsistent with Code Section 162(m).
(d) FORM AND TIMING OF PAYMENT OF ASPIRATION AWARDS. The Agreement
shall set forth the manner in which payment of earned Aspiration Awards
will be made. Payment will be made in cash or in Shares, or in a
combination of cash and Shares, as determined by the Committee in the
Agreement. Payment will be made as soon as practical after the end of the
Performance Cycle to which the Award relates. Unless the Committee provides
otherwise in the Agreement, for purposes of the portion of the Award paid
in Shares, the Shares shall be valued as the average of their Fair Market
Value for the last 10 trading days of the Performance Cycle.
Notwithstanding the foregoing, the Committee may permit a Participant to
elect to surrender all or a portion of an earned Aspiration Award in
exchange for Options upon such terms and conditions as may be established
by the Committee. The Committee may, in its sole discretion, defer payment
of an Award or a portion thereof and provide for payment at a later date,
if the Committee believes such payment if not deferred would violate
Section 162(m).
(e) TERMINATION OF EMPLOYMENT. The Agreement shall set forth the
terms and conditions of the Aspiration Award upon the termination of the
Participant's employment with the Company, Subsidiary or a Division
(including a Participant's ceasing to be employed by a Subsidiary or
Division as a result of the sale of such Subsidiary or Division or an
interest in such Subsidiary or Division), as the Committee may, in its
discretion, determine at the time the Aspiration Award is granted or
thereafter.
(f) NONTRANSFERABILITY. Unless the Agreement provides otherwise,
Aspiration Awards may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, other than, if amounts are payable
after the Participant's death, by will or by the laws of descent and
distribution.
(g) EFFECT OF CHANGE IN CONTROL. In the event of a Change in Control,
the Participant shall earn and become entitled to payment of such portion
of the Aspiration Award as set forth in the Agreement. The time of payment
of the Aspiration Award and the form of such payment shall also be as set
forth in the Agreement.
8. RESTRICTED STOCK. The Committee may grant Awards of Restricted Stock,
and may issue Shares of Restricted Stock in payment in respect of Aspiration
Awards or vested Performance Units (as hereinafter provided in Section 9(b)),
which shall be evidenced by an Agreement between the Company and the Grantee.
Each Agreement shall contain such restrictions, terms and conditions as the
Committee may, in its discretion, determine and (without limiting the generality
of the foregoing) such Agreements may require that an appropriate legend be
placed on Share certificates. Subject to the terms of the Plan, the Committee
A-7
<PAGE> 31
may modify outstanding Awards of Restricted Stock. Notwithstanding the
foregoing, no modification of an award shall adversely alter or impair any
rights or obligations under the Agreement without the Grantee's consent. The
aggregate maximum number of Shares that may be awarded under a Restricted Stock
Award and an Award of Performance Shares and Performance Units to a Participant
during any fiscal year of the Company is 100,000 Shares and Units. Awards of
Restricted Stock shall be subject to the following terms and provisions:
(a) RIGHTS OF GRANTEE. Shares of Restricted Stock granted pursuant to
an Award hereunder shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted, provided that the
Grantee has executed an Agreement evidencing the Award, the appropriate
blank stock powers and, in the discretion of the Committee, an escrow
agreement and any other documents which the Committee may require as a
condition to the issuance of such Shares. If a Grantee shall fail to
execute the documents which the Committee may require within the time
period prescribed by the Committee at the time the Award is granted, the
Award shall be null and void. At the discretion of the Committee, Shares
issued in connection with a Restricted Stock Award shall be deposited
together with the stock powers with an escrow agent designated by the
Committee. Unless the Committee determines otherwise and as set forth in
the Agreement, upon delivery of the Shares to the escrow agent, the Grantee
shall have all of the rights of a stockholder with respect to such Shares,
including the right to vote the Shares and to receive all dividends or
other distributions paid or made with respect to the Shares.
