[LOGO]
ROLLINS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
2170 Piedmont Road, N.E., Atlanta, Georgia 30324
TO THE HOLDERS OF THE COMMON STOCK:
PLEASE TAKE NOTICE that the 2003 Annual Meeting of Stockholders of Rollins,
Inc., a Delaware corporation (the "Company"), will be held at the Company's
offices located at 2170 Piedmont Road, N.E., Atlanta, Georgia on Tuesday, April
22, 2003, at 1:40 P.M., or any adjournment thereof, for the following purposes:
(a) To elect two Class II directors to the Board of Directors;
(b) To approve the Performance-Based Incentive Cash Compensation Plan for
Executive Officers;
(c) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Proxy Statement dated March 17, 2003, is attached.
The Board of Directors has fixed the close of business on February 24,
2003, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the meeting.
Stockholders who do not expect to be present at the meeting are urged to
complete, date, sign, and return the enclosed proxy. No postage is required if
the enclosed envelope is used and mailed in the United States.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael W. Knottek
-----------------------
Michael W. Knottek, Secretary
Atlanta, Georgia
March 17, 2003
PROXY STATEMENT
This Proxy Statement and a form of proxy were first mailed to stockholders
on or about March 21, 2003. The following information concerning the enclosed
proxy and the matters to be acted upon at the Annual Meeting of Stockholders to
be held on April 22, 2003, is submitted by the Company to the stockholders for
their information.
At the January 28, 2003 quarterly meeting the Company's Board of Directors
approved a three-for-two stock split to stockholders of record as of February
10, 2003 payable on March 10, 2003. All share and price data appearing in this
proxy statement have been retroactively adjusted to give effect of this stock
split.
SOLICITATION OF AND POWER TO REVOKE PROXY
A form of proxy is enclosed. Each proxy submitted will be voted as
directed, but if not otherwise specified, proxies solicited by the Board of
Directors of the Company will be voted in favor of the candidates for election
to the Board of Directors.
A stockholder executing and delivering a proxy has power to revoke the same
and the authority thereby given at any time prior to the exercise of such
authority, if he so elects, by contacting either proxy holder.
CAPITAL STOCK
The outstanding capital stock of the Company on February 24, 2003 consisted
of 44,859,646 shares of Common Stock, par value $1.00 per share. Holders of
Common Stock are entitled to one vote (non-cumulative) for each share of such
stock registered in their respective names at the close of business on February
24, 2003, the record date for determining stockholders entitled to notice of and
to vote at the meeting or any adjournment thereof.
A majority of the outstanding shares will constitute a quorum at the Annual
Meeting. Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
In accordance with General Corporation Law of the state of Delaware, the
election of the nominees named herein as Directors will require the affirmative
vote of a plurality of the votes cast by the shares of Company Common Stock
entitled to vote in the election provided that a quorum is present at the Annual
Meeting. In the case of a plurality vote requirement (as in the election of
directors), where no particular percentage vote is required, the outcome is
solely a matter of comparing the number of votes cast for each nominee, and
hence only votes for director nominees (and not abstentions or broker non-votes)
are relevant to the outcome. With respect to the proposal to approve the
Performance-Based Incentive Cash Compensation Plan, the affirmative vote of a
majority of a quorum of the Company's outstanding shares of Common Stock present
and entitled to vote at the meeting is required by Delaware Law for stockholder
approval. Abstentions will have the effect of a vote against the proposal and
broker non-votes will be disregarded and will have no effect on the outcome of
the vote.
The names of the executives named in the Summary Compensation Table and the
name and address of each stockholder who owned beneficially five percent (5%) or
more of the shares of Common Stock of the Company on February 24, 2003, together
with the number of shares so owned and the percentage of outstanding shares that
ownership represents, and information as to Common Stock ownership of the
executive officers and directors of the Company as a group (according to
information received by the Company) is set out below:
Amount Percent of
Beneficially Outstanding
Name and Address of Beneficial Owner Owned (1) Shares
---------------------------------------------------------------------------------------------------------------------
R. Randall Rollins.................................................................... 22,162,455 (2) 49.3
Chairman of the Board
2170 Piedmont Road, N.E.
Atlanta, Georgia
Gary W. Rollins....................................................................... 22,852,464 (3) 50.8
Chief Executive Officer, President and Chief Operating Officer
2170 Piedmont Road, N.E.
Atlanta, Georgia
2
Amount Percent of
Beneficially Outstanding
Name and Address of Beneficial Owner Owned (1) Shares
---------------------------------------------------------------------------------------------------------------------
Mario Gabelli......................................................................... 7,418,760 (4) 16.5
One Corporate Center
Rye, New York 10020
Michael W. Knottek.................................................................... 1,526,464 (5) 3.4
Senior Vice President and Secretary
Harry J. Cynkus....................................................................... 497,325 (6) 1.1
Chief Financial Officer and Treasurer
Glen Rollins.......................................................................... 359,206 (7) ---
Vice President
All Directors and Executive Officers as a group (9 persons)........................... 25,879,687 (8) 57.7
-----------
(1) Except as otherwise noted, the nature of the beneficial ownership
for all shares is sole voting and investment power.
(2) Includes 22,018 shares of the Company held as Trustee, Guardian, or
Custodian for his children. Also includes 928,050 shares of the Company
held in three trusts of which he is a Co-Trustee and as to which he
shares voting and investment power. Does not include 94,354* shares of
the Company held by his wife. Also includes 21,118,777 shares owned by
RFPS Investments I, Limited Partnership. The general partner of RFPS is
LOR Investment Company, LLC, a Georgia limited liability company,
wholly owned by LOR, Inc. Mr. Rollins is an officer and director of
LOR, Inc. Mr. R. Randall Rollins and Mr. Gary W. Rollins have voting
control of LOR, Inc. Also includes 2,533 shares of 401(k) stock. Also
includes options to purchase 60,000 shares, which are currently
exercisable or will become exercisable within 60 days of the date
hereof. This excludes options to purchase 90,000 shares that are not
currently exercisable and will not become exercisable within 60 days of
the date hereof.
(3) Includes 928,050 shares of the Company in three trusts of which he is
Co-Trustee and as to which he shares voting and investment power. Does
not include 105,484* shares of the Company held by his wife. Also
includes 21,118,777 shares owned by RFPS Investments I, Limited
Partnership. The general partner of RFPS is LOR Investment Company,
LLC, a Georgia limited liability company, wholly owned by LOR, Inc. Mr.
Rollins is an officer and director of LOR, Inc. Mr. R. Randall Rollins
and Mr. Gary W. Rollins have voting control of LOR, Inc. Also includes
22,099 shares of 401(k) stock. Also includes options to purchase
120,000 shares, which are currently exercisable or will become
exercisable within 60 days of the date hereof. Excludes options to
purchase 180,000 shares that are not currently exercisable and will not
become exercisable within 60 days of the date hereof.
(4) Based upon information received by the Company, an aggregate of
7,418,760 shares of Company Common Stock are beneficially owned by
Mario Gabelli and entities controlled directly or indirectly by Mario
Gabelli as follows: GAMCO Investors, Inc., 5,133,060 shares; Gabelli
Funds, L.L.C., 2,279,700 shares; and Mr. Mario Gabelli, 6,000 shares.
GAMCO Investors, Inc. does not have authority to vote 217,050 shares of
the total 5,133,060 held. Several of these entities share voting and
disposition powers with respect to the shares of Company Common Stock
held by them.
(5) Includes options to purchase 119,850 shares, which are currently
exercisable or will become exercisable within 60 days of the date
hereof. Also includes 1,395,814 shares held by the Rollins 401(k) Plan
as to which Mr. Knottek has voting power, including 1,290 shares, which
he also has a pecuniary interest. Excludes options to purchase 60,600
shares that are not currently exercisable and will not become
exercisable within 60 days of the date hereof.
