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[LOGO]
ROLLINS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
2170 PIEDMONT ROAD, N.E., ATLANTA, GEORGIA 30324
TO THE HOLDERS OF THE COMMON STOCK:
PLEASE TAKE NOTICE that the 1998 Annual Meeting of Stockholders of Rollins,
Inc., a Delaware corporation (the "Company"), will be held at the Company's
offices located at 2170 Piedmont Road, N.E., Atlanta, Georgia on Tuesday, April
28, 1998, at 9:30 A.M., or any adjournment thereof, for the following purposes:
(a) To elect two Class III directors to the Board of Directors;
(b) To approve the proposed 1998 Employee Stock Incentive Plan;
(c) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Proxy Statement dated March 24, 1998, is attached.
The Board of Directors has fixed the close of business on March 2, 1998, as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the meeting.
Stockholders who do not expect to be present at the meeting are urged to
complete, date, sign, and return the enclosed proxy. No postage is required if
the enclosed envelope is used and mailed in the United States.
BY ORDER OF THE BOARD OF DIRECTORS
Gene L. Smith, SECRETARY
Atlanta, Georgia
March 24, 1998
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PROXY STATEMENT
The following information concerning the enclosed proxy and the matters to
be acted upon at the Annual Meeting of Stockholders to be held on April 28,
1998, is submitted by the Company to the stockholders for their information.
SOLICITATION OF AND POWER TO REVOKE PROXY
A form of proxy is enclosed. Each proxy submitted will be voted as directed,
but if not otherwise specified, proxies solicited by the Board of Directors of
the Company will be voted in favor of (a) the candidates for election to the
Board of Directors and (b) for approval of the 1998 Employee Stock Incentive
Plan.
This Proxy Statement and a form of proxy were first mailed to stockholders
on or about March 24, 1998. A stockholder executing and delivering a proxy has
power to revoke the same and the authority thereby given at any time prior to
the exercise of such authority, if he so elects, by contacting either
proxyholder.
CAPITAL STOCK
The outstanding capital stock of the Company on March 2, 1998 consisted of
33,254,095 shares of Common Stock, par value $1.00 per share. Holders of Common
Stock are entitled to one vote (non-cumulative) for each share of such stock
registered in their respective names at the close of business on March 2, 1998,
the record date for determining stockholders entitled to notice of and to vote
at the meeting or any adjournment thereof.
A majority of the outstanding shares will constitute a quorum at the Annual
Meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
In accordance with General Corporation Law of the state of Delaware, the
election of the nominees named herein as Directors will require the affirmative
vote of a plurality of the votes cast by the shares of Company Common Stock
entitled to vote in the election provided that a quorum is present at the Annual
Meeting. In the case of a plurality vote requirement (as in the election of
directors), where no particular percentage vote is required, the outcome is
solely a matter of comparing the number of votes cast in favor of a proposal to
the number of votes cast against the proposal, and hence only votes for or
against the proposal (and not abstentions or broker non-votes) are relevant to
the outcome. With respect to the proposal to approve the 1998 Employee Stock
Incentive Plan, the affirmative vote of a majority of a quorum of the Company's
outstanding shares of Common Stock present and entitled to vote at the meeting
is required by Delaware Law for stockholder approval. Abstentions will have the
effect of a vote against the proposal and broker non-votes will be disregarded
and will have no effect on the outcome of the vote.
The names and addresses of the executives named in the Summary Compensation
Table and the name and address of each stockholder who owned beneficially five
percent (5%) or more of the shares of Common Stock of the Company on March 2,
1998, together with the number of shares so owned and the percentage of
outstanding shares that ownership represents, and information as to Common Stock
1
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ownership of the executive officers and directors of the Company as a group
(according to information received by the Company) is set out below:
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
NAME AND ADDRESS BENEFICIALLY OUTSTANDING
OF BENEFICIAL OWNER OWNED (1) SHARES
- -------------------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
R. Randall Rollins ....................................................... 13,951,845(2) 42.0
2170 Piedmont Road, N.E.
Atlanta, Georgia
Gary W. Rollins .......................................................... 14,345,759(3) 43.1
2170 Piedmont Road, N.E.
Atlanta, Georgia
Reich & Tang Asset Management L.P. ....................................... 1,688,200(4) 5.1
600 Fifth Avenue
New York, New York
Mario Gabelli ............................................................ 3,102,775(5) 9.3
One Corporate Center
Rye, New York 10020
Yacktman Asset Management Company ........................................ 1,883,600(6) 5.7
303 West Madison Street,
Suite 1925
Chicago, Illinois 60606
Gene L. Smith ............................................................ 10,766(7) --
2170 Piedmont Road, N.E.
Atlanta, Georgia
All Directors and Executive Officers as a group (8 persons)............... 15,704,351(8) 47.2
</TABLE>
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(1) Except as otherwise noted, the nature of the beneficial ownership for all
shares is sole voting and investment power.
(2) Includes 158,168 shares of the Company held as Trustee, Guardian, or
Custodian for his children or as custodian for the children of his brother,
Gary W. Rollins. Also includes 2,079,700 shares of the Company held in five
trusts of which he is a Co-Trustee and as to which he shares voting and
investment power. Does not include 57,968* shares of the Company held by his
wife. Also includes 10,419,000 shares owned by LOR, Inc. Mr. Rollins is an
officer, director and stockholder of LOR, Inc. Also includes 432,000 shares
owned by The Rollins Holding Company. Mr. Rollins is an officer, director
and stockholder of Rollins Holding Company, Inc. Also includes 708,288
shares owned by Mr. O. Wayne Rollins' Estate. Mr. Rollins is the Co-Executor
and Co-Trustee of this estate. Also includes 50,010 shares owned by the RWR
Investment Partnership, a Georgia limited partnership, of which Mr. Rollins
is the sole general partner.
(3) Includes 267,984 shares of the Company held as Custodian for the
grandchildren of his brother, R. Randall Rollins, and 2,046,100 shares of
the Company in five trusts of which he is Co-Trustee and as to which he
shares voting and investment power. Does not include 62,691* shares of the
Company held by his wife. Also includes 10,419,000 shares owned by LOR, Inc.
Mr. Rollins is an officer, director and stockholder of LOR, Inc. Also
includes 432,000 shares owned by The Rollins Holding Company. Mr. Rollins is
an officer, director and stockholder of Rollins Holding Company, Inc. Also
includes 708,288 shares owned by Mr. O. Wayne Rollins' Estate. Mr. Rollins
is the Co-Executor and Co-Trustee of this estate.
2
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(4) Based upon the information received by the Company, an aggregate of
1,688,200 shares of Company Common Stock are beneficially owned by Reich &
Tang Asset Management L.P. on behalf of certain accounts for which Reich &
Tang Asset Management L.P. provides investment advice on a fully
discretionary basis. This entity has the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of,
shares of the Common Stock. None of the above mentioned entities has a
greater than 5% interest in the Common Stock.
(5) Based upon information received by the Company, an aggregate of 3,102,775
shares of Company Common Stock are beneficially owned by Mario Gabelli and
entities controlled directly or indirectly by Mario Gabelli as follows:
GAMCO Investors, Inc., 2,323,775 shares; Gabelli Funds, Inc., 775,000
shares; and Mr. Mario Gabelli, 4,000 shares. GAMCO Investors, Inc. does not
have authority to vote 93,500 shares of the total 2,323,775 held. Several of
these entities share voting and disposition powers with respect to the
shares of Company Common Stock held by them.
(6) Based upon the information received by the Company, an aggregate of
1,883,600 shares of Company Common Stock are beneficially owned by Yacktman
Asset Management Company on behalf of certain accounts for which Yacktman
Asset Management Company provides investment advice on a fully discretionary
basis. This entity has the right to receive or the power to direct the
receipt of dividends from, or the proceeds from the sale of, shares of the
Common Stock. None of the above mentioned entities has a greater than 5%
interest in the Common Stock.
(7) Mr. Smith owns less than 1% of outstanding shares. This includes 6,200
incentive stock options that are currently exercisable.
(8) Shares held in trusts as to which more than one officer and/or director are
Co-Trustees have been included only once. These shares include shares held
by LOR, Inc. and Rollins Holding Company. This also includes 6,200 incentive
stock options held by Mr. Gene L. Smith that are currently exercisable.
* Messrs. R. Randall Rollins and Gary W. Rollins disclaim any beneficial
interest in these holdings.
ELECTION OF DIRECTORS
Two individuals are to be elected at the Annual Meeting to serve as Class
III directors for a term of three years, and until the election and
qualification of their successors. Five other individuals serve as directors but
are not standing for re-election because their terms as directors extend past
this Annual Meeting pursuant to provisions of the Company's Bylaws which provide
for the election of directors for staggered terms, with each director serving a
three year term. Unless authority is withheld, the proxy holders will vote for
the election of the first two persons named below to three year terms as
directors. Although Management does not contemplate the possibility, in the
event any nominee is not a candidate or is unable to serve as director at the
time of the election, unless authority is withheld, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill such vacancy.
The name and age of each of the two nominees, their principal occupations,
together with the number of shares of Common Stock beneficially owned, directly
or indirectly, by each nominee and the percentage of outstanding shares that
ownership represents, all as of the close of business March 2, 1998, (according
to information received by the Company) are set out below. Similar information
is also provided for those directors whose terms expire in future years.
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<TABLE>
<CAPTION>
SHARES PERCENT OF
SERVICE AS OF COMMON OUTSTANDING
NAME PRINCIPAL OCCUPATION (1) DIRECTOR AGE STOCK (2) SHARES
- ---------------------- ---------------------------------------- ---------- ---- ------------- -----------
<S> <C> <C> <C> <C> <C>
CLASS III (NEW TERM EXPIRES 2001)
Wilton Looney Honorary Chairman of the Board of 1975 to 78 1,500 *
Genuine Parts Company (automotive parts date
distributor)
Bill J. Dismuke Retired President of Edwards Baking 1984 to 61 900 *
Company (manufacturing of baked pies and date
pie pieces)
CLASS II (TERM EXPIRES 2000)
John W. Rollins (3) Chairman of the Board and Chief 1948 to 81 15,510(4) *
Executive Officer of Rollins Truck date
Leasing Corp. (vehicle leasing and
transportation); Chairman of the Board
of Dover Downs Entertainment, Inc.
