Employee Benefits Agreement

EXHIBIT 10.4


EMPLOYEE BENEFITS AGREEMENT


BETWEEN


NATIONAL SERVICE INDUSTRIES, INC.


AND


ACUITY BRANDS, INC.


Dated as of the 30th day of November, 2001


EMPLOYEE BENEFITS AGREEMENT


TABLE OF CONTENTS


ARTICLE I DEFINITIONS AND REFERENCES.......................................................................... 2


1.1 DEFINITIONS..................................................................................... 2
(a) Action.................................................................................. 2
(b) Agreement............................................................................... 2
(c) Annual Incentive Plan................................................................... 2
(d) ASO Contract............................................................................ 2
(e) Award................................................................................... 2
(f) Close of the Distribution Date.......................................................... 2
(g) Code.................................................................................... 3
(h) Conversion Formula...................................................................... 3
(i) Corporate Office........................................................................ 3
(j) Deferred Compensation Plans............................................................. 3
(k) Distribution............................................................................ 3
(l) Distribution Agreement.................................................................. 3
(m) Distribution Date....................................................................... 4
(n) ERISA................................................................................... 4
(o) Executive Programs...................................................................... 4
(p) Foreign Plan............................................................................ 4
(q) Governmental Authority.................................................................. 4
(r) Granted Restricted Stock................................................................ 4
(s) Group Insurance Policy.................................................................. 4
(t) Health and Welfare Plans................................................................ 5
(u) HMO..................................................................................... 5
(v) HMO Agreements.......................................................................... 5
(w) Immediately after the Distribution Date................................................. 5
(x) Individual Agreement.................................................................... 5
(y) Liabilities............................................................................. 5
(z) Long-Term Incentive Plan................................................................ 6
(aa) Master Pension Trust.................................................................... 6
(bb) Master Savings Trust.................................................................... 6
(cc) Material Feature........................................................................ 6
(dd) NSI Common Stock........................................................................ 6
(ee) NSI Executive........................................................................... 7
(ff) NSI Group............................................................................... 7
(gg) Participating Company................................................................... 7
(hh) Person.................................................................................. 7
(ii) Plan.................................................................................... 7
(jj) Reimbursement Plans..................................................................... 7
(kk) Retained Corporate Employee............................................................. 7
(ll) Savings Plans........................................................................... 8
(mm) Spinco Business......................................................................... 8
(nn) Spinco Common Stock..................................................................... 8
(oo) Spinco Group............................................................................ 8
(pp) Spinco Mirror Plan...................................................................... 8
(qq) Spinco Pension Plans.................................................................... 8
(rr) Spinco Stand-Alone Plan................................................................. 8
(ss) Stock Incentive Plan.................................................................... 8
(tt) Subsidiary.............................................................................. 9
(uu) Transferred Individual.................................................................. 9
(vv) Transition Services Agreement........................................................... 10


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EMPLOYEE BENEFITS AGREEMENT


(ww) Ungranted Restricted Stock.............................................................. 10
1.2 REFERENCES...................................................................................... 11


ARTICLE II GENERAL PRINCIPLES................................................................................. 12


2.1 ASSUMPTION OF LIABILITIES....................................................................... 12
2.2 SPINCO GROUP PARTICIPATION IN NSI PLANS......................................................... 12
(a) Participation in NSI Plans.............................................................. 12
(b) NSI's General Obligations as Plan Sponsor............................................... 12
(c) Spinco's General Obligations as Participating Company................................... 12
(d) Termination of Participating Company Status............................................. 13
2.3 ESTABLISHMENT OR ASSUMPTION OF THE SPINCO PLANS................................................. 13
(a) Assumption of Spinco Stand-Alone Plans.................................................. 13
(b) Establishment of Spinco Mirror Plans.................................................... 13
2.4 TERMS OF PARTICIPATION BY TRANSFERRED INDIVIDUALS............................................... 13


ARTICLE III DEFINED BENEFIT PLANS............................................................................. 15


3.1 ASSUMPTION OF PENSION PLANS AND LIABILITIES..................................................... 15
(a) Assumption of Spinco Pension Plans and Related Liabilities.............................. 15
(b) Transfer of Liabilities under NSI Pension Plan C........................................ 15
3.2 ESTABLISHMENT OF MIRROR PENSION TRUSTS.......................................................... 15
3.3 TRANSFER OF ASSETS FROM NSI MASTER PENSION TRUST................................................ 15
(a) Pension Plan Asset Transfer............................................................. 15
(b) Transfer of Specific Assets............................................................. 16
3.4 GOVERNMENTAL COMPLIANCE......................................................................... 16


