Page 46
Exhibit 10(iii)A(3)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT
FOR EXECUTIVE OFFICERS
THIS AGREEMENT, made as of the 22nd day of September, 1998 (the "Grant
Date"), between NATIONAL SERVICE INDUSTRIES, INC., a Delaware corporation
("NSI"), and NSI SERVICES, L.P. (GA), a Subsidiary of NSI (together, the
"Company"), and [Grantee] (the "Grantee").
WHEREAS, NSI has adopted the National Service Industries, Inc.
Long-Term Achievement Incentive Plan (the "Plan") in order to provide additional
incentives to certain officers and key employees of NSI and its Subsidiaries;
and
WHEREAS, the Committee responsible for administration of the Plan has
determined to grant to the Grantee an Aspiration Achievement Incentive Award as
provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Aspiration Award.
1.1 The Company hereby grants to the Grantee an Aspiration
Achievement Incentive Award (the "Award"), which has a value determined as
provided in Section 2 below based upon the performance of the Operations during
the Performance Cycle from September 1, 1998 to August 31, 2001. As provided in
the Plan, Grantee's right to payment of this Award is dependent upon Grantee's
continued employment in Grantee's current position with the Company, or in a
position with responsibilities of substantially similar value to the Company
during the Performance Cycle. Under certain circumstances as described below,
Grantee may be entitled to receive payment for some portion of the Award if
Grantee's employment terminates prior to the end of the Performance Cycle.
1.2 The Grantee hereby acknowledges receipt of a copy of the
Plan and agrees to be bound by all the terms and provisions thereof. This
Agreement shall be construed in accordance with, and subject to, the provisions
of the Plan (the provisions of which are hereby incorporated by reference) and,
except as otherwise expressly set forth herein, the capitalized terms used in
this Agreement shall have the same definitions as set forth in the Plan.
2. Performance Measure and Performance Levels.
The Committee has established the performance measure (the
"Performance Measure"), and award and performance levels set forth in Appendix A
attached hereto. The chart in Appendix A specifies a Commitment performance
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Exhibit 10(iii)A(3)
level, at which the Commitment Level Award will be paid, an Aspiration
performance level, at or above which an Aspiration Level Award will be paid, and
a threshold performance level, at which a minimum incentive award will be paid
and below which no award will be paid. For each level of performance at or above
the threshold performance level through the Aspiration performance level,
Grantee will receive an award determined in accordance with the chart and
formulae set forth in Appendix A. The terms used in determining the Performance
Measure are defined in Appendix B.
3. Determination of Aspiration Award.
3.1 Determination Notice. Subject to Section 3.2, as soon as
practical following the last day of the Performance Cycle, the Committee will
determine, in accordance with Section 7(c) of the Plan, the performance level of
NSI with respect to the Performance Measure for the Performance Cycle. The
Committee may in determining the performance level with respect to the
Performance Measure adjust NSI's financial results for the Performance Cycle to
exclude the effect of unusual charges or income items which are distortive of
financial results for the Performance Cycle; provided, that, in determining
financial results, items whose exclusion from consideration will increase the
performance level of NSI shall only have their effects excluded if they
constitute "extraordinary items" under generally accepted accounting principles
and all such items shall be excluded. The Committee shall also adjust the
performance calculations to exclude the unanticipated effect on financial
results of changes in the Code, or other tax laws, and the regulations
thereunder. The Committee shall also exclude from consideration the effect on
financial performance of each of the following events or items where the result
of excluding the particular event or item is to increase the performance level
of NSI: (i) an acquisition or a divestiture involving more than $10 million in
net worth or $25 million in business revenues; (ii) an equity restructuring
involving more than $1 million; (iii) asset impairment charges involving more
than $1 million and restructuring costs involving more than $1 million
associated with facility closings or reduction in employment levels; (iv)
changes in accounting treatment or rules involving more than $1 million. The
Committee may decrease the amount of the Award otherwise payable to Grantee if,
in the Committee's view, such adjustment is necessary or desirable, regardless
of the extent to which the Performance Measure has been achieved. The Committee
may establish such guidelines and procedures for reducing the amount of an Award
as it deems appropriate.
