<PAGE>
Filed Pursuant to Rule 424(B)(5)
Registration No. 333-32167-99
Prospectus Supplement
(To Prospectus dated February 25, 1998)
The ServiceMaster Company
[SERVICEMASTER LOGO]
$250,000,000
7 7/8% Notes due 2009
Interest payable February 15 and August 15
Issue price: 99.290%
The notes will mature on August 15, 2009. Interest will accrue from August 10,
1999. We may redeem the notes in whole or in part at any time prior to
maturity at the redemption prices described on page S-14. We will issue the
notes in minimum denominations of $1,000 increased in multiples of $1,000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or passed upon the
adequacy or accuracy of this Prospectus Supplement or the Prospectus. Any
representation to the contrary is a criminal offense.
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<TABLE>
<CAPTION>
Discounts
Price to and Proceeds to
Public Commissions ServiceMaster
- ------------------------------------------------
<S> <C> <C> <C>
Per Note 99.290% .650% 98.640%
- ------------------------------------------------
Total $248,225,000 $1,625,000 $246,600,000
- ------------------------------------------------
</TABLE>
We do not intend to apply for listing of the notes on any national securities
exchange. Currently, there is no public market for the notes.
We expect that delivery of the notes will be made to investors on or about
August 10, 1999.
J.P. Morgan & Co. Goldman, Sachs & Co.
Banc of America Securities LLC Banc One Capital Markets, Inc.
BNY Capital Markets, Inc. First Union Capital Markets Corp.
August 5, 1999
<PAGE>
You should only rely on the information contained or incorporated by reference
in this Prospectus Supplement and the Prospectus. We have not, and the
underwriters have not, authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where such
offer of sale is not permitted. You should assume that the information
appearing in this Prospectus Supplement and the Prospectus, as well as
information we previously filed with the Securities and Exchange Commission and
incorporated by reference, is accurate as of the date on the front cover of
this Prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
The ServiceMaster Company................................................. S-3
Recent Developments....................................................... S-4
Capitalization of ServiceMaster........................................... S-5
Ratio of Earnings to Fixed Charges........................................ S-5
Use of Proceeds........................................................... S-5
Selected Financial Data................................................... S-6
Management's Discussion And Analysis of Financial Condition and Results of
Operations............................................................... S-8
Description of the Notes.................................................. S-14
Underwriting.............................................................. S-16
Special Note on Forward-looking Statements................................ S-17
Legal Opinions............................................................ S-17
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Information By Reference......................... 2
ServiceMaster............................................................. 4
Ratio of Earnings to Fixed Charges........................................ 4
Use of Proceeds........................................................... 5
Description of Debt Securities............................................ 5
Plan of Distribution...................................................... 17
Validity of Debt Securities............................................... 18
Experts................................................................... 19
</TABLE>
S-2
<PAGE>
THE SERVICEMASTER COMPANY
ServiceMaster, with operating revenue of approximately $4.7 billion in 1998, is
one of the largest providers of residential and commercial services to
individual customers and businesses and supportive management services to
businesses and institutions in the United States. In addition, we have
operations in 41 countries around the world.
Our consumer and commercial services businesses provide services to over 10.5
million residential and commercial customers world-wide under leading brand
names which include:
TruGreen-ChemLawn for lawn, tree and shrub care and indoor plant maintenance;
TruGreen-LandCare for commercial landscaping services;
Terminix for termite and pest control services;
American Residential Services for heating, ventilation, air conditioning and
refrigeration services;
American Home Shield and Amerispec for home system and appliance warranty
contracts and home inspection services;
Rescue Rooter for plumbing and drain cleaning services;
ServiceMaster Residential and Commercial Services for heavy-duty residential
and commercial cleaning and disaster restoration services;
Merry Maids for residential maid services; and
Furniture Medic for on-site furniture repair and restoration services.
These services comprise the "ServiceMaster Quality Service Network" and may be
accessed easily by calling a single toll-free telephone number: 1-800-WE SERVE.
Our management services business provides facilities management services to
over 2,000 facilities in the health care, education and business and industrial
markets. These services include plant operations and maintenance, housekeeping,
grounds and landscaping, clinical equipment management, food service, laundry
and linen services, total facilities management and other services.
We are incorporated under the laws of Delaware and are a successor to a
business which began operations in 1947. Our principal executive offices are
located at One ServiceMaster Way, Downers Grove, Illinois 60515-1700 and our
telephone number is (630) 271-1300. We maintain a website on the Internet at
http://www.ServiceMaster.com. This website and the information contained
therein are not a part of this Prospectus Supplement or the Prospectus.
S-3
<PAGE>
RECENT DEVELOPMENTS
On July 26, 1999, we reported record second quarter revenues of $1.5 billion,
up 23 percent over the second quarter ended June 30, 1998, reflecting strong
growth from both base operations and acquisitions. Net income before non-
recurring unusual items was $69 million, up 23 percent over second quarter
1998. Earnings per share before non-recurring items increased 16 percent to
$.22. During the quarter, we realized an after-tax gain of $30 million,
relating primarily to the sale of our Premier automotive services business, and
recorded a one-time after-tax charge of $81 million, relating to our
diversified health services business. These items reduced net income from
ongoing operations by $51 million. As a result, we reported net income of $18
million, with earnings per share of $.06. For the six months ended June 30,
1999, revenue increased 19 percent to $2.7 billion. Net income before non-
recurring items rose 22 percent to $105 million, with earnings per share
increasing 17 percent to $.34. Reported net income after non-recurring items
was $54 million, with earnings per share of $.17.
On July 26, 1999, we announced that our board of directors elected C. William
Pollard to serve as chief executive officer effective October 1, 1999. Mr.
Pollard will continue to serve as chairman of the board of directors. Carlos H.
Cantu, our current president and chief executive officer, will retire on
October 1, 1999.
On July 26, 1999, we announced that the scope of services offered by our
diversified health services business, which is conducted through our wholly-
owned subsidiary ServiceMaster Diversified Health Services, would be
substantially reduced. This business provides general management and other
services to long-term care facilities. This decision was made in light of
changes in government reimbursement policy and resulting financial difficulties
of a number of our long-term care customers. We will reduce the scope of
ancillary services offered, and eliminate future credit extension activities.
The one-time diversified health services charge of $81 million includes $51
million for a write-down of goodwill and $30 million relating to customer
receivables, loans, other investments and costs and the wind-down of certain
ancillary services.
On January 4, 1999, we announced the completion of a strategic review of our
home health care business, which is conducted through our wholly-owned
subsidiary ServiceMaster Home HealthCare. In particular, we announced our
decision to sell the direct operations of home health care agencies and certain
support operations and to discontinue outsourced operation of home health care
agencies. We will continue to provide consulting services to home health care
agencies, hospices and other medical service providers.
On March 18, 1999, we completed our acquisition of LandCare USA, Inc. through a
stock-for-stock merger. Approximately 10.2 million shares of our common stock
(valued at approximately $192 million), representing about three percent of our
then outstanding shares of common stock, were issued in this transaction. We
also assumed debt of approximately $127 million in the transaction. The
combination of LandCare with the existing operations of ServiceMaster,
operating under the name TruGreen-LandCare, established us as a leading
provider of commercial landscape services, which is a large and highly
fragmented industry. The acquisition also allows significant integration
opportunities with our TruGreen-ChemLawn subsidiary, a leading provider of lawn
care services.
At the end of April 1999, we completed the acquisition of American Residential
Services, Inc. The total American Residential Services acquisition cost was
approximately $285 million, including assumed debt. The acquisition of American
Residential Services established us as a leading provider of HVAC services to
the residential and commercial sectors. In addition, American Residential
Services has plumbing revenues that significantly increase the size of our
Rescue Rooter plumbing business. This acquisition provides us with an
opportunity to coordinate the services of American Residential Services with
the needs of our American Home Shield subsidiary, which currently uses third-
party contractors to provide plumbing, HVAC and electrical repairs under
warranty products it markets to homeowners.
S-4
<PAGE>
CAPITALIZATION OF SERVICEMASTER
The following table sets forth our unaudited consolidated capitalization at
June 30, 1999 on a historical basis and as adjusted to reflect the sale of the
notes and the application of the net proceeds of the notes.
<TABLE>
<CAPTION>
June 30, 1999
---------------------
As
Actual Adjusted
---------- ----------
(In thousands)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt.................................................... $ 46,283 $ 46,283
Long-term debt:
Revolving credit facilities............................ 573,000 326,900
Notes offered hereby................................... -- 250,000
Other long-term debt, excluding current portion........ 1,071,961 1,071,961
---------- ----------
Total debt........................................... $1,691,244 $1,695,144
========== ==========
Total stockholder's equity............................... $1,193,364 $1,193,364
Total capitalization..................................... $2,884,608 $2,888,508
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our unaudited ratios of earnings to fixed
charges for the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
------------- -----------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated ratios of earnings to
fixed charges..................... 2.92x 2.50x 3.50x 3.65x 5.16x 4.83x 4.72x
</TABLE>
The consolidated ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, "earnings" consist of income from
continuing operations before income taxes, fixed charges (excluding capitalized
interest) and minority interest expenses of subsidiaries with fixed charges and
"fixed charges" consist of interest and amortization of debt expense, including
the interest portion of rental obligations deemed representative of the
interest factor.
USE OF PROCEEDS
The net proceeds from the sale of the notes will be approximately $246.1
million. We expect to use the net proceeds from the sale of the notes to repay
a portion of our borrowings under our revolving bank credit facility. The
revolving bank credit facility matures on April 1, 2002 and bears interest at
floating rates (equal to approximately 5.2 percent at June 30, 1999).
Affiliates of J.P. Morgan Securities Inc., Banc of America Securities LLC, Banc
One Capital Markets, Inc., and BNY Capital Markets, Inc. are lenders under the
revolving bank credit facility. See "Underwriting."
S-5
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except for per share and percentage data)(1)
We are providing the following selected financial information about us for
your benefit. This information is derived from our audited financial
statements for each of the fiscal year end periods shown below and from our
unaudited financial statements for each of the quarterly periods shown below.
These quarterly financial statements, in the opinion of management, include
all adjustments consisting only of normal recurring adjustments necessary for
a fair presentation of the financial position and results of operations for
these periods. Operating results for the three month period ended March 31,
1999 are not necessarily indicative of the results that may be expected for
the full fiscal year.
The following information is only a summary and you should read it in
connection with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in this Prospectus Supplement. In
addition, this selected historical financial data should be read in
conjunction with our financial statements and related notes included in our
Annual Report on Form 10-K for the year ended December 31, 1998 and our
Quarterly Report on Form 10-Q for the three months ended March 31, 1999.
<TABLE>
<CAPTION>
3 Months Ended
March 31, Year Ended December 31,
---------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Operating revenue....... $1,115,062 $ 981,788 $4,724,119 $3,961,502 $3,458,328 $3,202,504 $2,985,207
Cost of services
rendered and products
sold................... 899,815 794,797 3,679,612 3,058,160 2,681,008 2,499,700 2,356,435
Selling and
administrative
expenses............... 136,619 117,218 648,085 559,409 482,102 450,937 414,746
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income........ 78,628 69,773 396,422 343,933 295,218 251,867 214,026
Non-operating expense
(income):
Interest expense (2)... 21,948 24,095 92,945 76,447 38,298 35,855 31,543
Interest and investment
income................ (3,621) (3,435) (15,301) (14,304) (10,183) (7,310) (5,389)
Minority interest...... -- -- -- 7,511 14,706 45,715 45,234
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 60,301 49,113 318,778 274,279 252,397 177,607 142,638
Provision for income
taxes (pro forma
corporate form prior to
1998) (3).............. 24,692 19,843 128,786 110,809 101,968 71,753 57,626
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (pro forma
corporate form prior to
1998).................. $ 35,609 $ 29,270 $ 189,992 $ 163,470 $ 150,429 $ 105,854 $ 85,012
========== ========== ========== ========== ========== ========== ==========
Basic net income per
share (pro forma
corporate form prior to
1998) (3)(6)........... $ 0.12 $ 0.10 $ 0.66 $ 0.57 $ 0.47 $ 0.41 $ 0.33
Diluted net income per
share (pro forma
corporate form prior to
1998) (3)(6)........... $ 0.12 $ 0.10 $ 0.64 $ 0.55 $ 0.46 $ 0.39 $ 0.32
Cash distribution per
share.................. $ 0.09 $ 0.08 $ 0.33 $ 0.31 $ 0.29 $ 0.28 $ 0.27
Partnership Information:
(3)
Income before income
taxes.................. $ 274,279 $ 252,397 $ 177,607 $ 142,638
Provision for income
taxes.................. 10,203 7,257 5,588 2,755
One time tax benefit
relating to change in
tax status (4)......... 65,000 -- -- --
---------- ---------- ---------- ----------
Net income.............. $ 329,076 $ 245,140 $ 172,019 $ 139,883
========== ========== ========== ==========
Other Data:
EBITDA (7).............. $ 107,822 $ 94,445 $ 516,328 $ 443,788 $ 369,701 $ 279,450 $ 228,389
Net cash provided from
operations (5)......... (99,520) 12,585 405,539 371,889 341,386 297,425 253,863
Property additions...... 24,731 23,354 75,297 46,232 42,952 44,624 32,202
Operating income margin. 7.1% 7.1% 8.4% 8.7% 8.5% 7.9% 7.2%
Percent increase in pro
forma diluted net
income per share....... 20.0% 11.1% 16.4% 19.6% 17.9% 21.9% 18.5%
Financial Position at
Period End:
Working capital (5)..... $ 81,262 $ 35,130 $ (83,495) $ 35,907 $ 73,782 $ 20,309 $ 26,650
Total assets............ 3,445,809 2,698,231 2,914,851 2,475,224 1,846,841 1,649,890 1,230,839
Long-term debt.......... 1,412,177 1,379,936 1,076,167 1,247,845 482,315 411,903 386,511
Shareholders' equity
(2).................... 1,183,337 548,867 956,486 524,438 796,767 746,660 307,266
</TABLE>
- --------
(1) All per share data reflect the three-for-two share splits in 1996, 1997
and 1998.
