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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
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(Name of Registrant as Specified In Its Charter)
The ServiceMaster Company
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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The ServiceMaster Company
(3) Filing Party: One ServiceMaster Way
Downers Grove, IL 60515
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(4) Date Filed: March 24, 2000
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
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[SERVICEMASTER LOGO SER1PC]
March 24, 2000
Dear Shareholder:
I am pleased to invite you to attend the 2000 Annual Meeting of Shareholders
of The ServiceMaster Company on April 28, 2000 at 2:00 p.m. Central Time. The
meeting will be held at the Company's headquarters at One ServiceMaster Way,
Downers Grove, Illinois.
As more fully set forth in the notice of the meeting and proxy statement
which appear on the following pages, the principal items of business at the
meeting will be the election of five directors, the approval of a stock option
plan, the approval of a long-term performance award plan and the ratification
of the selection of independent public accountants for the year 2000. The
business and affairs of the Company will also be reviewed at the meeting.
Our Annual Report for 1999 accompanies this statement.
Your vote is important no matter how many shares you own. I hope you will be
able to attend the meeting in person, but if you cannot, please sign and date
the enclosed proxy and return it in the accompanying envelope or use the vote-
by-phone option described on the enclosed proxy card.
C. William Pollard
Chairman and Chief Executive Officer
[WE SERVE LOGO SER1PD]
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THE SERVICEMASTER COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on April 28, 2000
TO THE SHAREHOLDERS OF THE SERVICEMASTER COMPANY:
The Annual Meeting of Shareholders of The ServiceMaster Company, a Delaware
corporation, will be held at One ServiceMaster Way, Downers Grove, Illinois,
at 2:00 p.m. Central Time on April 28, 2000, for the purpose of considering
and voting on the following matters:
1. Election of five (5) Directors;
2. Approval of the ServiceMaster 2000 Equity Incentive Plan;
3. Approval of a Long-Term Performance Award Plan;
4. Ratification of the selection of Arthur Andersen LLP as auditors; and
5. Such other matters as may properly come before the meeting.
Only such shareholders of record at the close of business on March 10, 2000
are entitled to notice of and to vote at the meeting or any adjournment
thereof.
Your attention is directed to the accompanying Proxy Statement. Whether or
not you plan to attend the meeting in person, you are urged to use the vote-
by-phone option described on the enclosed proxy card, or to mark, sign, date
and return the enclosed proxy card in the enclosed postage-paid envelope. The
proxy may be revoked by appropriate notice to the Secretary and will not
affect the right of shareholders of record attending the meeting to vote in
person.
Sandra L. Groman
Vice President and Corporate
Secretary
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THE SERVICEMASTER COMPANY
PROXY STATEMENT
2000 ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement is provided in connection with the 2000 Annual Meeting
of Shareholders of The ServiceMaster Company (the "Company") to be held at the
Company's principal office at One ServiceMaster Way, Downers Grove, Illinois
on Friday, April 28, 2000, at 2:00 p.m. Central Time or any adjournment
thereof for the purposes set forth in the accompanying notice. This Proxy
Statement and the accompanying proxy card are being mailed to shareholders on
or about March 24, 2000.
General Information
Shareholders Entitled to Vote. Holders of record of the common stock of the
Company at the close of business on March 10, 2000 (the "Record Date") are
entitled to vote at the meeting. On that date there were approximately
305,045,000 shares of common stock, par value $0.01 per share (the "Common
Stock"), entitled to vote. With respect to all matters submitted to a vote at
the meeting, each share of Common Stock is entitled to one vote.
Quorum. The presence, in person or by proxy, of the holders of a majority
of the shares of Common Stock outstanding on the Record Date will constitute a
quorum to conduct business.
Voting. The enclosed proxy is solicited by the Board of Directors of the
Company. When the proxy is properly executed and returned, the shares will be
voted in accordance with the shareholder's instructions. If no instructions
are given with respect to a matter, the proxy will be voted in accordance with
the recommendations of the Board of Directors as set forth herein.
With respect to the election of directors, a shareholder may vote for all
five nominees named herein, withhold authority to vote for any or all such
nominees or vote for all such nominees other than any nominee for whom the
shareholder withholds authority to vote. Shareholders do not have the right to
cumulate votes in the election of directors. Directors will be elected by a
plurality of the votes cast at the Annual Meeting. Therefore, the nominees
receiving the highest number of votes cast for the number of positions to be
filled shall be elected.
With respect to each other matter specified in the notice of the meeting, a
shareholder may vote "FOR", vote "AGAINST", or "ABSTAIN" from voting. A
majority of the votes cast is required for approval of other matters presented
which are not of an extraordinary nature. Shares specifically voted to
"abstain" on any particular issue shall be counted in determining the number
of votes cast with respect to that issue. Therefore, a decision to "abstain"
will have the same effect as a vote against such matters. Proxies relating to
"street name" shares that are voted by brokers on one or more but less than
all matters will be treated as shares present for purposes of determining the
presence of a quorum, but will not be treated as shares presented and entitled
to vote at the Annual Meeting as to such non-voted matter or matters.
Revocation of Proxies. A shareholder returning a proxy may revoke it prior
to exercise of the proxy at the Annual Meeting by executing and delivering a
later-dated proxy that is voted at the Annual Meeting, by voting in person by
ballot at the Annual Meeting, or by delivering a written notice of revocation
to the Secretary of the Company. Shareholders whose shares are held in the
name of a broker, bank or other holder of record may not vote in person at the
meeting unless they have first obtained a proxy, executed in the shareholder's
favor, from the holder of record.
Solicitation of Proxies. The Company will bear the costs of its
solicitation of proxies. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone and facsimile transmission by the
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directors, officers and employees of the Company. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries for
forwarding solicitation material to the beneficial owners of Common Stock held
of record by such persons, and the Company may reimburse custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection with such solicitation. In addition, D. F. King & Co., Inc., 77
Water Street, New York, N.Y. 10005 has been engaged to solicit proxies for the
Company. The anticipated fees of D. F. King & Co., Inc. are $7,000 plus
certain expenses.
Procedure for Nominations for the Board of Directors by Shareholders. The
bylaws of the Company provide that only "qualified candidates" may be elected
as directors at any meeting of the shareholders. In order for a person not
nominated by the Board of Directors to be a "qualified candidate", the person
must be younger than age 70 at the date he or she is to be elected and must
have been nominated pursuant to the following rules: the nomination must be
made for an election at a meeting at which the Board has determined that
candidates will be elected; the nominee must be nominated by a shareholder who
will be a record owner on the record date for that meeting and who is entitled
to vote at the meeting; the nominating shareholder must deliver a written
nomination note to the office of the Company's General Counsel which provides
the information required by the bylaws of the Company; and such notice must be
actually delivered not later than the close of business on the 60th day or
earlier than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting of the shareholders. For
the Company's 2001 Annual Meeting, these dates are February 27, 2001 and
January 28, 2001, respectively. The notice must set out all information
relating to such person that is required to be disclosed in solicitation of
proxies for election of directors in an election contest, be accompanied by
the nominee's written consent to be named in the proxy statement as a nominee
and to serving as a director if elected, set forth the name and address of the
shareholder giving the notice and how the shareholder may be contacted, and
set forth the number of shares of the Company owned beneficially and of record
by the shareholder and the beneficial owner if different from the owner of
record.
Shareholder Proposals; Inclusion in the Company's Proxy Statement.
Shareholders who desire to submit a proposal for consideration at the 2001
Annual Meeting of Shareholders and who desire to have the proposal included in
the Company's proxy statement for that meeting must submit the proposal in
writing together with any statement in support thereof to the Company's
General Counsel, at One ServiceMaster Way, Downers Grove, Illinois 60515, by
not later than November 23, 2000. In addition, such proposal must also satisfy
the rules prescribed by the Securities and Exchange Commission regarding
shareholder proposals.
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ELECTION OF DIRECTORS
Proposal One
(Item 1 on the Proxy Card)
The Board of Directors of the Company presently consists of 17 persons.
Pursuant to the Company's Certificate of Incorporation and the Company's
bylaws, the Board is divided into three classes with staggered terms of three
years each so that the term of office of one class expires at each Annual
Meeting of the Shareholders. Each class is identified by the year in which its
term of office expires. The classes of directors as of the date of this Proxy
Statement are: the Class of 2000, consisting of seven persons; the Class of
2001, consisting of five persons; and the Class of 2002, consisting of five
persons. The terms of all directors identified below as the Class of 2000
expire at the Annual Meeting of the Shareholders for the year 2000. Persons
elected as directors at such meeting will become members of the Class of 2003
and will hold office as directors until the next triennial election of
directors which first occurs in respect of directors elected as members of the
Class of 2003.
Henry O. Boswell (age 70), who served as a director since 1985, retired as
a director in 1999. Burton E. Sorensen (age 70), who served as a director
since 1984, is retiring on April 28, 2000 and will not be standing for
reelection. The Board of Directors acknowledges, with deep appreciation, the
significant contributions made by Messrs. Boswell and Sorensen to the growth
and success of the Company during their many years of service, including Mr.
Boswell's service as chairman of the Compensation Committee, and wishes them
every happiness in their future endeavors.
The Board has set as an objective a reduction in the size of the Board to a
range of 12 to 15 persons. The Board has also determined that the only full-
time employee of the Company who should be nominated by the Board for
membership on the Board of Directors is the Chief Executive Officer. The
Board's nominations for members of the Class of 2003 are consistent with these
policies.
Unless otherwise directed, proxies in the form which accompanies this Proxy
Statement will be voted for the nominees listed below. If any of the nominees
becomes unavailable for election (which is not anticipated), the enclosed
proxy may be voted for the election of a substitute nominee as may be selected
by the Board.
Information regarding each of the nominees and the other directors
continuing in office is set forth below. The descriptions of the business
experience of these persons include the principal positions held by them for
at least five years to the date of this Proxy Statement. The bylaws of the
Company require that a candidate for election as a director be less than 70
years of age at the time he or she is to be elected. Each of the nominees
meets that requirement.
The Board of Directors recommends a vote FOR the election of the named
nominees as directors of the Company.
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NOMINEES
Glenda A. Hatchett
Herbert P. Hess
[Picture] Former Chief Judge, Fulton County Juvenile Court, Atlanta
Georgia, 1990-1999. Ms. Hatchett is a director of The Gap, San
Francisco, California, a specialty clothes retailer; and
Columbia/HCA Healthcare Corporation, Nashville, Tennessee, a
healthcare service provider. Class of 2000. Age 48. Director
since 1999.
Michele M. Hunt
[Picture] Managing Director of Berents & Hess Capital Management, Inc.,
Boston, Massachusetts, an investment management firm. He is a
member of the Executive Committee, the Finance Committee (of
which he is the chairman), the Employee Benefit Plan Oversight
Committee, and the Compensation Committee (of which he is
chairman). Class of 2000. Age 63. Director since 1981.
Dallen W. Peterson
[Picture] Private business consultant. During the period from July 1990
to July 1993, she served as Corporate Vice President for
People and Quality for Herman Miller, Inc., an office
furniture manufacturer. Ms. Hunt is a member of the Nominating
Committee. Class of 2000. Age 50. Director since 1995.
David K. Wessner
[Picture] Retired Chairman, Merry Maids Limited Partnership. He is a
member of the Finance Committee and the Employee Benefit Plan
Oversight Committee. Class of 2000. Age 63. Director since
1995.
[Picture] President and Chief Executive Officer, HealthSystem Minnesota.
From August 1994 to July 1998 he served as Executive Vice
President, HealthSystem Minnesota. He is a member of the
Executive Committee, the Nominating Committee, and the
Compensation Committee. Class of 2000. Age 48. Director since
1987.
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DIRECTORS CONTINUING IN OFFICE
Lord Brian Griffiths of Fforestfach
[Picture] International advisor to Goldman, Sachs & Co. concerned with
strategic issues related to their United Kingdom and European
operations and business development activities worldwide. He
was made a life peer at the conclusion of his service to the
British Prime Minister during the period 1985 to 1990. Lord
Griffiths is a director of Times Newspapers Holding Ltd.,
London, England, a newspaper company; English, Welsh and
Scottish Railways, London, England, a rail freight company;
Herman Miller, Inc., Zeeland, Michigan, an office furniture
manufacturer; Trillium Investments GP Limited, London,
England, a facilities management company; and Westminster
Health Care, London, England, a healthcare company. He is a
member of the Executive Committee and the Nominating
Committee. Class of 2001. Age 58. Director since 1992.
Sidney E. Harris
[Picture] Dean, Robinson College of Business, Georgia State University.
From July 1987 to July 1997, Dr. Harris was Professor of
Management at the Peter F. Drucker Graduate School of
Management at the Claremont Graduate School, Claremont,
California. He was Dean of the Graduate School of Management
from September 1991 to July 1996. Dr. Harris is a director of
Transamerica Investors, Inc., Los Angeles, California, a
mutual funds investment company; Lanier Worldwide, Inc.,
Atlanta, Georgia, a global provider of document management
solutions; and Total System Services, Inc., Columbus, Georgia,
an e-commerce processor of credit, debit commercial and
private label cards. He is a member of the Executive
Committee. Class of 2001. Age 50. Director since 1994.
Gunther H. Knoedler
[Picture] James D. McLennan
Retired Executive Vice President, Chief Operating Officer and
Director Emeritus of Bell Federal Savings and Loan
Association, Chicago, Illinois. He is a member of the
Executive Committee and the Audit Committee (of which he is
the chairman). Class of 2001. Age 70. Director since 1979.
[Picture]
Chairman and Chief Executive Officer of McLennan Company, a
full-service real estate company. Mr. McLennan was President
of McLennan Company from 1987 to 1998. Mr. McLennan is a
director of The Loewen Group, Inc., Burnaby, B.C., Canada, a
provider of funeral services; and the Advocate Charitable
Foundation which is a part of Advocate Health Systems, Oak
Brook, Illinois, a health care provider. He is a member of the
Audit Committee and the Compensation Committee. Class of 2001.
Age 63. Director since 1986.
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DIRECTORS CONTINUING IN OFFICE (cont'd)
C. William Pollard
[Picture] Chairman of the Board of Directors since 1990 and Chief
Executive Officer of the Company since October 1, 1999. He
served as Chief Executive Officer of the Company from May 1983
to December 31, 1993. Mr. Pollard is a director of Herman
Miller, Inc., Zeeland, Michigan, an office furniture
manufacturer; and UnumProvident Corporation, Chattanooga,
Tennessee, an insurance company. He is a member of the
Executive Committee (of which he is the chairman), the Finance
Committee, the Employee Benefit Plan Oversight Committee, and
the Nominating Committee. Class of 2001. Age 61. Director
since 1977.
Paul W. Berezny
[Picture] Carlos H. Cantu
President, Berezny Investments, Inc., a real estate and
development company. He is a member of the Audit Committee.
Class of 2002. Age 65. Director since 1995.
