<PAGE>
Filed Persuant to Rule 424(b)(S)
Registration No. 333-91381
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus supplement is not complete and +
+ may be changed. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated March 27, 2000.
Prospectus Supplement to Prospectus dated December 3, 1999.
$250,000,000
The ServiceMaster Company
[LOGO OF THE SERVICEMASTER COMPANY]
% Notes due , 2005
-----------
ServiceMaster will pay interest on the notes on and of each year. The
first such payment will be made on , 2000. The notes will be issued
only in denominations of $1,000 and integral multiples of $1,000.
ServiceMaster has the option to redeem all or a portion of the notes at any
time prior to maturity at the redemption prices described in the Prospectus
Supplement.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per
Note Total
---- -----
<S> <C> <C>
Initial public offering price....................................... % $
Underwriting discount............................................... % $
Proceeds, before expenses, to ServiceMaster......................... % $
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the notes will accrue from , 2000 and
must be paid by the purchaser if the notes are delivered after , 2000.
-----------
The underwriters expect to deliver the notes in book-entry form only through
the facilities of The Depository Trust Company against payment in New York, New
York on , 2000.
Goldman, Sachs & Co. J.P. Morgan & Co.
Banc of America Securities LLC
Banc One Capital Markets, Inc.
BNY Capital Markets, Inc.
SunTrust Equitable Securities
-----------
Prospectus Supplement dated , 2000.
<PAGE>
THE SERVICEMASTER COMPANY
ServiceMaster, with operating revenue of approximately $5.7 billion in
1999, is one of the largest providers of residential and commercial services to
individual customers and businesses and supportive management services to
businesses and institutions in the United States. In addition, we have
operations in 41 countries around the world.
Our consumer and commercial services businesses provide services to over 12
million residential and commercial customers world-wide under leading brand
names which include:
TruGreen ChemLawn for lawn, tree and shrub care and indoor plant
maintenance;
TruGreen LandCare for commercial landscaping services;
Terminix for termite and pest control services;
American Residential Services for heating, ventilation, air
conditioning and refrigeration services;
Rescue Rooter for plumbing and drain cleaning services;
American Home Shield and Amerispec for home system and appliance
warranty contracts and home inspection services;
ServiceMaster Clean for heavy-duty residential and commercial cleaning
and disaster restoration services;
Merry Maids for residential maid services; and
Furniture Medic for on-site furniture repair and restoration services.
These services comprise the "ServiceMaster Quality Service Network" and may
be accessed easily by calling a single toll-free telephone number: 1-800-WE
SERVE.
Our management services business provides facilities management services to
over 1,700 customers in the health care, education and business and industrial
markets. These services include plant operations and maintenance, housekeeping,
grounds and landscaping, clinical equipment management, food service, laundry
and linen services, total facilities management and other services.
We are incorporated under the laws of Delaware and are a successor to a
business which began operations in 1947. Our principal executive offices are
located at One ServiceMaster Way, Downers Grove, Illinois 60515-1700 and our
telephone number is (630) 271-1300. We maintain a website on the Internet at
http://www.ServiceMaster.com. This website and the information contained
therein are not a part of this Prospectus Supplement or the Prospectus.
S-2
<PAGE>
CAPITALIZATION OF SERVICEMASTER
The following table sets forth our unaudited consolidated capitalization at
December 31, 1999 on a historical basis and as adjusted to reflect the sale of
the notes and the application of the net proceeds of the notes.
<TABLE>
<CAPTION>
December 31, 1999
---------------------
As
Actual Adjusted
---------- ----------
(In thousands)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt.................................................... $ 71,716 $ 71,716
Long-term debt:
Revolving credit facilities............................ 382,500 134,300
Notes offered hereby................................... -- 250,000
Other long-term debt, excluding current portion........ 1,315,082 1,315,082
---------- ----------
Total debt........................................... $1,769,298 $1,771,098
========== ==========
Total stockholders' equity............................... $1,205,716 $1,205,716
Total capitalization..................................... $2,975,014 $2,976,814
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our unaudited ratios of earnings to fixed
charges for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Consolidated ratio of earnings to fixed charges... 3.50x 3.50x 3.65x 5.16x 4.83x
</TABLE>
The consolidated ratios of earnings to fixed charges were computed by
dividing earnings by fixed charges. For this purpose, "earnings" consist of
income from continuing operations before income taxes, fixed charges (excluding
capitalized interest) and minority interest expenses of subsidiaries with fixed
charges and "fixed charges" consist of interest and amortization of debt
expense, including the interest portion of rental obligations deemed
representative of the interest factor.
USE OF PROCEEDS
The net proceeds from the sale of the notes will be approximately $248.2
million. We expect to use the net proceeds from the sale of the notes to repay
a portion of our borrowings under our revolving bank credit facility. This
revolving bank credit facility matures on April 1, 2002 and bears interest at
floating rates (equal to approximately 6.2 percent at December 31, 1999).
Affiliates of J.P. Morgan Securities Inc., Banc of America Securities LLC,
Banc One Capital Markets, Inc., BNY Capital Markets, Inc. and SunTrust
Equitable Securities Corporation are lenders under our revolving bank credit
facility. See "Underwriting."
S-3
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except for per share and percentage data)(1)
We are providing the following selected financial information about us for
your benefit. This information is derived from our audited financial statements
for each of the fiscal year end periods shown below.
The following information is only a summary and you should read it in
connection with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in this Prospectus Supplement. In
addition, this selected historical financial data should be read in conjunction
with our financial statements and related notes included in our Annual Report
on Form 10-K for the year ended December 31, 1999.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Results:
Operating revenue....... $5,703,535 $4,724,119 $3,961,502 $3,458,328 $3,202,504
Cost of services
rendered and products
sold................... 4,459,035 3,679,612 3,058,160 2,681,008 2,499,700
Selling and
administrative
expenses............... 775,826 648,085 559,409 482,102 450,937
Other, net (2).......... 85,500 -- -- -- --
---------- ---------- ---------- ---------- ----------
Operating income........ 383,174 396,422 343,933 295,218 251,867
Non-operating expense
(income):
Interest expense (3)... 108,955 92,945 76,447 38,298 35,855
Interest and investment
income................ (21,974) (15,301) (14,304) (10,183) (7,310)
Minority interest...... -- -- 7,511 14,706 45,715
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 296,193 318,778 274,279 252,397 177,607
Provision for income
taxes (pro forma
corporate form prior to
1998) (4).............. 122,630 128,786 110,809 101,968 71,753
---------- ---------- ---------- ---------- ----------
Net income (pro forma
corporate form prior to
1998).................. $ 173,563 $ 189,992 $ 163,470 $ 150,429 $ 105,854
========== ========== ========== ========== ==========
Net income before non-
recurring items........ $ 224,863 $ 189,992 $ 163,470 $ 150,429 $ 105,854
Per share net income
(pro forma corporate
form prior to
1998)(1)(4)(6):
Basic.................. $ 0.56 $ 0.66 $ 0.57 $ 0.47 $ 0.41
Diluted................ $ 0.55 $ 0.64 $ 0.55 $ 0.46 $ 0.39
Basic before non-
recurring items, net
(2)................... $ 0.73 $ 0.66 $ 0.57 $ 0.47 $ 0.41
Diluted before non-
recurring items, net
(2)................... $ 0.72 $ 0.64 $ 0.55 $ 0.46 $ 0.39
Cash distribution per
share.................. $ 0.36 $ 0.33 $ 0.31 $ 0.29 $ 0.28
Partnership Information:
(4)
Income before income
taxes.................. $ 274,279 $ 252,397 $ 177,607
Provision for income
taxes.................. 10,203 7,257 5,588
One time tax benefit
relating to change
in tax status.......... 65,000 -- --
---------- ---------- ----------
Net income.............. $ 329,076 $ 245,140 $ 172,019
========== ========== ==========
Per share net income:
Basic.................. $ 1.15 $ 0.77 $ 0.66
Diluted................ $ 1.10 $ 0.75 $ 0.64
Other Data Before Non-
Recurring Items: (2)
EBITDA (7).............. $ 629,092 $ 516,328 $ 443,788 $ 369,701 $ 279,450
Net cash provided from
operations (5)......... 256,575 405,539 371,889 341,386 297,425
Net cash provided from
operations excluding
tax payments (5)....... 433,491 413,986 377,989 347,293 298,380
Property additions...... 88,754 75,297 46,232 42,952 44,624
Operating income margin. 8.2% 8.4% 8.7% 8.5% 7.9%
Financial Position at
Period End:
Working capital (5)..... $ 113,434 $ (83,495) $ 35,907 $ 73,782 $ 20,309
Total assets............ 3,870,215 2,914,851 2,475,224 1,846,841 1,649,890
Long-term debt.......... 1,697,582 1,076,167 1,247,845 482,315 411,903
Shareholders' equity
(3).................... 1,205,716 956,486 524,438 796,767 746,660
</TABLE>
S-4
<PAGE>
- --------
(1) All per share data reflect the three-for-two share splits in 1996, 1997 and
1998.
(2) In the second quarter of 1999, ServiceMaster realized an after-tax gain of
$30 million ($50.1 million pretax) relating to the sales of its Premier
automotive business and its remaining 15 percent interest in ServiceMaster
Energy Management, and recorded a one-time after-tax charge of $81 million
($135.6 million pretax) relating to its Diversified Health Services ("DHS")
business.
(3) In 1997, ServiceMaster incurred bank borrowings of approximately $91
million to finance the cash portion of the acquisition of Barefoot, Inc.
and approximately $626 million to fund the repurchase of the 19 percent
ownership interest in ServiceMaster held by Waste Management, Inc. The
increase in interest expense and the decrease in shareholders' equity (as
well as the number of shares outstanding) in 1997 is primarily the result
of such borrowings and stock repurchase.
(4) ServiceMaster converted from partnership to corporate form on December 26,
1997. Prior to this reincorporation, the partnership was not subject to
federal or state income taxes since its taxable income was allocated to its
shareholders. As a result of this reincorporation, ServiceMaster is a
taxable entity and is responsible for such payments. Pro forma information
is presented to compare the continuing results of operations as if
ServiceMaster were a taxable corporation in the periods presented. The pro
forma provision for income taxes has been calculated assuming that
ServiceMaster's effective tax rate was approximately 40 percent of pretax
earnings. As a result of the reincorporation, ServiceMaster recorded a
deferred tax asset in 1997 that represents the tax effect of the difference
between the book and tax basis of ServiceMaster's assets and liabilities.
This resulted in the recognition of a deferred tax asset on the balance
sheet and a corresponding $65 million gain in the tax benefit line of the
income statement. The actual economic benefit to ServiceMaster of the tax
basis step-up significantly exceeds the amount of the gain and is expected
to result in a reduction of annual cash tax payments.
(5) In the first year after reincorporation, ServiceMaster was able to defer
the payment of its 1998 federal taxes until March 1999. Therefore, the 1998
cash flow is fairly comparable to 1997 when ServiceMaster was in
partnership form and paid no taxes. The December 1998 current liabilities
include the 1998 tax payable amount. In 1999, ServiceMaster made estimated
tax payments throughout the year on its 1999 earnings as well as the 1998
Federal tax payment made in March 1999.
(6) Basic earnings per share are calculated based on 307,637 shares in 1999,
289,315 shares in 1998, 285,944 shares in 1997, 317,381 shares in 1996 and
260,382 shares in 1995 while diluted earnings per share are calculated
based on 314,406 shares in 1999, 298,887 shares in 1998, 299,640 shares in
1997, 330,429 shares in 1996 and 273,203 in 1995. (Numbers are in
thousands.)
(7) Represents earnings before interest expense, taxes, depreciation and
amortization ("EBITDA"). EBITDA is a commonly-used supplemental measurement
of a company's ability to generate cash flow. Management believes that
EBITDA is another measure which demonstrates the cash-generating abilities
of ServiceMaster's businesses. However, EBITDA should not be considered an
alternative to net income in measuring ServiceMaster's performance or used
as an exclusive measure of cash flow because it does not consider the
impact of working capital growth, capital expenditures, debt principal
reductions or other sources and uses of cash which are disclosed in the
Consolidated Statements of Cash Flows contained in our audited financial
statements.
S-5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All share and per share data mentioned in this section reflect the
three-for-two share splits in August 1998 and June 1997.
Results of Operations
1999 Compared with 1998
Revenues increased 21 percent to $5.7 billion, reflecting strong growth
from acquisitions and increases in base operations. Approximately six percent
of the revenue increase resulted from internal growth and small tuck-in
acquisitions in established businesses, while the newer initiatives, including
landscaping, plumbing and heating/air conditioning services, provided 21
percent of the total growth. This growth was partially offset by the sale of
our Premier business and our interest in ServiceMaster Energy Management and
the wind-down of our Home Health Care business. Operating income before non-
recurring items increased 18 percent over the prior year. Margins decreased to
8.2 percent of revenue from 8.4 percent in 1998, resulting from a shift in
business mix as the new initiatives in landscaping, heating/air conditioning
and plumbing (which are currently slightly lower margin businesses) represented
a higher portion of revenue. We expect to realize significant margin
improvements in these businesses as they become further integrated. Operating
margins excluding these new operations increased 10 basis points even though a
severe drought in the Mid-Atlantic and Northeast regions of the country in 1999
reduced margins in TruGreen ChemLawn, our largest operating unit. Diluted
earnings per share before non-recurring items increased 13 percent to $.72,
compared with $.64 last year. Net income on this same basis grew 18 percent to
$225 million from $190 million in 1998. Net income grew at a faster rate than
earnings per share due to an increase in shares outstanding, resulting from
shares issued for acquisitions and our equity offering in May 1998.