(2) In 1997, ServiceMaster incurred bank borrowings of approximately $91
million to finance the cash portion of the acquisition of Barefoot, Inc.
and approximately $626 million to fund the repurchase of the 19 percent
ownership interest in ServiceMaster held by Waste Management,
S-6
<PAGE>
Inc. The increase in interest expense and the decrease in shareholders'
equity (as well as the number of shares outstanding) in 1997 is primarily
the result of such borrowings and stock repurchase. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) ServiceMaster converted from partnership to corporate form on December 26,
1997. Prior to this reincorporation, the partnership was not subject to
federal or state income taxes since its taxable income was allocated to
its shareholders. As a result of this reincorporation, ServiceMaster is a
taxable entity and is responsible for such payments. Pro forma information
is presented to compare the continuing results of operations as if
ServiceMaster were a taxable corporation in the periods presented. The pro
forma provision for income taxes has been calculated assuming that
ServiceMaster's effective tax rate was approximately 40 percent of pre-tax
earnings. ServiceMaster's historical net income per share as a partnership
was as follows:
<TABLE>
<CAPTION>
Before one-time tax
benefit (4) Actual
----------------------- -----------------------
1997 1996 1995 1994 1997 1996 1995 1994
----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic........................ $0.92 $0.77 $0.66 $0.55 $1.15 $0.77 $0.66 $0.55
Diluted...................... $0.89 $0.75 $0.64 $0.53 $1.10 $0.75 $0.64 $0.53
</TABLE>
(4) As a result of the reincorporation, ServiceMaster recorded a deferred tax
asset in 1997 that represents the tax effect of the difference between the
book and tax basis of ServiceMaster's assets and liabilities. This
resulted in the recognition of a deferred tax asset on the balance sheet
and a corresponding $65 million gain in the tax benefit line of the income
statement. The actual economic benefit to ServiceMaster of the tax basis
step-up significantly exceeds the amount of the gain and is expected to
result in a reduction of annual cash tax payments exceeding $25 million
per year for 15 years following the reincorporation.
(5) In the first year after reincorporation, ServiceMaster was able to defer
the payment of its 1998 federal taxes until March 1999. Therefore the 1998
cash flow is fairly comparable to 1997 when ServiceMaster was in
partnership form and paid no taxes. The December 1998 current liabilities
include the 1998 tax payable amount.
(6) Basic earnings per share are calculated based on 289,315 shares in 1998,
285,944 shares in 1997, 317,381 shares in 1996, 260,382 shares in 1995,
and 255,650 shares in 1994 while diluted earnings per share are calculated
based on 298,887 shares in 1998, 299,640 shares in 1997, 330,429 shares in
1996, 273,203 in 1995 and 266,892 shares in 1994. (Numbers are in
thousands.)
(7) Represents earnings before interest expense, taxes, depreciation and
amortization ("EBITDA"). EBITDA is a commonly-used supplemental
measurement of a company's ability to generate cash flow. Management
believes that EBITDA is another measure which demonstrates the cash-
generating abilities of ServiceMaster's businesses. However, EBITDA should
not be considered an alternative to net income in measuring
ServiceMaster's performance or used as an exclusive measure of cash flow
because it does not consider the impact of working capital growth, capital
expenditures, debt principal reductions or other sources and uses of cash
which are disclosed in the Consolidated Statements of Cash Flows.
S-7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All share and per share data mentioned in this section reflect the three-for-
two share splits in August 1998, June 1997 and June 1996.
Results of Operations
First Quarter 1999 Compared to First Quarter 1998
Revenues increased 14 percent to $1.1 billion in the first quarter of 1999
through a combination of acquisitions and solid base business growth.
Approximately nine percent of the revenue increase resulted from internal
growth and small roll-up acquisitions in existing service lines, primarily lawn
care and pest control, with another five percent coming from other acquisitions
primarily in landscaping. Operating income increased 13 percent to $78.6
million, while margins of 7.1 percent of revenue remained consistent with 1998.
The operating margin benefit from the more rapid growth of our higher margin
businesses was offset by losses in our diversified health services business.
Diluted earnings per share in the first quarter were $.12 compared to $.10 last
year. Net income grew 22 percent to $35.6 million, a faster rate than earnings
per share due to an increase in shares outstanding resulting from our equity
offering in May 1998, and shares issued for acquisitions.
The consumer and commercial services business unit reported revenue of $462
million, an increase of 27 percent, and operating income of $62.5 million, 26
percent higher than last year. This growth included double digit increases at
all of the companies in this unit, reflecting acquisitions and internal growth.
TruGreen-ChemLawn achieved strong revenue and profit growth, which included the
successful ongoing integration of the commercial landscape business. About 12
percent of this revenue growth came from the entry into commercial landscaping.
With the acquisition of LandCare USA, which was completed on March 18, 1999, we
have become the largest provider of commercial landscape services in the
country and TruGreen-ChemLawn is provided the opportunity to integrate its
traditional fertilizer and weed control services with landscape maintenance and
installation. The lawn care operations had increased volume and good customer
count increases, despite less favorable weather conditions in many parts of the
country compared to the prior year. Terminix reported strong increases in
revenues and profits with continued strong customer reception of newer
treatment alternatives, improved margins reflecting strong growth in higher
margin termite completions and in the renewal contracts as well as the
integration of acquisitions. American Home Shield had excellent increases in
both revenues and profits, with double digit increases in warranty contracts
sold through all distribution channels, which includes real estate, customer
renewals, and direct-to-consumer sales. Rescue Rooter reported very strong
growth in revenue and profits, as a result of strong base business growth, the
successful integration of acquisitions, as well as productivity improvements.
The franchise operations, Residential and Commercial Services and Merry Maids,
reported strong growth in revenues and profits, despite an extremely tight
labor market, with continued strong growth of company owned operations,
increased franchise license sales, and effective cost controls.
On April 27, 1999, we successfully completed our tender offer for the
outstanding shares of American Residential Services at a purchase price of
$5.75 per share in cash. Subsequent to the completion of the tender offer, we
effected a merger with American Residential Services and American Residential
Services became our wholly-owned subsidiary. American Residential Services
provides comprehensive maintenance, repair and replacement services for HVAC,
plumbing, electrical and other systems, and major appliances in homes and
commercial buildings. The acquisition of American Residential Services
establishes us as one of the country's leading providers of heating,
ventilation and air conditioning services and will complement our Rescue Rooter
plumbing business. American Residential Services will also support the HVAC
services offered to the residential market by us through its American Home
Shield warranty program and its maintenance management services of commercial
HVAC equipment in hospitals and schools.
The management services business unit reported a six percent increase in
revenues to $501 million and a five percent increase in operating income to
$19.2 million. This growth reflects the benefit of acquisitions and internal
growth, partially offset by the sale of our energy management business in late
1998. The healthcare market experienced a moderate decline in revenue and
profits, primarily due to the effects of customer terminations in 1998 and
continued margin pressures in the acute care sector of the market. The overhead
reduction initiatives put in place last year helped offset lower gross margins.
The education market reported solid increases in revenues and
S-8
<PAGE>
profits, reflecting continued good sales momentum and controlled overhead
spending. The business and industry group achieved strong growth in revenue and
profits, reflecting base business growth and the integration of acquisitions.
On April 21, 1999, we sold one of our specialty units, Premier Manufacturing
Support Services, to Durr AG of Germany for $76 million. Premier provides
cleaning services for paint booths and other related maintenance services in
the automotive industry. We believe that alliances or significant incremental
investments would have been required to remain competitive in this industry.
The sale of Premier allowed us to realize the significant appreciation in its
investment and to reinvest the proceeds in initiatives more central to our core
strategies. The sale resulted in an after-tax gain of approximately $25
million, which will be recorded in the second quarter of 1999.
Our diversified health services business, which provides a variety of services
and products to the long-term healthcare market, reported an operating loss in
the quarter. Changes in reimbursement policies and regulatory compliance
standards have had a significant impact on the companies serving this industry.
As a result, we have begun a strategic review and assessment of services
comprising this business unit to determine how they fit into our longer-term
strategic objectives. See "Recent Developments" above.
Cost of services rendered and products sold increased 13 percent, due primarily
to general business growth and acquisitions, but decreased as a percentage of
revenue to 80.7 percent from 81.0 percent in 1998. This decrease primarily
reflects the changing mix of the business, as our consumer and commercial
services business increases in size in relationship to our overall business, as
well as productivity improvements, and the successful integration of
acquisitions at the consumer and commercial services business unit. The
consumer and commercial services businesses generally operate at higher gross
margin levels than the rest of the business, but also incur somewhat higher
selling and administrative expenses as a percentage of revenues.
Selling and administrative expenses increased 17 percent, due to general
business growth and acquisitions, and increased as a percentage of revenue to
12.3 percent from 11.9 percent in 1998. This increase as a percentage of
revenue is primarily due to the changing business mix noted above. Interest
expense decreased from the prior year, reflecting a lower level of average
outstanding borrowings, primarily due to the May 1998 equity offering.
First Quarter 1999 Financial Position
Net cash used for operations of $100 million was significantly below the first
quarter level in 1998. The decrease primarily reflects the deferral of the 1998
federal tax payment until March of 1999 as well as increased investments in our
seasonal businesses, including additional investments in the commercial
landscaping operation, and the timing of certain payments throughout the
enterprise. Federal taxes of $78 million on our 1998 earnings were accrued for
in the financial statements in 1998, but not paid until the first quarter of
1999. Excluding this tax payment, cash used for operations was $21 million.
(Some of the tax expense in 1998 and 1999 will be deferred for longer periods
of time due to the significant timing difference between book and tax basis.)
Due to the seasonality of the lawn care, landscape and pest control operating
cycles, our working capital needs are the highest during the first quarter.
Management believes that funds generated from operations and other existing
resources will continue to be adequate to satisfy our ongoing working capital
needs.
Accounts and notes receivable grew over year end levels, reflecting general
business growth, increased seasonal activity in the consumer and commercial
services segment, and acquisitions, primarily LandCare. Inventories also
increased over year end levels as a result of normal seasonal build-ups in the
lawn care business and acquisitions.
Prepaids and other assets have increased from year end because of seasonality
in the lawn care business and the increased volume of warranty contracts
written at American Home Shield. The lawn care operation defers certain
marketing costs that are incurred during the first quarter, but are directly
associated with revenues realized in subsequent quarters of the current year.
These costs are then amortized over the balance of the current lawn care
production season, as the related revenues are recognized. Deferred revenues
also grew significantly, reflecting strong growth at American Home Shield and
increases in customer prepayments for lawn care services.
Property and equipment increased due to general business growth and
acquisitions, primarily LandCare. Capital expenditures grew, reflecting
increased investments in technology throughout the organization, business
growth, and recurring capital needs. We have no material capital commitments at
this time.