(operator of multi-purpose gaming and
entertainment complex) (since October
1996)
Gary W. Rollins (3) President and Chief Operating Officer of 1981 to 53 14,345,759(5) 43.1
the Company (since 1984) date
CLASS I (TERM EXPIRES 1999)
R. Randall Rollins (3) Chairman of the Board and Chief 1968 to 66 13,951,845(6) 42.0
Executive Officer of the Company; date
Chairman of the Board, Chief Executive
Officer of RPC, Inc. (oil and gas field
services and boat manufacturing)
Henry B. Tippie Chairman of the Board and Chief 1960 to 71 1,244,750(7) 3.7
Executive Officer of Tippie Services, 1970;
Inc. (management services); Chairman of 1974 to
the Executive Committee and Vice date
Chairman of the Board of Rollins Truck
Leasing Corp. (vehicle leasing and
transportation); Chairman of the
Executive Committee of Matlack Systems,
Inc. (bulk trucking and terminaling);
Vice Chairman of the Board of Dover
Downs Entertainment, Inc. (operator of
multi- purpose gaming and entertainment
complex) (since October 1996)
James B. Williams Chairman of the Board and Chief 1978 to 64 20,000 *
Executive Officer of SunTrust Banks, date
Inc. (bank holding company)
</TABLE>
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* Less than .1% of outstanding shares.
(1) Except as noted, each of the Directors has held the positions of
responsibility set out in this column (but not necessarily his present
title) for more than five years. In addition to the directorships listed in
this column, the following individuals also serve on the Boards of Directors
of the following companies: John W. Rollins: Matlack Systems, Inc. and
Laidlaw Environmental Services; Henry B. Tippie: Laidlaw Environmental
Services; James B. Williams: The Coca-Cola Company, Genuine Parts
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Company, Sonat Inc., and Georgia-Pacific Corp.; Gary W. Rollins: Rollins
Truck Leasing Corporation; R. Randall Rollins: SunTrust Banks, Inc.,
SunTrust Banks of Georgia, and Dover Downs Entertainment, Inc. All persons
named in the above table, other than Bill J. Dismuke, are also directors of
RPC, Inc.
(2) Except as otherwise noted, the nature of the beneficial ownership for all
shares is sole voting and investment power.
(3) R. Randall Rollins and Gary W. Rollins are brothers. John W. Rollins is
their uncle.
(4) Does not include 1,550** shares held by his wife as custodian for his
children.
(5) (See information contained in footnote (3) to the table appearing in Capital
Stock section.)
(6) (See information contained in footnote (2) to the table appearing in Capital
Stock section.)
(7) Includes 909,750** shares of Common Stock of the Company in five trusts of
which he is Co-Trustee and as to which he shares voting and investment
power, 5,000** shares in a trust of which he is the sole Trustee, and 10,000
shares in a partnership which he has voting right for 10,000 shares but
beneficial partnership interest of 100 shares. Does not include shares of
Common Stock of the Company owned by Rollins Holding Company, an interest in
which is indirectly held by a trust of which Mr. Tippie is a Co-Trustee but
not a beneficiary, 300** shares held by his wife, or 900** shares held by
his wife as Trustee for his children.
- ------------------------
** Messrs. John W. Rollins and Henry B. Tippie disclaim any beneficial interest
in these holdings.
5
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BOARD OF DIRECTORS COMPENSATION, COMMITTEES AND MEETINGS
During 1997, non-employee Directors received $750 for each Board of
Directors or committee meeting they attended, plus $10,000 per year, from the
Company.
The Audit Committee of the Board of Directors of the Company consists of
Henry B. Tippie, Chairman; Wilton Looney; and James B. Williams. The Audit
Committee had two meetings during the year ending December 31, 1997. Its
functions are to select a firm of certified public accountants whose duty it is
to audit the books and accounts of the Company and its subsidiaries for the
fiscal year for which they are appointed and to monitor the effectiveness of the
audit efforts and the Company's financial and accounting organization and
financial reporting. The Compensation Committee of the Board of Directors of the
Company consists of Henry B. Tippie, Chairman; Wilton Looney; and James B.
Williams. The Compensation Committee had one meeting during the year ending
December 31, 1997. The function of the Compensation Committee is to review the
Company's executive compensation structure and recommend to the Board any
changes to insure continued effectiveness. It also administers the Rollins, Inc.
1994 Employee Stock Incentive Plan and will administer the 1998 Employee Stock
Incentive Plan if it is approved by the Company's stockholders. The Board of
Directors met, or took action by way of unanimous consent, five times during the
year ended December 31, 1997. No Director attended fewer than 75% of the board
meetings and meetings of committees on which he served during 1997. The Company
does not have a nominating committee of the Board of Directors.
REPORT OF THE COMPENSATION COMMITTEE AND THE PERFORMANCE GRAPH
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE COMPANY FILINGS, INCLUDING THIS
PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND THE PERFORMANCE
GRAPH SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee is comprised of outside directors who are not
eligible to participate in the plans and over whose names this report is
presented. The Committee reviews and approves the compensation of the Company's
executive officers annually. The actions of executive officers have a profound
impact on the short-term and long-term profitability of the Company. Therefore,
the design of the executive officer compensation package is very important.
The Company has an executive compensation package that is driven by an
increase in shareholder value, the overall performance of the Company, and the
individual performance of the executive. The measures of the Company's
performance include sales revenue and net income. The three main components of
the executive compensation package are base salary, cash-based incentive plans,
and stock-based incentive plans.
BASE SALARY
The first component is base salary. The Company believes that it is
important for the Named Executives to receive acceptable salaries so the Company
can keep the senior executive talent it needs to meet the challenges in today's
environment. The factors subjectively used in determining base salary include
the recent profit performance of the Company, the magnitude of responsibilities,
the scope of the position, individual performance and the pay received by peers
in similar positions in the same geographical area. These factors are not used
in any specific formula or weighting. The salaries of the Named Executives are
reviewed annually.
6
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CASH-BASED INCENTIVE PLANS
The second component of the executive compensation package consists of a
cash-based incentive plan. The Company currently offers one cash-based incentive
plan, which is the performance bonus plan or short-term plan.
The performance bonus plan has more emphasis on short-term performance by
evaluating performance over a 12 month operating cycle. This plan has a payout
subjectively based on net income, budget objectives, and other individual
specific performance objectives. These specific performance objectives relate to
each executive improving the contribution of his functional areas of
responsibility to further enhance the earnings of the Company. The annual
incentive compensation package for executive officers is developed by the Chief
Executive Officer of the Company prior to the end of each fiscal year. It is
based upon a performance formula for the ensuing fiscal year. That performance
formula and incentive package is then reviewed by the Compensation Committee and
is either accepted, amended or modified. Of the three Named Executives, only the
Chief Financial Officer, Gene L. Smith, participates in this plan. The Chief
Executive Officer, R. Randall Rollins, and the President and Chief Operating
Officer, Gary W. Rollins, do not participate in the performance bonus plan. The
Committee determined that due to the short term nature of the performance bonus
plan, it is not appropriate for the two aforementioned Named Executives to
participate at this time because many of their individual contributions cannot
be effectively measured over a 12 month operating cycle.
Gene L. Smith, the Chief Financial Officer, earned no bonus in 1997 because
the Company did not attain its profit objectives.
STOCK-BASED INCENTIVE PLANS
At the Company's 1994 Annual Meeting the stockholders approved the 1994
Employee Stock Incentive Plan. As detailed in the Summary Compensation Table on
page 10 and the Long Term Incentive Plan Table on page 12, the Chief Financial
Officer, Gene L. Smith, was granted 6,500 stock options and was awarded 1,100
shares of Time-Lapse Restricted Stock and 1,100 shares of Performance Restricted
Stock. Mr. Smith's specific award amounts were based on his performance and took
into consideration the value of all unexercised options he currently holds under
this plan and a previous plan. The Chief Executive Officer, R. Randall Rollins,
and the Chief Operating Officer, Gary W. Rollins, maintain a significant
ownership interest in the Company and were therefore not considered for grants
in 1997 under the 1994 Employee Stock Incentive Plan.
The Committee thinks it unlikely that any participants in the Company's
stock plans will, in the foreseeable future, receive in excess of $1 million in
aggregate compensation (the maximum amount for which an employer may claim a
compensation deduction pursuant to Section 162(m) of the Internal Revenue Code
of 1986, as amended, unless certain performance related compensation exemptions
are met) during any fiscal year, and has therefore determined that since the
exemption requirement does not apply, the Company will not change its various
compensation plans, or otherwise meet the requirements of such exemption, at
this time.
CEO PAY
The 1997 cash compensation of R. Randall Rollins, Chairman and Chief
Executive Officer, was $459,018. This represents the total compensation for Mr.
Rollins, no portion of which was in performance driven bonuses or stock based
incentive plans as mentioned above. The Committee feels that due to the
significant level of ownership in the Company, the Chief Executive Officer will
not participate in an incentive plan at this time. The Committee considers
several factors when determining the CEO's salary. These factors include
long-term growth in net income, stockholder value improvements, as well as,
individual performance. The decision of the Committee is subjective and these
factors are not used in any
7
<PAGE>
specific formula or weighting. The CEO does not participate in the deliberations
of the Compensation Committee when his salary or incentive is determined.
CONCLUSION
The Committee believes that this mix of conservative market-based salaries,
cash incentives for short-term performance, and stock based incentives for
long-term performance in the Company represent a balance that will motivate the
executive team to produce the type of results that the Company has historically
achieved. The Committee further believes this program strikes an appropriate
balance between the interests of the Company in operating its businesses and
appropriate rewards based on shareholder value.
Henry B. Tippie, Chairman
Wilton Looney
James B. Williams
8
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PERFORMANCE GRAPH
As part of the executive compensation information presented in this Proxy
Statement, the Securities and Exchange Commission requires a five year
comparison of the cumulative total stockholder return based on the performance
of the stock of the Company as compared with both a broad equity market index
and an industry or peer group index. The indices included in the following graph
are the S&P 500 Index and the S&P 500 Commercial Services Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P
<S> <C> <C> <C>
COMMERCIAL
Years ROLLINS, INC S&P 500 SVCS
1992 $100.00 $100.00 $100.00
1993 113.19 110.08 96.90
1994 97.94 111.53 89.17
1995 95.93 153.45 120.44
1996 89.14 188.68 124.38
1997 92.99 251.63 170.67
ASSUMES INITIAL INVESTMENT OF $100
*TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
NOTE: TOTAL RETURNS BASED ON MARKET CAPITALIZATION
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors serve on the Company's Compensation Committee: Henry
B. Tippie, Wilton Looney, and James B. Williams. None of these individuals are
employees of the Company. No executive officer of the Company serves on a
Compensation Committee of another company. R. Randall Rollins, an executive of
the Company, serves on the Board of Directors of both SunTrust Banks, Inc. and
SunTrust Banks of Georgia, a subsidiary of SunTrust Banks, Inc. Mr. Williams is
the Chairman and Chief Executive Officer of SunTrust Banks, Inc. Mr. Rollins is
not on the Compensation Committee of either SunTrust Banks of Georgia or
SunTrust Banks, Inc. Rollins, Inc. maintains a significant banking relationship
with SunTrust Banks of Georgia. All banking services provided by SunTrust Banks
of Georgia are priced at market-competitive rates.