[Picture]
Senior Chairman of the Company since December 1999. He served
as President and Chief Executive Officer of the Company from
January 1, 1994 through October 1, 1999. Mr. Cantu is a
director of First Tennessee National Corporation, Memphis,
Tennessee, a financial institution; and Unicom Corporation,
Chicago, Illinois, the parent company of Commonwealth Edison,
an electric utility company based in Chicago, Illinois. He is
a member of the Executive Committee, the Nominating Committee,
the Finance Committee, and the Employee Benefit Plan Oversight
Committee. Class of 2002. Age 66. Director since 1988.
Vincent C. Nelson
Steven S Reinemund
[Picture] Business investor. Mr. Nelson is a member of the Executive
Committee, the Nominating Committee (of which he is the
chairman), and the Audit Committee. Class of 2002. Age 58.
Director since 1978.
[Picture] President of PepsiCo, Inc. since September 1999. He was
Chairman and Chief Executive Officer of Frito-Lay Company, the
packaged foods division of PepsiCo, Inc. from 1996 to 1999.
From 1992 to 1996, Mr. Reinemund was President and Chief
Executive Officer of Frito-Lay, Co., Inc. Mr. Reinemund is a
director of PepsiCo, Inc., a food and beverage conglomerate;
and UnumProvident Corporation, Chattanooga, Tennessee, an
insurance company. He is a member of the Nominating Committee.
Class of 2002. Age 51. Director since 1998.
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DIRECTORS CONTINUING IN OFFICE (cont'd)
Charles W. Stair
[Picture] Retired Vice Chairman of the Board of Directors. He was Vice
Chairman of the Company from May 1994 to December 1999. He is
a member of the Nominating Committee. Class of 2002. Age 59.
Director since 1986.
Meetings of the Board and Committees of the Board.
The Board of Directors held five meetings during 1999. With the exception
of Mr. Reinemund, each incumbent director attended at least 75% of such Board
and Committee meetings on which he or she served.
The following committees are standing committees of the Board of Directors
of the Company:
Executive Committee.
The Executive Committee has the power to grant any authorization or
approval and to take any other action which the Board could take except for
matters reserved to the Board of Directors by law or the bylaws of the Company
and except for any action establishing the compensation for any member of the
Executive Committee. The members of the Executive Committee are: C. W. Pollard
(chairman), C. H. Cantu, B. Griffiths, S. E. Harris, H. P. Hess, G. H.
Knoedler, V. C. Nelson, B. E. Sorensen and D. K. Wessner. The Executive
Committee met nine times in 1999.
Audit Committee
The Audit Committee makes annual recommendations to the Board of Directors
concerning the appointment of independent public accountants to act as
auditors for the Company and its subsidiaries, reviews with the auditors the
scope of their annual audit, the accounting principles, policies and practices
of the Company; reviews with the auditors the results of their audit; reviews
with the Company's internal financial personnel the adequacy of the
accounting, financial and operations controls of the Company; and exercises
such other authority as may be delegated to the Audit Committee by the Board.
The members of the Audit Committee are: G. H. Knoedler (chairman), P. B.
Berezny, J. D. McLennan and V. C. Nelson. The Audit Committee met three times
in 1999.
Nominating Committee
The Nominating Committee recommends to the Board of Directors the persons
to be nominated by the Board for election by the shareholders at each annual
meeting of the shareholders and the persons to be elected to any vacancy on
the Board. The members of the Nominating Committee are: V. C. Nelson
(chairman), C. H. Cantu, B. Griffiths, M. M. Hunt, C. W. Pollard, S. S
Reinemund, C. W. Stair and D. K. Wessner. The Nominating Committee met ten
times in 1999.
Compensation Committee
The Compensation Committee periodically reviews the compensation of members
of senior management of the Company, including base compensation and long-term
compensation arrangements, and makes recommendations to the Board of Directors
in the case of the Chairman and Chief Executive Officer. The Compensation
Committee has the authority to adopt rules and guidelines and to make final
administrative determinations in connection with the ServiceMaster 1998 Equity
Incentive Plan and the ServiceMaster 1998 Long-Term Performance Award Plan and
the ServiceMaster 1998 Non-Employee Directors Stock Option Plan.
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In addition to the foregoing matters, the Board has delegated to the
Compensation Committee the following additional responsibilities: (i)
determination, subject to Board approval, of the compensation of the the
Chairman and Chief Executive Officer; (ii) review and approval of the
recommendations of the Chairman and Chief Executive Officer on other
compensation matters, including base salaries, annual and long-term incentive
plans and payments, option planning and employee benefits; and (iii)
certification or reporting on compensation performance and payments as needed
for compliance with governmental regulations. The members of the Compensation
Committee are: H. P. Hess (chairman), J. D. McLennan, B. E. Sorensen and D. K.
Wessner. The Compensation Committee met nine times in 1999.
Finance Committee
The Finance Committee serves as a committee of special expertise on
financial matters affecting the ServiceMaster enterprise or any segment
thereof. The committee reviews financial reports and analyses, makes
recommendations on financial matters to the Board of Directors or the
Executive Committee and grants final approval on those financial transactions
for which it has been authorized to do so by the Board. The members of the
Finance Committee are: H. P. Hess (chairman), C. H. Cantu, D. W. Peterson, C.
W. Pollard and B. E. Sorensen. The Finance Committee met two times in 1999.
Employee Benefit Plan Oversight Committee
The Finance Committee, acting as the Employee Benefit Plan Oversight
Committee, periodically reviews the scope, investment policies and
administration of the Company's various employee benefit plans for the purpose
of ascertaining whether such plans fully comply with legal requirements and
are functioning consistently with the objectives for the plans as established
by the Board. The members of the Finance Committee are as stated above. The
Employee Benefit Plan Oversight Committee met once in 1999.
Compensation of Directors
During the year 1999, directors who were not employees ("independent
directors") received $3,000 for each meeting of the Board of Directors and
each meeting of a committee of the Board which they attended. In addition, the
independent directors each received an annual stipend of $15,000. The chairmen
of the Audit and Compensation Committees are paid an additional stipend of
$2,000. Directors who are employees of the Company or any subsidiary do not
receive either a retainer or meeting fee.
The ServiceMaster 1998 Non-Employee Directors Discounted Stock Option Plan
as approved by the Board of Directors in December 1997 and by the shareholders
of the Company in May 1998 provides that options to purchase shares of the
Company may be granted to those independent members of the Board who elect to
accept such options in lieu of retainer and meeting fees that would otherwise
be paid in cash. The total amount of retainer and attendance fees for which
share options may be granted under this plan is $42,000 each year. Each option
granted under this plan has an exercise price per share equal to 85% of the
fair market value per share of the underlying shares of common stock of the
Company on the date the option is granted. The number of shares for which each
is granted is determined by dividing the retainer or fee each by 15% times the
fair market value of the common stock of the Company. In 1999, options for a
total of 120,158 shares were granted to eight independent directors under the
Discounted Stock Option Plan.
Each independent director may enter into a deferred fee agreement whereby
part or all of the fees payable in cash to him or her as a director are
deferred and will either earn interest based on the average five-year
borrowing rate for ServiceMaster or be used to purchase shares of the Company
in a number determined by the fair market value of such shares on the date of
purchase. Upon termination of a director's services as an independent director
or attainment of age 70, whichever occurs first, the director will receive the
amount for his or her deferred fee account in a lump sum or in installments or
in shares of the Company, depending on which deferral plan the director has
elected. Five directors elected to enter into deferred fee agreements for the
year 1999 and a total of $159,000 was deferred for the five directors.
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APPROVAL OF THE SERVICEMASTER 2000 EQUITY INCENTIVE PLAN
Proposal Two
(Item 2 on the Proxy Card)
Purpose of the Proposed Plan. In May 1998, the shareholders approved the
ServiceMaster 1998 Equity Incentive Plan (the "1998 Plan"). The 1998 Plan
authorized a total of 7,500,000 shares (subsequently adjusted to 11,250,000
shares by reason of a 3-for-2 share split) for grants of stock options and
restricted stock in the years 1998, 1999 and 2000. As of March 8, 2000, a
total of 9,753,489 options have been granted under the 1998 Plan. (No awards
of restricted stock have been made). Because the 1998 Plan will expire at the
end of the current year and because the number of shares remaining available
under the 1998 Plan for option grants during the balance of the year 2000 is
less than the number needed by Company for its employee compensation planning,
the Board of Directors is requesting approval of a successor option/restricted
stock plan which will overlay the existing plan for the last eight months of
2000 and will become the Company's sole option/restricted stock plan for the
three years commencing with the year 2001. (In connection with the Company's
compensation planning for the year 2000, it should be noted that the number of
employees involved in the Company's compensation planning program
significantly increased in 1999 as a result of two major acquisitions).
The purpose of the proposed new plan, like the purpose of the predecessor
1998 Plan, is to benefit the Company and its subsidiaries and affiliated
companies by enabling the Company to offer stock-based incentives in the
Company to selected present and future employees and consultants, thereby
giving them a stake in the growth and prosperity of the Company and
encouraging the continuance of their services with the Company or subsidiaries
or affiliated companies.
Summary of the ServiceMaster 2000 Equity Incentive Plan. The name of the
proposed new plan is the "ServiceMaster 2000 Equity Incentive Plan." (It will
hereinafter be referred to as the "2000 Plan"). Except for the number of
shares authorized for awards and the allowance for awards under the Senior
Executive Ownership Election Plan (described below), the 2000 Plan is
virtually the same as the 1998 Plan. The following paragraphs summarize the
key aspects of the 2000 Plan.
Plan Duration; Types of Awards; Eligible Participants; Administration.
Awards can be made under the 2000 Plan during the period of three years and
eight months beginning on May 1, 2000 and ending December 31, 2003. The 2000
Plan provides for three types of equity-based incentive awards: incentive
stock options, nonqualified stock options and restricted stock (all subject to
time-based vesting). All employees of the Company or any subsidiary of the
Company are eligible to receive awards under the 2000 Plan. The 2000 Plan is
administered by the Compensation Committee of the Board of Directors (the
"Compensation Committee").
Number of Shares Subject to the 2000 Plan. Awards encompassing a total of
not more than 15,000,000 shares of the Company's common stock, representing
approximately 4.9% of the outstanding shares of common stock of the Company at
March 10, 2000, may be made over the term of the 2000 Plan. Of that amount,
5,000,000 shares are intended for use in connection with the Senior Executive
Ownership Election Plan (described below) for the years 2000, 2001 and 2002.
For the 8-month period ending December 31, 2000 the maximum number of shares
which are intended for general awards is approximately 2,500,000; and for each
of the years 2001, 2002 and 2003, the maximum number of shares which can be
the subject of general awards is approximately 2,500,000. These limitations
are subdivided into a maximum of 1,125,000 shares for incentive stock options
for the period from May 1 to December 31, 2000 and a maximum of 1,125,000
shares for incentive stock options for each of the years 2001, 2002 and 2003.
The 2000 Plan imposes a limitation of 375,000 shares for awards of restricted
stock for the period from May 1 to December 31, 2000 and a maximum of 375,000
shares for awards of restricted stock for each of the years 2001, 2002 and
2003. If and to the extent that restricted stock is issued in any given year,
the number of shares so issued is subtracted from the maximum number of shares
allowed for that year for incentive stock options and/or nonqualified stock
options, with the allocation between the two types of options being made by
the Compensation Committee.
Exclusion from the Caps for Shares Underlying Options Granted under the
Senior Executive Ownership Election Plan. In December 1999, the Board of
Directors approved, as a subset of the 1998 Plan, a plan whereby
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selected senior executives could elect to irrevocably forego a portion of
their incentive compensation for the year 2000 and to receive options for
shares of common stock in December 1999. The Board of Directors believed that
this arrangement would bring senior management into even closer alignment with
the interests of the Company's shareholders. This arrangement also means that
the Company will not incur compensation expense in the year 2000 (or any
subsequent year in which the arrangement is in place) in the amount of the
incentive compensation which is relinquished and the Company will receive
certain tax benefits upon the exercise of the options. A total of 16 senior
executives elected to make such election in December 1999 and options for a
total of 2,148,070 shares were granted prior to the end of the year. All
options were granted at an exercise price equal to the fair market value of
the underlying shares on the date of the grant and the number of options
granted to each electing executive reflected the amount of projected year 2000
incentive compensation which the executive irrevocably relinquished. The Board
expects that this special plan will remain in effect in the year 2000 and
subsequent years. The 2000 Plan provides that the shares underlying options
granted under the Senior Executive Ownership Election Plan will not be taken
into account in applying the annual caps on the number of options grants which
may be made in any one year or the number of option grants which may be made
to any one individual in any one year.
Shares Used for the 2000 Plan; Effect of Share Splits, Etc. Awards made
under the 2000 Plan may consist of either authorized and unissued shares or
shares held in or acquired for the treasury of the Company. If an option
lapses or expires or is forfeited, terminated or canceled, then the shares
which are subject to such option will again be available for the purpose of
new awards under the 2000 Plan (assuming that the 2000 Plan is then in
effect). If there is any change in the capitalization of the Company, such as
a stock split or dividend, or a merger, consolidation, or reorganization with
another company, or any other relevant change in the capitalization of the
Company, the Compensation Committee may make an appropriate adjustment in the
number and class of shares available for awards and the number and class of
and/or price of shares subject to outstanding awards, to prevent dilution or
enlargement of rights.
Persons Eligible for Awards. Awards under the 2000 Plan may be made to
employees of the Company or a subsidiary of the Company. A subsidiary is, for
this purpose, any entity in which the Company is the direct or indirect
beneficial owner of not less than 20% of all issued and outstanding equity
interests in such entity. Awards may also be made to consultants to the
Company or a subsidiary.
Effective Date. Subject to shareholder approval, the 2000 Plan will be
effective as of May 1, 2000. No awards may be made under the 2000 Plan on or
after December 31, 2003 (unless the 2000 Plan is extended with shareholder
approval).
Effect of Termination of Employment; Certain Transfers of Awards. The
Compensation Committee has the discretion to specify the extent to which
awards expire in the event of voluntary or involuntary termination of
employment. The Compensation Committee also has the discretion to make stock
options and other awards transferable (for example, to family members).
Option Grants: Exercise Price. The exercise price of stock options granted
under the 2000 Plan (whether in the form of incentive stock options or
nonqualified stock options) is determined by the Compensation Committee, but
it may not be less than the fair market value of the Company's stock on the
date the option is granted. Fair market value is defined as the average of the
closing sales prices of the Company's common stock on the New York Stock
Exchange Composite Tape on each of the five trading days immediately preceding
the date the option is granted, unless the Compensation Committee otherwise
determines. The Compensation Committee does not have the authority to reduce
the exercise price of any option after the date of grant or to permit the
surrender and cancellation of an option and to grant a replacement option at a
lower exercise price without obtaining shareholder approval. The full exercise
price must be paid at the time of exercise either in cash, by tendering
previously acquired Company shares, or by a combination of these two forms of
payment.