During the year, we realized an after-tax gain of $30 million relating to
the sale of our Premier automotive business and the sale of our remaining 15
percent interest in ServiceMaster Energy Management. In addition, we recorded a
one-time after-tax charge of $81 million relating to our DHS business. These
items reduced net income from ongoing operations by $51 million ($85.5 million
pretax). As a result, we reported net income of $174 million, with diluted
earnings per share of $.55.
During 1999, we launched two new strategic business initiatives. The first
initiative focuses on broadening our core service capabilities to the consumer
market by creating an e-commerce alternative for selling, providing and
bundling our service offerings and related products. The other initiative
involves expanding our outsourcing, site service and information resources to
the business and commercial market. We expect earnings per share to continue to
grow at double-digit rates for the next two years, but at less than historical
levels because of the investments that we will be making to support these
directives, which we believe will be $.03 to $.05 per share in 2000.
In January 2000, we announced the formation and initial funding of
WeServeHomes.com, a separate Internet company that will offer comprehensive on-
line solutions for the consumer market by providing home services, products and
information. We own 84 percent of WeServeHomes.com through the contribution of
our 1-800-WE-SERVE call center and the assets of our Internet business. In
addition, we will support the new company through intensive co-branding
efforts, access to our customer base and third-party contractor relationships,
fulfillment support and licensing the use of certain trademarks. Kleiner
Perkins Caufield & Byers (Kleiner Perkins), one of the nation's most respected
and successful venture capital firms, contributed $15 million and holds a 16
percent ownership interest with warrants to purchase an additional $11.5
million in stock at the same price. The initial investment by Kleiner Perkins
will help fund site design and development, infrastructure
S-6
<PAGE>
support and promotional expenditures. In addition, expenses in 2000 associated
with WeServeHomes.com will be reduced by the amount of the Kleiner Perkins
investment.
The Consumer and Commercial Services business unit achieved a 53 percent
increase in revenues to $3.1 billion, reflecting solid growth in established
businesses, as well as contributions from our landscaping, heating/air
conditioning and plumbing initiatives. Net income increased eight percent to
$171 million, reflecting profit increases at all of the companies except
TruGreen ChemLawn. TruGreen (which includes both the lawncare and landscaping
operations) reported a substantial increase in revenues and profits comparable
to last year, reflecting the impact of severe weather conditions on the lawn
care operations partially offset by increases from the landscape initiative.
TruGreen ChemLawn, our lawn care operations, reported modest revenue growth but
lower profits due to the effects of the extreme drought in the Northeast and
the Mid-Atlantic regions of the country. Solid revenue growth in commercial
accounts helped support the weaker growth in residential lawn care services
resulting from the unfavorable summer weather conditions over the last two
years. Through the acquisitions of LandCare USA ("LandCare") and other smaller
businesses, we have become the largest provider of commercial landscape
services in the country. Over 20 percent of the Consumer and Commercial
Services revenue growth came from this new initiative. TruGreen LandCare, which
contains our landscape operations, achieved significant increases through
acquisitions but also realized strong double-digit internal growth. Terminix
achieved strong growth in revenues and profits, resulting from increases in
termite completions and renewals, improved branch efficiencies and the
successful integration of acquisitions. Growth in new termite customers
reflects a continued strong demand for termite baiting systems. American Home
Shield ("AHS") achieved double-digit growth in revenues and profits, reflecting
increases in warranty contracts sold through all distribution channels. In
addition, a greater percentage of its revenues was derived from customer
renewals, which carry higher margins and retention rates. The combined Rescue
Rooter and American Residential Services, Inc. ("ARS") operations reported
strong growth in revenues and profits. ARS, which was acquired in April 1999,
provides comprehensive maintenance, repair and replacement services for
heating, ventilation and air conditions ("HVAC"), plumbing, electrical and
other systems, and major appliances in homes and commercial buildings. This
acquisition established us as one of the country's leading providers of these
services and also complements our established plumbing business. In addition,
ARS significantly expands our service offerings on a nationwide basis and
provides added support for AHS. Both the HVAC and plumbing operations achieved
good internal growth and productivity gains. The franchise operations,
ServiceMaster Clean (formerly Residential/Commercial) and Merry Maids, achieved
solid increases in revenues and profits despite an extremely tight labor
market, with continued growth of Company-owned operations, increased license
sales and productivity improvements.
The traditional Management Services business reported revenues of $1.9
billion and net income of $77 million. These results include a $30 million
after-tax gain relating to the sales of its Premier automotive unit and its
remaining 15 percent interest in ServiceMaster Energy Management. Revenues and
net income from continuing operations both increased three percent. This growth
includes the benefit of overhead efficiency gains realized throughout the
business units. The traditional Healthcare market reported a modest decrease in
revenues and profits consistent with last year. We achieved solid revenue and
profit increases in both the Business & Industry and Education markets,
reflecting increased volume and lower overhead spending. The base of annualized
revenue from continuing operations grew two percent for the year, which
reflected a strong sales year and an increased number of contracts served.
On April 21, 1999, we sold our Premier business unit to Durr AG of Germany
for $76 million. Premier provides cleaning services for paint booths and other
related maintenance service in the automotive industry. We believe that
alliances or significant incremental investments would have been required to
remain competitive in this industry. The sale of Premier allowed us to realize
the
S-7
<PAGE>
significant appreciation in our investment and to reinvest the proceeds in
initiatives more central to our core strategies. The sale resulted in an after-
tax gain of approximately $25 million ($42 million pretax). Also in the second
quarter, we sold our remaining 15 percent interest in ServiceMaster Energy
Management to our partner, Texas Utilities, which resulted in an after-tax gain
of $5 million ($8 million pretax).
Other Operations include primarily Employer Services, the professional
employer organization, DHS, which provides services and products to the long-
term care market, and our headquarters operations. Net income before non-
recurring items improved from 1998, reflecting favorable interest allocations
and gains on financial investments partially offset by reduced profitability in
the DHS operations.
The long-term care industry has recently undergone a dramatic transition
period, largely as a result of changes in government reimbursement and
compliance policies. Our DHS unit manages long-term facilities and, in a number
of cases, had helped finance these facilities, generally in return for a long-
term management contract and a share in the market appreciation of the
facility. DHS had also provided a number of ancillary services and products,
including rehabilitation therapy, medical supplies, pharmacy and design and
build services. During the year, we announced that we were undertaking a
strategic review and assessment of our DHS business due to changes in
reimbursement and compliance policies and the resulting financial difficulties
of a number of its customers. Based on the review of the business and the
credit risks involved, we reduced the scope of the services it offered
substantially, including ancillary services, and decided to eliminate all
future credit extension activities. As a result of the review, we recorded in
the second quarter of 1999 an after-tax charge of $81 million ($135.6 million
pretax) for the restructuring and write-down of assets related to DHS.
Approximately $12 million of the charge related to provisions for future
expected cash expenditures. Since that time, we have terminated several
customer relationships, with the corresponding overhead structure eliminated,
and reduced the scope of its ancillary services. We continue to believe that
the charge was adequate and the remaining provisions are sufficient to cover
future requirements.
On a consolidated basis, cost of services rendered and products sold
increased 21 percent, primarily due to acquisitions and general business
growth. Cost of services rendered and products sold increased as a percentage
of revenues to 78.2 percent in 1999 from 77.9 percent in 1998. The landscaping,
heating/air conditioning and plumbing acquisitions have significantly affected
this comparison because their cost of services as a percentage of revenues is
higher than the average for the enterprise. Excluding these platforms, cost of
services rendered and products sold decreased as a percentage of revenues to
76.0 percent from 77.7 percent in 1998. This decrease primarily reflects the
changing mix of the business as TruGreen ChemLawn and Terminix increase in size
in relationship to our overall business. The TruGreen ChemLawn and Terminix
businesses generally operate at higher gross margin levels than the rest of our
business, but also incur somewhat higher selling and administrative expenses as
a percentage of revenues.
Consolidated selling and administrative expenses increased 20 percent over
the prior year and, as a percentage of revenue, decreased to 13.6 percent in
1999 from 13.7 percent in 1998. The platform initiatives noted above have lower
selling and administrative expenses, as a percentage of revenues, than the
company average.
Interest expense increased over the prior year, primarily due to increased
debt levels associated with acquisitions. The increase in interest and
investment income primarily resulted from additional gains realized on
financial investments. The tax provision reflects a higher effective tax rate
compared with last year, primarily due to the non-deductibility of goodwill
related to several large acquisitions completed in 1999.
S-8
<PAGE>
As more fully described in the notes to the consolidated financial
statements, a lawsuit is currently pending in Atlanta, Georgia wherein the
plaintiff, a former salesman, claimed that we wrongfully declined to pay a
commission of approximately $180,000. In September 1999, the jury returned a
verdict of approximately $1 million in compensatory damages and $135 million in
punitive damages. We have filed a motion for judgment notwithstanding the
verdict or, in the alternative, for a new trial. If the outcome of the post-
trial proceedings is not satisfactory to us, we will appeal. We believe that
the award of $135 million in punitive damages is not supportable by the facts
of the case or by applicable state law. We are not presently able to reasonably
estimate the ultimate outcome of this case, and accordingly, minimal expense
has been recorded. If the adverse judgment is sustained after all appeals are
concluded (which is a result not anticipated by us), our results of operations
for a particular year could be materially adversely affected. However, we
believe that the ultimate outcome of this litigation is not expected to have a
material adverse effect on our financial condition or results of operations.
We did not experience any significant computer system problems in the
transition from the year 1999 to the year 2000 and we did not experience any
significant year 2000 problems with our suppliers or customers. We
substantially completed all of our year 2000 remediation efforts before
December 31, 1999, and our costs of addressing year 2000 issues were not
material to our results of operations or financial position.
1998 Compared with 1997
Revenues increased 19 percent to $4.7 billion through a combination of
acquisitions and solid growth from base operations. Approximately eight percent
of the revenue increase resulted from internal growth and small tuck-in
acquisitions in existing service lines, primarily lawn care and pest control,
with another six percent coming from platform acquisitions primarily in
plumbing and landscaping. The remaining five percent of the revenue growth
represented the acquisition of a professional employer organization in August
1997. The professional employer organization has a significant impact on
revenues and margins, because the entire employee payroll of the customer is
recognized both as revenue and operating cost. As a result, the margins are low
in this business and reduce our consolidated operating margins. Operating
income increased 15 percent to $396 million, while margins decreased to 8.4
percent of revenue from 8.7 percent in 1997. Operating margins excluding the
professional employer organization improved 10 basis points over last year,
reflecting the continued strong growth of higher margin businesses,
productivity improvements and the successful integration of acquisitions at our
Consumer and Commercial Services business unit.
Pro forma information is presented for 1997 to compare the continuing
results of operations as if we had been a taxable corporation in all years. On
this basis, net income grew 16 percent to $190 million. Basic and diluted
earnings per share increased 16 percent to $.66 and $.64, respectively.
The Consumer and Commercial Services business unit achieved a 23 percent
increase in revenue, reflecting strong growth from both internal sources and
acquisitions, including the Rescue Rooter plumbing business and commercial
landscaping companies. Net income increased 28 percent, reflecting solid
double-digit profit increases at all of the companies. TruGreen ChemLawn
reported strong growth in revenues and profits, reflecting base business growth
and the entry into the commercial landscape market through the acquisition of
several companies. The successful integration of acquisitions and other cost
initiatives helped offset the effects of severe summer weather conditions in
many regions of the country. Terminix achieved strong double-digit growth in
revenues and profits, resulting from excellent increases in termite completions
and renewals and improved margins. Higher customer retention levels and
efficiency improvements contributed to the increased margins. AHS continued to
experience exceptional momentum with very strong double-digit increases in
warranty contracts written due to excellent growth in real estate and direct-
to-consumer sales, as well as strong renewal growth. This volume increase was
partially affected by
S-9
<PAGE>
increased service orders relating to expensive air conditioning repairs due to
the extreme heat experienced in many parts of the country. The franchise
operations, ServiceMaster Clean, (formerly Residential/Commercial Services),
and Merry Maids, achieved solid revenue increases and higher margins,
reflecting improvements in company-owned operations and cost controls. The
Rescue Rooter operations reported very good results, reflecting improved
marketing efforts, productivity improvements and effective cost controls.
The traditional Management Services business achieved a seven percent
revenue increase as a result of acquisitions and modest growth in the base
business. Profits increased significantly due to a $38 million pretax gain
relating to the formation of a strategic venture with Texas Utilities Company.
The new venture acquired all of the assets of ServiceMaster energy management
and was owned 85 percent by Texas Utilities and 15 percent by ServiceMaster. In
June 1999, we sold the remaining 15 percent interest to Texas Utilities.
Excluding this gain, profits were one percent below the prior year level as
increases in the Business and Industry and Education markets were offset by
reduced profitability in the Healthcare market. The traditional Healthcare
market reported a slight decline in revenues with lower profits than last year
as a result of continued industry pressures and additional investments in the
business compared with the prior year. The Company achieved significant revenue
and profit increases in the Business and Industry market, reflecting the
successful integration of acquisitions and increased sales in the base
business. The Education market reported strong growth in profits due to better
customer retention and the favorable effect of eliminating costs incurred in
1997 related to unwinding a large contract.
