SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of
[X] Definitive Proxy Statement the Commission Only
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[ ] Soliciting Material Pursuant to Rule 14a-12 14a-6(e)(2))
National Service Industries, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(NSI LOGO)
NATIONAL SERVICE INDUSTRIES, INC.
NSI CENTER
1420 PEACHTREE STREET, N.E.
SUITE 200
ATLANTA, GEORGIA 30309
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 3, 2002
The annual meeting of stockholders of NATIONAL SERVICE INDUSTRIES, INC.
(the "Corporation" or "NSI") will be held on Thursday, January 3, 2002, at 10:00
a.m. in the Chambers Auditorium at the Renaissance Waverly Hotel, 2450 Galleria
Parkway, Atlanta, Georgia, for the following purposes:
(1) to elect seven directors;
(2) to approve a proposal to amend the Corporation's Restated
Certificate of Incorporation to effect a reverse stock split of the
Corporation's outstanding common stock at a ratio of one-for-four as
discussed in the proxy statement;
(3) to approve the National Service Industries, Inc. 2001 Nonemployee
Directors' Stock Incentive Plan;
(4) to ratify the appointment of Arthur Andersen LLP as independent
public accountants for the Corporation for the fiscal year ending August
31, 2002; and
(5) to transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors of the Corporation (the "Board of Directors" or the
"Board") has fixed the close of business on November 7, 2001 as the record date
for the determination of the stockholders who will be entitled to notice of and
to vote at this meeting or any adjournments thereof.
December 3, 2001
By order of the Board of Directors,
/s/ CAROL ELLIS MORGAN
CAROL ELLIS MORGAN
Senior Vice President,
General Counsel, and Secretary
YOUR VOTE IS IMPORTANT
IF YOU ARE A STOCKHOLDER OF RECORD, YOU CAN VOTE YOUR SHARES BY THE
INTERNET OR BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS ON YOUR PROXY CARD.
IF YOU WISH TO VOTE BY MAIL, PLEASE DATE, SIGN, AND MAIL THE ENCLOSED PROXY
PROMPTLY.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES IN THE ACCOMPANYING
ENVELOPE.
NATIONAL SERVICE INDUSTRIES, INC.
NSI CENTER
1420 PEACHTREE STREET, N.E.
SUITE 200
ATLANTA, GEORGIA 30309
PROXY STATEMENT
The following information is furnished in connection with the solicitation
of proxies by the Board of Directors for the annual meeting to be held on
January 3, 2002. Enclosed with this proxy statement are a proxy for use at the
meeting and a copy of the Corporation's annual report to stockholders, which
includes the Corporation's annual report on Form 10-K filed with the Securities
and Exchange Commission, for the fiscal year ended August 31, 2001. This proxy
statement and the enclosed proxy are initially being mailed to stockholders on
or about December 3, 2001.
GENERAL INFORMATION
PROXY
Stockholders are requested to provide their voting instructions on the
enclosed proxy by mail using the accompanying envelope, by the internet, or by
telephone. Stockholders who hold their shares through a bank or broker can vote
by the internet or by telephone if these options are offered by the bank or
broker. At any time before the proxy is voted, it may be revoked by written
notice to the Secretary of the Corporation. Proxies that are properly delivered,
and not revoked, will be voted in accordance with stockholders' directions.
Where no direction is specified, proxies will be voted as recommended by the
Board of Directors.
Stockholders may deliver their proxy using one of the following methods:
By the Internet. Stockholders of record may give their voting instructions
by the internet as described on the proxy card. Internet voting is also
available to stockholders who hold shares in the DirectService Plan, in the
Employee Stock Purchase Plan, or in a 401(k) plan sponsored by the Corporation.
The internet voting procedure is designed to verify the voting authority of
stockholders. You will be able to vote your shares by the internet and confirm
that your vote has been properly recorded. Please see your proxy card for
specific instructions.
By Telephone. Stockholders of record may give their voting instructions
using the toll-free number listed on the proxy card. Telephone voting is also
available to stockholders who hold shares in the DirectService Plan, in the
Employee Stock Purchase Plan, or in a 401(k) plan sponsored by the Corporation.
The telephone voting procedure is designed to verify the voting authority of
stockholders. The procedure allows you to vote your shares and to confirm that
your instructions have been properly recorded. Please see your proxy card for
specific instructions.
By Mail. Stockholders may sign, date, and mail their proxies in the
postage-paid envelope provided. If you sign, date, and mail your proxy card
without providing voting instructions on specific items, your proxy will be
voted as recommended by the Board of Directors.
STOCK OUTSTANDING AND VOTING RIGHTS
As of November 7, 2001, the record date for the annual meeting, there were
41,311,469 shares of NSI common stock outstanding and entitled to vote. The
holders of NSI common stock, the only class of voting stock of the Corporation
outstanding, are entitled to one vote per share for the election of directors
and on the other matters presented.
QUORUM
The presence, in person or represented by proxy, of at least one-third of
the outstanding shares of NSI common stock entitled to vote is necessary to
constitute a quorum. The election inspector appointed for the meeting will
determine whether or not a quorum is present. The election inspector will treat
abstentions as shares that are present and entitled to vote but as unvoted for
purposes of determining the approval of any matter submitted to the
stockholders. If a broker indicates on the proxy that it does not have
discretionary
authority as to certain shares to vote on a particular matter (i.e., "broker
non-votes"), those shares will be considered as present but not entitled to vote
at the meeting with respect to that matter.
EXPLANATORY NOTE REGARDING SPIN-OFF TRANSACTION
Effective November 30, 2001, the Corporation completed the spin-off of its
lighting equipment and chemicals businesses (the "Spin-Off"). These businesses
represented approximately 73% of the Corporation's consolidated assets and 78%
of the Corporation's consolidated revenues as of and for the fiscal year ended
August 31, 2001. The Spin-Off was effected by a pro rata distribution to the
Corporation's stockholders of 100% of the outstanding shares of common stock of
Acuity Brands, Inc. ("Acuity"), a newly formed subsidiary of the Corporation.
You should have previously received an information statement describing the
Spin-Off and Acuity.
In connection with the Spin-Off, each of the executive officers of the
Corporation, except Brock A. Hattox, Richard W. LeBer and J. Randolph Zook,
resigned and joined Acuity in similar positions. Also in connection with the
Spin-Off, each of the Corporation's directors, except Betty L. Siegel, resigned
from the Board of Directors and its committees and six new directors were
appointed. Each of the Corporation's resigning directors, except Thomas C.
Gallagher and Roy Richards, Jr., was thereafter appointed to the board of
directors of Acuity.
There is certain information that is required to be disclosed in a proxy
statement that generally relates to a company's prior fiscal year, such as
information relating to executive compensation and stock price performance.
Because the Spin-Off occurred after the end of the Corporation's most recent
fiscal year, this information applies to the Corporation as it existed prior to
the Spin-Off and may have only limited relevance to an understanding of the
Corporation following the Spin-Off.
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ITEM NO. 1 -- ELECTION OF DIRECTORS
At the annual meeting, seven directors of the Corporation will be elected
to hold office until the next annual meeting of stockholders and until their
successors are elected and qualified. To be elected, a nominee must receive a
plurality of the votes cast at the meeting. The persons named as proxies in the
accompanying proxy, or their substitutes, will vote for the election of the
nominees listed hereafter, except to the extent authority to vote for any or all
of the nominees is withheld. No nominee for election as a director is proposed
to be elected pursuant to any arrangement or understanding between the nominee
and any other person or persons. It is believed that all such nominees are
available for election. If any of the nominees are unable or unwilling to serve,
the persons named as proxies in the accompanying proxy, or their substitutes,
shall have full discretion and authority to vote or refrain from voting for any
substitute nominees in accordance with their judgment.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" EACH OF
THE NOMINEES NAMED BELOW.
INFORMATION CONCERNING NOMINEES
All of the nominees listed below are now directors of the Corporation and
have served continuously since their election. All of the current directors,
except Dr. Siegel, were elected by the Board of Directors effective December 1,
2001.
The following is a brief summary of each nominee's business experience and
other directorships held.
<Table>
(PHOTO) DENNIS R. BERESFORD
Mr. Beresford, 63 years old, has served as the Ernst & Young
Executive Professor of Accounting at the University of
Georgia since July 1997. He previously served as Chairman of
the Financial Accounting Standards Board from January 1987
until June 1997.
(PHOTO) JOHN E. CAY, III
Mr. Cay, 56 years old, has served as Chairman and Chief
Executive Officer of Palmer & Cay, Inc., an insurance
brokerage and employee benefits consulting company, since
January 1970. He is also a director of Friedman's Inc., a
specialty jewelry retailer.
(PHOTO) DON L. CHAPMAN
Mr. Chapman, 62 years old, has served as Chairman and Chief
Executive Officer of Tug Investment Corporation, an
investment and printing equipment sales company, since April
2000. He previously served as President of S&S Tug
Manufacturing Company, a manufacturer of material-handling
vehicles, from March 1999 until April 2000. From January
1997 until March 1999, Mr. Chapman was Chief Executive
Officer and Principal of Tug Manufacturing Corp., also a
manufacturer of material-handling vehicles. He also serves
as a director of AirTran Holdings, Inc. and RARE Hospitality
International, Inc., a company owning and operating casual
and fine dining restaurants.
</Table>
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<Table>
(PHOTO) BROCK A. HATTOX
Mr. Hattox, 53 years old, was named Chairman, Chief
Executive Officer and President of the Corporation effective
December 1, 2001. He previously served as Executive Vice
President and Chief Financial Officer of the Corporation
from September 1996 through November 2001. Prior to joining
NSI, Mr. Hattox was with McDermott International, Inc.,
serving as Chief Financial Officer from 1991 until 1996 and
President of the engineering and construction group from
1995 until 1996.
(PHOTO) JOIA M. JOHNSON
Ms. Johnson, 41 years old, has served as General Counsel of
RARE Hospitality International, Inc., a company owning and
operating casual and fine dining restaurants, since May 1999
and as Executive Vice President since May 2000. Ms. Johnson
previously served as Vice President and General Counsel of
H.J. Russell & Company, a real estate development,
construction and property management firm, from January 1989
until May 1999.
(PHOTO) MICHAEL Z. KAY
Mr. Kay, 62 years old, is the retired President and Chief
Executive Officer of Sky Chefs Inc. (known as LSG Sky Chefs
after 1993), an airline catering company, where he served in
such capacity from September 1991 until September 2001. He
currently serves as Chairman of the Board of Magnatrax
Corporation, an engineered metal buildings and metal
building components company.
(PHOTO) BETTY L. SIEGEL
Dr. Siegel, 70 years old, has served as President of
Kennesaw State University since 1981. She has served as a
director of NSI since 1988.
</Table>
COMPENSATION OF DIRECTORS
During the fiscal year ended August 31, 2001, each director who was not an
employee of the Corporation received an annual director fee of $40,000 and an
additional annual fee of $5,000 for serving as chairman of a committee, payable
quarterly in each case. Under the Nonemployee Director Deferred Stock Unit Plan,
for such fiscal year, each director was paid one-half of the annual fee, and
could have elected to receive additional portions of the annual fee and the
chairman fee, in deferred stock units under the Plan. Nonemployee directors
received a one-time grant of 1,000 deferred stock units upon their election and
an annual grant of 350 deferred stock units. The value and return on deferred
stock units is equivalent to the value and return on NSI common stock. The
director's account is generally payable on or after retirement. There is no
other retirement plan for the Corporation's nonemployee directors.
In November 2001, the Executive Committee of the Board adopted an amendment
to the Nonemployee Director Deferred Stock Unit Plan that eliminated the
automatic or elective deferral of future directors' fees into the Plan and
deleted the automatic grants of deferred stock units. For any director
continuing at NSI after the Spin-Off, such director's deferred stock units will
continue to be held in the plan.
Pursuant to the National Service Industries, Inc. 1992 Nonemployee
Directors' Stock Option Plan, stock options were granted annually on the day of
the annual meeting. That plan terminated on September 19, 1999, and no stock
options were officially granted under the plan during the fiscal year ended
August 31, 2001. To
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replace the 1992 Plan, the Executive Committee of the Board has adopted the 2001
Nonemployee Directors' Stock Incentive Plan which is described below and which
is being submitted to the stockholders for approval at the annual meeting. The
Board will have discretion in making future option grants and it may take into
account in making such grants that no grants could be made during the 2001
fiscal year.
Directors may participate in the Corporation's Matching Gift Program. Under
this program, the Corporation will match charitable contributions up to a total
of $5,000 per individual per year.
For information on compensation of directors who also served as executive
officers during the fiscal year, see "Executive Compensation" below.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Mr. Cay is the Chairman and Chief Executive Officer of, and owns a
controlling interest in, Palmer & Cay, Inc., an insurance brokerage and employee
benefits consulting company. The Corporation engages Palmer & Cay, Inc. for
insurance brokerage services and employee benefits consulting in the ordinary
course of business. In fiscal 2001, the Corporation paid Palmer & Cay, Inc.
approximately $1 million in services and consulting fees. The Corporation
expects to continue to engage Palmer & Cay, Inc. for similar services in fiscal
2002. However, the Corporation does not believe that the amount noted above is
representative of the future fees likely to be paid by the Corporation because
it includes fees associated with the lighting equipment and chemicals
businesses, which were spun-off to the Corporation's stockholders as described
elsewhere in this proxy statement.
The Corporation also has transactions in the ordinary course of business
with unaffiliated corporations and institutions, which certain other nonemployee
directors of the Corporation serve as officers or directors. The Corporation
does not consider the amounts involved in such services and transactions to be
material in relation to its business and believes that such amounts are not
material in relation to the business of these organizations or individuals.