Option Grants: Term of Options. Options granted under the 2000 Plan shall
expire at such time as the Compensation Committee shall determine, but not
later than the tenth anniversary of the date of the grant. Options granted
under the 2000 Plan shall be exercisable at such times and be subject to such
restrictions and conditions as the Compensation Committee shall approve, which
need not be the same for each grant or for each participant.
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Option Grants: Federal Income Tax Consequences. The federal income tax
consequences of the issuance and exercise of options under the 2000 Plan
depend on the nature of the options granted.
(a) Incentive Stock Options. With respect to an incentive stock option
("ISO"), generally, no taxable gain or loss will be recognized when the
option is exercised). ISOs exercised more than three months after
termination of employment will be taxed in the same manner as non-qualified
options described above. Generally, upon exercise of an ISO, the difference
between the fair market value and the exercise price will be an item of tax
preference for purposes of the alternative minimum tax. If the shares
acquired upon the exercise of an ISO are held for at least one year, any
gain or loss realized upon their sale will be treated as long-term capital
gain or loss. The Company will not be entitled to a deduction. If the
shares are not held for the one-year period, ordinary income will be
recognized in an amount equal to the difference between the amount realized
on the sale and the price paid for the shares to the extent the exercise
price exceeded the grant price. Remaining gain, if any, would be capital
gain. The Company will be entitled to a deduction equal to the amount of
any ordinary income so recognized. If the shares are not held for the one-
year period and the amount realized upon sale is less than the grant price,
such difference will be a capital loss.
(b) Nonqualified Stock Options. Under the applicable provisions of the
Internal Revenue Code as presently in effect, no tax will be payable by the
recipient of a nonqualified stock option at the time of grant. Upon
exercise of a non-qualified stock option, the excess of the fair market
value of the shares with respect to which the option is exercised over the
total option price of such shares will be treated for federal tax purposes
as ordinary income. Any profit or loss realized on the sale or exchange of
any share actually received will be treated as a capital gain or loss. The
Company will be entitled to deduct the amount, if any, by which the fair
market value on the date of exercise of the shares with respect to which
the option was exercised exceeds the exercise price.
Restricted Stock. Grants of restricted stock may be made by the
Compensation Committee, subject to the terms and provisions of the 2000 Plan,
at any time in such amounts as the Compensation Committee shall determine.
Each such grant shall be subject to a period of restriction (which shall not
be less than three years for time-based restrictions), and may be subject to
other restrictions, including but not limited to restrictions based on the
achievement of specific performance goals and time-based restrictions on
vesting. Voting rights and rights to receive dividends or other distributions
may be determined by the Compensation Committee.
Change in Control. The 2000 Plan provides that, upon a change in control of
the Company, options shall become immediately exercisable and shall remain
exercisable throughout their entire term, and any period of restriction and
other restrictions on restricted stock shall lapse.
Amendments of the 2000 Plan. The Board of Directors may amend or terminate
the 2000 Plan in whole or in part at any time, subject to any requirement of
shareholder approval imposed by any applicable law, rule or regulation. No
amendment, modification or termination of the 2000 Plan shall adversely affect
in any material way any award previously granted under the 2000 Plan, without
the written consent of the holder of the award.
Prospective Awards. It is not possible to determine the amount and type of
awards that will be made under the 2000 Plan after the date of this Proxy
Statement or to state the amount and type of awards which would have been made
in 1999 had the 2000 Plan been in effect, because such determinations are
within the discretion of the Compensation Committee, based on such factors as
the Compensation Committee deems pertinent in selecting participants under the
2000 Plan and establishing awards. (Options granted in 1999 under the 1998
Plan to persons identified in the Summary Compensation Table (page 20) are set
forth in that table.)
Shares Outstanding; Current Share Price. At December 31, 1999, 307,529,899
shares of common stock of the Company were issued and outstanding. On March
16, 2000, the closing price of the Company's common stock on The New York
Stock Exchange Composite Tape, as reported in The Wall Street Journal (Midwest
edition) was $12.25.
Approval Requirement. Approval of the Proposal Two requires the affirmative
vote of a majority of the votes of all shares with respect to this matter.
The Board of Directors recommends a vote FOR this proposal.
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APPROVAL OF THE SERVICEMASTER 2001
LONG-TERM PERFORMANCE AWARD PLAN
Proposal Three
(Item Three on the Proxy Card)
Background. In May 1998, the shareholders approved the ServiceMaster 1998
Long-Term Performance Award Plan (the "1998 LTPA"). The 1998 LTPA was for a
term of three years commencing January 1, 1998 and ending December 31, 2000.
Because the 1998 LTPA will expire at the end of the current year and because
experience has shown that a long-term performance award type of plan is
important in the Company's compensation planning for senior officers, the
Board of Directors is requesting approval of a successor long-term performance
award plan to run for a three year period commencing January 1, 2001 and
ending on December 31, 2003.
Purpose. The purpose of the new plan, to be known as the ServiceMaster 2001
Long-Term Performance Award Plan (hereinafter referred to as the "Plan"), is
to enable the Company to provide long-term incentive-based compensation to its
key employees which is based on the performance of the Company as a whole over
consecutive periods of three years each and to provide for compensation at
levels which would be competitive with compensation paid by other companies
with which the Company or a segment of the Company competes. In designing the
Plan, the Company was advised by Ernst & Young, its outside consultant for
this purpose, that the Plan design was fair and reasonable and comparable to
long-term incentive plans utilized by other companies. The following summary
of the principal features of the Plan is qualified in its entirety by the
complete text of the Plan, a copy of which is attached to this Proxy Statement
as Exhibit B.
Term of the Plan. Subject to shareholder approval of the Plan, payments
will be made under the Plan in respect of the year 2001 and in respect of each
year thereafter unless the Board of Directors determines to terminate the
Plan.
Participants and Participation Units. For purposes of determining the
extent to which Participants receive payouts under the Plan, the Plan is
divided into 10,000 units. The selection of the Participants for each Plan
Year, and the number of units which are assigned to each participant for that
Plan Year, is made by the Chief Executive Officer with the approval of the
Compensation Committee at the beginning of the Plan Year. The Plan authorizes
the Chief Executive Officer, with the approval of the Compensation Committee,
to adjust downward the number of units held by a participant during the course
of the Plan Year. Any such adjustments may not serve to increase the
participation in the Plan for that Plan Year for any participant to which
section 162(m) of the Internal Revenue Code is applicable. It is expected that
up to 100 key employees of the Company or a subsidiary of the Company will be
selected each year as participants in the Plan.
Operation of the Plan. The Plan is designed to provide selected executives
with additional cash compensation which is contingent upon the ability of the
Company to achieve net income targets over periods of three years each. These
periods are termed "Three-Year Segments" in the Plan. The first Three-Year
Segment consists of the years 2001, 2002 and 2003; the second Three-Year
Segment consists of the years 2004, 2005 and 2006; etc. "Net income" for this
purpose is directly related to the Capital Employed by the Company over the
same period in which net income was measured. "Capital Employed" means the
Company's equity plus long-term debt (including current maturities of long-
term debt). This linkage is established by superimposing a charge on income
for Capital Employed.(/1/)
Before the commencement of each Three-Year Segment, the Compensation
Committee will establish three key figures for each Plan Year within that
Three-Year Segment, Target Adjusted Net Income, Target Capital Employed and
the Target Payment.
Target Adjusted Net Income means consolidated pre-tax net income determined
in accordance with generally accepted accounting principles but with these
modifications: anticipated extraordinary or unusual items are excluded,
interest is excluded, and a capital charge of 9% of projected Capital Employed
is deducted. The capital charge is an after-tax calculation which is
effectively equivalent to the Company's current cost of capital less the
Company's annual deduction for tax purposes expressed as a percentage of pre-
tax income based on
- --------
(/1/The)Plan thus carries forward one of the key elements in the 1998 LTPA,
i.e., the economic value added (EVA) factor. The Plan gets to this end is
a more simplified and easier-to-understand manner.
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amortizing goodwill arising from acquisitions generally over a period of 40
years. Target Adjusted Net Income will be established by the Compensation
Committee at the commencement of each Three-Year Segment is expected to
increase annually at a rate which is consistent with a compound annual growth
rate of approximately 16% over the Three-Year Segment; however, the
Compensation Committee is authorized to prospectively modify the Target
Adjusted Net Income figure for any of the Plan Years within the Three-Year
Segment if the Compensation Committee considers a modification appropriate in
the light of all the facts and circumstances.
Target Capital Employed is the use of capital which can be expected based
on the Company's historical growth pattern for capital outlays. Target Capital
Employed is expected to increase annually at a rate which is consistent with a
compound annual growth rate of approximately 8% over the Three-Year Segment;
however, the Compensation Committee is authorized to prospectively modify the
Target Capital Employed figure for any of the Plan Years within the Three-Year
Segment if the Compensation Committee considers a modification appropriate in
the light of all the facts and circumstances.
The Target Payment is the amount which the Compensation Committee
establishes at the commencement of each Three-Year Segment for each Plan Year
within that Three-Year Segment for payment to participants in the Plan in
respect of that Plan Year. Based on present budgets and estimates, and if
performance goals are met, the Target Payment for the year 2001 is expected to
be approximately $9,800,000. The Target Payment is expected to increase
annually at a rate which is commensurate with the projected growth in net
income over the Three-Year Segment; however, the Compensation Committee is
authorized to prospectively modify the Target Payment figure for any of the
Plan Years within the Three-Year Segment if the Compensation Committee
considers a modification appropriate in the light of all the facts and
circumstances.
After the close of each Plan Year, the Company's Actual Adjusted Net Income
is calculated. This figure will take into account the 9% charge for Capital
Employed during the course of the year. The Actual Adjusted Net Income figure
is divided by the Target Adjusted Net Income figure and the result, expressed
as a percentage and rounded to the nearest whole number (the "Performance
Percentage") is then multiplied by the Target Payment to determine the Actual
Payment, except that if the Performance Percentage is less than 60% the Actual
Payment falls to zero and if the Performance Percentage is more than 120% the
Actual Payment is capped at 120% of the Target Payment.
Annual Payouts; 20% Holdback. Payments to participants in respect of any
given Plan Year are made as promptly as practicable after the close of the
year and after the necessary calculations have been completed. At the time of
the payout for a Plan Year, 20% of the gross amount will be held back for
payment in whole or in part following the close of the Three-Year Segment in
which such Plan Year falls. The extent to which this held-back amount is paid
will depend upon the extent to which the Company's Actual Adjusted Net Income
over such Three-Year Segment has met the Company's Targeted Adjusted Net
Income over the same Three-Year Segment. A participant's interest in the held-
back amount is forfeited in event of certain terminations of employment prior
to the end of the Three-Year Segment and not forfeited in other cases (such as
death or disability).
Quarterly Draws. Quarterly draws by participants against their expected
final payout are permitted in the discretion of the Compensation Committee.
Participants for the Plan Year 2001. It is not possible to determine the
amount of awards that will be made under the Plan with respect to the year
2001 for the executive officers named in the Summary Compensation Table on
page 20 of this Proxy Statement because such amounts are dependent upon the
results of operations and the net income and capital expenditure targets for
the year 2001 and because the number of participation units held by the named
executive officers will not be known until the end of the year 2000.
Other Limitations on Awards to Certain Persons. The Plan provides for the
following additional limitations on amounts which can be paid to each of the
named executive officers under the Plan. During the three-year term of the
Plan, the aggregate maximum fair market value of the awards granted to such
named executive officer in any one year can not exceed 10% of the total amount
payable in respect of that year.
Summary. The Plan has been developed in conjunction with the Company's
employee base compensation and annual incentive plan schedules with the result
that, for participants in the Plan, a significant element of their
compensation will depend upon the achievement by the Company as a whole of
growth as measured by
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the factors described above, all of which relate directly to shareholder
value. The Board believes that by linking a portion of the compensation of
leaders in the ServiceMaster enterprise to an increase in shareholder value
these leaders will be motivated to understand and to exert all possible
efforts to achieve Company-wide goals through internal synergies and
cooperation among the various units within the ServiceMaster enterprise.
Approval Requirement. Approval of this Proposal Three requires the
affirmative vote of a majority of the votes of all shares voted with respect
to this matter.
The Board of Directors recommends a vote FOR this proposal.
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RATIFICATION OF SELECTION OF AUDITORS
Proposal Four
(Item Four on the Proxy Card)
The Board of Directors has selected Arthur Andersen LLP to serve as the
Company's independent certified public accountants for 2000. Arthur Andersen
LLP has audited and rendered its opinion on the financial statements of the
Company for many years. Representatives of Arthur Andersen LLP will be present
at the 2000 Annual Meeting and will be available to respond to appropriate
questions and to make a statement if they desire to do so.
Approval of this Proposal Four requires the affirmative vote of a majority
of the votes of all shares voted with respect to this matter.
The Board of Directors recommends a vote FOR this proposal.
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EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
Overview
The Company's compensation plans and policies for its executive officers
are designed to attract and retain executives of the highest caliber, to link
a substantial part of each executive officer's compensation to the performance
of the Company, to encourage substantial ownership of the Company's stock by
executive officers, and (if specified performance targets are achieved) to
produce levels of compensation commensurate with the compensation paid to
executives of other service organizations with which the Company compares
itself when those organizations achieve high performance.
The Company's compensation package for its executive officers for the year
1999 consisted of the following five components (each of which is described in
greater detail below):
. An annual base salary established at the beginning of the year on the
basis of the standards described below.
. A bonus established by the Company's Incentive Compensation Plan.
. Awards under the ServiceMaster 1998 Long-Term Performance Award Plan.
. Grants of incentive stock options or nonqualified stock options under the
ServiceMaster 1998 Equity Incentive Plan.
. The Company's profit sharing and retirement plans.
In addition, a limited number of senior executives were granted
nonqualified stock options in December 1999 in lieu of a part of their
incentive compensation for the year 2000 under a special senior executive
ownership election component of the 1998 Equity Incentive Plan. This election
and the options granted in December 1999 are described in greater detail
below.
Base Salaries
Base salaries for executive officers are generally established to reflect
the duties and level of responsibilities attendant to the officer's position
and, in conjunction with the Company's Incentive Compensation Plan and the
Long-Term Performance Award Plan, to be competitive with base salaries paid by
other companies with which the Company compares itself. The Company utilizes
surveys of salary information for comparable positions as furnished by
independent compensation consulting firms engaged by the Company for this
purpose. However, the performance and contribution of the individual remains a
critical factor in regard to any salary adjustment. Base salaries for
executive officers other than the Chief Executive Officer are approved by the
Executive Committee based on recommendations from the Compensation Committee
in December of the year immediately preceding the year in which the salaries
are to take effect. The base salary for the Chief Executive Officer is
approved by the Board of Directors based on a recommendation from the
Compensation Committee and a review by the Executive Committee in December of
the year immediately preceding the year in which the salary is to take effect.