Other operations include primarily Parent and our DHS business, which
provides services and products to the long-term care market and Employer
Services, the professional employer organization. Revenues increased
significantly as the 1998 results include a full year of the professional
employer organization that was acquired in August 1997. Operating income was
down significantly from the prior year, reflecting a large charge related
primarily to the home health care business and operational losses. In late
1998, we completed a strategic review of our home health care business and
concluded that, without significant investment to make home health care one of
its core businesses, it could not profitably provide high quality service in
the future and continue to satisfy all the changes and the requirements of new
governmental reimbursement programs. We are discontinuing our outsourced
management contracts of home health care agencies, but will continue to provide
consulting services to hospitals and other providers of home health care. We
incurred and established reserves of approximately $32 million (pretax)
relating to home health care, which included a write-down for the impairment of
assets and costs relating to exiting customer arrangements. An additional $6
million pretax charge was recorded that was specifically designated for other
DHS business reserve needs. In addition to these charges and losses in home
health care, the decrease in operating income reflects margin reductions in
other DHS business and the non-recurrence of transaction gains recognized in
1997.
On a consolidated basis, cost of services rendered and products sold
increased 20 percent and increased as a percentage of revenue to 77.9 percent
in 1998 from 77.2 percent in 1997. The addition of our employer services
business had an impact on the overall increase in costs as this business line
carries a lower gross margin level than the rest of the enterprise. Excluding
the employer services business, cost of services rendered and products sold
decreased 10 basis points, as a percentage of revenue. This reflects the
changing mix of the enterprise as our Consumer and Commercial Services business
increased in size relative to our overall business. The Consumer and Commercial
Services unit operates at a higher gross profit margin than the Management
Services business unit, but incurs relatively higher levels of selling and
administrative costs.
Consolidated selling and administrative expenses increased 16 percent over
the prior year, and as a percentage of revenue, decreased from 14.1 percent in
1997 to 13.7 percent in 1998.
S-10
<PAGE>
Interest expense increased over the prior year, reflecting increased debt
levels associated with the first quarter 1997 repurchase of shares previously
held by Waste Management, Inc. The impact of larger seasonal borrowings,
primarily due to acquisitions and higher interest rates associated with the
refinancing of floating-rate bank debt with longer term, fixed-rate debt, was
partially offset by proceeds from the May 1998 equity offering.
Interest and investment income increased over the prior year levels due to
growth in the investment portfolio at AHS, as well as gains realized on sales
of marketable securities.
Minority interest expense decreased as the general partners' interests in
the parent entities were eliminated upon reincorporation.
1999 Fiscal Year End Financial Position
Net cash provided from operations of $257 million was significantly below
the prior year level, primarily reflecting the deferral of the 1998 federal tax
payment until March of 1999. Federal taxes of $79 million on our 1998 earnings
were accrued in the financial statements in 1998, but not paid until the first
quarter of 1999. Excluding all tax payments, cash provided from operations
increased five percent to $433 million. Working capital needs increased over
1998, reflecting the growth in commercial services, especially the landscaping
operations, which experienced a significant increase in receivables.
Cash and marketable securities totaled approximately $114 million at
December 31, 1999. Debt levels increased, reflecting the 1998 tax payment
combined with the effects of acquisitions, capital spending and dividends. We
are a party to a number of long-term debt agreements which require us to comply
with certain financial covenants, including limitations on indebtedness,
restricted payments, fixed charge coverage ratios and net worth. We are in
compliance with the covenants related to these debt agreements. Management
believes that funds generated from operations and other existing financial
resources will continue to be adequate to satisfy our ongoing operating needs.
In addition, we had $390 million of unused commitment on our revolving bank
facility at December 31, 1999.
In August 1999, we completed a senior unsecured debt offering of $250
million, 7.875 percent notes priced to yield 7.98 percent and due August 15,
2009. The net proceeds were used to repay a portion of our borrowings under our
revolving bank credit facility, thereby, reducing our exposure to short term
interest rate fluctuations.
On March 18, 1999, we completed the acquisition of LandCare in a stock-for-
stock merger for $331 million. The Company issued shares valued at
approximately $191 million and assumed debt or made cash payments of
approximately $140 million. The acquisition of LandCare, one of the nation's
leading commercial landscape companies, significantly broadened our landscape
initiative and provides TruGreen the opportunity to integrate its traditional
fertilizer and weed control services with landscape maintenance and
installation. We installed a new operating and financial system which will
support us in achieving operating efficiencies, coordinating purchases and
monitoring progress on receivable collections.
On April 27, 1999, we acquired ARS, establishing our company as one of the
nation's leading providers of HVAC services. We acquired ARS for approximately
$292 million in cash and assumed debt.
Accounts receivable increased reflecting general business growth, the
acquisitions of ARS and LandCare and longer collection periods as we increase
our presence in the commercial sector. The net balance reflects the current
year write-down of certain DHS receivables due from nursing homes. Property and
equipment increased, primarily resulting from investments in information
technology
S-11
<PAGE>
throughout the enterprise as well as general business growth and acquisitions.
We do not have any material capital commitments at this time.
Total acquisitions were approximately $938 million ($623 million of which
was from the LandCare and ARS acquisitions). Approximately 28 percent of the
acquisition consideration was in the form of stock. Certain members of
management acquired minority ownership interests in the landscaping operations
and the heating/air conditioning and plumbing operations. The increase of $577
million in intangible assets included $251 million from LandCare and $225
million from ARS, as well as amounts from various other smaller commercial
landscape and pest control companies. This increase was partially offset by the
write-down of impaired goodwill relating to the DHS operations.
Accounts payable and other accrued liabilities increased due to general
business growth and the effects of acquisitions. Deferred revenues increased
primarily as a result of strong growth in warranty contracts written at AHS,
increases in customer prepayments for pest control services, and the
acquisition of ARS.
Total shareholders' equity increased to $1.2 billion in 1999 from $956
million at December 31, 1998, reflecting current year net income and shares
issued for acquisitions, partially offset by shareholder dividends. We continue
to repurchase shares in the open market or in privately negotiated transactions
pursuant to the authorizations previously granted by the Board of Directors.
Approximately $93 million of shares were repurchased in 1999. In October 1999,
we announced that our Board of Directors authorized the repurchase of $150
million in shares over time (in addition to an existing authorization for
funding benefit and option plans) in the open market or in privately negotiated
transactions. At year end, the aggregate market value of our outstanding shares
was approximately $3.8 billion.
Cash dividends paid directly to shareholders totaled $111 million, or $.36
per share, a nine percent per share increase over the prior year. The total
amount of cash distributions increased 16 percent from the prior year,
reflecting this per share increase as well as an increase in shares outstanding
over the prior year. (In 1997, the Company maintained a shareholders' trust
which was established for the benefit of its predecessor partnership
shareholders. The trust was terminated upon reincorporation. However, in 1998,
it received approximately $20 million in tax refunds relating to its final 1997
tax return.)
While we have historically increased our dividend payment, the timing and
amount of future dividend increases will be at the discretion of the Board of
Directors and will depend on, among other things, our corporate finance
objectives and cash requirements. We have announced our intended cash dividends
for 2000 at $.38 per share.
Earnings before interest, taxes, depreciation and amortization (EBITDA) is
a commonly-used supplemental measurement of a company's ability to generate
cash flow and is used by many of our investors and lenders. Management believes
that EBITDA is another measure that demonstrates the exceptional cash-
generating abilities of our businesses. EBITDA (before non-recurring items) in
1999 of $629 million, grew 22 percent and exceeded net income by over $400
million or 180 percent. EBITDA should not be considered an alternative to net
income in measuring our performance or be used as an exclusive measure of cash
flow, because it does not consider the impact of working capital growth,
capital expenditures, debt principal reductions or other sources and uses of
cash which are disclosed in the Consolidated Statements of Cash Flows.
S-12
<PAGE>
DESCRIPTION OF THE NOTES
The following description of the particular terms of the notes supplements
the description of the general terms and provisions of the Debt Securities set
forth in the Prospectus. You should also carefully read the section entitled
"Description of Debt Securities" contained in the Prospectus.
General
The notes will be issued under the Indenture (the "Indenture") dated as of
November 18, 1999 by and between ServiceMaster, as issuer, and Harris Trust and
Savings Bank, as trustee (the "Trustee"). Capitalized terms not defined in this
section have meanings as set forth in the Indenture.
The notes will be limited to $250 million aggregate principal amount and
will mature on , 2005 at 100 percent of their principal amount,
unless earlier redeemed. We will issue the notes in minimum denominations of
$1,000 increased in multiples of $1,000.
The notes will rank pari passu with all other unsubordinated and unsecured
indebtedness of ServiceMaster.
The notes will bear interest at the rate per annum set forth on the cover
page of this Prospectus Supplement from , 2000 or from the most recent
interest payment date to which interest has been paid or provided for. Interest
will be payable semi-annually on and of each year,
beginning , 2000. Interest will be payable to the persons in whose
names the notes are registered at the close of business on the or
before the respective interest payment date.
The notes will be issued as Registered Global Securities. Principal of and
interest on the notes will be payable, and the transfer of notes will be
registerable, through The Depository Trust Company, as Depositary, as described
under "Description of Debt Securities--Global Debt Securities" in the
Prospectus.
The notes are not subject to any sinking fund.
Optional Redemption of the Notes
The notes will be redeemable in whole or in part at the option of
ServiceMaster at any time. Any redemption will be at a price equal to the
greater of (i) 100 percent of the principal amount of such notes or (ii) as
determined by a Quotation Agent, the sum of the present values of the remaining
scheduled payments of principal and interest thereon (not including any portion
of such payments of interest accrued as of the date of redemption) discounted
to the redemption date on a semiannual basis assuming a 360-day year consisting
of twelve 30-day months at the Adjusted Treasury Rate, plus 15 basis points,
and in each case, accrued interest thereon to the date of redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Quotation Agent as having a maturity comparable to the remaining
term of the notes to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of such notes.
S-13
<PAGE>
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Trustee after consultation with ServiceMaster. "Reference Treasury Dealer"
means (i) initially Goldman, Sachs & Co. and its respective successors;
provided, however, that if the foregoing shall cease to be a primary U.S.
government securities dealer in New York City (a "Primary Treasury Dealer"),
ServiceMaster shall substitute therefor another Primary Treasury Dealer or (ii)
any other Primary Treasury Dealer selected by the Trustee after consultation
with ServiceMaster.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issues
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of the notes to be redeemed.
Unless ServiceMaster defaults in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the redeemed notes
or portions thereof.
S-14
<PAGE>
UNDERWRITING
ServiceMaster and the underwriters for the offering (the "Underwriters")
named below have entered into an underwriting agreement with respect to the
notes. Subject to certain conditions, each Underwriter has severally agreed to
purchase the principal amount of notes indicated in the following table.
<TABLE>
<CAPTION>
Principal
Amount of
Underwriters Notes
------------ ------------
<S> <C>
Goldman, Sachs & Co. ....................................... $
J.P. Morgan Securities Inc. ................................
Banc of America Securities LLC..............................
Banc One Capital Markets, Inc. .............................
BNY Capital Markets, Inc. ..................................
SunTrust Equitable Securities Corporation...................
------------
Total................................................... $250,000,000
============
</TABLE>
Notes sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus
supplement. Any notes sold by the Underwriters to securities dealers may be
sold at a discount from the initial public offering price of up to % of
the principal amount of notes. Any such securities dealers may resell any notes
purchased from the Underwriters to certain other brokers or dealers at a
discount from the initial public offering price of up to % of the
principal amount of notes. If all the notes are not sold at the initial
offering price, the Underwriters may change the offering price and the other
selling terms.
The notes are a new issue of securities with no established trading market.
ServiceMaster has been advised by the Underwriters that the Underwriters intend
to make a market in the notes but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the notes.
In connection with the offering, the Underwriters may purchase and sell
notes in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the Underwriters of a greater number of
notes than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the notes while the
offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the Underwriters have repurchased notes sold by
or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the notes. As a result, the price of the notes may
be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the Underwriters at
any time. These transactions may be effected in the over-the-counter market or
otherwise.
ServiceMaster estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $300,000.
ServiceMaster has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
When more than 10 percent of the proceeds of a public offering of certain
securities are to be paid to members of the National Association of Securities
Dealers, Inc. ("NASD") participating in
S-15
<PAGE>
such public offering or to affiliates of such members, Rule 2710(c)(8) of the
NASD's Rules of Fair Practice requires disclosure of such fact. Each of J.P.
Morgan Securities Inc., Banc of America Securities LLC, Banc One Capital
Markets, Inc., BNY Capital Markets, Inc. and SunTrust Equitable Securities
Corporation and/or certain affiliates thereof is a member of the NASD. The
Underwriters and/or their affiliates may indirectly receive more than 10
percent of the net proceeds from the offering of the notes as a result of the
use of such proceeds to repay borrowings by ServiceMaster under its revolving
bank credit facility. See "Use of Proceeds."
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have engaged and may in the future engage in commercial
banking and investment banking transactions with ServiceMaster and its
affiliates.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the Prospectus contain certain forward-
looking statements within the meaning of Section 27A of the 1933 Act, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
and we intend that such forward-looking statements be subject to the safe
harbors created thereby. Such forward-looking statements involve risks and
uncertainties and include, but are not limited to, statements regarding future
events and our plans, goals and objectives. Such statements are generally
accompanied by words such as "intend," "anticipate," "believe," "estimate,"
"expect" or similar statements; an example of which is our statement that we
expect earnings per share to continue to grow at double-digit rates for 2000
and 2001, but at less than historical levels because of the investments that we
will be making to support these directives, which we believe will be $.03 to
$.05 per share for 2000, which statement is contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--1999 Compared with 1998." Our actual results may differ
materially from such statements. Factors that could cause or contribute to such
differences are set forth below as well as those factors discussed elsewhere in
this Prospectus Supplement and the Prospectus. Although we believe that the
assumptions underlying our forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be no
assurance that the results contemplated in such forward-looking statements will
be realized. The inclusion of such forward-looking information should not be
regarded as a representation by us or any other person that the future events,
plans or expectations contemplated by us will be achieved. Furthermore, past
performance in operations and share price is not necessarily predictive of
future performance.