ARTICLE IV DEFINED CONTRIBUTION PLANS......................................................................... 17


4.1 SAVINGS PLANS................................................................................... 17
(a) Assumption of Spinco Savings Plans and Related Liabilities.............................. 17
(b) Transfer of Liabilities under NSI Corporate 401(k) Plan................................. 17
(c) Savings Plan Trust...................................................................... 17
(d) Transfer of Assets...................................................................... 17
(e) Specific Stock Funds in the NSI and Spinco Savings Plans................................ 18
4.2 NON-EMPLOYER STOCK FUND PROCEDURES.............................................................. 18
(a) Application of Procedures............................................................... 18
(b) Right of First Refusal and Notice Procedures............................................ 19
(c) Procedures After Notice is Given........................................................ 19


ARTICLE V HEALTH AND WELFARE PLANS............................................................................ 20


5.1 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES............................................... 20
(a) Assumption by Spinco.................................................................... 20
(b) Certain Audit Procedures with Respect to Health and Welfare Plans....................... 20
5.2 VENDOR CONTRACTS................................................................................ 21
(a) ASO Contracts, Group Insurance Policies, HMO Agreements, and Letters of Understanding... 21
(b) Payment and Effect of Change in Rates................................................... 22
5.3 NSI SHORT-TERM DISABILITY ARRANGEMENTS.......................................................... 22
5.4 RETIREE HEALTH AND LIFE INSURANCE BENEFITS...................................................... 23
5.5 COBRA AND HIPAA................................................................................. 23
5.6 LEAVE OF ABSENCE PROGRAMS....................................................................... 23
5.7 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS..................................................... 23
(a) Continuance of Elections, Co-Payments, and Maximum Benefits............................. 23
(b) Administration.......................................................................... 24
(c) NSI Reimbursement Plans................................................................. 25
5.8 APPLICATION OF ARTICLE V TO THE SPINCO GROUP.................................................... 25


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ARTICLE VI EXECUTIVE PROGRAMS................................................................................. 27


6.1 ASSUMPTION OF OBLIGATIONS....................................................................... 27
6.2 ANNUAL INCENTIVE AWARDS......................................................................... 27
6.3 LONG-TERM INCENTIVE PLAN........................................................................ 27
(a) Award 4 (for the performance period 9/1/99-8/31/02)..................................... 27
(b) Stock Options........................................................................... 27
(c) Restricted Stock Awards................................................................. 28
6.4 EMPLOYEE STOCK PURCHASE PLAN.................................................................... 29
6.5 DEFERRED COMPENSATION PLANS..................................................................... 29
(a) Assumption or Establishment of Spinco Deferred Compensation Plans....................... 29
(b) Transfer of Corporate-Owned Life Insurance.............................................. 30
6.6 SUPPLEMENTAL RETIREMENT BENEFIT PLANS........................................................... 30
6.7 BENEFITS PROTECTION TRUST AND EXECUTIVE BENEFITS TRUST.......................................... 30
6.8 SEVERANCE PROTECTION AGREEMENTS................................................................. 30
6.9 EMPLOYMENT AGREEMENTS........................................................................... 31
6.10 AUTOMOBILE PROGRAM.............................................................................. 31
6.11 OTHER EXECUTIVE BENEFITS/PROGRAMS............................................................... 31
6.12 NON-EMPLOYEE DIRECTOR BENEFITS.................................................................. 31
(a) Non-Employee Director Deferred Stock Unit Plan.......................................... 31
(b) Non-Employee Directors' Stock Option Plan............................................... 31