Chief Executive Officer. The base salary for Carlos H. Cantu, President and
Chief Executive for the period January 1, 1999 to October 1, 1999, was
established in December 1998 in the amount of $550,000. This amount
represented an increase of $75,000 (15.8%) over his base salary for the year
1998. His base salary and the amount of the increase relative to 1998 was set
pursuant to the procedures and reflected the factors discussed above. No
adjustment was made to this amount upon the retirement of Mr. Cantu as
President and Chief Executive Officer on October 1, 1999. The base salary for
C. William Pollard for the year 1999 was originally established in December
1998 in the amount of $450,000. Effective October 1, 1999, when Mr. Pollard
was appointed as Chief Executive Officer, his base salary was increased to an
annual rate of $550,000. Mr. Pollard's base salary for the year 2000 was
established by the Board of Directors in December 1999 at $600,000 pursuant to
the procedures and based on the factors discussed above.
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Other Named Executive Officers. The base salaries for the year 1999 for the
other Named Executive Offices are shown in the "Salary" column of the Summary
Compensation table and reflect the judgement of the Compensation Committee and
the Executive Committee based on the factors discussed above when those
salaries were approved in December 1998.
Incentive Compensation Plan
The Company has maintained for many years an incentive bonus plan known as
the ServiceMaster Incentive Compensation Plan. This plan provides for an
annual bonus which is largely based upon the performance of the Company and/or
the performance of an individual business unit in terms of achieving its
budget as established at the beginning of the year. The plan provides for
bonuses in amounts which represent percentages of the individual's base
compensation. These percentages can range from 0% of base salary if the
relevant business unit fails to achieve at least 90% of its budget target
(except that in some cases a bonus may be earned by reason of the performance
of a higher level unit or achievement of individual performance goals) to 120%
of base salary (175% in the case of the Chief Executive Officer). The
Incentive Compensation Plan reflects the philosophy of the Company that a very
significant part of an executive's total compensation should be based upon the
financial performance of the Company and/or the business unit in which the
executive is employed. The Incentive Compensation Plan was in effect for the
year 1999 and will continue in effect for the year 2000.
For the year 1999, Mr. Cantu received $357,500 pursuant to the Incentive
Compensation Plan, representing 65% of his base salary, and Mr. Pollard
received $308,750 pursuant to the Incentive Compensation Plan, representing
65% of his total base salary for the year. These payments reflected the
Company's performance level in 1999 and the level of compensation paid for
chief executive officers in organizations with which the Company compares
itself.
Long-Term Performance Award Plan
The ServiceMaster 1998 Long-Term Performance Award Plan, as adopted by the
Board of Directors and approved by the shareholders in 1998, provides for
payments to persons recommended by the Chief Executive Officer and approved by
the Compensation Committee for participation in the plan of annual awards
based on three factors as applied to the Company as a whole: (1) growth in
earnings per share in the current year relative to the immediately preceding
year; (2) growth in economic value added (EVA) in the current year relative to
the immediately preceding year; and (3) growth in revenue in the current year
relative to the immediately preceding year. Pool amounts are established for
each of these factors and combined in a total preliminary pool amount which is
then subject to adjustment depending upon the total return achieved by the
Company for the year compared to the S&P 500 total return figure for the same
year. 20% of the total amount payable is held back for payment in full or in
part in early 2001, depending upon the extent to which the Company achieved
its strategic planning objectives for the five-year planning cycle which ends
on December 31, 2000. The Long-Term Performance Award Plan links a portion of
the annual compensation of the participant to the performance of the Company
as a whole, regardless of whether the participant is employed at the parent
level of the enterprise or in one of the operating units.
For the year 1999, Mr. Cantu was paid $498,460 pursuant to the Long-Term
Performance Award Plan, representing 91% of his base salary, and Mr. Pollard
was paid $370,854 pursuant to the Long-Term Performance Award Plan,
representing 78% of his base salary. The total amount paid to all participants
in the Long-Term Performance Award Plan for the year 1999 was $4,914,965.
Stock Options
The Compensation Committee believes that the interests of shareholders and
executive officers and other key employees become more closely aligned when
executives are provided an opportunity to acquire a proprietary interest in
the Company through the ownership of the Company's common stock. Accordingly,
the
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<PAGE>
Compensation Committee approved the granting of a series of stock options in
1999, all of which were granted under the ServiceMaster 1998 Equity Incentive
Plan (the "Equity Incentive Plan"). The character and number of options
granted were based upon the recommendation of the grantee's superior officer,
approval by the Chief Executive Officer and final approval by the Compensation
Committee.
. In January 1999, the Compensation Committee approved option grants under
the Equity Incentive Plan for approximately 1,700 employees, including 13
executive officers. All of such options were for a term of 10 years and
were subject to a vesting schedule under which 20% of the option becomes
exercisable on each anniversary of the grant date such that by the fifth
anniversary of the grant date the options will be fully exercisable. All
of these options were granted with an exercise price of $18.075 per
share, which was the fair market value of the underlying shares of common
stock on the date of the grant. Individual option grants were determined
on the basis of the individual's and the Company's performance in 1998.
Options for a total of 997,000 shares were granted to executive officers
as a group. Mr. Cantu was granted an option for 150,000 shares and Mr.
Pollard was granted an option for 150,000 shares.
. In December 1999, the Board of Directors approved a special component of
the 1998 Equity Incentive Plan designated as the "Senior Executive
Ownership Election Plan". Under this plan, in December of each year
senior officers selected by the Chief Executive Officer and approved by
the Compensation Committee may elect to irrevocably decline to accept up
to 75% of their incentive compensation for the next year under the
Company's Incentive Compensation Plan and/or under the Company's Long-
Term Performance Award Plan and, in lieu thereof, receive immediately an
option for shares of the Company's stock. The number of options received
is determined by reference to the current fair market value of the stock
and the amount of incentive compensation which is irrevocably
relinquished. The latter figure is based on the Compensation Committee's
estimate of the amount of incentive compensation which would become
payable to the participant under the Incentive Compensation Plan and the
Long-Term Performance Award Plan and the extent (not to exceed 75%) to
which the participant has elected to forego such compensation. In
December 1999, with the approval of the Compensation Committee, 16 senior
officers collectively elected to forego year 2000 incentive compensation
in the aggregate amount of $5,074,985 and to collectively receive options
for 2,148,070 shares. Mr. Pollard made the maximum elections allowable
under the plan and received an option for 479,674 shares The grant date
for all such options was December 10, 1999. All of such options were for
terms of 10 years and had a vesting schedule of 10% per year for the
first eight years and 20% for the ninth year; however, if targeted net
income levels are met by the end of the third year, an additional 50% of
the options will vest at the end of the third year; if targeted income is
not met in the third year but is met in the fourth year, an additional
30% of the options will vest at the end of the fourth year; and if
targeted net income is not met in the third or fourth years but is met in
the fifth year, an additional 20% of the options will vest at the end of
the fifth year. From the Company's perspective, no compensation expense
will be incurred in 2000 or any subsequent years in respect of the
incentive compensation which is relinquished for each of such years. The
Compensation Committee believes that the Senior Executive Ownership
Election Plan represents an innovative mechanism for strongly aligning a
significant part of the annual compensation of the participants with the
interests of the shareholders. The Compensation Committee expects to
utilize the plan again in December 2000.
. On December 10, 1999, Mr. Pollard was granted an option for 300,000
shares at an exercise price of $11.50 per share (which was the then fair
market value of the Company's shares) in recognition of his appointment
as Chief Executive Officer on October 1, 1999. This option is for a term
of 10 years and has a vesting schedule of 20% per year on each
anniversary of the grant date.
Benefit Programs
Executive officers of the Company participate in various health, life,
disability and retirement benefit programs which are generally available to
all salaried employees. Executive officers may participate in a deferred
compensation program which is intended to allow for the inability of such
officers to contribute to the Company's 401(k) plan in desired amounts due to
restrictions imposed on 401(k) contributions by the federal tax laws.
Executive officers also receive traditional benefits and perquisites that are
customary and usual for their positions.
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Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code imposes a limit of $1,000,000
on the tax deduction which a publicly traded corporation may take for
compensation paid, respectively, to the corporation's six most highly
compensated officers. However, this limitation does not apply to types of
compensation if certain requirements are satisfied. One of such requirements
is that the Company's compensation committee consists entirely of independent
directors. ServiceMaster's Compensation Committee meets this requirement. One
of the types of compensation which is excepted from the $1,000,000
deductibility limitation is compensation which is based on the attainment of
performance of goals approved by the Company's shareholders ("performance
based compensation"). The ServiceMaster incentive compensation plans described
above are performance based plans as defined by section 162(m) and the
regulations thereunder with goals which have been approved by ServiceMaster's
shareholders. Accordingly, the Company believes that all incentive
compensation paid to the Company's six most highly compensated officers is
"performance-based compensation" and, accordingly, will qualify as a tax
deductible expense when paid.
Compensation Committee: Interlocks and Insider Participation
The Compensation Committee, in accordance with the Company's bylaws,
consists entirely of independent members of the Board of Directors. None of
the persons who served as members of the Compensation Committee in the year
1999 was an officer or employee of the Company or any of its subsidiaries
during the year 1999 and none of such persons was formerly an officer of the
Company or any of its subsidiaries.
At no time during the year 1999 were there any interlocking arrangements
involving service by any executive officer of the Company on the compensation
committee of another entity, one of whose executive officers served on the
Company's Compensation Committee.
The directors who served as members of the Compensation Committee during
1999 were Henry O. Boswell (member and chairman until his retirement in mid-
October 1999), Herbert P. Hess (chairman from mid-October 1999 to the end of
the year), James D. McLennan, Burton D. Sorensen and David K. Wessner.
Herbert P. Hess (Chairman)
James D. McLennan
Burton D. Sorensen
David K. Wessner
19
<PAGE>
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by, or
paid to the two persons who served as Chief Executive Officer during the year
1999 of ServiceMaster and ServiceMaster's next four most highly compensated
executive officers in respect of the year 1999. Each of the listed persons was
holding the office indicated in the table on the last day of December 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------------
Annual Compensation Awards Payouts
--------------------------------- ------------------------- -----------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Annual Restricted Underlying LTIP
Name and Principal Salary Bonus Compensation Stock Awards Options/SARs Payouts All Other
Position Year ($) ($) (C) ($) ($) (#)(D) ($) (E) ($)
- ------------------ ---- ------- ------- ------------ ------------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. William Pollard (A).. 1999 475,000 308,750 -- -- 929,674 370,854 --
Chairman and Chief
Executive 1998 400,000 300,000 -- -- 112,500 349,368 --
Officer. CEO since 1997 375,000 550,934 -- -- 168,750 -- --
October 1, 1999 and
continuing forward
Carlos H. Cantu (B)..... 1999 550,000 357,500 -- -- 150,000 498,460 --
CEO through October 1, 1998 475,000 570,000 -- -- 150,000 469,580 --
1999, currently Senior 1997 450,000 900,021 -- -- 225,000 -- --
Chairman
Phillip B. Rooney....... 1999 466,667 425,000 -- -- 508,980 420,202 --
Vice Chairman 1998 300,000 325,000 -- -- 75,000 338,098 --
1997 166,667 200,000 -- -- 348,750 -- --
Ernest J. Mrozek........ 1999 320,000 384,000 -- -- 143,370 299,076 --
Group President, 1998 290,000 290,000 -- -- 52,500 270,948 --
Consumer
Services 1997 275,000 382,618 -- -- 303,750 -- --
Steven C. Preston....... 1999 290,000 278,500 -- -- 325,158 358,891 --
Executive Vice 1998 256,250 281,250 -- -- 45,000 253,573 --
President and
Chief Financial Officer 1997 180,000 242,983 -- -- 337,500 -- --
Donald K. Karnes........ 1999 320,000 293,000 -- -- 328,962 299,076 --
Group President, Lawn 1998 285,000 308,000 -- -- 37,500 164,353 --
Care
and Pest Control 1997 245,000 290,793 -- -- 41,625 -- --
</TABLE>
- --------
(A) Mr. Pollard was elected Chief Executive Officer on October 1, 1999,
following the retirement of Mr. Cantu and such events are reflected in the
compensation amounts disclosed for 1999.
(B) Mr. Cantu retired as President and Chief Executive Officer on October 1,
1999.
(C) The amounts shown in column (d) of the Summary Compensation Table include
payments made under the ServiceMaster Incentive Compensation Plan. In
1997, there were also payments made in connection with a gain arising from
the reorganization of ServiceMaster Limited Partnership into The
ServiceMaster Company.
(D) The numbers of shares listed in column (g) of the Summary Compensation
Table have been adjusted, where appropriate, for 3-for-2 share splits
occurring, June 1997 and August 1998. The number of shares listed in
column (g) for the year 1999 take into account, for each of the named
executive officers, options which were granted in December 1999 under the
plan described in footnote (C) of the Option/SAR Grants in Last Fiscal
Year table on page 21.
(E) Column (h) shows the amounts paid or credited to the six named executive
officers in respect of the years 1999 and 1998 pursuant to the Company's
1998 Long-Term Performance Award Plan (the "LTPA Plan"). The LTPA Plan did
not exist prior to 1998. Awards under the LTPA Plan are paid (or credited,
if a participant elects to defer payment pursuant to the Company's
deferred compensation plan) either in cash or in shares of common stock.
To the extent that stock is elected as the form of payment, such election
will entitle the participant to shares in a number which, at their then
fair market value, reflects 120% of the amount which
20
<PAGE>
would be paid if the payment were made in cash. The total amount payable
each year under the LTPA Plan is determined by the performance of the
Company with respect to growth in earnings per share relative to the
preceding year, growth in economic value relative to the preceding year,
growth in revenue relative to the preceding year and a comparison of the
Company's total return to shareholders relative to the S&P 500 total
return. 20% of the total payout for the years 1999 and 1998 were, in
accordance with the LTPA Plan, held back for payment in whole or in part in
early 2001. The extent to which the held-back amount is paid will depend
upon the extent to which the Company achieves its strategic planning
objectives for the five-year planning cycle ending on December 31, 2000. A
participant's interest in the held-back amount is forfeited in the case of
certain terminations of his or her employment. The amount held back for
each of the six named executive officers in respect of the years 1999 and
1998 are shown in the Long-Term Incentive Plans table on page 22. Column
(h) does not include amounts paid to the six named executive officers in
1997 in their capacity as shareholders of the corporate general partner of
the Company's partnership predecessor.