Seasonality And Impact of Weather Conditions. Our lawn care, landscaping
and pest control businesses are highly seasonal in nature, with a significant
portion of their net revenues occurring in the spring and summer months of each
year. Adverse weather conditions could have a negative impact on the demand for
our lawn care, landscaping and pest control services.
Increased Competition. The service industries in which we operate are
highly competitive with limited barriers to entry. The entry of new competitors
into one or more of the markets served by us could impact the demand for our
services as well as impose additional pricing pressures.
Labor Shortages. Most of the services we provide are highly labor
intensive. In the event of a labor shortage, we may experience difficulty in
delivering our services in a high-quality manner and may be forced to increase
wages in order to attract a sufficient number of employees, which could result
in higher operating costs.
Continued Consolidation of U.S. Hospital Market. In recent years, there has
been an ongoing consolidation of hospitals in the health care market. This
continued consolidation could adversely impact the level of demand for our
health care management services and the prices which we can charge for such
services.
S-16
<PAGE>
Ability to Continue Acquisition Strategy. We plan to continue to pursue
opportunities to expand through acquisitions. Our ability to continue to make
acquisitions at reasonable prices and to integrate the acquired businesses are
important factors in our future growth.
LEGAL OPINIONS
Certain legal matters in connection with the notes will be passed upon for
ServiceMaster by Vernon T. Squires, Senior Vice President and General Counsel
of ServiceMaster, and for the Underwriters by Davis Polk & Wardwell, New York,
New York. As of March 1, 2000, Mr. Squires holds directly or indirectly 401,036
shares and options to acquire 225,000 shares of Common Stock of ServiceMaster.
S-17
<PAGE>
Prospectus
The ServiceMaster Company
$700,000,000
Debt Securities, Common Stock, Debt Warrants
and Common Stock Warrants
----------------
We will use this prospectus to offer and sell securities from time to time.
These may include:
. unsecured senior debt securities . warrants to purchase common stock
. common stock . warrants to purchase debt
securities
. units consisting of any
combination of these securities
We will provide the specific terms and conditions of these securities in
supplements to this prospectus prepared in connection with each offering of
securities. These terms and conditions may include:
In the case of any In the case of debt In the case of warrants:
securities: securities:
. expiration date
. price . interest rate
. exercise price
. size of offering . maturity
. conditions to
. underwriting discounts . original issue discount exercisability
and commissions
. redemption or repayment
prior to maturity
. additional covenants
The securities offered will contain other significant terms and conditions.
Please read this prospectus and the applicable prospectus supplement carefully
before you invest.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
----------------
The date of this prospectus is December 3, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
About This Prospectus................................................ 1
Where You Can Find More Information.................................. 2
Special Note on Forward-Looking Statements........................... 3
The ServiceMaster Company............................................ 3
Use of Proceeds...................................................... 4
Ratio of Earnings to Fixed Charges................................... 4
Description of Debt Securities....................................... 5
Description of Common Stock.......................................... 19
Description of Debt Warrants......................................... 21
Description of Stock Warrants........................................ 23
Plan of Distribution................................................. 25
Legal Matters........................................................ 26
Experts.............................................................. 26
</TABLE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, which is known as the SEC, using a shelf
registration process. Under this shelf registration process, we may sell:
. unsecured senior debt securities . warrants to purchase common stock
. common stock . warrants to purchase debt
securities
. units consisting of any
combination of these securities
We may sell these securities in one or more offerings up to a total dollar
amount of $700,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may also add,
update or change information contained in this prospectus. You should read
carefully both this prospectus and the applicable prospectus supplement
together with the additional information described below under the heading
"Where You Can Find More Information."
The registration statement of which this prospectus is a part (including the
exhibits) contains additional important information about our company and the
securities offered under this prospectus. Specifically, the legal documents
that control the terms of any securities offered by this prospectus are or
will be filed with the SEC as exhibits to the registration statement. That
registration statement can be read at the web site of the SEC or at the SEC
offices mentioned under the heading "Where You Can Find More Information."
We may sell the securities to or through underwriters or dealers and may
also sell securities directly to other purchasers or through agents. See "Plan
of Distribution." The applicable prospectus supplement will contain the names
of any underwriters, dealers or agents involved in the sale of any securities
and any applicable fee, commission or discount arrangements with them.
This prospectus may not be used to consummate sales of any securities unless
accompanied by a prospectus supplement.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file with the
SEC at its public reference facilities at:
. 450 Fifth Street, N.W., Washington, D.C. 20549
. 7 World Trade Center, Suite 1300, New York, New York 10048
. Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511
You can also obtain copies of our filings at prescribed rates by writing to
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference facilities.
Our SEC filings are also available to the public over the Internet on the
web site of the SEC at http://www.sec.gov and at the office of The New York
Stock Exchange at 20 Broad Street, New York, New York 10005. For further
information on obtaining copies of our public filings at the New York Stock
Exchange, you should call (212) 656-5060.
We "incorporate by reference" into this prospectus the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. This information incorporated by reference
is an important part of this prospectus. You should also be aware that any
information that we file subsequently with the SEC will automatically update
this prospectus (that is, such information will be incorporated by reference
into this prospectus). We incorporate by reference:
. our Annual Report on Form 10-K for the year ended December 31, 1998
. our Quarterly Report on Form 10-Q for the periods ended March 31, 1999,
June 30, 1999 and September 30, 1999
. our Current Report on Form 8-K filed on January 6, 1999, February 2,
1999, March 16, 1999, March 18, 1999, April 27, 1999, July 28, 1999 and
August 16, 1999
. our Registration Statement on Form 8-A filed with the SEC on September
18, 1998 relating to the preferred stock purchase rights associated with
our Common Stock
. our Proxy Statement for our 1999 annual meeting of stockholders as filed
with the SEC on March 30, 1999
. any filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended, until we sell all of
the securities offered by this prospectus
You may request a copy of these filings (other than exhibits, unless that
exhibit is specifically incorporated by reference into that filing) at no
cost, by writing to or telephoning us at the following address and telephone
number:
The ServiceMaster Company
One ServiceMaster Way
Downers Grove, Illinois 60515-1700
(630) 271-1300
Attention: General Counsel
You should rely only on the information incorporated by reference or set
forth in this prospectus or the applicable prospectus supplement. We have not
authorized anyone else to provide you with different information. We may only
use this prospectus to sell securities if it is accompanied by a prospectus
supplement. We are only offering these securities in states where such offer
is permitted. You should not assume that the information in this prospectus or
the applicable prospectus supplement is accurate as of any date other than the
dates on the front of such documents.
2
<PAGE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference certain forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, and we intend that such forward-looking statements be subject to the
safe harbors created thereby. Such forward-looking statements involve risks
and uncertainties and include, but are not limited to, statements regarding
future events and our plans, goals and objectives. Such statements are
generally accompanied by words such as "intend," "anticipate," "believe,"
"estimate," "expect" or similar statements. Our actual results may differ
materially from such statements. Factors that could cause or contribute to
such differences are set forth below as well as those factors discussed
elsewhere in this prospectus and in the documents incorporated herein by
reference. Although we believe that the assumptions underlying the forward-
looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the results
contemplated in such forward-looking statements will be realized. The
inclusion of such forward-looking information should not be regarded as a
representation by our company or any other person that the future events,
plans or expectations contemplated by our company will be achieved.
Furthermore, past performance in operations and share price is not necessarily
predictive of future performance.
Seasonality and Impact of Weather Conditions. Our lawn care, landscaping and
pest control businesses are highly seasonal in nature, with a significant
portion of their net revenues occurring in the spring and summer months of
each year. Adverse weather conditions could have a negative impact on the
demand for our lawn care, landscaping and pest control services as well as for
our HVAC services.
Increased Competition. The service industries in which we operate are highly
competitive with limited barriers to entry. The entry of new competitors into
one or more of the markets served by us could impact the demand for our
services as well as impose additional pricing pressures.
Labor Shortages. Most of the services we provide are highly labor intensive.
In the event of a labor shortage, we may experience difficulty in delivering
our services in a high-quality manner and may be forced to increase wages in
order to attract a sufficient number of employees, which could result in
higher operating costs.
Continued Consolidation of the U.S. Hospital Market. In recent years, there
has been an ongoing consolidation of hospitals in the health care market. This
continued consolidation could adversely impact the level of demand for our
health care management services and the prices that we can charge for such
services.
Ability to Continue Acquisition Strategy. We plan to continue to pursue
opportunities to expand through acquisitions. Our ability to continue to make
acquisitions at reasonable prices and to integrate the acquired businesses are
important factors in our future growth.
3
<PAGE>
THE SERVICEMASTER COMPANY
ServiceMaster, with operating revenue of approximately $4.7 billion in 1998,
is one of the largest providers of residential and commercial services to
individual customers and businesses and supportive management services to
businesses and institutions in the United States. In addition, we have
operations in 41 countries around the world.
Our consumer and commercial services businesses provide services to over
10.5 million residential and commercial customers world-wide under leading
brand names which include:
TruGreen-ChemLawn for lawn, tree and shrub care and indoor plant
maintenance;
TruGreen-LandCare for commercial landscaping services;
Terminix for termite and pest control services;
American Residential Services for heating, ventilation, air conditioning
and refrigeration services;
American Home Shield and AmeriSpec for home system and appliance warranty
contracts and home inspection services;
Rescue Rooter for plumbing and drain cleaning services;
ServiceMaster Residential and Commercial Services for heavy-duty
residential and commercial cleaning and disaster restoration services;
Merry Maids for residential maid services; and
Furniture Medic for on-site furniture repair and restoration services.
These services comprise the "ServiceMaster Quality Service Network" and may
be accessed easily by calling a single toll-free telephone number: 1-800-WE
SERVE.
Our management services business provides facilities management services to
over 2,000 facilities in the health care, education and business and
industrial markets. These services include plant operations and maintenance,
housekeeping, grounds and landscaping, clinical equipment management, food
service, laundry and linen services, total facilities management and other
services.
We are incorporated under the laws of Delaware and are a successor business
which began operations in 1947. Our principal offices are located at One
ServiceMaster Way, Downers Grove, Illinois 60515-1700 and our telephone number
is (630) 271-1300. We maintain a website on the Internet
http://www.ServiceMaster.com. Our website and the information contained in it
are not a part of this prospectus.
4
<PAGE>
USE OF PROCEEDS
Unless we specify otherwise in the applicable prospectus supplement, we will
use the net proceeds from the sale of the offered securities for general
corporate purposes, including working capital, the repayment or refinancing of
our indebtedness, future acquisitions and/or capital expenditures. A
description of any indebtedness to be refinanced with the proceeds from the
sale of the securities will be set forth in the applicable prospectus
supplement. Until we apply the net proceeds for specific purposes, we may
invest such net proceeds in short-term or marketable securities.
RATIOS OF EARNINGS TO FIXED CHARGES
The following are our unaudited consolidated ratios of earnings to fixed
charges for each of the years in the five-year period ended December 31, 1998
and for the nine month periods ended September 30, 1999 and September 30,
1998.
<TABLE>
<CAPTION>
Nine Months
Ended
September
30 Year Ended December 31,
----------- -----------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 3.67x 3.46x 3.50x 3.65x 5.16x 4.83x 4.72x
</TABLE>
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DESCRIPTION OF DEBT SECURITIES
The following is a general description of the terms of the debt securities
that we may offer from time to time. The particular terms of the debt
securities offered by any prospectus supplement and the extent to which the
general provisions described below may apply to such debt securities will be
outlined in the applicable prospectus supplement.
The debt securities may be issued from time to time in one or more series.
They will be issued under an indenture dated as of November 18, 1999 (the
"Indenture") between our company and Harris Trust and Savings Bank as trustee
(the "Trustee"). A copy of the Indenture is filed as an exhibit to the
registration statement of which this prospectus is a part. You should read the
Indenture carefully to fully understand the terms of the debt securities
offered by this prospectus.
The following is only a summary of certain provisions of the debt securities
and the Indenture, and does not contain all of the information that you may
find useful or necessary. For further information about the debt securities
and the Indenture, you should read the Indenture.
Capitalized terms used but not defined in this section have the meanings
assigned to them in the Indenture. Numerical references in parentheses below
are to sections in the Indenture. Wherever particular sections or defined
terms of the Indenture are referred to, such sections or defined terms are
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference. As used in this
section "we," "us," "our," "ServiceMaster" or the "Company" refers to The
ServiceMaster Company, and not to any of our subsidiaries, unless explicitly
indicated.
General
The Indenture provides that we may issue debt securities in an unlimited
amount from time to time in one or more series. Debt securities may be
denominated and payable in foreign currencies or units based on or relating to
foreign currencies. Special United States federal income tax considerations
applicable to any debt securities so denominated will be described in the
relevant prospectus supplement.
The debt securities will be unsecured obligations exclusively of our
company. The Indenture does not limit the amount of additional indebtedness
that we may incur and does not contain provisions which would afford the
holders (the "Holders") of the debt securities protection in the event of a
decline in our credit quality resulting from highly leveraged or other
transactions involving our company.
Since virtually all of our operations are conducted through Subsidiaries,
our cash flow and therefore our ability to service debt, including the debt
securities offered by this prospectus, are dependent upon the earnings of our
Subsidiaries and the distribution of those earnings to, or upon loans or other
payments of funds by those Subsidiaries to, our Company. Our Subsidiaries are
separate and distinct legal entities and have no obligation to pay any amounts
due pursuant to the debt securities or to make any funds available to us to
repay our obligations, whether by dividends, loans or other payments. In
addition, the payment of dividends and the making of loans and advances to us
by our Subsidiaries may be subject to statutory or contractual restrictions,
are contingent upon the earnings of those Subsidiaries and are subject to
various business considerations.