(6) Includes options to purchase 38,400 shares, which are currently
exercisable or will become exercisable within 60 days of the date
hereof. Includes 454,050 shares held by the Rollins Pension Plan as to
which Mr. Cynkus has voting power. Also includes 825 shares of 401(k)
stock. Excludes options to purchase 27,600 shares that are not
currently exercisable and will not become exercisable within 60 days of
the date hereof.
(7) Mr. Rollins owns less than 1% of outstanding shares. Includes 65,899
shares of the Company held as Custodian/Guardian for his minor
children. Includes options to purchase 65,100 shares, which are
currently exercisable or will become exercisable within 60 days of the
date hereof. Does not include 17,346* shares of the Company held by his
wife. Also includes 8,328 shares of 401(k) stock. Excludes options to
purchase 57,150 shares that are not currently exercisable and will not
become exercisable within 60 days of the date hereof.
3
(8) Shares held in trusts as to which more than one officer and/or director
are Co-Trustees have been included only once.
* Mr. R. Randall Rollins, Mr. Gary W. Rollins, and Mr. Glen Rollins
disclaim any beneficial interest in these holdings.
ELECTION OF DIRECTORS
At the Annual Meeting, Mr. Gary W. Rollins and Mr. Henry B. Tippie will be
nominated to serve as Class II directors for a term of three years, and until
the election and qualification of their successors. Four other individuals serve
as directors but are not standing for re-election because their terms as
directors extend past this Annual Meeting pursuant to provisions of the
Company's Bylaws which provide for the election of directors for staggered
terms, with each director serving a three year term. Unless authority is
withheld, the proxy holders will vote for the election of each nominee named
below as a director. Although Management does not contemplate the possibility,
in the event any nominee is not a candidate or is unable to serve as director at
the time of the election, unless authority is withheld, the proxies will be
voted for any nominee who shall be designated by the present Board of Directors
to fill such vacancy.
The name and age of each of the two nominees, their principal occupations,
together with the number of shares of Common Stock beneficially owned, directly
or indirectly, by each nominee and the percentage of outstanding shares that
ownership represents, all as of the close of business February 24, 2003,
(according to information received by the Company) are set out below. Similar
information is also provided for those directors whose terms expire in future
years.
Shares Percent of
Service as of Common Outstanding
Name Principal Occupation (1) Director Age Stock (2) Shares
---- -------------------------------- -------- --- --------- ------
Class I
(Term Expires 2005)
R. Randall Rollins (3)............. Chairman of the Board of the 1968 to date 71 22,162,455(4) 49.3
Company; and Chairman of the
Board and Chief Executive Officer
of RPC, Inc. (oil and gas field
services); and Chairman of the
Board of Marine Products
Corporation (boat manufacturing)
James B. Williams.................. Chairman of the Executive 1978 to date 69 30,000 *
Committee of SunTrust Banks, Inc.
(bank holding company) since
1998; and Chairman of the Board
and Chief Executive Officer of
SunTrust Banks, Inc. from 1991 to
1998
Class II
(Term Expires 2006)
Gary W. Rollins (3)................ Chief Executive Officer, 1981 to date 58 22,852,464(6) 50.8
President and Chief Operating
Officer of the Company
Henry B. Tippie.................... Chairman of the Board and Chief 1960 to 76 530,550(5) 1.2
Executive Officer of Tippie 1970;
Services, Inc. (management 1974 to
services); Chairman of the Board date
of Dover Downs Gaming and
Entertainment, Inc. (operator of
multi- purpose gaming and
entertainment complex) since
January 2002; and Chairman of the
Board of Dover Motorsports, Inc.
(operator of motorsports tracks)
4
Shares Percent of
Service as of Common Outstanding
Name Principal Occupation (1) Director Age Stock (2) Shares
---- -------------------------------- -------- --- --------- ------
Class III
(Term Expires 2004)
Wilton Looney...................... Honorary Chairman of the Board of 1975 to date 83 2,250 *
Genuine Parts Company (automotive
parts distributor)
Bill J. Dismuke.................... Retired President of Edwards 1984 to date 66 1,350 *
Baking Company (manufacturer of
baked pies and pie pieces)
-----------
(1) Except as noted, each of the Directors has held the positions of
responsibility set out in this column (but not necessarily his present
title) for more than five years. In addition to the directorships
listed in this column, the following individuals also serve on the
Boards of Directors of the following companies: James B. Williams: The
Coca-Cola Company, Genuine Parts Company, and Georgia-Pacific Corp.; R.
Randall Rollins: SunTrust Banks, Inc., SunTrust Banks of Georgia, Dover
Motorsports, Inc. and Dover Downs Gaming and Entertainment, Inc. All
persons named in the above table, other than Bill J. Dismuke, are also
directors of RPC, Inc. and Marine Products Corporation.
(2) Except as otherwise noted, the nature of the beneficial ownership
for all shares is sole voting and investment power.
(3) R. Randall Rollins and Gary W. Rollins are brothers.
(4) See information contained in footnote (2) to the table appearing in
Capital Stock section.
(5) Includes 50,550** shares of Common Stock of the Company held by a trust
of which he is Co-Trustee and as to which he shares voting and
investment power and 15,000 shares held by in a partnership as to which
shares he has voting rights with respect to 15,000 shares but
beneficial partnership interest of 150 shares. Does not include shares
of Common Stock of the Company owned by Rollins Holding Company, an
interest in which is indirectly held by a trust of which Mr. Tippie is
a Co-Trustee but not a beneficiary, and 450** shares held by his wife.
(6) See information contained in footnote (3) to the table appearing in
Capital Stock section.
* Less than 1% of outstanding shares.
** Mr. Henry B. Tippie disclaims any beneficial interest in these
holdings.
BOARD OF DIRECTORS COMPENSATION, COMMITTEES AND MEETINGS
During 2002, non-employee Directors received $1,000 for each Board of
Directors or committee meeting they attended, plus $10,000 per year, from the
Company.
The Audit Committee of the Board of Directors of the Company consists of
Henry B. Tippie, Chairman; Wilton Looney; and James B. Williams. The Audit
Committee had two meetings during the year ended December 31, 2002. Its
functions are described under the caption, "Report of the Audit Committee." The
Compensation Committee had one meeting during the year ended December 31, 2002.
Through January 22, 2002, the Compensation Committee of the Board of Directors
consisted of Wilton Looney, Chairman and James B. Williams. On January 23, 2002,
the Executive Committee restructured the Compensation Committee and as a result
the Compensation Committee consists of Henry B. Tippie, Chairman; Wilton Looney;
and James B. Williams. The function of the Compensation Committee is to review
the base salary and cash incentive plan of R. Randall Rollins, Chairman of the
Company and Gary W. Rollins, Chief Executive Officer and recommend to the Board
any changes to insure continued effectiveness. It also administers the Rollins,
Inc. 1994 and 1998 Employee Stock Incentive Plans. The Executive Committee of
the Board of Directors consists of R. Randall Rollins and Gary W. Rollins. The
Executive Committee had two meetings during the year ended December 31, 2002.