S-9
<PAGE>
Intangible assets increased $347 million from year end, reflecting the effect
of the acquisitions, which included $260 million from LandCare and various
smaller acquisitions in the consumer and commercial services segment. Accrued
liabilities decreased from year end, primarily due to the 1998 tax payment made
in March of 1999. Debt levels increased due to the seasonal nature of our
operating cash flows and the 1998 tax payment, combined with the effects of
acquisitions and property additions.
We are a party to a number of long-term debt agreements which require us to
maintain compliance with certain financial covenants, including limitations on
indebtedness, restricted payments, fixed charge coverage ratios, and net worth.
We are in compliance with the covenants related to these debt agreements.
Total shareholders' equity increased to $1.2 billion in 1999 from $956 million
at December 31, 1998, reflecting earnings growth as well as the shares issued
for acquisitions, partially offset by cash dividends and treasury share
repurchases. Cash dividends paid directly to shareholders totaled $27 million
or $.09 per share. The increase from the prior year reflects a 13 percent
increase in the dividend rate per share and an increase in shares outstanding,
primarily resulting from the May 1998 equity offering and shares issued in
acquisitions.
1998 Compared with 1997
Revenues increased 19 percent to $4.7 billion through a combination of
acquisitions and solid growth from base operations. Approximately eight percent
of the revenue increase resulted from internal growth and small tuck-in
acquisitions in existing service lines, primarily lawn care and pest control,
with another six percent coming from platform acquisitions primarily in
plumbing and landscaping. The remaining five percent of the revenue growth
represented the acquisition of a professional employer organization in August
1997. The professional employer organization has a significant impact on
revenues and margins, because the entire employee payroll of the customer is
recognized both as revenue and operating cost. As a result, the margins are low
in this business and reduce our consolidated operating margins. Operating
income increased 15 percent to $396 million, while margins decreased to 8.4
percent of revenue from 8.7 percent in 1997. Operating margins excluding the
professional employer organization improved 10 basis points over last year,
reflecting the continued strong growth of higher margin businesses,
productivity improvements and the successful integration of acquisitions at our
consumer services business unit.
Pro forma information is presented for 1997 and 1996 to compare the continuing
results of operations as if we had been a taxable corporation in all years. On
this basis, net income grew 16 percent to $190 million. Basic and diluted
earnings per share increased 16 percent to $.66 and $.64, respectively.
The consumer services business unit achieved a 23 percent increase in revenue,
reflecting strong growth from both internal sources and acquisitions, including
the Rescue Rooter plumbing business and commercial landscaping companies. Net
income increased 27 percent, reflecting solid double-digit profit increases at
all of the companies. TruGreen-ChemLawn reported strong growth in revenues and
profits, reflecting base business growth and the entry into the commercial
landscape market through the acquisition of several companies. The successful
integration of acquisitions and other cost initiatives helped offset the
effects of severe summer weather conditions in many regions of the country.
Terminix achieved strong double-digit growth in revenues and profits, resulting
from excellent increases in termite completions and renewals and improved
margins. Higher customer retention levels and efficiency improvements
contributed to the increased margins. American Home Shield continued to
experience exceptional momentum with very strong double-digit increases in
warranty contracts written due to excellent growth in real estate and direct-
to-consumer sales, as well as strong renewal growth. This volume increase was
partially affected by increased service orders relating to expensive air
conditioning repairs due to the extreme heat experienced in many parts of the
country. The franchise operations, ServiceMaster Residential and Commercial
Services and Merry Maids, achieved solid revenue increases and higher margins,
reflecting improvements in company-owned operations and cost controls. The
Rescue Rooter operations reported very good results, reflecting improved
marketing efforts, productivity improvements and effective cost controls.
The traditional management services business achieved a seven percent revenue
increase as a result of acquisitions and modest growth in the base business.
Profits increased significantly due to a $38 million pre-tax gain relating to
the formation of a strategic venture with Texas Utilities Company. The new
venture acquired all of the assets of ServiceMaster energy management and was
owned 85 percent by Texas Utilities and 15 percent by ServiceMaster. In June
1999, we sold the remaining 15 percent interest to Texas Utilities. Excluding
this gain, profits were one
S-10
<PAGE>
percent below the prior year level as increases in the business and industry
and education markets were offset by reduced profitability in the healthcare
market. The traditional healthcare market reported a slight decline in revenues
with lower profits than last year as a result of continued industry pressures
and additional investments in the business compared with the prior year. The
Company achieved significant revenue and profit increases in the business and
industry market, reflecting the successful integration of acquisitions and
increased sales in the base business. The education market reported strong
growth in profits due to better customer retention and the favorable effect of
eliminating costs incurred last year related to unwinding a large contract.
Other operations include primarily our diversified health services business,
which provides services and products to the long-term care market and Employer
Services, the professional employer organization. Revenues increased
significantly as the 1998 results include a full year of the professional
employer organization that was acquired in August 1997. Operating income was
down significantly from the prior year, reflecting a large charge related
primarily to the home health care business and operational losses. In late
1998, we completed a strategic review of our home health care business and
concluded that, without significant investment to make home health care one of
its core businesses, it could not profitably provide high quality service in
the future and continue to satisfy all the changes and the requirements of new
governmental reimbursement programs. We plan to sell our direct operations of
home health care agencies and certain support operations. In addition, we are
discontinuing our outsourced management contracts of home health care agencies,
but will continue to provide consulting services to hospitals and other
providers of home health care. We incurred and established reserves of
approximately $32 million (pre-tax) relating to home health care, which
included a write-down for the impairment of assets and costs relating to
exiting customer arrangements. An additional $6 million pre-tax charge was
recorded that was specifically designated for other diversified health services
business reserve needs. In addition to these charges and losses in home health
care, the decrease in operating income reflects margin reductions in other
diversified health services business and the non-recurrence of transaction
gains recognized in the prior year.
On a consolidated basis, cost of services rendered and products sold increased
20 percent and increased as a percentage of revenue to 77.9 percent in 1998
from 77.2 percent in 1997. The addition of our employer services business had
an impact on the overall increase in costs as this business line carries a
lower gross margin level than the rest of the enterprise. Excluding the
employer services business, cost of services rendered and products sold
decreased 10 basis points, as a percentage of revenue. This reflects the
changing mix of the enterprise as our consumer services business increased in
size relative to our overall business. The consumer services unit operates at a
higher gross profit margin than the management services business unit, but
incurs relatively higher levels of selling and administrative costs.
Consolidated selling and administrative expenses increased 16 percent over the
prior year, and as a percentage of revenue, decreased from 14.1 percent in 1997
to 13.7 percent in 1998.
Interest expense increased over the prior year, reflecting increased debt
levels in the first quarter associated with the 1997 repurchase of shares
previously held by Waste Management, Inc. The impact of larger seasonal
borrowings, primarily due to acquisitions and higher interest rates associated
with the refinancing of floating-rate bank debt with longer term, fixed-rate
debt, was partially offset by proceeds from the May 1998 equity offering.
Interest and investment income increased over the prior year levels due to
growth in the investment portfolio at American Home Shield, as well as gains
realized on sales of marketable securities.
Minority interest expense decreased as the General Partners' interests in the
parent entities were eliminated upon reincorporation.
1997 Compared with 1996
Revenues increased 15 percent to $4 billion, reflecting the effect of
acquisitions and growth from base operations. Operating income increased 17
percent to $344 million, while margins increased to 8.7 percent of revenue from
8.5 percent in 1996, reflecting the continued strong growth of higher margin
businesses, productivity improvements, and the integration of the acquired
Barefoot, Inc. operations. These improvements were offset in part by the impact
of the acquired professional employer organization, which has significantly
lower margins than the rest of our businesses. Operating income margins would
have improved 50 basis points excluding this acquisition.
S-11
<PAGE>
Pro forma information is presented which compares the continuing results of
operations as if we had been a taxable corporation in 1997 and 1996. On this
basis, net income grew nine percent to $163 million. Basic earnings per share
increased 21 percent to $.57 and diluted earnings per share were up 20 percent
to $.55. Earnings per share grew at a higher rate than net income due to the
transaction with Waste Management in which we repurchased Waste Management's 19
percent ownership interest in ServiceMaster (61.1 million shares) for $626
million on April 1, 1997. This transaction increased interest expense
significantly and reduced shares outstanding.
Historical partnership net income, which did not include a provision for
corporate taxes, was $329 million, including a one-time tax gain of $65 million
realized upon reincorporation. The resulting historical basic and diluted
earnings per share were $1.15 and $1.10, respectively. This gain represented
the difference between the tax and book basis of the enterprise's assets and
liabilities, which was recognized as a result of the reincorporation.
Partnership net income excluding this gain increased eight percent to $264
million. On this basis, basic and diluted earnings per share were $.92 and
$.89, reflecting increases of 19 percent.
The consumer services business unit achieved a 14 percent increase in revenue
and a 21 percent increase in pro forma net income, reflecting the successful
integration of the Barefoot business (which was acquired in February 1997),
combined with good growth from base operations and other acquisitions. The
TruGreen-ChemLawn operations achieved strong double-digit growth in revenues
and profits, reflecting the Barefoot acquisition, increases in the customer
base, improved branch efficiencies, strong sales of ancillary products and
favorable weather conditions throughout most of the year. Terminix achieved
solid growth in revenue and profits for the year. Strong growth in renewals and
productivity improvements offset the effects of adverse weather conditions on
termite operations and increased termite remediation costs. American Home
Shield achieved very strong double-digit increases in both revenues and
profits, with excellent increases in contract renewals and direct-to-consumer
sales. This is consistent with an overall strategy to expand channels of
distribution in this business, which have historically been concentrated in the
residential resale market. ServiceMaster Residential and Commercial Services
and Merry Maids reported modest profit growth and solid revenue growth for the
year, reflecting the conversion of certain franchises and distributors to
company-owned operations.
The traditional management services business segment achieved five percent
growth in revenue, reflecting the Premier acquisition completed in 1996 and, to
a lesser degree, growth in the base business. The base business growth resulted
from improvements in healthcare and business and industry, offset by reductions
in education. Pro forma net income was up three percent compared with the prior
year. Despite continuing competitive pressures and industry consolidation in
the acute care market, we achieved solid revenue increases and improved
customer retention in the healthcare market. Reported profits in this market
were comparable to the prior year. Within the acute care sector, good growth
was realized from sales of the Integrated Service product, which provides
comprehensive service solutions to clients. We achieved significant revenue and
profit increases in the business and industry market, largely as a result of
the successful integration of the Premier acquisition and modest growth in the
base business. In the education market, revenues and profits declined due to
the discontinuation of certain large accounts and margin pressures in certain
accounts.
Revenues in other operations increased significantly, reflecting the August
1997 acquisition of Certified Systems, Inc. (CSI) which added approximately
$155 million in revenue and minimal profits after acquisition-related costs.
CSI is a professional employer organization that provides clients with
administrative processing of payroll, workers' compensation insurance, health
insurance, unemployment insurance, and other employee benefit plans. Other
operations primarily include CSI and diversified health services business. Pro
forma net income reflects the additional interest expense incurred at the
parent level relating to the Waste Management share repurchase.
On a consolidated basis, cost of services rendered and products sold increased
14 percent and decreased slightly as a percentage of revenue to 77.2 percent in
1997 from 77.5 percent in 1996. This reflects the changing mix of the
enterprise as the consumer services business increased in size relative to our
overall business. The consumer services unit operates at a higher gross profit
margin than the management services business unit, but incurs relatively higher
levels of selling and administrative costs. However, much of this reduction in
cost of goods sold was offset by the acquisition of CSI, which operates at
significantly lower gross margins than our other businesses. Without CSI, cost
of goods sold would have been 76.5 percent of revenue in 1997.
Consolidated selling and administrative expenses increased 16 percent over the
prior year, and as a percentage of revenue, increased from 13.9 percent in 1996
to 14.1 percent in 1997, reflecting the changing business mix described above.
S-12
<PAGE>
Interest expense increased over the prior year primarily due to increased debt
levels associated with the repurchase of shares previously held by Waste
Management and acquisitions.
Interest and investment income increased over the prior year due to growth in,
and strong returns from, the investment portfolio at American Home Shield, as
well as a gain associated with the sale of an interest in an international
joint venture.
Minority interest expense decreased due to the repurchase of minority ownership
interests in subsidiary entities.
S-13
<PAGE>
DESCRIPTION OF THE NOTES
The following description of the particular terms of the notes supplements the
description of the general terms and provisions of the Debt Securities set
forth in the Prospectus. You should also carefully read the section entitled
"Description of Debt Securities" contained in the Prospectus.