The following table summarizes the number and terms of the stock options
granted during the year 1999 to the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f)
Number of
Securities % of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted (#) Employees Base Price Expiration Grant Date
Name and Principal Position (A) 1999 ($/Sh) (A) Date Value(A)
- --------------------------- ------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
C. William Pollard...... 150,000(B) 2.3% $18.075 01-28-09 $ 931,500
300,000(B) 4.7% $ 11.50 12-10-09 $ 837,000
479,674(C) 7.5% $ 11.50 12-10-09 $1,338,290
Carlos H. Cantu......... 150,000(B) 2.3% $18.075 01-28-09 $ 931,500
Phillip B. Rooney....... 200,000(B) 3.1% $18.075 01-28-09 $1,242,000
308,980(C) 4.8% $ 11.50 12-10-09 $ 862,054
Ernest J. Mrozek........ 82,500(B) 1.3% $18.075 01-28-09 $ 512,325
60,870(C) 1.0% $ 11.50 12-10-09 $ 169,827
Steven C. Preston....... 90,000(B) 1.4% $18.075 01-28-09 $ 558,900
235,158(C) 3.7% $ 11.50 12-10-09 $ 656,091
Donald K. Karnes........ 77,500(B) 1.1% $18.075 01-28-09 $ 481,275
251,462(C) 3.9% $ 11.50 12-10-09 $ 701,579
</TABLE>
- --------
(A) In accordance with Item 402(c)(2)(vi)(B) of Regulation S-K of the
Securities and Exchange Commission, the grant date value of each of these
options has been estimated based on the Black-Scholes option pricing model
by an independent consulting firm using the following assumptions: a risk-
free rate of interest of 5.4%, a volatility rate of 25%, a 2.5%
distribution yield, and an expected life of seven years. The values of the
options which are shown in the table are theoretical and do not
necessarily reflect the actual values which the option holders may
eventually realize. Such actual values will depend on the extent to which
the market value of the Company's shares at a future date exceeds the
exercise price of the options.
(B) The options listed in column (b) opposite footnote "(B)" designation were
granted in January 1999, except for 300,000 shares which were granted to
Mr. Pollard in December 1999. All options listed in column (b) are subject
to a vesting schedule under which the options become exercisable in 20%
increments on the 1st, 2nd, 3rd, 4th and 5th anniversaries of grant date.
(C) The options listed in column (b) opposite the footnote "(C)" designation
were granted in December 1999 under the Company's Senior Executive
Ownership Election Plan. The Plan is described in detail in the
Compensation Committee Report on Executive Compensation under the caption
"Stock Options".
21
<PAGE>
The following table summarizes the exercises of stock options during the
year 1999 by the named executive officers and the number of, and the spread
on, unexercised options held by such officers at December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Value Options/SARs at FY-End(#) at FY-End($)
Shares Acquired Realized ------------------------- -------------------------
Name on Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
C. William Pollard...... 0 $ 0 191,250/1,188,424 229,067/847,942
Carlos, H. Cantu........ 0 $ 0 221,250/472,500 253,609/250,881
Phillip B. Rooney....... 0 $ 0 158,550/784,305 17,276/277,115
Ernest J. Mrozek........ 0 $ 0 197,933/401,370 358,819/351,346
Steven C. Preston....... 0 $ 0 144,000/563,658 98,170/338,439
Donald K. Karnes........ 0 $ 0 59,588/397,437 209,008/272,906
</TABLE>
LONG-TERM INCENTIVE PLANS--AWARDS IN 1999 (A)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f)
Estimated future payouts
under non-stock price-based
Performance or plans
Number of other period ---------------------------
shares, units or until maturation Threshold Target Maximum
Name other rights (#) or payout ($ or #) ($ or #) ($ or #)
---- ---------------- ---------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
C. William Pollard...... 620 2001 $ 92,710
Carlos H. Cantu......... 1,000 2001 $124,610
Phillip B. Rooney....... 740 2001 $105,046
Ernest J. Mrozek........ 600 2001 $ 74,766
Steven C. Preston....... 600 2001 $ 89,719
Donald K. Karnes........ 600 2001 $ 74,766
</TABLE>
- --------
(A) This table pertains to the awards made in respect of the year 1999 under
the Company's 1998 Long-Term Performance Award Plan (the "LTPA Plan"). See
footnote (E) to the Summary Compensation Table for a description of the
LTPA Plan. The figures in column (b) show the number of units awarded for
the year 1999 to each of the named executive officers. The LTPA Plan has a
total of 10,000 participation units. The figures in column (f) reflect the
amounts held back from the awards to each of such persons for the year
1999 for payment in 2001. The extent to which such held-back amounts are
in fact paid will depend upon the extent to which the Company achieved its
strategic planning objectives for the five-year planning cycle ending on
December 31, 2000. If and to the extent such held-back amounts are not
paid to the named executive officers, the unpaid sums will revert to the
Company.
Severance Arrangements
The Company does not presently have employment agreements with any members
of the Company's senior management under which termination benefits are
provided if a change in control of the Company occurs.
The ServiceMaster 1998 Equity Incentive Plan provides that all stock
options granted prior to the occurrence of a change in control shall become
immediately exercisable upon the occurrence of a change in control and shall
remain exercisable thereafter throughout the entire terms of the options.
"Change in control" is defined as any of the following transactions or events:
a business combination involving the Company in which less than 75% of the
outstanding voting securities of the surviving entity are owned by persons who
were the shareholders of the Company immediately prior to the transaction; a
sale by the Company of substantially all of its business or assets to an
entity in which less than 75% of the outstanding voting securities or other
capital interests are
22
<PAGE>
owned by the persons who were the shareholders of the Company immediately
prior to the transactions; the filing of a Schedule 13D or Schedule 14D-1
report by a person or group under the Securities Exchange Act of 1934 which
reflects the acquisition of 20% or more of the issued and outstanding shares
of voting securities of the Company; or, during any period of two consecutive
years, individuals who at the beginning of the period constituted the board of
directors of the Company ceased for any reason to constitute at least a
majority of the board unless the election or the nomination for election by
the Company's shareholders of each new director was approved by a vote of at
least two-thirds of such directors then still in office who were directors of
the Company at the beginning of the period.
Performance Graph
The following graph compares the five-year cumulative total return to
shareholders of the Company with the five year cumulative return as determined
under the Standard & Poor's 500 Index and under the Standard & Poor's Service
(Commercial and Consumer)--Super.
Comparison of Five Year Cumulative Total Return*
Among The ServiceMaster Company, The S&P 500 Index
The Dow Jones Consumer Services Index
[BAR CHART APPEARS HERE]
*$100 invested on 12/31/93 in stock or index--
including Reinvestment of Dividends.
Fiscal Year Ending December 31.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ServiceMaster................. $100.00 $128.76 $171.76 $294.89 $339.12 $193.32
S&P 500 Index................. $100.00 $137.58 $169.17 $225.60 $290.08 $351.12
S&P Service
(Comml. & Consumer)--Super.... $100.00 $128.69 $135.18 $182.01 $168.01 $132.98
</TABLE>
Indebtedness of Management
No executive officer was indebted to the Company in excess of $60,000 at
any time during the year 1999.
23
<PAGE>
OWNERSHIP INFORMATION
Set forth in the table is information known to the Company as of January
31, 2000 with respect beneficial owners of more than five percent of the
Company's issued and outstanding common stock.
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Common Stock Percentage of
of Beneficial Owner Beneficially Owned Class
- ------------------- ------------------ -------------
<S> <C> <C>
W. P. Stewart & Co., Ltd...................... 16,647,875 5.42%
P.O. Box HM 2905
Hamilton HM LK, Bermuda
</TABLE>
The following table sets forth as of March10, 2000 the beneficial ownership
of the Company's common stock with respect to ServiceMaster's directors and
senior management advisers, those executive officers named in the Summary
Compensation Table (page 20) and the Company's directors and officers as a
group:
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership (1)
-----------------------------------------------
(1) (2) (3) (4) (5)
Sole Voting And Total Percent
Name of Beneficial Owner Investment Power Other Ownership Ownership
------------------------ ---------------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Paul W. Berezny (2)(3)(4)(7)... 179,471 1,200,029 1,379,500 0.452%
Carlos H. Cantu (3)(11)........ 984,898 2,287,608 3,272,506 1.072%
Robert D. Erickson (3)(6)...... 1,061,435 97,168 1,190,148 0.390%
Brian Griffiths (3)............ 60,527 0 60,527 0.020%
Sidney E. Harris (3)........... 42,299 1,687 43,986 0.014%
Glenda A. Hatchett............. 250 0 250 0.000%
Herbert P. Hess (3)............ 256,000 31,226 287,226 0.094%
Michele M. Hunt (3)............ 20,336 0 20,336 0.007%
Donald K. Karnes (3)........... 1,987,401 0 1,987,401 0.651%
Robert F. Keith (3)............ 605,295 43,150 648,445 0.212%
Gunther H. Knoedler (3)........ 107,087 0 107,087 0.035%
James D. McLennan (3).......... 90,247 0 90,247 0.030%
Ernest J. Mrozek (3)(4)........ 688,068 0 688,068 0.225%
Vincent C. Nelson (3)(7)(8)(9). 61,882 787,920 849,802 0.279%
Dallen W. Peterson (3)......... 2,382,301 0 2,382,301 0.781%
C. William Pollard (3)(4)(10).. 1,277,436 263,540 1,540,976 0.505%
Steven C. Preston (3).......... 243,663 0 243,663 0.080%
Steven S Reinemund (3)......... 14,645 15,000 29,645 0.010%
Phillip B. Rooney (2)(3)....... 608,202 13,500 621,702 0.204%
David M. Slott (2)(3).......... 654,795 439,938 1,094,733 0.359%
Burton E. Sorensen (3)......... 47,916 0 47,916 0.016%
Charles W. Stair (4)(12)....... 944,842 66,169 1,011,011 0.331%
David K. Wessner
(2)(3)(7)(13)(14)............. 314,860 979,298 1,294,158 0.424%
Richard A. Williams (3)........ 386,555 0 386,555 0.127%
All directors and officers as a
group (116 persons) (15)...... 21,092,683 7,509,295 28,601,978 9.179%
</TABLE>
- --------
(1) The shares owned by each person and by all directors and officers as a
group, and the shares included in the total number of shares, have been
adjusted, and the percentage ownership figures have been computed, in
accordance with Rule 13d-3(d)(1)(i).
(2) Shares in column (3) include shares held by spouse and/or other family
members.
(3) Shares in column (2) include shares which may be acquired within sixty
days under options granted under the ServiceMaster Share Option Plan, the
ServiceMaster 10-Plus Option Plan, the ServiceMaster 1998 Equity
Incentive Plan, the ServiceMaster Non-Employee Directors Option Plan
and/or the ServiceMaster 1998 Non-Employee Directors Discounted Stock
Option Plan.
24
<PAGE>
(4) Shares in column (3) include shares held in one or more investment
partnerships in which the listed person is a partner with shared voting
power and investment power.
(5) Shares in column (2) include shares held in trust for the benefit of
family members as to which beneficial ownership is disclaimed.
(6) Shares in column (3) include 71,239 shares owned by spouse or held in
trust for the benefit of family members as to which beneficial ownership
is disclaimed.
(7) Shares in column (3) include shares held in trust for benefit of self
and/or family members.
(8) Shares in column (2) include 43,804 shares in trust for the benefit of
family members as to which beneficial ownership is disclaimed. Shares in
column (3) include 16,521 shares held in trust for the benefit of family
members as to which beneficial ownership is disclaimed.
(9) Shares in column (3) include 353,211 shares owned by a charitable trust
of which Vincent C. Nelson is a trustee. Mr. Nelson disclaims beneficial
ownership of such shares.
(10) Shares in column (3) include 35,620 shares owned by a charitable
foundation of which C. William Pollard is a director. Mr. Pollard
disclaims beneficial ownership of such shares. Shares in column (3) also
include 34,426 shares in trust for the benefit of family members.
(11) Shares in column (3) include 11,523 shares owned by a charitable
foundation of which Carlos H. Cantu is an officer. Mr. Cantu disclaims
beneficial ownership of such shares.
(12) Shares in column (3) include 48,700 shares owned by a charitable
foundation of which Charles W. Stair is a director. Mr. Stair disclaims
beneficial ownership of such shares.
(13) Shares in column (3) include 731,162 shares owned by a charitable
foundation of which David K. Wessner is a director. Mr. Wessner disclaims
beneficial ownership of such shares.
(14) Shares in column (3) include 545,620 shares held by an investment company
of which David K. Wessner is a shareholder and one of four directors.
(15) Includes shares which certain officers of ServiceMaster, through the
exercise of their respective rights, may acquire within 60 days under
share purchase agreements, options granted under the ServiceMaster Share
Option Plan and options granted under the ServiceMaster 10-Plus Option
Plan and the ServiceMaster 1998 Equity Incentive Plan. None of the
options granted under the ServiceMaster 1998 Equity Incentive Plan in
December 1999 were exercisable on March 10, 2000. Shares purchasable by
the persons identified in the Summary Compensation Table under one or
more of the foregoing plans are as follows: Mr. Pollard 277,500 shares;
Mr. Cantu 326,250 shares; Mr. Rooney 285,325 shares; Mr. Mrozek 302,558
shares; Mr. Preston 238,500 shares; Mr. Karnes 97,663 shares and all
executive officers as a group 2,070,996 shares.
25
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know if any matters will be presented to the meeting other than those
described above. If other matters properly come before the meeting, the
persons named in the accompanying proxy will vote said proxy in accordance
with their best judgment.
The Company's 1999 Annual Report is enclosed, but the report is not
incorporated in this Proxy Statement and is not part of the proxy soliciting
material. A copy of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 as filed with the Securities and Exchange
Commission, without exhibits, will be provided without charge to any
shareholder submitting a request therefor to the Corporate Secretary, The
ServiceMaster Company, One ServiceMaster Way, Downers Grove, Illinois 60515,
or telephone 630-271-1300.
Compliance with Section 16(a) of the Securities and Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of changes in ownership of the Company's Common Stock with the
Securities and Exchange Commission and the New York Stock Exchange. Executive
officers and directors are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on a review of
the copies of such forms furnished to the Company and written representations
from the Company's executive officers and directors, the Company believes that
none of its executive officers and directors failed to comply with Section
16(a) reporting requirements in 1999.
By Order of the Board of Directors
Sandra L. Groman,
Vice President and Corporate
Secretary
Dated: March 24, 2000
26
<PAGE>
Exhibit A
THE SERVICEMASTER COMPANY
ServiceMaster 2000 Equity Incentive Plan
Part 1: Establishment, Effective Date, Objectives, and Duration of the Plan
1.1 Establishment of the Plan. The ServiceMaster Company, a Delaware
corporation (the "Company"), hereby establishes an incentive compensation plan
to be known as The ServiceMaster Company 2000 Equity Incentive Plan (the
"Plan").
1.2 Effective Date. Subject to approval by the Company's shareholders, the
Plan shall become effective as of May 1, 2000 (the "Effective Date") and shall
remain in effect as provided in Section 1.4 hereof.
1.3 Purpose. The purpose of this Plan is to benefit the Company and its
subsidiaries and affiliated companies and shareholders of the Company by
enabling the Company to offer to certain present and future executives, key
personnel and consultants stock based incentives and other equity interests in
the Company, thereby giving them a stake in the growth and prosperity of the
Company and encouraging the continuance of their services with the Company or
subsidiaries or affiliated companies.
1.4 Duration. The Plan shall commence on the Effective Date and shall
remain in effect, subject to the right of the Board of Directors to amend or
terminate the Plan at any time pursuant to Part 10 hereof, until all Shares
subject to the Plan shall have been purchased or acquired according to the
provisions of the Plan. However, in no event may an Award be granted under the
Plan on or after December 31, 2003.