Creditors of our Subsidiaries are entitled to a claim on the assets of those
Subsidiaries. Consequently, in the event of a liquidation or reorganization of
any Subsidiary, creditors of that Subsidiary are likely to be paid in full
before any distribution is made to us or you, except to the extent that we are
recognized as a creditor of such Subsidiary. If we are recognized as a
creditor, our claims would still be effectively subordinated to any security
interests in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by our Company.
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Terms
We will prepare a prospectus supplement for each series of debt securities
that we issue. Each prospectus supplement will set forth the applicable terms
of the debt securities to which it relates, which may include the following:
(i) the specific designation, aggregate principal amount and
denomination;
(ii) currency or units based on or relating to currencies in which such
debt securities are denominated and in which principal of, premium, if any,
and any interest on such debt securities will or may be payable;
(iii) any date of maturity;
(iv) interest rate or rates, which may be fixed or variable, and the
method by which such rate or rates will be determined, if any;
(v) the dates on which any such interest will be payable;
(vi) the place or places where the principal of, premium, if any, and any
interest on the debt securities will be payable;
(vii) any redemption, repayment or sinking fund provisions;
(viii) whether the debt securities will be issuable in registered form or
bearer form ("Bearer Securities") or both and, if Bearer Securities are
issuable, any restrictions applicable to the exchange of one form for
another and to the offer, sale and delivery of Bearer Securities; and
(ix) any other specific terms of the debt securities, including any
additions to or modifications or deletions of any events of default or
covenants provided for with respect to such debt securities, and any other
terms that are not inconsistent with the terms of the Indenture (Section
2.03).
Debt securities may be presented for exchange and registered debt securities
may be presented for transfer in the manner, at the places and subject to the
restrictions set forth in the debt securities and the applicable prospectus
supplement. Subject to the limitations provided in the Indenture, such
services will be provided without charge, other than any tax or other
governmental charge payable in connection therewith. Debt securities in bearer
form and the coupons, if any, appertaining thereto will be transferable by
delivery.
Debt securities will bear interest at a fixed rate (a "Fixed Rate Security")
or a floating rate (a "Floating Rate Security"). Debt securities bearing no
interest or interest at a rate that at the time of issuance is below the
prevailing market rate will be sold at a discount below their stated principal
amount. Special United States federal income tax considerations applicable to
any such discounted debt securities or to certain debt securities issued at
par which are treated as having been issued at a discount for United States
federal income tax purposes will be described in the relevant prospectus
supplement.
We may issue debt securities from time to time with the principal amount
payable on any principal payment date, or the amount of interest payable on
any interest payment date, to be determined by reference to one or more
currency exchange rates, commodity prices, equity indices or other factors.
Holders of such debt securities may receive a principal amount on any
principal payment date, or a payment of interest on any interest payment date,
that is greater than or less than the amount of principal or interest
otherwise payable on such dates, depending upon the value on such dates of the
applicable currency, commodity, equity index or other factors. Information as
to the methods for determining the amount of principal or interest payable on
any date, the currencies, commodities, equity index or other factors to which
the amount payable on such date is linked and certain additional tax
considerations will be set forth in the applicable prospectus supplement.
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Ranking
The debt securities when issued will rank pari passu in right of payment
with all of our other unsecured and unsubordinated indebtedness (Section
2.03).
The debt securities may under certain circumstances be equally and ratably
secured with our other senior indebtedness. See "Certain Covenants of the
Company--Restrictions on Liens."
Global Debt Securities
We may issue registered debt securities of a series in the form of one or
more fully registered global debt securities (a "Registered Global Security")
that will be deposited with a depository (a "Depositary") or with a nominee
for a Depositary identified in the applicable prospectus supplement and
registered in the name of the Depositary or a nominee thereof. In such case,
one or more Registered Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding registered debt securities of the series to be represented by
such Registered Global Security or Registered Global Securities. Unless and
until it is exchanged in whole or in part for debt securities in debenture
registered form, a Registered Global Security may not be transferred except as
a whole by the Depositary for such Registered Global Security to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or
another nominee of such Depositary or such Depositary or any such nominee to a
successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any portion
of a series of debt securities to be represented by a Registered Global
Security will be described in the applicable prospectus supplement. We
anticipate that the following provisions will apply to all depositary
arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the
Depositary for such Registered Global Security will credit, on its book-entry
registration and transfer systems, the participants' accounts with the
respective principal amounts of the debt securities represented by such
Registered Global Security beneficially owned by such participants. The
accounts to be credited will be designated by any dealers, underwriters or
agents participating in the distribution of such debt securities. Ownership of
beneficial interests in such Registered Global Security will be shown on, and
the transfer of such ownership interests will be effected only through,
records maintained by the Depositary for such Registered Global Security (with
respect to interests of participants) and on the records of participants (with
respect to interests of persons holding through participants). The laws of
some states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in
Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the owner of record of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder
of the debt securities represented by such Registered Global Security for all
purposes under the Indenture. Except as set forth below, owners of beneficial
interests in a Registered Global Security will not be entitled to have the
debt securities represented by such Registered Global Security registered in
their names, and will not receive or be entitled to receive physical delivery
of such debt securities in definitive form and will not be considered the
owners or holders thereof under the Indenture. Accordingly, each person owning
a beneficial interest in a Registered Global Security must rely on the
procedures of the Depositary for such Registered Global Security and, if such
person is not a participant, on the procedures of the participant through
which such person owns its interest to exercise any rights of a holder of
record under the Indenture.
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<PAGE>
We understand that under existing industry practices, if we request any
action of holders or if any owner of a beneficial interest in a Registered
Global Security desires to give or take any action which a holder is entitled
to give or take under the Indenture, the Depositary for such Registered Global
Security would authorize the participants holding the relevant beneficial
interests to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instruction of beneficial owners holding
through them.
Payments of principal of, premium, if any, and any interest on debt
securities represented by a Registered Global Security registered in the name
of a Depositary or its nominee will be made to such Depositary or its nominee,
as the case may be, as the registered owner of such Registered Global
Security. None of our company, the Trustee or any other agent of our company
or agent of the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in such Registered Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
We expect that the Depositary for any debt securities represented by a
Registered Global Security, upon receipt of any payment of principal, premium,
if any, or interest in respect of such Registered Global Security, will
immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in such Registered
Global Security as shown on the records of such Depositary. We also expect
that payments by participants to owners of beneficial interests in such
Registered Global Security held through such participants will be governed by
standing customer instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
If the Depositary for any debt securities represented by a Registered Global
Security notifies us that it is at any time unwilling or unable to continue as
Depositary or ceases to be eligible under applicable law, and a successor
Depositary eligible under applicable law is not appointed by us within 90
days, we will issue such debt securities in definitive form in exchange for
such Registered Global Security. In addition, we may at any time and in our
sole discretion determine not to have any of the debt securities of a series
represented by one or more Registered Global Securities and, in such event,
will issue debt securities of such series in definitive form in exchange for
all of the Registered Global Security or Registered Global Securities
representing such debt securities. Any debt securities issued in definitive
form in exchange for a Registered Global Security will be registered in such
name or names as the Depositary shall instruct the Trustee (Section 2.07). It
is expected that such instructions will be based upon directions received by
the Depositary from participants with respect to ownership of beneficial
interests in such Registered Global Security.
The debt securities of a series may also be issued in the form of one or
more bearer global debt securities (a "Bearer Global Security") that will be
deposited with a common depositary for Euroclear and CEDEL, or with a nominee
for such depositary identified in the applicable prospectus supplement. The
specific terms and procedures, including the specific terms of the depositary
arrangement, with respect to any portion of a series of debt securities to be
represented by a Bearer Global Security will be described in the applicable
prospectus supplement.
Certain Covenants of the Company
The following restrictions apply to each series of debt securities unless
the terms of such series of debt securities provide otherwise.
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<PAGE>
Restrictions on Liens
The Indenture provides that we will not, and will not permit any Significant
Subsidiary to, create, incur or suffer to exist any lien on any Equity
Interests, indebtedness or other obligations of a Significant Subsidiary held
by our Company or any Subsidiary or any Principal Property of our Company or a
Significant Subsidiary, whether such Equity Interests, indebtedness or other
obligations of a Significant Subsidiary or Principal Property are owned at the
date of this Indenture or hereafter acquired, unless we secure or cause such
Significant Subsidiary to secure the outstanding debt securities equally and
ratably with all indebtedness secured by such Lien, so long as such
indebtedness shall be so secured; provided, however, that this covenant shall
not apply in the case of:
(i) the creation of any Lien on any Equity Interests, indebtedness or
other obligations of a Significant Subsidiary or any Principal Property
hereafter acquired (including acquisitions by way of merger or
consolidation) by us or a Significant Subsidiary contemporaneously with
such acquisition, or within 180 days thereafter, to secure or provide for
the payment or financing of any part of the purchase price thereof, or the
assumption of any Lien upon any Equity Interests, indebtedness or other
obligations of a Significant Subsidiary or any Principal Property hereafter
acquired (including acquisition by way of merger or consolidation) existing
at the time of such acquisition, provided that every such Lien referred to
in this clause (i) shall not attach to the Equity Interests, indebtedness
or other obligations of a Significant Subsidiary or any Principal Property
other than the Equity Interests, indebtedness or other obligations of the
Significant Subsidiary or any Principal Property other than the Equity
Interests, indebtedness or other obligations of the Significant Subsidiary
or any Principal Property so acquired and fixed improvements thereon;
(ii) any Lien on any Equity Interests, indebtedness or other obligations
of a Significant Subsidiary or any Principal Property existing at the date
of this Indenture;
(iii) any Lien on any Equity Interests, indebtedness or other obligations
of a Significant Subsidiary or any Principal Property in favor of us or any
Significant Subsidiary;
(iv) any Lien on any Principal Property being constructed or improved
securing loans to finance such construction or improvements;
(v) any Lien on Equity Interests, indebtedness or other obligations of a
Significant Subsidiary or any Principal Property incurred in connection
with the issuance of tax-exempt governmental obligations;
(vi) Liens on any Principal Property for taxes not yet due or which are
being contested in good faith by appropriate proceedings and with respect
to which adequate reserves, to the extent required by GAAP, have been made;
(vii) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens on any Principal Property arising in the ordinary
course of business and securing obligations that are not due and payable or
which are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves, to the extent required by GAAP, have
been made;
(viii) zoning restrictions, easements, rights-of-way, restrictions on use
of real property and other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of business of any of the
Company or any Significant Subsidiary;
(ix) any Lien on Equity Interests, indebtedness or other obligations of a
Non-U.S. Subsidiary held by a Non-U.S. Subsidiary or any Principal Property
of a Non-U.S. Subsidiary; provided that at the time of the creation or
incurrence of any such Lien the aggregate book value of the total assets of
the Non-U.S. Subsidiaries then subject to Liens securing indebtedness for
borrowed money (and after giving effect to the proposed Lien), shall not
exceed 25% of the Total Assets of the Company and its Subsidiaries;
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(x) any Lien on Equity Interests, indebtedness or other obligations of a
Securitization Subsidiary created, incurred, assumed or suffered to exist
in connection with Permitted Receivables Financing;
(xi) Liens arising by reason of any attachment, judgment, decree or order
of any court or other governmental authority, so long as any appropriate
legal proceedings which may have been initiated for review of such
attachment, judgment, decree or order shall not have been finally
terminated or so long as the period within which such proceedings may be
initiated shall not have expired;
(xii) any Lien on Equity Interests, indebtedness or other obligations of
a Significant Subsidiary that was not a Significant Subsidiary at the time
such Lien was created or incurred; and
(xiii) any renewal of or substitution for any Lien permitted by any of
the preceding clauses (i), (ii), (iv), (v), (vi), (vii), (viii), (ix), (x),
(xi) or (xii), provided, that the indebtedness secured is not increased
(except for increases in the amount of premiums or fees payable in
connection with such renewal or substitution) nor the Lien extended to any
additional assets (other than assets as to which the creation, incurrence