General
The notes will be issued under the Indenture (the "Indenture") dated as of
August 15, 1997 by and between ServiceMaster, as issuer, and Harris Trust and
Savings Bank, as trustee (the "Trustee"). Capitalized terms not defined in this
section have meanings as set forth in the Indenture.
The notes will be limited to $250 million aggregate principal amount and will
mature on August 15, 2009 at 100 percent of their principal amount, unless
earlier redeemed. We will issue the notes in minimum denominations of $1,000
increased in multiples of $1,000.
The notes will rank pari passu with all other unsubordinated indebtedness of
ServiceMaster.
The notes will bear interest at the rate per annum set forth on the cover page
of this Prospectus Supplement from August 10, 1999 or from the most recent
interest payment date to which interest has been paid or provided for. Interest
will be payable semi-annually on February 15 and August 15 of each year,
beginning February 15, 2000. Interest will be payable to the persons in whose
names the notes are registered at the close of business on the February 1 or
August 1 before the respective interest payment date.
The notes will be issued as Registered Global Securities. Principal of and
interest on the notes will be payable, and the transfer of notes will be
registerable, through The Depository Trust Company, as Depositary, as described
under "Description of Debt Securities--Global Debt Securities" in the
Prospectus.
The notes are not subject to any sinking fund.
Optional Redemption of Notes
The notes will be redeemable in whole or in part at the option of ServiceMaster
at any time. Any redemption will be at a price equal to the greater of (i) 100
percent of the principal amount of such notes or (ii) as determined by a
Quotation Agent, the sum of the present values of the remaining scheduled
payments of principal and interest thereon (not including any portion of such
payments of interest accrued as of the date of redemption) discounted to the
redemption date on a semiannual basis assuming a 360-day year consisting of
twelve 30-day months at the Adjusted Treasury Rate, plus 20 basis points, in
each case, accrued interest thereon to the date of redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security selected
by a Quotation Agent as having a maturity comparable to the remaining term of
the notes to be redeemed that would be utilized, at the time of selection and
in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of such
notes.
"Quotation Agent" means the Reference Treasury Dealer appointed by the Trustee
after consultation with ServiceMaster. "Reference Treasury Dealer" means (i)
initially J.P. Morgan Securities Inc. and its respective successors; provided,
however, that if the foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), ServiceMaster
shall substitute therefor another Primary Treasury Dealer; or (ii) any other
Primary Treasury Dealer selected by the Trustee after consultation with
ServiceMaster.
S-14
<PAGE>
"Comparable Treasury Price" means, with respect to any redemption date, (i) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issues
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of the notes to be redeemed.
Unless ServiceMaster defaults in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the redeemed notes or
portions thereof.
S-15
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
with respect to the notes, ServiceMaster has agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of the Underwriters has
severally agreed to purchase, the principal amount of notes set forth opposite
its name below:
<TABLE>
<CAPTION>
Principal
Name Amount of Notes
---- ---------------
<S> <C>
J.P. Morgan Securities Inc................................ $125,000,000
Goldman, Sachs & Co....................................... 50,000,000
Banc of America Securities LLC............................ 37,500,000
Banc One Capital Markets, Inc............................. 25,000,000
BNY Capital Markets, Inc.................................. 6,250,000
First Union Capital Markets Corp.......................... 6,250,000
------------
Total................................................... $250,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, if the
Underwriters take any of the notes, then the Underwriters are obligated to take
and pay for all of the notes.
The notes are a new issue of securities with no established trading market and
will not be listed on any national securities exchange. The Underwriters have
advised the Company that they intend to make a market for the notes, but they
have no obligations to do so and may discontinue market making at any time
without providing notice. No assurance can be given as to the liquidity of any
trading market for the notes.
The Underwriters initially propose to offer part of the notes directly to the
public at the offering prices described on the cover page and part to certain
dealers at a price that represents a concession not in excess of .40 percent of
the principal amount of the notes. Any Underwriter may allow, and any such
dealer may reallow, a concession not in excess of .25 percent of the principal
amount of the notes to certain other dealers. After the initial offering of the
notes, the Underwriters may from time to time vary the offering price and other
selling terms.
ServiceMaster has also agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments which the Underwriters may be required to
make in respect of any such liabilities.
In connection with the offering of the notes, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
notes. Specifically, the Underwriters may over allot in connection with the
offering of the notes, creating a syndicate short position. In addition, the
Underwriters may bid for, and purchase, notes in the open market to cover
syndicate short positions or to stabilize the price of the notes. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the notes in the offering, if the syndicate repurchases previously distributed
notes in syndicate covering transactions, stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the notes above independent market levels. The Underwriters are not required
to engage in any of these activities, and may end any of them at any time.
Expenses associated with this offering to be paid by ServiceMaster are
estimated to be $500,000.
When more than 10 percent of the proceeds of a public offering of certain
securities are to be paid to members of the National Association of Securities
Dealers, Inc. ("NASD") participating in such public offering or to affiliates
of such members, Rule 2710(c)(8) of the NASD's Rules of Fair Practice requires
disclosure of such fact. Each of J.P. Morgan Securities Inc., Banc of America
Securities LLC, Banc One Capital Markets, Inc., and BNY Capital Markets, Inc.
and/or certain affiliates thereof is a member of the NASD. The Underwriters
and/or their affiliates may indirectly receive more than 10 percent of the net
proceeds from the offering of the notes as a result of the use of such proceeds
to repay borrowings by ServiceMaster under its revolving bank credit facility.
See "Use of Proceeds."
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have engaged and may in the future engage in commercial
banking and investment banking transactions with ServiceMaster and its
affiliates.
S-16
<PAGE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the Prospectus contain certain forward- looking
statements within the meaning of Section 27A of the 1933 Act and Section 21E of
the 1934 Act and we intend that such forward-looking statements be subject to
the safe harbors created thereby. Such forward-looking statements involve risks
and uncertainties and include, but are not limited to, statements regarding
future events and our plans, goals and objectives. Such statements are
generally accompanied by words such as "intend," "anticipate," "believe,"
"estimate," "expect" or similar statements. Our actual results may differ
materially from such statements. Factors that could cause or contribute to such
differences are set forth below as well as those factors discussed elsewhere in
this Prospectus Supplement and the Prospectus. Although we believe that the
assumptions underlying our forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be no
assurance that the results contemplated in such forward-looking statements will
be realized. The inclusion of such forward-looking information should not be
regarded as a representation by us or any other person that the future events,
plans or expectations contemplated by us will be achieved. Furthermore, past
performance in operations and share price is not necessarily predictive of
future performance.
Seasonality And Impact of Weather Conditions. Our lawn care, landscaping and
pest control businesses are highly seasonal in nature, with a significant
portion of their net revenues occurring in the spring and summer months of each
year. Adverse weather conditions could have a negative impact on the demand for
our lawn care, landscaping and pest control services.
Increased Competition. The service industries in which we operate are highly
competitive with limited barriers to entry. The entry of new competitors into
one or more of the markets served by us could impact the demand for our
services as well as impose additional pricing pressures.
Labor Shortages. Most of the services we provide are highly labor intensive. In
the event of a labor shortage, we may experience difficulty in delivering our
services in a high-quality manner and may be forced to increase wages in order
to attract a sufficient number of employees, which could result in higher
operating costs.
Continued Consolidation of U.S. Hospital Market. In recent years, there has
been an ongoing consolidation of hospitals in the health care market. This
continued consolidation could adversely impact the level of demand for our
health care management services and the prices which we can charge for such
services.
Ability to Continue Acquisition Strategy. We plan to continue to pursue
opportunities to expand through acquisitions. Our ability to continue to make
acquisitions at reasonable prices and to integrate the acquired businesses are
important factors in our future growth.
LEGAL OPINIONS
Certain legal matters in connection with the notes will be passed upon for
ServiceMaster by Vernon T. Squires, Senior Vice President and General Counsel
of ServiceMaster, and for the Underwriters by Davis Polk & Wardwell, New York,
New York. As of July 30, 1999, Mr. Squires holds directly or indirectly 393,336
shares and options to acquire 225,000 shares of Common Stock of ServiceMaster.
S-17
<PAGE>
PROSPECTUS
The ServiceMaster Company
Debt Securities
The ServiceMaster Company, a Delaware corporation (the "Company" or
"ServiceMaster") may offer from time to time in one or more series its debt
securities consisting of debentures, notes or other evidence of indebtedness
(the "Debt Securities"), in amounts as may be sold for an aggregate public
offering price of up to $950,000,000 on terms to be determined at the time of
each offering. The Debt Securities may be issued as unsecured Debt Securities
and will not be subordinated to other obligations of the Company. The Debt
Securities will be offered separately or together, in separate series, in
amounts, at prices and on terms determined by market conditions at the time of
sale and to be set forth in one or more supplements to this Prospectus (each,
a "Prospectus Supplement").
The specific terms of the Debt Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement, which
will include, where applicable: the specific title, aggregate principal
amount, authorized denominations, maturity (which may be fixed or extendible),
interest rate or rates (which may be fixed or variable) (or manner of
calculation thereof), if any, the time of payment of interest, if any, any
terms of redemption at the option of the Company or repayment at the option of
the holder, any terms for sinking fund payments, additional covenants, initial
public offering price, purchase price and other terms with respect to the Debt
Securities. The Debt Securities may be issued as Original Issue Discount
Securities to be sold at a substantial discount below their principal amount
and, if issued, certain terms thereof will be set forth in the Prospectus
Supplement related thereto. The Debt Securities will be represented by global
notes registered in the name of a nominee of The Depository Trust Company, as
Depositary. Beneficial interests in the Debt Securities will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depositary (with respect to participants' interests) and its participants.
Except as described in this Prospectus, Debt Securities in certificated form
will not be issued in exchange for the global notes. See "Description of Debt
Securities--Global Debt Securities."
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Debt Securities
covered by such Prospectus Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Debt Securities may be offered directly to one or more purchasers,
through agents designated from time to time by the Company or to or through
underwriters or dealers. If any agents or underwriters are involved in the
sale of the Debt Securities, their names, and any applicable purchase price,
fee, commission or discount arrangement between or among them, will be set
forth, or will be calculable from the information set forth, in the applicable
Prospectus Supplement. See "Plan of Distribution." No Debt Securities may be
sold without delivery of a Prospectus Supplement describing the method and
terms of the offering of such Debt Securities.
----------------
The date of this Prospectus is February 25, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") Registration Statement (file number 333-32167) on Form S-3 under
the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of, among other things, the Debt Securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits and
schedules to, or incorporated by reference in, the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Debt Securities offered
hereby, reference is made to the Registration Statement, including the
exhibits thereto, and financial statements and notes filed as a part thereof
or incorporated by reference therein. Statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such document filed with the Commission as an
exhibit to, or incorporated by reference in, the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, the Company files consolidated reports, proxy statements and other
information with the Commission. Reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
may be obtained by mail from the Public Reference Branch of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding the Company.
In addition, such material may also be inspected and copied at the offices of
the New York Stock Exchange. The Company's common stock is listed on the New
York Stock Exchange.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the Commission by the Company's
predecessor, ServiceMaster Limited Partnership, or the Company, as the case
may be, and are incorporated by reference in this Prospectus: (i) the Annual
Report on Form 10-K (File No. 1-9378) for the year ended December 31, 1996
(the "1996 Form 10-K"), (ii) the Quarterly Report on Form 10-Q for the period
ended March 31, 1997, (iii) the Quarterly Report on Form 10-Q for the period
ended June 30, 1997, (iv) the Quarterly Report on Form 10-Q for the period
ended September 30, 1997, and (v) the Current Reports on Form 8-K, dated
February 19, 1997, February 20, 1997, March 4, 1997, August 12, 1997, December
12, 1997, December 29, 1997, January 2, 1998 and February 25, 1998. All
documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Debt Securities and the other securities
registered on the Registration Statement shall be deemed to be incorporated
herein by reference and to be a part hereof from the respective dates of
filing of such documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request. Copies of this
Prospectus, as amended or supplemented from time to time, and any other
2
<PAGE>
documents (or parts of documents) that constitute part of the Prospectus under
Section 10(a) of the Securities Act will also be provided without charge to
each such person, upon written or oral request. Requests should be directed to
ServiceMaster at One ServiceMaster Way, Downers Grove, Illinois 60515-9969,
Attention: Investor Relations (telephone number: (630) 271-1300).