Part 2: Definitions
2.1 Definitions. Whenever used in the Plan, the following terms shall have
the meanings set forth below. When such meaning is intended, the initial
letter of the word shall be capitalized.
"Award" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, or Restricted Stock.
"Beneficial Owner" or "Beneficial Ownership" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act as in effect on the Effective Date.
"Board" or "Board of Directors" means the Board of Directors of the
Company.
"Change of Control" of the Company shall mean:
(i) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person (an "Acquiror") and as a result
of such merger, consolidation or reorganization less than 75% of the
outstanding voting securities or other capital interests of the surviving,
resulting or acquiring corporation or other legal person are owned in the
aggregate by the shareholders of the Company, directly or indirectly,
immediately prior to such merger, consolidation or reorganization, other
than by the Acquiror or any corporation or other legal person controlling,
controlled by or under common control with the Acquiror; or
(ii) The Company sells all or substantially all of its business and/or
assets to an Acquiror, of which less than 75% of the outstanding voting
securities or other capital interests are owned in the aggregate by the
shareholders of the Company, directly or indirectly, immediately prior to
such sale, other than by any corporation or other legal person controlling,
controlled by or under common control with the Acquiror; or
(iii) A report is filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person or group (as the terms
A-1
<PAGE>
"person" and "group" are used in Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act and the rules and regulations promulgated thereunder) has
become the beneficial owner (as the term "beneficial" owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of 20% or more of the issued and outstanding shares of voting
securities of the Company; or
(iv) During any period of two consecutive years, individuals who at the
beginning of any such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's shareholders, of
each new director of the Company was approved by a vote of at least two-
thirds of such directors of the Company then still in office who were
directors of the Company at the beginning of any such period.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation thereto.
"Compensation Committee" means the Compensation Committee of the Board of
Directors.
"Common Stock" means the common stock of the Company.
"Company" means The ServiceMaster Company, a Delaware corporation, as well
as any successor to such entity as provided in Section 14.1 herein.
"Effective Date" shall have the meaning ascribed to such term in Section
1.1 hereof.
"Employee" means any employee of the Company or any Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.
"Exercise Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
"Fair Market Value" shall mean--
(i) for purposes of setting any Exercise Price, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder or unless the Compensation Committee otherwise determines, and
(ii) for purposes of the valuation of any Shares or to pay taxes due on
an Award, the average as of the date of the Award of the closing sales
prices of the Common Stock on the New York Stock Exchange Composite Tape
(as reported in The Wall Street Journal, Midwest Edition) on each of the
five trading dates immediately preceding such date.
"Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Part 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Section 422 of the
Code or any successor thereto.
"Named Executive Officer" means a Participant who is one of the group of
covered employees as defined in the regulations promulgated under Section
162(m) of the Code or any successor statute.
"Nonqualified Stock Option" or "NQSO" means an option to purchase Shares
granted under Part 6 herein and which is not intended to meet the requirements
of Section 422 of the Code.
"Option" means an Incentive Stock Option or a Nonqualified Stock Option.
"Option Agreement" means a writing which is provided by the Company to a
Participant who receives an Award consisting of an Option and which sets forth
the terms and provisions applicable to such Award. A Participant's acceptance
of the terms of such Award shall be evidenced by his or her continued
employment and
A-2
<PAGE>
by the delivery to the Company of his or her signed copy of the Option
Agreement within 30 days after his or receipt thereof. If the Participant does
not deliver an executed Option Agreement in accordance with the foregoing
provision, the Award of the Option shall be revoked.
"Participant" means an Employee or a consultant who has outstanding an
Award granted under the Plan.
"Performance-Based Exception" means the exception for performance-based
compensation from the tax deductibility limitations of Section 162(m) of the
Code.
"Performance Period" means the time period during which performance goals
must be achieved with respect to an Award, as determined by the Compensation
Committee.
"Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is limited in some way, which period shall not be
shorter than three years (based on the passage of time) or one year (based on
the achievement of performance goals), and the Shares are subject to a
substantial risk of forfeiture, as provided in Part 7 herein.
"Restricted Stock" means an Award granted to a Participant pursuant to Part
7 herein.
"Restricted Stock Agreement" means a writing which is provided by the
Company to a Participant who receives an Award consisting of Restricted Stock
and which sets forth the terms and provisions applicable to such Award. A
Participant's acceptance of the terms of such Award shall be evidenced by his
or her continued employment and by the delivery to the Company of his or her
signed copy of the Restricted Stock Agreement within 30 days after his or
receipt thereof. If the Participant does not deliver an executed Restricted
Stock Agreement in accordance with the foregoing provision, the Award of the
Restricted Stock shall be revoked.
"Senior Executive Ownership Election Plan" means the plan adopted by the
Company's Board of Directors in December 1999 as a special program within the
ServiceMaster 1998 Equity Incentive Plan under which selected senior
executives may irrevocably elect to forego certain incentive compensation in
December of any given year (the "election year"), commencing with the year
1999, for the immediately following calendar year and to receive in December
of the election year Options having an exercise price not less than the
current fair market value of the underlying Shares and in a number which is
referenced to the amount of projected compensation which is foregone. This
program is intended to continue as a component of the Plan.
"Shares" means shares of Common Stock of the Company.
"Subsidiary" means any corporation, partnership, joint venture, affiliate,
or other entity in which the Company is the direct or indirect beneficial
owner of not less than 20% of all issued and outstanding equity interests.
Part 3: Administration
3.1 Administration by the Compensation Committee. The Plan shall be
administered by the Compensation Committee or by any other committee appointed
by the Board. If and to the extent that no committee exists that has the
authority to administer the Plan, the functions of the Compensation Committee
as set forth herein shall be exercised by the full Board or the Executive
Committee of the Board.
3.2 Authority of the Compensation Committee. Except as limited by law or by
the Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Compensation Committee shall have full power to: select
Employees and consultants who shall participate in the Plan; determine the
sizes and types of Awards; determine the terms and conditions of Awards in a
manner consistent with the Plan; construe and interpret the Plan and any
agreement or instrument entered into under the Plan; establish, amend,
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or waive rules and regulations for the Plan's administration; subject to
the provisions of Part 12 herein, amend the terms and conditions of any
outstanding Award to the extent such terms and conditions are within the
discretion of the Compensation Committee as provided in the Plan; and,
subject to the provisions of the Plan, make all other determinations which
may be necessary or advisable for the administration of the Plan.
3.3 Decisions Binding. All determinations and decisions made by the
Compensation Committee pursuant to the provisions of the Plan and all related
orders and resolutions of the Board shall be final, conclusive and binding on
all persons, including the Company, its shareholders, Employees, Participants,
and their estates and beneficiaries.
Part 4: Shares Subject to the Plan and Maximum Awards
4.1 Shares Available for Awards.
(a) The aggregate number of Shares which may be issued or used for
reference purposes under this Plan or with respect to which Awards may be
granted shall not exceed 15,000,000 Shares (subject to adjustment as provided
in Section 4.3). Such Shares may be either authorized and unissued Shares or
Shares held in or acquired for the treasury of the Company. Of such 15,000,000
Shares, 5,000,000 Shares are intended for use in connection with the Senior
Executive Ownership Election Plan in the years 2000, 2001 and 2002 and
10,000,000 Shares are intended for general purposes during the years 2000,
2001, 2002 and 2003.
(b) The aggregate number of Shares which may be issued or used for
reference purposes in respect of Awards made in the year 2000 is not to exceed
2,500,000 Shares and is not to exceed 2,500,000 Shares in any one of the three
succeeding years for which the Plan is in effect pursuant to Section 1.4
(subject to adjustment as provided in Section 4.3 and subject to paragraph
(e)). However, the Shares intended for use in connection with the Senior
Executive Ownership Election Plan shall not be taken into account in the
application of this paragraph (b).
(c) Of the Shares which may be issued or used for reference purposes in
respect of Awards made in the year 2000 or in any of the three succeeding
years for which the Plan is in effect pursuant to Section 1.4, the number of
Shares which may be used in connection with Incentive Stock Options shall not
exceed 1,125,000 in the year 2000 and shall not exceed approximately 1,125,000
in each of the succeeding three years (subject in each case to adjustment as
provided in Section 4.3 and paragraphs (d) and (e) below).
(d) The aggregate number of Shares which may be used for Awards consisting
of Restricted Stock shall not exceed 1,500,000 (which number is 15% of the
aggregate number of the 10,000,000 Shares authorized for issuance or used for
reference purposes under this Plan as provided in paragraph (a)). Of such
1,500,000 Shares, not more than 375,000 Shares may be used for Awards
consisting of Restricted Stock in the year 2000 and not more than 375,000
Shares may be used for Awards consisting of Restricted stock in any of the
three succeeding years. (subject in each case to adjustment as provided in
Section 4.3 and paragraph (e) below). If and to the extent that Shares are
used for Awards consisting of Restricted Stock in any given year, the number
of Shares so used shall be deducted from the authorizations for that year for
Incentive Stock Options and for Nonqualified Options pursuant to paragraph
(c). The allocation of such deduction between the authorization for ISOs and
NQSOs for that year shall be made by the Compensation Committee acting in its
discretion.
(e) If and to the extent that the number of Shares actually used in respect
of Awards made in any given year is less than the number of Shares permitted
to be used in such year pursuant to paragraph (b), the unused number of Shares
may be carried over to the next succeeding year, unless the next succeeding
year is the year 2004. The same principle shall be applied to the Shares
actually used and Shares permitted to be used for ISOs and NQSOs under
paragraph (c).
(f) Upon the occurrence of a cancellation, termination, expiration,
forfeiture, or lapse for any reason of any Award, the number of Shares
underlying any such Award which were not issued as a result of any of the
foregoing actions shall again be available for the purposes of Awards under
the Plan.
4.2 Individual Participant Limitations. Unless and until the Compensation
Committee determines that an Award to a Named Executive Officer shall not be
designed to comply with the Performance-Based Exception,
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the maximum aggregate number of Shares (including Options and Restricted
Stock) that may be granted in any one fiscal year to a Participant shall be
250,000 in the year 2000 and 250,000 in each of the three succeeding years,
subject to adjustment as provided in Section 4.3 herein. However, Shares
underlying options granted under the Senior Executive Ownership Election Plan
shall not be taken into account in the application of this Section 4.2.
4.3 Adjustments in Authorized Shares. In the event of any change in the
capitalization of the Company (such as a stock split) or a corporate
transaction (such as any merger, consolidation, separation, including a spin-
off, or other distribution of stock or property of the Company), any
reorganization (whether or not such reorganization comes within the definition
of such term in Section 368 of the Code) or any partial or complete
liquidation of the Company, such adjustment shall be made in the number and
class of Shares available for Awards, the number and class of Shares subject
to outstanding Awards granted under the Plan and the number of Shares set
forth in Sections 4.1 and 4.2, as may be determined to be appropriate and
equitable by the Compensation Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of
Shares subject to any Award shall always be a whole number.
4.4 Adjustment in Exercise Price. In the event of the occurrence of any
transaction to which Section 4.3 is applicable, a change shall be made in the
Exercise Price of each Option granted hereunder which is correlative to the
change in the number of Shares which is made pursuant to Section 4.3
Part 5: Eligibility and Participation
5.1 Eligibility. Persons eligible to participate in this Plan include all
officers and other employees of the Company and its Subsidiaries, and key
consultants to the Company and its Subsidiaries, as determined by the
Compensation Committee. Employees who are members of the Board and Employees
who reside in countries other than the United States of America are persons
who are eligible to participate in this Plan.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Compensation Committee may, from time to time, select from all eligible
Employees and consultants those to whom Awards shall be granted and shall
determine the nature and amount of each Award.
Part 6: Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to one or more Participants in such number, and upon
such terms, and at any time and from time to time as shall be determined by
the Compensation Committee. The Compensation Committee may grant such Options
in the form of Nonqualified Stock Options or Incentive Stock Options. The
Compensation Committee shall have complete discretion in determining the
number of Options granted to each Participant (subject to the limitations set
forth in Part 4 herein).
6.2 Option Agreement.
(a) Each Option grant shall be evidenced by an Option Agreement that shall
specify the Exercise Price, the duration of the Option, the number of Shares
to which the Option pertains, and such other provisions as the Compensation
Committee shall determine.
(b) The Option Agreement with respect to the Option also shall specify
whether the Option is intended to be an ISO within the meaning of Code Section
422, or an NQSO whose grant is intended not to fall under the provisions of
Code Section 422.
6.3 Exercise Price. The Compensation Committee shall designate the Exercise
Price for each grant of an Option under this Plan which Exercise Price shall
be at least equal to one hundred percent (100%) of the Fair Market Value of a
Share on the date the Option is granted. The Compensation Committee shall not
have the
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authority to reduce the Exercise Price of any Option after the time of grant,
or permit the surrender and cancellation of an Option and grant a replacement
Option at a lower Exercise Price, without obtaining stockholder approval of
any such action.
6.4 Duration of Options. Each Option granted to an Employee shall expire at
such time as the Compensation Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than the tenth
anniversary of the date of its grant.
6.5 Exercise of Options.
(a) Options granted under this Part 6 shall be exercisable at such times
and be subject to such restrictions and conditions as the Compensation
Committee shall in each instance approve, which need not be the same for each
grant or for each Participant.
(b) Except as provided in Section 6.9(a), all Incentive Stock Options
granted to a Participant under the Plan shall be exercisable by such
Participant only during his or her lifetime.
(c) The minimum of Shares for which an Option may be exercised at any one
time shall be the lesser of 100 Shares or the number of Shares which remain
available for exercise after giving effect to all prior exercises of such
Option.
6.6 Notice of Exercise and Payment of the Exercise Price. Options granted
under this Part 6 shall be exercised by the delivery of a written notice of
exercise to the Company which sets forth the number of Shares with respect to
which the Option is to be exercised and which is accompanied by the payment in
cash or Shares (valued at their then Fair Market Value) of the full amount of
the Exercise Price.
6.7 Restrictions on Share Transferability. The Compensation Committee may
impose such restrictions on any Shares acquired pursuant to the exercise of an
Option granted under this Part 6 as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8 Termination of Employment or Consulting Agreement. Each Option
Agreement shall set forth the extent to which the Participant shall have the
right to exercise the Option following termination of the Participant's
employment with the Company and/or its Subsidiaries. Such provisions shall be
determined in the sole discretion of the Compensation Committee, shall be
included in the Option Agreement entered into with each Participant, need not
be uniform among all Options issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment.
6.9 Nontransferability of Options; Limited Exception for NQSOs.
(a) No ISO granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution.
(b) Except as otherwise provided in a Participant's Option Agreement, no
NQSO granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution.
6.10 Conformance with Section 422. In the case of Incentive Stock Options,
if any provision of this Part 6 is inconsistent with any provision of Code
Section 422 or any successor thereto, then the provision of the Code with
respect to which the inconsistency exists shall be substituted for such
provision of this Part 6.