9
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EXECUTIVE COMPENSATION
Shown below is information concerning the annual and long-term compensation
for services in all capacities to the Company for the calendar years ended
December 31, 1997, 1996 and 1995, of those persons who were, at December 31,
1997 (i) the chief executive officer and (ii) the other most highly compensated
executive officers of the Company whose total annual compensation exceeded
$100,000 (the Named Executives):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
---------------------------------------
RESTRICTED
ANNUAL COMPENSATION STOCK SECURITIES
-------------------------------- AWARDS UNDERLYING LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) (1) OPTIONS (#) PAYOUTS (2)
- --------------------------------------- --------- ---------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
R. Randall Rollins..................... 1997 $ 459,018 $ -- $ -- -- --
Chairman of the Board & 1996 460,057 -- -- --
Chief Executive Officer 1995 459,036 -- -- --
Gary W. Rollins........................ 1997 $ 798,208 -- -- -- --
President & 1996 798,208 -- --
Chief Operating Officer 1995 798,228 -- -- --
Gene L. Smith.......................... 1997 $ 165,316 -- $ 21,175 6,500 $ 5,129
Chief Financial Officer 1996 164,620 -- -- --
1995 162,779 -- -- --
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION (3)
- --------------------------------------- -----------------
<S> <C>
R. Randall Rollins..................... $ 1,920
Chairman of the Board & 1,800
Chief Executive Officer 1,800
Gary W. Rollins........................ $ 1,920
President & 1,800
Chief Operating Officer 1,800
Gene L. Smith.......................... $ 1,920
Chief Financial Officer 1,800
1,800
</TABLE>
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(1) The values set forth above in the column for restricted stock awards are as
of January 28, 1997, the date of grant of Time Lapse Restricted Stock. The
number of shares and their value on December 31, 1997 were as follows: Mr.
Smith, 2,900 shares valued at $58,725, of these, 1,800 shares were granted
January 24, 1994. The December 31, 1997 values are based on the December 31,
1997 closing market stock price of $20.25 and do not take into account any
diminution of value attributable to time lapse restrictions on these shares.
Time Lapse Restricted Stock vests ten years from the date of grant. During
these ten years, grantees receive all dividends declared and retain voting
rights for the granted shares. Any nonvested Time Lapse Restricted Stock
will be forfeited upon termination of employment.
(2) This value represents the portion of shares that were vested pursuant to Mr.
Smith's 1997 grant of 1,100 shares of Performance Restricted Stock. 20% of
these shares vested when the share price of Rollins, Inc. stock closed above
$22.125 for 10 consecutive days during 1997. This is the value as of
September 17, 1997, the day the vesting criteria were met.
(3) Effective October 1, 1983, the Company adopted the Rollins 401(k) Plan
("401(k) Plan"), a qualified retirement plan designed to meet the
requirements of Section 401(k) of the Internal Revenue Code. The 401(k) Plan
provides for a matching contribution of forty cents ($.40) for each one
dollar ($1.00) of a participant's contribution to the 401(k) Plan, not to
exceed 3 percent of his or her annual compensation (which includes
commissions, overtime and bonuses). A participant's voluntary pre-tax salary
deferrals made under the 401(k) Plan are in lieu of payment of compensation
to the participant. The amounts shown in this column represent the Company
match for the Named Executives.
OPTION/SAR GRANTS IN FISCAL YEAR 1997
The following table sets forth stock options granted in the fiscal year
ending December 31, 1997 to each of the Named Executives. The table also sets
forth the hypothetical gains that would exist for the options at the end of
their ten-year term, assuming compound rates of stock appreciation of 5% and
10%.
10
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The actual future value of the options will depend on the market value of the
Company's Common Stock. All option exercise prices are based on the market price
at the grant date.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ANNUAL RATES
TOTAL
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (2)
OPTIONS IN FISCAL OR BASE EXPIRATION ---------------------
NAME GRANTED YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ------------------------------------------------- ----------- ------------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Randall Rollins............................... 0 N/A N/A N/A N/A N/A
Gary W. Rollins.................................. 0 N/A N/A N/A N/A N/A
Gene L. Smith.................................... 6,500(3) 4% 19 1/4 01/24/07 $ 78,690 $ 199,417
</TABLE>
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(1) Options were granted on January 28, 1997 at a price of $19 1/4 per share. No
Stock Appreciation Rights were granted to the Named Executives during 1997.
(2) These amounts, based on assumed appreciation rates of 5% and 10% prescribed
by the Securities and Exchange Commission rules, are not intended to
forecast possible future appreciation, if any, of the Company's stock price.
These numbers do not take into account certain provisions of options
providing for termination of the option following termination of employment,
nontransferability, or phased-in vesting. The Company did not use an
alternative formula for a grant date valuation as it is not aware of any
formula which will determine with reasonable accuracy a present value based
on future unknown or volatile factors. Future compensation resulting from
option grants is based solely on the performance of the Company's stock
price.
(3) These Incentive Stock Options vest and become exercisable 20% each year over
5 years and expire after 10 years.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SAR'S
OPTIONS/SAR'S AT FY-END ($)
VALUE AT FY-END (#) (1)
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
R. Randall Rollins............................... 0 $ 0 0/0 $ 0/0
Gary W. Rollins.................................. 0 0 0/0 0/0
Gene L. Smith.................................... 1,092 9,827 6,200/9,500 7,599/27,697
</TABLE>
- ------------------------
(1) Based on the closing price of Company's Common Stock on the New York Stock
Exchange on December 31, 1997 of $20.25 per share.
11
<PAGE>
LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF OTHER PERIOD
SHARES, UNTIL
UNITS OR OTHER MATURATION OR
NAME RIGHTS (#) PAYOUT
- --------------------------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
R. Randall Rollins......................................................... 0 N/A
Gary W. Rollins............................................................ 0 N/A
Gene L. Smith.............................................................. 1,100 01/27/02
</TABLE>
Performance restricted stock is granted, but not earned and issued, until
certain five year tiered performance criteria are met. The performance criteria
are predetermined market prices of the Company's stock. On the date the stock
appreciates to each level (determination date), 20% of performance shares are
earned. Once earned, the stock vests in five years from the determination date.
After the determination date, the grantee will receive all dividends declared
and also have voting rights to the shares.
12
<PAGE>
BENEFIT PLANS
The Rollins, Inc. Retirement Income Plan is a trusteed defined benefit
pension plan. The amounts shown on the following table are those annual benefits
payable for life on retirement at age 65. The amounts computed in the following
table assume: (a) that the participant remains in the service of the Company
until his normal retirement date at age 65; (b) that the participant's earnings
continue at the same rate as paid in the year ended December 31, 1997 during the
remainder of his service until age 65; (c) that the normal form of benefit is a
single-life annuity; and (d) that the Plan continues without substantial
modification.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
----------------------------------------------------------
YEARS OF SERVICE
----------------------------------------------------------
REMUNERATION 15 20 25 30 35
- --------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 100,000........................ $ 22,500 $ 30,000 $ 37,500 $ 45,000 $ 45,000
200,000......................... 45,000 60,000 75,000 90,000 90,000
300,000......................... 67,500 90,000 112,500 135,000 135,000
400,000......................... 90,000 120,000 150,000 180,000 180,000
500,000......................... 112,500 150,000 187,500 225,000 225,000
600,000......................... 135,000 180,000 225,000 270,000 270,000
700,000......................... 157,500 210,000 262,500 315,000 315,000
800,000......................... 180,000 240,000 300,000 360,000 360,000
900,000......................... 202,500 270,000 337,500 405,000 405,000
1,000,000........................ 225,000 300,000 375,000 450,000 450,000
</TABLE>
The above table does not reflect the Plan offset for Social Security average
earnings, the maximum limit on covered compensation under Section 401(a)(17) of
the Internal Revenue Code of 1986 as amended (the "Code"), or the maximum
benefit limitations under Section 415 of the Code. The covered compensation for
the Named Executives is identical to the compensation reflected in the Summary
Compensation Table under the two columns titled "Salary" and "Bonus".
Retirement income benefits are based on the average of the employee's
compensation from the Company for the five consecutive complete calendar years
of highest compensation during the last ten consecutive complete calendar years
("final average compensation") immediately preceding the employee's retirement
date or, if earlier, the date of his termination of employment. All full-time
corporate employees of the Company and its subsidiaries (other than employees
subject to collective bargaining agreements) are eligible to participate in the
Retirement Income Plan after completing one year of service as an employee. The
benefit formula is 1 1/2% of final average compensation less 3/4% of final
average FICA earnings multiplied by years of service (maximum 30 years). The
Plan also provides reduced early retirement benefits under certain conditions.
In accordance with the Code, the maximum annual benefit that could be payable to
a Retirement Income Plan beneficiary in 1997 was $125,000. However, this
limitation does not affect previously accrued benefits of those individuals who
became entitled to benefits in excess of $125,000 prior to the effective date of
applicable provisions of the Tax Equity and Fiscal Responsibility Act of 1982
and the Tax Reform Act of 1986. In accordance with the Code (as amended by the
Omnibus Budget Reconciliation Act of 1993), the maximum compensation recognized
by the Retirement Income Plan was $160,000 in 1997. Retirement benefits accrued
at the end of any calendar year will not be reduced by any subsequent changes in
the maximum compensation limit.
The current credited years of service for the Named Executives, each of whom
is a participant in the Plan, are: R. Randall Rollins, 14 years; Gary W.
Rollins, 30 years; and Gene L. Smith, 12 years.
Effective October 1, 1983, the Company adopted a qualified retirement plan
designed to meet the requirements of Section 401(k) of the Code ("401(k) Plan").