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE DEBT SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY
SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
3
<PAGE>
Unless otherwise indicated or the context otherwise requires, all references
herein to the "Company" or "ServiceMaster" refers to The ServiceMaster Company
and all of its subsidiaries and their respective predecessors. The
ServiceMaster Company is the corporate successor to the operations of
ServiceMaster Limited Partnership (the "Parent Partnership") and its immediate
subsidiary, The ServiceMaster Company Limited Partnership.
SERVICEMASTER
ServiceMaster provides a range of services to individual consumers,
businesses and institutions in the United States and 30 other countries
throughout the world. ServiceMaster is divided into three operating units:
Consumer Services, Management Services and Employer Services. Consumer
Services and Management Services are the principal operating units.
ServiceMaster Consumer Services L.P. is a wholly owned first-tier subsidiary
of the Company and provides services to over 9 million residential and
commercial customers through eight leading companies: TruGreen L.P., which
provides lawn care, tree and shrub services and indoor plant maintenance under
the "TruGreen," "ChemLawn," "TruGreen-ChemLawn" and "Barefoot" service marks;
The Terminix International Company, L.P., which provides termite and pest
control services under the "Terminix" service mark; American Home Shield
Corporation, which provides home system and appliance warranty contracts and
home inspection services under the "American Home Shield" and "AmeriSpec"
service marks; Rescue Rooter L.L.C., which provides plumbing and drain
clearing services under the "Rescue Rooter" service mark; ServiceMaster
Residential/Commercial Services L.P., which provides residential and
commercial cleaning and disaster restoration services under the
"ServiceMaster" service mark; Merry Maids L.P., which provides domestic
housekeeping services under the "Merry Maids" service mark; and Furniture
Medic L.P., which provides in-home furniture repair and restoration services
under the "Furniture Medic" service mark. These services are part of the
"ServiceMaster Quality Network" and may be accessed by calling a single toll-
free telephone number: 1-800-WE SERVE.
ServiceMaster Management Services L.P. is a wholly owned first-tier
subsidiary of the Company and is organized into three principal operating
units: ServiceMaster Healthcare Management Services, Education Management
Services and Business and Industry Management Services. Each of these three
units provides to its respective customers a variety of supportive management
services, including the management of housekeeping, plant operations and
maintenance, clinical equipment maintenance, laundry and linen, grounds and
landscaping, energy management services and food service. In addition,
Healthcare Management Services provides management and other services to the
long-term care, assisted living and home health care markets.
The Employer Services unit is one of the nation's largest professional
employer organizations and provides more than 790 clients with administrative
processing of payroll, worker's compensation insurance, health insurance,
unemployment insurance and other employee benefits.
RATIO OF EARNINGS TO FIXED CHARGES
The following are the consolidated ratios of earnings to fixed charges for
the Company for the nine months ended September 30, 1996 and 1997 and each of
the fiscal years 1992 through 1996:
<TABLE>
<CAPTION>
Nine
Months
Ended
September
30, Year Ended December 31,
---------- ----------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated ratios of earnings to
fixed charges....................... 3.78x 5.04x 5.16x 4.83x 4.72x 4.55x 3.85x
</TABLE>
The Company's consolidated ratios of earnings to fixed charges were computed
by dividing earnings by fixed charges. For this purpose, "earnings" consist of
income from continuing operations before income taxes,
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fixed charges (excluding capitalized interest) and minority interest expenses
of subsidiaries with fixed charges and "fixed charges" consist of interest and
amortization of debt expense, including the interest portion of rental
obligations deemed representative of the interest factor.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Debt
Securities for general business purposes, which may include, but are not
limited to, repayment, redemption or repurchase of outstanding indebtedness;
repurchase of outstanding shares issued by the Company; acquisitions, capital
expenditures and working capital requirements; and such other purposes as may
be specified in the relevant Prospectus Supplement. A description of any
indebtedness to be refinanced with the proceeds from the sale of the Debt
Securities will be set forth in the applicable Prospectus Supplement.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture"),
dated as of August 15, 1997, as amended, among the Company, as issuer (and as
successor to the Parent Partnership and The ServiceMaster Company Limited
Partnership) and Harris Trust and Savings Bank, as trustee (the "Trustee").
The following description of certain provisions of the Indenture and the Debt
Securities summarizes the material terms thereof but does not purport to be
complete, and such summary is subject to the detailed provisions of the
Indenture to which reference is hereby made, including the definition of
certain terms used herein, and for other information regarding the Debt
Securities. The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. Numerical references in
parentheses below are to sections in the Indenture. Wherever particular
sections or defined terms of the Indenture are referred to, such sections or
defined terms are incorporated herein by reference as part of the statement
made, and the statement is qualified in its entirety by such reference. Any
Debt Securities offered by this Prospectus and the accompanying Prospectus
Supplement are referred to herein as the "Offered Debt Securities." As used
below in this "Description of Debt Securities" section, the "Company" means
The ServiceMaster Company, but not any of its subsidiaries, unless the context
requires otherwise.
General
The Indenture provides for issuance of Debt Securities by the Company in an
unlimited amount from time to time in one or more series. Debt Securities may
be denominated and payable in foreign currencies or units based on or relating
to foreign currencies. Special United States federal income tax considerations
applicable to any Debt Securities so denominated will be described in the
relevant Prospectus Supplement.
The Debt Securities will be unsecured obligations of the Company. The
Indenture does not limit the amount of additional indebtedness that the
Company may incur and does not contain provisions which would afford the
holders (the "Holders") of the Debt Securities protection in the event of a
decline in the Company's credit quality resulting from highly leveraged or
other transactions involving the Company.
Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Offered Debt Securities (to the extent such
terms are applicable to such Offered Debt Securities): (i) the specific
designation, aggregate principal amount, purchase price and denomination; (ii)
currency or units based on or relating to currencies in which such Offered
Debt Securities are denominated and in which principal of, premium, if any,
and any interest on such Offered Debt Securities will or may be payable; (iii)
any date of maturity; (iv) interest rate or rates, which may be fixed or
variable, and the method by which such rate or rates will be determined, if
any; (v) the dates on which any such interest will be payable; (vi) the place
or places where the principal of, premium, if any, and any interest on the
Offered Debt Securities will be payable; (vii) any redemption, repayment or
sinking fund provisions; (viii) whether the Offered Debt Securities will be
issuable in
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<PAGE>
registered form or bearer form ("Bearer Securities") or both and, if Bearer
Securities are issuable, any restrictions applicable to the exchange of one
form for another and to the offer, sale and delivery of Bearer Securities;
(ix) any applicable United States federal income tax consequences, including
whether and under what circumstances the Company will pay additional amounts
on Offered Debt Securities held by a person who is not a U.S. person (as
defined in the Prospectus Supplement) in respect of any tax, assessment or
governmental charge withheld or deducted and, if so, whether the Company will
have the option to redeem such Offered Debt Securities rather than pay such
additional amounts; and (x) any other specific terms of the Offered Debt
Securities, including any additions to or modifications or deletions of any
events of default or covenants provided for with respect to such Offered Debt
Securities, and any terms which may be required by or be advisable under
applicable laws or regulations (Section 2.03).
Debt Securities may be presented for exchange and registered Debt Securities
may be presented for transfer in the manner, at the places and subject to the
restrictions set forth in the Debt Securities and the Prospectus Supplement.
Subject to the limitations provided in the Indenture, such services will be
provided without charge, other than any tax or other governmental charge
payable in connection therewith. Debt Securities in bearer form and the
coupons, if any, appertaining thereto will be transferable by delivery.
Debt Securities will bear interest at a fixed rate (a "Fixed Rate Security")
or a floating rate (a "Floating Rate Security"). Debt Securities bearing no
interest or interest at a rate that at the time of issuance is below the
prevailing market rate will be sold at a discount below their stated principal
amount. Special United States federal income tax considerations applicable to
any such discounted Debt Securities or to certain Debt Securities issued at
par which are treated as having been issued at a discount for United States
federal income tax purposes will be described in the relevant Prospectus
Supplement.
Debt Securities may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on
any interest payment date, to be determined by reference to one or more
currency exchange rates, commodity prices, equity indices or other factors.
Holders of such Debt Securities may receive a principal amount on any
principal payment date, or a payment of interest on any interest payment date,
that is greater than or less than the amount of principal or interest
otherwise payable on such dates, depending upon the value on such dates of the
applicable currency, commodity, equity index or other factors. Information as
to the methods for determining the amount of principal or interest payable on
any date, the currencies, commodities, equity index, or other factors to which
the amount payable on such date is linked and certain additional tax
considerations will be set forth in the applicable Prospectus Supplement.
Ranking
The Debt Securities, when issued, will rank pari passu in right of payment
with all other unsecured and unsubordinated indebtedness of the Company
(Section 2.03).
The Debt Securities may, under certain circumstances, be equally and ratably
secured with other senior indebtedness of the Company. See "--Certain
Covenants of the Company--Restrictions on Liens."
Global Debt Securities
The registered Debt Securities of a series may be issued in the form of one
or more fully registered global Debt Securities (a "Registered Global
Security") that will be deposited with a depository (a "Depositary") or with a
nominee for a Depositary identified in the Prospectus Supplement relating to
such series and registered in the name of the Depositary or a nominee thereof.
In such case, one or more Registered Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding registered Debt Securities of the series to be
represented by such Registered Global Security or Registered Global
Securities. Unless and until it is exchanged in whole or in part for Debt
Securities in debenture registered form, a Registered Global Security may not
be transferred except as a whole by the Depositary for such Registered Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such
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<PAGE>
Depositary or another nominee of such Depositary or such Depositary or any
such nominee to a successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Registered Global
Security will be described in the Prospectus Supplement relating to such
series. The Company anticipates that the following provisions will apply to
all depositary arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the
Depositary for such Registered Global Security will credit, on its book-entry
registration and transfer systems the participants' accounts with the
respective principal amounts of the Debt Securities represented by such
Registered Global Security beneficially owned by such participants. The
accounts to be credited will be designated by any dealers, underwriters or
agents participating in the distribution of such Debt Securities. Ownership of
beneficial interests in such Registered Global Security will be shown on, and
the transfer of such ownership interests will be effected only through,
records maintained by the Depositary for such Registered Global Security (with
respect to interests of participants) and on the records of participants (with
respect to interests of persons holding through participants). The laws of
some states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in
registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the owner of record of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder
of the Debt Securities represented by such Registered Global Security for all
purposes under the Indenture. Except as set forth below, owners of beneficial
interests in a Registered Global Security will not be entitled to have the
Debt Securities represented by such Registered Global Security registered in
their names, and will not receive or be entitled to receive physical delivery
of such Debt Securities in definitive form and will not be considered the
owners or holders thereof under the Indenture. Accordingly, each person owning
a beneficial interest in a Registered Global Security must rely on the
procedures of the Depositary for such Registered Global Security and, if such
person is not a participant, on the procedures of the participant through
which such person owns its interest to exercise any rights of a holder of
record under the Indenture. The Company understands that under existing
industry practices, if the Company requests any action of holders or if any
owner of a beneficial interest in a Registered Global Security desires to give
or take any action which a holder is entitled to give or take under the
Indenture, the Depositary for such Registered Global Security would authorize
the participants holding the relevant beneficial interests to give or take
such action, and such participants would authorize beneficial owners owning
through such participants to give or take such action or would otherwise act
upon the instruction of beneficial owners holding through them.
Payments of principal of, premium, if any, and any interest on Debt
Securities represented by a Registered Global Security registered in the name
of a Depositary or its nominee will be made to such Depositary or its nominee,
as the case may be, as the registered owner of such Registered Global
Security. None of the Company, the Trustee or any other agent of the Company
or agent of the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in such Registered Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for any Debt Securities represented
by a Registered Global Security, upon receipt of any payment of principal,
premium, if any, or interest in respect of such Registered Global Security,
will immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in such Registered
Global Security as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in
such Registered Global Security held through such participants will be
governed by standing customer instructions and customary
7
<PAGE>
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such participants.
If the Depositary for any Debt Securities represented by a Registered Global
Security notifies the Company that it is at any time unwilling or unable to
continue as Depositary or ceases to be eligible under applicable law, and a
successor Depositary eligible under applicable law is not appointed by the
Company within 90 days, the Company will issue such Debt Securities in
definitive form in exchange for such Registered Global Security. In addition,
the Company may at any time and in its sole discretion determine not to have
any of the Debt Securities of a series represented by one or more Registered
Global Securities and, in such event, will issue Debt Securities of such
series in definitive form in exchange for all of the Registered Global
Security or Registered Global Securities representing such Debt Securities.