The function of the Executive Committee is to review the base salary for the
Named Executives excluding R. Randall Rollins and Gary W. Rollins and recommend
to the Board any changes to insure continued effectiveness and to take all
permitted actions of the board in its stead. It also reviews the annual cash
incentive compensation package for all the Named Executives excluding R. Randall
Rollins and Gary W. Rollins. The Chairman and Chief Executive Officer have not
participated in the cash incentive plan in the past. The Board of Directors met
four times during the year ended December 31, 2002. No Director attended fewer
than 75% of the board meetings and meetings of committees on which he served
during 2002. On October 22, 2002, the Board of Directors elected a new committee
named the Nominating/Governance Committee that will begin meeting at the first
quarterly meeting in 2003. The new committee consists of Henry B. Tippie,
Chairman, Wilton Looney and James B. Williams. The purpose of the
Nominating/Governance Committee is to evaluate the Board's performance, develop
and recommend to the Board
5
corporate governance guidelines, provide oversight with respect to corporate
governance and ethical conduct, to identify and approve individuals qualified to
serve as members of the Board of the Company and select director nominees for
the next annual meeting of stockholders.
REPORTS OF THE AUDIT AND COMPENSATION AND EXECUTIVE COMMITTEES AND
PERFORMANCE GRAPH
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that might incorporate Company filings, including this
Proxy Statement, in whole or in part, the following Report of the Audit
Committee, Report of the Compensation Committee and Executive Committee on
Executive Compensation and Performance Graph shall not be incorporated by
reference into any such filings.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is established pursuant to
the Company's Bylaws and the Audit Committee Charter adopted by the Board of
Directors on April 25, 2000 and revised on January 28, 2003. A copy of the Audit
Committee Charter is attached to this Proxy Statement as Appendix A.
Management has the primary responsibility for the financial statements and
reporting process, including the Company's systems of internal controls. The
Company's independent auditors are responsible for expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States of America and their judgments as to the
quality and the acceptability of the Company's financial reporting and such
matters as are required to be discussed with the Committee under auditing
standards generally accepted in the United States of America. The Audit
Committee's responsibility is generally to monitor and oversee these processes,
as described in the Audit Committee Charter. It is not the duty of the Audit
Committee to plan or conduct audits or to determine that the Company's financial
statements are complete and accurate and in accordance with generally accepted
accounting principles; that is the responsibility of management and the
Company's independent public accountants.
Each member of the Audit Committee is independent in the judgment of the
Company's Board of Directors and as required by the listing standards of the
New York Stock Exchange.
In fulfilling its oversight responsibilities with respect to the year ended
December 31, 2002, the Audit Committee:
o Approved the terms of the engagement of Ernst & Young, LLP as
independent auditors of the Company for the year ended December
31, 2002;
o Reviewed and discussed with the Company's management and the
independent auditors the audited consolidated financial statements
of the Company as of December 31, 2002 and for the year then
ended;
o Discussed with the independent auditors the matters required to be
discussed by American Institute of Certified Public Accountants
Statement of Auditing Standards No. 61, Communications with Audit
Committees; and
o Received from the independent auditors written affirmation of
their independence required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committee, and
discussed with the auditors the firm's independence from the
Company.
Based upon the review and discussions referred to above, the committee
recommended to the Board of Directors that the audited consolidated financial
statements of the Company, as of December 31, 2002 and 2001 and for the three
years then ended, be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002 for filing with the Securities and Exchange
Commission. In giving this recommendation to the Board of Directors, the Audit
Committee has relied on (i) management's representation that such consolidated
financial statements have been prepared with integrity and objectivity and in
conformity with accounting principles generally accepted in the United States of
America and (ii) the report of the Company's independent auditors with respect
to such financial statements.
Submitted by the Audit Committee of the Board of Directors.
Audit Committee
Henry B. Tippie, Chairman
Wilton Looney
James B. Williams
6
REPORT OF THE COMPENSATION COMMITTEE AND EXECUTIVE COMMITTEE
ON EXECUTIVE COMPENSATION
During fiscal year 2002, the members of the Compensation Committee of the
Board of Directors held responsibility for determining the base salary for the
Chairman of the Board and the Chief Executive Officer, the stock-based incentive
plans for all the Named Executives as well as the cash incentive plan for the
Chairman of the Board and Chief Executive Officer. The Executive Committee held
responsibility for determining the base salary of the Named Executives,
excluding the Chairman of the Board and the Chief Executive Officer, as well as
the cash incentive plan for all of the Named Executives, excluding the Chairman
of the Board and the Chief Executive Officer. The Compensation Committee is
comprised of outside directors who are not eligible to participate in the
Company's compensation plans and over whose names this report is presented. The
Executive Committee is comprised of the Company's Chairman of the Board and
Chief Executive Officer and over whose names the report is also presented.
The Company is engaged in a highly competitive industry. The actions of the
executive officers have a profound impact on the short-term and long-term
profitability of the Company; therefore, the design of the executive officer
compensation package is very important. In order to retain key employees, the
Company has an executive compensation package that is driven by an increase in
shareholder value, the overall performance of the Company, and the individual
performance of the executive. The measures of the Company's performance include
revenue growth, pretax profit plan achievement, and pretax profit improvement
over the past year.
Pursuant to the above compensation philosophy, the three main components of
the executive compensation package are base salary, a cash incentive plan, and
stock-based incentive plans.
The factors subjectively used in determining base salary include the recent
profit performance of the Company, the magnitude of responsibilities, the scope
of the position, individual performance and the pay received by peers in similar
positions in the same geographic area. These factors are not used in any
specific formula or weighting. The salaries of the Named Executives are reviewed
annually. Four Named Executives received raises in 2002 that were based on their
individual performances and overall departmental improvements.
The annual cash incentive compensation package for the non-Director Named
Executives is developed by the Chief Executive Officer of the Company prior to
the end of each fiscal year. It is based upon performance objectives for the
ensuing fiscal year. The specific performance objectives relate to each
executive improving the contribution of his functional area of responsibility to
further enhance the earnings of the Company. These performance objectives and
incentive package are then reviewed by the Executive Committee and either
accepted, amended or modified. All of the Named Executives participating in this
Plan earned a bonus during 2002 as a result of improvements in departmental
function and progress made toward the Company's strategic objectives. The
Chairman of the Board and the Chief Executive Officer have not participated in
this cash incentive plan in the past. However in recognition of the efforts made
and success in turning around the Company's performance during 2002 the
Compensation Committee approved bonuses for the Chairman of the Board, R.
Randall Rollins and the Chief Executive Officer, Gary W. Rollins. The amount of
these bonuses was $200,000 and $300,000, respectively.
Awards under the Company's Stock Option Plans are purely discretionary, and
are not based upon any specific formula and may or may not be granted in any
given fiscal year. When considering the grant of stock options, the Compensation
Committee gives consideration to the overall performance of the Company and the
performance of individual employees. Grants are made under the Plans and the
Plans are administered by non-employee directors within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended. During the fiscal
year 2002, the Compensation Committee, made an exception to their long standing
policy and granted the Chairman of the Board, R. Randall Rollins, and the Chief
Executive Officer, Gary W. Rollins, 39,000 shares of Incentive Stock Options
each and 111,000 and 261,000 in Non-Qualified Stock Options respectively. The
Compensation Committee of the Board of Directors granted these stock options in
recognition of the efforts made and success in turning around the Company's
performance. During the fiscal year 2002, three non-Director Named Executives
were granted 30,000 Incentive Stock Options each. In general, these grants were
based upon the scope of the position and the individual performance of each
individual.
In recognition of the efforts made and success in turning around the
Company's performance, the Compensation Committee of the Board of Directors has
granted to three non-Director Named Executives a $50,000 bonus each to be paid
in Rollins, Inc. Common Stock less any applicable withholding taxes. These
grants were made outside of the Company's stock incentive plans. This bonus is
to be paid in the first quarter of 2003 for performance related to fiscal year
2002. When considering the issuance of the bonus, the Compensation Committee
gave consideration to the overall performance of the Company and the performance
of individual employees. The Chairman of the Board and Chief Executive Officer
did not participate in this bonus.