OTHER INFORMATION CONCERNING THE BOARD AND ITS COMMITTEES
The Board of Directors has delegated certain functions to the following
standing committees:
The Executive Committee is authorized to perform all of the powers of
the full Board, except the power to amend the By-laws and except as
restricted by the Delaware General Corporation Law. The Committee is also
responsible for reviewing matters pertaining to the composition,
organization and practices of the Board of Directors, including a periodic
evaluation of the Board in meeting its corporate governance
responsibilities, and for recommending to the full Board a slate of
directors for consideration by the stockholders at the annual meeting and
candidates to fill any vacancies on the Board. The Committee is expected to
be comprised as follows: Brock A. Hattox, Chairman, Dennis R. Beresford,
Don L. Chapman, and Michael Z. Kay. The Executive Committee held three
meetings during the last fiscal year and took two actions by written
consent.
The Audit Committee is responsible for certain matters pertaining to
the auditing, internal control, and financial reporting of the Corporation,
as set forth in the Committee's report below and in its charter included as
Exhibit A to the proxy statement furnished in connection with the annual
meeting of the Corporation held on December 21, 2000. The Committee is
expected to be comprised as follows: Dennis R. Beresford, Chairman, John E.
Cay III, and Joia M. Johnson. The Committee held three meetings during the
last fiscal year.
The Compensation Committee is responsible for certain matters relating
to the compensation of the officers of the Corporation, as set forth in the
Committee's report below. The Committee is expected to be comprised as
follows: Michael Z. Kay, Chairman, Don L. Chapman, and Betty L. Siegel. The
Committee held six meetings during the last fiscal year and took two
actions by written consent. The Compensation Committee was known as the
Executive Resource and Compensation Committee prior to the Spin-Off.
During the fiscal year ended August 31, 2001, the Board of Directors met
seven times and took one action by written consent.
Because of extraordinary activity in connection with the Spin-Off, which is
described elsewhere in this proxy statement, the number of meetings held by the
Board and its committees during the 2001 fiscal year may have been more than
usual. Also, prior to the Spin-Off, the Executive Committee did not perform the
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nominating and corporate governance responsibilities described above. Those
responsibilities were performed by the Corporate Governance and Nominating
Committee, which the Board does not expect to have in the future. The Corporate
Governance and Nominating Committee held two meetings during the last fiscal
year.
The Executive Committee will consider nominee recommendations for next
year's annual meeting from stockholders made in writing and addressed to the
attention of Chairman of the Executive Committee, c/o Corporate Secretary,
National Service Industries, Inc., 1420 Peachtree Street, Suite 200, N.E.,
Atlanta, Georgia, 30309. Stockholders making nominee recommendations to the
Committee should provide the same information required for nominations by
stockholders at an annual meeting, as explained below under "Other
Matters -- Stockholder Proposals."
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CURRENT EXECUTIVE OFFICERS
Information concerning the persons who serve as the Corporation's current
executive officers is provided below. Mr. Hattox, Ms. Morgan and Mr. Popkowski
were elected to their respective offices effective December 1, 2001. Mr. LeBer
and Mr. Zook were elected to their respective NSI offices effective July 24,
2001. The executive officers serve at the discretion of the Board of Directors.
Officers are generally elected at the annual meeting of directors held
immediately following the annual meeting of stockholders. The Board of Directors
may elect additional executive officers from time to time.
- Brock A. Hattox, 53 years old, serves as Chairman, Chief Executive
Officer and President of the Corporation. He previously served as
Executive Vice President and Chief Financial Officer of the Corporation
from September 1996 through November 2001. Prior to joining NSI, Mr.
Hattox was with McDermott International, Inc., serving as Chief Financial
Officer from 1991 until 1996 and President of the engineering and
construction group from 1995 until 1996.
- Richard W. LeBer, 43 years old, serves as Executive Vice President of NSI
and also serves as President of National Linen Service (NLS). He joined
NLS in 1996 as Vice President of Business Development and was named
President in January 2000. From 1994 to 1996, Mr. LeBer was President and
CEO of Equibase Co., a privately-held information services company. He
previously served as a consultant with McKinsey and Company in Atlanta.
- J. Randolph (Randy) Zook, 56 years old, serves as Executive Vice
President of NSI and also serves as President of Atlantic Envelope
Company (AECO). He began his career with AECO in 1970 as a sales
representative and served as Sales Manager, General Manager, Director of
the ATENCO Filing Systems product line, and Vice President before
becoming President in 1989.
- Carol Ellis Morgan, 47 years old, serves as Senior Vice President,
General Counsel, and Secretary of NSI. After joining NSI in 1981 as
Assistant Counsel, she was elected to an officer position in 1985, became
Associate Counsel in 1996, was elected Vice President in 1997, and served
as Vice President and Deputy General Counsel from May 2000 through
November 2001.
- Chester J. (Chet) Popkowski, 50 years old, serves as Senior Vice
President, Chief Financial Officer, and Treasurer of NSI. He previously
served as Vice President and Treasurer of NSI from December 1995 through
November 2001. Prior to joining NSI, Mr. Popkowski was employed by
Honeywell for 19 years in various managerial financial positions,
including Director of Finance and Administration and Assistant Treasurer.
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BENEFICIAL OWNERSHIP OF NSI COMMON STOCK
The following table sets forth information concerning beneficial ownership
of NSI common stock, as of October 25, 2001 unless otherwise indicated, by each
of the directors and nominees for director, by each of the executive officers
named in the "Summary Compensation Table" below, and by all directors and
executive officers of the Corporation as a group.
Beneficial ownership information for Messrs. Balloun, Honeycutt, Morgan and
Heagle is required to be provided below because, along with Mr. Hattox, these
individuals are the Corporation's "named executive officers" for fiscal 2001. It
should be noted, however, that Messrs. Balloun, Honeycutt, Morgan and Heagle
resigned from the Corporation in connection with the Spin-Off, which is
described elsewhere in this proxy statement.
The Corporation knows of no beneficial owner of more than five percent of
the Corporation's stock.
<Table>
<Caption>
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT OF
NAME OWNED(1)(2)(3)(4) CLASS(5)
---- ------------------ ----------
James S. Balloun............................................ 981,931(6) 2.3
Dennis R. Beresford......................................... -0- *
John E. Cay, III............................................ 4,000(7) *
Don L. Chapman.............................................. -0- *
Brock A. Hattox............................................. 288,707 *
James H. Heagle............................................. 19,034 *
Kenneth W. Honeycutt........................................ 72,248 *
Joia M. Johnson............................................. -0- *
Michael Z. Kay.............................................. -0- *
John K. Morgan.............................................. 57,863(8) *
Betty L. Siegel............................................. 10,605 *
All "named executive officers," current executive officers
and current directors as a group (15 persons)............. 1,592,946 3.7
</Table>
- ---------------
* Less than 1%.
(1) Subject to applicable community property laws and except as otherwise
indicated, each beneficial owner has sole voting and investment power with
respect to all shares shown.
(2) Includes shares that may be acquired within 60 days after the ownership date
reflected, upon exercise of employee and director stock options. Such shares
are deemed to be outstanding and to be beneficially owned by the person or
group holding the options for the purpose of computing the percentage
ownership of such person or group, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person or
group. Options are included for the following individuals: Mr. Balloun,
854,390 shares; Mr. Hattox, 270,188 shares; Mr. Honeycutt, 44,669 shares;
Mr. Morgan, 34,082 shares; Mr. Heagle, 15,900 shares; and Dr. Siegel, 10,000
shares; and all executive officers and directors as a group, 1,363,387
shares. NSI options held by Messrs. Balloun, Honeycutt, Morgan and Heagle
were converted into and replaced by Acuity options in connection with the
Spin-Off, which is described elsewhere in this proxy statement. NSI options
held by executive officers remaining with NSI were generally adjusted in
accordance with a conversion ratio to reflect the Spin-Off.
(3) Includes performance-based restricted shares, granted under NSI's Long-Term
Achievement Incentive Plan, which vest in equal installments through January
2005 and to which the executives have sole voting power. Restricted shares
are included for the following individuals: Mr. Balloun, 9,000 shares; Mr.
Hattox, 2,380 shares; Messrs. Honeycutt and Morgan, 1,840 shares each; Mr.
Heagle, 1,780 shares; and all executive officers as a group, 21,491 shares.
(4) Includes shares payable within 60 days in connection with long-term
incentive awards earned for the performance cycle ended August 31, 2001 for
the following individuals; Mr. Honeycutt, 3,456 shares; Mr. Morgan, 3,149
shares; and Mr. Heagle, 1,354 shares.
(5) Based on an aggregate of 41,225,781 shares of NSI common stock issued and
outstanding as of August 31, 2001.
(6) Includes 50,934 shares held in a family limited partnership.
(7) Includes 3,500 shares held by Palmer & Cay, Inc., in which Mr. Cay owns a
controlling interest.
(8) Includes 72 shares held by Mr. Morgan's son, 284 shares held by his spouse,
and 18,385 shares held jointly with his spouse.
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REPORT OF THE EXECUTIVE RESOURCE AND COMPENSATION COMMITTEE
The Executive Resource and Compensation Committee, now known as the
"Compensation Committee," of the Board of Directors is composed entirely of
nonemployee directors. The Committee is responsible for approving the salary
payable to the Chairman of the Board, President, and Chief Executive Officer,
subject to ratification by the full Board, for setting the salary payable to
each of the other executive officers of NSI, and for administering the
Management Compensation and Incentive Plan (the "Incentive Plan"), subject to
ratification of certain matters thereunder by the full Board. The Committee had
authority to grant awards under the Long-Term Incentive Program (the "Long-Term
Program") and now has that authority under the Long-Term Achievement Incentive
Plan (the "Long-Term Plan"). The Committee reviews and makes recommendations to
the Board with respect to any proposed awards to executive officers under any
other compensation plan, benefit plan, or perquisite.
In setting NSI's compensation policies, the Committee recognizes that there
must be a linkage between the level of an executive's compensation, particularly
long-term compensation, and performance achieved for stockholders. Over the past
several years, however, market conditions have created a difficult environment
in which the Committee must carry out its responsibilities. Consequently,
stock-based awards (stock options) have not adequately reflected management's
performance, while aspiration awards (described below) have reflected
performance by management that has not yet been translated into share price
appreciation. At the same time, competition for qualified executives in today's
market is fierce, dictating to a great extent the level of compensation required
to attract, retain, motivate, and reward NSI's executives. Moreover, competitive
compensation must be paid while NSI's executives are working to improve NSI's
performance, not just after performance has been improved and the stock market
has fully recognized the improvement through share price appreciation. The
Committee has taken these competing factors into account in carrying out its
responsibilities.
Following below is a discussion of the compensation policies applicable to
NSI's executive officers, the executive officers' compensation program for the
last fiscal year, and the Chief Executive Officer's compensation for the last
fiscal year.
Compensation Policies for Executive Officers
For the 2001 fiscal year, the principal compensation components were base
salary, bonus awards under the Incentive Plan, stock options and
performance-based restricted share awards granted under the Long-Term Plan, and
aspiration awards (described below) payable under the Long-Term Plan. Bonus
awards, stock options, and other Long-Term Plan awards are generally granted on
an annual basis. Salary adjustments are made annually as merited or on promotion
to a position of increased responsibilities.
The Committee reviews the compensation of each executive officer utilizing
competitive compensation information prepared by an independent compensation
consultant and a performance review and recommendation by the Chief Executive
Officer for each other executive officer. The competitive compensation
information utilized by the Committee is for positions of comparable
responsibilities with comparably sized diversified companies, which are
representative of the companies with whom NSI competes for executive talent.
These companies are not necessarily the same as those included in the peer index
in the performance graph in this proxy statement.
As one of the factors in compensation matters, the Committee considers the
anticipated tax treatment to NSI and to the executives of various payments and
benefits. Based on compensation arrangements currently in place, the Committee
does not reasonably anticipate that any executive officer's fiscal 2001
compensation will be subject to the $1 million deductibility limitation of
Section 162(m) of the Internal Revenue Code. The Committee expects to retain the
deductibility of compensation pursuant to Section 162(m), but reserves the right
to provide non-deductible compensation if it determines that such action is in
the best interests of NSI and its stockholders.
Executive Officers' 2001 Compensation
The salary for fiscal 2001 of each executive officer (other than the Chief
Executive Officer, discussed below) was based on competitive compensation data
at the 75th percentile level among comparably sized diversified companies and
also considered the executive's performance, experience, abilities, and expected
future contribution.
9
Bonuses for fiscal 2001 under the Incentive Plan were designed to provide
competitive total cash compensation at the 75th percentile level among
comparably sized diversified companies, subject to achievement of NSI's target
performance objectives. A bonus fund, stated as a percentage of gross salary,
was determined for each executive officer based on the per-share earnings
objective for NSI established by the Committee and ratified by the Board of
Directors at the beginning of the fiscal year. The bonus fund increased or
decreased in relationship to earnings per share, with no bonus fund for earnings
per share below a threshold level. Based on NSI's fiscal 2001 earnings per
share, after adjustment under the Incentive Plan rules, threshold level earnings
per share were not achieved and, therefore, no bonuses were paid to named
executive officers.
The compensation of executive officers for fiscal 2001 was further linked
with NSI's performance and to the increase in stockholder value through
long-term awards of stock options and performance-based restricted share awards
granted under the Long-Term Plan and aspiration awards maturing under the
Long-Term Plan. Options and performance-based restricted shares provide
compensation opportunities directly related to, and contingent upon, the
long-term performance of NSI and to the increase in market value of its shares.
Aspiration awards are long-term awards designed to more clearly and quantifiably
relate reward opportunities with achievement of specific performance goals over
a three-year cycle. The performance measure is economic profit (adjusted
after-tax profit minus a charge for capital). The level of aspiration awards
payable at the conclusion of the cycle is expected to correlate with increases
in stock price over time. Long-term awards granted to executive officers in
fiscal 2001 were based on competitive long-term grants at approximately the 75th
percentile level among comparably sized diversified companies for target level
performance and are designed to provide higher compensation for significantly
higher performance.
For the three-year performance cycle ended August 31, 2001, certain
executive officers who serve as business unit presidents earned an aggregate
aspiration award of 129.5% of target level for the lighting equipment business
unit and 42.8% for the chemicals business unit. The awards were paid half in
shares of NSI common stock and half in cash.