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Part 7: Restricted Stock
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Compensation Committee at any time and from time to time may grant
Shares of Restricted Stock to Participants in such amounts as the Compensation
Committee shall determine.
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement that shall specify the Period(s) of
Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Compensation Committee shall determine.
7.3 Transferability. Except as provided in this Part 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, voluntarily or
involuntarily, until the end of the applicable Period of Restriction
established by the Compensation Committee and specified in the Restricted
Stock Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Compensation Committee in its sole discretion and set forth
in the Restricted Stock Agreement. All rights with respect to the Restricted
Stock granted to a Participant under the Plan shall be available during his or
her lifetime only to such Participant.
7.4 Other Restrictions.
(a) Subject to Part 8 herein, the Compensation Committee may impose such
other conditions and/or restrictions on any Shares of Restricted Stock granted
pursuant to the Plan as it may deem advisable including, without limitation, a
requirement that Participants pay a stipulated purchase price for each Share
of Restricted Stock, restrictions based upon the achievement of specific
performance goals (Company-wide, Subsidiary-wide, divisional, and/or
individual), time-based restrictions on vesting which may or may not be
following the attainment of the performance goals, and/or restrictions under
applicable Federal or state securities laws. Any such conditions or
restrictions may be referenced by an appropriate legend placed on the
certificates for such Shares of Restricted Stock.
(b) Except as otherwise provided in this Part 7, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
7.5 Voting Rights. Unless otherwise designated by the Compensation
Committee at the time of grant, Participants to whom Shares of Restricted
Stock have been granted hereunder may exercise full voting rights with respect
to those Shares during the Period of Restriction.
7.6 Dividends and Other Distributions. Unless otherwise designated by the
Compensation Committee at the time of grant, Participants holding Shares of
Restricted Stock granted hereunder shall be credited with regular cash
dividends paid with respect to the underlying Shares while they are so held
during the Period of Restriction. The Compensation Committee may apply any
restrictions to the dividends that the Compensation Committee deems
appropriate. Without limiting the generality of the preceding sentence, if the
grant or vesting of Shares of Restricted Stock granted to a Named Executive
Officer is designed to comply with the requirements of the Performance-Based
Exception, the Compensation Committee may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such Shares
of Restricted Stock, such that the dividends and/or the Shares of Restricted
Stock maintain eligibility for the Performance-Based Exception.
7.7 Termination of Employment or Consulting Arrangement. Each Restricted
Stock Agreement shall set forth the extent to which the Participant shall have
the obligation to return to the Company unvested Shares of Restricted Stock
following termination of the Participant's employment with the Company and/or
its Subsidiaries. Such provisions shall be determined in the sole discretion
of the Compensation Committee, shall be included in the Restricted Stock
Agreement entered into with each Participant, need not be uniform among all
Shares of Restricted Stock issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment.
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Part 8: Performance Measures
8.1 Factors Involved.
(a) Subject to paragraph (b), unless and until the Compensation Committee
proposes for shareholder vote and the shareholders approve a change in the
general performance measures set forth in this Part 8 the attainment of which
may determine the degree of payout and/or vesting with respect to Awards to
Named Executive Officers which are designed to qualify for the Performance-
Based Exception, the performance goals to be used for purposes of such grants
shall be established by the Compensation Committee in writing and stated in
terms of the attainment of specified levels of or percentage changes in any
one or more of the following measurements: revenue, primary or fully-diluted
earnings per Share, pretax income, cash flow from operations, total cash flow,
return on equity, return on capital, return on assets, net operating profits
after taxes, economic value added, total stockholder return or return on
sales, or any individual performance objective which is measured solely in
terms of quantitative targets related to the Company or the Company's
business, or any combination thereof. In addition, such performance goals may
be based in whole or in part upon the performance of the Company, a
Subsidiary, division and/or other operational unit, under one or more of such
measures.
(b) Paragraph (a) shall not apply to Awards to Named Executive Officers
which consist of Options, since Options are, by their nature, a performance-
based form of compensation.
8.2 Committee Evaluation. The degree of payout and/or vesting of Awards
designed to qualify for the Performance-Based Exception shall be determined
based upon the written certification of the Compensation Committee as to the
extent to which the performance goals and any other material terms and
conditions precedent to such payment and/or vesting have been satisfied. The
Compensation Committee shall have the discretion to adjust the determinations
of the degree of attainment of the preestablished performance goals; provided,
however, that the performance goals applicable to Awards which are designed to
qualify for the Performance-Based Exception and which are held by Named
Executive Officers may not be adjusted so as to increase the payment under the
Award (the Committee shall retain the discretion to adjust such performance
goals upward, or to otherwise reduce the amount of the payment and/or vesting
of the Award relative to the preestablished performance goals).
8.3 Effect of Changes in the Tax or Securities Laws.
(a) In the event that applicable tax and/or securities laws change to
permit Committee discretion to alter the governing performance measures
without obtaining stockholder approval of such changes, the Compensation
Committee shall have sole discretion to make such changes without obtaining
stockholder approval.
(b) In the event that the Compensation Committee determines that it is
advisable to grant Awards which shall not qualify for the Performance-Based
Exception, the Compensation Committee may make such grants without satisfying
the requirements of Code Section 162(m).
Part 9: Beneficiary Designations
9.1 Right to Designate Beneficiaries. Each Participant under the Plan may
from time to time name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his or her death before he or she receives any or all of such
benefit. Each such designation shall revoke all prior designations by the same
Participant, shall be in a form prescribed by the Company, and will be
effective only when filed by the Participant in writing with the Secretary of
the Company during the Participant's lifetime.
9.2 Effect of No Beneficiary Designation. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be
paid to the Participant's estate.
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Part 10: Rights of Employees and Consultants
10.1 Employment or Consulting Arrangement. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or consulting arrangement at any time, nor confer
upon any Participant any right to continue in the employ of or consulting
arrangement with the Company or any Subsidiary.
10.2 Effect of Temporary Absences from Employment. For purposes of this
Plan, temporary absence from employment because of illness, vacation, approved
leaves of absence, and transfers of employment among the Company and its
Subsidiaries, shall not be considered to terminate employment or to interrupt
continuous employment. Temporary cessation of the provision of consulting
services because of illness, vacation or any other reason approved in advance
by the Company shall not be considered a termination of the consulting
arrangement or an interruption of the continuity thereof. Conversion of a
Participant's employment relationship to a consulting arrangement shall not
result in termination of previously granted Awards.
10.3 No Right to Participation or Uniformity of Treatment. No Employee or
consultant shall have the right to be selected to receive an Award under this
Plan, or, having been so selected, to be selected to receive a future Award.
The Compensation Committee shall not be under any obligation to provide
uniformity of treatment among Participants selected for Awards under this
Plan.
Part 11: Change of Control
11.1 Effect of a Change of Control. Upon the occurrence of a Change of
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges: (i) any and all Options granted hereunder shall become
immediately exercisable and shall remain exercisable throughout their entire
term; and (ii) any Period of Restriction and other restrictions imposed on
Restricted Shares shall lapse.
Part 12: Amendment, Modification and Termination
12.1 Amendment, Modification and Termination. The Board may at any time and
from time to time, alter, amend, suspend or terminate the Plan in whole or in
part, subject to any requirement of stockholder approval imposed by applicable
law, rule or regulation.
12.2 Awards Previously Granted. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award.
Part 13: Withholding
13.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy Federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of the Plan.
13.2 Share Withholding. With respect to withholding required upon the
exercise of Options or upon the lapse of restrictions on Restricted Stock, or
upon any other taxable event arising as a result of or Awards granted
hereunder, Participants may elect, subject to the approval of the Compensation
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to the minimum statutory total tax which would
be imposed on the transaction. All such elections shall be irrevocable, made
in writing, signed by the Participant, and shall be subject to any
restrictions or limitations that the Compensation Committee, in its sole
discretion, deems appropriate.
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Part 14: General Provisions
14.1 Binding Effect. All obligations of the Company under this Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect merger, consolidation, purchase of all or substantially all of the
business and/or assets of the Company or otherwise.
14.2 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.
14.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
14.4 Requirements of Law. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
14.5 Securities Law Compliance. With respect to persons who are subject to
Section 16(b) of the Exchange Act, transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b-3 or its successors under
the Exchange Act. To the extent any provision of the Plan or action by the
Compensation Committee fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Compensation
Committee.
14.6 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
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Exhibit B
THE SERVICEMASTER COMPANY
ServiceMaster 2001 Long-Term Performance Award Plan
Part 1: Establishment, Effective Date, Objectives, and Duration of the Plan
1.1 Establishment of the Plan. The ServiceMaster Company, a Delaware
corporation (the "Company"), hereby establishes a long-term incentive
compensation plan for key employees of the Company and its Affiliates to be
known as the ServiceMaster 2001 Long-Term Performance Award Plan (the "Plan")
the Plan consists of the terms and conditions as set forth in this document.
The Plan is the successor plan to the ServiceMaster 1998 Long-Term Performance
Award Plan.
1.2 Effective Date. Subject to approval by the Company's shareholders, the
Plan shall become effective as of January 1, 2001 (the "Effective Date") and
shall remain in effect as provided in Section 1.4 hereof.
1.3 Purpose. The purpose of this Plan is to benefit the Company and the
shareholders of the Company by linking a portion of the compensation of
leaders in the ServiceMaster enterprise to an increase in shareholder value
and to motivate leadership to understand and to exert all possible efforts to
achieve Company-wide goals through internal synergies and cooperation among
the various units of the ServiceMaster enterprise.
1.4 Duration. The Plan shall commence on the Effective Date and, provided
that it is approved by the shareholders of the Company, shall remain in effect
from year to year thereafter, unless the Plan is terminated by the Board at an
earlier date (subject to the provisions of Section 6).
Part 2: Definitions
2.1 Definitions. Whenever used in the Plan, the following terms shall have
the meanings set forth below. When such meaning is intended, the initial
letter of the word is capitalized.
"Actual Adjusted Net Income" means, for each Plan Year, the Company's
consolidated net income for that Plan Year as determined by GAAP with the
following adjustments: extraordinary or unusual items of a non-recurring
nature shall be excluded; interest shall be excluded; and a capital charge of
9% of Capital Employed for that Plan Year shall be deducted.
"Actual Payment" means the amount determined before the Holdback Amount in
respect of each Plan Year for payment to Participants pursuant to this Plan.
(In connection with the year 2000, the term also includes the amount payable
in respect of the year 2000 under the ServiceMaster 1998 Long-Term Performance
Award Plan).
"Affiliate" means any business entity in which 50% or more of the equity
interests are owned, directly or indirectly, by the Company.
"Board" means the Board of Directors of the Company.
"Capital Employed" means the Company's equity plus long-term debt
(including current maturities of long-term debt).
"CEO" means the Chief Executive Officer of the Company.
"Common Stock" means the common stock of the Company.
"Company" means The ServiceMaster Company, a Delaware corporation, as well
as any successor to such entity as provided in Section 8.1 herein.
"Compensation Committee" means the Compensation Committee of the Board.
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"Disability" means total and permanent disability which, if the Participant
were an employee of the Company, would be treated as a total and permanent
disability under the terms of the Company's long-term disability plan for
employees as in effect from time to time.
"Effective Date" shall have the meaning ascribed to such term in Section 1.2
hereof.
"Fair Market Value" shall have the meaning ascribed to such term in Section
6.3(d).
"GAAP" means United States generally accepted accounting principles.
"Holdback Amount"--see Section 5.2.
"Participant" means a person who has been selected to participate in the
Plan for any given Plan Year.
"Plan Year" means the calendar year 2001 and each calendar year thereafter.
"Retirement" means the Participant's termination of employment with the
Company or its Affiliates on or after the date on which the Participant becomes
eligible to receive normal or early retirement benefits under any benefit plan
of the Company. Notwithstanding the foregoing, the Compensation Committee may,
in its sole discretion, determine that a Participant has met the criteria for
Retirement from the Company.
"Segment" means an operating component of the ServiceMaster enterprise which
is material to the business of the Company taken as a whole. The determination
of what components of the ServiceMaster enterprise constitute Segments of the
Company for purposes of the Plan shall be made by the Compensation Committee
from time to time.
"Shares" means shares of Common Stock.
"Target Adjusted Net Income" means for each Plan Year the estimate, made by
the Compensation Committee before the commencement of the Three-Year Segment
which includes such Plan Year, of the Company's consolidated pre-tax net income
for such Plan Year as determined by GAAP with the following modifications: (i)
extraordinary or unusual items of a non-recurring nature shall be excluded;
(ii) interest shall be excluded; and (iii) a capital charge of 9% of Target
Capital Employed for that Plan Year shall be deducted. It is expected (but not
required) that the Target Adjusted Net Income for each Plan Year within a
Three-Year Segment as computed before any charge for capital will be consistent
with a compound annual growth rate of approximately 16% over such Three-Year
Segment. However, the Compensation Committee may prospectively modify the
Target Adjusted Net Income figure for any year within such Three-Year Segment
if, in the reasonable judgment of the Compensation Committee, a modification is
appropriate in the light of all the facts and circumstances.
"Target Capital Employed" means for each Plan Year the estimate, made by the
Compensation Committee before the commencement of the Three-Year Segment which
includes such Plan Year, of the Capital Employed for such Plan Year. It is
expected (but not required) that the Target Capital Employed for each Plan Year
within a Three-Year Segment will be consistent with a compound annual growth
rate of approximately 8% over such Three-Year Segment. However, the
Compensation Committee may prospectively modify the Target Capital Employed
figure for any year within such Three-Year Segment if, in the reasonable
judgment of the Compensation Committee, a modification is appropriate in the
light of all the facts and circumstances.
"Target Payment" means the amount which the Compensation Committee
establishes at the commencement of the Three-Year Segment for each Plan Year
within such Three-Year Segment for payment to Participants in respect of that
Plan Year. Although the Target Payment for Plan Year 2001 will not be
established until December 2000, as of March 22, 2000, based on then existing
budgets and estimates, and if performance goals are met, the expectation is
that the Target Payment for Plan Year 2001 will be approximately $9,800,000.
The Target Payment is expected to increase annually at a rate which is
commensurate with the projected growth in net income over the Three-Year
Segment; however, the Compensation Committee may prospectively modify the
Target Payment for any given Plan Year an amount which is reasonably proximate
to such growth rate and which the Compensation Committee considers appropriate
in the light of all the facts and circumstances.
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"Three-Year Segments" means consecutive periods of three calendar years
each, with the first of such periods being the years 2001, 2002 and 2003, the
second of such periods being the years 2004, 2005 and 2006, etc.
"Units" shall have the meaning set forth in Section 3.3.
"Withholding Taxes" means the minimum amounts which the Company is required
by law to withhold from awards made hereunder under the Internal Revenue Code
in respect of federal, the Federal Insurance Contribution Act, and the Health
Insurance for the Aged Act (Medicare) and an additional 3% of each award
payment which shall be applied to state income tax withholding requirements
or, if there are no such requirements applicable to the individual receiving
the award, to additional federal income tax withholding.