The only form of benefit payment under the 401(k) Plan is a single lump-sum
payment equal to the balance in the participant's account on the date the
distribution is processed. Under the 401(k) Plan, the full amount of a
participant's accrued benefit is
13
<PAGE>
payable upon his termination of employment, attainment of age 59 1/2 (with
respect to pre-tax deferrals only), retirement, total and permanent disability,
or death. Amounts contributed by the Company to the accounts of Named Executives
for 1997 under this plan are reported in the "All Other Compensation" column of
the Summary Compensation Table above.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP served as the Company's auditors for 1997. As is its
policy, upon the recommendation of the Audit Committee, the Board of Directors
shall select a firm of certified public accountants for 1998. It is anticipated
that a representative of Arthur Andersen LLP will be present at the Annual
Meeting to answer questions and make a statement should such representative so
desire.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company has completed a review of Forms 3, 4 and 5 and amendments
thereto furnished to the Company by all Directors, Officers and greater than 10
percent stockholders subject to the provisions of Section 16 of the Securities
Exchange Act of 1934. In addition, the Company has a written representation from
all Directors, Officers and greater than 10 percent stockholders from whom no
Form 5 was received, indicating that no Form 5 filing was required. Based solely
on this review, the Company believes that all filing requirements of such
persons under Section 16 for the fiscal year ended December 31, 1997 were timely
satisfied, except for one late filed Form 5 to report grants of stock options
for Gene L. Smith.
PROPOSAL TO APPROVE THE
ROLLINS, INC. 1998 EMPLOYEE STOCK INCENTIVE PLAN
The Board of Directors recommends that the shareholders vote FOR the
approval of the Rollins, Inc. 1998 Employee Stock Incentive Plan (the "1998
Plan"). The 1998 Plan was adopted by the Board of Directors on January 27, 1998,
contingent upon approval of the Company's stockholders. An aggregate of
1,800,000 shares of Common Stock have been reserved for issuance under the 1998
Plan. The 1998 Plan provides for the granting to directors, officers and other
key employees of the Company ("Participants") stock options, stock appreciation
rights ("SARs"), and/or other awards valued in whole or in part by reference to,
or based upon, the Company's $1.00 par value Common Stock, including without
limitation, restricted stock. The 1998 Plan will be administered by the Board of
Directors or a duly appointed committee thereof (the "Committee"). The 1998 Plan
will afford the Company latitude in tailoring incentive compensation to support
corporate and business objectives, and to anticipate and respond to a changing
business environment and competitive compensation practices. The 1998 Plan is
intended to supplement the Company's 1994 Employee Stock Incentive Plan (the
"1994 Plan"), and following approval of the 1998 Plan by the shareholders,
awards may be made under both the 1994 Plan and the 1998 Plan. As of January 27,
1998, 874,202 shares remained available for grant under the 1994 Plan. The
following is a description of the principal features of the 1998 Plan, a copy of
which is attached as Exhibit A to this Proxy Statement. The description which
follows is qualified in its entirety by Exhibit A.
The Committee will consist of at least two directors who are "Non-Employee
Directors" as defined in Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended ("Rule 16b-3"). The Committee will have exclusive
discretion to select the Participants and to determine the type, size and terms
of each award, to determine when awards will be granted and paid, and to make
all other determinations which it deems necessary or desirable in the
interpretation and administration of the 1998 Plan. The 1998 Plan will terminate
ten years from January 27, 1998. With limited exceptions, including termination
of employment as a result of death, disability or retirement, option and other
awards under the 1998 Plan are forfeited if a recipient's employment or
performance of services terminates following the grant of the award but prior to
its exercise and/or vesting. Generally, a Participant's rights and interest
under the 1998 Plan will not be transferable except by will or by the laws of
descent and distribution.
14
<PAGE>
There is no maximum number of persons eligible to receive options, SARs,
restricted stock and other awards under the 1998 Plan. It is currently estimated
that the eligible group will be comprised of approximately 125 persons.
Options, which include nonqualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Common Stock at
a price fixed by the Committee. In the case of incentive stock options, the
option price may not be less than the fair market value of the underlying shares
of Common Stock at the time of grant. In the case of nonqualified stock options,
the option price may not be less than 100% of such fair market value. On March
2, 1998, the closing price of the Company's Common Stock on the New York Stock
Exchange was $20 11/16 per share. Options generally will expire not later than
ten years after the date on which they are granted. Options will become
exercisable at such times and in such installments as the Committee shall
determine. Payment of the option price must be made in full at the time of
exercise in such form (including, but not limited to, cash, unrestricted Common
Stock held for at least six months, or any combination thereof) as the Committee
may determine. In order to comply with certain federal tax restrictions, no
employee may be granted an incentive stock option if taking into account such
option the aggregate fair market value of the stock with respect to which
incentive stock options are exercisable for the first time by such employee
during any given calendar year, under this and all other incentive stock option
plans of the Company, would exceed $100,000. In addition, special restrictions
concerning the option price and the period during which the option may be
exercised will be applicable in the case of any individual who, at the time the
option is granted, owns more than 10% of the total combined voting power of all
classes of stock of the Company.
An SAR may be granted alone, or a holder of an option or other award may be
granted a related SAR either at the time of grant or by amendment of the option
or award thereafter. Upon exercise of an SAR, the holder must surrender the SAR
and surrender, unexercised, any related option or other award, and the holder
will receive in exchange, at the election of the Committee, cash or Common
Stock, or any combination thereof, equal in value to the difference between the
exercise price or option price per share and the fair market value per share on
the last business day preceding the date of exercise, times the number of shares
subject to the SAR, or portion thereof, which is exercised.
A restricted stock award is an award of a given number of shares of Common
Stock which are subject to a restriction against transfer and to a risk of
forfeiture during a period set by the Committee. During the restriction period,
the Participant generally has the right to vote and receive dividends on the
shares.
The 1998 Plan is subject to amendment or termination by the Board of
Directors without shareholder approval as deemed in the best interests of the
Company. However, no such amendment may (i) materially increase the benefits
accruing to participants under the 1998 Plan, (ii) materially increase the
number of shares which may be issued under the 1998 Plan, (iii) materially
modify the requirements as to eligibility for participation in the 1998 Plan, or
(iv) reduce the amount of any previously granted award or adversely change the
terms and conditions thereof, without the consent of the holder of such award.
In general, subject to the discretion of the Board of Directors, if the
Company is merged into or consolidated with another corporation under
circumstances in which the Company is not the surviving corporation, or if the
Company is liquidated, or sells or otherwise disposes of substantially all of
its assets to another corporation (any such merger, consolidation, etc. being
hereinafter referred to as a "Non-Acquiring Transaction") while unexercised
options or SARs are outstanding under the 1998 Plan, after the effective date of
a Non-Acquiring Transaction each holder of an outstanding option or SAR shall be
entitled, upon exercise of such option or SAR, to receive such stock or other
securities as the holders of the same class of stock as those shares subject to
the option or SAR shall be entitled to receive in such Non-Acquiring Transaction
based upon the agreed upon conversion ratio or per share distribution, or, in
the case of an SAR, an equivalent cash payment or combination of cash and
securities. Other awards under the 1998 Plan will receive such treatment in
connection with Non-Acquiring Transactions as the Committee shall determine at
or after the date of grant.
15
<PAGE>
The following table sets forth all awards granted under the 1994 Plan during
1997 and through March 23 in 1998 to each of the individuals and groups named
therein. All such grants were in the form of incentive stock options, restricted
stock or some combination of the two. No individual received 5% or more of the
awards granted during the periods presented. As of the date hereof, no grants
have been made under the 1994 Plan during 1998. Although it is anticipated that
grants under the 1994 Plan or the 1998 Plan will be made subsequently during
1998, the nature and amounts of such grants are not determinable at this time.
NEW PLAN BENEFITS*
<TABLE>
<CAPTION>
NUMBER OF UNITS
NAME AND POSITION GRANTED IN 1997
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
R. Randall Rollins............................................................................... 0
Gary W. Rollins.................................................................................. 0
Gene L. Smith.................................................................................... 8,700
Executive Group.................................................................................. 8,700
Non-Executive Director Group..................................................................... 0
Non-Executive Officer Employee Group............................................................. 188,900
</TABLE>
- ------------------------
* Grants shown were made pursuant to the 1994 Plan.
CERTAIN FEDERAL TAX CONSEQUENCES UNDER THE 1998 PLAN
The following discussion addresses certain anticipated federal income tax
consequences to recipients of awards made under the 1998 Plan. It is based on
the Internal Revenue Code of 1986 and interpretations thereof as in effect on
the date of this proxy statement.
An optionee to whom a nonqualified stock option is granted will not
recognize income as a result of the grant of the option. However, upon exercise
of the nonqualified stock option, the optionee will generally recognize ordinary
compensation income equal to the excess, if any, of the fair market value of the
stock received pursuant to exercise of the option (the "Shares") over the
exercise price. However, taxation will be deferred (i) if the Shares are subject
to restrictions imposed by the Committee which could result in a substantial
risk of their forfeiture or (ii) if the optionee is subject to the forfeiture
provisions of Section 16(b) of the Exchange Act, unless, in either event, the
optionee makes an election pursuant to Section 83(b) of the Code (an "83(b)
Election"), within 30 days of receipt of the Shares, to be taxed on the date of
receipt of the Shares. If no 83(b) Election is made, the optionee will recognize
ordinary compensation income at the time the Shares are no longer subject to
such restrictions or the optionee is no longer subject to Section 16(b)
liability as a result of the transfer of the Shares, in an amount equal to the
excess of the value of the Shares at such time over the amount paid for them.
The optionee's tax basis for the Shares will be equal to the exercise price paid
by the optionee plus the amount includable in the optionee's gross income as
compensation income, and the optionee's holding period for the Shares will
commence on the date on which the Shares are acquired.
An optionee to whom an incentive stock option which qualifies under Section
422 of the Code is granted generally will not recognize income at the time of
grant of the incentive stock option or at the time of its exercise. However, the
excess of the fair market value of the shares of stock subject to the option
(the "Incentive Shares") over the exercise price of the option at the time of
its exercise is an adjustment to taxable income in determining an optionee's
alternative minimum taxable income and ultimately his alternative minimum tax
(AMT). As a result, this adjustment could cause the optionee to be subject to
AMT or increase his or her AMT liability.