The Company will notify the Grantee (or the executors or
administrators of the Grantee's estate, if applicable) of the Committee's
determination (the "Determination Notice"). The Determination Notice shall
specify the performance level of the Operations with respect to the Performance
Measure for the Performance Cycle and the amount of Award (if any) Grantee will
be entitled to receive. Unless the Committee determines otherwise at the
time the Award is paid and except as otherwise provided in the event of a
Change in Control, the amount Grantee is entitled to receive will be paid
one-half in cash and one-half in Shares. The Shares will be valued at their Fair
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Exhibit 10(iii)A(3)
Market Value as of the last day of the Performance Cycle. Except in the case of
a Change in Control, the Committee may, in its discretion, attach restrictions,
terms, and conditions to the Shares issued as part of the Award.
3.2 Significant Corporate Events. If, during a Performance
Cycle, NSI consummates an acquisition or disposition that (i) involves assets
whose value equals or exceeds 20% of the total value of NSI's assets, (ii)
represents a part of the business whose revenues equal or exceed 20% of the
total of NSI's revenues, or (iii) causes a material restructuring of NSI, the
following rules shall apply:
(a) If the transaction is consummated during the
first year of the Performance Cycle, the Performance Cycle and the Grantee's
outstanding Award will be terminated with no payout and a new Performance Cycle
containing a new Award will be started.
(b) If the transaction is consummated after the first
year of the Performance Cycle, the Performance
Cycle will end and the outstanding Award will be determined and paid at NSI's
actual performance level to such date, taking into account the adjustments
provided for in Section 3.1 above and using prorated performance levels of the
Performance Measure to reflect the portion of the Performance Cycle that had
elapsed as of the date of consummation of the acquisition or disposition.
Payment of the Award will be made as soon as practical after it is determined. A
new Performance Cycle will be started to cover the period remaining in the
initial Performance Cycle or, if that result is not practical, the Committee
will make an appropriate adjustment to reflect the premature termination of the
initial Performance Cycle.
If, during a Performance Cycle, NSI consummates an
acquisition or disposition that is not covered by the special provisions of
this Section 3.2, the financial effects of such acquisition or disposition
shall be handled as provided in Section 3.1.
Any actions under this Section 3.2 shall be taken in
accordance with the requirements of Code Section
162(m) and the regulations thereunder.
4. Termination of Employment.
4.1 In General. Except as provided in Sections 4.2, 4.3, and
4.4 below, in the event that the Grantee's employment terminates during a
Performance Cycle, all unearned Aspiration Awards shall be immediately forfeited
by the Grantee.
4.2 Termination of Employment Due to Death, Disability, or
Retirement. In the event the employment of the Grantee is terminated by reason
of death or Disability during a Performance Cycle, the Grantee shall be entitled
to a prorated payout with respect to the unearned Award. The prorated payout
shall be determined by the Committee based upon the length of time that the
Grantee was actively employed during the Performance Cycle relative to the full
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Exhibit 10(iii)A(3)
length of the Performance Cycle; provided, that payment shall only be made to
the extent at the end of the Performance Cycle the Award would have been earned
based upon the performance level achieved for the Performance Cycle (taking into
account the adjustment provisions and other rules in Section 3 above); and
provided, further, that the performance level used to determine the prorated
award cannot exceed 200% of the Commitment performance level.
In the event of Grantee's Retirement (on or after age
65), the full Award shall continue to be eligible for payout at the end of the
Performance Cycle, just as if Grantee had remained employed for the remainder
of the Performance Cycle (including if the Grantee dies after Retirement but
before the end of the Performance Cycle). At the end of the Performance Cycle,
the Committee shall make its determination in the same manner as provided in
Section 3.
Payment of earned Awards to Grantee in the event of
termination due to death, Disability, or Retirement shall be made at the same
time payments would be made to Grantee if Grantee did not terminate employment
during the Performance Cycle.