(b) NONTRANSFERABILITY. Unless the Agreement provides otherwise,
until any restrictions upon the Shares of Restricted Stock awarded to a
Grantee shall have lapsed in the manner set forth in Section 8(c), such
Shares shall not be sold, transferred or otherwise disposed of and shall
not be pledged or otherwise hypothecated, nor shall they be delivered to
the Grantee.
(c) LAPSE OF RESTRICTIONS.
(i) GENERALLY. Restrictions upon Shares of Restricted Stock awarded
hereunder shall lapse at such time or times and on such terms and
conditions as the Committee may provide in the Agreement.
(ii) EFFECT OF CHANGE IN CONTROL. Unless the Agreement provides
otherwise, in the event of a Change in Control, all restrictions upon
any Shares of Restricted Stock (other than Performance Shares) shall
lapse immediately and all such Shares shall become fully vested in the
Grantee.
(d) TERMINATION OF EMPLOYMENT. The Agreement shall set forth the terms
and conditions that shall apply upon the termination of the Grantee's
employment with the Company, a Subsidiary or a Division (including a
forfeiture of Shares for which the restrictions have not lapsed upon
Grantee's ceasing to be employed) as the Committee may, in its discretion,
determine at the time the Award is granted or thereafter.
(e) TREATMENT OF DIVIDENDS. At the time the Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion,
determine that the payment to the Grantee of dividends, or a specified
portion thereof, declared or paid on such Shares by the Company shall be
(i) deferred until the lapsing of the restrictions imposed upon such Shares
and (ii) held by the Company for the account of the Grantee until such
time. In the event of such deferral, there shall be credited at the end of
each year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends, together with
interest accrued thereon, shall be made upon the lapsing of restrictions
imposed on such Shares, and any dividends deferred (together with any
interest accrued thereon) in respect of any Shares of Restricted Stock
shall be forfeited upon the forfeiture of such Shares pursuant to Section
8(d) or otherwise.
(f) DELIVERY OF SHARES. Upon the lapse of the restrictions on Shares
of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such Shares, free of all
restrictions hereunder (except any restrictions under Section 17).
9. PERFORMANCE AWARDS.
(a) PERFORMANCE OBJECTIVES. The Committee will select one or more of
the Performance Measures listed on Appendix A attached hereto for purposes
of Performance Awards under the Plan. Performance Measures may be in
respect of the performance of the Company and its Subsidiaries (which may
be on a consolidated basis), a Subsidiary or a Division, or any combination
of
A-8
<PAGE> 32
the foregoing. Performance Awards may also include performance levels that
relate to individual achievements or goals. Performance objectives may be
absolute or relative and may be expressed in terms of a progression within
a specified range, with the Grantee becoming vested in (i) a minimum
percentage of such Performance Awards in the event the Minimum Acceptable
Objective is met or, if surpassed, a greater percentage (ii) an
intermediate percentage of such Performance Awards in the event the Good
Objective is met or, if surpassed, a greater percentage and (iii) one
hundred percent (100%) of such Performance Awards in the event the Maximum
Realistic Objective is met or surpassed. In addition to adjustments
provided for by the Agreement, the Committee may, in determining whether
the performance levels have been met, adjust the financial results for a
Performance Cycle to exclude the effect of unusual charges or income items,
or other events (such as acquisition or divestitures and equity and other
restructurings), which are distortive of financial results for the
Performance Cycle; provided, that, with respect to Named Executive
Officers, in determining financial results, items whose exclusion from
consideration will increase the Award shall only have their effects
excluded if they constitute "extraordinary" or "unusual" events or items
under generally accepted accounting principles and all such events and
items shall be excluded. The Committee shall also adjust the performance
calculations to exclude the unanticipated effect on financial results of
changes in the Code, or other tax laws, and the regulations thereunder. The
Committee may decrease the amount of an Award otherwise payable if, in the
Committee's view, the financial performance during the Performance Cycle
justifies such adjustment, regardless of the extent to which the
Performance Measure was achieved.