If an optionee who has exercised an incentive stock option does not sell the
Incentive Shares until more than one year after exercise and more than two years
after the date of grant, such optionee will
16
<PAGE>
normally recognize a capital gain or loss equal to the difference, if any,
between the selling price of the Incentive Shares and the exercise price (longer
holding periods may apply to qualify for the most favorable capital gains rate).
If the optionee sells the Incentive Shares before the time periods expire (a
"disqualifying disposition") he or she will recognize ordinary compensation
income equal to the lesser of (i) the difference, if any, between the fair
market value of the Incentive Shares on the date of exercise and the exercise
price of the option, and (ii) the difference, if any, between the selling price
for the Incentive Shares and the exercise price of the option. Any other gain or
loss on such sale will normally be a capital gain or loss. The tax basis of the
Incentive Shares to the optionee, for purposes of computing such other gain or
loss, should be equal to the exercise price paid (plus, in the case of
disqualifying disposition, the amount includable in the optionee's gross income
as compensation, if any).
With respect to either nonqualified or incentive stock options, if an
optionee delivers shares of the Company's Common Stock in part or full payment
of the option price, the optionee generally will be treated as having exchanged
such shares for an equivalent number of the shares received upon exercise of the
option (the "Exchange Shares"), and no gain or loss will be recognized with
respect to the shares surrendered to the Company in payment of the option price.
In such a case, the optionee will have a tax basis in the Exchange Shares which
is the same as the optionee's tax basis in the shares of stock delivered in
payment of the option price. The remaining shares received upon exercise of the
option (other than the Exchange Shares) will, in the case of nonqualified
options, have a tax basis equal to the income recognized on the exercise of the
option plus any additional consideration paid pursuant to the exercise of the
option, and in the case of incentive stock options, will have a tax basis equal
to any additional consideration paid pursuant to the exercise of the option.
The grant of SARs in connection with issuance of a nonqualified stock option
or an incentive stock option will not result in taxable income to the grantee.
At the time an SAR is exercised, a grantee generally will recognize ordinary
compensation income in an amount equal to the cash or the fair market value of
any other property the grantee receives to satisfy the SAR.
An officer, employee or other individual who receives stock pursuant to a
restricted stock award (the "Restricted Shares") should not recognize any
taxable income upon the receipt of such award (unless such recipient makes an
83(b) Election). Such recipient will recognize taxable compensation income at
the later of (i) the time his or her interest in the Restricted Shares is no
longer subject to a substantial risk of forfeiture under the terms of the grant,
or (ii) the time he or she is no longer subject to Section 16(b) liability upon
transfer of the Restricted Shares, in an amount equal to the fair market value
of the Restricted Shares at such time. The tax basis of the Restricted Shares to
the recipient should be equal to the amount includable in the recipient's gross
income as compensation, and the recipient's holding period for the Restricted
Shares should normally commence on the day following the date on which the value
of such Shares is includable in income. Dividends paid on Restricted Shares
prior to the lapse of the restrictions (if an 83(b) Election is not made) should
be included in the income of the recipient as taxable compensation income when
received.
Different tax rules will apply to a recipient of a restricted stock award if
the recipient makes a timely 83(b) Election. In such event the recipient will
recognize the fair market value of the Restricted Shares as taxable compensation
income at the time of their receipt. Any gain recognized on a subsequent sale of
the Restricted Shares, after a holding period of 18 months has elapsed, will be
treated as a long term capital gain.
The Company will be entitled to a tax deduction corresponding in amount and
time to the recipient's recognition of ordinary compensation income in the
circumstances described above, provided, among other things, that such deduction
meets the test of reasonableness, is an ordinary and necessary business expense,
and is not an "excess parachute payment" within the meaning of Section 280G of
the Code and that the Company satisfies any applicable withholding requirements.
In the case of an incentive stock
17
<PAGE>
option, the recipient will not recognize ordinary income, and the Company will
not be entitled to a deduction, unless there is a disqualifying disposition.
The discussion set forth above is intended only as a summary and does not
purport to be a complete enumeration or analysis of all potential tax effects
relevant to the Company or to recipients of awards under the 1998 Plan.
STOCKHOLDER PROPOSALS
Appropriate proposals of stockholders intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company by
November 24, 1998 for inclusion in its proxy statement and form of proxy
relating to that meeting. If the date of the next annual meeting is advanced by
more than 30 calendar days or delayed by more than 30 calendar days from the
date of the annual meeting to which this proxy statement relates, the Company
shall, in a timely manner, inform its stockholders of the change and the date by
which proposals of stockholders must be received.
18
<PAGE>
MISCELLANEOUS
The Company's Annual Report for the calendar year ended December 31, 1997 is
being mailed to stockholders with this proxy statement.
UPON THE WRITTEN REQUEST OF ANY RECORD OR BENEFICIAL OWNER OF COMMON STOCK
OF THE COMPANY WHOSE PROXY WAS SOLICITED IN CONNECTION WITH THE 1998 ANNUAL
MEETING OF STOCKHOLDERS, THE COMPANY WILL FURNISH SUCH OWNER, WITHOUT CHARGE, A
COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997.
REQUEST FOR A COPY OF SUCH ANNUAL REPORT ON FORM 10-K SHOULD BE MADE IN WRITING,
ADDRESSED TO ROLLINS, INC., P.O. BOX 647, ATLANTA, GEORGIA 30301, ATTENTION:
GENE L. SMITH, SECRETARY.
Management knows of no business other than the matters set forth herein
which will be presented at the meeting. Inasmuch as matters not known at this
time may come before the meeting, the enclosed proxy confers discretionary
authority with respect to such matters as may properly come before the meeting;
and it is the intention of the persons named in the proxy to vote in accordance
with their best judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
Gene L. Smith, SECRETARY
Atlanta, Georgia
March 24, 1998
19
<PAGE>
EXHIBIT A
ROLLINS, INC.
1998 EMPOYEE STOCK INCENTIVE PLAN
JANUARY 27, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
Section 1. PURPOSE; DEFINITIONS....................................................................... A-1
Section 2. ADMINISTRATION............................................................................. A-3
Section 3. STOCK SUBJECT TO PLAN...................................................................... A-4
Section 4. ELIGIBILITY................................................................................ A-4
Section 5. STOCK OPTIONS.............................................................................. A-4
(A) OPTION PRICE........................................................................... A-5
(B) OPTION TERM............................................................................ A-5
(C) EXERCISABILITY......................................................................... A-5
(D) METHOD OF EXERCISE..................................................................... A-5
(E) NON-TRANSFERABILITY OF OPTIONS......................................................... A-6
(F) TERMINATION BY DEATH................................................................... A-6
(G) TERMINATION BY REASON OF DISABILITY.................................................... A-6
(H) TERMINATION BY REASON OF RETIREMENT.................................................... A-6
(I) OTHER TERMINATION...................................................................... A-6
(J) BUYOUT PROVISIONS...................................................................... A-6
(K) CERTAIN RECAPITALIZATIONS.............................................................. A-7
(L) SUBDIVISION OF CONSOLIDATION........................................................... A-7
(M) FRACTIONAL SHARES...................................................................... A-7
(N) COMPLIANCE WITH SECTION 422............................................................ A-7
Section 6. STOCK APPRECIATION RIGHTS.................................................................. A-7
(A) GRANT AND EXERCISE..................................................................... A-7
(B) TERMS AND CONDITIONS................................................................... A-8
Section 7. OTHER STOCK-BASED AWARDS................................................................... A-9
(A) ADMINISTRATION......................................................................... A-9
(B) TERMS AND CONDITIONS................................................................... A-9
Section 8. AMENDMENTS AND TERMINATION................................................................. A-11
Section 9. UNFUNDED STATUS OF THE PLAN................................................................ A-11
Section 10. GENERAL PROVISIONS......................................................................... A-11
Section 11. EFFECTIVE DATE OF THE PLAN................................................................. A-12
Section 12. TERM OF THE PLAN........................................................................... A-12
</TABLE>
<PAGE>
ROLLINS, INC.
1998 EMPLOYEE STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Rollins, Inc. 1998 Employee Stock Incentive Plan (the
"Plan") is to enable Rollins, Inc. (the "Company") to attract, retain and reward
directors and key employees of the Company and its Subsidiaries and Affiliates,
and strengthen the mutuality of interests between such persons and the Company's
shareholders, by offering such persons performance-based stock incentives and/or
other equity interests or equity-based incentives in the Company, as well as
performance-based incentives payable in cash.
For purposes of this Plan, the following terms shall be defined as set forth
below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board as a participating employer
under this Plan, provided that the Company directly or indirectly owns at
least 50% of the combined voting power of all classes of stock of such
entity or at least 50% of the ownership interests in such entity.
(b) "Board" means the Board of Directors of the Company.
(c) "Book Value" means, at any given date, (i) the consolidated
stockholders' equity in the Company and its Subsidiaries, as shown on the
Company's consolidated balance sheet as of the end of the immediately
preceding fiscal year, subject to such adjustments as the Committee shall in
good faith specify at or after grant, divided by (ii) the number of shares
of Outstanding Stock as of such year-end date (as adjusted by the Committee
for subsequent events).
(d) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(e) "Committee" means the Committee referred to in Section 2 of this
Plan. If at any time no Committee shall be in office, then the functions of
the Committee specified in this Plan may be exercised by the Board or the
Compensation Committee of the Board, as set forth in Section 2 hereof.
(f) "Company" means Rollins, Inc., a corporation organized under the
laws of the State of Delaware, or any successor corporation.
(g) "Disability" means disability as determined under procedures
established by the Committee for purposes of this Plan and shall in all
events be consistent with the definition of "disabled" provided in Sections
422(c)(6) and 22(e)(3) of the Code.
(h) "Early Retirement" means retirement with the express written consent
of the Committee (given for purposes of this Plan only at or before the time
of such retirement) from active employment with the Company and/or any
Subsidiary or Affiliate or pursuant to the early retirement provisions of
the applicable pension plan of such entity.
(i) "Fair Market Value" means, as of any given date, unless otherwise
determined by the Committee in good faith:
(i) if the Stock is listed on an established stock exchange or
exchanges, or traded on the Nasdaq National Market System ("Nasdaq/NMS")
the highest closing price of the Stock as listed thereon on the
applicable day, or if no sale of Stock has been made on any exchange or
on Nasdaq/NMS on that date, on the next preceding day on which there was
a sale of Stock;
(ii) if the Stock is not listed on an established stock exchange or
Nasdaq/NMS but is instead traded over-the-counter, the mean of the dealer
"bid" and "ask" prices of the Stock in the over-
A-1
<PAGE>
the-counter market on the applicable day, as reported by the National
Association of Securities Dealers, Inc.;
(iii) if the Stock is not listed on any exchange or traded
over-the-counter, the value determined in good faith by the Committee.