Any Debt Securities issued in definitive form in exchange for a Registered
Global Security will be registered in such name or names as the Depositary
shall instruct the Trustee (Section 2.07). It is expected that such
instructions will be based upon directions received by the Depositary from
participants with respect to ownership of beneficial interests in such
Registered Global Security. The Debt Securities of a series may also be issued
in the form of one or more bearer global Debt Securities (a "Bearer Global
Security") that will be deposited with a common depositary for Euroclear and
CEDEL, or with a nominee for such depositary identified in the Prospectus
Supplement relating to such series. The specific terms and procedures,
including the specific terms of the depositary arrangement, with respect to
any portion of a series of Debt Securities to be represented by a Bearer
Global Security will be described in the Prospectus Supplement relating to
such series.
Certain Covenants of the Company
The following restrictions apply to each series of Debt Securities unless
the terms of such series of Debt Securities provide otherwise.
Restrictions on Liens. The Indenture provides that the Company will not, and
will not permit any Significant Subsidiary to, create, incur or suffer to
exist any lien on any Equity Interests (as defined in the Indenture),
indebtedness or other obligations of a Significant Subsidiary held by the
Company or any Subsidiary or any Principal Property of the Company or a
Significant Subsidiary, whether such Equity Interests, indebtedness or other
obligations of a Significant Subsidiary or Principal Property are owned at the
date of this Indenture or hereafter acquired, unless the Company secures or
causes such Significant Subsidiary to secure the outstanding Debt Securities
equally and ratably with all indebtedness secured by such Lien, so long as
such indebtedness shall be so secured; provided, however, that this covenant
shall not apply in the case of: (i) the creation of any Lien on any Equity
Interests, indebtedness or other obligations of a Significant Subsidiary or
any Principal Property hereafter acquired (including acquisitions by way of
merger or consolidation) by the Company or a Significant Subsidiary
contemporaneously with such acquisition, or within 180 days thereafter, to
secure or provide for the payment or financing of any part of the purchase
price thereof, or the assumption of any Lien upon any Equity Interests,
indebtedness or other obligations of a Significant Subsidiary or any Principal
Property hereafter acquired (including acquisition by way of merger or
consolidation) existing at the time of such acquisition, provided that every
such Lien referred to in this clause (i) shall not attach to the Equity
Interests, indebtedness or other obligations of a Significant Subsidiary or
any Principal Property other than the Equity Interests, indebtedness or other
obligations of the Significant Subsidiary or any Principal Property other than
the Equity Interests, indebtedness or other obligations of the Significant
Subsidiary or any Principal Property so acquired and fixed improvements
thereon; (ii) any Lien on any Equity Interests, indebtedness or other
obligations of a Significant Subsidiary or any Principal Property existing at
the date of this Indenture; (iii) any Lien on any Equity Interests,
indebtedness or other obligations of a Significant Subsidiary or any Principal
Property in favor of the Company or any Significant Subsidiary; (iv) any Lien
on any Principal Property being constructed or improved securing loans to
finance such construction or improvements; (v) any Lien on Equity Interests,
indebtedness or other obligations of a Significant Subsidiary or any Principal
Property incurred in connection with the issuance of tax-exempt governmental
obligations; (vi) Liens on any Principal Property for taxes not yet due or
which are being contested in good faith by appropriate proceedings and with
respect to which adequate
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<PAGE>
reserves, to the extent required by GAAP, have been made; (vii) carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like Liens on
any Principal Property arising in the ordinary course of business and securing
obligations that are not due and payable or which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves,
to the extent required by GAAP, have been made; (viii) zoning restrictions,
easements, rights-of-way, restrictions on use of real property and other
similar encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and do not materially detract from
the value of the property subject thereto or interfere with the ordinary
conduct of business of any of the Company or any Significant Subsidiary; (ix)
any Lien on Equity Interests, indebtedness or other obligations of a Non-U.S.
Subsidiary held by a Non-U.S. Subsidiary or any Principal Property of a Non-
U.S. Subsidiary; provided that at the time of the creation or incurrence of
any such Lien the aggregate book value of the total assets of the Non-U.S.
Subsidiaries then subject to Liens securing indebtedness for borrowed money
(and after giving effect to the proposed Lien), shall not exceed 25% of the
Total Assets of the Company and its Subsidiaries; (x) any Lien on Equity
Interests, indebtedness or other obligations of a Securitization Subsidiary
created, incurred, assumed or suffered to exist in connection with Permitted
Receivables Financing; (xi) Liens arising by reason of any attachment,
judgment, decree or order of any court or other governmental authority, so
long as any appropriate legal proceedings which may have been initiated for
review of such attachment, judgment, decree or order shall not have been
finally terminated or so long as the period within which such proceedings may
be initiated shall not have expired; (xii) any Lien on Equity Interests,
indebtedness or other obligations of a Significant Subsidiary that was not a
Significant Subsidiary at the time such Lien was created or incurred; and
(xiii) any renewal of or substitution for any Lien permitted by any of the
preceding clauses (i), (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi)
or (xii), provided, that the indebtedness secured is not increased (except for
increases in the amount of premiums or fees payable in connection with such
renewal or substitution) nor the Lien extended to any additional assets (other
than assets as to which the creation, incurrence or existence of Liens is not
governed by this clause). (Section 5.03(a))
Notwithstanding the foregoing, the Company or any Significant Subsidiary may
create, incur, assume or suffer to exist Liens in addition to those permitted
above and renew, extend or replace such Liens, provided that at the time of
such creation, incurrence, assumption, renewal, extension or replacement, and
after giving effect thereto, the aggregate outstanding principal or face
amount of all indebtedness secured by Liens not permitted by clauses (i)
through (xiii) above does not exceed 10% of Consolidated Net Worth. (Section
5.03(b))
Restrictions on Sale and Lease-Back Transactions. The Indenture provides
that the Company will not, and will not permit any Significant Subsidiary to,
sell or transfer, directly or indirectly, except to the Company or a
Significant Subsidiary, any Principal Property as an entirety, or any
substantial portion thereof, with the intention of taking back a lease of such
property, except a lease for a period of three years or less at the end of
which it is intended that the use of such property by the lessee will be
discontinued and any transaction for the sale and lease-back of any property
if such lease is entered into within 180 days after the later of the
acquisition, completion of construction or commencement of operation of such
property; provided that, notwithstanding the foregoing, the Company or any
Significant Subsidiary may sell any such Principal Property and lease it back
for a period longer than three years if the Company or such Significant
Subsidiary would be entitled to create a Lien on the property to be leased
securing indebtedness in an amount equal to the Attributable Debt with respect
to such sale and lease-back transaction without equally and ratably securing
the outstanding Debt Securities or the Company promptly informs the Trustee of
such transaction, the net proceeds of such transaction are at least equal to
the fair value (as determined by Board Resolution of the Company) of such
property and the Company causes an amount equal to the net cash proceeds of
the sale to be applied to the retirement, within 120 days after receipt of
such proceeds, of Funded Debt incurred or assumed by the Company or a
Significant Subsidiary (including the Debt Securities); provided further that,
in lieu of applying all of or any part of such net cash proceeds to such
retirement, the Company may, within 75 days after such sale, deliver or cause
to be delivered to the applicable trustee for cancellation either debentures
or notes evidencing Funded Debt of the Company (which may include the Debt
Securities) or of a Significant Subsidiary previously authenticated and
delivered by the applicable trustee, and not theretofore tendered for sinking
fund purposes or called for a sinking fund or otherwise applied as a credit
against an obligation to redeem or retire such notes or debentures, and an
Officers'
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Certificate (which shall be delivered to the Trustee and which need not
contain the statements prescribed by Section 11.04) stating that the Company
elects to deliver or cause to be delivered such debentures or notes in lieu of
retiring Funded Debt as hereinabove provided. If the Company shall so deliver
debentures or notes to the applicable trustee and the Company shall duly
deliver such Officers' Certificate, the amount of cash which the Company shall
be required to apply to the retirement of Funded Debt shall be reduced by an
amount equal to the aggregate of the then applicable optional redemption
prices (not including any optional sinking fund redemption prices) of such
debentures or notes, or, if there are no such redemption prices, the principal
amount of such debentures or notes; provided, that in the case of debentures
or notes which provide for an amount less than the principal amount thereof to
be due and payable upon a declaration of the maturity thereof, such amount of
cash shall be reduced by the amount of principal of such debentures or notes
that would be due and payable as of the date of such application upon a
declaration of acceleration of the maturity thereof pursuant to the terms of
the indenture pursuant to which such debentures or notes were issued. (Section
5.04)
Certain Definitions
The term "Attributable Debt" as defined in the Indenture means when used in
connection with a sale and lease-back transaction referred to above under "--
Restrictions on Sale and Lease-Back Transactions," on any date as of which the
amount thereof is to be determined, the product of (a) the net proceeds from
such sale and lease-back transaction multiplied by (b) a fraction, the
numerator of which is the number of full years of the term of the lease
relating to the property involved in such sale and lease-back transaction
(without regard to any options to renew or extend such term) remaining on the
date of the making of such computation and the denominator of which is the
number of full years of the term of such lease measured from the first day of
such term.
The term "Consolidated Net Worth" as defined in the Indenture means, at any
date of determination, the consolidated stockholders' equity of the Company,
as set forth on the then most recently available consolidated balance sheet of
the Company and its consolidated Subsidiaries.
The term "Funded Debt" as defined in the Indenture includes all indebtedness
for money borrowed, including purchase money indebtedness, and indebtedness
pursuant to a mandatory sinking fund or prepayment provision or otherwise,
having a maturity of more than one year from the date of its creation or
having a maturity of less than one year but by its terms being renewable or
extendible, at the option of the obligor in respect thereof, beyond one year
from the date of its creation.
The term "Holder" or "Securityholder" as defined in the Indenture means the
registered holder of any Security with respect to registered Debt Securities
and the bearer of any Unregistered Security or any coupon appertaining
thereto, as the case may be.
"Non-U.S. Subsidiary" as defined in the Indenture means any Subsidiary that
is not a corporation, partnership or other entity created or organized in or
under the laws of the United States of America or any state thereof.
"Original Issue Discount Security" as defined in the Indenture means any
Security that provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration of the maturity thereof.
"Permitted Receivables Financing" as defined in the Indenture means a
transaction or series of transactions (including amendments, supplements,
extensions, renewals, replacements, refinancings or modifications thereof)
pursuant to which a Securitization Subsidiary purchases Receivables and
Related Assets from the Company or any Subsidiary and finances such
Receivables and Related Assets through the issuance of Equity Interests or
indebtedness (either directly or through a trust) or through the sale of the
Receivables and Related Assets or a fractional undivided interest in the
Receivables and Related Assets; provided that (i) the Board of Directors of
the Company shall have determined in good faith that such Permitted
Receivables Financing is economically
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fair and reasonable to the Company, (ii) all sales of Receivables and Related
Assets to the Securitization Subsidiary are made at fair market value (as
determined in good faith by the Board of Directors of the Company), (iii) the
financing terms, covenants, termination events and other provisions thereof
shall be market terms (as determined in good faith by the Board of Directors
of the Company), (iv) no portion of the indebtedness of a Securitization
Subsidiary will be guaranteed by or will be recourse to the Company or any
Significant Subsidiary (other than recourse for customary representations,
warranties, covenants and indemnities, none of which shall relate to the
collectibility (as opposed to the status) of the Receivables and Related
Assets) and (v) neither the Company nor any Subsidiary shall have any
obligation to maintain or preserve the Securitization Subsidiary's financial
condition.
The term "Principal Property" as defined in the Indenture means the
Company's principal office building and any manufacturing plant or principal
research facility of any of the Company or any Significant Subsidiary which is
located within the United States of America, except any such principal office
building, plant or facility which the Board of Directors by resolution
declares is not of material importance to the total business conducted by the
Company and its respective Subsidiaries as an entirety.
"Receivables and Related Assets" means accounts receivable and instruments,
chattel paper, obligations, general intangibles and other similar assets, in
each case, relating to such receivables, including interest in merchandise or
goods, the sale or lease of which gave rise to such receivables, related
contractual rights, guarantees, insurance proceeds, collections, other related
assets, and proceeds of all of the foregoing.
"Securitization Subsidiary" as defined in the Indenture means a Wholly Owned
Subsidiary which is established for the limited purpose of acquiring and
financing Receivables and Related Assets and engaging in activities ancillary
thereto.