ARTICLE VII GENERAL........................................................................................... 33


7.1 PAYMENT OF AND ACCOUNTING TREATMENT FOR EXPENSES AND BALANCE SHEET AMOUNTS...................... 33
(a) Expenses................................................................................ 33
(b) Balance Sheet Amounts................................................................... 33
7.2 SHARING OF PARTICIPANT INFORMATION.............................................................. 33
7.3 RESTRICTIONS ON EXTENSION OF OPTION EXERCISE PERIODS, AMENDMENT OR MODIFICATION OF
OPTION TERMS AND CONDITIONS..................................................................... 33
7.4 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS..................................... 34
7.5 PLAN AUDITS..................................................................................... 34
(a) Audit Rights with Respect to the Allocation or Transfer of Plan Assets.................. 34
(b) Audit Rights With Respect to Information Provided....................................... 35
(c) Audits Regarding Vendor Contracts....................................................... 35
(d) Audit Assistance........................................................................ 35
7.6 BENEFICIARY DESIGNATIONS/RELEASE OF INFORMATION/RIGHT TO REIMBURSEMENT.......................... 36
7.7 REQUESTS FOR INTERNAL REVENUE SERVICE RULINGS AND UNITED STATES DEPARTMENT OF LABOR OPINIONS.... 36
7.8 FIDUCIARY AND RELATED MATTERS................................................................... 36
7.9 NO THIRD-PARTY BENEFICIARIES; NON-TERMINATION OF EMPLOYMENT..................................... 36
7.10 COLLECTIVE BARGAINING........................................................................... 37
7.11 CONSENT OF THIRD PARTIES........................................................................ 37
7.12 FOREIGN PLANS................................................................................... 37
7.13 EFFECT IF DISTRIBUTION DOES NOT OCCUR........................................................... 37
7.14 RELATIONSHIP OF PARTIES......................................................................... 37
7.15 AFFILIATES...................................................................................... 38
7.16 DISPUTE RESOLUTION.............................................................................. 38
7.17 INDEMNIFICATION................................................................................. 38
7.18 W-2 MATTERS..................................................................................... 40
7.19 CONFIDENTIALITY................................................................................. 40
7.20 NOTICES......................................................................................... 40
7.21 INTERPRETATION.................................................................................. 40
7.22 SEVERABILITY.................................................................................... 40
7.23 GOVERNING LAW/EXECUTION......................................................................... 41


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EMPLOYEE BENEFITS AGREEMENT


THIS EMPLOYEE BENEFITS AGREEMENT, dated as of the 30th day of November, 2001, is by and between National Service Industries, Inc., a Delaware corporation ("NSI" or the "Corporation"), and Acuity Brands, Inc., a Delaware corporation ("Spinco").


WHEREAS, NSI's Board of Directors has determined that separation from the Corporation of substantially all of the Corporation's lighting equipment and chemicals assets and businesses and public ownership of such assets and businesses is in the best interests of NSI and its stockholders; and


WHEREAS, NSI has consolidated the assets and operations of substantially all of the lighting equipment and chemicals businesses owned by it and its Subsidiaries into Spinco and its Subsidiaries; and


WHEREAS, NSI intends to accomplish the separation of Spinco through a distribution of the stock of Spinco to the stockholders of NSI that is intended to be tax free pursuant to section 355 of the Internal Revenue Code of 1986, as amended (the "Distribution"); and


WHEREAS, NSI and Spinco have entered into an Agreement and Plan of Distribution, dated as of November 30, 2001 (the "Distribution Agreement"), and several other agreements that will govern certain matters relating to the Distribution and the relationship of NSI and Spinco and their respective Subsidiaries following the Distribution; and


WHEREAS, pursuant to the Distribution Agreement, NSI and Spinco have agreed to enter into this Agreement for the purpose of allocating assets, liabilities, and responsibilities with respect to certain employee compensation and benefit plans and programs between them.


NOW, THEREFORE, in consideration of the mutual promises contained herein and in the Distribution Agreement, the parties agree as follows:


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EMPLOYEE BENEFITS AGREEMENT


ARTICLE I DEFINITIONS AND REFERENCES


1.1 DEFINITIONS


For purposes of this Agreement, capitalized terms used (other than the formal names of NSI Plans (as defined below)) and not otherwise defined shall have the respective meanings assigned to them below or as assigned to them in the Distribution Agreement (as defined above):


(A) ACTION


"Action" means any demand, action, cause of action, suit, countersuit, arbitration, inquiry, proceeding, or investigation by or before any Governmental Authority or any arbitration or mediation tribunal, pending or threatened, known or unknown.


(B) AGREEMENT


"Agreement" means this Employee Benefits Agreement, including all the attached Appendices.


(C) ANNUAL INCENTIVE PLAN


"Annual Incentive Plan," when immediately preceded by "NSI" means the National Service Industries, Inc. Management Compensation and Incentive Plan, and any other short-term compensation, bonus, or incentive compensation programs established or maintained by the NSI Group. When immediately preceded by "Spinco," "Annual Incentive Plan" means any short-term compensation, bonus, or incentive compensation programs to be established or maintained by Spinco pursuant to Section 2.3.


(D) ASO CONTRACT


"ASO Contract" means an administrative services contract, related prior practice, or related understanding with a third-party administrator that pertains to any NSI Health and Welfare Plan or any Spinco Health and Welfare Plan.


(E) AWARD


"Award" means a long-term or short-term award under a Long-Term Incentive Plan or a Short-Term Incentive Plan or, as the context or facts may require, any other award under another incentive or special bonus, incentive, or award program or arrangement.


