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EXHIBIT 10(iii)A(6)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT
FOR EXECUTIVE VICE PRESIDENT AND GROUP PRESIDENT
THIS AGREEMENT, made as of the 1st day of June, 1999 (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
GEORGE H. GILMORE, JR. (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 Grantee, as an executive of the above-referenced Subsidiary,
performs services with respect to the CHEMICAL GROUP, NATIONAL LINEN SERVICE,
AND AECO operations of the Company (the "Operations"); 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, 1997 to August 31, 2000. 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 remainder of 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.
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EXHIBIT 10(iii)A(6)
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 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 the
Operations 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 the Operations' 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 the Operations 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 the Operations: (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 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 Events Involving the Operations. If, during a Performance
Cycle, NSI consummates an acquisition or disposition involving the Operations
that (i) involves assets whose value equals or exceeds 20% of the total value of
the Operations' assets, (ii) represents a part of the business whose revenues
equal or exceed 20% of the total of the Operations' revenues, or (iii) causes a
material restructuring of the Operations, the following rules shall apply:
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EXHIBIT 10(iii)A(6)
(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 the Operations' 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 a 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 a 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 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.
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EXHIBIT 10(iii)A(6)
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 a 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
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.
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EXHIBIT 10(iii)A(6)
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.
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.
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EXHIBIT 10(iii)A(6)
NATIONAL SERVICE INDUSTRIES, INC.
By:/s/ James S. Balloun
-----------------------------
JAMES S. BALLOUN
Chairman, President and
Chief Executive Officer
NSI SERVICES, L.P. (GA), Subsidiary
By:/s/ James S. Balloun
-----------------------------
JAMES S. BALLOUN
Chairman, President and
Chief Executive Officer
/s/ George H. Gilmore, Jr.
-----------------------------
Name of Grantee:
GEORGE H. GILMORE, JR.
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EXHIBIT 10(iii)A(6)
Appendix A
Aspiration Award Program Illustration - FY 1998-2000
Name: George H. Gilmore, Jr. Division: Corporate
Position: Executive Vice President and Group President
Salary: $450,000
Total LTI Multiple: 160%
AAI % of LTI: 30%
Prorated Months: 15 of 36
Achievement Level
Threshold Commitment Aspiration
FY98-00 Economic Profit ($000,000)
(Chemical Group, National Linen Service, AECO) ** ** **
Individual AAI Opportunity $22,500 $90,000 $450,000
Aspiration Award Program Opportunity
The following graph depicts the potential incentive award that would be paid out
at different levels of the Operations cumulative econimic profit, including: a
Threshold performance level; a Commitment performance level; and an Aspiration
performance level.
Individual
Aspiration
Economic Profit (000,000) Award
Threshold ** $ 22,500
Commitment ** $ 90,000
Aspiration ** $ 450,000
** Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
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EXHIBIT 10(iii)A(6)
Appendix A (continued)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1998 - 2000 PERFORMANCE PERIOD
CHEMICAL GROUP, NATIONAL LINEN SERVICE, AND AECO OPERATIONS
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02517
b = -0.65101
Above Commitment Level EP:
a = 0.09877
b = -5.47901
Notes:
1. EP = Cumulative Economic Profit for performance period, which will be
expressed in millions, rounded to one decimal place.
2. Values for "a" and "b" will be rounded to five decimal places.
3. Payout percentages will be rounded to a tenth of a percent.
4. No award is payable below the Threshold Level EP, notwithstanding the
formula set forth above.
5. The maximum award payable is 500% of the Commitment Level award,
notwithstanding the formula set forth above.
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EXHIBIT 10(iii)A(6)
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.