The Agreement may provide the Committee with the right, during a
Performance Cycle or after it has ended, to revise the performance levels
for the Performance Measure and the Award amounts, if unforeseen events
(including, without limitation, a Change in Capitalization, an equity
restructuring, an acquisition or a divestiture) occur which have a
substantial effect on the financial results and which in the judgment of
the Committee make the application of the performance levels unfair unless
a revision is made. For Named Executive Officers, such changes shall be
made in a manner that is not inconsistent with Code Section 162(m).
Except with respect to Named Executive Officers, the Committee may
establish additional Performance Measures for purposes of Performance
Awards under the Plan. Further, in the event that applicable tax and/or
securities laws (including, but not limited to, Code Section 162(m) and
Section 16 of the Exchange Act) change to permit Committee discretion to
alter the governing Performance Measures for Named Executive Officers
without obtaining stockholder approval of such changes, the Committee shall
have sole discretion to make such changes without obtaining stockholder
approval.
The aggregate maximum number of Performance Units and Performance
Shares and Shares of Restricted Stock a Participant may be awarded for any
fiscal year of the Company shall be 100,000 Units and Shares.
(b) PERFORMANCE UNITS. The Committee may grant Performance Units, the
terms and conditions of which shall be set forth in an Agreement between
the Company and the Grantee. Each Performance Unit shall, contingent upon
the attainment of specified performance objectives within the Performance
Cycle, represent one (1) Share. Each Agreement shall specify the number of
the Performance Units to which it relates, the performance objectives which
must be satisfied in order for the Performance Units to vest, the
Performance Cycle within which such objectives must be satisfied, and the
form of payment in respect of vested Performance Units.
(i) VESTING AND FORFEITURE. A Grantee shall become vested with
respect to the Performance Units to the extent that the performance
objectives set forth in the Agreement are satisfied for the Performance
Cycle. Subject to Section 9(d) hereof, if the Minimum Acceptable
Objective specified in the Agreement is not satisfied for the applicable
Performance Cycle, the Grantee's rights with respect to the Performance
Units shall be forfeited.
(ii) PAYMENT OF AWARDS. Payment of Performance Units to Grantees
in respect of vested Performance Units shall be made within sixty (60)
days after the last day of the Performance Cycle to which such Award
relates. Subject to Section 9(d), such payments may be made entirely in
Shares, entirely in cash, or in such combination of Shares and cash as
the Committee in its discretion, shall determine at any time prior to
such payment, provided, however, that if the Committee in its discretion
determines to make such payment entirely or partially in Shares of
Restricted Stock, the Committee must determine the extent to which such
payment will be in Shares of Restricted Stock at the time the Award is
granted. Except as provided in Section 9(d),
A-9
<PAGE> 33
and except as the Committee otherwise provides in the Agreement, if
payment is made in the form of cash, the amount payable in respect of
any Share shall be equal to the average of the Fair Market Value of such
Share for the last ten trading days of the Performance Cycle.
(iii) TERMINATION OF EMPLOYMENT. The Agreement shall set forth the
terms and conditions of the Award of Performance Units upon the
termination of the Grantee's employment with the Company, a Subsidiary,
or a Division (including a Grantee's ceasing to be employed by a
Subsidiary or Division as a result of the sale of such Subsidiary or
Division or an interest in such Subsidiary or Division) as the Committee
may, in its discretion, determine at the time the Award is granted or
thereafter.