or existence of Liens is not governed by this clause). (Section 4.03(a))
Notwithstanding the foregoing, our Company or any Significant Subsidiary may
create, incur, assume or suffer to exist Liens in addition to those permitted
above and renew, extend or replace such Liens, provided that at the time of
such creation, incurrence, assumption, renewal, extension or replacement, and
after giving effect thereto, the aggregate outstanding principal or face
amount of all indebtedness secured by Liens not permitted by clauses (i)
through (xiii) above does not exceed 10% of Consolidated Net Worth. (Section
4.03(b))
Restrictions on Sale and Lease-Back Transactions
The Indenture provides that we will not, and will not permit any Significant
Subsidiary to, sell or transfer, directly or indirectly, except to our Company
or a Significant Subsidiary, any Principal Property as an entirety, or any
substantial portion thereof, with the intention of taking back a lease of such
property, except a lease for a period of three years or less at the end of
which it is intended that the use of such property by the lessee will be
discontinued and any transaction for the sale and lease-back of any property
if such lease is entered into within 180 days after the later of the
acquisition, completion of construction or commencement of operation of such
property; provided that, notwithstanding the foregoing, our Company or any
Significant Subsidiary may sell any such Principal Property and lease it back
for a period longer than three years if our Company or such Significant
Subsidiary would be entitled to create a Lien on the property to be leased
securing indebtedness in an amount equal to the Attributable Debt with respect
to such sale and lease-back transaction without equally and ratably securing
the outstanding debt securities or our Company promptly informs the Trustee of
such transaction, the net proceeds of such transaction are at least equal to
the fair value (as determined by Board Resolution of the Company) of such
property and our Company causes an amount equal to the net cash proceeds of
the sale to be applied to the retirement, within 120 days after receipt of
such proceeds, of Funded Debt incurred or assumed by our Company or a
Significant Subsidiary (including the debt securities); provided further that,
in lieu of applying all of or any part of such net cash proceeds to such
retirement, our Company may, within 75 days after such sale, deliver or cause
to be delivered to the applicable trustee for cancellation either debentures
or notes evidencing Funded Debt of our Company (which may include the debt
securities) or of a Significant Subsidiary previously authenticated and
delivered by the applicable trustee, and not theretofore tendered for sinking
fund purposes or called for a sinking fund or otherwise applied as a credit
against an obligation to redeem or retire such notes or debentures, and an
Officers' Certificate (which shall be delivered to the Trustee and which need
not contain the statements prescribed by Section 10.04) stating that our
Company elects to deliver or cause to be delivered such debentures or notes in
lieu of retiring Funded Debt as
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hereinabove provided. If our Company shall so deliver debentures or notes to
the applicable trustee and our Company shall duly deliver such Officers'
Certificate, the amount of cash which we shall be required to apply to the
retirement of Funded Debt shall be reduced by an amount equal to the aggregate
of the then applicable optional redemption prices (not including any optional
sinking fund redemption prices) of such debentures or notes, or, if there are
no such redemption prices, the principal amount of such debentures or notes;
provided, that in the case of debentures or notes which provide for an amount
less than the principal amount thereof to be due and payable upon a
declaration of the maturity thereof, such amount of cash shall be reduced by
the amount of principal of such debentures or notes that would be due and
payable as of the date of such application upon a declaration of acceleration
of the maturity thereof pursuant to the terms of the indenture pursuant to
which such debentures or notes were issued. (Section 4.04)
Restrictions on Mergers and Sales of Assets
The Indenture provides that we shall not consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of our property and assets (as an entirety or substantially
as an entirety in one transaction or a series of related transactions) to, any
Person or permit any Person to merge with or into our Company unless: (i)
either (x) our company shall be the continuing Person or (y) the Person (if
other than our Company) formed by such consolidation or into which our Company
is merged or that acquired or leased such property and assets of our Company
shall be a corporation, partnership or limited liability company organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of our Company
on all of the debt securities and under this Indenture and our Company shall
have delivered to the Trustee an Opinion of Counsel stating that such
consolidation, merger or transfer and such supplemental Indenture complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with and that such
supplemental indenture constitutes the legal, valid and binding obligation of
our Company or such successor enforceable against such entity in accordance
with its terms, subject to customary exceptions; and (ii) immediately after
giving effect to such transaction, no Default shall have occurred and be
continuing. (Section 5.01)
Events of Default
The following are Events of Default under the Indenture with respect to the
debt securities of any series:
(a) we default in the payment of the principal of any debt securities of
such series when the same becomes due and payable at maturity, upon
acceleration, redemption or mandatory repurchase, including as a sinking
fund installment, or otherwise;
(b) we default in the payment of interest on any debt securities of such
series when the same becomes due and payable, and such default continues
for a period of 30 days;
(c) we default in the performance of or breaches any other covenant or
agreement of our Company in the Indenture with respect to any Security of
such series or in the debt securities of such series and such default or
breach continues for a period of 60 consecutive days after written notice
to our Company by the Trustee or to our Company and the Trustee by the
Holders of 25% or more in aggregate principal amount of the debt securities
of all series then outstanding affected thereby;
(d) an involuntary case or other proceeding shall be commenced against
our Company or any Significant Subsidiary with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in
effect seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or an order for relief
shall be entered against our Company or any Significant Subsidiary under
the federal bankruptcy laws as now or hereafter in effect;
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(e) our Company or any Significant Subsidiary (i) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under any such law, (ii) consents to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian,
Trustee, sequestrator or similar official of our Company or any Significant
Subsidiary or for all or substantially all of the property and assets of
our Company or any Significant Subsidiary or (iii) effects any general
assignment for the benefit of creditors; or
(f) any other Event of Default established with respect to any series of
debt securities issued pursuant to the Indenture occurs. (Section 6.01)
The Indenture provides that if an Event of Default described in clauses (a)
or (b) of the immediately preceding paragraph with respect to the debt
securities of any series then outstanding occurs and is continuing, then, and
in each and every such case, except for any series of debt securities the
principal of which shall have already become due and payable, either the
Trustee or the Holders of not less than 25% in aggregate principal amount of
the debt securities of any such affected series then outstanding under the
Indenture (each such series treated as a separate class) by notice in writing
to our Company (and to the Trustee if given by Securityholders), may declare
the entire principal (or, if the debt securities of any such series are
Original Issue Discount Securities, such portion of the principal amount as
may be specified in the terms of such series established pursuant to the
Indenture) of all debt securities of such affected series, and the interest
accrued thereon, if any, to be due and payable immediately, and upon any such
declaration the same shall become immediately due and payable. If an Event of
Default described in clauses (c) or (f) of the immediately preceding paragraph
with respect to the debt securities of one or more but not all series then
outstanding or with respect to the debt securities of all series then
outstanding occurs and is continuing, then, and in each and every such case,
except for any series of debt securities the principal of which shall have
already (or, if the debt securities of any such series are Original Issue
Discount Securities, the amount thereof accelerable as described in this
paragraph) become due and payable, either the Trustee or the Holders of not
less than 25% in aggregate principal amount of the debt securities of all such
affected series then outstanding under the Indenture (treated as a single
class) by notice in writing to our Company (and to the Trustee if given by
Securityholders), may declare the entire principal (or, if the debt securities
of any such series are Original Issue Discount Securities, such portion of the
principal amount as may be specified in the terms of such series established
pursuant to the Indenture) of all debt securities of all such affected series,
and the interest accrued thereon, if any, to be due and payable immediately,
and upon any such declaration the same shall become immediately due and
payable. If an Event of Default described in clause (d) or (e) of the
immediately preceding paragraph occurs and is continuing, then the principal
amount (or, if any debt securities are Original Issue Discount Securities,
such portion of the principal as may be specified in the terms thereof
established pursuant to the Indenture) of all the debt securities then
outstanding and interest accrued thereon, if any, shall be and become
immediately due and payable, without any notice or other action by any Holder
or the Trustee to the full extent permitted by applicable law. Upon certain
conditions such declarations may be rescinded and annulled and past defaults
may be waived by the Holders of a majority in principal of the then
outstanding debt securities of all such series that have been accelerated
(voting as a single class). (Section 6.02)
Subject to such provisions in the Indenture for the indemnification of the
Trustee and certain other limitations, the Holders of at least a majority in
aggregate principal amount (or, if any debt securities are Original Issue
Discount Securities, such portion of the principal as may be specified in the
terms thereof established pursuant to the Indenture) of the outstanding debt
securities of all series affected (voting as a single class) may direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee with
respect to the debt securities of such series by the Indenture; provided, that
the Trustee may refuse to follow
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any direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability or that the Trustee determines in good faith may
be unduly prejudicial to the rights of Holders not joining in the giving of
such direction, it being understood that the Trustee shall have no duty to
ascertain whether or not such actions or forbearance are unduly prejudicial to
such Holders and provided further, that the Trustee may take any other action
it deems proper that is not inconsistent with any directions received from
Holders of debt securities pursuant to this paragraph. (Section 6.05)
Subject to various provisions in the Indenture, the Holders of at least a
majority in principal amount (or, if the debt securities are Original Issue
Discount Securities, such portion of the principal as may be specified in the
terms thereof established pursuant to the Indenture) of the outstanding debt
securities of all series affected (voting as a single class), by notice to the
Trustee, may waive an existing Default or Event of Default with respect to the
debt securities of such series and its consequences, except a Default in the
payment of principal of or interest on any Security as specified in clauses
(a) or (b) of Section 6.1 of the Indenture or in respect of a covenant or
provision of the Indenture which cannot be modified or amended without the
consent of the Holder of each outstanding Security affected. Upon any such
waiver, such Default shall cease to exist, and any Event of Default with
respect to the debt securities of such series arising therefrom shall be
deemed to have been cured, for every purpose of the Indenture; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereto. (Section 6.04)
The Indenture provides that no Holder of any debt securities of any series
may institute any proceeding, judicial or otherwise, with respect to the
Indenture or the debt securities of such series, or for the appointment of a
receiver or trustee, or for any other remedy under the Indenture, unless:
(i) such Holder has previously given to the Trustee written notice of a
continuing Event of Default with respect to the debt securities of such
series;
(ii) the Holders of at least 25% in aggregate principal amount of
outstanding debt securities of all such series affected shall have made
written request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee under the Indenture;
(iii) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to the Trustee against any costs, liabilities or
expenses to be incurred in compliance with such request;
(iv) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(v) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding debt securities of all such affected
series have not given the Trustee a direction that is inconsistent with
such written request. A Holder may not use the Indenture to prejudice the
rights of another Holder or to obtain a preference or priority over such
other Holder. (Section 6.06)
The Indenture provides that we will file with the Trustee, within 15 days
after our Company is required to file the same with the Commission, copies of
the annual reports and of the information, documents and other reports which
we may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act. (Section 4.06)
Discharge, Defeasance and Covenant Defeasance
The Indenture provides with respect to each series of debt securities that
we may terminate our obligations under the debt securities of a series and the
Indenture with respect to debt securities of such series if: (i) all debt
securities of such series previously authenticated and delivered, with certain
exceptions, have been delivered to the Trustee for cancellation and our
Company has paid all sums payable by it under the Indenture; or (ii) (A) the
debt securities of such series mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to the
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Trustee for giving the notice of redemption, (B) we irrevocably deposit in
trust with the Trustee, as trust funds solely for the benefit of the Holders
of such debt securities, for that purpose, money or U.S. Government
Obligations or a combination thereof sufficient (unless such funds consist
solely of money, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee), without consideration of any reinvestment, to pay principal of
and interest on the debt securities of such series to maturity or redemption,
as the case may be, and to pay all other sums payable by it under the
Indenture, and (C) we deliver to the Trustee an officers' certificate and an
opinion of counsel in each case stating that all conditions precedent provided
for in the Indenture relating to the satisfaction and discharge of the
Indenture with respect to the debt securities of such series have been
complied with. With respect to the foregoing clause (i), only our obligations
to compensate and indemnify the Trustee under the Indenture shall survive.