Chief Executive Officer's 2001 Compensation
For the 2001 fiscal year Mr. Balloun received base salary, an incentive
bonus opportunity, and stock options and a performance-based restricted share
award under the Long-Term Plan. His total compensation was based on competitive
and merit factors. The Committee was advised by an independent compensation
consultant that Mr. Balloun's 2001 base salary, 2001 bonus opportunity at
target, and 2001 long-term incentive award value at target were below the market
third quartile.
No bonus was paid to Mr. Balloun for fiscal 2001 based on NSI's failure to
achieve the threshold earnings per share level, after adjustment of earnings per
share under the Incentive Plan rules, as specified by the Committee at the
beginning of the fiscal year for executive officers. For the three-year
performance cycle ended August 31, 2001, Mr. Balloun earned no aspiration award.
Much of Mr. Balloun's compensation opportunity for fiscal 2001 was provided
through performance-based bonus, performance-based restricted share awards, and
stock options and is therefore linked directly to performance on behalf of
stockholders and to appreciation in the market price of NSI's stock.
EXECUTIVE RESOURCE AND
COMPENSATION COMMITTEE
John L. Clendenin, Chairman
Thomas C. Gallagher
Roy Richards, Jr.
Betty L. Siegel
Neil Williams
November 26, 2001
As noted elsewhere in this proxy statement, each of the members of the
Committee listed above, except Dr. Siegel, resigned from the Board and its
committees in connection with the Spin-Off.
10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The directors serving on the Executive Resource and Compensation Committee
of the Board of Directors during the fiscal year ended August 31, 2001 were: for
the entire year, John L. Clendenin, Thomas C. Gallagher, Roy Richards, Jr.,
Betty L. Siegel, Barrie A. Wigmore and Neil Williams; and for the portion of the
year up to December 21, 2000, Ray M. Robinson. None of these individuals are or
have ever been officers or employees of the Corporation. During the 2001 fiscal
year, no executive officer of the Corporation served as a director of any
corporation for which any of these individuals served as an executive officer,
and there were no other compensation committee interlocks with the companies
with which these individuals or the Corporation's other directors are
affiliated.
PERFORMANCE GRAPH
The following graph compares, for the five years ended August 31, 2001, the
yearly percentage change in cumulative total stockholders' return on NSI common
stock with (a) the S&P 500 Stock Index and (b) the S&P Specialized Services
Index (the industry group within the S&P 500 in which the Corporation is
included). The graph assumes an initial investment of $100 at the closing price
on August 31, 1996 and assumes all dividends were reinvested.
(PERFORMANCE GRAPH)
<Table>
<Caption>
- --------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
- --------------------------------------------------------------------------------
NSI 100.00 120.00 103.55 92.23 60.67 76.04
S&P 500 100.00 140.63 152.02 212.54 247.21 186.94
S&P Specialized
Services 100.00 122.56 112.53 134.97 115.59 123.02
</Table>
11
EXECUTIVE COMPENSATION
INTRODUCTION
The federal proxy rules require certain compensation information be
provided for the individual who served as the Corporation's Chief Executive
Officer during fiscal year 2001 and to the four other most highly compensated
executive officers who were serving as executive officers of the Corporation at
the end of fiscal year 2001 (these five officers referred to herein as the
"named executive officers"). Each of the named executive officers, except Brock
A. Hattox, resigned in connection with the Spin-Off.
NSI options held by employees who joined Acuity in connection with the
Spin-Off were converted into and replaced by Acuity options. NSI options held by
employees remaining with NSI were generally adjusted in accordance with a
conversion ratio to reflect the Spin-Off. Each employee holding outstanding
shares of NSI restricted stock (all of which is unvested) retained such shares
in connection with the Spin-Off. Each employee who holds a performance-based
restricted stock award of NSI that had not reached a vesting start date either
(i) received a replacement performance-based restricted stock award of Acuity,
adjusted to reflect the Spin-Off, (if such employee joined Acuity) or (ii)
received a replacement NSI performance-based restricted stock award, adjusted to
reflect the Spin-Off, (if such employee remained with NSI). The option and
restricted stock amounts shown in the following tables do not reflect any
adjustments made in connection with the Spin-Off.
SUMMARY COMPENSATION TABLE
The following table presents the cash compensation paid by the Corporation
and its affiliates for the past three fiscal years, as well as compensation
accrued for those years, to the named executive officers.
<Table>
<Caption>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- ------------------------
AWARDS PAYOUTS
OTHER ------------ --------- ALL
ANNUAL SECURITIES OTHER
COMPEN- UNDERLYING LTIP COMPEN-
FISCAL SALARY BONUS SATION OPTIONS/SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#)(2) ($)(3) ($)(4)
- --------------------------- ------ ------- ------- ------- ------------ --------- -------
James S. Balloun..................... 2001 850,000 0 4,800 414,401 0 0
Chairman of the Board, 2000 850,000 0 4,800 312,489 0 0
President and Chief 1999 800,000 985,000 4,800 100,000 1,045,657 0
Executive Officer
Brock A. Hattox...................... 2001 400,000 0 4,800 140,712 0 5,100
Executive Vice President 2000 395,000 0 4,800 105,001 0 5,250
and Chief Financial Officer 1999 385,000 311,850 4,800 40,000 574,483 9,177
Kenneth W. Honeycutt................. 2001 317,750 0 0 64,600 163,170 7,710
President of Lithonia Lighting 2000 283,750 123,725 0 6,000 560,000 21,008
1999 229,167 108,113 0 4,500 490,000 20,160
John K. Morgan....................... 2001 317,750 0 0 64,600 148,666 12,825
President of Holophane 2000 283,750 123,425 0 6,000 518,000 22,931
1999 222,500 98,503 0 4,000 415,000 22,882
James H. Heagle(5)................... 2001 325,000 0 214,782 62,500 63,915 0
President of Zep Chemical Group 2000 100,000 59,940 1,600 10,000 0 0
1999 0 0 0 0 0 0
</Table>
- ---------------
(1) Each amount shown includes an automobile allowance of $400 per month. The
amounts shown for Mr. Heagle also include $209,982 in 2001 for reimbursement
of relocation expenses and related costs.
(2) The amounts shown for fiscal years 2001 and 2000 include long-term options
granted in exchange for a portion of the 2000 and 1999 LTIP award payouts,
respectively, as discussed in note 3 below, as follows: 119,401 shares and
162,489 shares for Mr. Balloun; and 57,312 shares and 65,001 shares for Mr.
Hattox. The options were valued for purposes of the exchange at $8.19 and
$7.99, respectively, the approximate Black-Scholes value at the time of the
exchange election as determined by an independent compensation consultant.
The Corporation and Mr. Hattox have agreed to cancel these options in
exchange for $988,934 as part of his new employment agreement, which is
described under "Employment Contracts, Severance Arrangements, and Other
Agreements" below. The amounts shown for fiscal year 2001 also include
performance-based restricted share awards, as follows: 45,000 shares for Mr.
Balloun; 11,900 shares for Mr. Hattox; 9,200 shares each for Messrs.
Honeycutt and Morgan; and 8,900 shares for Mr. Heagle. No stock appreciation
rights were granted during this period.
12
(3) Half of each amount was paid in shares of the Corporation's stock (at a
value of $23.60 in 2001, $19.9375 in 2000, and $32.00 in 1999, except for
Messrs. Balloun and Hattox at $32.8125 in 1999 in connection with the
exchange for options) and the remaining half was paid in cash. Each amount
shown excludes that portion of the payout exchanged for long-term options in
fiscal years 2000 and 1999, respectively, as follows: $978,297 and
$1,298,287 for Mr. Balloun; and $469,583 and $519,358 for Mr. Hattox.
(4) The amounts shown for 2001 include a matching 401(k) contribution of $5,100
for Mr. Hattox and matching 401(k) and profit sharing contributions in the
amount of $7,710 for Mr. Honeycutt and $7,351 for Mr. Morgan. The amount
shown for Mr. Morgan also includes compensation of $5,474 realized on the
exercise of stock options.
(5) Mr. Heagle commenced employment with NSI effective as of May 1, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock options that were
granted to the named executive officers during the fiscal year ended August 31,
2001. The Corporation did not award any stock appreciation rights or reprice any
stock options during the year.
<Table>
<Caption>
PERCENT OF
TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED GRANT
OPTIONS/ TO EXERCISE DATE
SARS EMPLOYEES OR BASE PRESENT
GRANTED IN FISCAL PRICE EXPIRATION VALUE
NAME (#) YEAR ($/SHARE) DATE(1) ($)(2)
- ---- ---------- ---------- --------- ---------- ---------
James S. Balloun(3)......................... 369,401 19.9% 19.3125 10/23/10 2,498,998
Brock A. Hattox(3).......................... 128,812 6.9% 19.3125 10/23/10 871,413
Kenneth W. Honeycutt........................ 55,400 3.0% 19.3125 10/23/10 374,781
John K. Morgan.............................. 55,400 3.0% 19.3125 10/23/10 374,781
James H. Heagle............................. 53,600 2.9% 19.3125 10/23/10 362,604
</Table>
- ---------------
(1) Options have a ten-year term, subject to earlier termination upon certain
events related to termination of employment, and generally vest in four
equal annual installments beginning on the first anniversary of the grant
date. Options granted in exchange for LTIP payments, as described in note 2
to the Summary Compensation Table above, are immediately exercisable. The
Executive Resource and Compensation Committee has discretion, subject to
limitations in the Long-Term Program and the Long-Term Plan, to modify the
terms of outstanding options, but not to reprice these options or others
granted on or after January 5, 2000.
(2) The amounts shown were calculated using a Black-Scholes option pricing
model. The estimated values assume a risk-free rate of return of 6.1%, a
dividend yield of 3.5%, an option term of ten years, and stock price
volatility having a standard deviation of .3215. The option values were not
discounted to reflect the vesting period of the options or to reflect any
exercise or lapse of the options prior to the end of the ten-year option
period. The actual value, if any, that an executive may realize will depend
upon the excess of the stock price over the exercise price on the date the
option is exercised, so that there is no assurance the value realized by an
executive will be at or near the value estimated by the Black-Scholes model.
(3) The amounts shown for Messrs. Balloun and Hattox include options for 119,401
shares and 57,312 shares, respectively, granted in fiscal year 2001 in
exchange for a portion of the 2000 LTIP payout, as described in note 2 to
the Summary Compensation Table above, at an exercise price of $19.4375 per
share and expiring October 3, 2010.
13
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning the exercise of stock
options during fiscal year 2001 by the named executive officers and the
aggregate value of unexercised stock options held by the named executive
officers as of August 31, 2001. No stock appreciation rights are held by any
named executive officer.
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED ON AT FY-END (#) AT FY-END ($)(1)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------ ----------- ------------- ----------- -------------
James S. Balloun........... 0 0 754,390 387,500 497,007 1,071,875
Brock A. Hattox............ 0 0 250,188 93,625 315,200 229,917
Kenneth W. Honeycutt....... 0 0 27,359 61,025 3,788 237,528
John K. Morgan............. 920 5,474 16,000 60,900 0 237,528
James H. Heagle............ 0 0 2,500 61,100 3,531 240,404
</Table>
- ---------------
(1) The amounts shown represent the aggregate excess of market value of shares
under option as of August 31, 2001 (using the $23.60 closing price on August
31, 2001) over the exercise price of the options.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The following table contains information concerning performance-based
restricted share awards during fiscal year 2001 to the named executive officers.
<Table>
<Caption>
NUMBER OF PERFORMANCE OR
SHARES, UNITS OTHER PERIOD
OR OTHER UNTIL MATURATION
NAME RIGHTS (#)(1)(2) OR PAYOUT
- ---- ---------------- ----------------
James S. Balloun............................................ 45,000 5 years
Brock A. Hattox............................................. 11,900 5 years
Kenneth W. Honeycutt........................................ 9,200 5 years
John K. Morgan.............................................. 9,200 5 years
James H. Heagle............................................. 8,900 5 years
</Table>
- ---------------
(1) The amounts shown represent the total individual award of performance-based
restricted shares on October 24, 2000. Performance-based restricted share
awards are granted in 20 percent increments of the total shares awarded when
the Corporation's stock price, for thirty consecutive calender days, equals
or exceeds certain stock price targets ranging from $22.14 to $38.50. Shares
that are granted then vest ratably in four equal annual installments
beginning one year from the date a stock price target is achieved (the
vesting start date). During the vesting period, participants have voting
rights and receive dividends, but the shares may not be sold, assigned,
transferred, pledged, or otherwise encumbered. If the stock price targets
are not achieved on or before the fifth anniversary of the award date, the
corresponding shares are forfeited. Additionally, granted but unvested
shares are forfeited upon termination of employment, unless certain
retirement criteria are met.
(2) The amounts shown include shares granted on January 19, 2001, when the share
price target of $22.14 was achieved, as follows: 9,000 shares for Mr.
Balloun; 2,380 shares for Mr. Hattox; 1,840 shares each for Mr. Honeycutt
and Mr. Morgan; and 1,780 shares for Mr. Heagle.
EMPLOYMENT CONTRACTS, SEVERANCE ARRANGEMENTS, AND OTHER AGREEMENTS
The Corporation has entered into an employment agreement with Mr. Hattox,
effective as of the time of the Spin-Off. The obligations of the Corporation
under the agreements with Messrs. Balloun, Heagle, Honeycutt and Morgan
described below were assumed or replaced by Acuity in connection with the
Spin-Off.
The employment agreement with Mr. Hattox provides for an initial annual
base salary of $600,000, subject to adjustments, an annual bonus target equal to
60% of base salary, and an annual long-term incentive award equal to 260% of
base salary. The agreement also provides for cancellation of the 122,313 NSI
options received in lieu of aspiration award payments in exchange for a one-time
cash payment of $988,934. Mr. Hattox's remaining NSI options will be adjusted to
reflect the Spin-Off in a manner consistent with the treatment of options held
by other remaining executive officers of the Corporation. The employment
14
agreement has an initial term, subject to one year renewals, of three years. Mr.