(c) PERFORMANCE SHARES. The Committee, in its discretion, may grant
Awards of Performance Shares and shall be evidenced by an Agreement between
the Company and the Grantee. Each Agreement shall contain such
restrictions, if any, and the terms and conditions as the Committee may, in
its discretion, require, and (without limiting the generality of the
foregoing) such Agreements may require that an appropriate legend be placed
on Share certificates. Awards of Performance Shares shall be subject to the
following terms and provisions:
(i) RIGHTS OF GRANTEE. The Committee shall provide at the time an
Award of Performance Shares is made, the time or times at which the
Performance Shares granted pursuant to such Award hereunder shall be
issued in the name of the Grantee; provided, however, that no
Performance Shares shall be issued until the Grantee has executed an
Agreement evidencing the Award, the appropriate blank stock powers and,
in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require as a condition to the issuance
of such Performance Shares. If a Grantee shall fail to execute the
documents which the Committee may require within the time period
prescribed by the Committee at the time the Award is granted, the Award
shall be null and void. At the discretion of the Committee, Shares
issued in connection with an Award of Performance Shares shall be
deposited together with the stock powers with an escrow agent designated
by the Committee. Except as restricted by the terms of the Agreement,
upon delivery of the Shares to the escrow agent, the Grantee shall have,
in the discretion of the Committee, all of the rights of a stockholder
with respect to such Shares, including the right to vote the shares and
to receive all dividends or other distributions paid or made with
respect to the shares.
(ii) NONTRANSFERABILITY. Unless the Agreement provides otherwise,
until any restrictions upon the Performance Shares awarded to a Grantee
shall have lapsed in the manner set forth in Sections 9(c)(3) or 9(d),
such Performance Shares shall not be sold, transferred or otherwise
disposed of and shall not be pledged or otherwise hypothecated, nor
shall they be delivered to the Grantee. The Committee may also impose
such other restrictions and conditions on the Performance Shares, if
any, as it deems appropriate.
(iii) LAPSE OF RESTRICTIONS. Subject to Section 9(d), restrictions
upon Performance Shares awarded hereunder shall lapse and such
Performance Shares shall become vested at such time or times and on such
terms, conditions and satisfaction of performance objectives as the
Committee may, in its discretion, determine at the time an Award is
granted.
(iv) TERMINATION OF EMPLOYMENT. The Agreement shall set forth the
terms and conditions of the Award of Performance Shares upon the
termination of the Grantee's employment with the Company, a Subsidiary
or a Division (including a Grantee's ceasing to be employed by a
Subsidiary or Division as a result of the sale of such Subsidiary or
Division or an interest in such Subsidiary or Division) as the Committee
may, in its discretion, determine at the time the Award is granted or
thereafter.
(v) TREATMENT OF DIVIDENDS. At the time the Award of Performance
Shares is granted, the Committee may, in its discretion, determine that
the payment to the Grantee of dividends, or a specified portion thereof,
declared or paid on Performance Shares issued by the Company to the
Grantee shall be (i) deferred until the lapsing of the restrictions
imposed upon such Performance Shares and (ii) held by the Company for
the account of the Grantee until such time. In the event of such
deferral, there shall be credited at the end of each year (or portion
thereof) interest on the amount of the account at the beginning of the
year at a rate per annum as the Committee, in its discretion, may
determine. Payments of deferred dividends, together with interest
A-10
<PAGE> 34
accrued thereon as aforesaid, shall be made upon the lapsing of
restrictions imposed on such Performance Shares, except that any
dividends deferred (together with any interest accrued thereon) in
respect of any Performance Shares shall be forfeited upon the forfeiture
of such Performance Shares pursuant to Section 9(c)(iv) or otherwise.
(vi) DELIVERY OF SHARES. Upon the lapse of the restrictions on
Performance Shares awarded hereunder, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such Shares,
free of all restrictions hereunder.
(d) EFFECT OF CHANGE IN CONTROL. Unless the Agreement provides
otherwise, in the event of a Change in Control:
(i) With respect to the Performance Units, the Grantee shall (i)
become vested in a percentage of Performance Unit as determined by the
Committee at the time of the Award of such Performance Units and as set
forth in the Agreement and (ii) be entitled to receive in respect of all
Performance Units which become vested as a result of a Change in
Control, a cash payment within ten (10) days after such Change in
Control equal to the product of the Adjusted Fair Market Value of a
Share multiplied by the number of Performance Units which become vested
in accordance with this Section 9(d); and
(ii) With respect to the Performance Shares, all restrictions shall
lapse immediately on all or a portion of the Performance Shares as
determined by the Committee at the time of the Award of such Performance
Shares and as set forth in the Agreement.
