Page 46
Exhibit 10(iii)A(22)(a)
FORM OF
ASPIRATION ACHIEVEMENT INCENTIVE AWARD AGREEMENT
FOR EXECUTIVE OFFICERS
--------------------------------------------------
THIS AGREEMENT, made as of the ____ day of September, 1996
(the "Grant Date"), between NATIONAL SERVICE INDUSTRIES, INC., a Delaware
corporation ("NSI") and ____________________________________________, a
Subsidiary of NSI (together, the "Company"), and
__________________________________________________ (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 NSI during the Performance Cycle
from September 1, 1996 to August 31, 1999. 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(22)(a)
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 accordancewith 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
Grantee's Award 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 may decrease the amount of the Award otherwise
payable to Grantee if, in the Committee's view, the financial
performance of NSI during the Performance Cycle justifies such
adjustment, regardless of the extent to which the Performance Measure has been
achieved.
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 NSI with respect to the Performance Measure for the Performance Cycle
and the amount of Award (if any) Grantee will be entitled to receive. The amount
Grantee is entitled to receive will be paid one-half in cash and one-half in
Shares, with the Shares being valued at their Fair Market Value as of the last
day of the Performance Cycle.
3.2 Significant Corporate Events. If, during a Performance Cycle, NSI
consummates an acquisition or disposition that involves assets whose value
equals or exceeds 30% of the total value of NSI's assets, 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 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
(using, for such purpose, prorated performance levels of the Performance Measure
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Exhibit 10(iii)A(22)(a)
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 involves assets whose value is less than 30% of the total value
of NSI's assets, the effects of such acquisition or disposition shall be
disregarded in determining NSI's financial results and performance level for the
Performance Cycle.
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; 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
Page 49
Exhibit 10(iii)A(22)(a)
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 had 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 5.3, subject to the terms of this section and no downward adjustment of
the Award 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 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; 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.
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Exhibit 10(iii)A(22)(a)
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.
Page 51
Exhibit 10(iii)A(22)(a)
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 of the Board and Chief Executive Officer
_________________________________________, Subsidiary
By:
JAMES S. BALLOUN
Chairman of the Board and Chief Executive Officer
Name of Grantee: ___________________________________
Page 52
EXHIBIT 10(iii)A(22)(a)
Your Award Opportunity
Name: James S. Balloun
Position: Chairman, President, Chief Executive Officer and
Director
Division: NSI
Perfomance period: 1997-1999
Award at Commitment: $480,000
Achievement Level
Threshold Commitment Aspiration
FY97-99 Cumulative Economic Profit ($000) $ 38,700 $ 65,500 $ 135,000
Payout * ($000) $ 120 $ 480 $ 2,400
YOUR POTENTIAL PAYOUT
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.
NSI Cumulative Economic Profit Payout*
($ 000s) ($ 000s)
Threshold $ 38,700 $ 120
Commitment $ 65,500 $ 480
Aspiration $135,000 $2,400
* Amounts between performance benchmarks will be interpolated.
Page 53
Exhibit 10(iii)A(22)(a)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
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.
Page 54
EXHIBIT 10(iii)A(22)(a)
Your Award Opportunity
Name: Brock A. Hattox
Position: Executive Vice President and Chief Financial Officer
Division: NSI
Perfomance period: 1997-1999
Award at Commitment: $224,000
Achievement Level
Threshold Commitment Aspiration
FY97-99 Cumulative Economic Profit ($000) $ 38,700 $ 65,500 $ 135,000
Payout * ($000) $ 56 $ 224 $ 1,120
YOUR POTENTIAL PAYOUT
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.
NSI Cumulative Economic Profit Payout*
($ 000s) ($ 000s)
Threshold $ 38,700 $ 56
Commitment $ 65,500 $ 224
Aspiration $135,000 $1,120
* Amounts between performance benchmarks will be interpolated.
Page 55
Exhibit 10(iii)A(22)(a)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
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.
Page 56
EXHIBIT 10(iii)A(22)(a)
Your Award Opportunity
Name: David Levy
Position: Executive Vice President, Administration and Counsel
and Director
Division: NSI
Perfomance period: 1997-1999
Award at Commitment: $214,000
Achievement Level
Threshold Commitment Aspiration
FY97-99 Cumulative Economic Profit ($000) $ 38,700 $ 65,500 $ 135,000
Payout * ($000) $ 54 $ 214 $ 1,070
YOUR POTENTIAL PAYOUT
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.
NSI Cumulative Economic Profit Payout*
($ 000s) ($ 000s)
Threshold $ 38,700 $ 54
Commitment $ 65,500 $ 214
Aspiration $135,000 $1,070
* Amounts between performance benchmarks will be interpolated.
Page 57
Exhibit 10(iii)A(22)(a)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
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.
Page 58
EXHIBIT 10(iii)A(22)(a)
Your Award Opportunity
Name: Stewart A. Searle III
Position: Senior Vice President, Planning and Development
Division: NSI
Perfomance period: 1997-1999
Award at Commitment: $128,000
Achievement Level
Threshold Commitment Aspiration
FY97-99 Cumulative Economic Profit ($000) $ 38,700 $ 65,500 $ 135,000
Payout * ($000) $ 32 $ 128 $ 640
YOUR POTENTIAL PAYOUT
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.
NSI Cumulative Economic Profit Payout*
($ 000s) ($ 000s)
Threshold $ 38,700 $ 32
Commitment $ 65,500 $ 128
Aspiration $135,000 $ 640
* Amounts between performance benchmarks will be interpolated.
Page 59
Exhibit 10(iii)A(22)(a)
ASPIRATION ACHIEVEMENT INCENTIVE AWARD
FOR
1997 - 1999 PERFORMANCE PERIOD
NSI
Formula: Payout as a Percent of Commitment Award = a x EP + b
Below Commitment Level EP:
a = 0.02799
b = -0.83302
Above Commitment Level EP:
a = 0.05755
b = -2.76978
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.
Page 60
Exhibit 10(iii)A(22)(a)
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.