(j) "Incentive Stock Option" means any Stock Option designated as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
(k) "Non-Employee Director" shall have the meaning set forth in Rule
16b-3 as promulgated by the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor definition adopted by the Commission.
(l) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(m) "Normal Retirement" means retirement from active employment with the
Company and/or any Subsidiary or Affiliate on or after age 65.
(n) "Other Stock-Based Award" means an award under Section 7 below that
is valued in whole or in part by reference to, or is otherwise based on,
Stock.
(o) "Outstanding Stock" shall include all outstanding shares of Common
Stock, $1.00 par value, of the Company as well as the number of shares of
Common Stock into which then outstanding shares of capital stock of the
Company, of whatever class, are convertible as of the year-end immediately
preceding the date of calculation thereof (as adjusted by the Committee for
certain events).
(p) "Performance-Accelerated Restricted Stock" means Restricted Stock
which is subject to restrictions for a stated period of time based on
continued employment, with the opportunity for the restriction period to be
shortened based on the achievement of predetermined performance goals.
(q) "Performance Stock" means Stock awarded under Section 7 below at the
end of a specified performance period, the amount of which is determined by
multiplying a performance factor times either (i) the Fair Market Value of
the Stock on the last day of the performance period, or (ii) the difference
between the Fair Market Value of the Stock on the first and last days of the
performance period; provided, however, that at the discretion of the
Committee, participants may receive the value of Performance Stock in cash,
as determined by reference to the Fair Market Value on the date the amount
of the award is determined.
(r) "Performance Unit" means an award pursuant to Section 7 with a
starting value and an associated performance period, such that at the end of
the performance period participants receive an amount, payable in either
cash or Stock, at the discretion of the Committee, equal to (i) the number
of units earned based on a predetermined performance schedule times the
starting unit value, or (ii) the number of units granted times the ending
unit value based on a predetermined performance schedule.
(s) "Plan" means this Rollins, Inc. 1998 Employee Stock Incentive Plan,
as hereafter amended from time to time.
(t) "Premium Stock Option" means any Stock Option with an exercise price
in excess of the Fair Market Value, as computed on the date of grant of the
Stock Option.
(u) "Retirement" means Normal or Early Retirement.
(v) "Restricted Stock" means Stock awarded under Section 7 below which
is (i) subject to restrictions for a stated period of time based on
continued employment, (ii) subject to restrictions which will only lapse
upon the achievement of predetermined performance goals, or (iii) subject to
a combination of the restrictions described in (i) and (ii) above.
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(w) "Stock" means the Common Stock, $1.00 par value per share, of the
Company.
(x) "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to receive an amount in either cash or stock,
equal to the difference between the Fair Market Value of the Stock on the
date of exercise and the Fair Market Value of the Stock on the date of grant
of the right.
(y) "Stock Option" or "Option" means any option to purchase shares of
Stock granted pursuant to Section 5 below.
(z) "Subsidiary" means any corporation (other than the Company) 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 100% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
This Plan shall be administered by a Committee of not less than two
Non-Employee Directors who shall be members of the Board and who shall serve at
the pleasure of the Board, such Committee to be designated by the Board. The
functions of the Committee specified in this Plan may be exercised by the Board
or by the Compensation Committee of the Board, however, if and to the extent
that no Committee meeting the requirements of this Section 2 has been designated
by the Board as having the authority to so administer this Plan and if a
resolution to such effect is adopted by the Board after due consideration of the
impact of such resolution upon the status of grants pursuant to this Plan under
Rule 16b-3 promulgated pursuant to the Exchange Act ("Rule 16b-3").
The Committee shall have full authority to grant, pursuant to the terms of
this Plan, to directors, officers and other key employees eligible under Section
4: (i) Stock Options, including, without limitation, Incentive Stock Options,
Non-Qualified Stock Options and Premium Stock Options, (ii) Stock Appreciation
Rights and/or (iii) Other Stock-Based Awards, including, without limitation,
Restricted Stock, Performance-Accelerated Restricted Stock, Performance Stock
and Performance Units.
In particular, the Committee shall have the authority:
(i) subject to Section 4 hereof, to select the directors, officers and
other key employees of the Company or its Subsidiaries and Affiliates to
whom Stock Options, Stock Appreciation Rights and/or Other Stock-Based
Awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Stock Options, Stock
Appreciation Rights and/or Other Stock-Based Awards, or any combination
thereof, are to be granted hereunder to one or more eligible employees;
(iii) to determine the number of shares of Stock to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any award granted hereunder (including, but not
limited to, the share price and any restriction or limitation, or any
vesting, acceleration or waiver of forfeiture restrictions regarding any
Stock Option or other award and/or the shares of Stock relating thereto,
based in each case on such factors as the Committee shall determine, in its
sole discretion);
(v) to determine whether and under what circumstances Stock Options,
Stock Appreciation Rights, Performance Stock and Performance Units may be
settled in cash;
(vi) to determine whether, to what extent and under what circumstances
Stock Option grants and/or other awards under this Plan and/or other cash
awards made by the Company are to be made,
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and operate, on a tandem basis vis-a-vis other awards under this Plan and/or
cash awards made outside of this Plan, or on an additive basis; and
(vii) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this Plan
shall be deferred either automatically or at the election of the participant
(including providing for and determining the amount (if any) of any deemed
earnings on any deferred amount during any deferral period).
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing this Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of this Plan and any
award issued under this Plan (and any agreements relating thereto); and to
otherwise supervise the administration of this Plan.
Except as otherwise specifically provided herein, all decisions made by the
Committee pursuant to the provisions of this Plan shall be made in the
Committee's sole discretion and shall be final and binding on all persons,
including the Company and all Plan participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for distribution
under this Plan shall be 1,800,000 shares. Such shares may consist, in whole or
in part, of authorized and unissued shares or treasury shares.
Subject to section 6(b)(iv) below, if any shares of Stock that have been
optioned hereunder cease to be subject to a Stock Option, or if any such shares
of Stock that are subject to any Other Stock-Based Award granted hereunder are
forfeited or any such award otherwise terminates without a payment being made to
the participant in the form of Stock, such shares shall again be available for
distribution in connection with future awards under this Plan.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividends, stock split or other changes in corporate structure affecting
the Stock, and subject to Sections 5(k) and 5(m), such substitution or
adjustment shall be made in the aggregate number of shares reserved for issuance
under this Plan, in the number and option price of shares subject to outstanding
Options granted under this Plan and in the number of shares subject to other
outstanding awards granted under this Plan as may be determined to be
appropriate by the Committee, in its sole discretion, provided that the number
of shares subject to any award shall always be a whole number. Such adjusted
option price shall be used to determine the amount payable by the Company upon
the exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
Directors, officers and other key employees of the Company or its
Subsidiaries and Affiliates (but excluding members of the Committee if a
Committee meeting the requirements of Section 2 is designated by the Board) who
are responsible for or contribute to the management, growth and/or profitability
of the business of the Company and/or its Subsidiaries and Affiliates are
eligible to be granted awards under this Plan. Notwithstanding the foregoing,
Incentive Stock Options may only be granted to employees of the Company and any
of its Subsidiaries or Affiliates that are a "subsidiary corporation" (within
the meaning of Section 424(f) of the Code). Furthermore, no director who is not
also an employee of the Company shall be eligible to receive Incentive Stock
Options.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone, in addition to or in tandem with other
awards granted under this Plan and/or cash awards made outside of this Plan. Any
Stock Option granted under this Plan shall be in
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such form as the Committee may from time to time approve. No individual may
receive grants hereunder pertaining to more than 100,000 shares of Stock in any
calendar year.
Stock Options granted under this Plan may be of two types: (i) Incentive
Stock Options, and (ii) Non-Qualified Stock Options. Incentive Stock Options and
Non-Qualified Stock Options may be issued as Premium Stock Options at the
discretion of the Board.
Subject to the restrictions contained in Section 4 hereof concerning the
grant of Incentive Stock Options, the Committee shall have the authority to
grant to any optionee Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options (in each case with or without Stock Appreciation
Rights). To the extent that the Fair Market Value of the shares with respect to
which Incentive Stock Options first become exercisable by an optionee during any
calendar year (under the Plan and any other plans granting Incentive Stock
Options which are established by the Company or its Subsidiaries) exceeds
$100,000, such Options shall be treated as Non-Qualified Stock Options.
Options granted under this Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of
grant but shall be (i) not less than 100% (or, in the case of an employee
who owns stock possessing more than 10 percent of the total combined voting
power of all classes of capital stock of the Company or of any of its
subsidiary or parent corporations, not less than 110%) of the Fair Market
Value of the Stock at grant, in the case of Incentive Stock Options, and
(ii) not less than 100% of the Fair Market Value of the Stock at grant, in
the case of Non-Qualified Stock Options.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercised more than ten years (or,
in the case of an employee who owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Company or
any of its subsidiary or parent corporations, more than five years) after
the date the Option is granted.
(c) EXERCISABILITY. Stock Options shall be exercised at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant; provided, however, that, except as provided in
Section 5(f), 5(g), or 5(k), unless otherwise determined by the Committee at
or after grant, no Stock Option shall be exercisable until at least one year
after the granting of the Option. If the Committee provides, in its sole
discretion, that any Stock Option is exercisable only in installments, the
Committee may waive such installment exercise provisions at any time at or
after grant in whole or in part, based on such factors as the Committee
shall determine, in its sole discretion.
(d) METHOD OF EXERCISE. Subject to whatever installment exercise
provisions or other restrictions apply under Section 5(c), Stock Options may
be exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Company specifying the number of
shares to be purchased; provided, however, that if exercised in part, a
Stock Option may not be exercised for fewer than 100 shares, unless the
remaining balance of the Stock Option is less than 100 shares, in which case
the Stock Option may be exercised for the remaining balance.
Such notice shall be accompanied by payment in full of the purchase
price, either by cash or such instrument as the Committee may accept.
Payment in full or in part may also be made in the form of unrestricted
Stock already owned by the optionee for a period of at least six months,
based, in each case, on the Fair Market Value of the Stock on the date the
option is exercised, unless it shall be determined by the Committee, at or
after grant, in its sole discretion, that unrestricted Stock is not a
permissible form of payment with respect to any Stock Option or Options.