(e) NONTRANSFERABILITY. Unless the Agreement provides otherwise, no
Performance Awards shall be transferable by the Grantee otherwise than by
will or the laws of descent and distribution.
(f) DEFINITIONS. For purposes of Performance Awards, the following
definitions shall apply:
(i) "GOOD OBJECTIVE" means a challenging and above average level of
performance of the Company, a Subsidiary or a Division during a
Performance Cycle for which a performance Award is granted, as
determined by the Committee at the time such Performance Award is
granted.
(ii) "MAXIMUM REALISTIC OBJECTIVE" means an excellent level of
performance of the Company, a Subsidiary or a Division during a
Performance Cycle for which a Performance Award is granted, as
determined by the Committee at the time such Performance Award is
granted.
(iii) "MINIMUM ACCEPTABLE OBJECTIVE" means a minimum level of
performance of the Company, a Subsidiary or a Division during a
Performance Cycle for which a Performance Award is granted, as
determined by the Committee at the time such Performance Award is
granted.
10. LOANS.
(a) The Company or any Subsidiary may make loans to a Grantee or
Optionee in connection with the exercise of an Option, subject to the
following terms and conditions and such other terms and conditions not
inconsistent with the Program including the rate of interest, if any, as
the Committee shall impose from time to time.
(b) No loan made under the Program shall exceed the sum of (i) the
aggregate purchase price payable pursuant to the Option with respect to
which the loan is made, plus (ii) the amount of the reasonably estimated
income taxes payable by the Optionee or Grantee with respect to the Option
or Award. In no event may any such loan exceed the Fair Market Value, at
the date of exercise, of any such Shares.
(c) No loan shall have an initial term exceeding ten (10) years;
provided, however, that loans under the Program shall be renewable at the
discretion of the Committee.
(d) Loans under the Program may be satisfied by an Optionee or
Grantee, as determined by the Committee, in cash or, with the consent of
the Committee, in whole or in part by the transfer to the Company of Shares
whose Fair Market Value on the date preceding the date of such payment is
equal to the cash amount for which such Shares are transferred.
(e) A loan shall be secured by a pledge of Shares with a Fair Market
Value of not less than the principal amount of the loan. After partial
repayment of a loan, pledged Shares no longer required as
A-11
<PAGE> 35
security may be released into escrow or pursuant to the terms of the
Option, Award or escrow agreement to the Optionee or Grantee.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments, if any, to the maximum
number and class of Shares or other stock or securities with respect to
which Options or Awards may be granted under the Program, the number and
class of Shares or other stock or securities which are subject to
outstanding Options or Awards granted under the Program, and the purchase
price therefor, if applicable.
(b) Any such adjustment in the Shares or other stock or securities
subject to outstanding Incentive Stock Options (including any adjustments
in the purchase price) shall be made in such manner as not to constitute a
modification as defined by Section 424(h)(3) of the Code and only to the
extent otherwise permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, a Grantee of an Award
shall be entitled to, or an Optionee shall be entitled to exercise an
Option with respect to, new, additional or different shares of stock,
securities, Aspiration Awards, Performance Units or Performance Shares
(other than rights or warrants to purchase securities), such new,
additional or different shares shall thereupon be subject to all of the
conditions, restrictions and performance criteria which were applicable to
the Aspiration Awards, Performance Units or Performance Shares pursuant to
the Award or Shares subject to the Option, as the case may be, prior to
such Change in Capitalization.
12. EFFECT OF CERTAIN TRANSACTIONS. Subject to Sections 6(h), 7(g),
8(c)(ii) and 9(d), in the event of (i) the liquidation or dissolution of the
Company or (ii) a merger or consolidation of the Company (a "Transaction"), the
Plan and the Options and Awards issued hereunder shall continue in effect in
accordance with their respective terms and each Optionee and Grantee shall be
entitled to receive in respect of each Share subject to any outstanding Options
or Awards, as the case may be, upon exercise of any Option or Award or payment
or transfer in respect of any Award, the same number and kind of stock,
securities, cash, property, or other consideration that each holder of a Share
was entitled to receive in the Transaction in respect of a Share.