Hattox or the Corporation has the right to terminate Mr. Hattox's employment at
any time. If Mr. Hattox's employment is terminated by the Corporation other than
for cause, death or disability or if Mr. Hattox resigns for good reason (as each
such term is defined in the agreement), he will be entitled to receive, as
severance payments, his then current base salary for the remaining term of the
agreement if his termination occurs prior to the first anniversary of the
agreement, or, if his termination occurs thereafter, for a period of 24 months.
Additionally, Mr. Hattox will be entitled to receive $30,000 per month
(reflecting his target bonus award and medical and life insurance coverage) for
as long as he is entitled to receive severance payments pursuant to the
preceding sentence. In the event of a termination in connection with a Change in
Control, which would entitle Mr. Hattox to benefits under his Severance
Protection Agreement (described below), he would receive the greater of the
benefits under the Severance Protection Agreement or the severance benefits set
forth in his employment agreement.
Mr. Hattox will be credited with service under the Supplemental Retirement
Plan for Executives ("SERP") for each year of actual service from September 9,
1996, the effective date of his employment, and he will be vested in his SERP
benefit after five years. Mr. Hattox's employment agreement provides him
additional benefits under the SERP if he remains employed until he attains age
55.
Pursuant to the Corporation's February 1, 1996 employment agreement with
Mr. Balloun and a related amendment to the SERP, Mr. Balloun will be credited
with two years of service under the SERP for each year of actual credited
service and will be vested in his SERP benefit after completing five years of
employment.
The employment agreement with Mr. Balloun provides for a lump sum severance
payment of $1.5 million in the event his employment is terminated after August
31, 1998. This provision does not apply in the event of voluntary termination,
termination upon death or disability, or termination for cause (as each such
term is defined in the agreement). In the event of termination in connection
with a Change in Control which would entitle Mr. Balloun to benefits under his
Severance Protection Agreement, he would receive the greater of the benefits
under the Severance Protection Agreement or the severance benefits set forth in
his employment agreement.
Pursuant to the Corporation's May 1, 2000 employment agreement with Mr.
Heagle and related amendments to the SERP, he will be credited with service
under the SERP for each year of actual service and will be vested in his SERP
benefit after ten years.
The Corporation has Severance Protection Agreements (the "Agreements") with
Messrs. Balloun, Hattox, Heagle, Honeycutt and Morgan. The Board intends for the
Agreements (which are similar) to provide the executives some measure of
security against the possibility of employment loss that may result following a
Change in Control in order that they may devote their energies to meeting the
business objectives and needs of the Corporation and its stockholders.
The Agreement for Mr. Balloun is effective until his 65th birthday. The
Agreements for Messrs. Hattox, Heagle, Honeycutt, and Morgan are effective for a
term of two years, which is automatically extended for one year at the end of
each year unless terminated by either party. However, the term of the Agreements
will not expire during a "Threatened Change in Control Period" (as defined in
the Agreements) or prior to the expiration of 24 months following a "Change in
Control" (as described below). If the employment of the officer is terminated
within 24 months following a Change in Control or in certain other instances in
connection with a Change in Control (1) by the Corporation other than for
"Cause" or "Disability" or (2) by the officer for "Good Reason" (as each term is
defined in the Agreements) or during the 60-day period commencing on the first
anniversary of the occurrence of a Change in Control, the officer will be
entitled to receive (a) a pro rata bonus for the year of termination, (b) a lump
sum cash payment equal to two times the sum of his base salary and bonus (in
each case at least equal to his base salary and bonus prior to a Change in
Control), subject to certain adjustments, (c) continuation of life insurance,
disability, medical, dental, and hospitalization benefits for a period of up to
24 months, and (d) a lump sum cash payment reflecting certain retirement
benefits he would have been entitled to receive had he remained employed by the
Corporation for an additional two years and a reduced requirement for early
retirement benefits. Additionally, all restrictions on any outstanding incentive
awards will lapse and become fully vested, all outstanding stock options will
become fully vested and immediately exercisable, and the Corporation will be
required to purchase for cash, on demand, at the then per-share fair market
value, any shares of unrestricted stock and shares purchased upon exercise of
options.
The Agreements provide that the Corporation shall make an additional
"gross-up payment" to each officer to offset fully the effect of any excise tax
imposed under Section 4999 of the Internal Revenue Code of
15
1986, as amended (the "Code"), on any payment made to him arising out of or in
connection with his employment. In addition, the Corporation will pay all legal
fees and related expenses incurred by the officer arising out of his employment
or termination of employment if, in general, the circumstances for which he has
retained legal counsel occurred on or after a Change in Control.
Assuming a Change in Control had occurred on October 1, 2001 and their
employment had terminated on that date, the approximate cash payments that would
have been made under the Agreements (not including the gross-up payments) would
have been $5,774,000, $3,067,000, $1,487,000, $1,287,000, and $1,283,000 for
Messrs. Balloun, Hattox, Heagle, Honeycutt, and Morgan, respectively. The amount
of the gross-up payment, if any, to be paid may be substantial and will depend
upon numerous factors, including the price per share of common stock of the
Corporation and the extent, if any, that payments or benefits made to the
officers constitute "excess parachute payments" within the meaning of Section
280G of the Code.
A "Change in Control" includes (1) the acquisition (other than from the
Corporation) by any "person" (as that term is used for purposes of Sections
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) other than a trustee of an employee benefit plan maintained by the
Corporation or certain related entities of beneficial ownership of 20% or more
of the combined voting power of the Corporation's then outstanding voting
securities, (2) a change in more than one-third of the members of the Board who
were either members as of September 21, 1989 or were nominated or elected by a
vote of two-thirds of those members or members so approved, or (3) approval by
stockholders of the Corporation of (i) a merger or consolidation involving the
Corporation if the stockholders of the Corporation immediately before such
merger or consolidation do not, as a result of such merger or consolidation,
own, directly or indirectly, more than seventy percent (70%) of the combined
voting power of the then outstanding voting securities of the Corporation
resulting from such merger or consolidation in substantially the same proportion
as their ownership of the combined voting power of the voting securities of the
Corporation outstanding immediately before such merger or consolidation or (ii)
a complete liquidation or dissolution of the Corporation or an agreement for the
sale or other disposition of all or substantially all of the assets of the
Corporation.
Letter agreements issued to Messrs. Balloun, Hattox, Heagle, Honeycutt, and
Morgan in conjunction with the Agreements provide that in the event of a Change
in Control, each such officer shall receive an annual cash bonus for that fiscal
year at least equal to the annual cash bonus paid to him in the prior fiscal
year if he remains in the employ of the Corporation for the full fiscal year.
The letter agreement with Mr. Balloun will expire on his 65th birthday. Each
other letter agreement has an initial term of 48 months and is subject to an
automatic one-year extension after each year unless terminated by the
Corporation, but in no event will the term expire following a Change in Control
until the Corporation's obligations as set forth therein have been satisfied.
PENSION AND SUPPLEMENTAL RETIREMENT BENEFITS
The combined benefit under the Corporation's qualified defined benefit
retirement plan ("Pension Plan") and nonqualified supplemental retirement plan
for executives ("SERP"), as amended, is 45% of average base salary and bonus
(using the highest three consecutive years of remuneration out of the ten years
preceding the individual's retirement), less 50% of the individual's primary
social security benefit, and less the actuarial equivalent of the participant's
account in the 401(k) plan for corporate employees, assuming an annual
contribution of 4% of the individual's annual compensation over $15,000 (subject
to applicable limitations on eligible compensation), any applicable matching
contribution, and earnings on those amounts at 8% per annum.
16
The following table shows the estimated aggregate annual benefits payable
to a covered participant at normal retirement age under the Pension Plan and
SERP, without the reduction under the SERP for the actuarial equivalent of
401(k) plan benefits (approximately $9,576 for Mr. Balloun, $34,790 for Mr.
Hattox, and $16,749 for Mr. Heagle):
<Table>
<Caption>
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
$ 300,000.................................. $ 94,300 $125,800 $125,800 $125,800 $125,800
400,000.................................. 128,100 170,800 170,800 170,800 170,800
500,000.................................. 161,800 215,800 215,800 215,800 215,800
600,000.................................. 195,600 260,800 260,800 260,800 260,800
700,000.................................. 229,300 305,800 305,800 305,800 305,800
800,000.................................. 263,100 350,800 350,800 350,800 350,800
900,000.................................. 296,800 395,800 395,800 395,800 395,800
1,000,000.................................. 330,600 440,800 440,800 440,800 440,800
1,200,000.................................. 398,100 530,800 530,800 530,800 530,800
1,400,000.................................. 465,600 620,800 620,800 620,800 620,800
1,600,000.................................. 533,100 710,800 710,800 710,800 710,800
1,800,000.................................. 600,600 800,800 800,800 800,800 800,800
2,000,000.................................. 668,100 890,800 890,800 890,800 890,800
2,200,000.................................. 735,600 980,800 980,800 980,800 980,800
</Table>
The remuneration specified in the table above consists of salary and annual
incentive bonus. Benefits shown above are based on payment of a single life
annuity with 10 years certain. Equivalent payment options are offered.
The salary and bonus currently covered by the Pension Plan and the SERP for
each of the named executive officers substantially correspond to the amounts
disclosed in the Summary Compensation Table. The years of credited service for
each of the following named executive officers as of August 31, 2001 were: Mr.
Balloun, five years (ten years under the SERP); Mr. Hattox, five years; and Mr.
Heagle, one year.
Messrs. Honeycutt and Morgan are not currently participants in any pension
plans or supplemental retirement plans of the Corporation.
17
ITEM NO. 2 -- REVERSE STOCK SPLIT
PROPOSED REVERSE STOCK SPLIT
On November 7, 2001, the Board of Directors considered and unanimously
adopted resolutions approving, and recommending to the Corporation's
stockholders for their approval, an amendment to the Corporation's Restated
Certificate of Incorporation, as amended (the "Restated Certificate of
Incorporation"), to effect a reverse stock split of the common stock of the
Corporation, pursuant to which every four shares of common stock would be
automatically converted into one share without any action on the part of the
stockholder (the "Reverse Stock Split"), with the final effectiveness or
abandonment of the Reverse Stock Split to be determined by the Board.
If the Reverse Stock Split is approved by the stockholders and following
such approval the Board determines that the Reverse Stock Split is in the best
interests of the Corporation and its stockholders, the Restated Certificate of
Incorporation will be amended accordingly. The text of the form of amendment to
the Restated Certificate of Incorporation, which would be filed with the office
of the Secretary of State of the State of Delaware to effect the Reverse Stock
Split, is set forth in EXHIBIT A to this proxy statement; provided, however,
that such text is subject to amendment to include such changes as may be
required by the office of the Secretary of State of the State of Delaware or as
the Board deems necessary and advisable to effect the Reverse Stock Split.
REASONS FOR THE REVERSE STOCK SPLIT
As described elsewhere in this proxy statement, on November 30, 2001, the
Corporation completed the spin-off of its lighting equipment and chemicals
businesses by way of a special dividend of 100% of the shares of Acuity Brands,
Inc. to the Corporation's stockholders. These businesses represented
approximately 73% of the Corporation's consolidated assets and 78% of the
Corporation's consolidated revenues as of and for the fiscal year ended August
31, 2001. It is expected that the market price per share of NSI common stock
after the Spin-Off will be significantly less than the market price per share of
NSI common stock prior to the Spin-Off. Due to the Spin-Off and the expected
resulting decrease in the trading price of NSI common stock, the Board of
Directors believes that the Reverse Stock Split may be desirable for a number of
reasons, including:
- The Reverse Stock Split may improve the marketability and liquidity of
NSI common stock.
- The Reverse Stock Split may improve the Corporation's ability to raise
new capital.
- The Reverse Stock Split may enhance the Corporation's ability to maintain
the listing of NSI common stock on the New York Stock Exchange ("NYSE").
The Board believes that the expected significant decrease in the market
price of NSI common stock after the Spin-Off may impair its acceptability to
institutional investors, professional investors and other members of the
investing public. Many institutional and other investors look upon stock trading
at low prices as unduly speculative in nature and, as a matter of policy, avoid
investment in such stocks. Further, various brokerage house policies and
practices tend to discourage individual brokers from dealing in low priced
stocks. If effected, the Reverse Stock Split would reduce the number of shares
of NSI common stock issued and outstanding. The Board expects that the reduction
would result in an increase in the trading price of NSI common stock. The Board
of Directors believes that raising the expected market price of NSI common stock
would encourage greater interest in the Corporation's common stock by the
investment community and possibly promote greater liquidity for stockholders who
will own shares of NSI common stock after the Spin-Off.
The Corporation may from time to time require additional sources of capital
to fund continuing operations. For many of the same reasons noted above, the
Board believes an increase in the per share price of NSI common stock, which the
Board expects as a consequence of the Reverse Stock Split, may enhance the
acceptability of NSI common stock by the financial community and the investing
public and broaden the investor pool from which the Corporation might be able to
obtain additional financing. The reduction in the number of outstanding shares
of NSI common stock caused by the Reverse Stock Split is anticipated initially
to increase the per share market price of NSI common stock and the Board
believes it will have a positive impact on the Corporation's ability to obtain
capital from outside sources if at any time it has the need to do so.
18
NSI common stock is currently listed on the NYSE. The continued listing
requirements of the NYSE require, among other things, that the average per share
closing price of NSI common stock for any 30 consecutive trading day period not
fall below $1.00 per share. The Board of Directors cannot predict the trading
price of the NSI common stock following the Spin-Off. But, considering the
significant portion of the Corporation's operations represented by the lighting
equipment and chemicals businesses, the Board of Directors believes that the
Reverse Stock Split, and the expected increase in the trading price of NSI
common stock, may enhance the Corporation's ability to maintain the listing of
NSI common stock on the NYSE.
Given the numerous factors and contingencies that could affect the trading
price of NSI common stock, there can be no assurance that an increase in the
trading price will occur, or if it occurs, that it would trade at a higher price
for a sustained period of time. In particular, there can be no assurance that
the price for shares of NSI common stock after the Reverse Stock Split, or for
any sustained period of time thereafter, would be four times the price for
shares of NSI common stock immediately prior to the Reverse Stock Split.