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No shares of Stock shall be issued until full payment therefor has been
made. An optionee shall generally have the rights to dividends or other
rights of a shareholder with respect to shares subject to the Stock Option
when the optionee has given written notice of exercise, has paid in full for
such shares, and, if requested, has given the representation described in
Section 10(a).
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable, during
the optionee's lifetime, only by the optionee.
(f) TERMINATION BY DEATH. Subject to Section 5(k), if an optionee's
employment by the Company and/or any Subsidiary or Affiliate terminates by
reason of death, any Stock Option held by such optionee may thereafter be
exercised to the extent such option was exercisable at the time of death or
on such accelerated basis as the Committee may determine at or after grant
(or as may be determined in accordance with procedures established by the
Committee), by the legal representative of the estate or by the legatee of
the optionee under the will of the optionee, for a period of 12 months (or
such other period as the Committee may specify at grant) from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
(g) TERMINATION BY REASON OF DISABILITY. Subject to Section 5(k), if
an optionee's employment by the Company and/or any Subsidiary or Affiliate
terminates by reason of Disability, any Stock Option held by such optionee
may thereafter be exercised by the optionee or his/her guardian, to the
extent it was exercisable at the time of termination or on such accelerated
basis as the Committee may determine at or after grant (or as may be
determined in accordance with procedures established by the Committee), for
a period of one year (or such other period as the Committee may specify at
grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter; provided, however, that, if the optionee dies within such one-year
period (or such other period as the Committee may specify at grant), any
unexercised Stock Option held by such optionee shall thereafter be
exercisable only pursuant to Section 5(f). In the event of termination of
employment by Disability, if a Stock Option theretofore designated as an
Incentive Stock Option is exercised more than one year after such
termination of employment, such Stock Option shall be treated as a
Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. Subject to Section 5(k), if
an optionee's employment by the Company and/or any Subsidiary or Affiliate
terminates by reason of Normal or Early Retirement, any Stock Option held by
such optionee may be exercised by the optionee, to the extent it was
exercisable at the time of such Retirement, for a period of three months,
less one day, (or such other period as the Committee may specify at grant)
from the date of such termination, or the expiration of the stated term of
such Stock Option, whichever period is the shorter; provided, however, that
if the optionee dies within such three-month, less one day, period (or such
other period as the Committee may specify at grant), any unexercised Stock
Option held by such optionee shall thereafter be exercisable only pursuant
to Section 5(f). In the event of termination of employment by Retirement, if
a Stock Option theretofore designated as an Incentive Stock Option is
exercised more than three (3) months after such termination of employment,
such Stock Option shall be treated as a Non-Qualified Stock Option.
(i) OTHER TERMINATION. Unless otherwise determined by the Committee
(or pursuant to procedures established by the Committee) at or after grant,
if an optionee's employment by the Company and/or any Subsidiary or
Affiliate terminates for any reason other than death, Disability or Normal
or Early Retirement, as in the case of voluntary resignation of employment
by the optionee, the Stock Option shall thereupon terminate and shall be
immediately forfeited, regardless of its vesting status.
(j) BUYOUT PROVISIONS. The Committee may at any time offer to buy out
for a payment in cash or Stock a Stock Option previously granted, based on
such terms and conditions as the Committee shall establish and communicate
to the optionee at the time that such offer is made.
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(k) CERTAIN RECAPITALIZATIONS. In general, if the Company is merged
into or consolidated with another corporation under circumstances in which
the Company is not the surviving corporation, or if the Company is
liquidated, or sells or otherwise disposes of substantially all of its
assets to another corporation (any such merger, consolidation, etc. being
hereinafter referred to as a "Non-Acquiring Transaction") while unexercised
Options are outstanding under this Plan, after the effective date of a
Non-Acquiring Transaction each holder of an outstanding Option shall be
entitled, upon exercise of such Option, to receive such stock or other
securities as the holders of the same class of stock as those shares subject
to the Option shall be entitled to receive in such Non-Acquiring Transaction
based upon the agreed upon conversion ratio or per share distribution.
However, in the discretion of the Board of Directors, after giving due
consideration to the impact on the optionee, if any, pursuant to Rule 16b-3,
any limitations on exercisability of Options may be waived so that all
Options, from and after a date prior to the effective date of such
Non-Acquiring Transaction shall be exercisable in full. Furthermore, in the
discretion of the Board of Directors, the right to exercise may be given to
each holder of an Option during a 30-day period preceding the effective date
of such Non-Acquiring Transaction. Any outstanding Options not exercised
within such 30-day period may be cancelled by the Board of Directors as of
the effective date of any such Non-Acquiring Transaction. To the extent that
the foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Board of Directors, whose determination in
that respect shall be final, binding and conclusive. The Committee need not
treat all optionees and/or Options in the same manner.
(l) SUBDIVISION OR CONSOLIDATION. Except as set forth in this Plan,
optionees shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or
by reason of any dissolution, liquidation, merger, or consolidation or
spinoff of stock of another corporation, and no issue by the Company of
shares of stock of any class shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares subject
to the Stock Option. The grant of any Stock Option pursuant to this Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve, liquidate
or sell, or to transfer all or any part of its business or assets.
(m) FRACTIONAL SHARES. If any adjustment referred to herein shall
result in a fractional share for any optionee under any Stock Option
hereunder, such fraction shall be completely disregarded and the optionee
shall only be entitled to the whole number of shares resulting from such
adjustment.
(n) COMPLIANCE WITH SECTION 422. Unless otherwise determined by the
Committee with the consent of the optionee, any Option granted hereunder and
designated as an Incentive Stock Option shall comply with all relevant
provisions of Section 422 of the Code; provided, however, that to the extent
that any such Option which is designated as an Incentive Stock Option
hereunder fails for any reason to comply with the provisions of Section 422
it shall be treated as a Non-Qualified Stock Option.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted
alone, in addition to or in tandem with all or part of any other award
granted under this Plan. In the case of a Non-Qualified Stock Option, such
tandem rights may be granted either at or after the time of the grant of
such Stock Option. In the case of an Incentive Stock Option, such tandem
rights may be granted only at the time of the grant of such Stock Option.
A Stock Appreciation Right or applicable portion thereof granted in tandem
with a given Stock Option shall terminate and no longer be exercisable upon
the termination or exercise of the related Stock Option, subject to such
provisions as the Committee may specify at grant where a Stock
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Appreciation Right is granted with respect to less than the full number of
shares covered by a related Stock Option.
A Stock Appreciation Right may be exercised by an optionee, subject to
Section 6(b), in accordance with the procedures established by the Committee
for such purpose. Upon such exercise, the optionee shall be entitled to
receive an amount determined in the manner prescribed in Section 6(b). Stock
Options which were issued in tandem with exercised Stock Appreciation Rights
shall no longer be exercisable to the extent that the related Stock
Appreciation Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of this
Plan, as shall be determined from time to time by the Committee, including
the following:
(i) Except as set forth below, the term of each Stock Appreciation
Right shall be fixed by the Committee, but no such Stock Appreciation
Right shall be exercised more than ten years after the date it is
granted. Stock Appreciation Rights granted in tandem with Stock Options
shall be exercisable only at such time or times and to the extent that
the Stock Options to which they relate shall be exercisable in accordance
with the provisions of Section 5 and this Section 6 whenever the Fair
Market Value of the Stock exceeds the option price per share specified in
the related Stock Option.
(ii) Stock Appreciation Rights shall be exercised at such time or
times and subject to such terms and conditions as shall be determined by
the Committee at or after grant; provided, however, that, except as
provided in Section 5(f), 5(g), or 5(k), as incorporated herein by
Section 6(b)(vi) below, unless otherwise determined by the Committee at
or after grant, no Stock Appreciation Right shall be exercisable until at
least one year after its date of grant. If the Committee provides, in its
sole discretion, that any Stock Appreciation Right is exercisable only in
installments, the Committee may waive such installment exercise
provisions at any time at or after grant in whole or in part, based on
such factors as the Committee shall determine, in its sole discretion.
Upon the exercise of a Stock Appreciation Right, a participant shall be
entitled to receive an amount in cash and/or shares of Stock equal in
value to the excess of Fair Market Value of the Stock on the date of
exercise over the Fair Market Value of the Stock on the date of grant
multiplied by the number of Stock Appreciation Rights exercised, with the
Committee having the right to determine the form of payment. Subject to
whatever installment exercise provisions or other restrictions apply
hereunder, Stock Appreciation Rights may be exercised in whole or in part
at any time during the term thereof by giving written notice of exercise
to the Company specifying the number of rights to be exercised.
(iii) No Stock Appreciation Right shall be transferable by a
participant otherwise than by will or by the laws of descent and
distribution, and all Stock Appreciation Rights shall be exercisable,
during the participant's lifetime, only by the participant.
(iv) Upon the exercise of a tandem Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of this Plan on the number of shares of
Stock to be issued under this Plan, but only to the extent of the number
of shares issued under the Stock Appreciation Right at the time of
exercise based on the value of the Stock Appreciation Right at such time.
(v) Stock Appreciation Rights issued in tandem with Incentive Stock
Options shall contain such terms and conditions as the Committee may
determine to be necessary for the qualification of the Incentive Stock
Options.
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(vi) Sections 5(f)-(m) hereof shall apply equally to all Stock
Appreciation Rights granted pursuant to this Plan, as if each reference
therein to a "Stock Option" was instead a reference to a "Stock
Appreciation Right."
SECTION 7. OTHER STOCK-BASED AWARDS.
(a) ADMINISTRATION. Other awards of Stock and other awards that are
valued in whole or in part by reference to, or are otherwise based on, Stock
("Other Stock-Based Awards"), including, without limitation, Restricted
Stock, Performance-Accelerated Restricted Stock, Performance Stock,
Performance Units and Stock awards or options valued by reference to Book
Value or Subsidiary performance, may be granted either alone or in addition
to or in tandem with Stock Options or Stock Appreciation Rights granted
under this Plan and/or cash awards made outside of this Plan.
Subject to the provisions of this Plan, the Committee shall have authority
to determine the persons to whom and the time or times at which such awards
shall be made, the number of shares of Stock to be awarded pursuant to such
awards, and all other conditions of the awards. The Committee may also
provide for the grant of Stock upon the completion of a specified
performance period or event.
The provisions of Other Stock-Based Awards need not be the same with respect
to each recipient.