13. RELEASE OF FINANCIAL INFORMATION. A copy of the Company's annual
report to stockholders shall be delivered to each Optionee and Grantee at the
time such report is distributed to the Company's stockholders. Upon reasonable
request the Company shall furnish as soon as reasonably practicable, to each
Optionee and Grantee a copy of its most recent annual report and each quarterly
report and current report filed under the Exchange Act since the end of the
Company's prior fiscal year.
14. TERMINATION AND AMENDMENT OF THE PLAN.
(a) The Plan shall terminate on September 18, 2006, and no Option or
Award may be granted thereafter. The Board may sooner terminate or amend
the Plan (other than to reduce the rights of Optionees and Grantees, as the
case may be, under Sections 6(h), 7(g), 8(c)(ii) and 9(d), at any time and
from time to time; provided, however, that to the extent legally required,
no amendment shall be effective unless approved by the stockholders of the
Company in accordance with applicable law and regulations at an annual or
special meeting.
(b) Except as provided in Sections 11 and 12 hereof, rights and
obligations under any Option or Award granted before any amendment of the
Plan shall not be adversely altered or impaired by such amendment, except
with the consent of the Optionee or Grantee, as the case may be.
15. NONEXCLUSIVITY OF THE PLAN. The adoption of the Plan by the Board
shall not be construed as amending, modifying or rescinding any previously
approved incentive arrangement or as creating any limitations on the power of
the Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
16. LIMITATION OF LIABILITY. As illustrative of the limitations of
liability of the Company, but not intended to be exhaustive thereof, nothing in
the Plan shall be construed to:
(a) give any person any right to be granted an Option or Award other
than at the sole discretion of the Committee;
A-12
<PAGE> 36
(b) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
(c) limit in any way the right of the Company to terminate the
employment of any person at any time (with or without Cause); or
(d) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person in any particular position
at any particular rate of compensation or for any particular period of
time.
17. REGULATION AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming hereunder shall
be construed and determined in accordance with the laws of the State of
Delaware without giving effect to the conflicts of laws principles thereof,
except to the extent that such law is preempted by federal law.
(b) The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to
all applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such approvals
by governmental agencies as may be deemed necessary or appropriate by the
Committee.
(c) The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith.
Any provisions inconsistent with such Rule shall be inoperative and shall
not affect the validity of the Plan.
(d) The Board may make such changes as may be necessary or appropriate
to comply with the rules and regulations of any government authority, or to
obtain for Eligible Employees granted Incentive Stock Options the tax
benefits under the applicable provisions of the code and regulations
promulgated thereunder.
(e) Each Option and Award is subject to the requirement that, if at
any time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option
or the issuance of Shares, no Options shall be granted or payment made or
Shares issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained free of
any conditions as acceptable to the Committee.
(f) Notwithstanding anything contained in the Plan to the contrary, in
the event that the disposition of Shares acquired pursuant to the Plan is
not covered by a then current registration statement under the Securities
Act of 1933, as amended, and is not otherwise exempt from such
registration, such Shares shall be restricted against transfer to the
extent required by the Securities Act of 1933, as amended, and Rule 144 or
other regulations thereunder. The Committee may require any individual
receiving Shares pursuant to the Plan, as a condition precedent to receipt
of such Shares (including upon exercise of an Option), to represent and
warrant to the Company in writing that the Shares acquired by such
individual are acquired without a view to any distribution thereof and will
not be sold or transferred other than pursuant to an effective registration
thereof under said Act or pursuant to an exemption applicable under the
Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder. The certificates evidencing any of such Shares
shall be appropriately legended to reflect their status as restricted
securities as aforesaid.