Furthermore, there can be no assurance that the Reverse Stock Split will
achieve the other desired results which have been outlined above, including
continued listing on the New York Stock Exchange. Additionally, it is possible
that the liquidity of NSI common stock could be affected adversely by the
reduced number of shares outstanding after the reverse stock split. Also, the
Reverse Stock Split would result in some stockholders owning "odd-lots" of less
than 100 shares of NSI common stock. Odd-lot shares may be more difficult to
sell and brokerage commissions and other costs of transactions in odd-lots are
generally somewhat higher than the costs of transactions in "round-lots" of even
multiples of 100 shares. The Board believes, however, that these risks and
negative impacts are outweighed by the potential benefits of the Reverse Stock
Split.
BOARD DISCRETION TO IMPLEMENT REVERSE STOCK SPLIT
If the Reverse Stock Split is approved by the stockholders of the
Corporation at the annual meeting, the Reverse Stock Split will be effected, if
at all, only upon a determination by the Board that the Reverse Stock Split is
in the best interests of the Corporation and its stockholders. Such
determination shall be based upon certain factors, including, but not limited
to, existing and expected marketability and liquidity of NSI common stock,
prevailing market conditions and the likely effect on the market price of NSI
common stock. Notwithstanding approval of the Reverse Stock Split by the
stockholders, the Board may, in its sole discretion, abandon the proposed
amendment and determine prior to the effectiveness of the amendment and filing
with the Delaware Secretary of State not to effect the Reverse Stock Split. If
the Board fails to implement the Reverse Stock Split prior to next year's annual
meeting of stockholders, stockholder approval again would be required prior to
implementing any reverse stock split.
EFFECTS OF THE REVERSE STOCK SPLIT
Number of Shares
Pursuant to the Reverse Stock Split, every four shares of NSI common stock
issued and outstanding (or held as treasury stock) immediately prior to the
Reverse Stock Split will be reclassified into one share of NSI common stock. As
an example, a holder of 100 shares of NSI common stock immediately prior to the
Reverse Stock Split will become the holder of 25 shares of NSI common stock upon
the effectiveness of the Reverse Stock Split.
Although the number of issued and outstanding shares of NSI common stock
would be reduced as a result of the Reverse Stock Split, the number of
authorized shares of NSI common stock would not change. Therefore, the number of
authorized but unissued shares available for future issuance would increase
significantly and the Board may have the ability to issue such authorized but
unissued shares without further stockholder action.
The following table, based on the number of shares issued and outstanding
on November 7, 2001, illustrates the potential increase in the number of
authorized but unissued shares under the Reverse Stock Split:
<Table>
<Caption>
PRIOR TO REVERSE STOCK SPLIT UPON REVERSE STOCK SPLIT INCREASE/(DECREASE)
---------------------------- ------------------------ -------------------
Authorized Shares................. 120,000,000 120,000,000 -0-
Issued and Outstanding Shares..... 41,311,469 10,327,867 (30,983,602)
----------- ----------- -----------
Shares Available For Future
Issuance........................ 78,688,531 109,672,133 30,983,602
=========== =========== ===========
</Table>
19
These additional shares available for future issuance could be used for any
proper corporate purpose approved by the Board, including future financing
transactions. Presently, the Corporation has no plans, proposals, arrangements
or understandings to issue any of the additional shares of common stock that
will become available as a result of the Reverse Stock Split.
Potential Anti-takeover Effects
Because the Reverse Stock Split would increase the number of shares
available for issuance, the Reverse Stock Split could be construed as having an
anti-takeover effect, since the Corporation could use the increased available
shares to frustrate persons seeking to effect a takeover or otherwise gain
control of the Corporation. For example, without further stockholder approval,
the Corporation could strategically sell some of the additional authorized but
unissued shares to purchasers who would oppose a takeover or favor the
Corporation's Board of Directors. Although the Reverse Stock Split has been
prompted for the reasons listed above under "Reasons for the Reverse Stock
Split" and not for anti-takeover purposes, stockholders nevertheless should be
aware that implementation of the Reverse Stock Split could facilitate future
efforts to frustrate persons seeking to effect a takeover or otherwise gain
control of the Corporation.
Options and Benefit Plans
Subject to adjustments which may result in connection with the Spin-Off, if
the Reverse Stock Split is implemented, outstanding stock options or units based
on NSI common stock held by directors and employees would be automatically
adjusted into an economically equivalent option or unit by decreasing the number
of shares underlying the option or unit and, if applicable, increasing the
exercise price appropriately. For example, an option to purchase 100 shares of
NSI common stock at an exercise price of $5.00 per share would become an option
to purchase 25 shares of NSI common stock at an exercise price of $20.00 per
share.
Voting Rights
Proportionate voting rights and other rights of the holders of NSI common
stock would not be affected by the Reverse Stock Split (other than as a result
of the payment of cash in lieu of fractional shares as described below). The
number of stockholders of record would not be affected by the Reverse Stock
Split (except to the extent that any stockholder holds only a fractional share
interest and receives cash for such interest after the Reverse Stock Split).
Dividend Policies
If the Reverse Stock Split is implemented, the Board of Directors expects
to adjust the per share dividend rate to reflect the Reverse Stock Split.
However, as always, the declaration and payment of future dividends will be at
the sole discretion of the Board of Directors.
Other Effects
The par value of the Corporation's common stock would remain at $1.00 per
share following the effective time of the Reverse Stock Split, while the number
of shares of common stock issued and outstanding would be reduced. Consequently,
the aggregate par value of the issued and outstanding common stock also would be
reduced.
The Corporation's common stock is currently registered under Section 12 of
the Exchange Act, and the Corporation is subject to the periodic reporting and
other requirements of the Exchange Act. The Reverse Stock Split would not affect
the registration of the Corporation's common stock under the Exchange Act.
After the Reverse Stock Split, assuming compliance with all applicable NYSE
continued listing requirements, the Corporation's common stock would continue to
be listed on the NYSE under the symbol "NSI."
If the Reverse Stock Split is implemented, proper adjustments under the
Corporation's Rights Agreement, as amended (the "Rights Agreement"), would be
automatically effected pursuant to the Rights Agreement.
20
EFFECTIVE DATE
The Reverse Stock Split would become effective as of 5 p.m., Eastern time,
on the date of filing (the "Effective Date") of an amendment to the Restated
Certificate of Incorporation with the office of the Secretary of State of the
State of Delaware. Except as explained below with respect to fractional shares,
on the Effective Date, shares of common stock issued and outstanding immediately
prior to the Effective Date (the "Old Common Stock"), would be, automatically
and without any action on the part of the stockholders, converted into new
shares of common stock in accordance with the Reverse Stock Split ratio (the
"New Common Stock").
PAYMENT FOR FRACTIONAL SHARES
No fractional shares of New Common Stock would be issued as a result of the
Reverse Stock Split. In lieu of any fractional share interest, each holder of
Old Common Stock who as a result of the Reverse Stock Split would otherwise
receive a fractional share of New Common Stock will be entitled to receive cash
in an amount equal to the product obtained by multiplying
- the closing sale price of NSI common stock on the Effective Date trading
regular way as reported on the NYSE; by
- the number of shares of Old Common Stock held by that holder that would
otherwise have been exchanged for that fractional share interest.
That amount will be issued to the holder in the form of a check in
accordance with the exchange procedures outlined under "Exchange of Stock
Certificates" below.
EXCHANGE OF STOCK CERTIFICATES
Shortly after the Effective Date, each holder of an outstanding certificate
representing shares of Old Common Stock would receive from EquiServe Trust
Company, N.A., as the Corporation's exchange agent (the "Exchange Agent") for
the Reverse Stock Split, instructions for the surrender of that certificate to
the Exchange Agent. Those instructions will include a letter of transmittal to
be completed and returned to the Exchange Agent. As soon as practicable after
the surrender to the Exchange Agent of any certificate that prior to the Reverse
Stock Split represented shares of Old Common Stock, together with a duly
executed letter of transmittal and any other documents the Exchange Agent may
specify, the Exchange Agent will deliver to the person in whose name the
certificate had been issued certificates registered in the name of that person
representing the number of full shares of New Common Stock into which the shares
of Old Common Stock will have been reclassified and a check for any amounts to
be paid in cash in lieu of any fractional share interest. Each certificate
representing shares of New Common Stock issued in connection with the Reverse
Stock Split will continue to bear any legends restricting the transfer of those
shares that were borne by the surrendered certificates representing the shares
of Old Common Stock. Until surrendered as contemplated by these procedures, each
certificate that immediately prior to the Reverse Stock Split represented any
shares of Old Common Stock will be deemed at and after the Reverse Stock Split
to represent the number of full shares of New Common Stock contemplated by the
preceding sentence.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES NOW. STOCKHOLDERS SHOULD
SEND THEM ONLY AFTER RECEIVING A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
IF THE BOARD DECIDES TO EFFECT THE REVERSE STOCK SPLIT, A LETTER OF TRANSMITTAL
WILL BE MAILED TO STOCKHOLDERS SOON AFTER THE REVERSE STOCK SPLIT BECOMES
EFFECTIVE.
NO APPRAISAL RIGHTS
Under Delaware law, stockholders of the Corporation are not entitled to
appraisal rights with respect to the proposed Reverse Stock Split.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT
The following description of the material federal income tax consequences
of the Reverse Stock Split is based upon the Internal Revenue Code, the
applicable Treasury Regulations, judicial authority and current administrative
rulings and practices all as in effect on the date of this proxy statement. The
Corporation has not sought and will not seek an opinion of counsel or a ruling
from the Internal Revenue Service regarding the
21
federal income tax consequences of the Reverse Stock Split. This discussion is
for general information only and does not discuss consequences that may apply to
special classes of taxpayers (e.g., non-resident aliens, broker-dealers or
insurance companies) and does not discuss the tax consequences under the laws of
any foreign, state or local jurisdictions. This discussion assumes stockholders
hold their shares as capital assets. Stockholders are urged to consult their own
tax advisors to determine the particular consequences to them.
Other than the cash payments for fractional shares discussed below, no gain
or loss should be recognized by a stockholder upon the stockholder's exchange of
shares pursuant to the Reverse Stock Split. The aggregate tax basis of the
shares received in the Reverse Stock Split, including any fraction of a share
deemed to have been received, would be the same as the stockholder's aggregate
tax basis in the shares exchanged. The stockholder's holding period for the
shares would include the period during which the stockholder held the pre-split
shares surrendered in the Reverse Stock Split. Stockholders who receive cash
upon redemption of their fractional share interests in the shares as a result of
the Reverse Stock Split will generally recognize capital gain or loss based upon
the difference between the amount of cash received and their adjusted basis in
the fractional share interests redeemed. Any capital gain or loss will be
long-term if the stockholder's holding period in such fractional share interest
is more than one year. The deductibility of capital losses is subject to
limitations.
REQUIRED VOTE
The affirmative vote of a majority of the shares of NSI common stock
outstanding and entitled to vote thereon is required to approve the Reverse
Stock Split and the amendment to the Restated Certificate of Incorporation to
effect the Reverse Stock Split. Accordingly, shares not present at the meeting,
abstentions and broker non-votes will have the same effect as a vote against the
Reverse Stock Split.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO AMEND THE CORPORATION'S RESTATED CERTIFICATE OF INCORPORATION TO
EFFECT A REVERSE STOCK SPLIT OF THE CORPORATION'S OUTSTANDING COMMON STOCK AT A
RATIO OF ONE-FOR-FOUR, WITH THE FINAL EFFECTIVENESS OR ABANDONMENT OF THE
REVERSE STOCK SPLIT TO BE DETERMINED BY THE BOARD.
22
ITEM NO. 3 -- NATIONAL SERVICE INDUSTRIES, INC. 2001
NONEMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN
In November 2001, subject to approval of the Corporation's stockholders,
the Executive Committee of the Board of Directors adopted the National Service
Industries, Inc. 2001 Nonemployee Directors' Stock Incentive Plan (the "Plan")
for the benefit of the nonemployee directors of the Corporation. The Plan is
intended to replace the National Service Industries, Inc. 1992 Nonemployee
Directors' Stock Option Plan, which terminated on September 19, 1999. The
principal provisions of the Plan are summarized below. This summary is qualified
in its entirety by reference to the full text of the Plan, which is set forth in
EXHIBIT B to this proxy statement.
PURPOSES OF THE PLAN
The general purposes of the Plan are to provide a means by which
nonemployee directors may be given an opportunity to acquire NSI common stock,
to secure and to retain the services of the best qualified individuals as
directors of the Corporation, and to provide incentives for such persons to
exert maximum efforts for the success of the Corporation. The Plan is designed
to be competitive with compensation programs of other corporations of similar
size.
DESCRIPTION OF THE PLAN
The Plan will be administered by the Board of Directors and provides the
Board with the discretion to grant nonemployee directors stock options,
restricted stock and stock awards. The Board will select those nonemployee
directors to whom awards will be made and the type, size, terms and conditions
of the grant. Currently, the Board has six nonemployee directors. No awards have
been made under the Plan.
An aggregate of 300,000 shares of NSI common stock (determined prior to the
effectiveness of the Reverse Stock Split described above) may be issued or
transferred pursuant to the Plan. In the event of any "Change of Capitalization"
(as defined in the Plan), the Board may adjust the number and class of shares
with respect to which grants may be made, the number and class of shares which
are subject to outstanding grants, and the purchase price therefor, if
applicable.
The Plan will terminate on the tenth anniversary of the effective date of
the Plan. The Board may terminate or amend the Plan at any time, unless such
amendment or termination will adversely affect outstanding grants. To the extent
legally required, no amendment will be effective unless approved by the
stockholders.