(b) TERMS AND CONDITIONS. Other Stock-Based Awards made pursuant to
this Section 7 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award agreement
referred to in Section 7(b)(v) below, Other Stock-Based Awards and shares
subject to such awards made under this Section 7 may not be sold,
assigned, transferred, pledged or otherwise encumbered, in the case of
shares of Stock, prior to the date on which the shares are issued, or, if
later, the date on which any applicable restriction, performance or
deferral period lapses, and in all other cases, not at all.
(ii) Subject to the provisions of this Plan and the award agreement
and unless otherwise determined by the Committee at grant, the recipient
of an award under this Section 7 shall be entitled to receive, currently
or on a deferred basis, as determined by the Committee, interest or
dividends or interest or dividend equivalents with respect to the number
of shares covered by the award, as determined at the time of the award by
the Committee, in its sole discretion, and the Committee may provide that
such amounts (if any) shall be deemed to have been reinvested in
additional Stock or otherwise reinvested.
(iii) Any award under this Section 7 and any Stock covered by any
such award shall vest or be forfeited to the extent so provided in the
award agreement, as determined by the Committee, in its sole discretion.
(iv) In the event of the participant's Retirement, Disability or
death, and in other instances, the Committee may, in its sole discretion,
waive in whole or in part any or all of the remaining limitations,
performance requirements or restrictions imposed (if any) with respect to
any or all of an award under this Section 7 and/or accelerate the payment
of cash or Stock pursuant to any such award.
(v) Each award under this Section 7 shall be confirmed by, and
subject to the terms of, an agreement or other instrument executed by the
Company and by the participant.
(vi) Stock (including securities convertible into Stock) issued on a
bonus basis under this Section 7 may be issued for no cash consideration.
(vii) Other Stock-Based Awards shall be transferable only when and to
the extent a Stock Option would be transferable under Section 5(e) of
this Plan.
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(viii) Unless otherwise determined by the Committee at or after grant,
if a participant's employment by the Company and/or any Subsidiary or
Affiliate terminates by reason of death or Disability, a pro rata portion
of the restrictions pertaining to continued employment on any Restricted
Stock will lapse, based on the number of full months the participant was
employed during the restriction period divided by the total number of
months in the restriction period. All such pro rata awards will be
determined and distributed at such time as awards are paid to other Plan
participants.
(ix) Unless otherwise determined by the Committee at or after grant,
if a participant's employment by the Company and/or any Subsidiary or
Affiliate terminates by reason of Normal Retirement, all of the
restrictions pertaining to continued employment on any Restricted Stock
will lapse. Any such award will be determined and distributed at such
time as awards are paid to other Plan participants.
(x) Unless otherwise determined by the Committee at or after grant,
if a participant's employment by the Company and/or any Subsidiary or
Affiliate terminates by reason of death or Disability, the estate of the
participant or the participant, as applicable, will receive a pro rata
portion of the payment or Stock the participant would have received for
Performance Stock or Performance Units, based on the number of full
months in the performance period prior to the participants's death or
Disability, divided by the total number of months in the performance
period. All such pro rata payments will be determined and distributed at
such time as awards are paid to other Plan participants.
(xi) Unless otherwise determined by the Committee at or after grant,
if a participant's employment by the Company and/or any Subsidiary or
Affiliate terminates by reason of Early Retirement and if such Early
Retirement occurs before age 65 and before completion of 10 years of
service with the Company and/or a Subsidiary or Affiliate subsequent to
the date of grant of Restricted Stock or Performance-Accelerated
Restricted Stock, all such Restricted Stock and Performance-Accelerated
Restricted Stock will be forfeited by the participant. In addition, in
the event of Normal or Early Retirement before the end of the performance
period for Performance Stock or Performance Units, no awards will be paid
unless specifically approved by the Committee on a case-by-case basis.
(xii) Unless otherwise determined by the Committee (or pursuant to
procedures established by the Committee) at or after grant, if a
participant's employment by the Company and/or any Subsidiary or
Affiliate terminates for any reason other than death, Disability or
Normal or Early Retirement, as in the case of voluntary resignation of
employment by the participant, all Other Stock-Based Awards shall be
immediately forfeited.
(xiii) The Committee may at any time offer to buy out for a payment in
cash or Stock an Other Stock-Based Award previously granted, based on
such terms and conditions as the Committee shall establish and
communicate to the participant at the time that such offer is made.
(xiv) Except as set forth in this Plan, participants shall have no
rights by reason of any subdivision or consolidation of shares of stock
of any class or the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class or by reason of
any dissolution, liquidation, merger, or consolidation or spinoff of
stock of another corporation, and no issue by the Company of shares of
stock of any class shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares subject to
any Other Stock-Based Award. The grant of any Other Stock-Based Award
pursuant to this Plan shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to
consolidate or to dissolve, liquidate or sell, or to transfer all or any
part of its business or assets.
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SECTION 8. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue this Plan, but, except as
otherwise provided herein, no amendment, alteration, or discontinuation shall be
made which would impair the rights of an optionee or participant under a Stock
Option, Stock Appreciation Right or Other Stock-Based Award theretofore granted,
without the optionee's or participant's consent, or which, without the approval
of the Company's stockholders, would:
(a) materially increase the benefits accruing to participants under this
Plan;
(b) materially increase the number of securities which may be issued
under this Plan; or
(c) materially modify the requirements as to eligibility for
participation in this Plan.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options (on a one for one or other basis), including
previously granted Stock Options having higher option exercise prices.
Subject to the above provisions, the Board shall have broad authority to
amend this Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
SECTION 9. UNFUNDED STATUS OF PLAN.
This Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
this Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder; provided, however, that, unless the Committee otherwise determines
with the consent of the affected participant, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of this Plan.
SECTION 10. GENERAL PROVISIONS.
(a) The Company shall not be obligated to sell or issue any shares
pursuant to any Option unless the shares with respect to which the Option is
being exercised are at the time effectively registered or exempt from
registration under the Securities Act of 1933, as amended (the "1933 Act").
The Company shall have no obligation to register pursuant to the 1933 Act
any shares of Stock issued pursuant to this Plan. The Committee may require
each person purchasing shares pursuant to a Stock Option or other award
under this Plan to represent to and agree with the Company in writing that
the optionee or participant is acquiring the shares for investment and
without a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock or other securities delivered under
this Plan shall be subject to such conditions, stop-transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed, and any
applicable federal or state securities law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder
approval if such approval is required, and such arrangements may be either
generally applicable or applicable only in specific cases.
A-11
<PAGE>
(c) The adoption of this Plan shall not confer upon any employee of the
Company or of any Subsidiary or Affiliate any right to continued employment
with the Company or a Subsidiary or Affiliate, as the case may be, nor shall
it interfere in any way with the right of the Company or a Subsidiary or
Affiliate to terminate the employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includable in the gross income of the participant for federal income tax
purposes with respect to the exercise of any Option or Stock Appreciation
Right or any award under this Plan, the participant shall pay to the
Company, or make arrangements satisfactory to the Committee regarding the
payment of, any federal, state, or local taxes of any kind required by law
to be withheld with respect to such amount. The obligations of the Company
under this Plan shall be conditional on such payment or arrangements, and
the Company and its Subsidiaries or Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
of any kind otherwise due to the participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional types of Plan awards at the time of any dividend
payment shall only be permissible if sufficient shares of Stock are
available under Section 3 for such reinvestment, taking into account other
Plan awards then outstanding.
(f) This Plan and all awards made and actions taken hereunder shall be
governed by and construed in accordance with the Delaware General
Corporation Law, to the extent applicable, and in accordance with the laws
of the State of Georgia in all other respects.
(g) The value of awards made pursuant to this Plan shall not be included
as part of the definition of "cash compensation" in connection with any
other benefit offered by the Company.
SECTION 11. EFFECTIVE DATE OF PLAN.
This Plan shall be effective as of January 27, 1998 contingent upon the
approval by the Company's stockholders.
SECTION 12. TERM OF PLAN.
No Stock Option, Stock Appreciation Right or Other Stock-Based Award shall
be granted pursuant to this Plan on or after the tenth anniversary of the
effective date of this Plan, but awards granted prior to such tenth anniversary
may extend beyond that date.
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<PAGE>
PROXY
ROLLINS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF ROLLINS, INC. FOR
ANNUAL MEETING OF STOCKHOLDERS, TUESDAY, APRIL 28, 1998, 9:30 A.M.
The undersigned hereby constitutes and appoints R. RANDALL ROLLINS and GARY
W. ROLLINS, and each of them, jointly and severally, proxies, with full power of
substitution, to vote all shares of Common Stock which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held on April 28,
1998, at 9:30 a.m., at 2170 Piedmont Road, N.E., Atlanta, Georgia, or any
adjournment thereof.
The undersigned acknowledges receipt of Notice of the aforesaid Annual
Meeting and Proxy Statement, each dated March 24, 1998, grants authority to said
proxies, or either of them, or their substitutes, to act in the absence of
others, with all the powers which the undersigned would possess if personally
present at such meeting, and hereby ratifies and confirms all that said proxies,
or their substitutes, may lawfully do in the undersigned's name, place or stead.
The undersigned instructs said proxies, or either of them, to vote as follows:
1. / / FOR all Class III nominees; / / For all Class III nominees, except as
indicated below; or / / REFRAIN from voting for the election of Wilton Looney
and Bill J. Dismuke as Class III directors.
(INSTRUCTIONS: To refrain from voting for any individual nominee, write that
nominee's name on the line provided below.)
- --------------------------------------------------------------------------------
2. / / FOR the approval of the 1998 Employee Stock Incentive Plan; / / AGAINST
the approval of the 1998 Employee Stock Incentive Plan; / / REFRAIN from
voting for the approval of the 1998 Employee Stock Incentive Plan.
3. ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF.
(over)
<PAGE>
(continued from other side)
ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH
YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED FOR ELECTION OF THE
BOARD OF DIRECTORS' NOMINEES FOR DIRECTOR AND FOR THE APPROVAL OF THE 1998
EMPLOYEE STOCK INCENTIVE PLAN. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY.
PROXY
PLEASE SIGN BELOW, DATE AND RETURN
PROMPTLY
___________________________________________________
___________________________________________________
SIGNATURE
DATED: ____________________________________________
(Signature should conform to name and title
stenciled hereon. Executors, administrators,
trustees, guardians and attorneys should add their
title upon signing.)
NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND
MAILED IN THE UNITED STATES.