7
The Compensation and Executive Committees currently believe that option
grants under the Company's 1998 Employee Stock Incentive Plan will be exempt for
purposes of determining the $1 million deductibility limit of Section 162(m) of
the Internal Revenue Code of 1986, as amended. For 2002 the Committees have come
to the conclusion that none of the participants in the Company's stock plans
have received in excess of $1 million in taxable compensation in 2002 on a cash
basis (the maximum amount for which an employer may claim a compensation
deduction pursuant to Section 162(m) unless certain performance related
compensation exemptions are met). However, the Committees have evaluated the
future status of the participants in the Company's stock plans and have
determined that certain participants will exceed the $1 million aggregate
compensation limit during future fiscal years and have therefore decided to
propose to the stockholders the performance-based incentive compensation plan
discussed in further detail under the heading "Approval of Performance-Based
Incentive Compensation Plan for Rollins, Inc. Executive Officers" in this proxy.
CEO COMPENSATION
The CEO's compensation is determined by the Compensation Committee. For
fiscal year 2002, the cash compensation for Gary W. Rollins was $1,200,000, of
which $900,000 was base salary and $300,000 was a cash incentive bonus to be
paid in the first quarter of 2003 for 2002. Mr. Rollins also received 39,000
Incentive Stock Options and 261,000 Non-Qualified Stock Options. Mr. Rollins
received a bonus and stock options in recognition of the efforts made and
success in turning around the Company's performance during 2002. The CEO's
compensation is based upon the long-term growth in the Company's net income and
shareholder value improvements, as well as the CEO's individual performance. The
decision of the Compensation Committee is, however, subjective and is not based
upon any specific formula or guidelines. The CEO does not consult with the
Compensation Committee when his salary is determined. In 2002, no member of the
Compensation Committee participated in any Company incentive program.
Compensation Committee
Henry B. Tippie, Chairman
Wilton Looney
James B. Williams
Executive Committee
R. Randall Rollins
Gary W. Rollins
PERFORMANCE GRAPH
As part of the executive compensation information presented in this Proxy
Statement, the Securities and Exchange Commission requires a five year
comparison of the cumulative total stockholder return based on the performance
of the stock of the Company as compared with both a broad equity market index
and an industry or peer group index. The indices included in the following graph
are the S&P 500 Index and the S&P 500 Commercial Services Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
EDGAR PRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Dollars
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
Rollins 100.00 88.61 76.90 104.19 105.00 134.90
S&P 500 100.00 128.58 155.64 141.46 124.65 97.10
S&P Comm'l Serv 100.00 138.58 108.93 133.76 132.04 130.03
ASSUMES INITIAL INVESTMENT OF $100
*TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
NOTE: TOTAL RETURNS BASED ON MARKET CAPITALIZATION
8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors serve on the Company's Compensation Committee:
Henry B. Tippie, Wilton Looney and James B. Williams. None of these individuals
is an employee of the Company. The following directors serve on the Company's
Executive Committee: R. Randall Rollins and Gary W. Rollins. Both of these
individuals are employees of the Company. R. Randall Rollins is the Chairman of
the Board and Chief Executive Officer of RPC, Inc. and Marine Products
Corporation. R. Randall Rollins and Gary W. Rollins serve on the Executive
Committee of RPC, Inc. and Marine Products Corporation. R. Randall Rollins
serves on the Compensation Committee of Dover Motorsports, Inc. and Dover Downs
Gaming and Entertainment, Inc. These Committees make certain decisions with
respect to the compensation of the executive officers of those companies. Except
as set forth in the previous sentence, no executive officer of the Company
serves on a Compensation Committee of another company. R. Randall Rollins, an
executive of the Company, serves on the Board of Directors of both SunTrust
Banks, Inc. and SunTrust Banks of Georgia, a subsidiary of SunTrust Banks, Inc.
Mr. Williams is the Chairman of the Executive Committee of SunTrust Banks, Inc.
Mr. Rollins is not on the Compensation Committee of either SunTrust Banks of
Georgia or SunTrust Banks, Inc. Rollins, Inc. maintains a significant banking
relationship with SunTrust Banks of Georgia. All banking services provided by
SunTrust Banks of Georgia are priced at market-competitive rates.
EXECUTIVE COMPENSATION
Shown below is information concerning the annual and long-term compensation
for services in all capacities to the Company for the calendar years ended
December 31, 2002, 2001, and 2000, of those persons who were, at December 31,
2002 (i) the chief executive officer and (ii) the other most highly compensated
executive officers of the Company whose total annual compensation exceeded
$100,000 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
Long-Term Compensation Awards
--------------------------------------
Annual Compensation Restricted Securities All Other
--------------------------- Stock Underlying LTIP Compensation
Name and Principal Position Year Salary Bonus Awards (2) Options (#) Payouts (1)
--------------------------- ---- --------- -------- ---------- ----------- -------- -------------
R. Randall Rollins................ 2002 $ 500,000 $200,000 - 150,000 - $3,300
Chairman of the Board 2001 450,000 - - - - 2,500
2000 450,000 - - - - 2,550
Gary W. Rollins................... 2002 $ 900,000 $300,000 - 300,000 - $3,300
Chief Executive Officer, 2001 850,000 - - - - 2,400
President & Chief Operating 2000 790,000 - - - - 2,550
Officer
Michael W. Knottek................ 2002 $ 234,250 $94,800 $50,000 30,000 - $3,300
Senior Vice President and 2001 223,500 90,400 - 30,000 - 2,550
Secretary 2000 212,000 63,072 - 22,500 - 2,550
Harry J. Cynkus................... 2002 $ 195,433 $79,200 $50,000 30,000 - $3,300
Chief Financial Officer and 2001 184,533 76,120 - - - 2,550
Treasurer 2000 173,000 48,440 - - - 2,550
Glen Rollins...................... 2002 $ 213,800 $106,900 $50,000 30,000 - $3,300
Vice President 2001 195,133 69,374 - 30,000 - 2,550
-----------
(1) The amounts shown in this column represent the Company match for the
Named Executives under the Rollins 401(k) Plan ("401(k) Plan"), a
qualified retirement plan adopted by the Company on October 1, 1983 and
designed to meet the requirements of Section 401(k) of the Internal
Revenue Code. The 401(k) Plan provides for a matching contribution
(made in the form of Common Stock of the Company) of thirty cents
($.30) for each one dollar ($1.00) of a participant's contributions to
the 401(k) Plan that do not exceed 6 percent of his or her annual
compensation (which includes commissions, overtime and bonuses). A
participant's voluntary pre-tax salary deferrals made under the 401(k)
Plan are in lieu of payment of compensation to the participant.
9
(2) At the January 28, 2003 Board Meeting the Compensation Committee of the
Board of Directors granted to three non-Director Named Executives a
$50,000 bonus each for 2002 performance to be paid in Rollins, Inc.
Common Stock less any applicable withholding taxes. On February 28,
2003, each of the three non-Director Named Executives received 1,719
shares at an average price of $19.07. Applicable withholding taxes were
approximately $17,000 per grant. At December 31, 2002, Mr. Glen Rollins
held 7,500 shares of Performance Restricted Stock Incentives, issued to
him in 1998, valued at $127,275 based on the closing price as of
December 31, 2002 of $16.97 per share.
OPTION/SAR GRANTS IN FISCAL YEAR 2002
During 2002, the Named Executives set forth below received stock
options. No stock options were granted to the other Named Executives. Also, no
Named Executive received any Stock Appreciation Rights during 2002.