GRANTS UNDER THE PLAN
Stock Options. Nonqualified Stock Options may be granted to nonemployee
directors pursuant to the Plan. The Stock Options granted under the Plan will
have an exercise price per share equal to at least the fair market value of a
share of NSI common stock on the date the Stock Option is granted. The maximum
term for the Stock Options granted under the Plan is ten years. Unless the Board
provides otherwise in the agreement evidencing the grant, Stock Options are
nontransferable other than by will or the laws of descent and distribution and
during an optionee's lifetime may be exercised only by the optionee or his
guardian or legal representative. Stock Options will generally become
exercisable in whole or in part at any time after one year from the date of
grant. Exercisable options held by directors whose service terminates for any
reason other than "cause" (as defined in the Plan) will remain exercisable for a
period of three years after such termination. In the event the director is
terminated for cause, such director's options will immediately terminate. The
purchase price for shares acquired pursuant to the exercise of a Stock Option
must be paid, as determined by the Board, in cash, by check, or by transferring
shares to the Corporation or attesting to ownership of shares upon such terms
and conditions as may be determined by the Board.
Upon a "Change in Control" (as defined in the Plan), all outstanding Stock
Options under the Plan on the date of a Change in Control will become
immediately and fully exercisable and the optionee may, during the 60-day period
following the Change in Control, surrender for cancellation any Stock Option (or
portion thereof) for a cash payment in respect of each share of NSI common stock
covered by the Stock Option, or portion thereof surrendered, equal to the excess
of (1) the higher of (x) the highest per-share price at which shares of NSI
common stock traded during the 90-day period preceding the date of the Change in
Control or (y) the price per share of NSI common stock paid in any transaction
(or series of transactions) constituting or resulting in a Change in Control or
(z) the per-share Fair Market Value of NSI common stock on the date
23
preceding the date of surrender, over (2) the purchase price of each share of
NSI common stock. In the case of an option granted within six months prior to
Change in Control to any optionee who may be subject to liability under Section
16(b) of the Exchange Act, such optionee shall be entitled to surrender for
cancellation his or her Stock Option during the 60-day period commencing upon
the expiration of six months from the date of grant of any such Stock Option.
Restricted Stock; Stock Awards. The Board may make grants of restricted
stock and stock awards under the Plan. The shares of restricted stock may be
subject to such restrictions, including continuing service requirements and
Corporation performance measures, as the Board determines in its discretion. The
Board may determine at the time a grant is made that the directors will have
dividend and voting rights with respect to the Shares during the restricted
period. Unless the Board provides otherwise, upon a Change in Control all
restrictions on the outstanding shares of restricted stock shall lapse.
FEDERAL INCOME TAX TREATMENT
The grant of an option will not result in any tax consequences to the
director or to the Corporation. Upon exercise of an option the director will
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the shares of NSI common stock on the date of exercise;
the Corporation will be entitled to a corresponding deduction. With respect to
grants of restricted stock, the director will recognize ordinary income equal to
the fair market value of the shares of NSI common stock on the date the
restrictions lapse, and the Corporation will be entitled to a corresponding
deduction.
REQUIRED VOTE
The affirmative vote of a majority of shares present, in person or
represented by proxy, and entitled to vote at the annual meeting is required to
approve the National Service Industries, Inc. 2001 Nonemployee Directors' Stock
Incentive Plan. Accordingly, abstentions will have the effect of a vote against
the proposal to approve the Plan. Broker non-votes will not be considered
entitled to vote and will have no effect on the outcome of the vote on this
proposal.
On November 23, 2001, the closing price of the Corporation's common stock
on the New York Stock Exchange was $17.29 per share.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" THE
PROPOSAL TO APPROVE THE NATIONAL SERVICE INDUSTRIES, INC. 2001 NONEMPLOYEE
DIRECTORS' STOCK INCENTIVE PLAN.
24
ITEM NO. 4 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
At the annual meeting, a proposal will be presented to ratify the
appointment of Arthur Andersen LLP as independent public accountants to examine
the books of account and other corporate records of the Corporation for the
fiscal year ending August 31, 2002. Arthur Andersen LLP has performed this
function for the Corporation since 1964. Representatives of Arthur Andersen LLP
are expected to be present at the annual meeting, will have the opportunity to
make a statement if they desire, and are expected to be available to respond to
questions of stockholders. The affirmative vote of a majority of shares present,
in person or represented by proxy, and entitled to vote at the annual meeting is
required to ratify the appointment of Arthur Andersen LLP as the Corporation's
independent public accountants.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE CORPORATION'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING AUGUST 31, 2002.
AUDIT FEES, FINANCIAL INFORMATION SYSTEM FEES AND OTHER FEES
During the fiscal year ended August 31, 2001, the Corporation retained
Arthur Andersen LLP to provide services in the following categories and amounts:
<Table>
Audit Fees.................................................. $ 600,000
Financial Information Systems Design & Implementation
Fees...................................................... $ -0-
All Other Fees:
Spin-Off Transaction Support and Consultation............. $ 300,000
Process/Operational Consulting............................ $ 477,000
Tax Services.............................................. $ 221,000
Transaction Due Diligence................................. $ 41,500
----------
All Other Fees............................................ $1,039,500
</Table>
The Audit Committee considered whether the provision of non-audit services
by the independent public accountants is compatible with maintaining auditor
independence.
The Corporation does not believe that these fees are representative of the
future fees likely to be billed to the Corporation because they include fees for
services rendered in connection with the Spin-Off and fees for services rendered
associated with the lighting equipment and chemicals businesses, which were
spun-off to the Corporation's stockholders in the Spin-Off.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee has adopted a charter to set forth its
responsibilities. A copy of the charter was included as Exhibit A to the proxy
statement furnished in connection with the annual meeting of the Corporation
held on December 21, 2000.
As required by the charter, the Audit Committee reviewed the Corporation's
audited financial statements and met with management, as well as with Arthur
Andersen LLP, the Corporation's independent auditors, to discuss the financial
statements. The Audit Committee discussed with Arthur Andersen LLP the matters
required by Statement of Accounting Standards No. 61.
The Audit Committee received from Arthur Andersen LLP the written
disclosures and the letter from Arthur Andersen LLP required by Independence
Standards Board Standard No. 1 regarding their independence and the report
regarding the results of their audit. In connection with its review of the
financial statements and the auditors' disclosures and report, the members of
the Audit Committee listed below discussed with a representative of Arthur
Andersen LLP their independence, as well as the following:
- the auditors' responsibilities in accordance with generally accepted
accounting standards;
- the initial selection of, and whether there were any changes in,
significant accounting policies or their application;
- management's judgments and accounting estimates;
- whether there were any significant audit adjustments;
25
- whether there were any disagreements with management;
- whether there was any consultation with other accountants;
- whether there were any major issues discussed with management prior to
the auditors' retention;
- whether the auditors encountered any difficulties in performing the
audit; and
- the auditor's judgments about the quality of the Corporation's accounting
policies.
The members of the Audit Committee listed below are independent as defined
by the listing requirements of the New York Stock Exchange.
Based on its discussions with management and the Corporation's independent
auditors, the Audit Committee did not become aware of any material misstatements
or omissions in the financial statements. Accordingly, the Audit Committee
recommended to the Board of Directors that the financial statements be included
in the Annual Report on Form 10-K for the fiscal year ended August 31, 2001 for
filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Thomas C. Gallagher, Chairman
Peter C. Browning
Roy Richards, Jr.
Ray M. Robinson
Kathy Brittain White
October 25, 2001
Ms. White resigned from the Board of Directors and its committees,
effective as of November 1, 2001. As noted elsewhere in this proxy statement,
each of the other listed members of the Board of Directors resigned from the
Board and its committees in connection with the Spin-Off.
26
OTHER MATTERS
STOCKHOLDER PROPOSALS
If a stockholder wishes to have a proposal considered for inclusion in the
Corporation's proxy solicitation materials in connection with the next annual
meeting of stockholders, the proposal must comply with the Securities and
Exchange Commission's proxy rules, be stated in writing, and be received by the
Corporation on or before August 2, 2002, at its principal executive offices at
1420 Peachtree Street, Suite 200, N.E., Atlanta, Georgia 30309, Attention:
Corporate Secretary. All such proposals should be sent by means that permit
proof of the date of delivery.
Excluding stockholder proposals filed in accordance with the proxy rules
(see preceding paragraph), a stockholder is required to comply with the
Corporation's By-laws with respect to any proposal to be presented for action at
an annual meeting of stockholders. For the next annual meeting, the
Corporation's By-laws require each proposal to be received at the principal
executive offices of the Corporation between September 16, 2002 and October 16,
2002. Each proposal must be (i) written and (ii) accompanied by (A) a brief
description of the proposal and the reasons therefor, (B) the name and address
of the stockholder making the proposal and any other stockholders known by such
stockholder to support such proposal, (C) the class and number of shares of the
Corporation's capital stock beneficially owned by all such stockholders, and (D)
any financial interest of such stockholder in the proposal. Nothing in the
By-laws requires the Corporation to include in its proxy statement and proxy for
any annual meeting of stockholders any stockholder proposal which the
Corporation is permitted to exclude pursuant to the rules of the Securities and
Exchange Commission at the time such proposal is received.
If a stockholder wishes to nominate a candidate for election as director at
the next annual meeting of stockholders, the stockholder must comply with the
Corporation's By-laws with respect to director nominations. Written notice of
the stockholder's intent to make such nomination must be given to the Secretary
of the Corporation, at the principal executive offices of the Corporation, not
later than October 5, 2002. The written notice shall set forth (A) the name and
address of the stockholder and each person whom the stockholder proposes to
nominate as a director; (B) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (C) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder; (D) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission as then in effect; and (E) the consent of each nominee to serve as a
director of the Corporation if so elected. The presiding officer of the meeting
may refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedure.
The preceding two paragraphs are intended to summarize the applicable
By-laws of the Corporation. These summaries are qualified in their entirety by
reference to those By-laws.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Corporation's directors and
officers to file reports of ownership and changes in ownership of the
Corporation's stock with the Securities and Exchange Commission, the New York
Stock Exchange, and the Corporation. Based on a review of the forms received by
the Corporation during or with respect to the fiscal year ended August 31, 2001,
and written representations from certain reporting persons that no Form 5
reports were required for those persons, the Corporation believes that all
required Section 16(a) filings were made on a timely basis, except that, from
October 1999 until November 2001, Mr. Balloun reported 50,934 shares as being
held directly when they were held indirectly in a family limited partnership.
OTHER BUSINESS
The Board of Directors knows of no other business to be transacted, but if
any other matters do come before the meeting, the persons named as proxies in
the accompanying proxy, or their substitutes, will vote or act with respect to
them in their discretion.
27
SOLICITATION
The cost of soliciting proxies is paid by the Corporation. The Corporation
has retained Georgeson Shareholder Communications Inc. to assist in the
solicitation of proxies for a fee of approximately $8,000 and reimbursement of
certain expenses. Officers and regular employees of the Corporation, at no
additional compensation, may also assist in the solicitation of proxies. Proxies
may be solicited by mail, telephone, facsimile transmission or personal contact.
ANNUAL REPORT TO STOCKHOLDERS/ANNUAL REPORT ON FORM 10-K
THE CORPORATION'S ANNUAL REPORT TO STOCKHOLDERS, WHICH INCLUDES THE ANNUAL
REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
ACCOMPANIES THIS PROXY STATEMENT.
By order of the Board of Directors,
/s/ CAROL ELLIS MORGAN
CAROL ELLIS MORGAN
Senior Vice President,
General Counsel, and Secretary
28
EXHIBIT A
FORM OF CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
NATIONAL SERVICE INDUSTRIES, INC.
National Service Industries, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), pursuant to the
General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY
CERTIFY:
1. Article FOURTH of the Restated Certificate of Incorporation of the
Corporation is hereby amended by adding the following at the end of
Paragraph (B) of Article FOURTH:
Effective at 5:00 p.m., Eastern time, on the date on which a
Certificate of Amendment with respect to this amendment is filed with
the Secretary of State of Delaware (the "Effective Time"), every four
shares of Common Stock of the Corporation issued and outstanding or held
as treasury shares, $1.00 per share ("Old Common Stock"), shall
thereupon, without any action on the part of the holder thereof,
automatically be reclassified and changed into one share of Common Stock
of the Corporation, par value $1.00 per share ("New Common Stock"). Upon
such Effective Time, each certificate formerly representing a stated
number of shares of Old Common Stock shall thereupon be deemed for all
corporate purposes to evidence ownership of New Common Stock in the
appropriately reduced whole number of shares. As soon as practicable
after such Effective Time, stockholders as of the date of the
reclassification will be notified thereof and upon their delivery of
their certificates of Old Common Stock to the Corporation or its
designated agent, will be sent stock certificates representing their
shares of New Common Stock, rounded down to the nearest whole number,
together with cash representing the fair value of such holder's
fractional shares of Old Common Stock. No scrip or fractional share
certificate for New Common Stock will be issued in connection with this
reverse stock split. All references elsewhere in the Restated
Certificate of Incorporation, as amended, to the "Common Stock" shall,
after the Effective Time, refer to the New Common Stock.
2. This amendment has been duly adopted in accordance with the
provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly
signed by its and attested by its , this
day of , 200 .
National Service Industries, Inc.
By:
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Name:
Title:
Attest:
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Name:
Title:
EXHIBIT B
NATIONAL SERVICE INDUSTRIES, INC.
2001 NONEMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN
1. PURPOSE
(a) The purpose of this Plan is to provide a means by which nonemployee
directors of National Service Industries, Inc. (the "Company") may be given an
opportunity to receive or purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to secure and retain the
services of persons best qualified to serve as directors of the Company and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(c) The Company intends that the options issued under the Plan shall be
options which do not qualify as incentive stock options for purposes of Section
422 of the Code.
2. DEFINITIONS
For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the event of a Change in
Control, the greater of (i) the highest price per Share paid to holders of the
Shares in any transaction (or series of transactions) constituting or resulting
in a Change in Control or (ii) the highest Fair Market Value of a Share during
the ninety (90) day period ending on the date of a Change in Control.
2.2 "Agreement" means the written agreement between the Company and an
Optionee or Grantee evidencing the grant of an Option or Award and setting forth
the terms and conditions thereof.