(g) In the event that changes are made to Code Section 162(m) to
permit greater flexibility with respect to any Award or Option under the
Plan, the Committee may, subject to this Section 17, make any adjustments
it deems appropriate in such Award or Option.
18. MISCELLANEOUS.
(a) MULTIPLE AGREEMENTS. The terms of each Option or Award may differ
from other Options or Awards granted under the Plan at the same time, or at
some other time. The Committee may also grant more than one Option or Award
to a given Eligible Employee during the term of the Plan, either in
addition to, or in substitution for, one or more Options or Awards
previously granted to that Eligible Employee. The grant of multiple Options
and/or Awards may be evidenced by a single Agreement or multiple
Agreements, as determined by the Committee.
A-13
<PAGE> 37
(b) WITHHOLDING OF TAXES.
(1) The Company shall have the right to deduct from any
distribution of cash to any Optionee or Grantee, an amount equal to the
federal, state and local income taxes and other amounts as may be
required by law to be withheld (the "Withholding Taxes") with respect to
any Option or Award. If an Optionee or Grantee is entitled to receive
Shares upon exercise of an Option or pursuant to an Award, the Optionee
or Grantee shall pay the Withholding Taxes to the Company prior to the
issuance, or release from escrow, of such Shares. In satisfaction of the
Withholding Taxes to the Company, the Optionee or Grantee may make an
irrevocable written election (the "Tax Election"), which may be accepted
or rejected in the discretion of the Committee, to have withheld a
portion of the Shares issuable to him or her upon exercise of the Option
or pursuant to an Award having an aggregate Fair Market Value equal to
the Withholding Taxes.
(2) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of
any Share or Shares issued to him pursuant to his exercise of an
Incentive Stock Option within the two-year period commencing on the day
after the date of the grant or within the one-year period commencing on
the day after the date of transfer of such Share or Shares to the
Optionee pursuant to such exercise, the Optionee shall, within ten (10)
days of such disposition, notify the Company thereof, by delivery of
written notice to the Company at its principal executive office, and
immediately deliver to the Company the amount of Withholding Taxes.
(c) DESIGNATION OF BENEFICIARY. To the extent applicable to the type
of Award, each Grantee (other than an Optionee) may designate a person or
persons to receive in the event of his or her death, any Award or any
amount payable pursuant thereto, to which he or she would then be entitled
under the terms of the Plan. Such designation will be made upon forms
supplied by and delivered to the Company and may be revoked in writing.
(d) DEFERRAL. The Committee may permit a Participant to defer to
another plan or program such Participant's receipt of Shares or cash that
would otherwise be due to such Participant by virtue of the exercise of an
Option, earning of an Aspiration Award, the vesting of Restricted Stock or
the earning of Performance Awards. If any such deferral election is
required or permitted, the Committee shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
19. EFFECTIVE DATE. This amended and restated Plan shall be effective
January 5, 2000 and shall apply to Awards made on or after that date. Except
where the Committee provides otherwise, Awards made prior to that date shall
remain subject to prior provisions of the Plan.
A-14
<PAGE> 38
APPENDIX A
TO
NATIONAL SERVICE INDUSTRIES, INC.
LONG-TERM ACHIEVEMENT INCENTIVE PLAN
<TABLE>
<CAPTION>
PERFORMANCE MEASURE GENERAL DEFINITION
------------------- ------------------
<S> <C>
AATP Margin................................. AATP divided by Sales
Adjusted After-Tax Profit (AATP)............ APTP minus book income taxes (reported tax
rate applied to APTP)
Adjusted Pre-Tax Profit (APTP).............. Income before provision for income taxes plus
interest expense plus implied interest on
capitalized operating leases. The measure may
include or exclude income from discontinued
operations, extraordinary items, changes in
accounting principles, and restructuring
expense.