Individual Grants
--------------------------
Percent of Potential Realizable
Total Value at Annual Rates
Number of Options Of STock Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise Option Term (2)
Name Options in Fiscal or Base Expiration ---------------------
Granted Year Price ($/Sh) Date 5% ($) 10% ($)
------- --------- ------------ ---------- -------- ----------
R. Randall Rollins................... 39,000(1) 3.3% $14.04 1/22/07 $151,317 $334,370
R. Randall Rollins................... 111,000(2) 9.5% $12.77 1/22/07 $391,519 $865,154
Gary W. Rollins...................... 39,000(1) 3.3% $14.04 1/22/07 $151,317 $334,370
Gary W. Rollins...................... 261,000(2) 22.3% $12.77 1/22/07 $920,598 $2,034,280
Michael W. Knottek................... 30,000(3) 2.6% $12.77 1/22/12 $240,867 $610,403
Harry J. Cynkus...................... 30,000(3) 2.6% $12.77 1/22/12 $240,867 $610,403
Glen Rollins......................... 30,000(3) 2.6% $12.77 1/22/12 $240,867 $610,403
-----------
(1) These Incentive Stock Options were granted on January 22, 2002 at an
exercise price of $14.04 per share, which was 110% of market price, on
the date of grant. The market price on the date of the grant was
$12.77. These options immediately vest and become exercisable 20% on
the date of the grant and each year thereafter vest 20% over 4 years
and expire after 5 years.
(2) These Non-Qualified Incentive Stock Options were granted on January 22,
2002 at an exercise price of $12.77 per share, the market price on the
date of grant. These options immediately vest and become exercisable
20% on the date of the grant and each year thereafter vest 20% over 4
years and expire after 5 years.
(3) These Incentive Stock Options were granted on January 22, 2002 at an
exercise price of $12.77 per share, the market price on the date of
grant. These options vest and become exercisable 20% each year over 5
years and expire after 10 years.
(4) These amounts, based on assumed appreciation rates of 5% and 10%
prescribed by the Securities and Exchange Commission rules, are not
intended to forecast possible future appreciation, if any, of the
Company's stock price. These numbers do not take into account certain
provisions of options providing for termination of the option following
termination of employment, nontransferability, or phased-in vesting.
The Company did not use an alternative formula for a grant date
valuation as it is not aware of any formula that will determine with
reasonable accuracy a present value based on future unknown or volatile
factors. Future compensation resulting from option grants is based
solely on the performance of the Company's stock price.
10
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2002
AND YEAR-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SAR's Options/SAR's
At FY-End (#) At FY-End ($) (1)
Shares Acquired Value Exercisable/ Exercisable/
Name On Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ -------------- -----------------
R. Randall Rollins..................... - $ - 30,000/120,000 $116,042/$464,168
Gary W. Rollins........................ - - 60,000/240,000 242,042/968,168
Michael W. Knottek..................... 10,050 24,835 81,750/98,700 382,244/500,560
Harry J. Cynkus........................ 3,300 8,447 25,500/41,700 114,838/187,148
Glen Rollins........................... - - 43,800/68,100 201,990/316,968
-----------------------
(1) Based on the closing price of the Company's Common Stock on the New
York Stock Exchange on December 31, 2002 of $16.97 per share.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information regarding equity
compensation plans as of December 31, 2002.
Number of Securities
Remaining Available for
Number of Securities To Be Weighted Average Exercise Future Issuance Under
Issued Under Exercise of Price of Outstanding Equity Compensation Plans
Outstanding Options, Options, Warrants and (Excluding Securities
Warrants and Rights Rights Reflected in Column (A))
Plan Category (A) (B) (C)
------------- --------------------------- ------------------------ -------------------------
Equity compensation plans approved by Security
holders..................................... 3,186,384(1) $12.43 1,098,179
Equity compensation plans not approved by
security holders............................ 150,000(2) $12.77 -
Total................................ 3,336,384 $12.43 1,098,179
(1) Includes 30,000 shares of Performance Restricted Stock. This
performance stock does not have a weighted average exercise price
because no exercise price is paid upon issuance of the stock.
(2) These stock options were granted to Mr. Gary W. Rollins, Chief
Executive Officer of Rollins, Inc., on January 22, 2002. The total
amount of the grant was 300,000, however the Company's 1998 Employee
Stock Incentive Plan under which these options were granted states that
no one person may receive in any one year over 100,000 in options (Mr.
Rollins' pre-split option grant was for 200,000 shares). Therefore, the
excess is deemed not issued under a security holder approved equity
compensation plan.
BENEFIT PLANS
The Rollins, Inc. Retirement Income Plan is a trusteed defined benefit
pension plan. The amounts shown on the following table are those annual benefits
payable for life on retirement at age 65. The amounts computed in the following
table assume: (a) that the participant remains in the service of the Company
until his normal retirement date at age 65; (b) that the participant's earnings
continue at the same rate as paid in the year ended December 31, 2002 during the
remainder of his service until age 65; (c) that the normal form of benefit is a
single-life annuity; and (d) that the Plan continues without substantial
modification.
11
PENSION PLAN TABLE
Years of Service
----------------------------------------------------------------------
Remuneration 15 20 25 30 35 40
-----------------------------------------------------------------------------------------
$100,000....... 18,000 24,000 30,000 36,000 42,000 42,000
200,000....... 36,000 48,000 60,000 72,000 84,000 84,000
300,000....... 54,000 72,000 90,000 108,000 126,000 126,000
400,000....... 72,000 96,000 120,000 144,000 168,000 168,000
500,000....... 90,000 120,000 150,000 180,000 210,000 210,000
600,000....... 108,000 144,000 180,000 216,000 252,000 252,000
700,000....... 126,000 168,000 210,000 252,000 294,000 294,000
800,000....... 144,000 192,000 240,000 288,000 336,000 336,000
900,000....... 162,000 216,000 270,000 324,000 378,000 378,000
1,000,000....... 180,000 240,000 300,000 360,000 420,000 420,000
The above table does not reflect the Plan's offset for Social Security
average earnings, the maximum limit on compensation under Section 401(a)(17) of
the Internal Revenue Code of 1986 as amended (the "Code"), or the maximum
benefit limitations under Section 415 of the Code. The compensation for the
Named Executives is identical to the compensation reflected in the Summary
Compensation Table under the two columns titled "Salary" and "Bonus".
Retirement income benefits are based on the average of the employee's
compensation from the Company for the five consecutive complete calendar years
of highest compensation during the last ten consecutive complete calendar years
("final average compensation") immediately preceding the employee's retirement
date or, if earlier, the date of his termination of employment. All employees of
the Company and its subsidiaries (other than employees subject to collective
bargaining agreements) who commenced employment prior to January 1, 2002 are
eligible to participate in the Retirement Income Plan after completing one year
of service (a consecutive 12-month period with 1,000 hours of service). The
benefit formula is 1.2% of final average compensation less 0.6% of final average
FICA earnings, multiplied by years of service (maximum 35 years). However, a
participant's benefits will not be less than the greater of his benefit earned
as of December 31, 2001 or his benefit as of December 31, 2001 multiplied by a
fraction in which the numerator is the final average compensation when the
participant's credited service ends and the denominator is the participant's
final average compensation at December 31, 2001. The Plan also provides reduced
early retirement benefits under certain conditions. In accordance with the Code,
the maximum annual benefit that may be paid could be payable to a Retirement
Income Plan beneficiary in 2003 is $160,000. In accordance with the Code (as
amended by the Economic Growth and Tax Relief Reconciliation Act of 2001), the
maximum compensation recognized by the Retirement Income Plan is $200,000 in
2003. Retirement benefits accrued at the end of any calendar year will not be
reduced by any subsequent changes in the maximum compensation limit.
The current credited years of service for the Named Executives, each of
whom is a participant in the Plan, are: R. Randall Rollins, 19 years; Gary W.