4.3 Change In Control. Notwithstanding anything in this
Agreement to the contrary, if a Change in Control occurs during the Performance
Cycle, then the Grantee's Award shall be determined for the Performance Cycle
then in progress as though the Performance Cycle had ended as of the date of the
Change in Control and the outstanding Award will be paid at the Commitment Level
Award or the actual performance level to such date (using, for such purpose,
prorated performance levels of the Performance Measure to reflect the portion of
the Performance Cycle that has elapsed as of the date of the Change in Control),
whichever provides the greater payment. The Award determined in accordance with
the preceding sentence shall be fully vested and payable immediately to the
Grantee. The Committee shall determine the amount of the Award under this
Section 4.3, subject to the terms of this section, and no downward adjustment of
the Award which would result in reduction of the Award by more than 50% shall be
permitted. The Award will be paid in full in cash, unless the Grantee elects to
receive one-half of the Award in Shares. For purposes of determining the number
of Shares to be paid to the Grantee under this Section 4.3, the Fair Market
Value of a Share shall be determined by taking the average closing price per
share for the last twenty (20) trading days prior to the commencement of the
offer, transaction, or other event which resulted in a Change in Control.
4.4 Termination Without Cause. In the event Grantee's
employment is terminated by the Company without Cause more than one (1) year
after the commencement of the Performance Cycle and prior to the end of the
Performance Cycle, the Grantee shall be entitled to a prorated payout of the
Award based upon the length of time that the Grantee was actively employed
during the Performance Cycle relative to the full length of the Performance
Cycle; provided, that payment shall be made only to the extent at the end of the
Performance Cycle the Award would have been earned based upon the performance
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Exhibit 10(iii)A(3)
level achieved during the Performance Cycle (taking into account the adjustment
provisions and other rules in Section 3 above); and provided, further, that the
performance level used to determine the prorated award cannot exceed 200% of the
Commitment performance level. Payment shall be made to Grantee at the same time
as if Grantee had not terminated employment during the Performance Cycle.
5. No Right to Continued Employment.
Nothing in this Agreement or the Plan shall be interpreted to
confer upon the Grantee any rights with respect to continuance of employment by
the Company, nor shall this Agreement or the Plan interfere in any way with the
right of the Company to terminate the Grantee's employment at any time.
6. Nonassignment.
The Grantee shall not have the right to assign, alienate,
pledge, transfer, or encumber any amounts due Grantee hereunder, and any attempt
to assign, alienate, pledge, transfer, or encumber Grantee's rights or benefits
shall be null and void and not recognized by the Plan or the Company.
7. Modification of Agreement.
This Agreement may be modified, amended, suspended, or
terminated, and any terms or conditions may be waived, but only by a written
instrument executed by the parties hereto.
8. Severability; Governing Law.
Should any provision of this Agreement be held by a court of
competent jurisdiction to be unenforceable or invalid for any reason, the
remaining provisions of this Agreement shall not be affected by such holding and
shall continue in full force in accordance with their terms.
The validity, interpretation, construction, and performance of
this Agreement shall be governed by the laws of the State of Delaware without
giving effect to the conflicts of laws principles thereof.
9. Successors in Interest.
This Agreement shall inure to the benefit of and be binding
upon any successor to the Company. All obligations imposed upon the Grantee and
all rights granted to the Company under this Agreement shall be binding upon the
Grantee's heirs, executors, and administrators.
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Exhibit 10(iii)A(3)
10. Resolution of Disputes.
Any dispute or disagreement which may arise under, or as a
result of, or in any way relate to, the interpretation, construction, or
application of this Agreement shall be determined by the Committee. Any
determination made hereunder shall be final, binding, and conclusive on the
Grantee and the Company for all purposes.