Capitalized Economic Profit................. Economic Profit divided by a predetermined
rate reflecting the cost of capital
Capitalized Entity Value.................... Sum of average invested capital in the
business and the Capitalized Economic Profit
Capitalized Equity Value.................... Capitalized Entity Value minus total debt
Cashflow.................................... Net cash provided by operating activities
less net cash used for investing activities
Cashflow Return on Capital.................. Cashflow divided by average invested capital
Cashflow Return on Capitalized Entity/Equity Cashflow divided by Capitalized Entity/Equity
Value..................................... Value
Earnings Per Share.......................... Primary or fully diluted earnings per share
Economic Profit............................. AATP minus a charge for capital
Net Income.................................. Net income as reported in NSI's annual
financial statements or the books and records
of its segments. The measure may include or
exclude income from discontinued operations,
extraordinary items, changes in accounting
principles, and restructuring expense.
Net Income Return on Capital................ Net Income divided by average invested
capital
Return on Assets (ROA)...................... Net Income divided by average total assets
Return on Equity (ROE)...................... Net Income divided by average stockholders'
equity
Return on Gross Investment.................. Sum of Net Income plus depreciation divided
by sum of average invested capital plus
accumulated depreciation
Return on Invested Capital.................. Net Income or AATP divided by average
invested capital
Return on Net Assets (RONA)................. Net Income, APTP, or income before taxes,
divided by average net assets
Sales....................................... Net sales of products and service revenues
Sales Growth................................ Percentage change in Sales from year to year
Total Return to Shareholders................ Percentage change in shareholder value (stock
price plus reinvested dividends)
</TABLE>
<PAGE> 39
PROXY
NATIONAL SERVICE INDUSTRIES, INC.
ANNUAL STOCKHOLDERS MEETING JANUARY 5, 2000
PROXY SOLICITED BY THE BOARD OF DIRECTORS
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 5, 2000 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.
Change of Address Comments
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
- ----------------------------------- ----------------------------------
------------------------------------------------------------
IF VOTING BY MAIL, PLEASE VOTE, DATE AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
------------------------------------------------------------
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[NSI LOGO]
ANNUAL MEETING PARKING PASS
JANUARY 5, 2000
Parking for stockholders 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]
<PAGE> 40
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR ITEMS, 1, 2, AND 3
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR:
<TABLE>
<CAPTION>
FOR
ALL WITHHOLD
NOMINEES AUTHORITY
<S> <C> <C> <C> <C>
Nominees for Director:
1. Nominees for [ ] [ ] (01) James S. Balloun (07) Sam Nunn
Director: (02) Leslie M. Baker, Jr. (08) Ray M. Robinson
For, except vote withheld from the (03) John L. Clendenin (09) Herman J. Russell
following nominee(s): (04) Thomas C. Gallagher (10) Betty L. Siegel
(05) David Levy (11) Kathy Brittain White
(06) Bernard Marcus (12) Barrie A. Wigmore
- ----------------------------------- (13) Neil Williams
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Approval of amended and restated [ ] [ ] [ ]
National Service Industries, Inc.
Long-Term Achievement
Incentive Plan.
3. 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.
SIGNATURE(S) DATE
---------------------------------------------- -------------
If voting by mail, please date this proxy and sign exactly as your name, or
names, appear hereon. Where there is more than one owner, each must sign. When
signing in fiduciary or representative capacity, please give full title as such.
</TABLE>
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[NSI LOGO]
Dear Stockholder:
National Service Industries, Inc. encourages you to take advantage of new and
convenient ways by which you can vote your shares. You can vote your shares
electronically through the Internet or the telephone. This eliminates the need
to return the proxy card.
To vote your shares electronically you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear
in the box above and the last four digits of your Social Security number are
required to access the system.
1. To vote over the Internet:
- Log on to the Internet and go to the web site
http://www.eproxyvote.com/nsi
2. To vote over the telephone:
- On a touch-tone telephone call 1-800-PRX-VOTE (1-877-779-8683)
24 hours a day 7 days a week
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, please do not mail back your
proxy card.