Rollins, 35 years; Michael W. Knottek, 5 years; Harry J. Cynkus, 4 years; and
Glen Rollins, 13 years.
Effective October 1, 1983, the Company adopted a qualified retirement plan
designed to meet the requirements of Section 401(k) of the Code ("401(k) Plan").
The only form of benefit payment under the 401(k) Plan is a single lump-sum
payment equal to the vested balance in the participant's account on the date the
distribution is processed. Under the 401(k) Plan, the full amount of a
participant's vested benefit is payable upon his termination of employment,
attainment of age 59 1/2 (with respect to pre-tax deferrals only), retirement,
total and permanent disability, or death. Amounts contributed by the Company to
the accounts of Named Executives for 2002 under this plan are included in the
"All Other Compensation" column of the Summary Compensation Table on Page 10.
INDEPENDENT PUBLIC ACCOUNTANTS
On July 23, 2002 Rollins, Inc. ("Rollins") voted to dismiss its independent
accountants, Arthur Andersen LLP ("Andersen"), and to engage the services of
Ernst & Young LLP ("Ernst & Young") to serve as its new independent accountants,
effective immediately. This determination followed Rollins' decision to seek
proposals from independent accountants to audit Rollins' financial statements
for the fiscal year ending December 31, 2002. The decision to dismiss Andersen
and to engage the services of Ernst & Young was approved by Rollins' Board of
Directors upon the recommendation of its Audit Committee.
12
During Rollins' two most recent fiscal years ended December 31, 2001 and
2000, and the subsequent interim period through July 23, 2002, there were no
disagreements between Rollins and Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to Andersen's satisfaction would
have caused them to make reference to the subject matter of the disagreement in
connection with their reports.
None of the reportable events described under Item 304(a)(1)(v) of
Regulation S-K occurred within Rollins' two most recent fiscal years ended
December 31, 2001 and 2000, or during any subsequent interim period through July
23, 2002.
The audit reports of Andersen on the consolidated financial statements of
Rollins and subsidiaries as of and for the two fiscal years ended December 31,
2001 and 2000 did not contain any adverse opinion or disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope, or accounting
principles.
As required under Securities and Exchange Commission regulations, Rollins
provided Andersen with a copy of the foregoing disclosures and requested that
Andersen furnish Rollins with a letter addressed to the Commission stating
whether it agrees with the statements by Rollins in this disclosure and, if not,
stating the respects in which it does not agree. Although reasonable efforts
have been made by Rollins, it has been unable to obtain such a letter from
Andersen. Rollins is therefore relying on temporary Item 304T(2) of Regulation
S-K in filing this report on Form 8-K.
During Rollins' two most recent fiscal years ended December 31, 2001 and
2000, and the subsequent interim period through July 23, 2002, Rollins did not
consult with Ernst & Young with respect to the application of accounting
principles to a specified transaction or regarding any of the matters or events
set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
Ernst & Young LLP has served as the Company's independent auditors since
July 24, 2002 for the fiscal year ended December 31, 2002. In addition to
performing the audit of the Company's consolidated financial statements, Ernst &
Young provided various other services during 2002. The aggregate fees billed for
2002 for each of the following categories of services are set forth below:
Audit and quarterly reviews............................................ $53,500
Financial information systems design and implementation................ $ ---
All other services..................................................... $17,640
-------
Total.................................................................. $71,140*
-----------------
* Arthur Andersen LLP, the Company's previous independent auditors, were
paid the following for fiscal year 2002: $3,300 for audit fees, $7,615
for all other fees. Arthur Andersen LLP served as the Company's
independent auditors from January 1, 2002 thru July 23, 2002.
All other services include tax planning, review of tax returns of the
Company, and audits of the Company's employee benefit plans. For the year ended
December 31, 2002, the Company's Audit Committee has considered whether the
provision of non-audit services is compatible with maintaining auditor
independence.
As is its policy, upon the recommendation of the Audit Committee, the Board
of Directors shall select a firm of certified public accountants for 2003. It is
anticipated that a representative of Ernst & Young LLP will be present at the
Annual Meeting to answer questions and make a statement should such
representative so desire. A representative of Arthur Andersen LLP is not
expected to be present.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
At the Company's October 22, 2002 Board of Directors meeting, the
independent directors of the Board of Directors and the Audit Committee approved
three related party transactions. The Audit Committee and the independent
directors were furnished with full disclosure of the transactions, including
independent appraisals, and determined that the terms of each transaction were
reasonable and fair to the Company. The first approval was the purchase of the
Rollins Training Center on October 31, 2002 for $3.1 million from RTC, LLC, a
company controlled by R. Randall Rollins, Chairman of the Board of Rollins, Inc.
The second approval was the purchase of hand-held computer software development
known as PowerTrak Version 1.0 from RRR Associates, a company controlled by R.
Randall Rollins. The purchase was made during the fourth quarter at an approved
purchase price of $250,000. The third approval was a lease agreement effective
July 1, 2002 that expires June 30, 2007 for company real estate in Okeechobee
County, Florida to be leased to Rollins Ranch, a division of LOR, Inc., a
company controlled by R. Randall Rollins and Gary W. Rollins,
13
Chief Executive Officer, President and Chief Operating Officer of Rollins. Inc.
The annual lease rate on this real estate is $131,939. It is the opinion of
Management that these related party transactions were reasonable and fair to the
Company and will not have a material effect on the Company's financial position,
results of operations or liquidity.
At the Company's January 28, 2003 Board of Directors' meeting, the
independent directors of the Board of Directors' and the Audit Committee
approved four related party transactions. The Audit Committee and the
independent directors were furnished with full disclosure of the transactions,
including independent appraisals, and determined that the terms of each
transaction were reasonable and fair to the Company and will not have a material
effect on the Company's financial position, results of operations or liquidity.
The first approval was the ratification of the current arrangement between
Rollins, Inc. and LOR, Inc., a company controlled by R. Randall Rollins and Gary
W. Rollins, related to sharing the aviation hangar located at the
Dekalb-Peachtree Airport as well the usage of the Jetstar II, owned by Rollins,
Inc., and Gulfstream III, owned by LOR, Inc. LOR, Inc. leases half of the hangar
from Rollins, Inc. for a total annual lease amount of $13,655. This lease
expires on January 24, 2008. The hangar currently houses three airplanes, two of
which are not owned by Rollins, Inc. and reside on the portion of the hangar
leased by LOR, Inc. All other expenses related to the hangar are also shared
equally by Rollins, Inc. and LOR, Inc. Total expenses for 2002 were
approximately $114,000, which includes rental, utilities, maintenance and
repairs, depreciation, property tax and miscellaneous expense. The Jetstar II
and Gulfstream III are used by both Rollins, Inc. and LOR, Inc. and are billed
on a monthly basis. The Gulfstream III is charged at a rate of $12,750 per month
while the Jetstar II is charged at a rate of $5,250 per month. All expenses
related to each respective aircraft are paid for by the owner of each aircraft,
except for fuel. Fuel is paid for by Rollins, Inc. and billed monthly to the
company using the aircraft. Additionally, Mr. R. Randall Rollins and Mr. Gary W.