With respect to the foregoing clause (ii), only our obligations to execute and
deliver debt securities of such series for authentication, to set the terms of
the debt securities of such series, to maintain an office or agency in respect
of the debt securities of such series, to have moneys held for payment in
trust, to register the transfer or exchange of debt securities of such series,
to deliver debt securities of such series for replacement or to be canceled,
to compensate and indemnify the Trustee and to appoint a successor trustee,
and its right to recover excess money held by the Trustee shall survive until
such debt securities are no longer outstanding. Thereafter, only our
obligations to compensate and indemnify the Trustee, and its right to recover
excess money held by the Trustee shall survive. (Section 8.01)
The Indenture provides that we (i) will be deemed to have paid and will be
discharged from any and all obligations in respect of the debt securities of
any series, and the provisions of the Indenture will, except as noted below,
no longer be in effect with respect to the debt securities of such series
("legal defeasance") and (ii) may omit to comply with any term, provision or
condition of the Indenture described above under "--Certain Covenants" (or any
other specific covenant relating to such series provided for in a Board
Resolution or supplemental indenture which may by its terms be defeased
pursuant to the Indenture), and such omission shall be deemed not to be an
Event of Default under clauses (c) or (f) of the first paragraph of "--Events
of Default" with respect to the outstanding debt securities of a series
("covenant defeasance"); provided that the following conditions shall have
been satisfied:
(A) we have irrevocably deposited in trust with the Trustee as trust
funds solely for the benefit of the Holders of the debt securities of such
series, for payment of the principal of and interest on the debt securities
of such series, money or U.S. Government Obligations or a combination
thereof sufficient (unless such funds consist solely of money, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee)
without consideration of any reinvestment and after payment of all federal,
state and local taxes or other charges and assessments in respect thereof
payable by the Trustee, to pay and discharge the principal of and accrued
interest on the outstanding debt securities of such series to maturity or
earlier redemption (irrevocably provided for under arrangements
satisfactory to the Trustee), as the case may be;
(B) such deposit will not result in a breach or violation of, or
constitute a default under, the Indenture or any other material agreement
or instrument to which our Company is a party or by which it is bound;
(C) no Default with respect to such debt securities of such series shall
have occurred and be continuing on the date of such deposit;
(D) we have delivered to the Trustee an opinion of counsel that (1) the
Holders of the debt securities of such series will not recognize income,
gain or loss for federal income tax purposes as a result of our exercise of
its option under this provision of the Indenture and will be subject to
federal income tax on the same amount and in the same manner and at the
same times as would
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have been the case if such deposit and defeasance had not occurred and (2)
the Holders of the Debt securities of such series have a valid security
interest in the trust funds subject to no prior liens under the Uniform
Commercial Code; and
(E) we have delivered to the Trustee an officers' certificate and an
opinion of counsel, in each case stating that all conditions precedent
provided for in the Indenture relating to the defeasance contemplated have
been complied with. In the case of legal defeasance under clause (i) above,
the opinion of counsel referred to in clause (D)(1) above may be replaced
by a ruling directed to the Trustee received from the Internal Revenue
Service to the same effect. Subsequent to legal defeasance under clause (i)
above, our obligations to execute and deliver debt securities of such
series for authentication, to set the terms of the debt securities of such
series, to maintain an office or agency in respect of the debt securities
of such series, to have moneys held for payment in trust, to register the
transfer or exchange of debt securities of such series, to deliver debt
securities of such series for replacement or to be canceled, to compensate
and indemnify the Trustee and to appoint a successor trustee, and its right
to recover excess money held by the Trustee shall survive until such debt
securities are no longer outstanding. After such debt securities are no
longer outstanding, in the case of legal defeasance under clause (i) above,
only our obligations to compensate and indemnify the Trustee and its right
to recover excess money held by the Trustee shall survive. (Sections 8.02
and 8.03)
Modification of the Indenture
The Indenture provides that our Company and the Trustee may amend or
supplement the Indenture or the debt securities of any series without notice
to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in the Indenture;
provided that such amendments or supplements shall not materially and
adversely affect the interests of the Holders;
(2) to comply with Article 5 of the Indenture;
(3) to comply with any requirements of the Commission in connection with
the qualification of the Indenture under the Trust Indenture Act;
(4) to evidence and provide for the acceptance of appointments under the
Indenture with respect to the debt securities of any or all series by a
successor Trustee;
(5) to establish the form or forms or terms of debt securities of any
series or of the coupons appertaining to such debt securities as permitted
under the Indenture;
(6) to provide for uncertificated or Unregistered Securities and to make
all appropriate changes for such purpose; and
(7) to make any change that does not materially and adversely affect the
rights of any Holder. (Section 9.01)
The Indenture also contains provisions whereby our Company and the Trustee,
subject to certain conditions, without prior notice to any Holders, may amend
the Indenture and the outstanding debt securities of any series with the
written consent of the Holders of a majority in principal amount of the debt
securities then outstanding of all series affected by such supplemental
indenture (all such series voting as one class), and the Holders of a majority
in principal amount of the outstanding debt securities of all series affected
thereby (all such series voting as one class) by written notice to the Trustee
may waive future compliance by our Company with any provision of the Indenture
or the debt securities of such series. Notwithstanding the foregoing
provisions, without the consent of each Holder affected thereby, an amendment
or waiver, including a waiver pursuant to Section 6.04 of the Indenture, may
not: (i) extend the stated maturity of the principal of, or any sinking fund
obligation or any installment of interest on, such Holder's Security, or
reduce the principal amount thereof or the rate of interest thereon (including
any amount in respect of original issue discount), or any premium payable
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with respect thereto, or adversely affect the rights of such Holder under any
mandatory redemption or repurchase provision or any right of redemption or
repurchase at the option of such Holder, or reduce the amount of the principal
of an Original Issue Discount Security that would be due and payable upon an
acceleration of the maturity thereof or the amount thereof provable in
bankruptcy, or change any place of payment where, or the currency in which,
any Security or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after
the due date therefor; (ii) reduce the percentage in principal amount of
outstanding debt securities of the relevant series the consent of whose
Holders is required for any such supplemental Indenture, for any waiver of
compliance with certain provisions of the Indenture of certain Defaults and
their consequences provided for in the Indenture; (iii) waive a Default in the
payment of principal of or interest on any Security of such Holder; or (iv)
modify any of the provisions of this section of the Indenture, except to
increase any such percentage or to provide that certain other provisions of
the Indenture cannot be modified or waived without the consent of the Holder
of each outstanding Security affected thereby. A supplemental Indenture which
changes or eliminates any covenant or other provision of the Indenture which
has expressly been included solely for the benefit of one or more particular
series of debt securities, or which modifies the rights of Holders of debt
securities of such series with respect to such covenant or provision, shall be
deemed not to affect the rights under the Indenture of the Holders of debt
securities of any other series or of the coupons appertaining to such debt
securities. It shall not be necessary for the consent of any Holder under this
section of the Indenture to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof. After an amendment, supplement or waiver under
this section of the Indenture becomes effective, our Company shall give to the
Holders affected thereby a notice briefly describing the amendment, supplement
or waiver, we will mail supplemental Indentures to Holders upon request. Any
failure of our Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
Indenture or waiver (Section 9.02).
Concerning the Trustee
Harris Trust and Savings Bank is the Trustee under the Indenture. The
Trustee performs services for us in the ordinary course of business.
Certain Definitions
The following are certain key definitions used in this "Description of Debt
Securities" section. These and other definitions are contained in the
Indenture, which we encourage you to read carefully.
The term "Attributable Debt" as defined in the Indenture means when used in
connection with a sale and lease-back transaction referred to above under "--
Restrictions on Sale and Lease-Back Transactions," on any date as of which the
amount thereof is to be determined, the product of (a) the net proceeds from
such sale and lease-back transaction multiplied by (b) a fraction, the
numerator of which is the number of full years of the term of the lease
relating to the property involved in such sale and lease-back transaction
(without regard to any options to renew or extend such term) remaining on the
date of the making of such computation and the denominator of which is the
number of full years of the term of such lease measured from the first day of
such term.
The term "Consolidated Net Worth" as defined in the Indenture means, at any
date of determination, the consolidated stockholders' equity of the Company,
as set forth on the then most recently available consolidated balance sheet of
the Company and its consolidated Subsidiaries.
The term "Funded Debt" as defined in the Indenture means all indebtedness
for money borrowed, including purchase money indebtedness, and indebtedness
pursuant to a mandatory sinking fund or prepayment provision or otherwise,
having a maturity of more than one year from the date of its creation or
having a maturity of less than one year but by its terms being renewable or
extendible, at the option of the obligor in respect thereof, beyond one year
from the date of its creation.
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The term "Holder" or "Securityholder" as defined in the Indenture means the
registered holder of any Security with respect to registered debt securities
and the bearer of any Unregistered Security or any coupon appertaining
thereto, as the case may be.
"Non-U.S. Subsidiary" as defined in the Indenture means any Subsidiary that
is not a corporation, partnership or other entity created or organized in or
under the laws of the United States of America or any state thereof.
"Original Issue Discount Security" as defined in the Indenture means any
Security that provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration of the maturity thereof.
"Permitted Receivables Financing" as defined in the Indenture means a
transaction or series of transactions (including amendments, supplements,
extensions, renewals, replacements, refinancings or modifications thereof)
pursuant to which a Securitization Subsidiary purchases Receivables and
Related Assets from the Company or any Subsidiary and finances such
Receivables and Related Assets through the issuance of Equity Interests or
indebtedness (either directly or through a trust) or through the sale of the
Receivables and Related Assets or a fractional undivided interest in the
Receivables and Related Assets; provided that (i) the Board of Directors of
the Company shall have determined in good faith that such Permitted
Receivables Financing is economically fair and reasonable to the Company, (ii)
all sales of Receivables and Related Assets to the Securitization Subsidiary
are made at fair market value (as determined in good faith by the Board of
Directors of the Company), (iii) the financing terms, covenants, termination
events and other provisions thereof shall be market terms (as determined in
good faith by the Board of Directors of the Company), (iv) no portion of the
indebtedness of a Securitization Subsidiary will be guaranteed by or will be
recourse to the Company or any Significant Subsidiary (other than recourse for
customary representations, warranties, covenants and indemnities, none of
which shall relate to the collectibility (as opposed to the status) of the
Receivables and Related Assets) and (v) neither the Company nor any Subsidiary
shall have any obligation to maintain or preserve the Securitization
Subsidiary's financial condition.
The term "Principal Property" as defined in the Indenture means the
Company's principal office building and any manufacturing plant or principal
research facility of any of the Company or any Significant Subsidiary which is
located within the United States of America, except any such principal office
building, plant or facility which the Board of Directors by resolution
declares is not of material importance to the total business conducted by the
Company and its Subsidiaries as an entirety.
"Receivables and Related Assets" as defined in the Indenture means accounts
receivable and instruments, chattel paper, obligations, general intangibles
and other similar assets, in each case, relating to such receivables,
including interest in merchandise or goods, the sale or lease of which gave
rise to such receivables, related contractual rights, guarantees, insurance
proceeds, collections, other related assets, and proceeds of all of the
foregoing.
"Securitization Subsidiary" as defined in the Indenture means a Wholly Owned
Subsidiary which is established for the limited purpose of acquiring and
financing Receivables and Related Assets and engaging in activities ancillary
thereto.
The term "Significant Subsidiary" as defined in the Indenture means, at any
time, any Subsidiary that would be a Significant Subsidiary at such time, as
such term is defined in Regulation S-X promulgated by the Commission, as in
effect on the date of the Indenture.
The term "Subsidiary" as defined in the Indenture means with respect to any
Person, any corporation, association or other business entity of which more
than 50% of the outstanding Voting Stock or other ownership interest is owned
directly or indirectly, by such Person and one or more other Subsidiaries of
such Persons.
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The term "Total Assets" as defined in the Indenture means, at any date of
determination, the total assets of the Company and its Subsidiaries on a
consolidated basis as set forth on the then most recently available
consolidated balance sheet of the Company and its consolidated Subsidiaries
prepared in accordance with GAAP.
"Wholly Owned Subsidiary" as defined in the Indenture means a Subsidiary all
of the Equity Interests of which (except directors' qualifying shares) is at
the time owned directly or indirectly by the Company.
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DESCRIPTION OF COMMON STOCK
We may issue, separately or together with or upon conversion of or exchange
for other securities, shares of our common stock and the associated preferred
stock purchase rights ("Rights"), all as set forth in the applicable
prospectus supplement. The following summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
following documents:
(i) our Amended and Restated Certificate of Incorporation, which we refer
to as our Charter;
(ii) our By-Laws; and
(iii) our Shareholder Rights Agreement, dated December 15, 1997, as may
subsequently be amended, between our company and Harris Trust and Savings
Bank, as Rights Agent, pursuant to which the Rights are issued, which we
refer to as our Rights Agreement.
A copy of each of our Charter, By-Laws and Rights Agreement are incorporated
by reference as exhibits. See "Where You Can Find More Information."
Authorized and Outstanding Stock
Under our Amended and Restated Certificate of Incorporation (the "Restated
Certificate"), we are authorized to issue 1,000,000,000 shares of Common
Stock, par value $0.01 per share, and 11,000,000 shares of preferred stock,
par value $0.01 per share (the "Preferred Stock"). As of September 30, 1999,
311,390,000 shares of Common Stock (excluding treasury shares) were issued and
outstanding and no shares of Preferred Stock were issued and outstanding. In
addition, as of September 30, 1999, there were 22,493,000 shares of Common
Stock reserved for issuance under our equity incentive plans of which
approximately 21,528,000 were subject to outstanding stock options. On January
1, 2000 an additional 3,750,000 shares of Common Stock will become authorized
under our 1998 Equity Incentive Plan for use in connection with stock options
granted after that date. The number of authorized shares of Preferred Stock
includes 1,000,000 authorized shares of Junior Participating Preferred Stock,
Series A (the "Series A Preferred Stock") issuable pursuant to the rights
agreement dated as of December 15, 1997 between the Company and Harris Trust
and Savings Bank (the "Rights Plan"), none of which were outstanding as of
September 30, 1999. See "--Stock Purchase Rights."
Common Stock
Subject to the rights of the holders of any Preferred Stock, each holder of
Common Stock on the applicable record date is entitled to receive such
dividends as may be declared by our Board of Directors out of funds legally
available therefor and, in the event of liquidation, to share pro rata in any
distribution of our assets after payment of liabilities. Each holder of Common
Stock is entitled to one vote for each share held of record on the applicable
record date on all matters presented to a vote of stockholders. The
outstanding Common Stock is, and the shares of Common Stock offered hereby
will be, fully paid and non-assessable. Harris Trust and Savings Bank of
Chicago, Illinois is the registrar and transfer agent for the Common Stock.
Stock Purchase Rights
Each outstanding share of Common Stock includes, and each share of Common
Stock offered hereby will include, one preferred stock purchase right
(individually a "Right" and collectively the "Rights") provided under our
Rights Agreement. Each Right entitles the holder, until the earlier of
December 11, 2007 or the redemption of the Rights, to buy one one-thousandth
of a share of Series A Preferred Stock at a price of $130 per one one-
thousandth of a share (as may be adjusted to reflect stock splits since the
issuance of the Rights). The Series A Preferred Stock is nonredeemable and
will have 1,000 votes per share (subject to adjustment). We have reserved
1,000,000 shares of Series A Preferred Stock for issuance upon exercise of
such Rights.
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In the event that any person becomes the beneficial owner of 15% or more of
our Common Stock, the Rights (other than Rights held by the acquiring
stockholder) would become exercisable for that number of shares of the Common
Stock having a market value of two times the exercise price of the Right.
Furthermore, if after any person becomes the beneficial owner of 15% or more
of our Common Stock, our Company is acquired in a merger or other business
combination or 50% or more of its assets or earnings power were sold, each
Right (other than Rights held by the acquiring person) would become
exercisable for that number of shares of Common Stock (or securities of the
surviving company in a business combination) having a market value of two
times the exercise price of the Right.
We may redeem the Rights at one cent per Right prior to the occurrence of an
event that causes the Rights to become exercisable for Common Stock.
One Right will be issued in respect of each share of Common Stock issued
before the earlier of December 11, 2007 or the redemption of the Rights. As of
the date of this prospectus, the Rights are not exercisable, certificates
representing the Rights have not been issued and the Rights automatically
trade with the shares of Common Stock. The Rights will expire on December 11,
2007, unless earlier redeemed.