11. Withholding of Taxes.
The Company shall have the right to deduct from any amount
payable under this Agreement, an amount equal to the federal, state, and local
income taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to any such amount. In satisfaction of all or
part of the Withholding Taxes, the Grantee may make a written election (the "Tax
Election"), which may be accepted or rejected in the discretion of the Company,
to have withheld a portion of the Shares issuable to him or her pursuant to an
Award, having an aggregate Fair Market Value equal to the Withholding Taxes.
12. Shareholder Approval.
The effectiveness of this Agreement and of the grant of the
Award pursuant hereto is subject to the approval of the Plan by the stockholders
of NSI in accordance with the terms of the Plan.
NATIONAL SERVICE INDUSTRIES, INC.
By:
JAMES S. BALLOUN
Chairman, President and
Chief Executive Officer
NSI SERVICES, L.P. (GA), Subsidiary
By:
JAMES S. BALLOUN
Chairman, President and
Chief Executive Officer
Name of Grantee: [Grantee]
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Exhibit 10(iii)A(3)
Appendix A(1)
Aspiration Award Program Illustration - FY 1999-2001
Name: James S. Balloun Division: Corporate
Position: Chairman & Chief Executive Officer
Salary: $800,000
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $100,000 $400,000 $2,000,000
Aspiration Award Program Opportunity
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 100,000
Commitment** $ 400,000
Aspiration** $2,000,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
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Exhibit 10(iii)A(3)
Appendix A(2)
Aspiration Award Program Illustration - FY 1999-2001
Name: Brock A. Hattox Division: Corporate
Position: EVP, Chief Financial Officer
Salary: $380,000
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $45,600 $182,400 $912,000
Aspiration Award Program Opportunity
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 45,600
Commitment** $182,400
Aspiration** $912,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
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Exhibit 10(iii)A(3)
Appendix A(3)
Aspiration Award Program Illustration - FY 1999-2001
Name: David Levy Division: Corporate
Position: EVP, Administration & Counsel
Salary: $365,000
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $43,800 $175,200 $876,000
Aspiration Award Program Opportunity
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 43,800
Commitment** $175,200
Aspiration** $876,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
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Exhibit 10(iii)A(3)
Appendix A(4)
Aspiration Award Program Illustration - FY 1999-2001
Name: Stewart A. Searle Division: Corporate
Position: SVP, Corporate Development
Salary: $240,000
Achievement Level
Threshold Commitment Aspiration
FY99-01 Economic Profit ($000,000) ** ** **
Individual AAI Opportunity $28,800 $115,200 $576,000
Aspiration Award Program Opportunity
The following graph depicts the potential incentive award that would be paid out
at different levels of NSI cumulative economic profit, including: a Threshold
performance level; a Commitment performance level; and an Aspiration performance
level.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold** $ 28,800
Commitment** $115,200
Aspiration** $576,000
**Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
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Exhibit 10(iii)A(3)
Appendix B
Aspiration Achievement
Incentive Award
Performance Measure
PERFORMANCE MEASURE DEFINITION
Economic Profit Sum of the annual economic profits for the performance
cycle. Annual economic profit shall be determined as
follows: Adjusted After-Tax Profits (AATP) minus
[Average Invested Capital times the Weighted Average
Cost of Capital (WACC)]
RELATED TERMS DEFINITION
Average Invested Capital
Average of the average beginning and ending Invested
Capital balances each month.
Adjusted After-Tax
Profit (AATP) Adjusted Pre-Tax Profit minus Book Income Taxes.
Adjusted Pre-Tax
Profit (APTP)
Income before provision for income taxes plus interest
expense plus implied interest on capitalized operating
leases.
Book Income Taxes Reported tax rate (determined by dividing the
provision for income taxes by the income before the
provision for income taxes, as reported in NSI's
annual financial statements) applied to APTP.
Invested Capital [Total assets plus capitalized operating leases, less
short and long-term investment in tax benefits] less
[non-interest bearing liabilities except for self
insurance reserves and deferred tax credits relating
to the safe harbor lease].
Weighted Average
Cost of Capital (WACC) Ten percent(10%) will be the WACC for the Performance
Cycle ending August 31, 2001.