Rollins use the Jetstar II for personal use and are billed for its use at the
rate of $1,000 per hour, which approximates the fuel cost. The total hourly
usage for 2002 was approximately 6 hours or $6,000. The Company on occasion uses
the Gulfstream III and is also billed for its use at a rate of $1,000 per hour,
which approximates the fuel cost. The second approval was the ratification of
the arrangement concerning the rental of office space to LOR, Inc. located at
2170 Piedmont Road NE, Atlanta, Georgia 30324. The property located at 2170
Piedmont Road is owned by Rollins Continental, Inc. a wholly owned subsidiary of
Rollins, Inc. Currently LOR, Inc. occupies approximately 3,580 square feet of
office space in the building located at 2170 Piedmont Road. The annual rental
rate is $39,029. The third approval was the ratification of the arrangement
concerning the rental of office space to LOR, Inc. located at 710 Lakeshore
Circle, Atlanta, Georgia 30324. The property located at 710 Lakeshore Circle is
also owned by Rollins Continental, Inc. Currently LOR, Inc. occupies
approximately 3,344 square feet of office space in the building located at 710
Lakeshore Circle. The annual rental rate is $40,800. The fourth approval was the
ratification of the current arrangement related to the payment of fees for the
services of a programmer/analyst that was employed by LOR, Inc. but has become
employed by Rollins, Inc. in the first quarter of 2003. The programmer/analyst
is being used to further develop the PowerTrak Version 1.0 hand-held computer
software purchased in the fourth quarter of 2002 (as discussed in the above
paragraph). The hourly wage paid to LOR, Inc. was $32 per hour, which equated to
$66,560 per year, including overhead. It is the opinion of Management that these
related party transactions were reasonable and fair to the Company and will not
have a material effect on the Company's financial position, results of
operations or liquidity.
Employees of Rollins, Inc. confer with employees of LOR, Inc. and RRR
Associates and vice versa. No fees are charged for these services because in the
opinion of management the activity is mutually beneficial and offsetting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company has completed a review of Forms 3, 4 and 5 and amendments
thereto furnished to the Company by all directors, officers and greater than 10
percent stockholders subject to the provisions of Section 16 of the Securities
Exchange Act of 1934. In addition, the Company has a written representation from
all directors, officers and greater than 10 percent stockholders from whom no
Form 5 was received, indicating that no Form 5 filing was required. Based solely
on this review, the Company believes that all filing requirements of such
persons under Section 16 for the fiscal year ended December 31, 2002 were timely
satisfied.
APPROVAL OF PERFORMANCE-BASED INCENTIVE
CASH COMPENSATION FOR ROLLINS, INC. EXECUTIVE OFFICERS
The Internal Revenue Code limits Rollins, Inc.'s tax deduction for expense
in connection with compensation of its chief executive officer and its four
other most highly-compensated executive officers for any fiscal year to the
extent that the remuneration of such person exceeds $1 million during such
fiscal year, excluding remuneration that qualifies as "performance-based
compensation." Section 162(m) of the Internal Revenue Code provides that in
order for remuneration to be treated as qualified performance-based
compensation, the material terms of the performance goals must be disclosed to
and approved by the stockholders of the employer.
14
At the Annual Meeting, the stockholders will be asked to approve the terms
relating to incentive compensation to be paid to Rollins, Inc. executive
officers pursuant to the plan. Executive officer compensation typically consists
of a base salary, potential stock options, and bonus compensation, based on
criteria similar to that previously used for Rollins, Inc. executive officers.
There are 5 executive officers who will participate in the incentive cash
compensation plan. Executive officers will be entitled to receive bonuses up to
80% of their base salaries, or a maximum dollar amount of $2,000,000 per
individual per year, upon achievement of bonus performance goals, which shall be
Rollins, Inc. achievement of pre-established performance goals in one or more of
the following three targeted financial measures: revenue growth, pretax profit
plan achievement, and pretax profit improvement over the prior year. The bonus
performance goals for 2003 have been pre-established by the Compensation
Committee and approved by the Board of Directors for all executive officers. For
future years, goals will be set prior to the beginning of the year. Rollins,
Inc. believes that the incentive-related provisions provide performance
incentives that are and will be beneficial to Rollins, Inc. and its
stockholders. This plan will be in place until April 22, 2008.
Since the amounts payable under the performance-based incentive
compensation plan for the year ending December 31, 2003 are dependent on
Rollins, Inc. financial performance, the amounts are not currently determinable.
However, the following table sets forth information regarding the theoretical
maximum amounts that could be earned by each of the following executives for the
fiscal year ending December 31, 2003.
NEW PLAN BENEFITS
MAXIMUM PERFORMANCE-BASED INCENTIVE CASH COMPENSATION
FOR ROLLINS, INC. EXECUTIVE OFFICERS
Dollar Value of Maximum
Name and Position 80% of 2003 Salary($) (1)
-------------------------------------------------------------------------------
R. Randall Rollins................................... $560,000
Chairman of the Board
Gary W. Rollins...................................... $800,000
President and Chief Executive Officer
Michael W. Knottek................................... $200,000
Senior Vice President
Harry J. Cynkus...................................... $168,000
Chief Financial Officer
Glen W. Rollins...................................... $252,000
Vice President
------------------------------------------------------------------------------
(1) This illustration shows a maximum of 80% of salary in bonus
compensation; actual 2003 bonus maximums may be less than 80%.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE INCENTIVE CASH COMPENSATION
PLAN FOR THE EXECUTIVE OFFICERS.
15
STOCKHOLDER PROPOSALS
Appropriate proposals of stockholders intended to be presented at the
Company's 2004 Annual Meeting of the Stockholders, pursuant to Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as amended, must be
received by the Company by November 18, 2003 for inclusion in its proxy
statement and form of proxy relating to that meeting. With respect to the
Company's annual meeting of the stockholders to be held in 2004, all stockholder
proposals submitted outside the stockholder proposal rules contained in Rule
14a-8 promulgated under the Securities Exchange Act of 1934, as amended, which
pertains to the inclusion of stockholder proposals in a Company's proxy
materials, must be received by the Company by February 1, 2004, in order to be
considered timely. With regard to such stockholder proposals, if the date of the
next annual meeting of stockholders is advanced or delayed more than 30 calendar
days from April 20, 2004, the Company will, in a timely manner, inform its
stockholders of the change and of the date by which such proposals must be
received.
MISCELLANEOUS
The Company's Annual Report on Form 10-K for the calendar year ended
December 31, 2002 is being mailed to stockholders with this proxy statement.
Management knows of no business other than the matters set forth herein
which will be presented at the meeting. Inasmuch as matters not known at this
time may come before the meeting, the enclosed proxy confers discretionary
authority with respect to such matters as may properly come before the meeting;
and it is the intention of the persons named in the proxy to vote in accordance
with their best judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael W. Knottek
----------------------------------
Michael W. Knottek, Secretary
Atlanta, Georgia
March 17, 2003
16
APPENDIX A
ROLLINS, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
PURPOSE
The Audit Committee (the "Committee") is appointed by the Board of
Directors (the "Board") to assist the Board in fulfilling its oversight
responsibilities. The Committee's primary purpose is to monitor the integrity of
the Company's financial reporting process, including (by overseeing the
financial reports and other financial information provided by the Company to any
governmental or regulatory body, the public or other users thereof) the
Company's systems of internal accounting and financial controls, the performance
of the Company's internal audit function, the independent auditor's
qualifications and independence, the Company's compliance with ethics policies
and legal and regulatory requirements statements, and the annual independent
audit of the Company's financial statements. The Committee will monitor the
independence, performance, and qualifications of the Company's independent
auditors.
In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company. The Committee is authorized to
retain outside counsel, auditors or other experts and professionals for this
purpose. The Board and the Committee are in place to represent the Company's
shareholders; accordingly, the outside auditor is ultimately accountable to the
Board and the Committee.
MEMBERSHIP
The Committee shall be comprised of not less than three members of the
Board, and the Committee's composition shall meet all requirements of the Audit
Committee policy of the New York Stock Exchange.