Preferred Stock
Shares of Preferred Stock may be issued from time to time in one or more
series. Our Board is authorized to determine and alter all rights, preferences
and privileges and qualifications, limitations and restrictions thereof
(including, without limitation, voting rights and the limitation and exclusion
thereof) granted to or imposed upon any wholly unissued series of Preferred
Stock and the number of shares constituting any such series and the
designation thereof, to determine whether fractional shares can be issued in
any particular series and, if so, the nature of the fractional interests which
can be issued in that series, and to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
series subsequent to the issue of shares of that series then outstanding. In
case the number of shares of any series is so decreased, the shares
constituting such reduction shall resume the status which such shares had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
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DESCRIPTION OF DEBT WARRANTS
We may issue, together with other securities or separately, warrants for the
purchase of debt securities ("Debt Warrants"). The Debt Warrants are to be
issued under Debt Warrant Agreements (each a "Debt Warrant Agreement") to be
entered into between us and a bank or trust company, as Debt Warrant Agent
(the "Debt Warrant Agent"), all as set forth in the applicable prospectus
supplement. The Debt Warrant Agent will act solely as our agent in connection
with the Debt Warrants of such series and will not assume any obligations or
relationship of agency or trust for or with any holders or beneficial owners
of Debt Warrants. A copy of the form of Debt Warrant Agreement, including the
form of Warrant Certificates representing the Debt Warrants (the "Debt Warrant
Certificates"), reflecting the alternative provisions to be included in the
Debt Warrant Agreements that will be entered into with respect to particular
offerings of Debt Warrants, will be filed in an amendment to the registration
statement of which this prospectus is a part or filed in a Current Report on
Form 8-K and incorporated by reference in the registration statement of which
this prospectus is a part. Because the following is only a summary of the Debt
Warrant Agreements and the Debt Warrant Certificates, it does not contain all
of the information that you may find useful. For further information about the
Debt Warrant Agreements and the Debt Warrant Certificates, you should read the
Debt Warrant Agreements and the Debt Warrant Certificates.
General
You should look in the accompanying prospectus supplement for the following
terms of the offered Debt Warrants:
(a) the designation, aggregate principal amount and terms of the debt
securities purchasable upon exercise of such Debt Warrants and the
procedures and conditions relating to the exercise of such Debt Warrants;
(b) the specific designation and terms of any related debt securities
with which such Debt Warrants are issued and the number of such Debt
Warrants issued with each such debt security;
(c) the date, if any, on and after which such Debt Warrants and the
related debt securities will be separately transferable;
(d) the principal amount of debt securities purchasable upon exercise of
each debt warrant and the price at which such principal amount of debt
securities may be purchased upon such exercise;
(e) the date on which the right to exercise such Debt Warrants shall
commence and the date on which such right shall expire (the "Expiration
Date");
(f) if the debt securities purchasable upon exercise of such Debt
Warrants are original issue discount debt securities, a discussion of
federal income tax considerations applicable thereto; and
(g) whether the Debt Warrants represented by the Debt Warrant
Certificates will be issued in registered or bearer form, and, if
registered, where they may be transferred and registered.
Debt Warrant Certificates will be exchangeable for new Debt Warrant
Certificates of different denominations and Debt Warrants may be exercised at
the corporate trust office of the Debt Warrant Agent or any other office
indicated in the applicable prospectus supplement. Prior to the exercise of
their Debt Warrants, holders of Debt Warrants will not have any of the rights
of holders of the debt securities purchasable upon such exercise and will not
be entitled to payments of principal of (and premium, if any) or interest, if
any, on the debt securities purchasable upon such exercise.
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Exercise of Debt Warrants
Each Debt Warrant will entitle the holder to purchase for cash such
principal amount of debt securities at such exercise price as shall in each
case be set forth in, or to be determinable as set forth in the applicable
prospectus supplement. Debt Warrants may be exercised at any time up to the
close of business on the Expiration Date set forth in the applicable
prospectus supplement. After the close of business on the Expiration Date,
unexercised Debt Warrants will become void.
Debt Warrants may be exercised as set forth in the applicable prospectus
supplement relating to such Debt Warrants. Upon receipt of payment and the
Debt Warrant Certificate properly completed and duly executed at the corporate
trust office of the Debt Warrant Agent or any other office indicated in the
applicable prospectus supplement, we will, as soon as practicable, forward the
debt securities purchasable upon such exercise. If less than all of the Debt
Warrants represented by such Debt Warrant Certificate are exercised, a new
Debt Warrant Certificate will be issued for the remaining amount of Debt
Warrants.
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DESCRIPTION OF STOCK WARRANTS
We may issue, together with other securities or separately, stock warrants
for the purchase of our Common Stock ("Stock Warrants"). The Stock Warrants
are to be issued under stock warrant agreements (each a "Stock Warrant
Agreement") to be entered into between us and a bank or trust company, as
stock warrant agent (the "Stock Warrant Agent"), all as set forth in the
applicable prospectus supplement. The Stock Warrant Agent will act solely as
our agent in connection with the Stock Warrants of such series and will not
assume any obligations or relationship of agency or trust for or with any
holders or beneficial owners of Stock Warrants. Copies of the forms of Stock
Warrant Agreements and the forms of warrant certificates (the "Stock Warrant
Certificates") will be filed in an amendment to the registration statement of
which this prospectus is a part or filed in a Current Report on Form 8-K and
incorporated by reference in the registration statement of which this
prospectus is a part. The following description of certain provisions of the
forms of Stock Warrant Agreements and Stock Warrant Certificates does not
purport to be complete and is subject to, and are qualified in their entirety
by reference to, all the provisions of the Stock Warrant Agreements and the
Stock Warrant Certificates to be filed in an amendment to the registration
statement of which this prospectus is a part or filed in a Current Report on
Form 8-K and incorporated by reference in the registration statement of which
this prospectus is a part.
General
If we offer warrants for the purchase of Common Stock, the applicable
prospectus supplement will describe their terms, which may include the
following:
(i) the offering price of such Stock Warrants, if any;
(ii) the procedures and conditions relating to the exercise of such Stock
Warrants;
(iii) the number of shares of Common Stock purchasable upon exercise of
each stock warrant and the initial price at which such shares may be
purchased upon exercise;
(iv) the date on which the right to exercise such Stock Warrants shall
commence and the date on which such right shall expire (the "Expiration
Date");
(v) a discussion of Federal income tax considerations applicable to the
exercise of Stock Warrants;
(vi) call provisions of such Stock Warrants, if any; and
(vii) any other terms of the Stock Warrants.
The shares of Common Stock issuable upon the exercise of the Stock Warrants
will, when issued in accordance with the Stock Warrant Agreement, be validly
issued, fully paid and nonassessable.
Prior to the exercise of their Stock Warrants, holders of Stock Warrants
will not have any of the rights of holders of the Common Stock purchasable
upon such exercise, and will not be entitled to any dividend payments on the
Common Stock purchasable upon such exercise.
Exercise of Warrants
Each stock warrant will entitle the holder to purchase for cash such number
of shares of Common Stock at such exercise price as shall in each case be set
forth in, or be determinable as set forth in, the applicable prospectus
supplement. Unless otherwise specified in the applicable prospectus
supplement, Stock Warrants may be exercised at any time up to the close of
business on the Expiration Date set forth in the applicable prospectus
supplement. After the close of business on the Expiration Date, unexercised
Stock Warrants will become void.
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<PAGE>
Stock Warrants may be exercised as set forth in the applicable prospectus
supplement. Upon receipt of payment and the Stock Warrant Certificates
properly completed and duly executed at the corporate trust office of the
Stock Warrant Agent or any other office indicated in the applicable prospectus
supplement, we will, as soon as practicable, forward a certificate
representing the number of shares of Common Stock purchasable upon such
exercise. If less than all of the Stock Warrants represented by such Stock
Warrant Certificate are exercised, a new Stock Warrant Certificate will be
issued for the remaining amount of Stock Warrants.
Anti-Dilution Provisions
Unless otherwise specified in the applicable prospectus supplement, the
exercise price payable and the number of shares purchasable upon the exercise
of each Stock Warrant will be subject to adjustment in certain events,
including:
(i) the issuance of a stock dividend to holders of Common Stock or a
combination, subdivision or reclassification of Common Stock;
(ii) the issuance of rights, warrants or options to all holders of Common
Stock entitling the holders thereof to purchase Common Stock for an
aggregate consideration per share less than the current market price per
share of the Common Stock; or
(iii) any distribution by us to the holders of our Common Stock of
evidences of our indebtedness or of assets (excluding cash dividends or
distributions payable out of capital surplus and dividends and
distributions referred to in (i) above).
No fractional shares will be issued upon exercise of Stock Warrants, but we
will pay the cash value of any fractional shares otherwise issuable.
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<PAGE>
PLAN OF DISTRIBUTION
The following summary of our plan for distributing the securities offered
under this prospectus will be supplemented by a description of our specific
plan for each offering in the applicable prospectus supplement. Such
description will include, among other things, the terms of any underwriting
arrangements applicable to such offering.
We may sell the securities offered under this prospectus through agents,
underwriters or dealers or directly to one or more purchasers. The prospectus
supplement with respect to the offered securities will set forth the terms of
the offering of such offered securities, including the name or names of any
underwriters, dealers or agents, the purchase price of such offered securities
and the proceeds to us from such sale, any underwriting discounts and other
items constituting compensation to underwriters, any initial public offering
price and any discounts, commissions or concessions allowed or reallowed or
paid to dealers, and any bidding or auction process. Any initial offering
price and any discounts, concessions or commissions allowed or reallowed or
paid to dealers may be changed from time to time.
If underwriters are used in an offering, the offered securities will be
acquired by the underwriters for their own account. The offered securities may
be sold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The offered securities may be offered to the public
either through underwriting syndicates represented by one or more managing
underwriters or directly by one or more of such firms. The specific managing
underwriter or underwriters, if any, will be set forth in the applicable
prospectus supplement together with the members of the underwriting syndicate,
if any. Unless otherwise set forth in the prospectus supplement, the
obligations of the underwriters to purchase the offered securities will be
subject to certain conditions precedent and the underwriters will be obligated
to purchase all such offered securities if any are purchased.
Offered securities may be sold directly by us or through agents designated
by us from time to time. The prospectus supplement will set forth the name of
any agent involved in the offer or sale of the offered securities in respect
of which the prospectus supplement is delivered and any commissions payable by
us to such agent. Unless otherwise indicated in the prospectus supplement, any
such agent is acting on a best efforts basis for the period of its
appointment.
Any underwriters, dealers, or agents participating in the distribution of
the offered securities may be deemed to be underwriters and any discounts or
commissions received by them on the sale or resale of the offered securities
may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended.
Agents, dealers or underwriters may be entitled, under agreements entered
into with us, to indemnification by us against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, and to contribution
with respect to payments which the agents, dealers or underwriters may be
required to make in respect thereof. Agents, dealers and underwriters may
engage in transactions with or perform services for us in the ordinary course
of business.
Some or all of the offered securities, other than our Common Stock, will be
a new issue or issues of securities with no established trading market. Any
Common Stock offered by this prospectus will be listed on the New York Stock
Exchange (or the then other principal trading market). Unless otherwise
indicated in a prospectus supplement, we do not currently intend to list any
offered debt securities or warrants on any securities exchange. No assurance
can be given that the underwriters, dealers or agents, if any, involved in the
sale of the offered securities will make a market in such offered securities.
Whether or not any of the offered securities are listed on a national
securities exchange or the underwriters, dealers or agents, if any, involved
in the sale of the offered securities make a market in such offered
securities, no assurance can be given as to the liquidity of the trading
market for such offered securities.
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<PAGE>
Delayed Delivery Arrangements
If so indicated in the applicable prospectus supplement, we may authorize
underwriters or other persons acting as our agents to solicit offers by
certain institutions to purchase offered securities from us under contracts
providing for payment and delivery on a future date. Institutions with which
such contracts may be made include:
.commercial and savings banks,
.insurance companies,
.pension funds,
.investment companies, and
.educational and charitable institutions and others,
but in all cases will be subject to our approval. The obligations of any
purchaser under any such contract will be subject to the conditions that the
purchase of the offered securities shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject and, if the securities are also being sold to underwriters acting as
principals for their own account, the underwriters shall have purchased such
securities not sold for delayed delivery. The underwriters and such agents
will not have any responsibility in respect of the validity or performance of
such contracts.
LEGAL MATTERS
Unless otherwise indicated in the applicable prospectus supplement, certain
legal matters in connection with the securities offered hereby will be passed
upon for ServiceMaster by Vernon T. Squires, Senior Vice President and General
Counsel of ServiceMaster. As of September 30, 1999, Mr. Squires held directly
or indirectly 393,388 shares and options to acquire 225,000 shares of our
Common Stock.
EXPERTS
Arthur Andersen LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 1998, as set forth in their report, which is incorporated
in this prospectus by reference. Our consolidated financial statements are
incorporated by reference in reliance on their report, given on their
authority as experts in accounting and auditing in giving said report.
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<PAGE>
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the notes offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
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TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
The ServiceMaster Company................................................. S-2
Capitalization of ServiceMaster........................................... S-3
Ratio of Earnings to Fixed Charges........................................ S-3
Use of Proceeds........................................................... S-3
Selected Financial Data................................................... S-4
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-6
Description of the Notes.................................................. S-13
Underwriting.............................................................. S-15
Special Note on Forward-Looking Statements................................ S-16
Legal Opinions............................................................ S-17
Prospectus
Where You Can Find More Information....................................... 2
Special Note on Forward-Looking Statements................................ 3
The ServiceMaster Company................................................. 4
Use of Proceeds........................................................... 5
Ratio of Earnings to Fixed Charges........................................ 5
Description of Debt Securities............................................ 6
</TABLE>
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$250,000,000
The ServiceMaster Company
% Notes
due , 2005
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PROSPECTUS SUPPLEMENT
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Goldman, Sachs & Co.
J.P. Morgan & Co.
Banc of America Securities LLC
Banc One Capital Markets, Inc.
BNY Capital Markets, Inc.
SunTrust Equitable Securities
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