2.3 "Award" means a grant of Restricted Stock or Stock.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Cause" means the commission of an act of fraud or intentional
misrepresentation or an act of embezzlement, misappropriation, or conversion of
assets or opportunities of the Company or any Subsidiary.
2.6 "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, spin-off, split-up,
issuance of warrants or rights or debentures, stock dividend, stock split or
reverse stock split, cash dividend, property dividend, combination or exchange
of shares, repurchase of shares, change in corporate structure, or otherwise.
2.7 A "Change in Control" means any of the following events:
(a) The acquisition (other than from the Company) by any "Person" (as
the term is used for purposes of Sections 13(d) or 14(d) of the Exchange
Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20%) or more of the combined
voting power of the Company's then outstanding voting securities; or
(b) The individuals who, as of the Effective Date were members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the Board; provided, however, that if the election, or
nomination for election by the Company's stockholders, of any new director
was approved by a vote of at least two-thirds of the Incumbent Board, such
new director shall, for purposes of this Plan, be considered as a member of
the Incumbent Board; or
(c) A merger or consolidation involving the Company if the
stockholders of the Company immediately before such merger or consolidation
do not, as a result of such merger or consolidation, own, directly or
indirectly, more than seventy percent (70%) of the combined voting power of
the then outstanding voting securities of the corporation resulting from
such merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities of the
Company outstanding immediately before such merger or consolidation; or
(d) A complete liquidation or dissolution of the Company or an
agreement for the sale or other disposition of all or substantially all of
the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur pursuant to Section 2.7(a), solely because twenty percent (20%) or
more of the combined voting power of the Company's then outstanding
securities is acquired by (i) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained by the
Company or any of its subsidiaries or
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(ii) any corporation which, immediately prior to such acquisition, is owned
directly or indirectly by the stockholders of the Company in the same
proportion as their ownership of stock in the Company immediately prior to
such acquisition.
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
2.9 "Company" means National Service Industries, Inc.
2.10 "Director" means a director of the Company.
2.11 "Disability" means a physical or mental infirmity which impairs the
Optionee's or Grantee's ability to perform substantially his or her duties for a
period of one hundred eighty (180) consecutive days, as determined by the Board.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.13 "Fair Market Value" on any date means (A) if the Shares are admitted
to trading on a national securities exchange, the last sale price reported for
the Shares on such exchange on such date or, if no sale was reported on such
date, on the last date preceding such date on which a sale was reported, (B) if
the Shares are admitted to quotation on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or other comparable quotation
system and have been designated as a National Market System ("NMS") security,
the last sale price reported for the Shares on such system on such date or on
the last day preceding such date on which a sale was reported, (C) if the Shares
are admitted to quotation on NASDAQ and have not been designated a NMS security,
the average of the highest bid and lowest asked prices of the Shares on such
system on such date, or (D) if there have been no published bid or asked
quotations with respect to Shares on such date, the value established by the
Board in good faith and in accordance with Section 422 of the Code.
2.14 "Grantee" means a person to whom an Award has been granted under the
Plan.
2.15 "Nonemployee Director" means a Director who is not an officer or
employee of the Company or any subsidiary.
2.16 "Option" means an option granted under this Plan to purchase Shares.
2.17 "Optionee" means a person to whom an Option has been granted under the
Plan.
2.18 "Parent" means any corporation which is a parent corporation (within
the meaning of Section 424(e) of the Code) with respect to the Company.
2.19 "Plan" means the National Service Industries, Inc. 2001 Nonemployee
Directors' Stock Incentive Plan.
2.20 "Restricted Stock" means Shares issued or transferred to a Nonemployee
Director which are subject to restrictions.
2.21 "Shares" means the common stock, par value $1.00 per share, of the
Company.
2.22 "Stock Award" means a grant of Shares that is not generally subject to
restrictions and pursuant to which a certificate for the Shares is transferred
to the Nonemployee Director.
2.23 "Subsidiary" means any corporation in an unbroken chain of
corporations, beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain. The term "Subsidiary" shall also include a
partnership in which the Company or a Subsidiary owns 50% or more of the profits
interest or capital interest in the partnership.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Board.
3.2 The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(a) to determine those Nonemployee Directors to whom Options shall be
granted under the Plan and the number of Options to be granted to each
Nonemployee Director and to prescribe the terms and conditions of each
Option, including the purchase price per Share subject to each Option, and
to make any amendment or modification to any Agreement consistent with the
terms of the Plan;
(b) to select those Nonemployee Directors to whom Awards shall be
granted under the Plan and to determine the number of Shares and/or shares
of Restricted Stock to be granted pursuant to each Award, the terms and
conditions of each Award, including the restrictions or performance
criteria relating to such
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Award, the maximum value of each Award, and to make any amendment or
modification to any Agreement consistent with the terms of the Plan;
(c) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan;
(d) to construe and interpret the Plan and the Options and Awards
granted hereunder and any condition or restrictions imposed on Shares
acquired pursuant to the exercise of an Option, to define the terms used
herein and to establish, amend, and revoke rules and regulations for
administration of the Plan. The Board in the exercise of this power, may
correct any defect, omission, or inconsistency in the Plan or in any
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective. All decisions and
determinations by the Board in the exercise of this power shall be final,
binding and conclusive upon the Company and the Optionees and Grantees, as
the case may be;
(e) to amend, modify, suspend, or terminate the Plan in accordance
with Section 10; and
(f) generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company in connection with the Plan.
4. STOCK SUBJECT TO THE PLAN
4.1 The maximum number of Shares that may be issued or transferred pursuant
to Options and Awards under the Plan is 300,000 Shares (or the number and kind
of shares of stock or other securities to which such Shares are adjusted upon a
Change in Capitalization pursuant to Section 8) and the Company shall reserve
for the purposes of the Plan, out of its authorized but unissued Shares or out
of Shares held in the Company's treasury, or partly out of each, such number of
Shares as shall be determined by the Board.
4.2 Whenever any outstanding Option or Award or portion thereof expires, is
forfeited, is cancelled or is otherwise terminated for any reason (other than
upon the exercise of the Option or upon the surrender of the Option pursuant to
Section 7), the Shares allocable to the cancelled or otherwise terminated Option
or Award or portion thereof may again be the subject of Options and Awards
granted hereunder.
5. OPTION GRANTS FOR NONEMPLOYEE DIRECTORS
5.1 Discretionary Grant. The Board may grant Options in accordance with
the Plan and the terms and conditions of each Option shall be set forth in an
Agreement. The Board shall have sole discretion in determining the number of
Shares underlying each Option to grant a Nonemployee Director.
5.2 Purchase Price. The purchase price for Shares under each Option shall
be equal to 100% of the Fair Market Value of a Share on the date the Option is
granted.
5.3 Duration. Unless otherwise provided in the Agreement, Options shall be
for a term of ten (10) years, except an Option may terminate earlier as follows:
(a) if an Optionee's service as a Director terminates for Cause, the
Options granted to the Optionee hereunder shall immediately terminate in
full and no rights thereunder may be exercised;
(b) if an Optionee's service as a Director terminates for any reason
other than Cause, the Optionee (or any guardian, legal representative, heir
or successor of the Optionee) may for a period of three (3) years after
such termination exercise his or her Options to the extent, and only to the
extent, that such Options or portions thereof were vested and exercisable
as of the date the Optionee's service as a Director terminated, after which
time the Options shall automatically terminate in full.
This Section 5.3 shall not be construed to extend the term of any
Option or to permit anyone to exercise any Option after expiration of its
term, nor shall it be construed to increase the number of Shares as to
which any Option is exercisable from the amount exercisable on the date of
termination of the Optionee's service as a Director.
5.4 Vesting. Unless provided otherwise in the Agreement, and subject to
Section 7, each Option shall be exercisable in whole or in part at any time
after one (1) year from the date of grant of the Option.
5.5 Non-transferability. No Option granted hereunder shall be transferable
by the Optionee to whom granted otherwise than (i) by will or the laws of
descent and distribution and (ii) upon such terms and conditions as the Company
may establish, to immediate family members of the Optionee or to a trust,
partnership or similar vehicle for the benefit of such immediate family members
(collectively, the "Permitted Transferees"). For purposes of this Section 5.5,
"immediate family" means an Optionee's spouse, parents, children, grandchildren
and spouse of children and grandchildren (including adopted children and
grandchildren, as the case may be). A Permitted Transferee may not further
transfer the Option. An Option transferred
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pursuant to this Section 5.5 shall remain subject to all of the provisions of
the Plan and any Agreement with respect to such Option and may not be exercised
by a Permitted Transferee unless and until all legal or regulatory approvals,
listings, registrations, qualifications or other clearances as determined by the
Company to be required or appropriate have been obtained. An Option may be
exercised during the lifetime of such Optionee only by the Optionee or his
beneficiary or guardian or legal representative or, if applicable, by Permitted
Transferees. The terms of such Option shall be final, binding and conclusive
upon the beneficiaries, executors, administrators, heirs, successors, and
Permitted Transferees of the Optionee.
5.6 Method of Exercise. The exercise of an Option shall be made only by a
written notice delivered in person or by mail to the Secretary of the Company at
the Company's principal executive office, specifying the number of Shares to be
purchased and accompanied by payment therefor and otherwise in accordance with
the Agreement pursuant to which the Option was granted. The purchase price for
any Shares purchased pursuant to the exercise of an Option shall be paid in full
upon such exercise in cash, by check or by transferring Shares to the Company
upon such terms and conditions as determined by the Board. The written notice
pursuant to this Section 5.6 may also provide instructions from the Optionee to
the Company that upon receipt of the purchase price in cash from the Optionee's
broker or dealer, designated as such on the written notice, in payment for any
Shares purchased pursuant to the exercise of an Option, the Company shall issue
such Shares directly to the designated broker or dealer. Any Shares transferred
to the Company as payment of the purchase price under an Option shall be valued
at their Fair Market Value on the day preceding the date of exercise of such
Option. If requested by the Board, the Optionee shall deliver the Agreement
evidencing the Option to the Secretary of the Company who shall endorse thereon
a notation of such exercise and return such Agreement to the Optionee. No
fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an
Option and the number of Shares that may be purchased upon exercise shall be
rounded to the nearest number of whole Shares.
5.7 Rights of Optionees. No Optionee shall be deemed for any purpose to be
the owner of any Shares subject to any Option unless and until (i) the Option
shall have been exercised pursuant to the terms thereof, (ii) the Company shall
have issued and delivered the Shares to the Optionee, and (iii) the Optionee's
name shall have been entered as a stockholder of record on the books of the
Company. Thereupon, the Optionee shall have full voting, dividend, and other
ownership rights with respect to such Shares.
6. RESTRICTED STOCK; STOCK AWARDS
6.1 Grants. The Board may from time to time in its discretion grant
Restricted Stock and Stock Awards to Nonemployee Directors and may determine the
number of Shares of Restricted Stock or Stock Awards to be granted. The Board
shall determine the terms and conditions of, and the amount of payment, if any,
to be made by the Nonemployee Director for such Shares or Restricted Stock. A
grant of Restricted Stock may, in addition to other conditions, require the
Nonemployee Director to pay for such Shares of Restricted Stock, but the Board
may establish a price below Fair Market Value at which the Nonemployee Director
can purchase the Shares of Restricted Stock. Each grant of Restricted Stock
shall be evidenced by an Agreement containing terms and conditions not
inconsistent with the Plan as the Board shall determine to be appropriate in its
sole discretion.
6.2 Restricted Period; Lapse of Restrictions. At the time a grant of
Restricted Stock is made, the Board shall establish a period or periods of time
applicable to such grant over which the Restricted Stock will vest or may
establish performance requirements for the vesting of the Restricted Stock.
Subject to the other provisions of this Article 6, when the restrictions lapse,
the Restricted Stock shall vest in the Nonemployee Director. At the time a grant
is made, the Board may, in its discretion, prescribe conditions for the
incremental lapse of restrictions during the restricted period and for the lapse
or termination of restrictions upon the occurrence of other conditions in
addition to or other than the expiration of the restricted period or
satisfaction of performance measures with respect to all or any portion of the
Restricted Stock. Such conditions may, but need not, include the following:
(a) The death or Disability of the Nonemployee Director to whom
Restricted Stock is granted, or
(b) The occurrence of a Change in Control.
The Board may also, in its discretion, shorten or terminate the restricted
period, or waive any conditions for the lapse or termination of restrictions
with respect to all or any portion of the Restricted Stock at any time after the
date the grant is made.
6.3 Rights of Holder; Limitations Thereon. Upon a grant of Restricted
Stock, a stock certificate (or certificates) representing the number of Shares
of Restricted Stock granted to the Nonemployee Director shall be registered in
the Nonemployee Director's name and shall be held in custody by the Company or a
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bank selected by the Board for the Nonemployee Director's account. Unless
provided otherwise in the Agreement, following such registration, the
Nonemployee Director shall have the rights and privileges of a shareholder as to
such Restricted Stock, including the right to vote such Restricted Stock, except
that the Nonemployee Director shall not have the right to dividends and except
further that, the following restrictions shall apply:
(a) The Nonemployee Director shall not be entitled to delivery of a
certificate until the expiration or termination of the restricted period
for the Shares represented by such certificate and the satisfaction of any
and all other conditions prescribed by the Board;
(b) None of the Shares of Restricted Stock may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the
restricted period and until the satisfaction of any and all other
conditions prescribed by the Board; and
(c) Unless provided otherwise in the Agreement, all of the Shares of
Restricted Stock that have not vested shall be forfeited and all rights of
the Nonemployee Director to such Shares of Restricted Stock shall terminate
without further obligation on the part of the Company, unless the
Nonemployee Director has remained a Nonemployee Director of the Company or
any of its Subsidiaries, until the expiration or termination of the
restricted period and the satisfaction of any and all other conditions
prescribed by the Board applicable to such Shares of Restricted Stock. Upon
the forfeiture of any Shares of Restricted Stock, such forfeited Shares
shall be transferred to the Company without further action by the
Nonemployee Director and shall, in accordance with Section 4.2, again be
available for grant under the Plan. If the Nonemployee Director paid any
amount for the Shares of Restricted Stock that are forfeited, the Company
shall pay the Nonemployee Director the lesser of the Fair Market Value of
the Shares on the date they are forfeited or the amount paid by the
Nonemployee Director.