The term "Significant Subsidiary," as defined in the Indenture means at any
time, any Subsidiary that would be a Significant Subsidiary at such time, as
such term is defined in Regulation S-X promulgated by the Commission, as in
effect on the date of the Indenture.
The term "Subsidiary" as defined in the Indenture means with respect to any
Person, any corporation, association or other business entity of which more
than 50% of the outstanding Voting Stock (as defined in the Indenture) or
other ownership interest is owned directly or indirectly, by such Person and
one or more other Subsidiaries of such Persons.
The term "Total Assets" as defined in the Indenture means, at any date of
determination, the total assets of the Company and its Subsidiaries on a
consolidated basis as set forth on the then most recently available
consolidated balance sheet of the Company and its consolidated Subsidiaries.
"Wholly Owned Subsidiary" as defined in the Indenture means a Subsidiary all
of the Equity Interests of which (except directors' qualifying shares) is at
the time owned directly or indirectly by the Company.
Restrictions on Mergers and Sales of Assets
Under the Indenture, the Company shall not consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially
as an entirety in one transaction or a series of related transactions) to, any
Person or permit any Person to merge with or into the Company unless: (i)
either (x) the Company shall be the continuing Person or (y) the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or that acquired or leased such property and assets of the Company
shall be a corporation, partnership or limited liability company organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of the Company
on all of the Debt Securities and under this Indenture and the Company shall
have delivered to the Trustee an Opinion of Counsel stating that such
consolidation, merger or transfer and such supplemental
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Indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with and
that such supplemental indenture constitutes the legal, valid and binding
obligation of the Company or such successor enforceable against such entity in
accordance with its terms, subject to customary exceptions; and (ii)
immediately after giving effect to such transaction, no Default shall have
occurred and be continuing. (Section 6.01)
Events of Default
Events of Default defined in the Indenture with respect to the Debt
Securities of any series are: (a) the Company defaults in the payment of the
principal of any Debt Securities of such series when the same becomes due and
payable at maturity, upon acceleration, redemption or mandatory repurchase,
including as a sinking fund installment, or otherwise; (b) the Company
defaults in the payment of interest on any Debt Securities of such series when
the same becomes due and payable, and such default continues for a period of
30 days; (c) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture with respect to any
Security of such series or in the Debt Securities of such series and such
default or breach continues for a period of 60 consecutive days after written
notice to the Company by the Trustee or to the Company and the Trustee by the
Holders of 25% or more in aggregate principal amount of the Debt Securities of
all series then outstanding affected thereby; (d) an involuntary case or other
proceeding shall be commenced against the Company or any Significant
Subsidiary with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60 days; or
an order for relief shall be entered against the Company or any Significant
Subsidiary under the federal bankruptcy laws as now or hereafter in effect;
(e) the Company or any Significant Subsidiary (i) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect or consents to the entry of an order for relief in an
involuntary case under any such law, (ii) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, Trustee,
sequestrator or similar official of the Company or any Significant Subsidiary
or for all or substantially all of the property and assets of the Company or
any Significant Subsidiary or (iii) effects any general assignment for the
benefit of creditors; or (f) any other Event of Default established with
respect to any series of Debt Securities issued pursuant to the Indenture
occurs. (Section 7.01)
The Indenture provides that if an Event of Default described in clauses (a)
or (b) of the immediately preceding paragraph with respect to the Debt
Securities of any series then outstanding occurs and is continuing, then, and
in each and every such case, except for any series of Debt Securities the
principal of which shall have already become due and payable, either the
Trustee or the Holders of not less than 25% in aggregate principal amount of
the Debt Securities of any such affected series then outstanding under the
Indenture (each such series treated as a separate class) by notice in writing
to the Company (and to the Trustee if given by Securityholders), may declare
the entire principal (or, if the Debt Securities of any such series are
Original Issue Discount Securities, such portion of the principal amount as
may be specified in the terms of such series established pursuant to the
Indenture) of all Debt Securities of such affected series, and the interest
accrued thereon, if any, to be due and payable immediately, and upon any such
declaration the same shall become immediately due and payable. If an Event of
Default described in clauses (c) or (f) of the immediately preceding paragraph
with respect to the Debt Securities of one or more but not all series then
outstanding or with respect to the Debt Securities of all series then
outstanding occurs and is continuing, then, and in each and every such case,
except for any series of Debt Securities the principal of which shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Debt Securities of all such
affected series then outstanding under the Indenture (treated as a single
class) by notice in writing to the Company (and to the Trustee if given by
Securityholders), may declare the entire principal (or, if the Debt Securities
of any such series are Original Issue Discount Securities, such portion of the
principal amount as may be specified in the terms of such series established
pursuant to the Indenture) of all Debt Securities of all such affected series,
and the interest accrued thereon, if any, to be due and payable immediately,
and upon any such
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declaration the same shall become immediately due and payable. If an Event of
Default described in clause (d) or (e) of the immediately preceding paragraph
occurs and is continuing, then the principal amount (or, if any Debt
Securities are Original Issue Discount Securities, such portion of the
principal as may be specified in the terms thereof established pursuant to the
Indenture) of all the Debt Securities then outstanding and interest accrued
thereon, if any, shall be and become immediately due and payable, without any
notice or other action by any Holder or the Trustee to the full extent
permitted by applicable law. Upon certain conditions such declarations may be
rescinded and annulled and past defaults may be waived by the Holders of a
majority in principal of the then outstanding Debt Securities of all such
series that have been accelerated (voting as a single class). (Section 7.02)
The Indenture contains a provision under which, subject to the duty of the
Trustee during a default to act with the required standard of care, (i) the
Trustee may rely and shall be protected in acting or refraining from acting
upon any resolution, certificate, officers' certificate, opinion of counsel
(or both), statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper person or persons and the Trustee need not investigate
any fact or matter stated in the document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as
it may see fit; (ii) before the Trustee acts or refrains from acting, it may
require an officers' certificate and/or an opinion of counsel, which shall
conform to the requirements of the Indenture and the Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such certificate or opinion; subject to the terms of the Indenture, whenever
in the administration of the trusts of the Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking
or suffering or omitting any action under the Indenture, such matter (unless
other evidence in respect thereof shall be specifically prescribed in the
Indenture) may, in the absence of wilful misconduct on the part of the
Trustee, be deemed to be conclusively proved and established by an officers'
certificate delivered to the Trustee, and such certificate, in the absence of
wilful misconduct on the part of the Trustee, shall be full warrant to the
Trustee for any action taken, suffered or omitted by it under the provisions
of the Indenture upon the faith thereof; (iii) the Trustee may act through its
attorneys and agents not regularly in its employ and shall not be responsible
for the misconduct or negligence of any agent or attorney appointed with due
care; (iv) any request, direction, order or demand of the Company mentioned in
the Indenture shall be sufficiently evidenced by an officers' certificate
(unless other evidence in respect thereof be specifically prescribed in the
Indenture); and any Board Resolution may be evidenced to the Trustee by a copy
thereof certified by the Secretary or an Assistant Secretary of the Company;
(v) the Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by the Indenture at the request, order or direction of any
of the Holders, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction;
(vi) the Trustee shall not be liable for any action it takes, or omits to take
in good faith that it believes to be authorized or within its rights or powers
or for any action it takes or omits to take in accordance with the direction
of the Holders in accordance with the Indenture relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee, under
the Indenture; (vii) the Trustee may consult with counsel and the written
advice of such counsel or any opinion of counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it under the Indenture in good faith and in reliance thereon;
(viii) prior to the occurrence of an Event of Default under the Indenture and
after the curing or waiving of all Events of Default, the Trustee shall not be
bound to make any investigation into the facts or matters stated in any
resolution, certificate, officers' certificate, opinion of counsel, Board
Resolution, statement, instrument, opinion, report, notice, request, consent
order, approval, appraisal, bond, debenture, note, coupon, security, or other
paper or document unless requested in writing so to do by the Holders of not
less than a majority in aggregate principal amount of the Debt Securities of
all series affected then outstanding; provided that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of
the Trustee, not reasonably assured to the Trustee by the security afforded to
it by the terms of the Indenture, the Trustee may require reasonable indemnity
against such expenses or liabilities as a condition to proceeding; (ix) the
Trustee shall not be required to give any bond or surety in respect of the
performance of its powers and
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duties hereunder; (x) the Trustee shall not be bound to ascertain or inquire
as to the performance or observance of any covenants, conditions or agreements
on the part of the Company, except as otherwise set forth herein, but the
Trustee may require of the Company reasonable information and advice as to the
performance of the covenants, conditions and agreements contained herein and
shall be entitled in connection herewith to examine the books, records and
premises of the Company; (xi) the permissive rights of the Trustee to do
things enumerated in this Indenture shall not be construed as a duty and the
Trustee shall not be answerable for other than its negligence or willful
misconduct; (xii) except for any event of which the Trustee has "actual
knowledge" and which event, with the giving of notice or the passage of time
or both, would constitute an Event of Default under this Indenture, the
Trustee shall not be deemed to have notice of any default or event unless
specifically notified in writing of such event by the Company or the Holders
of not less than 25% of the Outstanding Securities; as used herein, the term
"actual knowledge" means the actual fact or statement of knowing, without any
duty to make any investigation with regard thereto. (Section 8.02)
Subject to such provisions in the Indenture for the indemnification of the
Trustee and certain other limitations, the Holders of at least a majority in
aggregate principal amount (or, if any Debt Securities are Original Issue
Discount Securities, such portion of the principal as may be specified in the
terms thereof established pursuant to the Indenture) of the outstanding Debt
Securities of all series affected (voting as a single class) may direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on this Trustee with
respect to the Debt Securities of such series by the Indenture; provided, that
the Trustee may refuse to follow any direction that conflicts with law or the
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders not joining in the giving of such direction, it being understood that
the Trustee shall have no duty to ascertain whether or not such actions or
forbearance are unduly prejudicial to such Holders and provided further, that
the Trustee may take any other action it deems proper that is not inconsistent
with any directions received from Holders of Debt Securities pursuant to this
paragraph. (Section 7.05)
Subject to various provisions in the Indenture, the Holders of at least a
majority in principal amount (or, if the Debt Securities are Original Issue
Discount Securities, such portion of the principal as may be specified in the
terms thereof established pursuant to the Indenture) of the outstanding Debt
Securities of all series affected (voting as a single class), by notice to the
Trustee, may waive an existing Default or Event of Default with respect to the
Debt Securities of such series and its consequences, except a Default in the
payment of principal of or interest on any Security as specified in clauses
(a) or (b) of Section 6.1 of the Indenture or in respect of a covenant or
provision of the Indenture which cannot be modified or amended without the
consent of the Holder of each outstanding Security affected. Upon any such
waiver, such Default shall cease to exist, and any Event of Default with
respect to the Debt Securities of such series arising therefrom shall be
deemed to have been cured, for every purpose of the Indenture; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereto. (Section 7.04)
The Indenture provides that no Holder of any Debt Securities of any series
may institute any proceeding, juridical or otherwise, with respect to the
Indenture or the Debt Securities of such series, or for the appointment of a
receiver or trustee, or for any other remedy under the Indenture, unless: (i)
such Holder has previously given to the Trustee written notice of a continuing
Event of Default with respect to the Debt Securities of such series; (ii) the
Holders of at least 25% in aggregate principal amount of outstanding Debt
Securities of all such series affected shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee under the Indenture; (iii) such Holder or Holders have
offered to The Trustee indemnity reasonably satisfactory to the Trustee
against any costs, liabilities or expenses to be incurred in compliance with
such request; (iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and (v) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding Debt Securities of all such affected
series have not given the Trustee a direction that is inconsistent with such
written request. A Holder may not use the Indenture
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to prejudice the rights of another Holder or to obtain a preference or
priority over such other Holder. (Section 7.06)
The Indenture provides that the Company will file with the Trustee, within
15 days after the Company is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other
reports which the Company may be required to file with the Commission pursuant
to Section 13 or Section 15(d) of the Exchange Act. (Sections 5.06 and 5.09)
Discharge, Defeasance and Covenant Defeasance
The Indenture provides with respect to each series of Debt Securities that
the Company may terminate its obligations under the Debt Securities of a
series and the Indenture with respect to Debt Securities of such series if:
(i) all Debt Securities of such series previously authenticated and delivered,