(F) CLOSE OF THE DISTRIBUTION DATE


"Close of the Distribution Date" means 11:59 P.M., Eastern Time, on the Distribution Date.


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EMPLOYEE BENEFITS AGREEMENT


(G) CODE


"Code" means the Internal Revenue Code of 1986, as amended, or any successor federal income tax law. Reference to a specific Code provision also includes any proposed, temporary, or final regulation in force under that provision.


(H) CONVERSION FORMULA


"Conversion Formula" means the appropriate formula which shall be applied in adjusting the exercise price and award size of NSI options under the NSI Stock Incentive Plans and in determining the exercise price and number of Spinco options under the Spinco Stock Incentive Plans. The Conversion Formula shall be based on the closing per share prices of NSI Common Stock (with a due bill) and Spinco Common Stock (on a when-issued basis) as traded on the New York Stock Exchange on the Distribution Date or such other prices as jointly agreed upon by Spinco and NSI, and shall be determined and applied in such a manner as to maintain (1) the aggregate spread (or, if there is no such spread, the economic value) of such options, which is the difference between the exercise price per share of NSI Common Stock covered by the option and the price per share of NSI Common Stock (with a due bill) immediately preceding the Distribution, multiplied by the total number of shares covered by the option; and (2) the ratio of the exercise price per share covered by the option to the price per share of NSI Common Stock (with a due bill) immediately preceding the Distribution.


(I) CORPORATE OFFICE


"Corporate Office" means the corporate office of NSI, including certain individuals employed by National Service Industries, Inc., a California corporation and Spinco.


(J) DEFERRED COMPENSATION PLANS


"Deferred Compensation Plans," when immediately preceded by "NSI" means the National Service Industries, Inc. Supplemental Deferred Savings Plan, the National Service Industries, Inc. Senior Management Benefit Plan, National Service Industries, Inc. Executive Savings Plan and the National Service Industries, Inc. Executives' Deferred Compensation Plan. When immediately preceded by "Spinco," "Deferred Compensation Plans" means the executive deferred compensation plans to be assumed, established or maintained by Spinco pursuant to Section 2.3.


(K) DISTRIBUTION


"Distribution" has the meaning given that term under the Distribution Agreement.


(L) DISTRIBUTION AGREEMENT


"Distribution Agreement" is defined in the preamble of this Agreement.


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EMPLOYEE BENEFITS AGREEMENT


(M) DISTRIBUTION DATE


"Distribution Date" has the meaning given that term under the Distribution Agreement.


(N) ERISA


"ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific provision of ERISA also includes any proposed, temporary, or final regulation in force under that provision.


(O) EXECUTIVE PROGRAMS


"Executive Programs," when immediately preceded by "NSI" means the executive benefit and nonqualified plans, programs, and arrangements established, maintained, agreed upon, or assumed by a member of the NSI Group for the benefit of employees and former employees of members of the NSI Group before the Close of the Distribution Date. When immediately preceded by "Spinco," "Executive Programs" means the executive benefit plans and programs to be established, assumed or maintained by Spinco or a member of the Spinco Group, including those plans and programs listed and designated as such in Appendix B.


(P) FOREIGN PLAN


"Foreign Plan," when immediately preceded by "NSI," means a Plan maintained by the NSI Group or when immediately preceded by "Spinco," a plan to be established or which is maintained by the Spinco Group, in either case for the benefit of employees who are compensated under a payroll which is administered outside the 50 United States, its territories and possessions, and the District of Columbia, including those Plans described in Appendix D.


(Q) GOVERNMENTAL AUTHORITY


"Governmental Authority" means any federal, state, local, foreign, or international court, government, department, commission, board, bureau, agency, official, or other regulatory, administrative, or governmental authority, including the Department of Labor, the Securities and Exchange Commission, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation.


(R) GRANTED RESTRICTED STOCK


"Granted Restricted Stock" is defined in Section 6.3(c)(1).


(S) GROUP INSURANCE POLICY


"Group Insurance Policy" means a group insurance policy issued in connection with any NSI Health and Welfare Plan or any Spinco Health and Welfare Plan, as applicable.


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EMPLOYEE BENEFITS AGREEMENT


(T) HEALTH AND WELFARE PLANS


"Health and Welfare Plans," when immediately preceded by "NSI" means the health and welfare benefit plans, programs, and policies (including the Reimbursement Plans) which are sponsored by NSI. When immediately preceded by "Spinco," "Health and Welfare Plans" means the benefit plans, programs, and policies (including the Reimbursement Plans) corresponding to those plans, programs, and policies sponsored by NSI as of the Distribution Date, including those plans, programs, and ...