Accordingly, all of the members must be directors:
- Who are independent of management and the Company. Members of the Committee
shall be considered independent as long as they do not accept any
consulting, advisory, or compensatory fee from the Company and are not an
affiliated person of the Company or its subsidiaries, and meet the
independence requirements of the New York Stock Exchange;
- Who are financially literate or who become financially literate within a
reasonable period of time after appointment to the Committee. In addition,
at least one member of the Committee must be a "financial expert" as
defined by SEC regulations.
KEY RESPONSIBILITIES
The Committee's primary responsibility is to oversee the Company's
financial reporting process on behalf of the Board and report results of their
activities to the Board. [While the Committee has the responsibilities and
powers set forth in this Charter, it is not the duty of the Committee to plan or
conduct audits or to determine that the Company's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles.] Management has the primary responsibility for the financial
statements and reporting process, including the Company's systems of internal
controls. The independent auditors are responsible for expressing an opinion on
the conformity of those audited financial statements with accounting principles
generally accepted in the United States of America and their judgments as to the
quality and the acceptability of the Company's financial reporting and such
other matters as are required to be discussed with the Committee under auditing
standards generally accepted in the United States of America.
The Committee, in carrying out its responsibilities, believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and circumstances. The Committee should take appropriate actions to
set the overall corporate "tone" for quality financial reporting, sound business
risk practices, and ethical behavior. The following shall be the principal
duties and responsibilities of the Committee. These functions are set forth as a
guide with the understanding that the Committee may diverge from this guide as
appropriate under the circumstances.
The Committee shall be directly responsible for the appointment and
termination (subject, if applicable, to shareholder ratification), compensation,
and oversight of the work of the independent auditors, including resolution of
disagreements between management and the auditor regarding financial reporting.
The Committee shall pre-approve all audit and non-audit services provided by the
independent auditors and shall not engage the independent auditors to perform
the specific non-audit services proscribed by law or regulation. The Committee
may delegate pre-approval authority to a member of the Committee. The decisions
of any Committee member to whom pre-approval
A-1
authority is delegated must be presented to the full Committee at its next
scheduled meeting.
At least annually, the Committee shall obtain and review a report by the
independent auditors describing:
- The firm's internal quality control procedures.
- Any material issues raised by the most recent internal quality control
review, or peer review, of the firm, or by any inquiry or investigation
by governmental or professional authorities, within the preceding five
years, respecting one or more independent audits carried out by the
firm, and any steps taken to deal with any such issues.
- All relationships between the independent auditor and the Company (to
assess the auditor's independence).
In addition, the Committee shall set clear hiring policies for employees or
former employees of the independent auditors that meet the SEC regulations and
the New York Stock Exchange listing standards.
The Committee shall discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits, including the
adequacy of staffing and compensation. Also, the Committee shall discuss with
management, the internal auditors, and the independent auditors the adequacy and
effectiveness of the accounting and financial controls, including the Company's
policies and procedures to assess, monitor, and manage business risk, and legal
and ethical compliance programs (e.g., Company's Code of Conduct).
The Committee shall meet separately periodically with management, the
internal auditors, and the independent auditors to discuss issues and concerns
warranting committee attention. The Committee shall provide sufficient
opportunity for the internal auditors and the independent auditors to meet
privately with the members of the Committee. The Committee shall review with the
independent auditor any audit problems or difficulties and management's
response.
The Committee shall receive regular reports from the independent auditor on
the critical policies and practices of the Company, and all alternative
treatments of financial information within generally accepted accounting
principles that have been discussed with management.
The Committee shall review management's assertion on its assessment of the
effectiveness of internal controls as of the end of the most recent fiscal year
and the independent auditors' report on management's assertion.
The Committee shall review and discuss earnings press releases, as well as
financial information and earnings guidance provided to analysts and rating
agencies.
The Committee shall review the interim financial statements and disclosures
under Management's Discussion and Analysis of Financial Condition and Results of
Operations with management and the independent auditors prior to the filing of
the Company's Quarterly Report on Form 10-Q. Also, the Committee shall discuss
the results of the quarterly review and any other matters required to be
communicated to the Committee by the independent auditors under generally
accepted auditing standards. The chair of the Committee may represent the entire
committee for the purposes of this review.
The Committee shall review with management and the independent auditors the
financial statements and disclosures under Management's Discussion and Analysis
of Financial Condition and Results of Operations to be included in the Company's
Annual Report on Form 10-K (or the annual report to shareholders if distributed
prior to the filing of Form 10-K), including their judgment about the quality,
not just the acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the financial
statements. Also, the Committee shall discuss the results of the annual audit
and any other matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards.
The Committee shall establish procedures for the receipt, retention, and
treatment of complaints received by the issuer regarding accounting, internal
accounting controls, or auditing matters, and the confidential, anonymous
submission by employees of the issuer of concerns regarding questionable
accounting or auditing matters.
The Committee shall receive corporate attorneys' reports of evidence of a
material violation of securities laws or breaches of fiduciary duty.
The Committee also prepares its report to be included in the Company's
annual proxy statement, as required by SEC regulations.
The Committee shall perform an evaluation of its performance at least
annually to determine whether it is functioning effectively.
A-2
PROXY
ROLLINS, INC.
Proxy Solicited by the Board of Directors of Rollins, Inc.
for Annual Meeting of Stockholders, Tuesday, April 22, 2003, 1:40 P.M.
The undersigned hereby constitutes and appoints GARY W. ROLLINS and R.
RANDALL ROLLINS, and each of them, jointly and severally, proxies, with full
power of substitution, to vote all shares of Common Stock which the undersigned
is entitled to vote at the Annual Meeting of Stockholders to be held on April
22, 2003, at 1:40 P.M. at 2170 Piedmont Road, NE, Atlanta, Georgia, or any
adjournment thereof.
The undersigned acknowledges receipt of Notice of the Annual Meeting and
Proxy Statement, each dated March 17, 2003, grants authority to said proxies, or
either of them, or their substitutes, to act in the absence of others, with all
the powers which the undersigned would possess if personally present at such
meeting and hereby ratifies and confirms all that said proxies, or their
substitutes, may lawfully do in the undersigned's name, place or stead. The
undersigned instructs said proxies, or either of them, to vote as follows:
1. |_| FOR Gary W. Rollins and Henry B. Tippie |_| WITHHOLD authority to vote for the
as Class II Directors, except as set forth below election of all Class II nominees
(INSTRUCTIONS: To refrain from voting for any individual nominee, write that nominee's name on the line provided below:
------------------------------------------------------------------------------------------------------------------------------------
2. |_| FOR the approval of the Performance-Based Incentive |_| AGAINST the approval of the Performance-Based Incentive
Cash Compensation Plan for Executive Officers Cash Compensation Plan for Executive Officers
|_| REFRAIN from voting for the approval of the Performance-Based Incentive
Cash Compensation Plan for Executive Officers
3. ON ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
(over)
ROLLINS, INC.
(continued from other side)
ALL PROXIES SIGNED AND RETURNED WILL BE VOTED OR NOT VOTED IN ACCORDANCE WITH
YOUR INSTRUCTIONS, BUT THOSE WITH NO CHOICE WILL BE VOTED FOR ELECTION OF THE
BOARD OF DIRECTORS' NOMINEES FOR DIRECTOR AND IN FAVOR OF THE PERFORMANCE-BASED
INCENTIVE CASH COMPENSATION PLAN FOR EXECUTIVE OFFICERS. THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
PROXY
Please sign below, date and return promptly.
----------------------------------------------------
----------------------------------------------------
Signature
Dated:----------------------------------------------
(Signature should conform to name and title stenciled
hereon. Executors, administrators, trustees,
guardians and attorneys should add their title upon
signing)
NO POSTAGE REQUIRED IF THIS PROXY IS RETURNED IN THE ENCLOSED ENVELOPE AND
MAILED IN THE UNITED STATES.