Part 3: Participants
3.1 General Standards. Participants will be determined from time to time on
the basis of guidelines established by the Compensation Committee and
recommendations of Segment leaders as submitted for review by the Compensation
Committee. There shall be no automatic participation in the Plan as a result
of holding a particular position in the Company or an Affiliate.
3.2 Final Determinations. Participants in any given Plan Year shall be
determined with finality by the CEO with the approval of the Compensation
Committee.
3.3 Participation Units. Participation in the Plan shall be determined on
the basis of Participation Units ("Units"). For this purpose, the Plan shall
have 10,000 Units. The extent of each Participant's participation in the Plan
for any given Plan Year shall be determined by the ratio of the number of
Units assigned to a Participant for that year to the number 10,000. If and to
the extent that there are at any time less than 10,000 Units assigned to
employees of the Company and its Affiliates, the difference between 10,000 and
the number of Units which are assigned to Participants shall be deemed to be
assigned to the Company.
3.4 Effect of Termination of Employment. If a Participant terminates his or
her employment with the Company or an Affiliate during the course of a Plan
Year by reason of his or her death, Disability or Retirement or voluntary or
involuntary termination of employment, the effect of such termination of
employment on the Units then held by such Participant shall be determined
either under general guidelines established by the Compensation Committee or
by a decision of the Compensation Committee acting in its discretion.
3.5 Modification or Elimination of Units. During the course of any Plan
Year, the CEO may, with the approval of the Compensation Committee, adjust
downward the number of Units previously assigned to a Participant or cancel
all Units previously assigned to a Participant, provided that any such
adjustment shall not result in an increase in the amount of any other
Participant's percentage interest in the Plan. Any such action shall be
effective from and after the date of the CEO's decision. Units which are
reduced or canceled pursuant to this Section 3.5 shall be deemed to be
assigned to the Company for the remainder of the Plan Year.
Part 4: Plan Calculations
4.1 General Principle. The calculations of the annual payments for each
Plan Year will be determined by the relationship of the Company's Actual
Adjusted Net Income for that Plan Year to Target Adjusted Net Income for that
Plan Year. A failure to attain Target Adjusted Net Income will result in an
Actual Payment which is less than the Target Payment for that Plan Year;
conversely, success in attaining or exceeding Target Adjusted Net Income will
result in an Actual Payment which equals or exceeds the Target Payment for
that Plan Year. The calculation of the total payment for each Three-Year
Segment will, by reason of the Holdback Amount set forth in Section 5.2, be
determined by the extent to which the Company's cumulative Adjusted Net Income
over the relevant Three-Year Segment has equaled or exceeded 60% of the
Company's cumulative Target Adjusted Net Income over the same Three-Year
Segment.
B-3
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4.2 Calculation of Performance Percentage and Actual Payment. Subject to
Section 5.2, the total amount paid in respect of each Plan Year shall be
determined as follows:
(a) The ratio of Actual Adjusted Net Income to Target Adjusted Net Income
shall be determined and expressed as a percentage rounded to the nearest whole
number (the "Performance Percentage").
(b) The Target Payment shall be multiplied by the Performance Percentage to
determine the Actual Payment for the Plan Year, provided, that if the
Performance Percentage is less than 60% the Actual Payment shall be zero and
if the Performance Percentage is greater than 120% the Actual Payment shall be
limited to 120% of the Target Payment.
4.3 Example. The application of Section 4.2 is illustrated by the following
example:
Assumptions:
(1) For the year 2001, the Compensation Committee sets the Target
Payment at $9,500,000; the Target Adjusted Net Income before reduction for
the capital charge at $385,000; and the Target Capital Employed is
$3,300,000. The Target Capital Charge is $297,000 ($3,300,000 x 9%). The
Target Adjusted Net Income after reduction for the capital charge is
$88,000 ($385,000-$297,000).
(2) Actual Adjusted Net Income Figure before reduction for the capital
charge is $386,000 and the Actual Capital Employed for the year is
$3,300,000. The reduction for the capital charge (9%) is therefore $297,000
and Actual Adjusted Net Income is therefore $89,000 ($386,000-$297,000).
Calculations:
Actual Adjusted Net Income represents 101.14%--rounded to 101%--of
Target Adjusted Net Income ($89,000/$88,000).
Applying this percentage to the Target Payment figure results in an
Actual Payment for the year (before the Holdback Amount) of $9,595,000
and an Actual Payment for the year (after the Holdback Amount) of
$7,676,000.
Part 5: Payment of Awards
5.1 Annual Payments. Payments of awards in respect of any given Plan Year
will be made to Participants for that year as promptly as practicable after
the computations set forth in Section 4.2 for that year have been made by
management and approved by the Compensation Committee. In general, the
payments of awards in respect of any given Plan Year are expected to occur
during the month of February of the next following year. Such payments shall
take into account any advances made pursuant to Section 5.3 with respect to
such Plan Year.
5.2 20% Holdback.
(a) 20% of the Actual Payment for any given Plan Year within any given
Three-Year Segment (the "Holdback Amount") shall be retained by the Company
for payment (if at all) after the close of such Three-Year Segment. The extent
to which payment of a portion of the cumulative Holdback Amounts is paid to a
Participant shall depend upon (i) the extent to which the Company's cumulative
Actual Adjusted Net Income over the Three-Year Segment has equaled or exceeded
the Company's cumulative Target Adjusted Net Income over the same Three-Year
Segment and (ii) the status of the Participant at the time the retained amount
is to be paid. In any case, no part of the Holdback Amount will be considered
earned and no Holdback Amount payments will be made until the final results
and Plan calculations have been completed after the last year in such three-
year period. No interest will be paid or credited on the Holdback Amount.
B-4
<PAGE>
(b) If a Participant is an employee of the Company or an Affiliate at the
time the Holdback Amounts are to be paid, such Participant shall be entitled
to receive his or her share of each Holdback Amount which includes a holdback
made with respect to such Participant even though the Participant may not have
held any Units in any one or more of the succeeding Plan Years. For purposes
of this paragraph (b), if the Participant is a party to a consulting agreement
with the Company or any Affiliate at the time the Holdback Amounts are to be
paid and such consulting agreement is in writing and in full force and effect
at such time, the Participant shall be deemed to be an "employee" for purposes
of this paragraph (b) of this Section 5.2.
(c) If a Participant is not an employee of either the Company or any
Affiliate at the time the Holdback Amounts are to be paid and the reason for
such status is that prior to such time the Participant died, became disabled
or terminated employment under circumstances which constitute a "qualifying
retirement", such Participant shall be entitled to receive his or her share of
each Holdback Amount which includes a holdback made with respect to such
Participant even though the Participant may not have held any Units in any one
or more of the succeeding Plan Years. The Compensation Committee shall provide
by rule the conditions under which a retirement constitutes a "qualifying
retirement". In so doing, the Compensation Committee shall define the term
consistently with the definition of the same term as utilized in connection
with other employee benefit plans of the Company.
(d) If a Participant is not an employee of either the Company or any
Affiliate at the time the Holdback Amounts are to be paid and none of the
reasons for such status as set forth in paragraph (c) is applicable, then any
interest of the Participant in any of the Holdback Amounts shall not be
payable and shall be deemed to be forfeited and shall revert to the Company.
5.3 Quarterly Advances Against the Annual Payments.
(a) The CEO, with the approval of the Compensation Committee, may authorize
the payment of advances against the Actual Payment for any given Plan Year.
Such advances, if made at all, shall be made to all Participants on the last
business day in the months of April, July and October of each Plan Year. The
amount of each such quarterly advances shall be based upon the CEO's best
estimate as of each April, July and October of the portion of the anticipated
Actual Payment which has been achieved to that point. Such estimate shall then
be multiplied by a factor of 80% to determine the total amount of the
advances. The Compensation Committee shall have the authority to change from
time to time the percentage factor to be applied against the CEO's estimate.
(b) The aggregate amount of advances made to a Participant pursuant to
paragraph (a) in respect of any given Plan Year shall be deducted from the
payment to be made in respect of such Plan Year pursuant to Section 5.1. If
the result of this calculation is a negative figure and if such Participant is
also a Participant in an ensuing Plan Year, the negative figure shall be
offset against all advances made pursuant to paragraph (a) in the ensuing Plan
Year until the negative figure has been fully absorbed. If the negative figure
has not been fully absorbed by such offsets against advances, then the
negative figure shall be offset against the payment of the final payment of
the Participant's award for such ensuing Plan Year. Any offsets against
advances in an ensuing year shall nonetheless not be taken into account for
purposes of determining the amount payable to a Participant from his or her
award for an ensuing Plan Year.
(c) If at the end of any Plan Year the calculations made under paragraph
(b) produce a negative figure for a Participant and if (i) that person is not
a Participant in the next ensuing Plan Year or (ii) that Person is a
Participant in the next ensuing Plan Year but ceases to be employed by the
Company or any Affiliate during the next ensuing Plan Year, the negative
figure shall constitute a debt of such person which shall be repaid to the
Company (without interest) by January 31 of the next ensuing Plan Year in case
(i) and within 30 days of the date on which the employment of such person
terminates in case (ii).
5.4 Withholding Taxes. The Company shall reduce each payment made pursuant
to the Plan by the amount of the Withholding Taxes applicable to such payment
and shall pay the amounts so withheld to the appropriate governmental
authorities for the Participant's benefit in accordance with the Company's
standard wage withholding tax procedures.
B-5
<PAGE>
Part 6: Amendment, Modification and Termination
6.1 Amendment, Modification and Termination. The Board may at any time and
from time to time, alter, amend, suspend or terminate the Plan in whole or in
part, subject to any requirement of stockholder approval imposed by applicable
law, rule or regulation.
6.2 Awards Previously Granted. No termination, amendment or modification of
the Plan shall adversely affect in any material way any award which is
referenced to an Actual Amount and which was previously made under the Plan
without the written consent of the Participant who received the award.
Part 7: Limitations on Awards to Certain Persons
7.1 Persons to Whom this Part 7 Applies. With respect to each Plan Year
hereunder, the provisions of this Part 7 shall apply to the CEO and to each
other Participant whose total compensation for such year is required to be
reported to stockholders of the Company under the Securities Exchange Act of
1934 by reason of such person being among the four highest compensated
officers of the Company for such year. The CEO and each of such four other
persons are referred to in this Part 7 as a "named executive officer".
7.2 Limitation on Amount of Award. Anything in this Plan to the contrary
notwithstanding, no named executive offer may receive an award hereunder in
respect of any Plan Year which exceeds 10% of the Total Payment Amount for
that Plan Year.
7.3 Effect of Exceeding the Capped Amount. The portion of any award which
is not paid to a named executive officer by reason of Section 7.2 shall revert
to the Company and no Participant shall have any claim thereto.
Part 8: General Provisions
8.1 Binding Effect. All obligations of the Company under this Plan with
respect to awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect merger, consolidation, purchase of all or substantially all of the
business and/or assets of the company or otherwise.
8.2 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
8.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
8.4 Requirements of Law. The granting of awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
8.5 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
9.6 Designation of Beneficiaries. A Participant may elect to designate
direct and contingent beneficiaries to receive his or her award(s) in the
event of the Participant's death or disability. Such designations shall be
made on a form approved by the Compensation Committee.
B-6
<PAGE>
PROXY PROXY
The ServiceMaster Company
Proxy for Annual Meeting of Shareholders--April 28, 2000
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned appoints C. William Pollard and Sandra L. Groman or each one
or more of them as shall be in attendance at the meeting, as proxy or proxies,
with full power of substitution, to represent the undersigned at the Annual
Meeting of Shareholders of The ServiceMaster Company to be held on April 28,
2000 and at any adjournment thereof, and to vote as specified on this Proxy
the number of shares of common stock of The ServiceMaster Company the
undersigned would be entitled to vote, if personally present, upon the matters
referred to on the reverse side hereof, and, in their discretion, upon any
other business as may properly come before the meeting.
This card or telephonic voting procedure when properly completed, constitutes
voting instructions to the Trustee of The ServiceMaster Company Profit Sharing
and Retirement Plan to vote, in person or by proxy, all shares of common stock
of The ServiceMaster Company allocated to the account of the undersigned held
by the Trustee.
If not marked to the contrary, this Proxy will be voted "FOR" Proposals 1, 2,
3 and 4.
IMPORTANT: This Proxy is continued and must be signed and dated on the reverse
side.
IMPORTANT: THIS IS YOUR PROXY CARD. Carefully fold and tear along perforation.
Whether or not you are able to attend the Annual Meeting of Shareholders, it
is important that your shares be represented. Please sign and return the proxy
card promptly in the enclosed envelope.
<PAGE>
-- --
THE SERVICEMASTER COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
The Board of Directors Recommends a vote "FOR" 1, 2, 3 and 4.
1. Election of five directors--
Nominees: 01-G. A. Hatchett, 02 H. P. Hess,
03-M. M. Hunt, 04-D. W. Peterson, 05-D. K. Wessner
-----------------------------------
(Except nominee(s) written above.)
For All [_] Withhold All [_] For All Except [_]
2. Approval of the ServiceMaster 2000 Equity Incentive Plan.
For [_] Against [_] Abstain [_]
3. Approval of the ServiceMaster 2001 Long-Term Performance Award Plan.
For [_] Against [_] Abstain [_]
4. Ratification of Selection of Arthur Andersen LLP as Auditors.
For [_] Against [_] Abstain [_]
In their discretion the Proxies are authorized to vote upon such other business
as may properly come before the meeting.
Dated: ____________________________________________________________ , 2000
Signature(s)___________________________________________________________________
_______________________________________________________________________________
Signature(s) should agree with the name(s) shown on this Proxy. For joint
accounts, both owners should sign. When signing as executor, administrator,
attorney, trustee or guardian, etc., please give your full name.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ITEMS 1, 2, 3 AND 4.
- --------------------------------------------------------------------------------
. DETACH PROXY CARD HERE .
CONTROL NUMBER
[LOGO OF SERVICEMASTER APPEARS HERE]
VOTE YOUR SHARES BY TELEPHONE
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
THE SERVICEMASTER COMPANY encourages you to take advantage of a new and
convenient way to vote your shares. If voting by proxy you may vote by mail or
telephone. Your telephone vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy
card. To vote by telephone, read the accompanying proxy statement and then
follow these easy steps:
TO VOTE BY PHONE Call toll free 1-888-215-6477 in the United States or
Canada any time on a touch tone telephone. There is NO
CHARGE to you for the call.
Enter the 6-digit Control Number located above.
Option #1: To vote as the Board of Directors recommends
on ALL proposals: Press 1.
When asked, please confirm your vote by
pressing 1.
Option #2: If you choose to vote on each proposal
separately, press 0 and follow the simple
recorded instructions.
If you vote by telephone, DO NOT mail back the proxy card.
Proxy submitted by telephone must be received by 11:59 p.m. Central Time,
April 25, 2000.
THANK YOU FOR VOTING!