With respect to any Shares received as a result of adjustments under
Section 8 or 9 hereof and any Shares received with respect to cash dividends
declared on Restricted Stock, the Nonemployee Director shall have the same
rights and privileges, and be subject to the same restrictions, as are set forth
in this Article 6.
6.4 Delivery of Unrestricted Shares. Upon the expiration or termination of
the restricted period for any Shares of Restricted Stock and the satisfaction of
any and all other conditions prescribed by the Board, the restrictions
applicable to such Shares of Restricted Stock shall lapse and a stock
certificate for the number of Shares of Restricted Stock with respect to which
the restrictions have lapsed shall be delivered, free of all such restrictions
except any that may be imposed by law, to the holder of the Restricted Stock.
The Company shall not be required to deliver any fractional Share but will pay,
in lieu thereof, the Fair Market Value (determined as of the date the
restrictions lapse) of such fractional Share to the holder thereof.
6.5 Nonassignability of Restricted Stock. Unless the Board provides
otherwise in the Agreement, the Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered prior to the date Grantee becomes
vested in the Restricted Stock, and following such date, shall be sold,
assigned, transferred, pledged or otherwise encumbered only in accordance with
any Shareholders Agreement in effect from time to time.
7. EFFECT OF CHANGE IN CONTROL
Unless the Agreement provides otherwise, in the event of a Change in
Control, (i) all conditions and restrictions on Shares of Restricted Stock shall
immediately lapse on the date of such Change in Control, (ii) all Options
outstanding on the date of such Change in Control shall become immediately and
fully exercisable; (iii) an Optionee will be permitted to surrender for
cancellation within sixty (60) days after such Change in Control, any Option or
portion of an Option to the extent not yet exercised and the Optionee will be
entitled to receive a cash payment in an amount equal to the excess, if any, of
(x) the greater of (1) the Fair Market Value, on the date preceding the date of
surrender, of the Shares subject to the Option or portion thereof surrendered or
(2) the Adjusted Fair Market Value of the Shares subject to the Option or
portion thereof surrendered, over (y) the aggregate purchase price for such
Shares under the Option or portion thereof surrendered; provided, however, that
in the case of an Option granted within six (6) months prior to the Change in
Control, the Optionee shall be entitled to surrender for cancellation his or her
Option during the sixty (60) day period commencing upon the expiration of six
(6) months from the date of grant of any such Option.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
8.1 Subject to Section 9, in the event of a Change in Capitalization, the
Board shall conclusively determine the appropriate adjustments, if any, to the
(i) maximum number and class of Shares or other stock
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or securities with respect to which Options and Awards may be granted under the
Plan, (ii) the number and class of Shares or other stock or securities which are
to be subject to Options and Awards to be granted under Sections 5 and 6; and
(iii) the number and class of Shares or other stock or securities which are
subject to outstanding Options and Awards granted under the Plan, and the
purchase price therefor, if applicable; provided, however, that any stock
adjustment in the Shares or other stock or securities subject to an outstanding
Award or Option (including any adjustments in the purchase price) shall be made
only to the extent necessary to maintain the proportionate interest of the
Optionee or Grantee and preserve, without exceeding, the value of such Option or
Award.
8.2 If, by reason of a Change in Capitalization, an Optionee shall be
entitled to exercise an Option with respect to new, additional or different
shares of stock or securities, such new, additional or different shares shall
thereupon be subject to all of the conditions which were applicable to the
Shares subject to the Option, as the case may be, prior to such Change in
Capitalization.
9. EFFECT OF CERTAIN TRANSACTIONS
Subject to Section 7, in the event of (i) the liquidation or dissolution of
the Company or (ii) a merger or consolidation of the Company (a "Transaction"),
the Plan and the Options and Awards issued hereunder shall continue in effect in
accordance with their respective terms and each Optionee or Grantee shall be
entitled to receive in respect of each Share subject to any outstanding Option
or Award, upon exercise of such Option or lapse or restrictions on such Award,
the same number and kind of stock, securities, cash, property, or other
consideration that each holder of a Share was entitled to receive in the
Transaction in respect of a Share. In the event that, after a Transaction, there
occurs any change of a type described in Section 2.6 with respect to the shares
of the surviving or resulting corporation, then adjustments similar to, and
subject to the same conditions as, those in Section 8 shall be made by the
Board.
10. TERMINATION AND AMENDMENT OF THE PLAN
The Plan shall terminate on the day prior to the tenth anniversary of the
effective date of the Plan, and no Option may be granted thereafter. The Board
may sooner terminate the Plan and the Board may from time to time amend, modify,
or suspend the Plan; provided, however that:
(a) Except as provided in Sections 7 and 8, no such amendment,
modification, suspension, or termination shall impair or adversely alter
any Options, Awards, or rights theretofore granted under the Plan, except
with the consent of the Optionee or Grantee, nor shall any amendment,
modification, suspension, or termination deprive any Optionee or Grantee of
any Shares which he or she may have acquired through or as a result of the
Plan;
(b) To the extent required by applicable law, regulation or rule, no
amendment shall be effective unless approved by the stockholders of the
Company in accordance with applicable law and regulations at an annual or
special meeting held within twelve (12) months before or after the date of
adoption of such amendment.
11. NON-EXCLUSIVITY OF THE PLAN
(a) The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved compensation
arrangement or as creating any limitations on the power of the Board to adopt
such other compensation arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the Plan,
and such arrangements may be either applicable generally or only in specific
cases.
(b) Nothing contained in this Plan prohibits a Nonemployee Director from
being appointed as an officer or employee of the Company at any time; nor does
anything contained in this Plan specifically require a Nonemployee Director to
surrender or forfeit an Option solely because he or she accepts an appointment
as an officer or employee of the Company at any time after election or
appointment to the Board. However, during such time as a Nonemployee Director
serves an an officer or employee, he or she shall not be eligible to receive any
additional awards under this Plan.
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12. LIMITATION OF LIABILITY
As illustrative of the limitations of liability of the Company, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(i) give any person any right to be granted an Option or Award other
than as specifically provided by the Plan;
(ii) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to terminate the
service of any person as a Director pursuant to the Company's bylaws and
articles of incorporation; or nominate or appoint any person as a Director.
13. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW
13.1 This Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Delaware
without giving effect to the conflicts of laws principles thereof, except to the
extent that such law is preempted by federal law.
13.2 The obligation of the Company to sell or deliver Shares with respect
to Options or Awards granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Board.
13.3 The Plan is intended to comply with Rule 16b-3 promulgated under the
Exchange Act and the Board shall interpret and administer the provisions of the
Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.
13.4 Each Option and Award is subject to the requirement that, if at any
time the Board determines, in its discretion, that the listing, registration, or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or Award or the
issuance of Shares, no Options or Awards shall be granted or payment made or
Shares issued, in whole or in part, unless listing, registration, qualification,
consent, or approval has been effected or obtained free of any conditions as
acceptable to the Board.
13.5 Notwithstanding anything contained in the Plan to the contrary, in the
event that the disposition of Shares acquired pursuant to the Plan is not
covered by a then-current registration statement under the Securities Act of
1933, as amended, and is not otherwise exempt from such registration, such
Shares shall be restricted against transfer to the extent required by the
Securities Act of 1933, as amended, and Rule 144 or other regulations
thereunder. The Board may require any individual receiving Shares pursuant to
the Plan, as a condition precedent to receipt of such Shares upon exercise of an
Option, to represent and warrant to the Company in writing that the Shares
acquired by such individual are acquired without a view to any distribution
thereof and will not be sold or transferred other than pursuant to an effective
registration thereof under said Act or pursuant to an exemption applicable under
the Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately inscribed with a legend reflecting their status as restricted
securities as aforesaid.
14. DESIGNATION OF BENEFICIARY
Each Optionee and Grantee may designate a person or persons to receive in
the event of his or her death, any Option or Award or any amount payable
pursuant thereto, to which he or she would then be entitled. Such designation
will be made upon forms supplied by and delivered to the Company and may be
revoked in writing. If an Optionee or Grantee fails effectively to designate a
beneficiary, then his or her estate will be deemed to be the beneficiary.
15. EFFECTIVE DATE
The Plan is effective as of , 2001, the date the Plan was
approved by the Company's Board of Directors, subject to approval by the
Company's stockholders.
B-7
(NSI LOGO)
(LOGO) PRINTED ON RECYCLED PAPER
PROXY
NATIONAL SERVICE INDUSTRIES, INC.
ANNUAL STOCKHOLDERS MEETING JANUARY 3, 2002
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned does hereby appoint BROCK A. HATTOX and CAROL ELLIS MORGAN, and
each of them, proxies of the undersigned with full power of substitution in each
of them to vote at the annual meeting of stockholders of the National Service
Industries, Inc. (the "Corporation") to be held on January 3, 2002 at 10:00
A.M., and at any and all adjournments thereof, with respect to all shares which
the undersigned would be entitled to vote, and with all powers which the
undersigned would possess if personally present, as follows on the reverse, and
in their discretion upon all other matters brought before the meeting.
PLEASE PROVIDE A CHANGE OF ADDRESS OR COMMENTS BELOW:
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IF VOTING BY MAIL, PLEASE VOTE, DATE AND SIGN ON REVERSE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
YOUR VOTE IS IMPORTANT.
PLEASE ACT PROMPTLY.
FOLD AND DETACH HERE
[LOGO] NATIONAL SERVICE INDUSTRIES
ANNUAL MEETING DIRECTIONS AND PARKING INFORMATION 10:00 AM, JANUARY 3,
2002, RENAISSANCE WAVERLY HOTEL, CHAMBERS AUDITORIUM
Parking for stockholders attending the Annual Meeting will be available in the
Renaissance Waverly Hotel parking lot on Galleria Parkway at the back of Cobb
Galleria Centre and in any lot within Cobb Galleria Centre. There is easy
access to the Chambers Auditorium from the main entrance of the hotel.
[MAP]
DIRECTIONS TO THE RENAISSANCE WAVERLY HOTEL
TRAVELING WEST ON I-20: Take Exit #67B (I-285 NORTH). Proceed to Exit #20 (I-75
NORTH/SOUTH Highway 41 Cobb Parkway) (NOTE: Do not take Highway 75, go straight
to Highway 41/Cobb Parkway). Get in the far left-hand lane to turn LEFT onto
Cobb Parkway. Turn LEFT at the second traffic light. Follow the road about 1/4
of a mile and the Hotel will be on your RIGHT.
TRAVELING EAST ON I-20: Take Exit #51B (I-285 NORTH). Proceed to Exit #19 (Cobb
Parkway/Highway 41) then turn RIGHT onto Cobb Parkway. Turn LEFT at the first
traffic light. Follow the road about 1/4 of a mile and the Hotel will be on
your RIGHT.
TRAVELING SOUTH ON I-75: Take Exit #258 (Cumberland Blvd). Turn RIGHT at the
light. Turn RIGHT at the first light onto Cobb Galleria Parkway. Take forced
LEFT around fountain. Hotel is straight ahead.
TRAVELING SOUTH ON I-85: Take Exit #95 (I-285 WEST). Proceed to Exit #20 (I-75
NORTH/SOUTH Highway 41 Cobb Parkway) (NOTE: Do not take Highway 75, go straight
to Highway 41/Cobb Parkway). Get in the far left-hand lane to turn LEFT onto
Cobb Parkway. Turn LEFT at the second traffic light. Follow the road about 1/4
of a mile and the Hotel will be on your RIGHT.
TRAVELING NORTH ON I-75: Take Exit #258 (Cumberland Blvd). Turn LEFT at the
light. Turn RIGHT at second light onto Cobb Galleria Parkway. Take forced LEFT
around fountain. Hotel is straight ahead.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE ITEMS
SET FORTH BELOW.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS VOTES "FOR" EACH
OF THE FOLLOWING ITEMS:
FOR
ALL WITHHOLD Nominees for Director: FOR AGAINST ABSTAIN
NOMINEES AUTHORITY
1. Nominees for [ ] [ ] (01) Dennis R. Beresfsord 2. To approve a proposal to amend [ ] [ ] [ ]
Director: (02) John E. Cay, III the Corporation's Restated
(03) Don L. Chapman Certificate of Incorporation to
(04) Brock A. Hattox effect a reverse stock split of
(05) Joia M. Johnson the Corporation's outstanding
(06) Michael Z. Kay common stock at a ratio of
(07) Betty L. Siegel one-for-four, with the final
effectiveness or abandonment to
be determined by the Board of
For, except vote withheld from the following nominee(s): Directors of the Corporation.
3. To approve the National Service [ ] [ ] [ ]
Industries, Inc. 2001 Nonemployee
- -------------------------------------------------------- Directors' Stock Incentive Plan.
4. To ratify the appointment of [ ] [ ] [ ]
Arthur Andersen LLP as independent
public accountants for the Corporation.
Mark box at right if an address change or comment has been [ ]
noted on the reverse side of this card.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY.
SIGNATURE(S)____________________________________________DATE_________
If voting by mail, please date this proxy and sign exactly as your name, or
names, appear hereon. Where there is more than one owner, each must sign. When
signing in fiduciary or representative capacity, please give full title as
such.
* FOLD AND DETACH HERE *
[LOGO] NATIONAL SERVICE INDUSTRIES
Dear Stockholder:
National Service Industries, Inc. encourages you to take advantage of
convenient ways by which you can vote your shares. You can vote your shares
electronically through the internet or the telephone. This eliminates the need
to return the proxy card.
To vote your shares electronically you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear in
the box and the last four digits of your Social Security number are required to
access the system.
1. To vote over the internet:
- Log on to the internet and go to the web site
HTTP://WWW.EPROXYVOTE.COM/NSI
2. To vote over the telephone:
- On a touch-tone telephone call 1-877-PRX-VOTE (1-877-779-8683)
Each method is available 24 hours a day, 7 days a week.
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, please do not mail back your
proxy card.