with certain exceptions, have been delivered to the Trustee for cancellation
and the Company has paid all sums payable by it under the Indenture; or (ii)
(A) the Debt Securities of such series mature within one year or all of them
are to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption, (B) the
Company irrevocably deposits in trust with the Trustee, as trust funds solely
for the benefit of the Holders of such Debt Securities, for that purpose,
money or U.S. Government Obligations or a combination thereof sufficient
(unless such funds consist solely of money, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee), without consideration of any
reinvestment, to pay principal of and interest on the Debt Securities of such
series to maturity or redemption, as the case may be, and to pay all other
sums payable by it under the Indenture, and (C) the Company delivers to the
Trustee an officers' certificate and an opinion of counsel in each case
stating that all conditions precedent provided for in the Company's Indenture
relating to the satisfaction and discharge of the Indenture with respect to
the Debt Securities of such series have been complied with. With respect to
the foregoing clause (i), only the Company's obligations to compensate and
indemnify the Trustee under the Indenture shall survive. With respect to the
foregoing clause (ii), only the Company's obligations to execute and deliver
Debt Securities of such series for authentication, to set the terms of the
Debt Securities of such series, to maintain an office or agency in respect of
the Debt Securities of such series, to have moneys held for payment in trust,
to register the transfer or exchange of Debt Securities of such series, to
deliver Debt Securities of such series for replacement or to be canceled, to
compensate and indemnify the Trustee and to appoint a successor trustee, and
its right to recover excess money held by the Trustee shall survive until such
Debt Securities are no longer outstanding. Thereafter, only the Company's
obligations to compensate and indemnify the Trustee, and its right to recover
excess money held by the Trustee shall survive. (Section 9.01)
The Indenture provides that the Company (i) will be deemed to have paid and
will be discharged from any and all obligations in respect of the Debt
Securities of any series, and the provisions of the Indenture will, except as
noted below, no longer be in effect with respect to the Debt Securities of
such series ("legal defeasance") and (ii) may omit to comply with any term,
provision or condition of the Indenture described above under "--Certain
Covenants" (or any other specific covenant relating to such series provided
for in a Board Resolution or supplemental indenture which may by its terms be
defeased pursuant to the Indenture), and such omission shall be deemed not to
be an Event of Default under clauses (c) or (f) of the first paragraph of "--
Events of Default" with respect to the outstanding Debt Securities of a series
("covenant defeasance"); provided that the following conditions shall have
been satisfied: (A) the Company has irrevocably deposited in trust with the
Trustee as trust funds solely for the benefit of the Holders of the Debt
Securities of such series, for payment of the principal of and interest on the
Debt Securities of such series, money or U.S. Government Obligations or a
combination thereof sufficient (unless such funds consist solely of money, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee) without
consideration of any reinvestment and after payment of all federal, state and
local taxes or other charges and assessments in respect thereof payable by the
Trustee, to pay and discharge the principal of and accrued interest on the
outstanding Debt Securities of such series to maturity or earlier redemption
(irrevocably provided for under arrangements satisfactory to the Trustee), as
the case may be; (B) such deposit will not result
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in a breach or violation of, or constitute a default under, the Indenture or
any other material agreement or instrument to which the Company is a party or
by which it is bound; (C) no Default with respect to such Debt Securities of
such series shall have occurred and be continuing on the date of such deposit;
(D) the Company shall have delivered to the Trustee an opinion of counsel that
(1) the Holders of the Debt Securities of such series will not recognize
income, gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this provision of the Indenture and
will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred and (2) the Holders of the Debt Securities of such
series have a valid security interest in the trust funds subject to no prior
liens under the Uniform Commercial Code; and (E) the Company has delivered to
the Trustee an officers' certificate and an opinion of counsel, in each case
stating that all conditions precedent provided for in the Indenture relating
to the defeasance contemplated have been complied with. In the case of legal
defeasance under clause (i) above, the opinion of counsel referred to in
clause (D)(1) above may be replaced by a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect. Subsequent to
legal defeasance under clause (i) above, the Company's obligations to execute
and deliver Debt Securities of such series for authentication, to set the
terms of the Debt Securities of such series, to maintain an office or agency
in respect of the Debt Securities of such series, to have moneys held for
payment in trust, to register the transfer or exchange of Debt Securities of
such series, to deliver Debt Securities of such series for replacement or to
be canceled, to compensate and indemnify the Trustee and to appoint a
successor trustee, and its right to recover excess money held by the Trustee
shall survive until such Debt Securities are no longer outstanding. After such
Debt Securities are no longer outstanding, in the case of legal defeasance
under clause (i) above, only the Company's obligations to compensate and
indemnify the Trustee and its right to recover excess money held by the
Trustee shall survive. (Sections 9.02 and 9.03)
Modification of the Indenture
The Indenture provides that the Company and the Trustee may amend or
supplement the Indenture or the Debt Securities of any series without notice
to or the consent of any Holder: (1) to cure any ambiguity, defect or
inconsistency in the Indenture; provided that such amendments or supplements
shall not materially and adversely affect the interests of the Holders; (2) to
comply with Article 6 of the Indenture; (3) to comply with any requirements of
the Commission in connection with the qualification of the Indenture under the
Trust Indenture Act; (4) to evidence and provide for the acceptance of
appointments under the Indenture with respect to the Debt Securities of any or
all series by a successor Trustee; (5) to establish the form or forms or terms
of Debt Securities of any series or of the coupons appertaining to such Debt
Securities as permitted under the Indenture or the Guarantees; (6) to provide
for uncertificated or Unregistered Securities and to make all appropriate
changes for such purpose; and (7) to make any change that does not-materially
and adversely affect the rights of any Holder. (Section 10.01)
The Indenture also contains provisions whereby the Company and the Trustee,
subject to certain conditions, without prior notice to any Holders, may amend
the Indenture, the outstanding Debt Securities of any series with the written
consent of the Holders of a majority in principal amount of the Debt
Securities then outstanding of all series affected by such supplemental
indenture (all such series voting as one class), and the Holders of a majority
in principal amount of the outstanding Debt Securities of all series affected
thereby (all such series voting as one class) by written notice to the Trustee
may waive future compliance by the Company with any provision of the Indenture
or the Debt Securities of such series. Notwithstanding the foregoing
provisions, without the consent of each Holder affected thereby, an amendment
or waiver, including a waiver pursuant to Section 7.04 of the Indenture, may
not: (i) extend the stated maturity of the principal of, or any sinking fund
obligation or any installment of interest on, such Holder's Security, or
reduce the principal amount thereof or the rate of interest thereon (including
any amount in respect of original issue discount), or any premium payable with
respect thereto, or adversely affect the rights of such Holder under any
mandatory redemption or repurchase provision or any right of redemption or
repurchase at the option of such Holder, or reduce the amount of the principal
of an Original Issue Discount Security that would be due and payable upon an
acceleration of the maturity thereof or the amount thereof provable in
bankruptcy, or change any place of payment where, or the
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currency in which, any Security or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the due date therefor; (ii) reduce the percentage in
principal amount of outstanding Debt Securities of the relevant series the
consent of whose Holders is required for any such supplemental indenture, for
any waiver of compliance with certain provisions of the Indenture of certain
Defaults and their consequences provided for in the Indenture; (iii) waive a
Default in the payment of principal of or interest on any Security of such
Holder; or (iv) modify any of the provisions of this section of the Indenture,
except to increase any such percentage or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent
of the Holder of each outstanding Security affected thereby. A supplemental
indenture which changes or eliminates any covenant or other provision of the
Indenture which has expressly been included solely for the benefit of one or
more particular series of Debt Securities, or which modifies the rights of
Holders of Debt Securities of such series with respect to such covenant or
provision, shall be deemed not to affect the rights under the Indenture of the
Holders of Debt Securities of any other series or of the coupons appertaining
to such Debt Securities. It shall not be necessary for the consent of any
Holder under this section of the Indenture to approve the particular form of
any proposed amendment supplement or waiver, but it shall be sufficient if
such consent approves the substance thereof. After an amendment, supplement or
waiver under this section of the Indenture becomes effective, the Company
shall give to the Holders affected thereby a notice briefly describing the
amendment, supplement or waiver. The Company will mail supplemental indentures
to Holders upon request. Any failure of the Company to mail such notice, or
any defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture or waiver. (Section 10.02)
Concerning the Trustee
Harris Trust and Savings Bank is the Trustee under the Indenture. The
Trustee performs other services for ServiceMaster in the ordinary course of
business.
PLAN OF DISTRIBUTION
ServiceMaster may sell the Debt Securities in or outside the United States
through underwriters or dealers, directly to one or more purchasers, or
through agents. The Prospectus Supplement with respect to the Debt Securities
will set forth the terms of the offering of the Debt Securities, including the
name or names of any underwriters, dealers or agents, the purchase price of
the Debt Securities and the proceeds to ServiceMaster from such sale, any
delayed delivery arrangements, any underwriting discounts and other items
constituting underwriters' compensation, the initial public offering price,
any discounts or concessions allowed or re-allowed or paid to dealers, and any
securities exchanges on which the Debt Securities may be listed.
If underwriters are used in the sale, the Debt Securities will be acquired
by the underwriters for their own account and may be resold from time to time
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale. The
Debt Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Debt Securities will be named
in the Prospectus Supplement relating to such offering, and, if an
underwriting syndicate is used, the managing underwriter or underwriters will
be set forth on the cover of such Prospectus Supplement. Unless otherwise set
forth in the Prospectus Supplement relating thereto, the obligations of the
underwriters or agents to purchase the Debt Securities will be subject to
conditions precedent, and the underwriters will be obligated to purchase all
the Debt Securities if any are purchased. The initial public offering price
and any discounts or concessions allowed or re-allowed or paid to dealers may
be changed from time to time.
If dealers are used in the sale of Debt Securities with respect to which
this Prospectus is delivered, ServiceMaster will sell such Debt Securities to
the dealers as principals. The dealers may then resell such Debt
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Securities to the public at varying prices to be determined by such dealers at
the time of resale. The names of the dealers and the terms of the transaction
will be set forth in the Prospectus Supplement relating thereto.
Debt Securities may be sold directly by ServiceMaster or through agents
designated by ServiceMaster from time to time at fixed prices, which may be
changed, or at varying prices determined at the time of sale. Any agent
involved in the offer or sale of the Debt Securities with respect to which
this Prospectus is delivered will be named, and any commissions payable by the
Company to such agent will be set forth, in the Prospectus Supplement relating
thereto. Unless otherwise indicated in the Prospectus Supplement, any such
agent will be acting on a best efforts basis for the period of its
appointment.
Debt Securities may be sold directly by ServiceMaster to institutional
investors or others, who may be deemed to be underwriters within the meaning
of the Securities Act with respect to any resale thereof. The terms of any
such sales will be described in the applicable Prospectus Supplement.
In connection with the sale of the Debt Securities, underwriters or agents
may receive compensation from ServiceMaster or from purchasers of Debt
Securities for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters, agents and dealers participating in
the distribution of the Debt Securities may be deemed to be underwriters, and
any discounts or commissions received by them from ServiceMaster and any
profit on the resale of the Debt Securities by them may be deemed to be
underwriting discounts or commissions under the Securities Act.
If so indicated in the Prospectus Supplement, ServiceMaster will authorize
agents, underwriters or dealers to solicit offers from certain types of
institutions to purchase Debt Securities from ServiceMaster at the public
offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in
the future. Such contracts will be subject only to those conditions set forth
in the Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
Agents, dealers and underwriters may be entitled under agreements entered
into with ServiceMaster to indemnification by ServiceMaster against certain
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that such agents, dealers, or
underwriters may be required to make with respect thereto. Agents, dealers,
and underwriters may be customers of, engage in transactions with or perform
services for ServiceMaster and its subsidiaries in the ordinary course of
business.
Some or all of the Debt Securities may be new issues of securities with no
established trading market. Any underwriters to whom Debt Securities are sold
by ServiceMaster for public offering and sale may make a market in such Debt
Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of or the trading markets for any Debt Securities.
Certain of the underwriters, dealers or agents and their affiliates may be
customers of, engage transactions with and perform services for ServiceMaster
and its subsidiaries in the ordinary course of business.
VALIDITY OF DEBT SECURITIES
The validity of the Debt Securities will be passed upon for the
ServiceMaster by Vernon T. Squires, Esq., Senior Vice President and General
Counsel of ServiceMaster. As of December 31, 1997, Vernon T. Squires owned
322,821 shares and options to acquire 90,000 shares of common stock of
ServiceMaster.
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EXPERTS
The financial statements and schedule of the Parent Partnership incorporated
by reference in this Prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated by
reference in reliance upon the authority of said firm as experts in giving
said reports.
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